Gripe sites protected despite use of URL and "Official" language

Posted on August 20, 2014 by rtushnet
Board of Directors of Sapphire Bay Condominiums West v. Simpson, 2014 WL 4067175, No. 04–62 (D.V.I. Aug. 13, 2014)
The board is a condo association using  the name Sapphire Bay Condominiums West.  Simpson bought a condo at Sapphire Bay in 2003, and, following a dispute with the Board, created a number of gripe sites criticizing the Board, its members, and its lawyers.  In 2004, the Board sued for violations of the Lanham Act and analogous state claims, seeking an injunction and damages.  Nope.  The websites were noncommercial, the mark wasn’t famous, and the websites weren’t likely to confuse.
Some notable facts: Simpson registered “sapphirebaycondos.com” under his own name and operated a website purporting to be “The Official Website of Sapphire Bay Condominiums West – St Thomas, VI.”  However, directly beneath the site’s slogan was “‘I don’t give a damn’ management,” and the home page linked to subpages with language such as “Lawyer Lies and Five Board Members Commit a Crime.”  After the Board’s C&D, Simpson rebranded the website as “The Owners Official Website For the Elimination of Dishonesty on the Board of Directors of Sapphire Bay Condominiums West, St Thomas, VI.” 
Simpson also denied affiliation with the entity to which he transferred the domain name, but the court found that he operated and directed it.  Simpson also registered a bunch of trade names similar to the Board’s: “Sapphire Bay West,” “Sapphire Bay West Condos,” “Sapphire Bay Condos West,” “Sapphire Bay Condominiums West,” “Sapphire Beach Condominiums West,” and “Sapphire Beach West” with the Corporations and Trademark Division of the V.I., registrations that were revoked because they were already registered or were similar to trade names already registered to Bay Resorts, Inc.
In 2004, the district court preliminarily enjoined Simpson from using sapphirebaycondos.com, or any derivative thereof, as a domain name for any website under his ownership or substantial control. It also ordered him to cancel the domain name sapphirebaycondos.com (which seems like a mistake for a preliminary injunction, since it may be irreversable), and to stop representing himself using the names above.  The preliminary injunction was affirmed on appeal without opinion.  (Among other things, the district court found the Board’s mark to be “famous,” and found the websites to be commercial speech because Simpson intended to harm the Board financially.  Whatever we think of trademark law’s expansiveness today—and I have a lot of thoughts—we may ultimately look at the early 2000s as peak indifference to free speech in trademark law.)
He complied, but erected virtually the same website under the domain name “usvicondos.com,” which has been operating continuously ever since.  Simpson, not giving up, admitted he contributed content to the website, but claimed that a man named “Randolph Lindsay” operated and controlled the website.  The court found that, in fact, Simpson and Lindsay were one and the same, though it didn’t matter to the outcome.  (It’s notable how little Simpson’s denials mattered here, because liability simply wasn’t supported by the other facts.  Some courts might’ve stretched the Lanham Act out of distaste for a defendant who wouldn’t admit he was responsible for the websites.)
The Board sought a permanent injunction and damages based both on sapphirebaycondos.com and usvicondos.com.  The Board didn’t clarify whether it was seeking Lanham Act liability under §43(a)(1)(A) or (B), so the court analyzed both. A threshold issue was whether the websites were commercial, “because the Lanham Act only regulates commercial speech.”  (Note the burbling circuit conflict here.)  Making that determination requires considering (1) whether the speech is an advertisement; (2) whether the speech refers to a specific product or service; and (3) whether the speaker has an economic motivation for the speech.
The Board didn’t allege that Simpson sold goods or services, but claimed that his websites were commercial because they caused economic injury.  That didn’t make them commercial speech.  The websites didn’t advertise goods or services; they didn’t refer to a specific product or service provided by Simpson, but instead alleged, among other things, corruption by Board members.  There was no showing that Simpson’s speech was economically motivated.  The purpose was of course to attack the Board, but there was no evidence of motive to benefit Simpson, or a competitor of the Board’s, economically.  The district court concluded that the speech was commercial for purposes of a preliminary injunction, but that wasn’t on a full, formal record. 
Also, as the court sort of adverted to in a footnote, the law of gripe sites has changed a lot in ten years.  (Ten years!)  The preliminary injunction relied in part on Jews For Jesus v. Brodsky, 993 F.Supp. 282 (D.N.J. 1998), aff’d, 159 F.3d 1351 (3d Cir. 1998), in which the court found commercial use where the defendant used the domain name jewsforjesus.com to host a website critical of the Jews for Jesus religious organization.  “However, key to the court’s reasoning was that the website contained a hyperlink diverting visitors to an organization offering competing goods and services.”  (Note of course that the organization was not a “commercial” one in the ordinary sense.)  Simpson’s site contained links, but not links that “divert[ed]” visitors to “any website connected with goods or services.”  Likewise, Planned Parenthood Federation of America, Inc. v. Bucci, No. 97–0629, 1997 WL 133313 (S.D.N.Y. Mar. 24, 1997), aff’d, 152 F.3d 920 (2d Cir. 1998), found plannedparenthood.com infringing for a site that promoted (but did not sell) an antiabortion book, served a commercial purpose “similar to a publisher’s publicity kit.”  That didn’t describe Simpson’s sites.
Once you discount the appeal in this case and Jews for Jesus, “[t]he Third Circuit has not decided whether the use of another’s trademark in connection with a noncommercial gripe site violates the Lanham Act.”  But several other circuits have protected such sites in similar circumstances (all since 2004).  Because Simpson’s websites were noncommercial, the Lanham Act claims failed. 
However, even if the sites counted as commercial, the Board would still lose under the multifactor confusion test. The court went through each version of the websites—the “Official”sapphirebaycondos.com site; the same URL using the slogan “The Owners Official Website For the Elimination of Dishonesty …”; and the usvicondos.com site.  Most of the factors could be applied to all three.
