Trader Joe’s versus HT Traders from Harris Teeter

Posted on December 9, 2013 by rtushnet
//www.youtube.com/get_player

Is this evidence of confusion?

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TM infringement no matter how dissimilar the marks?

Posted on December 9, 2013 by rtushnet

Surface Supplied, Inc. v. Kirby Morgan Dive Systems, Inc., No. C 13–0575, 2013 WL 6354244 (N.D. Cal. Dec. 5, 2013)

Sometimes I think Iqbal/Twomblyis for people who don’t own trademarks.  Here, Kirby Morgan sought to amend its counterclaims for trademark infringement, federal dilution, and false advertising. The court allowed the amendment.

The legally interesting parts: First, because the infringement test is a multifactor test, there’s no lower threshold for similarity between the marks for infringement.  Brookfield’s statement that “[w]here the two marks are entirely dissimilar, there is no likelihood of confusion,” such as “Pepsi” and “Coke,” is mere dicta.  One would hope a court would be generous with a prevailing defendant’s attorneys’ fees given such an easy intake standard, but somehow I doubt it.

Second, the same is true for federal dilution, also a multifactor test.  That’s not really Kirby Morgan’s problem, though.  Kirby Morgan’s problem is that it doesn’t have a federally famous, household name mark.  I do not understand how it could plausibly plead that it does. This appears to be a specialized diving company, by definition not federally famous.

(Unsurprisingly, the court also declines to resolve functionality at this stage.)

Finally, although SSI argued that no false advertising claim could fly because Kirby Morgan didn’t allege any actual confusion or lost sales—because SSI hasn’t made any sales yet—the standard is likely deception plus likely injury by lessening goodwill, so Kirby Morgan could plead a false advertising claim.
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Learned intermediary doctrine doesn’t bar claim at pleading stage

Posted on December 9, 2013 by rtushnet

Saavedra v. Eli Lilly and Co., 2013 WL 6345442, No. 2:12–cv–9366 (C.D. Cal. Feb. 26, 2013)

Plaintiffs brought a putative class action under the consumer protection laws of California, Massachusetts, Missouri, and New York, and Saavedra also brought individual causes of action for breach of warranty, strict product liability, etc. under California law.  The claims were based on Eli Lilly’s marketing of Cymbalta, an antidepressant. 

Cymbalta users risk significant withdrawal symptoms when they stop taking it, including dizziness, nausea, headache, fatigue, paresthesia, vomiting, irritability, nightmares, insomnia, diarrhea, anxiety, hyperhidrosis, and vertigo.  The label warns that these (except for nightmares) occurred in 1% or more of patients who tapered or stopped Cymbalta. Plaintiffs alleged that this label didn’t accurately inform consumers or healthcare professionals of the frequency, severity, and duration of withdrawal.  They alleged that studies from at least 2005 have found that 44-50% of users experience withdrawal, and about half of those are moderate or persistent while 10% experience severe symptoms. The plaintiffs alleged that they wouldn’t have begun taking Cymbalta had they known the truth.

Eli Lilly tried to get rid of the class claims using the learned intermediary doctrine, which provides that “a drug manufacturer has no duty to warn the ultimate consumer of potential side-effects of prescription medication, so long as adequate warnings are given to the prescribing physician.”  (Why this should be so in an age of DTC drug marketing is left for the reader.)  This precludes recovery for strict liability and negligence when manufacturers fail to warn consumers about side effects if the warning given to doctors is adequate.  Traditionally, the doctrine is applied either at summary judgment or at trial, not at the motion to dismiss stage.  One Pennsylvania case found that consumers couldn’t state a claim under Pennsylvania’s consumer protection law for failing to disclose known side effects.  But “this holding is grounded in a significant extension of the learned intermediary doctrine, one that has not been applied to any of the consumer protection claims at issue in this case.”  The Pennsylvania court ruled that defendants had no duty to disclose any prescription drug information directly to the consumer plaintiff.

The court here declined to follow this ruling.  “Every claim susceptible to the learned intermediary doctrine has the chain of relationships described by the court: the duty owed by the manufacturers is to adequately warn physicians, who in turn must warn their patients.” But most of the case law doesn’t go that far; instead, the cases hold that proof that a manufacturer adequately warned a doctor provides immunity from liability.  The court was unwilling to “bar every cause of action by a consumer against a drug manufacturer, even if the manufacturer had inadequately warned physicians.” 

It is true that all the consumer protection laws at issue, like Pennsylvania’s, have a causation element, or, in some jurisdictions, “justified reliance.”  But, though some federal courts interpreting Pennsylvania law have reasoned that justifiable reliance/causation can’t be present when the pharmaceutical company didn’t sell directly to the patient, this “threatens to swallow up any cause of action brought against a drug manufacturer for failure to warn, as every claim—whether derived from statute or common-law tort—includes an element of causation or justified reliance.”  Instead, the court predicted that the various jurisdictions would not bar plaintiffs’ consumer protection claims.  California law by its terms is to be “liberally construed” to protect consumers beyond traditional torts (and so are the other relevant laws).  The court emphasized that this was not a ruling that the learned intermediary doctrine didn’t apply; there was a good argument that it did, so plaintiffs would lose if Eli Lilly adequately warned the prescribing physicians.

