Getty Images test

Posted on March 11, 2014 by rtushnet

//embed.gettyimages.com/embed/160639386?et=GXqXs6gz-Uu7Yf7jO2VckA&sig=10emSGT2-mLNVs0uBXKn_5dCIMrPTpuXYw6vbX_v98c=
This is a test of the Getty embed code.  I expect to check periodically to see whether ads have been run across it, as provided for/threatened in the Terms of Service.  This BusinessWeek article raises some significant questions about the scope of the “noncommercial” limitation; Creative Commons has the same issue (and a lot of disagreement about what “noncommercial” means).  It remains to be seen whether having a single enforcer will make any difference in the definition of noncommercial.

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state can regulate health referral provider’s speech about potential benefits

Posted on March 11, 2014 by rtushnet

1-800-411-Pain Referral Service, LLC v. Otto, 2014 WL 904190, No. 13-1167, — F.3d —- (8th Cir. Mar. 10, 2014)

My discussion of the opinion below.  411-Pain advertises extensively and connects callers to health care providers or attorneys in their areas.  It contends that its “extensive—and very costly—advertising” benefits providers in its referral network who might not otherwise choose to advertise on their own. Defendants are the members of the Minnesota Board of Chiropractors whose enforcement of Minnesota’s No-Fault Act Amendments allegedly unconstitutionally chilled 411-Pain’s speech.  The Act requires insurers to provide basic economic loss benefits to their insureds, regardless of fault, and also regulates ads to curtail potentially unethical practices by “licensed health care provider[s].” The 2012 amendments to this law require solicitations or ads for medical treatment or referral for medical treatment of an injury eligible under the No-Fault Act must:

1. be undertaken only by or at the direction of a health care provider;

2. prominently display or reference the legal name of the health care provider;

3. display or reference the license type of the health care provider … ;

4. not contain any false, deceptive, or misleading information, or misrepresent the services to be provided;

5. not include any reference to the dollar amounts of the potential benefits under [the No-Fault Act]; and

6. not imply endorsement by any law enforcement personnel or agency.

 411-Pain argued that several elements of this suppressed its speech protected by the First Amendment.  Its radio ads, for example, tell car accident victims to call the company immediately after an accident and inform accident victims that they “may be entitled to up to forty thousand dollars in injury and lost wage benefits,” without disclosing the legal names or license types of the health care providers in 411-Pain’s referral network.  Sample ad excerpt:

… Car accidents happen … What you plan to do next can make all the difference … Car accident … Remember after 911 … Call 411 … 1-800-411-pain … 1-800-411-pain knows about car accidents … It’s what they do … Call 1-800-411-pain 24 hours a day 7 days a week from home, hospital or accident scene … Call 1-800-411-pain and let them explain the up to $40,000 in injury and lost wage benefits you may be entitled to … Plan now … Program 1-800-411-pain into your phone number under “accident” … Car accident, remember, after 911 call 411. 1-800-411-pain.

TV ads “feature a vehicle crash and then an actor appearing as a police officer or EMT with an ambulance conveying to viewers that if they call the phone number associated with 800-411-PAIN or go to411Pain.com, then they can get help after being injured in an accident.”  411-Pain claimed that the ads had conspicuous and prominent disclaimers stating that the person appearing in the ad was a “PAID ACTOR.”

The district court denied preliminary injunctive relief, finding that the challenged aspects were inherently misleading commercial speech and thus unprotected.  The ads failed to inform victims that 411-Pain was a referral service, and the reference to up to $40,000 in benefits was inherently misleading because accident victims may receive nothing, or may receive benefits far in excess of $40,000 from many different sources.  The use of law enforcement personnel “extend[ed] a misleading aura of authorized approval” to the company, despite the disclaimer. The ban on advertising not done “by or at the direction of a health care provider,” was a “valid prohibition on speech concerning unlawful activity,” since if the advertising was not done at the direction of licensed health care providers, then 411-Pain’s business relationships with chiropractors may implicate anti-kickback statutes. In the alternative, a referral business inherently advertises “at the direction of” its providers, and contracts could further clarify this.  The disclosure requirements were also okay under Zauderer.

In order to make it hard to get a preliminary injunction (the standard comes from an abortion case), when a “validly enacted statute” is at issue, there’s an elevated standard for success, designed “to ensure that preliminary injunctions that thwart a state’s presumptively reasonable democratic processes are pronounced only after an appropriately deferential analysis.”  (I don’t know why the court doesn’t just talk about eBay—it seems to suggest that a challenge to a non-legislative action isn’t governed by the likely success on the merits standard but by something lower.)

The court then tried to understand what Sorrell meant, determining that the Court had “devised a new two-part test for assessing restrictions on commercial speech.”  First, ask whether a restriction is content- or speaker-based, or both.  If it’s either, it’s subject to “heightened scrutiny,” though we don’t know what that means, since after determining that the regulation in Sorrell was indeed subject to heightened scrutiny, the court proceeded to use Central Hudson, saying that the state lost even under that standard.  So, when commercial speech restrictions are content- or speaker-based, their constitutionality depends on Central Hudson.  (Why is this new?  Why aren’t all commercial speech regulations “content-based” in the sense that they only cover commercial speech, and not noncommercial speech?  Your guess is as good as mine.)

So, the court of appeals turned to the first challenged provision, the ban on “any reference to the dollar amounts of the potential benefits under [the No-Fault Act].” This was a content- and speaker-based restriction, because it only applied to “licensed health care providers” and related people.  Whether it governed inherently misleading speech was a question of law, which could be determined by examining the “particular content or method of the advertising” as well as from “experience [that] has proved that in fact such advertising is subject to abuse.”  (Why isn’t that a fact question, not a question of law?  Your guess is as good as mine.)  Inherently misleading speech may be banned outright.

