Google v. Oracle argument preview

Chicago-Kent College of Law 2020 Supreme Court IP Review:
Google v. Oracle

Copyrightability issue: Pam Samuelson: Supreme Court has 2x
decided that functionality defeats ©ability for certain words/symbols when they
constitute a system/method for accomplishing a useful result. Paris v. Heximer,
a claim of infringement over D’s copying of a symbol system for ID’ing
different types of buildings for fire insurance maps. Baker v. Selden too. Didn’t
matter how original symbols/words were or what other choices were possible at
the time of creation. Promotes progress of knowledge by allowing authors to
build on existing knowledge and promotes useful arts by preventing © from being
misused to give protection to patent-like inventions that didn’t satisfy patent
standards. Dozens of cases on how shorthand systems, tax record systems, games
are unprotectable even when embodied in a © work. Codified in §102(b).
Codification came in order to deal w/fears about protecting computer programs as
literary works, per legislative history; Fed. Cir. instead ignored every word
in §102(b) except “idea” and ignored legis. history of concern for
overprotection.

Fed Cir never identified the relevant work of authorship or
asked what the scope of protection available to the work in light of Baker
& its codification in §102(b). The relevant work is Java SE, which has the
API and numerous other elements of the Java technologies created by Sun &
its engineers. The Q is whether the specific declarations Google interspersed
in 15 million lines of code are w/in the scope of protection for Java SE. Judge
Alsup made findings of fact that these were methods/systems, consistent w/9th
Cir. law which has twice held that program interfaces that enable interoperability
are unprotectable procedures under 102(b). Sun—developer of Java—participated
in an organizational brief in support of Borland in Lotus v. Borland,
committing to proposition that interfaces that enable interoperability should
be treated as a system.

Interfaces are fundamentally distinct from implementations:
everyone has to write their own reimplementations, but reimplementations
themselves are legitimate, which promotes interoperability and competition.

Merger doctrine leads to the same result. Once you decide to
adopt a certain system, that constrains potential implementations. Many cases
involving 102(b) thus use merger as an alternative argument.

Anne Capella (Weil): Programmer; represented computer
science professionals to talk about the underlying technical aspects. APIs are
tools for app developers to write applications. They are the audience for the
APIs. Try to make them easy to use and intuitive. Also explained: what is
declaring code? May look like a collection of random words, but there are a lot
of subjective decisions that have to go into designing those and that are not
completely dictated by function. There is original expression. Like a haiku:
there are constraints on the format, but also subjective decisionmaking and
creativity. API designer that would design declaring and implementation code
would be balancing functionality, flexibility, simplicity and trying to make
those attractive to app developers, requiring selection of which function to
present, how to organize. Not just a filing cabinet but hierarchies that are
important as to their locations. There are good APIs and APIs that are more
attractive than others; Java was known for being well designed and intuitive
which made it attractive to app developers. Better APIs have better expressions
for the same function, which are not dictated by the functions themselves.

You can also write your own programs to provide the same
functionality that wouldn’t have to use the same name, organization, design
choices for what would be in the declaring code. [Which seems a lot like games
and shorthand systems.]

Interoperability: there was no technical need to use the
declaring code. Programs written for Java SE can’t be used on Android w/o
modification and vice versa. Not all of the APIs are available in both. There
wasn’t a need to use them to create a new Java platform. Google could have
written its own declaring code but wanted the intuitive code and wanted to
attract programmers to their own platform. Programmers want to protect
expression in declaring code. If it’s protected, people might try to hold
interfaces proprietary, but Java had a license that Google chose not to use.]

RT: (based on this amicus)

At its core, the fair use argument for Google is about why fair
use is a multifactor test and why there are different kinds of fair uses. I
will touch on deference to the jury though I have plenty of other thoughts on
that for the question period.

Fair use has four nonexclusive statutory factors: the
purpose of the use, the nature of the accusing work, the amount of the original
work taken, and the effect on the market for the original work.

Beginning as usual with factor one: The extent to which a
new work has a new meaning, message, or purpose—transformativeness—is often and
rightly prioritized in the fair use analysis. But what constitutes transformativeness
is often contentious. Here, the new purpose of Google’s new code implementing
the declarations was the creation of a new computing environment in which Java
programmers could readily create programs on multiple platforms, which required
the use of limited portions of highly functional declarations. This “technical
interchange,” is a specific kind of creativity-promoting transformativeness.  It’s about the programmers, not whether the
program is “run once run anywhere,” which is a red herring. This type of purpose
has been recognized as transformative because of its role in furthering
competition and innovation. A computer interface supports the creation of other
creative works, and in such situations, it is important to avoid locking in
third parties to specific platforms.

By contrast, the Federal Circuit reasoned that factor one weighed
against Google because the intrinsic purpose of the parties’ declarations was
the same. But that reasoning creates a per se rule against copying any
interface elements or code in a computer program, and fails to appreciate the
interaction of factors two and three with transformativeness. The Federal
Circuit’s simplistic rationale suggests that a law review article that quoted
another law review article for support would infringe the earlier article,
because they both had the same “intrinsic purpose.” Without assessing the role
of the copied material in the parties’ works, this is a mistake.

Factors two and three of the fair use test help define the
boundaries of technical interchange fair use. The highly functional nature of the
copied declarations and the limited amount of the overall Java SE work used,
consistent with industry practices, support the conclusion that Google’s use
was a transformative use that served copyright’s basic goal of encouraging
creation of new works.

As to the nature of the original work: The jury heard
evidence that the declarations and classes of the Java SE API were functional,
not merely in the way that all computer code performs a function, but specifically
in that these particular declarations perform their mini-duties in noncreative
ways. The Federal Circuit acknowledged the thinness of the copyright, but it
failed to put this factor in proper context and thus to give it actual weight,
instead reasoning that the second factor did not matter to fair use determinations
generally, a proposition for which it cited only cases involving highly creative
works like songs. But there are four factors because various fair uses can be
fair for different reasons, and the factors may thus differ in relevance across
types of cases.

Here, the reasons that factor two favored Google are highly
relevant to the overall fair use analysis. No matter how much work and how many
choices went into producing Java SE, the highly utilitarian nature of
declarations means that copyright grants them thin scope at best. This thinner
scope of protection naturally leads to a broader scope for fair use, especially
in conjunction with factor three.

On factor three, amount, the question is not whether, in
judicial hindsight, the defendant took more than absolutely necessary, but
whether the amount taken was “reasonable in relation to the purpose of the
copying.” As the jury heard and evidently credited, Google took an amount from Java
SE considered in the industry to be reasonable in light of its purpose of
developing new, compatible works.

One aspect of the Federal Circuit’s error was its emphasis
on the 37 packages that Google copied in “entirety.” In a fair use analysis, it
is vitally important to identify the allegedly infringed work or works. As the
statute commands, the proper inquiry considers the amount taken “in relation to
the copyrighted work as a whole.” Without careful attention to the boundaries
of works, especially unfamiliar works such as software, plaintiffs can
manipulate their claims to artificially increase the relative size of what was
taken. As Justin Hughes has written, “If our goal is to create special incentives
for the building of houses, we do not necessarily need special incentives for
the making of bricks or the mixing of mortar. . . ..”

So what was the work at issue? Both the copyright registrations
and industry practice were clear: the work is Java SE, which had about 5
million lines of code; Android was three times bigger. Google’s implementation
expressing the declarations at issue totals about 11,500 lines. As a
quantitative matter, what was copied was a rounding error. Yet the Federal
Circuit characterized Google as “taking a copyrighted work verbatim,” as if the
fractional part were the whole.