The court also rejected Eli Lilly’s preemption and primary jurisdiction arguments.  Buckman Co. v. Plaintiffs’ Legal Comm., 531 U.S. 341 (2001), which found preemption of certain claims related to medical devices, wasn’t directly on point, and there’s a presumption against preemption of state laws operating in traditional state domains.  Eli Lilly tried to characterize plaintiffs’ claims as “fraud on the FDA” claims. “Yet Defendant inexplicably ignores the Supreme Court’s subsequent, and more relevant decision in Wyeth v. Levine, 555 U .S. 555 (2007).”  Wyeth allowed a state failure-to-warn claim based on an allegedly inadequate label; the manufacturer could be liable for failing to update the label based on newly acquired information.

Likewise, the primary jurisdiction doctrine would only apply if a claim required resolution of an issue of first impression, or of a particularly complicated issue that Congress committed to the FDA, and if protection of the integrity of the regulatory scheme dictated preliminary resort to the FDA. The claims at issue here presented neither “an issue of first impression” nor a “particularly complicated issue,” but rather a straightforward failure-to-warn/misleadingness claim.

Eli Lilly then argued that a reasonable consumer wouldn’t be misled because the warning complied with FDA regulations—but Wyeth is clearly to the contrary.  And Lilly’s argument that the “reasonable consumer” here is the prescribing doctors was just a restatement of the already-rejected learned intermediary argument.

However, the court did hold that plaintiffs lacked standing to seek injunctive and declaratory relief, because they knew the truth now.  (I continue to think this is wacky in a class action.  Something very strange has happened to standing in general in the past decade, and it invites a comprehensive examination, which perhaps some scholar is carrying on now.)
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Get used to disappointment

Posted on December 9, 2013 by rtushnet

“My Princess Bride” play halted after lawsuit threat.  As Zach Schrag said, you have a real choice of witty headlines here, though I might also vote for “copyright law is pain, highness; anyone who says differently is selling something.”

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PTO/NTIA Green Paper public meeting agenda

Posted on December 6, 2013 by rtushnet

To be held December 12.  Agenda available here in pdf.  I will be speaking on the panel on the legal framework for remixes, in particular from the perspective of creators of noncommercial transformative works.

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competitor can challenge allegedly confusing use of certifier’s TM

Posted on December 6, 2013 by rtushnet

First Data Merchant Services Corp. v. SecurityMetrics, Inc., 2013 WL 6234598, No. RDB–12–2568 (D. Md. Nov. 13, 2013)

I’m only discussing the Lanham Act claims, but there are many other claims in this case.  First Data and SecurityMetrics generally sit at different points in the market for servicing merchants who take credit card payments, but apparently First Data is encroaching into SecurityMetric’s space.  “PCI” originally stood for “Payment Card Industry,” but now also is used to refer to the PCI Security Standards Council and the PCI Data Security Standard administered by the council. Major credit card brands formed the council, which developed the security standard now adopted by all the credit card brands.  They penalize noncompliance with the security standard.

While the PCI standard is universal, the various brands have different requirements for demonstrating or validating compliance with the standard.  There are a number of different types of PCI compliance service vendors assessing various aspects of transactions; the credit card brands recognize certifications for several different functions, and the PCI Council certifies the vendors.  SecurityMetrics is certified by the PCI Council for several specific functions, and First Data isn’t.

Instead, First Data is a payment processor: it processes transactions for merchants and independent sales organizations. SecurityMetrics provided compliance services to some merchants for whom First Data provides processing services.  They worked together by contract for several years.  First Data promoted SecurityMetrics to certain customers as a preferred vendor for compliance validation services, and SecurityMetrics used a protocol for reporting validation of compliance known as the START system.  SecurityMetrics alleged that First Data breached the agreement, then prematurely terminated it. 

SecurityMetrics alleged that, in mid-2012, First Data began offering a service called “PCI Rapid Comply,” in competition with SecurityMetrics.  First Data imposes billing minimums on certain customers.  SecurityMetrics alleged that, when calculating the minimums, First Data counted fees for PCI Rapid Comply towards them, but not fees paid to vendors of other PCI compliance services.  First Data also allegedly told merchants who used other compliance vendors that they’d have to pay for those services in addition to the cost of PCI Rapid Comply.  This was allegedly false because First Data refunds amounts paid to third-party vendors by merchants who use the services of those vendors to become compliant.

The court noted uncertainty whether failure to disclose can be actionable in the Fourth Circuit, which is odd since implied falsity is, as the court notes, actionable everywhere, and one way to imply a falsehood is to say some things and withhold relevant information.  In any event, SecurityMetrics stated a Lanham Act false advertising claim because First Data’s advertising said that merchants “will pay” the additional cost—that could be understood as an affirmative misstatement.

SecurityMetrics’ false endorsement claim also survived.  It alleged that First Data’s use of the phrase “PCI” in the name of its “PCI Rapid Comply” service was likely to cause merchants and others to incorrectly believe that the service is associated with or approved by the PCI Council. First Data argued that SecurityMetrics lacked standing to raise this claim, since it didn’t own any PCI marks.  However, SecurityMetrics alleged that it had actually been harmed by this misstatement.
 