The court of appeals agreed that the reference in 411-Pain’s radio ads to a possible entitlement of “up to $40,000 in injury and lost wage benefits” was inherently misleading, because it implied that consumers would receive a floor of benefits “up to” $40,000, while many would receive nothing; it also implied that there was a ceiling that didn’t exist.  “While an attorney or insurance agent qualified to advise clients about coverage could convey this information, 411-Pain’s advertisements of ‘up to’ $40,000 in economic loss benefits misleadingly limit the universe of information.”  The ads could prompt some consumers to unnecessarily seek benefits and keep other consumers from obtaining more benefits. 

The ads were also inherently misleading by omission: they didn’t explain that an accident victim wouldn’t receive $40,000, or any amount of money, as a simple cash transfer.  The reference to “benefits” was insufficient, because “the effect of the invocation of money without reference to the Act or a description of the way the benefits are obtained misleadingly implies that 411-Pain will acquire cash and pass along a portion of it to the car accident victim.”  In fact, 411-Pain would just refer consumers to providers, and the potential benefits would be paid to providers in the form of reimbursements for services.  “By selectively omitting important pieces of information from its radio ads, 411-Pain’s speech is thus “inherently misleading” due to its failure to provide meaningful context as to the origin and source of potential benefits available under the No-Fault Act.” (Compare the misleading use of “fees” when ordinary laypeople wouldn’t know the difference between “costs” and “fees” in Zauderer.)

Next, on to the ban on implying endorsement “by any law enforcement personnel or agency.” This is content-based, but not unconstitutional, since implied endorsement by law enforcement is inherently misleading.  Plaintiffs didn’t submit their video ads for review, relying instead on an affidavit.  On this record, the ads were inherently misleading.  An affiant’s statement that a disclaimer is “conspicuous and prominent,” standing alone, is “hopelessly subjective: a disclaimer’s ‘conspicuousness’ and ‘prominence’ are, inevitably, in the eyes of its beholder.”  But regardless, the disclaimer, no matter how large, didn’t fix the problem: it didn’t “disclaim implied endorsement by the type of official the actor portrays.”  (Compare the result in Allen v. National Video: “Moreover, the disclaimer says only that a celebrity double is being used, which does not in and of itself necessarily dispel the impression that plaintiff is somehow involved with National’s products or services.”)  The net effect was misleading. 

This ban was distinguishable from invalid categorical bans on mere depiction of judges in attorney advertising, since portrayals of judges aren’t inherently misleading.  The statute here didn’t ban all depiction of law enforcement, but rather endorsement.  The court noted that 411-Pain’s ad didn’t show law enforcement performing normal functions, but rather “an officer or EMT who speaks directly to the audience and tells viewers to call 411-Pain immediately after a car accident. The actor-officer’s support for 411-Pain imbues the company with a faux-sense of official legitimacy that ‘inherently mislead[s]’ viewers.”

Next, the ban on ads that aren’t undertaken by or at the direction of a health care provider: This is a speaker-based restriction.  But it too shouldn’t be preliminarily enjoined, since it targeted potentially unlawful activity, specificially violation of anti-kickback statutes.  The authorization to advertise under providers’ direction, instead of burdening speech, allowed arrangements that otherwise might be illegal under governing state law.  It’s simple for a provider to direct a third party, by paying it for advertising services.  If 411-Pain is still nervous, it can draft contractual language warranting that it’s advertising at providers’ direction for purposes of the law.

Next, the requirement that ads “prominently display or reference the legal name of the health care provider” and the associated license type.  411-Pain argued that this amounted to a complete ban because it was so unduly burdensome. Given the number of providers in 411-Pain’s network, 411-Pain argued that it couldn’t possibly identify all of them and their license information on each ad.  Also, it contended, without actual proof of deception, the appropriate standard was Sorrelland not Zauderer.

First, the court rejected a facial challenge: the provisions aren’t so unduly burdensome and unjustified that in no conceivable instance would such provisions ever be constitutional. Applied to a single provider, there’s no undue burden.

On the as-applied challenge, the court of appeals didn’t find an unconstitutional burden.  The Supreme Court has said that when laws “impose a disclosure requirement rather than an affirmative limitation on speech, … the less exacting scrutiny described in Zauderer governs” a court’s review of the disclosure rules, something the DC Circuit has called “akin to rational-basis review.”  The state has a substantial interest in protecting the public from misleading and false advertising aimed at persons injured in automobile accidents.

But 411-Pain argued that the government hadn’t shown that the ads are actually misleading, and that Ibaneztherefore controlled instead since the ads were only “potentially” misleading.  However, Zaudererand Milavetz didn’t require proof of actual deception.  The court of appeals followed Zauderer and Milavetz, inferring the inherently misleading character of the speech at issue from its content.  “The ads fail to inform consumers of the nature of 411-Pain’s business as a referral service, and they omit the fact that the No-Fault Act is only one of many sources of recovery an accident victim may pursue. Indeed, the ads never mention the No-Fault Act at all.” No survey was required to determine that the ads had a tendency to mislead.

Under Zauderer, the question was whether the disclosure requirements were reasonably related to the state’s interest in preventing deception, and whether they were “unjustified or unduly burdensome.”  Yes and no, respectively.  The display of network providers’ legal names and license types was reasonably related to the state’s interest because “absent such disclosures, consumers know nothing about the type of care they may receive if they call 411-Pain.”  If they’re calling immediately from the scene of an accident, as the ads encourage them to do, 411-Pain sometimes (if not always) puts them in touch with chiropractors, not physicians.  “The disclosures thus serve an essential purpose by informing victims about the nature of the services offered by the providers with whom 411-Pain does business.” 411-Pain has a minimal interest in not providing any particular factual information in its ads.