The Board had a descriptive mark and submitted no evidence on market recognition, money spent on advertising, or anything else other than use for over forty years: a weak mark.  Condo purchases require sophistication and attention.  There was no evidence of actual confusion over ten years, only that the websites made some potential purchasers reluctant to buy and that some renters asked about the sites. 
Potentially interesting bit about marketing and advertising channels: the court appealed to the paucity of search results to find that this factor favored Simpson even though Simpson’s site was the top Google result:
While the Board argues a Google search of the trade name “Sapphire Bay Condominiums West” first returns Simpson’s Website Three, the Board failed to mention only thirty-three results are generated from searching this term. Of those thirty-three results, over half are related either to this litigation or websites operated by Simpson. The Board does not allege (and did not prove) it has a website or any commercial advertisements on the Internet. Many, if not all, of the remaining Google search results direct users to third-party generated content providing information about Sapphire Bay Condominiums West.
[Obligatory note about Google personalization here.  For me, I got about 23,100 results for the search, with quotes, and Simpson’s site was indeed the top result, followed by two sites discussing earlier rounds in this case, followed by a review of the actual condos.]
Because Simpson didn’t sell anything, the “extent to which the targets of the parties’ sales efforts are the same” factor was “inapplicable.”  As for the relationship of the parties’ goods/services, the court noted that the Board was involved in real estate and maintenance services.  Simpson criticized the Board. There was no evidence that consumers would likely think that any of the websites, “whether characterized as ‘Official’ or not,” provide condominium rental, real estate, or maintenance services, so this factor also weighed against  confusion. The plausibility of the plaintiff entering the defendant’s market was “inapplicable,” since there was no reason the consuming public might expect the Board to offer a service critical of itself or that it would be likely to do so.
Now we get to the similarity of the marks and defendant’s intent, which the court analyzed separately for each website.  For the “Official Website” version, similarity weighed in favor of likely confusion.  The “Elimination of Dishonesty” version of sapphirebaycondos.com was “vastly dissimilar” to the Board’s mark.  The slogan contained the Board’s trade name, but “the phrase read in its entirety denotes an entity or organization diametrically opposed to the Board,” and similarity weighed against likely confusion.  Even more so for the usvicondos.com version, which didn’t use a similar URL and did use the “Elimination of Dishonesty” slogan.
Intent: “there is no question [Simpson] erected the websites with the intent to attack the Board.”  Plus, the “Official Website” version with the initial domain name showed an intent “to use the Board’s mark as if it were his own,” which favored a finding of likely confusion as to that first version.  For the second version, he “still used an intentionally confusing domain name to draw what would presumably be the Board’s customers.”  But the changed slogan made clear that the second version wasn’t officially sanctioned.  In its full context, intent didn’t weigh for or against anyone as to this version.  (Not even a mention of initial interest confusion!  More evidence for Eric Goldman that IIC is dead.)  And for the usvicondos.com version, intent weighed against finding likely confusion.
Weighing all the factors, none of the sites were likely to cause confusion.  “No consumer could reasonably believe the Board is promoting rental or real estate services through self-effacing websites.”  And this was true even with the “Official Website” version, which described the Board as providing “‘I don’t give a damn’ management” and featured a prominent picture of what presumably was the Board’s flooded parking lot.  Version one contained text links such as “SBCW Board Members … Could Go to Jail for Obstruction of Justice …” “No reasonable consumer would believe the Board operated a website for the purpose of promoting its own malfeasance and criminal conduct.”
Now, to false advertising: The Board didn’t specifically identify what allegedly false statements Simpson made, but the first website version did contain the literally false statement “The Official Website of Sapphire Bay Condominiums West – St Thomas, VI.”  Still, analyzing the website in its full context, “it contained many statements and photographs which are ambiguous or possibly literally true.”  This included the photo of the flooded parking lot, as well as a photo of garbage “piled on what appears to be the Board’s premises.”  Construing the website as an ad, these were ambiguous or literally true.  (That doesn’t make the “Official” statement anything other than literally false—however, that would qualify as unbelievable in context and therefore puffery/immaterial.)  The subsequent versions had nothing that was literally false, only the ambigous statement “The Owners Official Website For the Elimination of Dishonesty on the Board of Directors of Sapphire Bay Condominiums West, St Thomas, VI.”  It wasn’t clear whether this was the official website of all condo owners, or the official website of particular owners who want to eliminate dishonesty.  If you add in punctuation (“Owner’s”), then it’s literally true: it’s Simpson’s official website for eliminating dishonesty.  Since the Board didn’t provide evidence of actual deceptiveness, the claim failed.
The Board didn’t specifically allege a federal dilution claim in its amended complaint, but because the preliminary injunction was based in part on that claim, the court here addressed it.  (We owe thanks to this judge for fixing a terrible-all-the-way-through opinion in the politest possible fashion, and thoroughly to boot.)  Of course, noncommercial uses are specifically excluded under §43(c)(3)(C).  Even if Simpson’s use had been commercial, the Board would still lose because the mark isn’t famous.
Coordinate state-law claims, and tortious interference claims, failed for similar reasons.  (I’m omitting, among other things, the discussion of the Virgin Islands’ general adherence to the Restatement of Unfair Competition, though the court specifically notes that “misappropriation” can’t be used to get around the requirement of likely confusion when it comes to trademarks.)