As the district court detailed, the jury could have found
that Google used highly limited portions of Java SE’s APIs as part of an
innovative mobile device platform. The jury heard testimony that portions of
Java SE that Google reimplemented preserved consistency of use within the
larger Java developer community. What’s more, a large number of books have been
published that set forth the Java SE API, in whole or in part, including the
declarations and class structures. Numerous witnesses, including Sun’s then-CEO
who was there when it developed Java, testified that Google behaved according
to industry practice: write your own implementing code but APIs are for
everyone to use.

Where others were freely copying large parts or the entirety
of the API, the jury could have found that Google’s far more limited copying strongly
favored Google. In this way, the thinness of the copyright—factor two—interacts
with factor three: even if APIs as a whole cross the line into
copyrightability, Google should be able to use declarations (and the organization
they necessarily reflected) that were reasonably necessary to pursue its
legitimate goal of enabling the creation of an environment accessible to Java
programmers.

Which leads to factor four: By downplaying the relevance of
the nature of the work and the amount taken, the Federal Circuit fell into the
well-known trap of circularity: reasoning that, because Oracle could have
charged a license fee for this type of use if fair use were unavailable, Oracle
therefore suffered cognizable market harm.

Because such claims can be made for any fair use, which by
definition is not paid for, this reasoning cannot distinguish fair and unfair uses.
In some situations involving traditional creative works with “thick”
copyrights, experience and normative commitments to free speech break the
circle: the markets for criticism, educational uses, and parody are not
legitimate even if a specific copyright owner evinces a willingness to license
particular instances.

When it comes to software, the benefits of interoperability
and allowing third parties to avoid lock-in to particular platforms similarly
explain why licensing interface reimplementation in newly written code is likewise
not a legitimate copyright market.  Here,
factors two and three can help identify when crediting claimed market harm
would be inconsistent with copyright’s overall balance between past and future
creators.

In reversing the jury’s verdict, the Federal Circuit wrongly
relied on the circular claim that Google could have taken a license for the
precise use it made and that this possibility established market harm. But the
evidence did not establish harm to the market for “the work,” Java SE, or even
the existence of a market for a limited number of highly functional
declarations.

A thin copyright for software, including Java SE, provides
software copyright owners with meaningful protection against copying of
significant amounts of expression, but meaningful protection does not require the
expansive rights that the Federal Circuit granted.

Elizabeth Brannen, Stris & Maher: Nothing is free.
[Other than this webinar?]

What Google copied was expression that was popular with Java
developers and that cost lots of resources to create. Those packages covered
6000 separate methods that Google didn’t have to write itself. Those packages
are in executable form on countless Android devices.

Interfaces v implementation is a false dichotomy. We need to
look at what was copied and was it expression. The haiku is a good analogy.
Best interfaces are concise and intuitive, which are hallmarks of good writing
in any context. Google copied b/c 6 million programmers knew and liked the Java
interfaces to call the prewritten methods. It copied what it did because of the
expressive value of that code. Most computer code is zeros and ones. Google
copied what’s meaningful to developers, the expressive part. It didn’t copy for
technical reasons. Wrote its own versions for many Android declarations. Copied
not b/c of technical impossibility but b/c didn’t want to require Java
developers to learn new calls, so it helped itself to the ones they already
knew and liked. Google made a lucrative business decision. To call the © thin
is to say functional works should receive second-class protection. [We have
thin and thick © for a reason—of course it’s about scope. It’s not second-class
to rece] Google didn’t transform. It’s not fair to replace and supersede the
original.

Transformative use changes something about the
message/content—parody, commentary. Google killed Java SE for mobile. There was
unrebutted evidence that they designed Android to be incompatible w/Java. No
court has found fair use where there was an incompatible software product. [Connectix
found fair use where there wasn’t full compatibility, as here.] Google took a
shortcut and made money. Fair use would undermine the incentive to create new works.
People only take licenses because they have to. Expressive aspects of code need
© to incentivize investment and making code available under unrestrictive
licensing terms.

Ned Snow, South Carolina Law: The only Q the Supreme Court
will care about: In the late 1700s, did the issue of fair use determine whether
a defendant had infringed the legal right of copyright? The test isn’t which
court was the first to decide, equity or law. Not whether fair use more
frequently arose in a court of low or equity; that depends on what remedy is
sought (injunctive relief or damages). Also not whether a ct of equity would
have granted a D’s request for a court of law. Not whether a court of equity
states that judges should detrmine the issue. He argues that two cases
determine the answer. [This is no way to run a railroad, which is not Prof. Snow’s
fault at all, but his explication trying to extract fair use from a pre-modern
system convinces me of the disutility of the enterprise.]

Sayre v. Moore, Lord Mansfield, fourteen lines of legal
analysis. Mansfield recognizes value in correcting errors in faulty sea charts.
Charges the jury to find whether D corrected errors or servilely copying: value
and purpose of D’s use. Points to allegation that alterations are “very
material” which points to transformation. Also encourages jury to consider
whether D’s work enables or worsens navigation, which points to nature of
work.  If you think so, he tells the
jury, you find for the D; if you find mere servile imitation, you should find
for P. Shows that jury determined the infringement of the legal right. Neither Mansfield
nor jury was concerned with independent creation, or fact/expression dichotomy.
Lockean labor theory/no reason to think that factual works had less protection
than expressive works. Even if we inferred that, the inference would support
using fair use which considers fact/expression in factor two.

Next question: what is the review standard for mixed
questions of law and fact. Descriptive argument: what’s going on? Take a raft
of case-specific historical facts, balances them, and produces a result. That’s
pretty factual sounding, per J. Kagan in US Bank v. Village at Lakeridge.  When an issue falls b/t pristine legal
standard and simple historical fact, standard of reivew reflects which judicial
actor is best positioned; juries have a variety of life experience, suggesting
deference to them, though judges can issue general principles.

William Jay, Goodwin Procter: Bottom line: accepting Google’s
argument in its strongest form, fair use is a four factor test and not only is
each factor grounded in the facts, but the balancing is itself a factual
question. That’s the key assertion here. If the Ct agreed, it would circumscribe
JMOL review, but would also make summary judgment all but impossible even on an
undisputed factual record. Skeptical the Court will go there in its strongest
form. There was a jury trial! So this is a case about the appellate standard of
review. Oracle does say there was no right to a jury trial anyway, so the 7th
Amendment is irrelevant, but at the end of the day the Fed Cir was reviewing a
JMOL verdict after a jury trial. Everyone pretty much agrees that the standard
of review is in a sense de novo, but de novo review of what? Oracle’s position
is grounded in Harper & Row, which was a bench trial; J. O’Connor said that
the appellate court didn’t need to remand but could conclude no fair use as a
matter of law.

How should that work here? At a minimum, jury’s job is to
find historical facts: how much of the work was taken? Those historical facts
need to be taken in the light most favorable to the prevailing party. But many
Qs are Qs of degree, along with the final balancing of factors. Is that final
balancing factual? Harper & Row didn’t remand for a new finding, but
instead said that it was important to have historical facts determined and then
the reviewing court could make its own determination. The remainder of the
analysis is the province of the courts in a non-bench trial case.

If Google is right, there’s no work for judges to do after
jury verdict, b/c it’s always possible that some kind of weighing favors the
verdict. But the Court likely won’t reach that; Oracle agreed to a jury trial and
there’s no need to decide how much of a right to a jury trial there is to
decide the standard for JNOV.

Tomas Gomez-Arostegui, Lewis & Clark Law: 7th Amendment
test is historical, turning on English authorities circa 1791. But Ct often not
clear about what precisely it seeks from the record. Analogues work but how
analogous they need to be is unclear. Feltner for example didn’t deal w/statutory
damages. We’re looking for “established practice” but neither of those words are
defined—Feltner cited two cases in which juries awarded nominal damages.