Plus, there was no justification for finding an undue burden when the record had no evidence of the number of providers in 411-Pain’s network.  411-Pain’s affiant stated that the company intends to “establish and build” its referral network, and its business would be threatened “if as its network grows, each and every provider’s name and license type must be included in every advertisement.” Maybe, but this wasn’t enough for a preliminary injunction. “To decide whether the disclosure requirements are ‘unduly burdensome’ when applied to 411-Pain, the record must contain more than allegations; it must contain facts demonstrating the undue burden such requirements have on the company’s ability to advertise.”  This is kicking the can down the road, and not very far: the question to be answered is what business models/forms of organization will be disallowed, in practice?  When put that way, though, the post-Lochnersettlement provides a ready answer: any forms the state has a rational basis to prohibit, regardless of whether that’s efficient.
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IP in the UK

Posted on March 11, 2014 by rtushnet

Sir Robin Jacob, Daniel Alexander QC, and Matthew Fisher, Guidebook to Intellectual Property (6th ed.): With dry humor, this book surveys British IP law for nonlawyers/business student types.  I’m not in a position to comment too much on substance.  In any event, the book repeatedly takes the position that when IP rights are at issue it’s often better to settle/go away than to fight even if the claimed right is of dubious validity, which is a position to which I am constitutionally opposed although I understand its practicalities (until you find out that there are no names left available for your business, anyway …).  According to the authors, limits on damages in UK law somewhat mitigate this risk, but this conclusion on patents is typical: “The great majority of patents go through their lives in peace, with nobody really convinced they are valid, but nobody prepared to take the risk of infringing them. Commercially they are just as useful as if they had been valid. Thus, even an invalid patent is often valuable enough to make it worthwhile keeping on bluffing until the bitter end. And there is a lot of truth in the old adage ‘a weak patent in strong hands is worth more than a strong patent in weak hands.’”  Gotta love a good chiasmus.

I appreciated the grace notes of the writing.  “Almost unbelievably, there are now two sorts of unregistered design right …. Unbelievably (again!) there are two sorts of registered design ….”  As for the moral right of paternity, “it may be thought that this is a physiologically and psychologically implausible term, as well as being sexist. Indeed, this is so.”  The following trenchant observations aren’t specific to UK/EU law: “as is coming to be more usual in IP legislation, the draftsman has been careful not to use words that mean anything very definite, either to a lawyer or to anyone else.”  And as for private drafters, “[i]t should in particular be assumed that any agreement drawn up by business people will prove difficult for lawyers (including judges) to sort out; for lawyers and business people have quite different ideas both as to the way they use language and as to the sort of things that agreements ought to provide for.”  Truer words indeed.
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Form v. content in DMCA notices

Posted on March 11, 2014 by rtushnet

Still working on a long post on Garcia v. Google because ugh, but here I go on a side note: David Post has a post up, Why Google shouldn’t be the copyright court of last resort, which argues that Google shouldn’t screen for bogus copyright notices. While I agree with the title of the post, I’m not persuaded by the content. Post says Google should’ve just honored Cindy Garcia’s takedown request, because it had the proper form of a DMCA request. He argues that the result of Google’s refusal was a case in which the defendant, Google, didn’t have any access to the true facts, making for a bad contest on the question of infringement.

I think Post’s proposed solution—honor all takedowns that are properly formatted—is a pretty bad idea, despite the terrible opinion in Garcia.  (Also, what’s up with “last resort”?  As the 9th Circuit opinion demonstrates, Google is pretty clearly not the last resort, but rather the first screener.)  Post says that the proper response here was to wait for a counternotification, and the posters themselves could’ve fought about the underlying facts.  Except … I personally know plenty of people with valid fair use arguments who’ve decided not to take the very tiny but intimidating to nonlawyers risk of counternotifying; the research suggests that counternotification is vanishingly unlikely, even when (as is not uncommon) the notices appear to be invalid after minimal scrutiny; and the video here seems to have been reposted by many people who weren’t the copyright owner either in order to make some sort of point about Innocence of Muslims, making it even less likely that we’d get the “right” result through counternotification.

Percentagewise, most notices are valid—but, as Post points out, this is a mostly automated process; if even 1% of 100 million notices are invalid, the absolute number of bad claims is very high, something a free speech-sensitive analysis ought to be concerned with.  Automatic compliance with everything that looks like a DMCA notice would readily enable low-risk censorship and vitiate §230, which protects against such demands when the offensive subject matter isn’t infringing.  This isn’t hypothetical.  People send DMCA notices when they object to use of their trademarks (also here) or have other noncopyright claims, and I heard trademark counsel advising in favor of using copyright to enforce trademark claims at INTA.

When DMCA takedowns target obvious fair uses, are based on non-copyright claims, or are based on politics, a service provider should be able to reject them.  Here’s some other randomly selected examples of DMCA failure, out of many: Warner Brothers sending DMCA notices for programs it didn’t like but didn’t happen to own copyright in (mistakes attributed by Warner to computers); DMCA notices sent to film critics; DMCA notices sent to take down political ads; Larry Lessig’s first DMCA fight; Larry Lessig’s second DMCA fight; various anticompetitive/abusive takedown notices to WordPress; Apple attempting to suppress public circulation of its contract terms; suppression of the Hugo Awards show for including licensed content; etc.

Google is mitigating some of the damage by screening some notices that are problematic on their face (as Garcia’s reasonably could be seen to be, since she doesn’t even claim a copyright in the film and since the film was controversial for other reasons, making the “copyright as censorship” problem a real risk).  So, by the way, is Wikipedia, which also has a DMCA policy but does not automatically take down content without independent review.

Google shouldn’t haveto be a copyright court. But until people stop sending bogus DMCA notices, perhaps because they are required to stop doing so by more robust §512(f) enforcement, it’s better than the alternative.

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Does a copyright notice serve as an endorsement?