Dastarsays that § 43 goes beyond trademark protection, and false endorsement covers use of words that are likely to cause confusion “as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person.”  Thus there are three distinct individuals involved: (1) the user of the term, (2) the misrepresented party, and (3) the plaintiff.  First Data argued that (2) and (3) had to be the same, but the court disagreed.  While some people, like consumers, lack standing to bring a false endorsement claim, and while the plaintiff must have some sort of commercial or competitive interest (what sort will soon be decided by the Supreme Court), the plaintiff need not have an interest in the mark itself.  See Famous Horse.  This is consistent with the statutory language covering “any person who believes that he or she is or is likely to be damaged by such act.” SecurityMetrics alleged damage to its commercial interests and its ability to stay competitive in the marketplace; that was enough.

The same alleged damage made SecurityMetrics more than a mere intermeddler and gave it standing to seek cancellation of First Data’s trademark registration for the term.
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software is a "good" but California claims still fail

Posted on December 6, 2013 by rtushnet

Haskins v. Symantec Corporation, 2013 WL 6234610, No. 13-cv-01834-JST  (N.D. Cal. Dec. 2, 2013)

In 2006, hackers infiltrated Symantec’s network and stole the source code used in the 2006 versions of its antivirus etc. products. Symantec allegedly knew this, but neither performed a reasonable investigation into the breach nor informed consumers. Haskins bought Symantec’s Norton Antivirus software online in late 2007 or early 2008.  She alleged that she was exposed to Symantec’s claims on its website that Norton Antivirus provided computer, data, and email security by, inter alia, blocking viruses and spyware, that she bought the product unaware that it was compromised and believing that it would protect her, and that had she known the truth she wouldn’t have bought the product.  “In 2012, a hacking group publicly claimed to possess the 2006 stolen source code and posted certain code on the internet, and Symantec disclosed for the first time that its systems had been breached in 2006 and the source code stolen.”

The court first found that Rule 9(b) applied to the UCL and CLRA claims.  Haskins identified specific statements on Symantec’s website and in its ads, e.g., the products are supposed to “secure and manage … information against more risks” and “eliminate risks to information, technology and processes….”  Symantec argued that this was insufficient because she failed to identify any specific ad she saw and relied on, and that these statements were mere puffery.

Haskins did identify specific statements in ads, and appended the relevant documents.  Also, Tobacco II said that plaintiffs can sometimes state a UCL claim without showing that they viewed any particular ad where misrepresentations were part of an extensive, longterm ad campaign.  If a plaintiff can prevail at trial without showing that she saw any specific ad, Rule 9(b) shouldn’t have a higher standard; that would turn Rule 9(b) from a procedural rule to a substantive one.

Even named class members can have standing without proof they saw a specific ad under Tobacco II, but that case offers a narrow exception to the general rule where the defendants engaged in decades-long saturation advertising.  Here, Haskins based her allegations on ads 2006-2012, while purchasing in 2007/2008.  To have standing, she’d have to allege that she was in a Tobacco II situation, and also that the long-term ad campaign to which she was exposed affected her purchase decision. This complaint didn’t, though the court would allow her to amend.

Symantec also argued that the claims were mostly nonactionable puffery.  But that apparently conceded that some of the claims weren’t.  Plus, even statements that might be puffery standing alone can in context contribute to deception and be actionable.  But the court accepted Symantec’s argument that Haskins didn’t provide enough explanation of what was false.  Though she attached the ads she was attacking and therefore Symantec was on notice, she still didn’t “set forth what is false or misleading about a statement, and why it is false” with sufficient particularity—she appended “nearly the entirety of Symantec’s 2006–12 advertisements for, and website descriptions of, the Products.” Even claims for fraud by omission need to identify the information Symantec communicated “that was rendered misleading by the failure to disclose the 2006 source code theft.”  Her burden was to “at least make a prima facie explanation of how each of the complained-of statements constitute fraud.”  Thus, the complaint was dismissed, but the court went on to address a few other issues in case she filed an amended complaint.

Haskins needed to show injury to have standing under the UCL; that can come from paying more than she would otherwise have been willing to pay because the product was not as advertised.  Symantec argued that she didn’t have standing because she didn’t allege that she viewed any specific ad or representation, but this didn’t necessarily matter under Tobacco II.  If she could win at trial on a long-term ad campaign theory, her economic injury is the purchase that wouldn’t have occurred but for the misrepresentation.  Likewise, on a motion to dismiss, such harm would at least plausibly ground a claim of “unfair” business practices, as well as fraudulent ones.  The same theory would give her CLRA standing.

Symantec argued that software wasn’t “goods” or “services” covered by the CLRA. The court disagreed, in a brief but pithy discussion.  Goods are “tangible chattels bought or leased for use primarily for personal, family, or household purposes.”  Symantec argued that (1) because Haskins downloaded the software, it wasn’t a tangible chattel, and (2) all software is outside the CLRA even if purchased on disk.  The CLRA’s language is from 1970.  “It seems unlikely that the Legislature knowingly exempted computer software from the CLRA’s scope two years before the invention of Pong.”  More likely, the legislature meant to exempt credit and insurance from the scope of the law, “since those commodities are inherently intangible promises which have no direct and concrete impact on the physical universe.” 