© litigation before 1800 was mostly in equity; ordinary
damages were difficult to prove and even penalties were hard to obtain; there
was no provision for discovery in law courts and P & D couldn’t even
testify. Equity was easier! Chancellor could determine law and facts. Equity
wasn’t obligated to send © suits to law. If Chancery did push a case to law, it
was typically for a sticky legal interpretation Q. If they did go to law, there
were lots of issues that were sent to the jury.

What about fair abridgement? 18th-c analogue to fair use?
Oracle stresses it’s an equitable doctrine, w/no right to jury, and also argues
that it’s not the same as fair use. Fair abridgement raised in equity from
1680s through 18th c, but no case at law before 1800 of which he was aware adjudicated
fair abridgement. That doesn’t make it a purely equitable doctrine, esp. since
it came from a statute that would apply equally at law and equity. One of
the  most visible fair abridgement cases
in 1870s, Lord Hardwick, influential, said that the doctrine was part of the Statute
of Anne.  Fair abridgement = create a new
book. Not an excuse: if fair abridgement, then no infringement. Amount taken;
effect on market; added as developed. Not modern fair use but close in some respects.
Considered this to be a Q of fact, though difficult for a common jury. He preferred
to adjudicate the issue in chancery, aided by experts appointed by parties, but
didn’t rule no jury could hear it. Partisan expert testimony became more common
in courts of law just as he was leaving. He specifically said that his job was
to interpret the statute in equity the same way it would be interpreted at law.

Elephant in the room: no known fair abridgement cases at law
before 1800. So what do we do? In 1791, nothing prevented a P from raising the
issue in law and having a jury determine it, since it came from the statute, was
a component of the infringement analysis, and had been called an issue of fact.
Maybe the law courts would have rejected Lord Hardwick’s interpretation, but
they didn’t reject it in 1807 when they got the chance.

Discussion period

Samuelson: Haiku? Popularity? It’s not popularity, but use
of your learning as a programmer v. having to learn a new language or dialect
in order to write for the platform.

Compatibility: there are programs in Java that run on
Android and vice versa. It’s true they’re not fully interoperable but that’s
not necessary. Oracle is arguing that you have to copy the whole thing for
interoperability and that’s not a sound analysis. The 83 software engineers’
brief is a really good explanation.

Capella: New languages are common; programmers are used to
switching. That’s where a lot of innovation can come from. APIs are a tool/part
of the overall system: would be more relevant to look at APIs themselves.
[which is why these are highly functional!]

Samuelson: Fed Cir rejects six other appellate decisions
that say interfaces are uncopyrightable to the extent they facilitate/enable
interoperability. Fed Cir didn’t just distinguish those decisions as being
about “true” compatibility (and Connectix is about replacing the other guy’s
platform and is only partly compatible)—it’s a rejection of every other
decision except Jaslow.

Capella: There’s different types of interfaces. APIs are
tools that programmer can use. Interfaces to platforms are very different
types. Declaring code isn’t just for APIs, but even for internal modules that can
be called. Slippery slope.

Brannen: A lot of cases interpret 102(b) to codify
idea/expression. Is there any way to give effect to the words of the statute
w/o having the exception swallow the rule. Worried about second class
citizenship for software. 102(b): should you just ask yourself, did they copy expression
that had merged?

Samuelson: It’s correct that the Fed Cir said you can’t take
102(b) completely literally b/c it would prevent all (c) for computer programs.
But it’s not correct to say that all the words in that statutory provision but “idea”
should be ignored. There is a clean distinction b/t things that are the method/system
versus explanation/expression. Not everything creative in a work is protectable
by (c) law.

Q: size Q: 11,500 lines/less than .5% of code in Java and
.1% in

RT: look at the work registered. APIs are tools; the whole work,
Java SE, is protectable but parts of it aren’t.

Brannen: Qualitatively: they could have written it differently?
They didn’t b/c what they copied was popular w/the developer base they wanted
it to court

RT: That’s not what Fed Cir said; they said it was qualitatively
important b/c Google took it which was circular/inherently anti-fair use.

Actually, some things are free: 107 says so! It even says
that “multiple copies for classroom use” are examples of fair use, not just
criticism.

Popularity is one way to say it; utility is another. QWERTY
keyboard isn’t popular because people like the expression; it’s popular b/c it
makes transferring between keyboards easy. If I can read your shorthand b/c we
both trained on the same system, that’s different from both of us liking Harry
Potter.

Cappella: it was popular because it was elegant and people
used it.

Samuelson: if you read the lower court opinion, you can see
that what this was about was that Java was originally developed for enterprise
systems. Smartphone was going to be a different kind of computing environment;
needed new APIs, but for things like comparing two numbers and seeing which was
larger, those things needed to be done on both environments and should be kept
together.

Brannen: there was expression; troubling if they could pick
what they wanted w/o paying and kill Java for mobile.

Q: does the SCt need to understand all this to resolve it?
Google describes it as functional and Oracle as expressive.

Samuelson: that’s one reason many of us are nervous about
this case. By comparison w/Lotus v Borland, this is more technically
complicated.  Some of the big players
really want the copyrightability issue decided so they’re doing the best they
can to explain what’s at stake. Only Breyer has followed the issues; would expect
him to try to take the lead on that.

Capella: Q of who should evaluate this—it’s important to
look at it from the audience’s viewpoint, which is the app developers. Trying
to evaluate expressivity in a foreign language, which is difficult.

RT: There was testimony that both the trial judge and the
jury relied on about what professionals thought about protectability—which is
one reason this case may be tempting for the Court to see as a standard of
review case. This could be another Inwood v. Ives, which is an important TM
case but at the Court is decided as standard of review. And the Court may be
better at getting that right, given what it knows, than at evaluating the
technical details of ©ability [or, as Jay suggests, at evaluating the history].

Brennan: does gov’t’s position matter?

Jay: Maybe, but has been more pro-© claimant in a number of
cases than the Court has been. The fact the gov’t thinks it’s © eligible is not
going to be institutionally persuasive.

Samuelson: SG’s position in Georgia v. PublicResource was
rejected; doesn’t think it’s hugely impactful.

Q: standard of review/7th Amendment?

Gomez-Arogstegui: The appellate standard of review is de
novo; that’s easy. The rule 50(b) standard the trial court is supposed to apply
is also easy—it’s deferential. What’s tricky is that 50(b) assumes that an
issue of fact has been properly assigned to the jury, which is in doubt given
Harper & Row.  You can’t call fair
use a mixed Q of fact and law if it turns out you have a constitutional right
to all issues relating to fair use—would have to either overrule Harper & Row
or distinguish it as involving a bench trial.

Snow: Harper & Row is the final twist in this unusual
case. History until H&R rarely involved SJ in fair use cases; 9th Circuit
starts to in the early 1980s, and H&R then produces Fisher v. Dees in which
9th Cir. says it’s pure law. 2d Circuit stays reluctant, but in 1990s everyone
starts granting SJ, including Second Circuit in Castle Rock (Sotomayor).
Key Q: Does the court want to go back to when fair use couldn’t be decided on
SJ? May seem like lesser evil v. wading into the tech, but then all these cases
have to go to trial. It’s a bit silly to have so much turn on 14 sentences from
hundreds of years ago in one case. But it could be good to clarify that Harper
& Row
’s language was referring to a bench trial; jury verdicts post
Harper & Row are still reviewed on a deferential standard.

Jay: review of jury verdicts is deferential, but as to what?
If a pure legal Q surrounds why the issue goes to the jury, everyone agrees
that in the JNOV decision the judge can reexamine the legal Q and decide it
wasn’t legally sufficient to go to the jury. Might be able to avoid judge/jury
issue if they resolve the law/fact issue in certain ways; not all mixed Qs are
alike.

Snow: we can’t dodge the constitutional issue if the
inferences from the facts have historically been sent to the jury and so
history shows there’s a right to have the jury make the inferences.