Posted on March 11, 2014 by rtushnet

Basquiat Estate v. Christie’s, via the Trademark Blog. Plaintiffs allege ownership of the mark BASQUIAT and copyrights in Jean-Michel Basquiat’s artwork. The Estate formed an Authentication Committee to opine on the authenticity of works attributed to him. A collector who claimed to have shared an apartment with Basquiat put up 50 works attributed to him. Only 7 had been submitted to the Authentication Committee, 6 of which were authenticated. Christie’s listed the 50 works in a catalog, Jean-Michel Basquiat: Works from the Collection of Alexis Adler. Though the estate denied permission to reproduce some of Basquiat’s works in the catalog, Christie’s put a notice in the catalog: “All artwork by Jean-Michel Basquiat: (c) 2014 the Estate of Jean-Michel Basquiat/ADAGP, Paris/ARS, New York.” The Estate alleged that Christie’s had reason to doubt the authenticity of the remaining items, though it doesn’t affirmatively allege inauthenticity.

I bet you’re expecting a copyright infringement complaint based on the use of authenticated Basquiat images (though not the 44 unauthenticated ones, of course!), but the Estate to its credit (no pun intended) did not bring a copyright infringement claim. However, and with some potential Dastar difficulty given that this is the district of Antidote Films, the Estate alleged false endorsement/false advertising under the Lanham Act, violation of NY GBL § 349, and unfair competition. The theory is that the copyright notice falsely implies that the works are authentic and that the Estate sanctioned the sale.

Were this litigated out, I’d expect, along with the Dastar issues (which would seem to me to preclude outright the false endorsement theory), questions about falsity: the Estate does not allege the inauthenticity of the 43 unevaluated pieces, and “reason to doubt” is not itself inauthenticity, so I can’t see how the complaint pleads falsity. There is that one piece the Estate’s Authentication Committee did not authenticate … but even there is wriggle room that the complaint might be carefully pleading around: if the Committee just said it couldn’t authenticate that piece, that too is not inauthenticity. As I understand it, at least some artists’ authenticating bodies have become hesitant about not authenticating in decisive language, worried about false advertising/slander of title issues of their own. (See this story about the Andy Warhol Art Authentication Board.)

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danah boyd has good news for Google

Posted on March 11, 2014 by rtushnet

danah boyd, It’s Complicated: Boyd’s book recounts her ethnographic research on the internet lives of American teens of different races and classes.  She challenges many of the simple conclusions popular in the media.  Teens do value privacy—but they don’t often struggle through the difficulty of making their ordinary posts/tweets private, difficulty that’s been deliberately created by the corporations interested in having people expose themselves.  The result: their ephemeral interactions are “suddenly persistent, creating the impression that norms have radically changed even though they haven’t.”  Instead, teens are trying new ways to get privacy, for example by controlling access to meaning/using code words, as disempowered people have long done.

Boyd constantly emphasizes teens’ relative (pun intended) lack of power in their lives.  Teens use social media to hang out with their friends, when their parents often cut off other ways of socializing because of fear of public spaces.  Teens, she says, mostly aren’t addicted to social media; “if anything, they’re addicted to each other,” and it’s this desire for connection that’s misdiagnosed as antisocial texting.  Teens are excluded from many physical spaces/parts of public life, but they struggle against this, using social media and other networked technologies both socially and politically.

Adult fears and mis-fears are a big part of the book.  “American society despises any situation that requires addressing teen sexuality, let alone platforms that provide a conduit for teens to explore their desires.”  But adult attempts to isolate teens from risks are damaging, undermining teens’ trust and eroding social ties: “When  parents  create  cocoons  to  protect  their  children  from potential harms, their decision to separate themselves and their children from what’s happening outside their household can have serious consequences for other youth, especially those who lack strong support systems. Communities aren’t safe when everyone turns inward; they are only safe when people work collectively to help one another.”

Boyd also critiques the rhetoric of teens as “digital natives” who are more savvy than their elders.  First, she unpacks the term “native”: “throughout history, powerful immigrants have betrayed native populations while destroying their spiritual spaces and asserting power over them.”  Then, she points out that teens aren’t necessarily knowledgeable about digital spaces (many have the same difficulty controlling their Facebook settings that their elders do) or about digital sources (they’ve been taught to distrust Wikipedia, but that just means they go to the next search result down, which is often worse):

[m]any teens I met assumed that someone  verifies  every  link  that  Google  shares…. Everywhere  I  went,  I  heard  parents,  teachers,  and  teens  express reverence toward Google. They saw Google as a source of trusted information  in  a  digital  ecosystem  filled  with  content  of  dubious quality.  More  important,  many  of  the  people  I  met  believed  that Google was neutral, unlike traditional news sources such as Fox News or the New York Times.
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Comparisons and copying of business model aren’t infringement or false advertising

Posted on March 10, 2014 by rtushnet

Garden Catering-Hamilton Avenue, LLC v. Wally’s Chicken Coop, LLC, 2014 WL 810821, No. 3:11cv1892 (D. Conn. Feb. 28, 2014)

Garden Catering alleged that its former employee, Michael Natale, prepared to open a rival restaurant, Wally’s, while employed by Garden Catering, and therefore defendants breached Natale’s fiduciary duty; violated the Lanham Act, Connecticut common law on unfair competition, and Connecticut’s Unfair Trade Practices Act; and were unjustly enriched.

Garden Catering is a restaurant chain with multiple locations in Connecticut and New York.  While he worked at Garden Catering on an occasional part-time basis as a cashier, Natale started making plans to open his own restaurant, which included communicating with another Garden Catering employee about his interest and with Garden Catering’s food supplier. In a meeting with the supplier, Natale’s brother (also an occasional Garden Catering worker) said that Wally’s, which was opening in Storrs, would be “just like” Garden Catering. 

Garden Catering’s head fry cook then unexpectedly announced his intention to resign, allegedly because Natale offered him a higher wage and room and board (in what seems to have been a three-person apartment share) as an enticement.  (You know, there’s a fascinating labor story going on here.  This company apparently expects a lot of loyalty from workers it employed “occasionally” and part-time, when even the head fry cook’s wages were apparently low enough that getting housing with two roommates was a big enticement.)  When Garden Catering confronted Natale about this, he denied plans to open a competing business.