Of course, that reasoning wouldn’t justify expanding the statute beyond its terms.  But “tangible” means “[h]aving or possessing physical form; corporeal.” Symantec’s software is often purchased in physical form, as other “goods” are; other intangibles aren’t. Plus, even downloaded, “it works a physical change on a physical hard drive. It possesses corporeal form in a way that credit or insurance inherently cannot.”

Symantec argued that the disk was irrelevant, “nothing but a physical mechanism for delivering a nonphysical right to use intangible software.”  That was slicing the salami too thinly.  A book is a “tangible chattel,” despite being “merely a delivery mechanism for the transmission of information.”  By contrast, insurance contracts and credit cards aren’t delivery mechanisms, but physical representations of an intangible agreement.  “Consumers do not purchase software discs or books to memorialize or prove the existence of an agreement; they purchase the objects to possess and use them. As a physical object purchased for a consumer’s use, a software disc is a tangible chattel.”

Though it was a close call, the court deferred to the CLRA’s own instruction to construe the statute liberally.  At least where there’s a physical version, construing the statute to cover only the in-store version wouldn’t be a liberal construction. 

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9th Circuit resoundingly rejects presumption of irreparable harm in Lanham Act cases

Posted on December 5, 2013 by rtushnet

Herb Reed Enterprises, LLC v. Florida Entertainment Opinion Management, Inc., No. 12-16868 (9th Cir. Dec. 2, 2013)

Fascinating to have this case come out just as I’m teaching remedies in my trademark class.  The casebook (Ginsburg et al.) is hanging on by its fingernails to the pre-eBay world in which likely success routinely translated to irreparable injury for purposes of preliminary injunctive relief.  The Ninth Circuit gives the most explicit rejection yet of finding irreparable injury based on the theory that likely confusion inherently involves the risk that the plaintiff will lose control over its reputation. 

The Platters were one of the most successful performing groups of the 1950s.  Defendants (known here as Marshak) appealed the preliminary injunction in favor of plaintiff HRE, enjoining Marshak from using The Platters in connection with any vocal group (with narrow exceptions).  Herb Reed was one founder; others who came to be recognized as “original” members were Paul Robi, David Lynch, Zola Taylor, and Tony Williams.  The original members left one by one, but continued to perform under some version of “The Platters.”  Multiple legal disputes followed.

This mare’s nest, brutally simplified, is roughly as follows: Marshak claims rights descending from 1956 employment contracts between the original members and Five Platters, Inc. (“FPI”), the company belonging the group’s then-manager.  FPI transferred its rights to a company that then transferred rights to Marshak.  “Litigation over the validity of the contracts and ownership of the mark left a trail of conflicting decisions in various jurisdictions, which provide the backdrop for the present controversy.”  FPI sued Robi and Taylor in 1972; a 1974 California decision held that FPI was a sham.  But an analogous dispute between FPI and Williams in New York resulted in a 1982 decision that FPI had lawful exclusive ownership of the name. 

The Ninth Circuit upheld an award of compensatory and punitive damages to Robi, as well as cancellation of FPI’s registered Platters marks.  FPI sued Reed for trademark infringement in Florida, and avoided Reed’s preclusion argument based on the California judgment.  Reed then settled, assigning FPI all his rights in FPI stock but retaining the right to perform as “Herb Reed and the Platters.”  The settlement had an escape clause if a final order by a court of competent jurisdiction provided that FPI had no right to the name The Platters. A key question was whether the escape clause had been triggered.

Marshak, FPI, and others sued Reed in New York, and Reed counterclaimed.  The court ruled that the settlement barred Reed from asserting rights against FPI, and that the escape clause hadn’t been triggered because the earlier decisions didn’t count as a final judgment that FPI wasn’t entitled to use the name, leaving open a remote possibility that FPI could establish common law trademark rights.  (It was remote because the Ninth Circuit held that FPI would need to present evidence that they used the mark in a way that was not false and misleading, and noted that FPI was “unlikely” to be able to make the required showing.  FPI abandoned its trademark claim on remand and the evidentiary hearing ordered by the court of appeals never occurred.)

HRE, acting for Reed, sued FPI in Nevada.  “To get around the restrictions in the 1987 settlement, HRE creatively alleged that it owned the ‘Herb Reed and the Platters’ mark and that defendants used a confusingly similar mark, namely ‘The Platters.’”  FPI, then defunct and (according to Marshak) already having transferred its rights, defaulted, and a permanent injunction issued declaring that FPI never had common law rights to the mark and that Reed had superior rights.  Then, HRE obtained a preliminary injunction against a former performer-employee of FPI; the court in that Nevada case held that the escape clause had been triggered because the time to appeal the default judgment had expired.

HRE then sued Marshak in Nevada, alleging trademark infringement.  The district court held that HRE wasn’t precluded in asserting a right in “The Platters” either by the settlement, because the escape clause had been triggered, or by laches.  The court found that HRE established all the factors needed to support a preliminary injunction: likely success on the merits, a balance of hardships in its favor, irreparable harm, and a public interest favoring relief.