Samuelson: most unsatisfactory about the fair use reasoning:
it said there are only 2 facts we’re willing to recognize—whether there was
good/bad faith and whether it was more functional than expression. If you look
at Alsup’s opinion, there were a number of other factual issues where the jury
was presented with evidence on the parties’ positions. If the SCt goes in the
fair use direction, hopes they’ll broaden the set of issues considered “fact”
issues. How you can possibly say market harm is a purely legal issue is a Q!

RT: slightly different take b/c there are areas of
normative/legal concern where, for example, we just don’t consider the © owner’s
claim that it was willing to license parodies as evidence of market harm. So for
each factor there can be normative components and factual components.

Josh Sarnoff: hard to reach fair use w/o finding protectability
of what was copied [and yet courts do it regularly by using thinness of © in
the fair use factors; that’s treated an amicus I filed in the pending 2d Cir.
Warhol case]. US Bank is fundamentally incoherent: the mixed Q is “does the law
apply to these facts?” But giving the overall fair use Q to juries makes no sense
at all. The Court could explain this properly, though it wouldn’t solve “what
conduct is fair or not fair?” The Q of what conduct is illegal under the
statute—that’s a judge question.

Snow: thinks it’s more like negligence/reasonability of
conduct.

Sarnoff: thinks it’s more like obviousness in patent; among
other things was always a statutory question and not a common law question.

Q re arguments

Jay: J. Thomas has historically written IP opinions but not
asked questions; the new format allows him to ask questions that can be
agenda-setting, while J. Breyer will have a time limit which is also new.

Q: there were 60 amicus briefs filed, many focused on
innovation/software industry. We’ve seen Court punt on policy issues to
Congress and say it was just applying the statute. Will the Court engage
w/arguments about innovation?

Samuelson: thinks Court will care about industry structure,
but it’s hard to get attention for one particular brief if there are so many.
Clerks will try to identify a relatively small number of briefs for Justices to
read. Microsoft/IBM briefs are likely to get attention, and computer science
briefs on both sides. Comparison to eBay v. MercExchange, where innovation was
something the Court took seriously.

Brennan: even if they don’t address it explicitly, hopefully
they’re thinking about it given the outpouring of concern. Some of the
companies on Google’s side have shifted to a nonproprietary model where they
give software to people for “free,” but remember that nothing’s really free. Proprietary
software still matters and we shouldn’t destroy that model.

Q: For Capella: how does she think about the patent/©
interface for software, as a former software programmer? Patent trolls have
been a problem, but © lasts so long.

A: Original expression should be protected; there wasn’t a
lot of open source when she was practicing, but even open source involves
tradeoffs depending on the license. You’re not getting something for free. If
you use and build on innovation of others, many licenses have obligation to
give back. Some companies have chosen to go that direction. Have to abide by
the law.

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low-quality lead generation leads to deceptive marketing claims

In re HomeAdvisor, Inc. Litig., No. 16-cv-01849-PAB-KLM, 2020
WL 5798515 (D. Colo. Sept. 29, 2020)

HomeAdvisor “is an online marketplace that helps connect
persons providing home improvement services, i.e., home service professionals (‘HSPs’),
with homeowners in need of such services.” It’s a subsidiary of defendant IAC, a
media and internet company that owns over 20 operating businesses comprising
over 150 brands and products. Defendant ANGI is the holding company for
HomeAdvisor and non-party Angie’s List.

Plaintiffs are home service professionals who paid for memberships
with HomeAdvisor in order to receive homeowners’ service requests or “leads.” The
HSPs must pay $8-140 for each lead depending on type and location; the cost isn’t
included in membership fees.

Plaintiffs alleged that HomeAdvisor misrepresents that its
leads are connected to high quality, project-ready customers, but instead the
leads often directed HSPs to “wrong or disconnected phone numbers,” “wrong
contact information,” “persons who never even heard of HomeAdvisor” or “persons
who are not homeowners,” “stale Leads, including for projects that homeowners
completed months or years prior to the Lead being sent,” or “contacts for
vacant or non-existent residences,” among other things.

HomeAdvisor allegedly contracts with over 100 lead generator
companies, including the “Venture defendants” and defendant CraftJack. HomeAdvisor’s
parent company IAC allegedly exercised control over the terms of the lead
generation agreements that HomeAdvisor entered into with these third-party lead
generators.

Some third-party lead generators, such as CraftJack, are allegedly
HomeAdvisor’s direct competitors and,

in many instances, sell the same
leads provided to HomeAdvisor to their own networks of home service
contractors, a fact which HomeAdvisor did not disclose to plaintiffs.  HomeAdvisor does not exercise any quality
control over the leads it purchases from these third party lead generators, for
which it pays a “nominal” amount, and plaintiffs claim that HomeAdvisor is
aware that a low number of its leads result in actual home service projects for
the HSPs.

CraftJack supplied HomeAdvisor with over 1.15 million leads
from 2012 until mid-2017; these were allegedly poor quality, with low contact
and win rates. HomeAdvisor’s internal tracking allegedly demonstrates that
certain leads generated by CraftJack only have a 24 percent chance of ever
making contact with the homeowner. Likewise, plaintiffs alleged that Venture
defendants’ leads are exclusively generated through websites they owned and
operated; the Venture defendants and HomeAdvisor were allegedly aware that
robots were generating fake leads through the websites, but the Venture
defendants failed to include a CAPTCHA5 to prevent this abuse.

From 2012-2017, HomeAdvisor’s quality filter allegedly “flagged
approximately four to five percent of the leads received, and in most cases,
HomeAdvisor ignored the fact that the lead was flagged by the filter.” Indeed, “more
than 98 percent of the leads obtained by HomeAdvisor from this five-year period
were inserted into HomeAdvisor’s lead database without any significant
screening or verification,” including any validation of the accuracy of the
address, phone number, or homeowner name associated with its leads.

In addition to this allegedly deceptive conduct, the complaint
alleged that the HomeAdvisor entities diverted business away from HSPs by
co-opting, using, and exploiting the identities of current and former HSPs:

When an HSP becomes a HomeAdvisor
member, HomeAdvisor creates an online profile page based on information gathered
during the enrollment process and extracted from the HSPs’ websites and other
online sources. … Plaintiffs allege that HomeAdvisor’s “online marketing and
search engine optimization (‘SEO’) capabilities are employed to rank the HSPs’
HomeAdvisor Online Profile Pages at the top of internet search results,
outranking even the HSPs’ own websites, paid adwords, and other listings.”
Plaintiffs allege that, once an HSP’s HomeAdvisor membership is terminated or
expires, HomeAdvisor does not remove the HSP’s profile page, but continues to
manipulate internet traffic to route homeowners away from HSPs’ websites and
toward a HomeAdvisor-related domain. …

For example, plaintiff Hans Hass
performed an internet search for terms related to his business – “Alpine
Roofing” and “Alpine Roofing Sidney.” His company’s website was listed between
a Google ad for roofing.zone/Alpine domain and his business’s HomeAdvisor
profile page. When he clicked the roofing.zone link, Hass completed a form
asking for his contact information and details about his home improvement
project. He was then contacted by other HomeAdvisor roofing HSPs who had
received Hass’s contact information in the form of a HomeAdvisor lead.  When Hass complained to HomeAdvisor, he was
told that the issue would be reviewed and that HomeAdvisor would follow up with
him about the website hijacking.

The RICO claims failed because they were RICO claims.

Lanham Act/unfair competition/trademark infringement claims:
HomeAdvisor sought to get rid of these claims to the extent they were premised
on “website hijacking,” which here just means infringing uses on websites. Claims
under the Colorado Consumer Protection Act, Florida Deceptive and Unfair Trade
Practices Act, Idaho Consumer Protection Act, and most of their common law
unfair competition claims “are entirely supported by allegations of other
misappropriation by Defendants,” so the court didn’t dismiss those.