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Personal liability for corporate scheme appropriate for repeat offender

Posted on August 19, 2014 by rtushnet

Federal Trade Comm’n v. Grant Connect, LLC, No. 11–18023, 2014 WL 3973402 (9th Cit. Aug. 15, 2014)
Individual defendant Kyle Kimoto appealed from the district court’s grant of summary judgment to the FTC and its permanent injunction against a variety of marketing tactics and award of restitution.  Kimoto wholly controlled a company, Vertek, that had committed multiple violations of the FTCA.  The district court found that Kimoto was both personally involved in the practices and knew that the advertising was misleading or was recklessly indifferent as to that possibility.  The court of appeals upheld most of the district court’s rulings, except on restitution for one type of marketing.
Kimoto’s been in the FTC’s sights for over a decade, resulting in three different enforcement efforts against him.  All his schemes had some similar features: he “lured consumers with a deceptively advertised headline product, and then enrolled them in ‘upsells,’ or negative-option ‘free trials’ that required consumers to undergo a burdensome cancellation process in order to avoid inadequately disclosed recurring monthly fees.”  A previous case against Kimoto and one of his companies, alleged that Kimoto misleadingly marketed preapproved MasterCards, but provided instead applications for cash-secured debit cards or unusable plastic cards bearing an unauthorized reproduction of the MasterCard logo, and then enrolled them in additional negative-option plans with recurring fees both for the “credit cards” and for the “free trials,” with a variety of barriers to effective cancellation.  The Fifth Circuit found that Kimoto, through his company “committed multiple, egregious violations of the [FTC Act].”  He was permanently enjoined from telemarketing and ordered to pay $106 million in restitution. The FTC initiated criminal charges against Kimoto for his role here.
“Apparently undeterred,” Kimoto formed a corporate entity that eventually became Vertek. Vertek engaged in Internet marketing schemes and was legally owned by Kimoto’s then-wife to avoid regulatory scrutiny.  (Relationship tip: don’t let your then-spouse do this.)  As she testified, “this structure had the added—and intended—benefit of permitting her to profit from the company in the event that Kimoto was incarcerated.”  Kimoto actually organized and ran the company, hiring many of the employees involved in the previous scheme.
Kimoto directed and participated in a number of schemes, including marketing a “guaranteed” unsecured credit line.  The ads didn’t mention that consumers could only use the “line of credit” to make purchases from an affiliated online store, and this fact was “[h]idden deep in the fine print” of the terms and conditions.  In small print below the “submit” button, the signup page stated that consumers would be charged a $39.95 monthly fee and would be automatically signed up for additional programs with recurring monthly charges.  Consumers complained, but the site made cancellation “exceedingly difficult, needlessly transferring customers to different websites or phone numbers, even though all of the calls ended up in the same service center.” The scheme ran for nearly two years, during which time, “after considerable effort on their parts, approximately 94 percent of subscribers cancelled their subscriptions.” 
There were other similar schemes, such as one promising “grants” and using pictures either of President Obama and Vice President Biden, or of a scantily clad female model holding cash, along with phony testimonials from alleged grant recipients.  (There’s some A/B testing for you.)  False representations included claims that users could find government grants for personal expenses; 91% managed to cancel their memberships after considerable effort before the FTC shut this scheme down.  Lather, rinse, repeat with a “work from home” scheme.
Kimoto was convicted in early 2008 of conspiracy, mail fraud, and wire fraud.  During his trial and subsequent incarceration, he ceased to actively participate in Vertek’s daily activities.
The final Vertek scheme involved unsubstantiated claims that a supplement, Acai Total Burn, would help consumers build muscle, increase their metabolism, lose weight, gain energy, reduce fatigue, and retard the aging process.  This scheme used the same deceptive ordering process, tiny disclosures, and automatic enrollment in additional negative-option trials.  It was available only for two months in 2009, during which time it enrolled 670 customers, 159 of whom had already cancelled when the FTC took over the site.
Kimoto didn’t challenge the district court’s findings that the schemes were deceptively marketed; that the negative options were inadequately disclosed; that the testimonials were false; and that defendants violated the Electronic Funds Transfer Act (EFTA) by debiting consumers’ accounts without written authorization. The district court also found that the corporate defendants operated as a common enterprise: “[a]ll the various offers were run by the same individuals using different company names,” the defendants “swapped and shared personnel,” as well as “blurred the lines of corporate separateness in their activities,” and “engaged in concerted and coordinated action across campaigns, and [making] their profits interdependent.”
Kimoto argued that there was insufficient evidence of his personal involvement in many of the schemes, and that his liability ended when he left the company to prepare for his criminal trial.  Individuals may be personally enjoined based on a corporate entity’s violation of the FTCA if (1) the corporation committed misrepresentations of a kind usually relied on by a reasonably prudent person and resulted in consumer injury, and (2) individuals participated directly in the violations or had authority to control the entities.  Restitution additionally requires the FTC to show that the individual “had knowledge that the corporation or one of its agents engaged in dishonest or fraudulent conduct, that the misrepresentations were the type upon which a reasonable and prudent person would rely, and that consumer injury resulted.” Actual knowledge, reckless indifference, or awareness of a high probability of fraud along with intentional avoidance of the truth will satisfy the knowledge requirement, though intent to defraud is not required for personal liability.  Sufficient involvement in a fraudulent scheme may itself establish the requisite knowledge.
Under this standard, the district court properly held Kimoto liable for both injunctive relief and restitution, except for the Acai Total Burn scheme.  For the line of credit scheme, “Kimoto arranged Vertek’s entire operation. He organized the companies, recruited personnel who had been involved in his prior deceptive marketing schemes, and directed Vertek’s activities. This alone is enough to conclude that he had knowledge sufficient to support personal liability for restitution damages.”  He also declared that he believed it was “important for [him] to understand and know [the language on the deceptive landing pages], because that was [his] job to take it out to the affiliate marketer.”  “In light of Kimoto’s prior troubles with the FTC, which also involved inadequately disclosed ‘upsells,’ his level of participation in the scheme and knowledge of deceptive web pages shows that he knew about, or was recklessly indifferent as to Vertek’s deceptive practices.”
Neither Kimoto’s resort to advice of counsel nor the fact that he was imprisoned at the time Vertek received many of the consumer complaints and chargebacks changed matters.  Reliance on advice of counsel isn’t a valid defense on the question of knowledge, and Kimoto was well aware of the fraudulent nature of the schemes before he was imprisoned even without additional complaints from consumers (which can also constitute evidence of knowledge). 
Similar analysis applied to the grant scheme.  Kimoto controlled Vertek when the scheme was organized; continued that control for more than a year during which time Vertek began drafting its deceptive terms, landing pages, and ads; and directly participated in establishing the scheme, for example by telling team members about their responsibilities and personally receiving misleading ad materials.  He assembled the team of “con artists.”  Although the grant scheme wasn’t marketed to consumers until after his imprisonment, he still participated directly in the FTCA violation—the deceptive marketing that underlay the scheme.  There was no allegation that the marketing materials materially changed after he ceased active participation.  He also had the requisite scienter for personal liability for restitution because he reviewed “program specifics” and fake testimonials months before the product launched, when clearly the testimonials couldn’t have been legitimate.
As for the work from home scheme, Kimoto wrote the deceptive text for the landing pages associated with one of the variants and had other information about it.  He either knew about or was recklessly indifferent to the deceptive advertising given his history of trouble with the FTC; his coordinating role in the scheme; and the “clearly overstated incomes” in the draft product description that he received.
However, as to Acai Total Burn, the evidence didn’t show he directly participated in the scheme or controlled Vertek when the scheme was developed, at which point the other con artists had apparently learned enough to run on their own.  He was incarcerated in April 2008, and work on Acai Total Burn began in February 2009. Thus, he couldn’t be held liable for injunctive relief or restitution with respect to that scheme.
The court of appeals also ruled that individual liability was available for corporate violations of EFTA, which provides that “a violation of any requirement imposed under [the EFTA] shall be deemed a violation [of the FTC Act]” and provides that all the FTC’s powers are available to enforce EFTA.  It follows that individual liability is also available.
Finally, Kimoto challenged the scope of the district court’s injunction, including its ban on all use of testimonials and on preauthorized electronic fund transfers.  (The other restrictions banned him from negative-option marketing, continuity programs, and marketing or selling products related to grants, credit, business opportunities, diet supplements, or nutraceuticals.) No dice. An injunction’s breadth is assessed in relation to “(1) the seriousness and deliberateness of the violation; (2) [the] ease with which the violative claim may be transferred to other products; and (3) whether the respondent has a history of prior violations.”  The FTC doesn’t have to play whack-a-mole; adjudicated lawbreakers must expect some fencing in.  An injunction must merely bear a “reasonable relation to the unlawful practices found to exist.”
Kimoto could be held liable for the acts of Vertek and other companies in a common enterprise. “Kimoto has also consistently engaged in variations on the same deceptive marketing scheme, which, in its latest iteration alone, has defrauded consumers of more than $29 million.”  The common elements of his frauds, as the record showed, were easily transferable to new product lines and to new modes of communication.  Thus, the injunction was reasonably tailored to prevent him from engaging in similarly illegal practices in future ads.  You’ll note that the injunction thus prevents him from engaging in Acai Total Burn-type marketing, even though he was too causally distant from that particular scheme to be liable for restitution here.
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As pure as New York snow: Bette Davis as icon and as mark