The court of appeals first found that the res judicata effect of the New York cases didn’t bar HRE from bringing the underlying suit.  Then the court found that laches did not foreclose the suit, because HRE couldn’t have brought its lawsuit until there was a final ruling with all appeals exhausted that triggered the escape clause.  HRE sued less than a year after the escape clause was triggered, which was shorter than the analogous state statute of limitations, creating a strong presumption against laches.

Marshak didn’t challenge likely success on the merits except to argue that Reed abandoned “The Platters” by signing the settlement agreement in 1987. But abandonment must be strictly proved, and the district court didn’t err in concluding that Marshak failed to meet his burden of showing discontinuance plus intent not to resume use. HRE presented evidence that, despite the settlement, it continued to receive royalties from previously recorded material.  “The receipt of royalties is a genuine but limited usage of the mark that satisfies the ‘use’ requirement, especially when viewed within the totality of the circumstances—namely, that Reed was constrained by the settlement.”  (Comment: Whoa.  So abandonment is basically impossible when you’ve created copyrighted works with ongoing value.)  Receiving royalties “certainly qualifies” as placing the mark on goods.  The court rejected Marshak’s argument that HRE’s receipt of royalties violated the settlement agreement and thus wasn’t bona fide. The settlement focused on the right to perform and explicitly excluded commercial recordings.

However, the injunction faltered on irreparable harm.  eBaymade clear that the Court “has consistently rejected . . . a rule that an injunction automatically follows a determination that a copyright has been infringed,” and emphasized that a departure from the traditional principles of equity “should not be lightly implied.” The Ninth Circuit concluded: “The same principle applies to trademark infringement under the Lanham Act.” Nothing in the Lanham Act indicates that Congress intended a departure in trademark cases; instead, like the Patent Act, the Lanham Act provides that injunctions may be granted in accordance with “the principles of equity.” A possibility of irreparable harm is too lenient; it must be likely.

This foreclosed a presumption of irreparable harm in trademark cases. The Ninth Circuit considered this consistent with other circuits’ holdings—N. Am. Med. Corp. v. Axiom Worldwide, Inc., 522 F.3d 1211 (11th Cir. 2008) and Audi AG v. D’Amato, 469 F.3d 534 (6th Cir. 2006).  But the court is about to go further.

The district court, anticipating that eBay and Winter were relevant, said that it was requiring HRE to establish irreparable harm.  “Although the district court identified the correct legal principle, we conclude that the record does not support a determination of the likelihood of irreparable harm…. The district court’s analysis of irreparable harm is cursory and conclusory, rather than being grounded in any evidence or showing offered by HRE.”  The district court stated that it couldn’t condone infringement just because it had been occurring for a long time; that could encourage wide-scale infringement by people trading on the goodwill of vintage music groups.  The court of appeals responded:

Evidence of loss of control over business reputation and damage to goodwill could constitute irreparable harm. Here, however, the court’s pronouncements are grounded in platitudes rather than evidence, and relate neither to whether “irreparable injury is likely in the absence of an injunction,” nor to whether legal remedies, such as money damages, are inadequate in this case.

HRE might be able to establish likely irreparable harm, but it hadn’t on this record.  The district court “simply cited to another district court case in Nevada ‘with a substantially similar claim’ in which the court found that ‘the harm to Reed’s reputation caused by a different unauthorized Platters group warranted a preliminary injunction.’” But “citation to a different case with a different record does not meet the standard of showing ‘likely’ irreparable harm.”  (I added the emphasis because this is really big, if the court is serious.  The “different case” here involved the same trademark and the same type of infringing conduct; if that’s not enough, general citations to other infringement cases in which “goodwill” was at risk can’t possibly be—which means that the tradition of considering infringement to cause irreparable harm has to be rethought.)

The strongest record evidence—not cited by the district court—was an email from a potential customer complaining to Marshak’s booking agent that the customer wanted Reed’s band, not another tribute band.  But that just showed confusion, not irreparable harm.  “The practical effect of the district court’s conclusions, which included no factual findings, is to reinsert the now-rejected presumption of irreparable harm based solely on a strong case of trademark infringement.”  One cannot collapse likely success and irreparable harm; evidence of irreparable harm is required. Remand for another look.
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Dilution is more than association: but what more?

Posted on December 5, 2013 by rtushnet

The ECJ recently ruled on dilution as a ground for refusing registration. Environmental Manufacturing LLP v Office for Harmonisation in the Internal Market (OHIM), November 14, 2013 (Case C-383/12 P).  If this is taken seriously, I can’t imagine how anyone could actually find dilution, since we don’t know how to measure it. 

Carried over from a previous case: the burden is on the senior user to provide “proof that the use of the later mark is or would be detrimental to the distinctive character of the earlier mark requires evidence of a change in the economic behaviour of the average consumer of the goods or services for which the earlier mark was registered consequent on the use of the later mark, or evidence of a serious likelihood that such a change will occur in the future.”  This proof has to come from objective elements and “cannot be deduced solely from subjective elements such as consumers’ perceptions.” Moreover, “the mere fact that consumers note the presence of a new sign similar to an earlier sign is not sufficient of itself to establish the existence of a detriment or a risk of detriment to the distinctive character of the earlier mark.”