Garden Catering alleged that Wally’s infringed a number of marks, claiming common law rights in “Bits” (for chicken nuggets), “Cones” (for battered and fried mashed potato balls), “the Hotsy” (for various sandwiches topped with chili), “the Special” (a combination meal with half a pound of chicken nuggets, one side, and a soda), “the Junior Special,” “the Boss Special,” and the “Homerun Special.”  Wally’s referred to its chicken nuggets as “bits,” offered “puds,” which are identical to Garden Catering’s “Cones,” and offered two “Topsy” sandwiches, both topped with chili. Also, Wally’s offered several “combo” meals that tracked the Garden Catering “specials,” under the names “The Wally,” “The Mini,” “The Mongo,” and “The Husky.”  Wall’s pricing tiers corresponded with Garden Catering, and it served some orders in insulated bags similar to those used by Garden Catering. 

Garden Catering alleged that this caused confusion, evidenced by postings from Wally’s Facebook page linking the two.  E.g.: “Anyone who likes Garden Catering, or who is looking to eat some great food for a great price needs to check out Wally’s Chicken Coop” and “Thank god someone has brought the joy of GC to Storrs.” Defendants conceded that some customers referred to “Garden Catering” while at Wally’s, and Wally’s employees have told customers that some of the food served by Wally’s is similar to that served at Garden Catering. Shortly after Wally’s opened, a former Garden Catering employee visited Wally’s, and the fry cook told him that Wally’s was “like Garden Catering, but we’re better” and that the “Wally’s Special” was the same as Garden Catering’s “The Special.” Natale also said that “we are kinda like” Garden Catering.

Defendants argued that, because Wally’s is about 104 miles away from Garden Catering, and because plaintiffs didn’t have any patents or similar protection for their menu items, they hadn’t engaged in unfair competition.

The court granted defendants summary judgment on the Lanham Act claim.  As for “Garden Catering” and “Cones,” defendants didn’t directly use the marks; Garden Catering claimed that the infringement consisted of “creating a restaurant with the same overall impression as Garden Catering” plus marketing and statements such as the claim that Wally’s was “like Garden Catering, but we’re better.”  This was an overly broad view of the Lanham Act.  The confusion alleged wasn’t that consumers might believe that Garden Catering was the source of Wally’s.  Rather, it was confusion allegedly resulting from oral statements about similarity to Garden Catering, not connected to any particular use of a mark.  Garden Catering’s claims were based on defendants’ business practices, not trademark infringement, and that’s not actionable under the Lanham Act.

Similarly, Garden Catering’s claim to “bits” was overbroad.  There was no evidence that Garden Catering used “Bits” other than a broad and conclusory assertion by one principal that the term was in use.  This assertion was refuted by Garden Catering’s menu, which called its chicken pieces “nuggets.” No use, no trademark. 

“The Special” was generic for a combination platter of food with a main course, side dish, and soda.  And Wally’s didn’t even use the term generally, using “combos” instead. Nor did Garden Catering show that appending variations to “the Special,” such as “Junior,” “Big Boy,” and “Boss” made the terms sufficiently distinctive to warrant protection.  Also, Wally’s “The Wally” etc. marks weren’t shown to be confusingly similar.

As for the “Hotsy,” the parties disputed whether it was suggestive or descriptive. That line was for a jury to draw, but there wasn’t enough evidence to get to a jury on confusion between the “Hotsy” and the “Topsy.”  Garden Catering argued that consumers would be confused into thinking that the parties were affiliated.  It relied on evidence of consumers connecting Wally’s and Garden Catering, but this didn’t show that use of “Hotsy” had anything to do with that.  Plus, the evidence of affiliation confusion was anectodal, such as customers coming into Garden Catering asking for a “Wally’s Special” or saying that “it is great to hear that Garden Catering is up at UCCON.” Facebook and Twitter posts also suggested that consumers incorrectly concluded that the two restaurants were associated, such as “there’s a garden catering at uconn” and “Wally’s chicken coop=garden catering.”  This was insufficient, especially since a number of postings demonstrated lack of confusion, such as “Wally’s stole [Garden Catering’s] recipe,” “Wally coops is a knock off from them,” and “go to garden catering, it’s the same thing, that’s where Wally’s got the idea from.”

Garden Catering argued that defendants’ intentional copying of its business model gave rise to a presumption of confusion.  But this was outweighed by absence of evidence on the other confusion factors, especially the proximity of the products, which cut strongly against Garden Catering given the over 100-mile distance between them and lack of evidence that Garden Catering’s marks were distinctive in the local Storrs market.

The court noted that, though the Lanham Act protects trade dress, courts have required plaintiffs to be very specific and detailed about the allegedly protected elements.  This Garden Catering did not do.

The false advertising claims also failed.  Statements to customers that Wally’s was “just like” or “similar to” Garden Catering hadn’t been shown to be in “advertising or promotion”; there was no evidence that these statements were widespread, instead of isolated.  Plus, the statements weren’t false or misleading, “as the restaurants were indisputably similar, and the question of which restaurant was “better” was a statement of opinion.”

The court held on to the remaining state law claims given the developed stage of the case; the need for the parties, two small businesses, to resolve their dispute; and the non-novel state law questions at issue.

Breach of fiduciary duty: an employee is entitled to make preparations to compete with her current employer even before she resigns, as long as actual competition hasn’t yet begun, so summary judgment was granted based on claims based solely on Natale’s preparations to compete. However, there was a genuine dispute of material fact about the extent to which Garden Catering’s food preparation and other business information were trade secrets and whether Natale wrongfully used this information in his new venture. (This factual dispute also preserved the unjust enrichment claim.)  Summary judgment was also denied on whether Natale recruited Garden Catering employees to leave while he was still employed by Garden Catering, which would’ve breached his duty of loyalty.