Lanham Act/NY common law unfair competition: HomeAdvisor allegedly
used various website domains, such as roofing.zone, to redirect legitimate
internet traffic away from the HSPs’ own websites or businesses by using
current and former HSPs’ company names on these domains, as with the
Hass/Alpine Roofing example above. However, the complaint failed to allege that
HomeAdvisor “owned the allegedly problematic domains or had any control over or
affiliation with the owners of those domains.” Plaintiffs argued that they had
a valid contributory infringement claim because the complaint alleges that
HomeAdvisor “suggested that it could resolve the problem” when Hass complained
about his information being on the roofing.info domain.

But contributory infringement requires that “a defendant
must have (1) ‘intentionally induced’ the primary infringer to infringe, or (2)
continued to supply an infringing product to an infringer with knowledge that
the infringer is mislabeling the particular product supplied.” “Allegations of
‘[d]irect control and monitoring of the instrumentality used by a third party
to infringe the plaintiff’s mark’ could suggest contributory infringement.” However,
the complaint failed to plead intentional inducement, and the lone allegation
about Hass didn’t “sufficiently demonstrate a degree of control over the
roofing.zone domain by HomeAdvisor so as to allege a contributory infringement
theory”; it wasn’t even clear who told him that HomeAdvisor would do something.
  

Defendant IAC sought to dismiss aiding and abetting unfair
practices claims against it; the court considered the arguments only as to
Colorado law, since it only cited a Colorado case stating that aiding and
abetting under Colorado law requires proving a “substantial assistance element”
that requires a showing that “the secondary party proximately caused the
violation, or…that the encouragement or assistance be a substantial factor in
causing the tort.”  For aiding and
abetting fraud under Colorado law, a plaintiff must (1) allege the elements of
common law fraud and (2) allege that the defendant “knowingly participate[d] in
the underlying breach or violation.”

Plaintiffs alleged that IAC “was aware that the leads it was
receiving from third-party lead generators were low quality and resulted in poor
win-rates, but that IAC made the business decision to increase the number of
leads it acquired rather than improve the quality of leads,” and that it was
aware of HSPs’ frequent complaints over the quality of leads and requests for
refunds. The complaint also alleged that IAC exercised control over
HomeAdvisor: IAC was involved in the day-to-day operations; had “the ultimate
say” on whether HomeAdvisor should cut poor-quality leads; initiated and drove
internal discussions concerning how to grow HomeAdvisor’s market share and
HomeAdvisor’s branding strategy; and “exerted operational control over
HomeAdvisor and its business.”

However, knowledge alone is insufficient to state an aiding
and abetting claim. Merely exerting control over HomeAdvisor, the source of the
alleged false representations, without any allegations setting forth “the ‘who,
what, when, where and how’ of the alleged fraud,” was insufficient.

Likewise, the California UCL, FAL, and Florida FDUPTA each
require “an affirmative deceptive act by the defendant.”  The complaint didn’t plead facts that IAC had
control over HomeAdvisor’s marketing or that IAC and HomeAdvisor had common
marketing procedures or personnel, beyond alleging that IAC “drove internal
discussions” over HomeAdvisor’s branding strategy. That wasn’t sufficiently
connected to any of the allegations about the alleged misrepresentations. Those
claims went too.

Unjust enrichment: The defendants didn’t have to take money
directly from plaintiffs for unjust enrichment. The court accepted the theory
that “the leads provided to HomeAdvisor by the Venture defendants were
fraudulently sold to plaintiffs and that the monies plaintiffs paid to
HomeAdvisor made its way to the Venture defendants through the Venture
defendants’ and HomeAdvisor’s profit-sharing agreement.” Plaintiffs plausibly
alleged that the Venture defendants and CraftJack received a benefit conferred
by plaintiffs in the form of profits arising from leads purchased by
plaintiffs.

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Georgia Supreme Court revives some false advertising claims against sperm bank

Norman v. Xytex Corp., — S.E.2d —-, 2020 WL 5752325,
S19G1486 (Ga. Sept. 28, 2020)

Reversing
the court of appeals
, the Georgia Supreme Court allows plaintiffs to bring
false advertising claims against a sperm bank that supplied allegedly falsely
advertised sperm. Even though Georgia rejects any damages in tort “that
necessarily presume that life itself can ever be an injury,” that was not the
plaintiffs’ sole claim. The Normans alleged that Xytex “sold them human sperm
under false pretenses about the characteristics of its donor, and that the
child conceived with that sperm now suffers from a variety of impairments
inherited from the sperm donor.” Result: “claims arising from the very
existence of the child are barred, but claims arising from specific impairments
caused or exacerbated by defendants’ alleged wrongs may proceed, as may other
claims that essentially amount to ordinary consumer fraud.”

Xytex allegedly misrepresented the donor’s educational,
medical, and criminal history, while representing  that it carefully screened the personal
health, criminal history, and family history of all donors; that donors were
put through rigorous physical exams and interviews to confirm the accuracy of
the information donors provided; and that because of its thorough screening
process, fewer than five percent of candidates became donors. Xytex also
represented that it required sperm donors to update their medical history every
six months; that the company would update the donors’ profiles with any new
information; and that, if the company received “medically significant”
information about a donor, it would notify patients who used that donor’s
sperm.  Xytex promoted the donor as one
of its “best” sperm donors “on account of his profile in which he represented
that he was a Ph.D. candidate with an IQ of 160 and had no history of mental
health issues or criminal activity.”

Xytex’s employee allegedly told the donor on his initial
visit that intelligent donors with high levels of education were more popular
sperm donors and encouraged him to exaggerate his IQ and education. Before he
began selling his sperm to Xytex, he had been hospitalized for mental health
treatment and diagnosed with psychotic schizophrenia, narcissistic personality
disorder, and significant grandiose delusions. The child conceived with his
sperm has various medical conditions, including “suicidal and homicidal
ideations, requiring multiple periods of extended hospitalizations.”

Under Georgia law, damages that “categorize life as the
injury” are not cognizable. Claims for the expense of raising a child—even one
with profound disabilities requiring expensive care—are not cognizable because
such damages would have to be premised on the child’s life as the injury. However,
claims for tortious injury sustained prenatally are cognizable, and sometimes
that’s true even for pre-conception injuries.

Some of the damages claimed by plaintiffs were cognizable;
others weren’t. The core theory that they wouldn’t have purchased sperm from
the donor had Xytex revealed the true facts was “a classic wrongful birth claim
because the necessary and direct result of not buying Donor #9623’s sperm is
that A.A. would not exist”; this was barred. [This strikes me as inconsistent
with allowing some claims for pre-conception injuries, but I guess genetic
determinism might do the work here of distinguishing those if you handwave
causation problems (that is: a person who didn’t have teratogenic chemical
exposure before conceiving a child also might not have had sex at the same time
or with the same person, or the specific gametes might have been different, but
they can still make a claim under Georgia law for damage done by that chemical
exposure).]

In addition, other claims deriving from the child’s life are
also barred, such as the costs of pregnancy and raising the child. However,
some damages would be available as long as there was sufficient proof of
causation other than the child’s life. Some damages might stem from plaintiffs’
alleged reliance on Xytex’s representations that it screened the medical and
mental health history of its donors and that it would notify patients who used donor
sperm if the company received any “medically significant” information about the
donor.  “[W]e must accept at this
procedural stage that there may exist some evidence that the Normans relied on
Xytex’s representations in failing to obtain a diagnosis or treatment sooner.”
That could have “exacerbated pain and other symptoms suffered” by the child.