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Blurred lines, part 3

Posted on December 5, 2013 by rtushnet

Panel 3: The Way Forward on Transparency: A discussion of best practices

Moderator: Mary K. Engle, Associate Director, Division of Advertising Practices, FTC

Examples of native ads: “sponsored” story, labeled as such in gray at the top of the headline, in the middle of news stories; story is that American eyesight is worse than you think; is it attributable to mobile devices?  Advertiser is FourEyes, eyewear provider.

When you click you get the story:

 
Panelists:

Sid Holt, Chief Executive, American Society of Magazine Editors

If it’s not from the publisher, it should be disclosed. Journalistic ethics: who’s talking here?  Good manners: someone talking to you should identify themselves before you buy.

Laura Brett,  Staff Attorney, National Advertising Division of the Council of Better Business Bureaus

Depends on whether it leaves you with any impression of advertiser’s products or services. Content determines whether it needs disclosure.

Amy Ralph Mudge, Partner, Venable LLP

Agrees: you have to look at whether it’s about a specific product, otherwise §5 isn’t implicated.

Engle: suppose the article had nothing to do with eyewear and was about the natural wonders of the world.  In that situation, would the eyewear manufacturer need to disclose?

Jon Steinberg, President and Chief Operating Officer, BuzzFeed Inc.

They wouldn’t get any benefit if they didn’t identify themselves. Brands can sometimes post content but they should ID themselves.  Wants more than that the placement is paid—wants disclosure of who’s behind the content.  There may not be a media relationship but there should be a statement of whose voice is being expressed.

Mike Zaneis, Senior Vice President, Public Policy and General Counsel, Interactive Advertising Bureau

Heart of FTC’s jurisdiction: this is a dynamic area. Is this an ad? That’s a legal issue, not a one size fits all notification requirement.  We can all agree that the disclosure on the first page is really good.  (We can’t.  Interested parties can consult the slides.)

Holt: I don’t think this is good at all.  I don’t know what sponsored means, who sponsored it, where it came from.  Needs to be clear it’s advertising, who created the content, who paid for it.

Mudge: if it’s not about a product characteristic, no §5 problem.

Robert Weissman, President, Public Citizen

The first thing that consumers need to know is who produced this? They should know it’s not there because of the independent editorial judgment of the publisher.

Robin Riddle, Global Publisher of WSJ Custom Content Studios, The Wall Street Journal

Consumers’ trust is from trust in our editorial decisions. Once you can buy a place in our environment, that’s a completely different decision, even if legally it’s not a requirement.  If you start asking “is it benefiting the brand?” that’s subjective. It’s there as the direct result of a commercial relationship.

Engle: suppose it doesn’t mention the brand but does advocate attention to eyewear?

Mudge: yes, that’s an ad.

Brett: NAD agrees. Even if it were fashion eyewear for fall, they’d need to disclose sponsorship.

Mudge: NAD said sponsorship disclosure was appropriate where advertiser was identifying other cool stuff like its product—she thinks that’s on the line. We’re here to talk about the FTC’s proper role—have to ask whether there’s a consumer protection harm in any of these scenarios.

Engle: publishers may have ethical reasons to disclose when the law doesn’t require.

What about when the publisher runs an article about problems with competitor’s technology?

Mudge: that’s an ad!

Steinberg: distinguish between an ad and where the content is from. Lots of places brands can post without paying—e.g., Tumblr.  Competitor should have a byline, but wouldn’t necessarily call that an ad because they may be doing that without paid media.  (Talking past each other just a tiny bit. Under the law, it’s still “advertising” because of the economic benefit to the speaker, but the website host isn’t responsible for it the way the NYT would be for stuff it published!)

Brett: if editor creates content without consultation then seeks sponsorship for it, that’s ordinary.

Weissman: if they wouldn’t run the article absent payment, then it’s an ad.

Brett: her view would change if they mentioned the sponsor of the article in the article—but if the article’s already written and they seek a sponsor.

Holt: very dangerous to suggest that there should be a market for specific articles to be run if paid for.

Brett: we look at it from consumer deception viewpoint: we’d look to whether consumers were confused about the independence of the article. 

Mudge: should come down to content of the article. Not necessarily dispositive how much/when advertiser participated—the question is whether consumers are deceived. Brand will want some control of editorial content; if the journalist gets it wrong, the brand wouldn’t want to be associated with that.

Weissman: if the advertiser has that kind of authority, shouldn’t consumers have reason to know about it?
Mudge: §5 disclosure obligation is different from whether consumers are interested.

Engle: suppose WP reviews a new car and the reviewer loves it. The manufacturer wants to disseminate that far and wide.

Steinberg: as long as the payment of the ad placement is disclosed, I think that’s fine.  This is an overarching question about labeling and whether or not the media is paid. You can sometimes see ads for products/movies where an actor/actress is interviewed in a subsequent TV segment. Why focus on online when this is a global labeling issue?

Zaneis: picks up on point that NYT reviewer doesn’t have to disclose that she gets books free, but blogger may have to.

Engle: defends FTC position.

Mudge: if 5 Guys wants to amplify a positive review that some random person gave them, doesn’t think they have to always disclose that it’s a 5 Guys ad—always have to disclose if there’s a material connection between them and the reviewer.