Posted on August 19, 2014 by rtushnet

Erickson Beamon Ltd. v. CMG Worldwide, Inc., No. 12 Civ. 5105, 2014 WL 3950897 (S.D.N.Y. Aug. 13, 2014)
EB sought a declaratory judgment of non-infringement of trademark and rights of publicity based on its “Bette Davis Eyes” jewelry collection, launched in 2010.  CMG and the Bette Davis Estate counterclaimed for infringement of those rights.  EB argued that the jewelry was a reference to the 1974 song well-known for the Kim Carnes recording of 1981, while CMG argued that consumers would mistakenly believe that the jewelry was affiliated with the actress.
Erickson Beamon Bette Davis Eyes ring at Barneys
Addressing EB’s motion to strike affirmative defenses, the court first determined that Twiqbal’s plausibility standard need not be satisfied by the defenses.  This is a question that has divided district courts—even district courts trying to count which is the more common approach.  Textually, all that’s required is notice pleading, and equitably it would be unfair to hold a defendant to the same pleading standard, given the defendant’s limited time to respond.  Nonetheless, some of the affirmative defenses went away because they didn’t provide proper notice or were otherwise inappropriate.
The “bad faith” affirmative defense survived because the answer sufficiently claimed bad faith in EB’s alleged misappropriation of “Bette Davis.”  Bad faith is “very fact intensive.”
Turning to the counterclaims, CMG sufficiently pled trademark infringement under the Lanham Act.  If they/their licensees didn’t actually use the claimed mark in commerce, that would “undermine” their Lanham Act claims.  (There’s an interesting “Stealth” type issue here: suppose CMG only got people to take licenses by threatening them with infringement claims.  How should that count as “use”?)  But that was a question of fact, as was consumer confusion.
And here we take our first detour from the unremarkable to the deeply misguided: “And finally, the name ‘Bette Davis’ is certainly distinctive with regard to its source—this was a woman, after all, whose eyes inspired a chart-topping song well after her popularity had peaked.”  No, that’s not “distinctive with regard to its source.”  Source has a particular meaning in trademark law. The song is evidence that Bette Davis herselfwas well-known at least as of 1981, but that doesn’t mean her name was or is recognized by consumers as a designation of the source of goods or services (cf. Dastar), any more than William Shakespeare’s is despite its high non-trademark level of distinctiveness. 
Naturally, NY common law unfair competition claims also survived, since they’re infringement plus bad faith, which we already know is fact-intensive even if the allegations of bad faith were “reasonably thin” at this stage.  Likewise with unjust enrichment.
Now the court repeats its initial error with the federal dilution claim.  EB argued that CMG merely made a “threadbare recital” of fame, but CMG pled that Bette Davis was “widely recognized” and that she had an “acclaimed career [with] the attendant fame and prominence.” She was renowned (and had a song written about her eyes), so it was plausible that “Bette Davis” was a famous mark.  This is an even more egregious mistake with dilution than it was with infringement.  Again: The Mona Lisa is famous; it is not famous as a mark for anything, and no MONA LISA trademark owner should be able to bring a federal dilution claim.  While this may be the wrong stage for full resolution of this issue, truly pleading—much less proving—dilution should have to involve the fame of the mark CMG claims to own, not the words comprising the alleged mark.
NY dilution was of course easier, since it just requires distinctiveness plus likely dilution, so that’s that.  (It also requires substantial similarity, but that was “obvious” here.)
NY deceptive business practices under GBL §349 requires (1) that the challenged act or practice was consumer-oriented; (2) that it was misleading in a material way; and (3) that the claimant suffered injury as a result of the deceptive act.  EB didn’t challenge (1), which is a bit surprising since there’s a fair amount of precedent that ordinary business harms aren’t consumer oriented just because consumer behavior changed, but the result on (2) suggests the court wasn’t going to make those distinctions anyway. 
EB argued that CMG didn’t plead materiality, but the court disagreed.  CMG alleged that “Bette Davis Eyes” was materially misleading as to the source of the merchandise, and the court saw it as a question of fact whether the name actually caused consumers to believe that the Estate endorsed the jewelry. Comment: Why would that belief in the Estate’s endorsement, even if it existed, be material?  Especially since Davis herself is dead, why would anyone care?  But I forgot, this is trademark land, not advertising land: “This prong is akin to the ‘likelihood of consumer confusion’ element of an unfair competition claim,” which must mean materiality doesn’t actually matter!  Also, it’s usually not resolvable on the pleadings.
However, intentional interference with prospective economic advantage failed—CMG alleged future harm to licensing opportunities, but no present relations with a third party that were harmed by EB’s conduct.