There could also be damages “for the difference in price
between the cost of the sperm they received and the fair market value of the
sperm that Xytex told them they were getting.”  Also, the consumer protection claim “does not
depend on life as an injury.” Georgia’s Fair Business Practice Act prohibits
unfair or deceptive trade practices that harm consumers. “An individual
bringing suit under the FBPA may seek injunctive relief and general damages, as
well as exemplary damages for intentional violations of the Act.” Given the
alleged misrepresentations about the quality of Xytex’s product (sperm) and
services (screening process) to the public, plaintiffs may have suffered
cognizable injury—at a minimum, paying more for the sperm than it was worth.
[Was it worth zero dollars? Could it have been worth negative $100,000?] And
they might be able to enjoin Xytex, or get punitive damages based on the
allegations that a Xytex employee’s “encouraged, if not aided,” the donor to
falsify his background.  

 

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inability to rely on claims provides standing to seek injunctive relief in 9th Circuit

Milan v. Clif Bar & Co., 2020 WL 5760450, No.
18-cv-02354-JD (N.D. Cal. Sept. 28, 2020)

Plaintiffs brought the usual California claims against the
“health and wellness message[s]” on defendant Clif Bar & Company’s “Kid
Zbars” and “ ‘Classic’ Clif Bars,” alleging that they were “deceptive because
they are incompatible with the dangers of the excessive sugar consumption to
which the Products contribute.” Clif moved to dismiss (after losing a previous
motion to dismiss on failure to state a claim), arguing that (1) plaintiffs
lacked Article III standing for injunctive relief, and (2) the governing
choice-of-law analysis didn’t permit application of California law to a
nationwide class. The court denied the motion.

Even assuming that Clif was ok to raise (1) now, after a
previous motion to dismiss, which the court deemed “questionable litigation
conduct,” the argument failed on the merits. Under Davidson v. Kimberly-Clark
Corp., 889 F.3d 956 (9th Cir. 2018), plaintiffs had standing to seek injunctive
relief. Clif relied on the following statement from Davidson:

In some cases, the threat of future
harm may be the consumer’s plausible allegations that she will be unable to
rely on the product’s advertising or labeling in the future, and so will not
purchase the product although she would like to. In other cases, the threat of
future harm may be the consumer’s plausible allegations that she might purchase
the product in the future, despite the fact it was once marred by false
advertising or labeling, as she may reasonably, but incorrectly, assume the
product was improved.

This quote, however, did not set out “a two-test method,” but
rather “two illustrations of how a plaintiff who has learned the hard way that
a company’s statements were deceptive can have standing under Article III to
enjoin the deceptive practice.” The question was still whether plaintiffs
adequately alleged future injury. The complaint alleged that plaintiffs
“continue to desire to purchase healthy nutrition bars, and continue to see the
Clif Products when they shop”; plaintiffs “would purchase the challenged Clif
Products in the future if they were in fact healthy”; and they “would likely
purchase the challenged Clif Products if they could trust that the health and
wellness claims were not false or misleading.” This was “indistinguishable” in
substance from the acceptable Davidson allegations.

Clif suggested that, knowing the truth, named plaintiffs can
now just read the nutrition label. “The problem for Clif Bar is that plaintiffs
have called into plausible question all of its health and nutrition
representations, and have alleged that they ‘will be unable to trust the
representations on the Clif Products’ absent an injunction. Consequently, the
Court declines at this pleadings stage of the case to conclude that plaintiffs
cannot, as a matter of law, ever be deceived again by Clif Bar.”

What about (2), the rule of Mazza v. American Honda Motor
Co., Inc., 666 F.3d 581 (9th Cir. 2012), on nationwide classes? This challenge
was premature. The court would wait for certification briefing, which was well
underway.

 

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it’s difficult to show injury from false patent marking

John Bean Technologies Corporation v. Morris &
Associates, Inc., 2020 WL 5666898, — Fed.Appx. —-, 2020-1035, 2020-1081
(Fed. Cir. Sept. 24, 2020)

District
court ruling that false patent marking doesn’t presumptively cause injury even
in a two-player market discussed here
. The court of appeals affirmed the
grant of summary judgment.

The key allegation of the complaint is the asserted falsity
of Morris’s representations, in product markings or advertisements, that certain
Morris products for poultry processors are covered by three Morris patents.

False patent marking, Lanham Act false advertising, and coordinate
state law claims all require competitive injury. “We need not and do not decide
whether, for any of the causes of action at issue, a presumption applies in the
circumstances of this case.” This is a puzzling statement, because it does seem like a presumption of injury in a two-player market would have led to the claims surviving summary judgment, unless you think that John Bean’s production of some (inadmissible) evidence should be weighed against it because it didn’t produce more. 

John Bean’s evidence of injury with
respect to one product was “limited to a single incident—which involved John
Bean’s sale of a chiller system to Perdue Farms.” But the only evidence of
causation was “a declaration from a past John Bean employee stating that a
Perdue employee mentioned Morris’s patent marking as a reason that Perdue
initially declined to buy John Bean’s auger chiller with ‘water flow reliefs’
that might infringe the ’529 patent, only to later accept the feature as a
no-charge modification—a process that John Bean says subjected it to some
injury.” The district court didn’t abuse its discretion in ruling that
this statement was inadmissible hearsay and also developed too late in the
litigation.

With respect to other
products, one relevant patent read on them, so Morris’s statements weren’t
false. Even assuming that the other one was, there was no evidence that being
marked with two patent numbers mattered given that one was truthful. When a
product is “properly marked with other patents,” as here, the competitor “must
show that the falsely marked patent[ ]” caused its injury and “that—for some
reason—the properly marked patent[ ] did not.”  

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mistaken exclusion of materiality survey leads to remand in false advertising case

Wing Enters., Inc. v. Tricam Indus., Inc., — Fed.Appx.
—-, 2020 WL 5739718, 2019-2279 (Fed. Cir. Sept. 25, 2020)

A remand because the district court wrongly excluded one
survey in this false advertising case (though didn’t abuse its discretion in
excluding another), then granted defendant’s motion for summary judgment.

Wing and Tricam compete in the market for multi-position
ladders. Wing alleged that Tricam violated the Lanham Act and the coordinate
Minnesota Deceptive Trade Practices Act by falsely advertising that its ladders
complied with ANSI A14.2, an industry safety standard that applies to metal
multi-position ladders. Wing alleged that Tricam’s ladders flunked the
requirement that the rung on a multi-position ladder have a “step surface of
not less than 1 inch.” Tricam’s allegedly false advertising appeared on: (1)
the label on the side of Tricam’s ladders, which reads “manufacturer certifies
conformance to OSHA ANSI A14.2 code for metal ladders,” (2) a statement on The
Home Depot’s website, which reads “ANSI Certified, OSHA Compliant,” and (3) a
statement on Tricam’s website, which reads “ANSI A14.2; OSHA.”

False advertising requires materiality, which frankly I
would think a jury could infer from the fact that it’s an industry safety standard,
but Wing had Hal Poret conduct two surveys.

The Importance Survey asked
respondents to rank the factors they consider important when purchasing a
ladder. The survey provided respondents with a list of factors, which included
“strength/duty rating,” “compliance with industry safety standards,” “hinge
lock size/style,” “feet material/style,” and “company name.” According to Mr.
Poret, the survey results showed that “compliance with industry safety
standards was ranked first as the most important factor by more respondents
(19%) than any other factor except for strength/duty rating” and that a “total
of 58% of respondents rated compliance with industry safety standards an
important factor.” From these results, Mr. Poret concluded that “compliance
with industry safety standards is the type of issue that is important to
consumers and would tend to … impact purchase decisions.”

The Labeling Survey showed a test group the side labeling of
a Gorilla Ladder containing the allegedly false ANSI statement as well as a
statement about OSHA compliance. A control group saw “an altered version” of
the labeling in which “all references to compliance with OSHA/ANSI standards
were removed.” While 69% of the test group members indicated that they were
“extremely or very likely to purchase the ladder with the OSHA/ANSI content
present,” only 55% of the control group did so, leading Poret to find “a
significant impact on reported likelihood of purchase.”