Weissman: but if it appears on the front page of the WSJ not because the WSJ decided to put it there, but because 5 Guys paid for it to be there, then you should know that someone paid to post it.

Riddle: that’s where the relationship changes and it becomes commercial.

Engle: how about best practices when disclosure is desired?

Brett: contextual. Thought that “sponsored by” denotes placement, though see last panel; “promoted by” or “you may also like” are less clear.

Zaneis: “promoted” works on Twitter; shading and other indications work. May not work on different platform.  (Okay, why are we asking these people, who while talented, intelligent and experienced clearly are not well positioned to answer “what actually works” as opposed to “what seems reasonable to me from my position”?)

Weissman: people in this room may know, but we are not a representative sample.

Steinberg: sometimes it’s not “sponsored”—they’re actually creating the content. There needs to be a statement, but sponsored is the wrong English word.

Riddle: sponsored is a term we reserve for when the brand hasn’t had editorial input—they just paid for it. Where they had input, we call it sponsor-generated, and we feel that more clearly represents that sponsor’s involvement.  Byline: WSJ Custom Content Studios for Brand [X].

Steinberg: we use brand logo, “presented by.”  We want people to know that it’s coming from the brand, create “lift” before they consume the content.

Engle: why not use the term “advertisement” or “commercial advertisement”?

Mudge: if it’s talking about the brand it’s an ad, but it’s not necessarily an ad—see the four wonders of the world isn’t an ad for FourEyes—struggled with this in the context of sponsored tweets.  Sometimes this is an ad, and sometimes it’s content.

Holt: look, if it’s paid media, it’s an ad. The key isn’t the language/nature of the label, though it would be great if all words meant the same thing across publications. But the key is special signalling. There are reasons why people don’t use ad/advertisement—disruptive to reader experience from marketer perspective. You can use any word you want as long as you explain it (e.g., roll over).

Weissman: Disruptive cuts both ways. Understands why advertiser doesn’t want that, but another way to understand that is that the consumer actually received the message “this is an ad.” Consumer interest in knowing that is the disruption.

Zaneis: one label assumes a well-curated site, which isn’t necessarily the case. One size fits all works really well for consumers, but then consumers grow blind to it.

Holt: my understanding of native ads is that the intention is to not disrupt the reader experience with ads.

Zaneis: it’s to be part of the experience—to engage the consumer as the content engages them.

Steinberg: these products arose because they create a better experience—consumers complain lots more about “welcome” screens than they do about other ads. When you have an ethical publisher, the consumer sees what it is, and if they like it they click and share. This works better for the advertiser and the consumer; needs to be clearly labeled, but solves a problem of a broken ad economy.

Engle: how important is ID at the headline level versus disclosure once you’ve already clicked?

Brett: deceptive door-opening. If you need to label, you need to tell consumers that they’re headed to ad content.

Riddle: if there as a result of commercial relationship, it should be called out.

Mudge: there’s a difference between clicking on something and having someone enter your home. The consumer harm is less.

Engle: If consumers don’t know it’s an ad they won’t necessarily look for the signals that it is an ad once they arrive.

Holt: we can only provide the information; we can’t make them consume it.

Brett: we need to safeguard that the disclosure is clear and conspicuous; not our issue if consumers disregard it or don’t care.

Steinberg: if a brand creates content that’s clearly labeled, and the consumer gets there through paid placement or whatever, and the consumer chooses to share that, that’s not a paid action so that shouldn’t need to be labeled paid.  Needs to be clear that Coca Cola is the creator, but it’s not a paid media relationship.  FB won’t allow publishers to put in the name of a brand when content is shared out; we would gladly do that with our content shared onto FB if that were allowed.

Riddle: I make an editorial decision when I share the Five Guys review.  We’re editors of our own social media channels.  We have to think about our own brands. If we care about people in our communities and want to remain credible, we think about what we want to share. Should we be paid?  Maybe, but in this instance it’s organic decision, so that doesn’t need to be disclosed.

Engle: suggests that’s important for original content to be labeled in a way that carries through.  So that recipients know the source.

Holt: all they need to know is that it came from their friend. 

Weissman: if it ultimately came from Coke, you should know that.

Engle: if the advertiser pays for placement in the Post Gazette, what should happen when it’s shared?

Zaneis: the original publisher doesn’t have control over how it’s shared; we all use link shorteners when we tweet. There’s no mechanism, and a different relationship with the consumer—probably comes from the friends.

Mudge: if my mom wants to share the article with me, when I go back to the article, I can see it comes from Four Eyes.  If it’s a dancing cat video holding a can of Coke, that’s product placement.  We have clear guidance on that: not all product placements require disclosure.

Holt: again, that’s something to take up with your friend sharing cat dancing videos.

Weissman: if Coke produced the dancing cat video, maybe the tweet doesn’t have to tell you, but when you get there you need to be told.

Mudge: but we don’t need to disclose product placement on TV.  (Again, a bit of talking past—might depend on whether it’s actually full-on paid for by Coke, or they just gave free product.)

Steinberg: if I get my ideas about what’s a good car from TV ads, I don’t have to disclose that when I tell my friends.

Engle: Another example: content from around the web:

Brett: disclosure that some content is sponsored is hard to read; placed in places consumers aren’t likely to look. Goes to clear and conspicuous.