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Personalized sales pitches as "advertising"

Posted on August 19, 2014 by rtushnet
Larocca v. Creig Northrop Team, P.C., 94 A.3d 197, No. 0766 (Md. Ct. Spec. App. June 25, 2014)
Plaintiffs alleged violations of Maryland’s Secondary Mortgage Loan Law, which governs certain types of mortgage-related false advertising.  The court had to interpret what the SMLL meant by “advertise.”  The general commercial law stated:
“Advertisement” means the publication, dissemination, or circulation of any oral or written matter, including labeling, which directly or indirectly tends to induce a person to enter into an obligation, sign a contract, or acquire title or interest in any merchandise, real property, intangibles, or service.
Advertising, the court concluded, involved “some method of communication to the public,” but wasn’t strictly limited to widespread communications.  Dissemination of information to smaller groups could still suffice, which would include the allegations of two plaintiffs that they first met one of the individual defendants at an open house.  Personalized sales pitches, the court specifically ruled, could be covered.
Indirect ads are also covered—ads not carried out by the defendant, but intentionally caused by it.  In a similar case, plaintiff-homeowners alleged that manufacturers of allegedly defective plywood falsely advertised it as suitable for roofs.  Though the manufacturers advertised to homebuilders, not to homebuyers, and though the consumer protection statute was intended to apply to consumers and not commercial buyers, Maryland’s highest court ruled that “[i]t is quite possible that a deceptive trade practice committed by someone who is not the seller would so infect the sale or offer for sale to a consumer that the law would deem the practice to have been committed ‘in’ the sale or offer for sale.”  However, where the manufacturers had no influence over or other involvement in the sale, they weren’t liable.  Applied here, the question was whether any defendant entity indirectly advertised by, through “some arrangement,” having another defendant actively advertise on its behalf. This was a question of fact.

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safe distance rule allows contempt after injunction without full infringement hearing

Posted on August 19, 2014 by rtushnet
Innovation Ventures, LLC v. N2G Distributing, Inc., Nos. 12–1635, 13–1817, 2014 WL 3953734 (6th Cir. Aug. 14, 2014)
The Sixth Circuit continues to help trademark lawyers and scholars out by including pictures of the products at issue.  There are a lot of 5-hour Energy cases.  This one involves a trial that found N2G and another defendant to have infringed the trademark and trade dress of 5-hour Energy (5HE), an energy shot.  The district court held defendants, and their common owner Diehl, in contempt for violating the permanent injunction after trial.  The court of appeals affirmed everything.
FHE’s sales spiked in 2005 and increased “astronomically” from there.  By March 2009, FHE had nearly 70% of the market for energy shots, and spent about 25% of its gross sales for advertising (on $620 million of revenue for 2011).  While the mark was rejected as descriptive in 2005, and went on the Supplemental Register late that year, FHE was ultimately registered in August 2011, shortly before this case was tried.  FHE also used litigation to protect its “mark and market position,” suing many alleged infringers, including defendants.
In 2008, defendants began to sell “6 Hour Energy Shot,” “Nitro2Go Instant Energy,” and “Extreme Monster Energy Shot.”  The first of these bore a resemblance to FHE.  Diehl testified that the similarities were due to other factors, not copying, though the warning labels were word for word copies of the one on FHE’s bottle.  FHE sued, and the district court preliminarily enjoined 6 Hour Energy and ordered a recall, which resulted in the return of almost half of the 77,000 bottles defendants had sold, causing a huge loss.  Defendants also had to take their Extreme Monster Energy Shot off the market after complaints of trademark and trade dress infringement Monster, “one of the largest players in the energy drink market.”
5-hour Energy and 6 Hour Energy Shot

The court noted the size disparity, which isn’t present in the photos: the Extreme Monster energy shot is small while the Monster energy drink is large
Defendants (after consulting with counsel) then came out with what eventually were seven variations of energy shots about which FHE amended its complaint to allege that these infringed too.  Ultimately, a jury found that six of defendants’ products infringed the 5 Hour Energy mark, that two infringed FHE’s trade dress, that the infringement was intentional except for one product, and that two of the products were falsely advertised.  The jury awarded $1.75 million in damages.
jury verdict form