Unfair competition/CUTPA: An employee who acts outside the scope of her employment as a competitor can be subject to a CUTPA claim, so the conduct that could constitute a breach of fiduciary duty could also violate CUTPA’s ban on unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.
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resort fees not included in "total" may violate consumer protection law

Posted on March 10, 2014 by rtushnet

Soule v. Hilton Worldwide, Inc., 2014 WL 794801, No. 13-00652 (D. Hawai’i Feb. 26, 2014)

Soule sued Hilton for violation of Hawaii’s consumer protection law and for unjust enrichment based on an allegedly insufficiently disclosed resort fee charged on top of the “total” displayed by Hilton.com and other third-party websites.  This mandatory fee is charged at some of Hilton’s Hawaiian hotels, and Hilton says it represents “amenities” such as phone calls and internet access. (Not soap and conditioner?  Fresh towels?  Wake-up calls?)  At Hilton.com and elsewhere, booking pages display room options and prices, and Hilton typically sends consumers a confirmation email after they book breaking down the “Rate Per Night” to give a “Total for Stay.”

Soule made a reservation at a quoted rate of $237.15 per night, plus taxes of $66.21, for a total of $540.51, as stated in her confirmation email. (“Total for Stay: 540.51 USD Includes estimated taxes and service charges. (Gratuities not included.).” The email continued, breaking down the tax, then said that there was a “Daily Resort Charge of $25.00 plus tax per room per night that would be added to the room rate,” as well as parking fees.)  As stated in the email, the reservation was nonrefundable and her credit card was charged $540.41 immediately. 

And it’s this tiny detail that to me shows Hilton’s attempts to take advantage of ordinary consumer behavior—yes, the $25 + tax/night/room fee is mentioned, but it’s not included in the “Total” and, though it is mandatory, it’s not charged immediately like the other mandatory charges.  This prevents consumers from noticing—say, on their credit card statements—that they’ve been charged a not inconsiderable chunk of change more than the stated “Total,” until it’s too late.  Whether this is “deceptive” (and I think it is, because the disclosure is unlikely to work because of the more salient and understandable “Total” listed), it seems quite unfair.  Hilton imposed the fee when Soule checked out, and Soule sued.

In late 2012, the FTC sent a warning letter to 22 hotel operators warning that their sites might be violating the law by providing misleading estimates. The letter noted consumer complaints about mandatory resort fees.  As a result, the FTC cautioned, online hotel reservation sites should include in the quoted total price any mandatory resort fees. Though this wasn’t an agency decision or definitive statement of position, it did go to the plausibility of Soule’s claim that a reasonable consumer was likely to be misled.

Hilton argued that Soule’s consumer protection claim failed because Hilton explicitly disclosed the existence and amount of the resort fee before Soule’s stay.  Under Hawaii’s law, failure to disclose relevant information can be actionable if the failure to disclose is likely to mislead or deceive a reasonable consumer.  Soule didn’t plead unfair methods of competition, because that’s a competitive/antitrust issue and Soule didn’t plead enough to plausibly allege a negative effect on competition that harmed consumers like her.

But Hawaii also bars unfair or deceptive practices, and whether a practice is unfair or deceptive is generally a question of fact.  Because Soule couldn’t cancel her reservation after she provided her credit card info and Hilton charged her, any disclosure would have to have been made before or at the time of booking.

Hilton pointed to three purported disclosures: (1) its Global Terms and Conditions, set forth on a separate website.  These said, in part: “Unless otherwise stated, quoted rates are per room per night, based on double occupancy and do not include taxes, gratuities, resort fees or incidental charges.”  But there was nothing in the record that Soule was able to read the full terms or was otherwise directed to this website.  Though Hilton’s declarant asserted that the terms could be accessed via hyperlinks on various pages on Hilton.com, that wasn’t an appropriate consideration on a motion to dismiss.  (2) The email confirmation, but that came too late, after her credit card had been charged. (3) The bill at the time Soule checked out, which clearly listed the charges.  But that’s also too late. 

Hilton relied on similar cases about resort fee complaints: Ford v. Hotwire, 2007 WL 6235779 (S.D. Cal. Nov. 19, 2007), and Harris v. Las Vegas Sands L.L.C., 2013 WL 5291142 (C.D.Cal. Aug.16, 2013).  Ford granted a motion to dismiss because Hotwire adequately disclosed that resort fees might be imposed, using a similar hyperlink to the terms of service that generally disclosed that Hotwire’s rates didn’t include resort fees.  Las Vegas Sands was similar, though there before the plaintiff clicked his acceptance the fee was at least disclosed on the same page, though still not part of the asterisked “grand total.”

The court found these factually distinguishable, because the courts had complete records, while here Soule and Hilton still disputed what information Soule could access or did see on Hilton’s website when she booked her stay. Plus, the defendants in those cases “clearly disclosed the existence of mandatory resort fees to hotel guests prior to booking.”  (This is a silly thing to say about Hotwire’s vague and conditional disclosure in hyperlinked terms of service; reasonable consumers don’t read these, but whatever; the court says that Hotwire consumers were required to click a box agreeing to the terms of service before paying, as if that mattered to what they understood.)

Here, the allegations were that Hilton’s booking page didn’t include a clear statement that the resort fee wasn’t included in the total. That was enough.

Hilton argued that reasonable consumers read terms and conditions before making purchases.  (I would love to ask counsel for Hilton about their own personal compliance with this principle.) In Davis v. HSBC Bank Nevada, 691 F.3d 1152 (9th Cir. 2012), the court of appeals affirmed the dismissal of a fraudulent concealment claim because “the existence of the annual fee was within Plaintiff’s observation because he concedes that he was able to discover the annual fee when he revisited Best Buy’s website and scrolled through the Important Terms & Disclosure Statement.”  The relevant credit card ad contained a “legible disclaimer that other restrictions may apply” and, therefore, “no reasonable consumer could have believed that if an annual fee was not mentioned, it must not exist.” The advertisement’s disclaimer would thus “motivate[ ] a reasonable consumer to consult the terms and conditions.”