Tricam’s surveyor, by contrast, concluded that “only 2% of
the … respondents [in her survey] could have potentially been influenced by
the ANSI label,” though 67.5% of survey respondents “stated they had read the
side label before buying the ladder,” 42.4% of the respondents had heard of
ANSI, and 21.9% of the respondents clearly knew what ANSI was. Tricam’s
surveyor Triese also criticized Poret’s work for failing to “isolate the
effect, if any, of the ANSI” statement on consumers, focusing instead on the
effect of an ANSI-OSHA statement or on industry safety standards in general.

In apparent response to this criticism, Wing sought to add
OSHA compliance-related contentions, which the magistrate struck as untimely.
Based on that, the district court excluded Poret’s testimony about the surveys,
reasoning that they were “not relevant to the question of whether the
ANSI-conformance statement that is at issue in this case is material to
consumers’ purchasing decisions.” It reasoned that “[k]nowing that industry
safety standards in general are important to consumers’ purchasing decisions
does nothing to predict whether consumers might be dissuaded from buying a
ladder that does not meet current ANSI standards” because Mr. Poret did not
“ask about ANSI specifically.” Also, the surveys tested ANSI conformance in
combination with OSHA conformance, so they weren’t relevant. [This is part of a
trend of hyperspecificity in materiality requirements, which I think is
generally a very bad idea as well as inconsistent with the historical treatment
of materiality as “the kind of thing consumers care about.” Among other
things, consumers aren’t great at telling you exactly why they do what they do,
so demands for super-specificity can lead to lots of false negatives. If
falsity/misleadingness is established, then in general we shouldn’t take the
risk of allowing consumer harm unless there’s very good reason to think that
the difference between the advertising and the truth wouldn’t matter to
consumers.]

In addition, the court excluded the Labeling Survey because
it would confuse the jury, being premised “on the conclusion that the
OSHA-conformance statement is false,” and Tricam had lacked an opportunity to
take meaningful discovery on the interplay between ANSI and OSHA.

Without the survey, the district court found there was
insufficient evidence of materiality—testimony from a high-level Wing
executive, Tricam’s president, and the chairman of the ANSI Labeling Committee was
“too speculative.”

“Because Mr. Poret’s testimony concerning the Importance
Survey would have at least some tendency to make a fact of consequence more
probable than it would be without the evidence, and because such testimony is
not so unsupported that it would offer no help to the jury, we determine that
the district court abused its discretion in excluding Mr. Poret from testifying
about the Importance Survey.” Even if it doesn’t mention ANSI, “ANSI is
unquestionably an industry safety standard and is one of the two potential
industry safety standards relating to ladders in the United States.” Asking
about safety standards in general wasn’t irrelevant. Other courts have accepted
materiality surveys as relevant even when the surveys didn’t ask about “the
particular statement or product at issue.” Note: As well they should! Tricam
also argued that the survey didn’t show that consumers know that ANSI is an
industry safety standard. “This argument seems aimed more at the weight that
the Importance Survey’s results should be accorded than whether the survey is
relevant. Still, as the district court determined, ladder consumers could
potentially ascertain that ANSI is an industry safety standard based on how
Tricam displayed ANSI conformance.” Also, Tricam’s own survey results suggested
that consumers know that ANSI is an industry safety standard, and it was ok to
rely on the opposing party’s survey results for that proposition.

However, the district court didn’t abuse its discretion in
excluding the Labeling Survey, because compliance with OSHA wasn’t part of the
case and that was too intertwined with this survey, such that the jury would be
confused. Wing argued that the jury could be instructed that the survey was
only submitted for the materiality of the ANSI label, but the survey was still
premised on the conclusion that the OSHA-conformance statement was false; Poret
concluded that the survey showed that the “OSHA/ANSI content did have a
significant impact on reported likelihood of purchase” (emphasis added). Tricam
never had reason to explore in discovery the relationship between OSHA and ANSI
on which the survey was premised.

With the one survey in, there was enough to survive summary
judgment. That survey “suggests that consumers consider compliance with
industry safety standards an important consideration when making a purchasing
decision.” Consumers could know that, as Tricam’s survey suggested.  Result: remand, which could consider some
other unsettled legal arguments.

 

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impersonating company to solicit intimate images for private use isn’t TM infringement/false advertising

AdoreMe, Inc. v. Watson, 2020 WL 5769083, No. CV 19-8830 FMO
(AGRx) (C.D. Cal. Jul. 14, 2020)

A fundamentally commercial cause of action can be a bad tool
to address even bad noncommercial behavior. AdoreMe sued Watson for trademark
infringement and false advertising under federal and state law, and an unfair
business practices claim under state law. Watson, who failed to respond,
allegedly operates a phishing scam through which he “preys on unsuspecting
women by (a) posing as a talent scout for Adore Me; (b) impersonating Lindsey
Hayes Kroeger (‘Ms. Kroeger’) – a well-respected talent scout – and/or
pretending to be affiliated with her; and (c) using, unlawfully and without
authorization, Adore Me’s name, trademark, and reputation to obtain nude and
intimate photographs from women.”

AdoreMe sought default judgment, which the court denied.
Even where well-pled allegations exist, “[t]he district court’s decision
whether to enter a default judgment is a discretionary one,” considering
factors including the merits of plaintiff’s substantive claim and the
sufficiency of the complaint.

Trademark infringement requires use “‘in commerce’ and ‘in
connection with the sale, offering for sale, distribution, or advertising of
any goods or services.’ ” (Citing cases that “noncommercial” uses don’t trigger
the Lanham Act.) The court found that AdoreMe’s allegations of commercial use
were conclusory and insufficient to state a claim.

[Query whether false advertising precedents could have been
any help: although offering goods/services without intent to sell them as
advertised is false advertising, that’s essentially always coupled with actual
sales of something else—bait and switch. Advertising something without the
intent to provide any services at all may not be the requisite “advertising,”
though courts have stretched the definition of use in commerce/commercial use
so far already that this seems like an odd place to stop. Indeed, one could
create a category of “fake commercial speech” and treat the defendant as engaged
in “advertising” of services while still robustly protecting ordinary noncommercial
speech.]

Likewise, the allegations that “Defendant has profited and
will continue to profit from his unlawful actions because the intimate
photographs of his victims are highly valuable and the private property of
those women” didn’t allege facts showing actual profit/plans to profit
(implicitly defined as profit monetarily). [Side note: under California
right of publicity law, the benefit to the defendant doesn’t have to be
commercial; Kroeger’s potential claims are easily the strongest here.]

So too with the Lanham Act false advertising claims. This
wasn’t plausibly “commercial advertising or promotion.” [Again, I might have attempted
to estop defendant from challenging commerciality, but that is innovation and I
can easily see why the court didn’t want to do that on a default judgment,
where it’s easy to make bad law.]

The state claims were the same. [I wonder whether you could
get something useful out of UCL “unfairness.” This seems like the kind of conduct
the FTC thinks is unfair.]

Finally, the court was skeptical of the sufficiency of the
support for plaintiff’s damages claims. “To recover damages after securing a
default judgment, a plaintiff must prove the relief it seeks through testimony
or written affidavit.” AdoreMe submitted only the declaration of its General
Counsel, which didn’t sufficiently establish her qualifications and competency
to assess and calculate AdoreMe’s damages. She also relied on potentially
inadmissible evidence, e.g., supporting the statement that “approximately 1% of
people who visit a company’s social media will ultimately make a purchase on
the company’s platform” with a citation to a link to a website “upon which the
court has no basis to rely.”