Zaneis: looks fine to him! If there’s a sponsored link in the gray box that’s ok.

Weissman: those disclosures are awful, almost unidentifiable unless you’re in the business of knowing that these things are ads. The “what is this?” statement is unhelpful in the extreme.

Riddle: we look for graceful transparency—not telling people not to read it, but clearly calling it out.

Brett: if it’s on “most read” the question arises whether it’s actually there because it’s most read or because someone paid for it.

Holt: if it’s not really most read, then disclosure is substandard just from the consumer’s perspective. 

Engle: if it’s under the most read heading, it ought to be most read, agree?

Mudge: not going to disagree, but Bureau of Economics would say that the market will take care of this. Trust is important, and don’t want to make consumers suspicious.  This wouldn’t happen. (Buh? How are consumers supposed to verify whether that was really “most read”?)

Steinberg: sites that did popunders and installed toolbars are no longer around; the market worked.

Engle: please note that the FTC took action there as well, not just the market.

Mudge: keep eyes on the prize—can’t have too many disclosures.  If one of the pieces in a column will take me to sponsored content, I’ll find that out when I’m there; don’t muddle the page.

Weissman: then you’ve got too many ads on the page.  How does your responsibility change because you’ve got a lot of ads on the page?

Mudge: consider what you can do clearly and conspicuously.

Weissman: but if you need to disclose if you’re doing X, that’s a constraint.  If you say you’re recommending it but don’t disclose your paid relationship, that’s deceptive.

Mudge: not anti disclosure but we need to think clearly.  Too much disclosure can muddle. Balancing disclosure and native feel.  Users should be comfortable.

Zaneis: some content is labeled as advertising. If you have an unlabeled ad next to it, that’s not a hard question.

Engle: the question of mobile.  “Powered by TotSmart”—what does that banner mean?

 

Panelists thought that the links below that wouldn’t be TotSmart-paid/generated content. Confusing if it was.  What can be done?

If the article below the banner is custom content for TotSmart, but other articles aren’t: Riddle says put visual cues, clearly demarcated area; “sponsor-generated content”; byline should be clear that it’s written for TotSmart.

Steinberg: you really need two indications: disclosure that advertiser is behind the section on the website; they need a disclosure that the content in a specific article is sponsored by TotSmart

Engle: what about when some of the articles have nothing to do with TotSmart?

Steinberg: if TotSmart is sponsoring a section of the website, they should have to label the native ad—the part of the content they’re responsible for. Otherwise it’s just a sponsorship.  (Note here the use of “sponsor” in a way completely different than you see on many sites.)

Mudge: when it’s about their product.

 

Q: two separate discussions—whether something is advertising and who it’s from. In print media/TV, I know when something is advertising even if I don’t know who’s doing the advertising. Why should it be any different in the online space?

Brett: again, depends on what the content is. If it’s “help your child learn to read” and you’re recommending your own product, consumers need to know that to understand the context of the recommendation. Conflicts come because article may discuss more product attributes than a 15-second commercial.

Q: but is there an obligation, regardless of context, to disclose—why isn’t that just a business call?

[because you’re asking people to click, which is different than presenting them with the ad as they turn the page/change the channel.]

Steinberg: it’s a matter of where you are in the cycle. When you turn the TV on, are you watching an ad?  There is a type of ad campaign, the teaser, which doesn’t disclose its full source—you just see Tom Cruise twisting in space. We’d love to do those campaigns on Buzzfeed. We think they can be done ethically and legally, but there’s so much confusion now.  It’s a hot button for online.

Zaneis: but you can certainly tease out the message.

Steinberg: discussed using “this is a teaser campaign.”

Zaneis: legally speaking, it can’t be the standard that you must label it with the sponsor’s name.  (How would labeling it “Warner Bros.” interfere with the tease?  Just asking.)

Mudge: ask when the omission of the brand would be material to the consumer. Would be in a disparagement context. 

Brett: editorial/publisher’s perspective has an interest in protecting itself different from whether consumers are being misled.

Q from audience: is the publisher potentially liable if the content of the ad is misleading, like an ad agency can be?  FTC holds ad agencies liable if they participate in creating/disseminating and knew or should’ve known that it was misleading.

Riddle: we wouldn’t get into the level of detail of endorsing specific products. But we hold custom content to the same standard as news. Completely separate buildings, but we write to the same standard to maintain trust.

Brett: If publisher is acting like an advertiser, we’d want to hold them responsible, but we try not to get into First Amendment issues.

Mudge: the FTC will certainly attempt to hold you liable if the conduct is egregious enough—health claims, curing cancer.  Be careful.

Q from audience: where do we go from here? How is the FTC thinking about enforcement?

Engle: we have an open mind.

Closing Remarks

Jessica Rich, Director, Bureau of Consumer Protection, FTC

These issues aren’t new; the basic concepts have been addressed again and again over the years. But today the interest in native advertising is stronger than ever and we expect billions in revenue shortly. Offer more than traditional internet advertising models; reaches more targeted and tracked audience responses; offers possibilities of realtime interactions; can be shared and seen more places; it gets better real estate; could be more interesting for consumers.
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