But Soule didn’t concede that she was ever notified of the existence of the terms and conditions or that the information was available through Hilton’s website.  (Plus, the existence of an annual fee when a fee isn’t mentioned at all in the ad, and thus no representation has been made about a fee or its absence, is noticeably different in its effects on a reasonable consumer’s perceived need to inquire further than the existence of an extra charge when a “total” has already been presented to the consumer.)

Hilton then argued that Soule failed to allege materiality. But $25 per night was “a significant amount that could affect a hotel guest’s purchasing decision.”

Finally, the court found that Soule adequately pled unfairness as well as deceptiveness.  She alleged that Hilton’s practices worked substantial injury on consumers, as required for unfairness.  However, her unjust enrichment failed because she had an adequate remedy at law under the Hawaii Unfair and Deceptive Trade Practices Act.

The court then rejected Hilton’s argument that Soule’s claims were barred by the voluntary payment rule, since she knew the facts when she paid.  This is an equitable estoppel-type doctrine, and it didn’t apply, because Soule didn’t support or endorse Hilton’s practice and then change her position.  Plus, this theory requires a showing that the plaintiff had full knowledge of the facts, which was precisely at issue. The court also had some doubt that the rule would even apply to a UDTPA claim, since that statute is remedial in nature and worded broadly “in order to constitute a flexible tool to stop and prevent fraudulent, unfair or deceptive business practices for the protection of both consumers and honest business persons.”  Several other jurisdictions have found that the voluntary payment rule doesn’t apply to similar statutes.
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Deference to the PTO’s acceptance of a specimen and tacking

Posted on March 10, 2014 by rtushnet

Reynolds Consumer Products, Inc. v. Handi-Foil Corp., 2014 WL 794277, No. 13-cv-214 (E.D. Va. Feb. 27, 2014)

Reynolds sued Handi-Foil, its competitor in the market for aluminum foil, for trade dress infringement and false advertising.  Here, the court rejects Handi-Foil’s counterclaims seeking cancellation of Reynolds’ registrations for abandonment and for declaratory judgment of noninfringement. 

Reynolds owns two registrations for Reynolds Wrap packaging, filed in 1977 and amended in 1997.  Reynolds’ 1997 specimen showed a package that was majority metallic blue, with the far right end pink, separated by a series of sharp diagonal silver lines.  “Reynolds Wrap” is written on the blue area in bold silvery-white font and the square footage of the roll is in bold blue font on the pink area.

When Reynolds filed to renew both registrations in 2007, its specimen again differed.  It still had the blue, silver, and pink color-pattern and similar writing/font, but used a series of curved silver lines to separate the blue and pink areas. The PTO accepted the specimen and renewed the registrations.

In 2008, Reynolds changed the box again, altering the proportions of the blue and pink areas as well as the proportions of the writing in each area, and added the text “Trusted Since 1947” underneath the logo on the blue side of the box.

Here’s the Handi-Foil package:
 
When it entered the retail aluminum roll foil market, Handi-Foil representatives pitched Handi-Foil’s product as new and comparable to Reynolds Wrap, leading to Reynolds’ false advertising claim.

Abandonment: abandonment requires a use to be discontinued with no intent to resume such use.  The Reynolds Wrap box currently in use was concededly non-identical to the registered marks.  Reynolds argued that its changes were minor, and invoked tacking as a defense to the counterclaim.  Tacking requires a court to ask whether the marks in use are the legal equivalent of the earlier marks.  This is a more stringent standard than confusing similarity: it requires “the same, continuing commercial impression” and tacking is to be allowed “only in rare instances.”  However, courts are divided over whether tacking is a question of fact (9th Cir., W.D. Va.) or of law (Fed. Cir., 6th Cir.).  Given the Fourth Circuit’s previous reliance on Federal Circuit tacking precedent, the court here decided that tacking is a question of law, though this creates a “puzzling” disconnect with infringement (a question of fact).  Given that Reynolds admitted that the marks in use were different from the registered mark (a key element of an abandonment claim), and that tacking was Reynolds’ defense to the cancellation counterclaim, the court found that the burden of showing tacking rested with Reynolds.  The proper comparators were the current Reynolds box and the 2007 specimen accepted by the PTO.

Reynolds met its burden of showing that the current box created the same, continuing commercial impression as the 2007 specimen. “If Reynolds’ current box and the 2007 specimen cannot be said to create a continuing commercial impression … the Court cannot imagine any two non-identical marks that would.”  Why is the 2007 box the right comparator?  Because the PTO “analyzed Reynolds’ renewal application in light of the 2007 specimen,” so the court didn’t need to resolve the question of deference owed to the PTO.  Hunh?  The registered mark doesn’t look exactly like the 2007 specimen; starting the analysis from 2007 allows the PTO to determine the tacking issue until 2007, which is pretty much precisely the question before the court, so I would think the question of deference would need to be resolved.  Anyway, a reasonable juror couldn’t find the 2007 and 2008 marks failed to produce a continuing commercial impression, entitling Reynolds to summary judgment of non-abandonment.

Also, though side by side comparison was enough here, evidence of consumer impression and the markholder’s intent in modifying the designs also supported Reynolds.  A study commissioned by Reynolds found that “the vast majority of target buyers fail to recognize that Reynolds packaging has been modified.” The study was also evidence of Reynolds’ intention to not abandon its marks.

The court turned to Reynolds’ false advertising claim. Handi-Foil argued that its sales reps’ solicitations to retail stores weren’t “advertising or promotion.”  Using the standard test, the question was whether the statements were disseminated sufficiently to the relevant purchasing public.  Reading the facts most favorably to Reynolds, Handi-Foil contacted over a quarter of the relevant market, which created a genuine issue of material fact on advertising.