The district court permanently enjoined defendants from selling the six products found to infringe, and from using marks confusingly similar to FHE’s mark and trade dress.  Defendants were also ordered to surrender all products subject to the injunction and file a compliance report.  Diehl, who was not personally enjoined, signed the report under penalty of perjury, stating that he’d long ago stopped selling 6 Hour Energy and Pure Energy (the first variant he tried); that he had changed the labels for all the other infringing products; and that he had instructed the enjoined products not be sold on the N2G website. In 2012, both defendants declared bankruptcy. 
However, in July 2012, FHE had three orders placed on the N2G website, and each order contained enjoined products as well as the modified-label products advertised on the website.  The modified products were marketed by a new company and the orders were filled by another new company, both of which were created by Diehl, whose various entities “commingle assets essentially based on Diehl’s whims.”  The presence of the old products was attributed to a new employee acting without higher-ups’ knowledge.  But in April 2013, more than six months after FHE filed a motion for contempt, enjoined products were still being advertised on Groupon and an inspection of a warehouse showed that “scores” of enjoined bottles were still in stock, despite Diehl’s assurances that the products had been destroyed.  The district court found defendants and Diehl in contempt. 
modified products

The court of appeals first rejected defendants’ motion for a new trial.  “[T]he likelihood-of-confusion factors can rarely be applied with mathematical precision—this is a holistic endeavor.”  Here, the jury heard ample evidence to support its likely confusion findings.  “First—and most importantly—the jury could use their eyes and see that Defendants’ products use similar marks.”  The differences in numbers, use of the plural “hours,” and small “+” or other signs “should not be considered in isolation—we ‘view marks in their entirety and focus on their overall impressions, not individual features.’”  
The jury also heard a lot of testimony on the strength of the FHE mark.  Relatedness of the goods obviously favored FHE, and the parties used similar marketing channels.  “One exhibit even showed the parties’ display boxes side-by-side next to a convenience store cash register.” And the jury heard testimony that the products were impulse purchases and consumers just bought what was prominently displayed to them (which would go to materiality, if we cared about materiality), so they weren’t tremendously careful and could easily be confused by proximate placements.
Defendants’ arguments about lack of actual confusion and lack of bad intent were unavailing.  FHE didn’t need to show actual confusion, but there was testimony from an FHE ad purchaser about a representative from the Discovery Channel who told her that he loved FHE, and even said he had one in his pocket, when the bottle in his pocket was actually a 6 Hour Energy.  Diehl’s testimony didn’t absolve FHE of bad intent; the jury could have disregard it, and there was circumstantial evidence of copying (the warning label). In any event, intent isn’t required.
A similar analysis applied to the trade dress claim.  FHE didn’t introduce evidence about the strength of its trade dress, but it did introduce several TV ads that emphasized the bottle’s look and size.  The relatedness of the goods, actual confusion, marketing channels, low degree of purchaser care, and defendants’ intent supported the jury’s trade dress verdict, along with “a brief glance at the parties’ competing products.”  Though defendants’ products omitted blue, a color featured prominently on FHE’s bottle, trade dress is total image and overall appearance, so “parsing minute differences between products” wasn’t right.  The court didn’t abuse its discretion in denying a new trial.
What about descriptive fair use?  The jury heard evidence that defendants’ use wasn’t descriptive.  The first version used a symbol after the term “6 Hour Energy,” which would allow the jury to infer that defendants weren’t simply describing the product but trying to lay claim to a mark.  Also, Diehl testified that he didn’t have a basis to claim that his products gave 7 (or more) hours of energy, so the jury could infer that defendants “did not intend to describe what their products did when Defendants weren’t sure of that themselves.”  Plus, the evidence on intent also would support a finding of bad faith: “circumstantial evidence suggesting that Defendants knew of Plaintiff’s protected mark and proceeded to copy it.”
It was also ok to deny defendants discovery about FHE’s formula.  Discovery about defendants’ formula was relevant to FHE’s false advertising claim, but reciprocal discovery about FHE’s formula was only tangentially relevant—if the formulas had been similar, they could’ve extrapolated from evidence that allegedly existed about FHE’s effectiveness.  But they had a far easier method to evaluate their own products—they could’ve tested them.
And it was ok to exclude the text of a different FHE case rejecting a trade dress claim on dissimilarity grounds.  Defendants were able to introduce Diehl’s testimony that his experience with the case taught him that he wasn’t infringing as long as there were slight differences between packages.  The text of the opinion, from another circuit, “might well have confused the issues at trial or misled the jury.”
The judge likewise allowed photos of defendants’ Extreme Monster Energy shot contrasted with Hansen’s Monster energy drink, but did not allow the jury to be shown Hansen’s actual complaint (as FHE had asked for).  FHE argued that this was probative of defendants’ motive/intent.  Defendants argued that the photos weren’t relevant, but that was “clearly wrong,” for example as related to the descriptive fair use defense.  “The picture of the Monster can side-by-side with Defendants’ product shows that at the same time Defendants were conceiving 6 Hour Energy, they were also imitating the trade dress of another major player in the energy drink market. A jury could use this evidence to infer that Defendants’ choice of trade dress was not a mistake.”  Other evidentiary objections were also resolved against defendants.
On the contempt ruling, defendants appealed the portion relating to the modified products.  The district court didn’t find that the modified products themselves violated the Lanham Act, but instead used the “safe distance rule” to find that the modified products were confusingly similar to FHE’s trademark and trade dress.  This was not clear error/an abuse of discretion.  “Equity allows courts, faced with recalcitrant parties who repeatedly violate the law, to craft permanent injunctions which ‘proscribe activities that, standing alone, would have been unassailable.’”   In IP, this means the safe distance rule: barring known infringers from using marks whose use by noninfringers wouldn’t necessarily be actionable.
This is justified because once infringement has occurred, “the confusion sowed ‘is not magically remedied’ by de minimis fixes.”  Confusion lingers, justifying a requirement that the infringer move so far from the plaintiff’s mark that the public is on notice that they’re unrelated.  A court need not retry confusion for each small variation a defendant makes.  Nothing in the Lanham Act indicated a congressional intent to curb the traditional equitable powers of the courts, including the safe distance rule. That rule was “particularly apt in this case—where a serial infringer has tinkered with products to skirt a permanent injunction for commercial gain.”  The court also rejected the idea that the safe distance rule wasn’t appropriate for trade dress claims because they were too subjective.  (In a footnote, the court of appeals said that it wasn’t addressing whether it would’ve been an abuse of discretion to require a full likely confusion analysis from FHE—hinting perhaps that it would’ve been.)
Using the safe distance rule, the district court didn’t abuse its discretion in finding the modified products confusingly similar.  Another “glance” showed that the factual findings of similarity (“a black bottom with a yellow sunrise fading to red”) weren’t clearly erroneous.  Defendants argued that they were attempting to make their products look more like Nitro2Go Instant Energy Extra Strength, which the jury found not to infringe FHE’s mark, but the jury didn’t make any finding about that product’s trade dress.  The district court heard all the trial evidence and could visually compare the products; that was fine.