Handi-Foil also challenged falsity.  But questions of materiality and falsity are typically questions of fact. Plus, the court didn’t agree that professional retail buyers would find information about foil strength immaterial.  For purposes of denying summary judgment, “Handi-Foil’s clear focus on strength equivalency in its concerted sales pitches itself creates a genuine issue of fact as to whether strength equivalency was material.”  And the tests in the record created a genuine issue of material fact as to whether Handi-Foil was as strong as Reynolds Wrap.

Finally, Handi-Foil moved to strike Reynolds’ jury demand, which could happen only if the relief sought was entirely equitable. Reynolds asked for “damages to compensate it for lost sales and diminished goodwill in an amount to be proven at trial.” Handi-Foil argued that Reynolds’ damages expert spoke exclusively of unjust enrichment when deposed, thus only equitable remedies were at stake.  But a legal remedy isn’t unavailable just because the measure of damages may necessitate a look at the defendant’s business records. Reynolds was seeking “proxy damages”: quantifying its alleged damages for lost sales and goodwill by looking at Handi-Foil’s profits.  The use by a nonlawyer expert of the term “unjust enrichment” couldn’t vitiate Reynolds’ Seventh Amendment right to a jury.
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What makes a fee-worthy dilution claim?

Posted on March 10, 2014 by rtushnet

General Steel Domestic Sales, LLC v. Chumley, 2014 WL 793090,  No. 10-cv-01398 (D. Colo. Feb. 27, 2014)

Some of the more recent opinions from this hard-fought case in which plaintiff won its false advertising claims but lost trademark claims.  We can take as given that there’s some cross-contamination from the false advertising claims here, but still, fame is doing zero work as a constraint on filing bogus dilution claims. If an award of attorney’s fees on the dilution claim is inappropriate in this case, where the plaintiff fully lost the trademark aspects of its case and where it was laughable to allege federal dilution of the mark “General Steel,” when could it ever be?

General Steel moved for attorney’s fees on the false advertising aspects of the case.  An exceptional case is where the false advertising (or infringement, from whence the governing caselaw comes) is “malicious, fraudulent, deliberate, or willful.”  Absence of actual damages is also a factor, though such absence doesn’t preclude a fee award.  Here, though the court had found that the Lanham Act violations were willful, and though they continued even after the close of discovery, it declined to award fees.  The court had already ordered disgorgement of defendants’ profits even in the absence of evidence of lost sales.  Given that General Steel prevailed on only one of its claims, based on a “limited number” of false statements on defendants’ website, that it failed to show damages, and that it had already recovered defendants’ profits, the court declined to award fees as well.

Defendants sought fees on the federal dilution/false designation of origin claims (as well as the state law consumer protection claim).  For defendants, an infringement suit can be exceptional if it’s unfounded, brought in bad faith, or prosecuted in an unusually vexatious and oppressive manner.  Both objective merits and subjective motivations are relevant. 

The court found that General Steel had established two elements of its claim: that it had a protectable mark in “General Steel” and that defendants used the phrase in commerce without its permission.  In addition (and indeed, overlapping with these), the court found that four of the six relevant confusion factors favored General Steel, though none were dispositive.  The court ultimately found that the uses weren’t likely to confuse and that “many of the actual uses of the keywords ‘general steel’ in website text occurred either in the context of a clear comparison or in a context that, while puzzling, was unlikely to confuse consumers as to source.”  Under the circumstances, the court declined to find that the claim was maintained in bad faith or that its prosecution was so lacking as to be exceptional.

This seems right, but then, dilution: General Steel voluntarily dismissed its dilution claim after defendants’ motion to dismiss.  General Steel initially alleged that its mark was not merely descriptive or generic, that it had spent millions of dollars on advertising, that “General Steel is the third most searched term in the steel building industry,” that “[c]ustomers throughout the nation know the name General Steel” and that General Steel had “achieved a national reputation.”  It did not plead (nor could I imagine how it could ethically have done so) that its mark was “famous” or “widely recognized by the general consuming public.”  Nonetheless, the court concluded that given what General Steel did allege, the argument that the complaint was so lacking as to be exceptional failed.  Because the initial complaint contained factual allegations “regarding public awareness of General Steel’s mark,” it was not so defective as to evidence bad faith or improper purpose.  But federal dilution isn’t about “public awareness.”  It’s about fame. 

On the state law claims under the Colorado Consumer Protection Act, defendants argued that they were entitled to a fee award because of General Steel’s failure to show actual damages, and because General Steel used its CCPA claim to obtain documents from defendants in order to contact their customers and forward negative information about Armstrong to the Colorado Attorney General.  A CCPA action found by a court to be groundless and in bad faith, or brought for the purpose of harassment, requires a fee award.  A claim is groundless if “the allegations of the complaint, although sufficient to survive a motion to dismiss for failure to state a claim, are not supported by any credible evidence” or if the “proponent has a valid legal theory, but can offer little or no evidence to support the claim.”  Pursuing a claim despite knowing that it lacks admissible evidence can lead to a fee award.

While General Steel identified a theory of recovery (disgorgement), it didn’t show any credible evidence of actual harm, which was a key element of its CCPA claim, and thus the claim was groundless.  However, the court did not find bad faith or intent to harass, also a prerequisite.  Defendants submitted an email from a customer complaining about a telephone call purportedly from the Colorado Attorney General’s office disparaging defendants that the Assistant AG denied making, and a transcription of a voicemail message that the Assistant AG left for a defense attorney requesting the number of this case because he “got a call from [a General Steel attorney]” and “[b]oth sides have raised allegations.”

This evidence would only allow an inference that an entity other than the Colorado AG’s Office made at least one disparaging phone call to a customer, and that the AG’s Office was looking into the particulars of the instant case. But that didn’t support the conclusion that General Steel used its CCPA claim to get negative documents and send them to the AG or to contact defendants’ customers. Nor did the court find that General Steel’s “evidence and argument were so feckless or irrational that [the] continued pursuit of [its] CCPA claim must have been motivated by bad faith or a purpose to harass.”
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