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Kindle Worlds and fans

Posted on August 18, 2014 by rtushnet

Jeff John Roberts has a piece up at Gigaom about the article I presented at IPSC, with the news hook being Kindle Worlds versus traditional noncommercial fan fiction.  The title calls Kindle Worlds a “bust” for fans; I don’t think you have to see it that way, as long as you understand that it’s not a replacement for unauthorized fandom.  I’m really glad he picked up on the under-18 point, because I think it’s a vital one that lawyers not versed in fan cultures might not think of at first.

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Sneak peek at the new edition of Advertising & Marketing Law: Cases and Materials

Posted on August 15, 2014 by rtushnet

Eric Goldman has put the Right of Publicity chapter from the new edition of our casebook up at SSRN.  More to come soon!

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Writing on a clean slate: 7th Circuit affirms dismissal of claims against Dark Knight film

Posted on August 15, 2014 by rtushnet
Fortres  Grand  Corp. v. Warner  Bros. Entertainment Inc., No. 13-2337 (7th Cir. Aug. 14, 2014)
I previously discussed here the lower court opinion dismissing the infringement claim by plaintiff, a software company, against WB for imagining a similarly named software product in the most recent Batman movie.  There’s a debate in US trademark scholarship over the relative desirability of “internal” limits on trademark law (those we deem inherent in the nature of what trademark should protect) versus “external” limits (especially the First Amendment).  Internal limits too often give way when courts perceive the defendant as a miscreant; but external limits too often are avoided by declaring trademark to be about protecting against confusion, and thus undeserving of First Amendment scrutiny.  This opinion, affirming a dismissal that used First Amendment reasoning as part of its belt-and-suspenders treatment of the infringement claim at issue, avoids the constitutional path in favor of internal limits.  (Side note: technically WB asserted a Rogers v. Grimaldi barrier to liability, which can be conceived of as an internal limit, but the theory behind it relies on the idea that the First Amendment poses a barrier to infinite trademark liability, so WB’s/the Seventh Circuit’s shorthand makes sense.)
Recap (incidentally, this might be the first court opinion to use the term “spoiler alert”): Fortres Grand sells a desktop management program called “Clean Slate” and has a federal registration for the term for “[c]omputer software used to protect public access computers by scouring the computer drive back to its original configuration upon reboot.”  It can be used in places accessible to many people, like schools and libraries, to keep public computers working and free of private data.  The Dark Knight Rises used “the clean slate” to describe a hacking program that could eliminate all records of a person.  Fortres Grand sued, blaming WB for a precipitous drop in sales of its software and alleging forward and reverse confusion.
The “clean slate” program is an important plot point in the movie, forming Selina Kyle’s motivation, and apparently used by her in the end to achieve her happy ending with Bruce Wayne.  Also, as part of the marketing for the movie, two websites—that is, two Tumblrs—were created purporting to be affiliated with the fictional Rykin Data Corporation, which made “the clean slate.”  WB stated that it didn’t actually create those sites, but instead they were created by fans of the movie.  But for failure to state a claim purposes, the court of appeals assumed that the allegation that WB created the sites was true.
Comment: Hey, you know how copyright owners wrongly say it’s really easy to detect infringement, if something is obviously popular material?  This dispute—litigated all the way to the Seventh Circuit—is really good evidence, above and beyond the usual YouTube examples, that it often isn’t easy to tell whether content on a UGC site is unauthorized, even setting aside fair use.  Also, given the apparent disappearance of a post about the fictional Gotham Better Business Bureau, I have my own suspicions about what WB meant by “fans.”
The Tumblrs contained descriptions of the clean slate hacking tool and an image of a fictional patent. “Nothing was available for purchase or download from the websites—they were purely an informational extension of the fictional Gotham City universe.” 
Fortres Grand suffered a significant decline in sales after the release of the movie.  It alleged that this decline was due to potential customers mistakenly believing that its Clean Slate software is illicit or phony because of WB’s use of the name “the clean slate” in the film—a particular harm to Fortres Grand, whose product promise relies on trustworthiness.
The court of appeals began its review by noting that “[a]llegations of consumer confusion in a trademark suit, just like any other allegations in any other suit, cannot save a claim if they are implausible.”  (Not all courts believe this!)  Fortres Grand’s state and federal claims depended on plausibly alleging that WB’s use of “clean slate” was likely to cause confusion.  “But general confusion ‘in the air’ is not actionable. Rather, only confusion about ‘origin, sponsorship, or approval of … goods’ supports a trademark claim.”
Fortres Grand abandoned its forward confusion arguments on appeal, and argued only reverse confusion.  This required plausible allegations that WB’s use of “clean slate” to describe a hacking program in its movie caused a likelihood that consumers would be confused into thinking that Fortres Grand’s Clean Slate software “emanates from, is connected to, or is sponsored by [Warner Bros.].”
The court applied its seven-factor test for likely confusion, except for the alleged infringer’s intent to palm off its goods as those of another, since that was “irrelevant” in a reverse confusion case where the junior user isn’t trying to profit from the senior user’s brand.  What remained: (1) similarity of the marks; (2) similarity of the products; (3) area and manner of concurrent use; (4) degree of care likely to be used by consumers; (5) strength of plaintiff’s mark; and (6) actual confusion.
The district court relied heavily on the dissimilarity between Fortres Grand’s software and WB’s movie.  Fortres Grand argued that one factor shouldn’t have been so important, and that the proper comparator was the fictional software of the fictional Rykin Data.  The few cases to deal with this issue have considered “the likelihood of confusion between the senior user’s product and the junior user’s creative work—not any fictional product therein.” That generally makes sense under Dastar, which focuses on confusion about the origin, sponsorship, or approval of “the tangible product sold in the marketplace.”  But, in forward confusion cases, the movie is the junior user’s only tangible product sold in the marketplace; that isn’t true in reverse confusion cases.  (In an aside that I can only assume will cause trouble later, the court commented that “We think, in general, the relevant question of source in the context of a download is which entity is responsible for the file hosted on the server which is downloaded by the consumer.”  Responsible for the file being hosted on that particular server?  Or responsible for the contents of the file?  Consider the effects on trademark infringement claims based on hosting of unauthorized copies of movies.)
Nonetheless, because the infringing act is the junior user’s use of the mark “in connection with any goods,” the court concluded that “goods” meant the same thing throughout, and thus that the movie was the correct comparator product even in reverse confusion cases.  Also, the Rykin Data Tumblrs were ads for the goods, that is, the movie.
But dissimilarity of products isn’t dispositive of confusion.  The question is whether the products were of the kind the public attributed to a single source. Previously, the Seventh Circuit held that there was a fact question on that where the evidence showed that the senior user made electrical fuses bearing the “TRON” mark and that Disney (the allegedly infringing junior user) made videogames, toys, and licensed telephones bearing the “TRON” mark.  The court held that “utilitarian electrical products” could be confused as originating from the same source as “entertainment-based” products powered by electricity when both are labeled “TRON.” The court now commented: “It is also plausible that entertainment-based products could be confused as being affiliated with (by means of licensing) the same source as a movie.” 
Still, that didn’t help Fortres Grand, which alleged confusion “regarding the source of a utilitarian desktop management software based solely on the use of a mark in a movie and two advertising websites.” WB, unlike Disney, wasn’t selling any movie merchandise bearing the allegedly infringing mark that was similar to Fortres Grand’s software.  WB does sell video games, and that might be similar enough to desktop management software to make confusion plausible [ed. note: really?], but Fortres Grand didn’t allege that the video games bore the “clean slate” mark. Nor did it allege that desktop management software was a commonly merchandised movie tie-in (as a video game might be).  Thus, the only products available to compare—the software and the movie—were “quite dissimilar, even considering common merchandising practice.”  No alleged facts made it plausible that consumers would think that a single producer was likely to put out both.
True, courts shouldn’t rely on the weakness of a single factor to dispose of an infringement claim.  (Never?  Well, hardly ever.)   But Fortres Grand’s allegation was just as implausible considering the other factors.  Both parties’ products are available on “the internet,” but the movie started in theaters and Fortres Grand sells only from its website, not in other places.  (Was this alleged?)  “And anyone who arrives at Fortres Grand’s website is very unlikely to imagine it is sponsored by Warner Bros. (assuming, safely, that Fortres Grand is not using Catwoman as a spokesperson for its program’s efficacy).” The movie websites (I think this means the Tumblrs) are also on the internet, but they “sell no products and are clearly tied to the fictional universe of Batman.”  Moreover, WB’s use was “not a traditional use in the marketplace, but in the dialogue of its movie and in extensions of its fictional universe, so the ‘the area and manner of concurrent use’ also makes confusion unlikely.”
In addition, Fortres Grand alleged that consumers of security software were discerning and “skeptical,” indicating a higher degree of care. Plus, “clean slate” is a common phrase often used to describe fresh starts or beginnings.  (Here the court cites several internet sources that I doubt were alleged or judicially noticed under the usual procedure; that doesn’t bother me for the definitions, but why single out Cleanslate Chicago?)  The descriptive use of “clean slate” in the movie’s dialogue “to describe a program that cleans a criminal’s slate” was unlikely to cause confusion, and this is particularly relevant in a reverse confusion case where the strength of the mark in relation to the junior user’s goods is important.
Fortres Grand also alleged actual confusion based on “internet chatter” and “web pages, tweets, and blog posts in which potential consumers question whether the CLEAN SLATE program, as it exists in The Dark Knight Rises, is real and could potentially work.”  But that wasn’t an allegation of actual confusion. Instead, consumers were speculating that there really could be a hacking tool of this caliber.  “At best Fortres Grand’s argument is that consumers are mistakenly thinking that its software may be such a hacking tool (or an attempt at such a hacking tool), and not buying it. But this is not reverse confusion about origin. Whoever these unusually gullible hypothetical consumers are, Fortres Grand has not and could not plausibly allege that consumers are confused into thinking Fortres Grand is selling such a diabolical hacking tool licensed by Warner Bros.”
Nor was Fortres Grand’s alleged drop of sales enough to make confusion plausible.  Fortres Grand alleged that the movie turned online searches for “clean slate” into hundreds of results relating to the program from the movie, and that it had to spend money on corrective advertising.  But that just means that, logically, Fortres Grand sold less when its website showed up lower in search results. “And proof that internet searchers are more interested in exploring the feasability of a fictional hacking tool than in Fortres Grand’s desktop management software is not proof that they are confused about the source of Fortres Grand’s software.”
Fortres Grand was really sad that WB’s use of “clean slate” tarnished its mark by associating it with illicit software.  But that’s a dilution claim, and it wouldn’t be appropriate for a “contorted and broadened combination of the ‘reverse confusion’ and ‘related products’ doctrines to extend dilution protection to non-famous marks which are explicitly excluded from such protection by statute.”
The only factor that favored Fortres Grand was the similarity of the marks.  (And we’ve just given up on “mark” having any meaning at all applied to defendant’s use.  For the record: WB’s use wasn’t a “mark.”  It was the name of a fictional product that WB did not sell.)  Given the weakness of all the other factors, similarity wasn’t enough. Trademark protects source identification, not words themselves.  Fortres Grand’s reverse confusion claim was “too implausible to support costly litigation.”
Thus, there was no need to reach WB’s First Amendment defense.

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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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