The court told AdoreMe to file an amended complaint and move
for default judgment quickly or have the case dismissed; to consider retaining
an expert to substantiate its damages calculations; and to consider limiting its claims. Given these instructions, it’s not incredibly surprising
that AdoreMe apparently instead abandoned the lawsuit. One hopes that social
media companies will nonetheless cooperate with shutting down such schemes.  

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restitution unavailable in fed ct when damages are adequate, no matter what Cal state cts say

Sonner v. Premier Nutrition Corp., 971 F.3d 834 (9th Cir.
2020)

In this amended opinion (original
summarized here
), the court elaborates on its reasoning that Sonner couldn’t
abandon her damages claim on the eve of trial in this false advertising case
and seek only restitution, because equity requires that legal remedies be
inadequate and she abandoned her legal damages claim:

At bottom, “[t]hat a State may
authorize its courts to give equitable relief unhampered by” the “restriction[
]” that an adequate remedy at law be unavailable “cannot remove th[at] fetter[
] from the federal courts.” Guided by that instruction, we hold that the
traditional principles governing equitable remedies in federal courts,
including the requisite inadequacy of legal remedies, apply when a party
requests restitution under the UCL and CLRA in a diversity action.

Side note: I wonder how federal courts treat the “traditional
principles governing equitable remedies in federal courts” when it comes to
disgorgement in trademark cases. Disgorgement supposedly just became much
easier to get, and if courts continue to believe that trademark goodwill is a
mysterious entity, distinct from all the other parts of a business, then
perhaps they will routinely find damages inadequate. But that’s always been a
slogan rather than a reasoned decision, and plaintiffs pressing disgorgement
demands in marginal cases may lead courts to see that.

Anyway, “Sonner must establish that she lacks an adequate
remedy at law before securing equitable restitution for past harm under the UCL
and CLRA.” But she conceded that she sought the same sum in equitable
restitution as “a full refund of the purchase price”—$32,000,000—as she
requested in damages to compensate her for the same past harm. There was no
reason damages couldn’t be adequate, even if California state courts wouldn’t impose
the same rule.

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“upcycling” isn’t infringement/counterfeiting when full disclosure is present

Hamilton International Ltd. v. Vortic LLC, No. 17-CV-5575
(AJN)(OTW) (S.D.N.Y. Sept. 11, 2020)

Champion Spark Plug still matters sometimes!
Hamilton, a Swiss watchmaker, sued Vortic for making watches incorporating
vintage Hamilton parts, alleging that this constituted trademark infringement,
counterfeiting, dilution, and unfair competition. After a bench trial, the
court found Vortic’s conduct unlikely to cause confusion and entered judgment
for defendants.

“Vortic is a watchmaker that specializes in restoring
antique pocket watches and converting them into wristwatches.”  It sold a watch called “The Lancaster,” named
after Lancaster, PA, where the Hamilton Watch Co. was originally located, that
was made with a historic, restored movement (here, internal mechanism with
hands and face attached) produced by the Hamilton Watch Company.

The “Hamilton” mark remains visible
on the antique face of the watch. The Lancaster has a Gorilla Glass back which
makes the internal workings visible, and “Hamilton” can also be seen on one
part of the movement. Around the ring in the rear of the watch is engraved
“Vortic,” along with “The Lancaster” and a serial number. In total, 58 watches
were either sold or gifted.

From Vortic’s website

Infringement: The Polaroid factors shouldn’t be
applied mechanically. “In cases such as this one, involving modified genuine
products, the Supreme Court has found whether the defendant adequately
disclosed the origins of the product to be dispositive.” In Champion, as
long as the repaired sparkplugs had “Repaired” or “Used” conspicuously stamped
on them and their packaging indicated that the defendant had done the
restoration, “[f]ull disclosure” of the products’ origins was “all the
protection to which [the plaintiff] was entitled.”

Since the sparkplugs were second-hand
goods and consumers would naturally expect a used or repaired good to be
inferior, conspicuously labeling the goods as used or repaired constituted full
disclosure. It was otherwise permissible for the goods to retain the Champion
trademark even if it means that the defendant benefits from plaintiff’s
goodwill or “gets some advantage from” plaintiff’s mark.  The Court cautioned that it would be possible
to imagine a case “where the reconditioning or repair would be so extensive or
so basic that it would be a misnomer to call the article by its original name,
even though the words ‘used’ or ‘repair’ were added.” Outside those rare
circumstances, however, a refurbished product may bear the original maker’s
mark.

Thus, the court focused on “adequacy of disclosure,”
treating the Champion rule “as a substitute or crucial supplemental
factor to a traditional Polaroid likelihood of confusion analysis.”
Subtle twist, though: “Full disclosure” matters if it prevents “numerous
ordinary prudent purchasers” from being “misled or confused as to the source of
the product.” That’s a twist because Champion didn’t suggest that
evidence of confusion was relevant; it was a rule about what the defendant
should do, not a rule about what consumers perceive. Is it now a presumption?
Is it only rebuttable with evidence of substantial consumer confusion?
Smuggling the rule into the definition of “ordinary prudent purchasers” is one
way to resolve these tensions—but then it’s hard to see why any evidence could
rebut the presumption, if reasonable consumer is a normative concept rather
than an empirical one.

Anyhow, the court gave “strong weight” to the “full
disclosure” factor while also running through the Polaroid factors, as
guided by the Second Circuit’s awful treatment of nominative fair use, sigh.

First, there was “full disclosure” per Champion, in
the ads and marketing materials, as well as the watch itself. All of the
advertising and marketing in the record “would accurately convey to the
ordinary prudent purchaser that the only connection of any kind between
Hamilton and Vortic is that Vortic used antique Hamilton watch movements and
parts for its Lancaster watch.” E.g, the website “clearly stated that the
Lancaster was one of ‘Vortic’s flagship line of watches’ and that ‘[a]ll of the
components (movement, dial, hands) between the two Gorilla Glass crystals ~100
years old and started their life in a Railroad-era pocket watch made by the
Hamilton Watch Company.’” The website stated that Vortic “meticulously restores
the inner workings in order to build a completely custom watch around” vintage
elements. “While the Hamilton mark is visible in a picture, Vortic’s logos
predominate.”  

A magazine ad likewise stated that “[e]ach piece is custom
fabricated using railroad era, American made pocket watch movements to create a
timeless one of a kind wristwatches.” “Any viewer of this advertisement would
come away with an accurate understanding of the relationship between Vortic and
Hamilton.”

The watch itself, “in isolation,” also provided full
disclosure. “[T]he watch obviously presents to a viewer as restored antique
pocket watch movement, face, and hands that have been reincorporated into a new
wristwatch. This would be true even if the watch was viewed only from the  front or only from the back, and even if the
viewer did not have any prior knowledge about the watch.” [Shades of what
happened after the initial reversal in the LV v. Dooney & Bourke case,
which prompted Judge Scheindlin on remand
to find no confusion even when “viewed ‘in public from a distance, in a store
window, from across a room, from a passing car, [ ] while walking in the
street,’ in an advertisement, or hanging off of a woman’s shoulder, by way of
examples.”]

The court ponted out that “the watch is much larger than the
typical wristwatch and that there is a large knob at the 12 o’clock position
which is immediately recognizable as being from a pocket watch, rather than a
wristwatch which usually has the movement at 3 o’clock.  Additionally, the hands, face, and movement
have a patina, style, and look that convey that they are restored antiques.”
Plus, the placement of the respective marks “would convey to any ordinary
prudent purchaser that the watch was made by Vortic and that the Hamilton mark
is only displayed because Hamilton created the original movement, face, and
hands that have subsequently been restored.” 
“Vortic,” “Lancaster,” and the serial number were all prominently
engraved on the case while the Hamilton mark is only visible inside the glass
case, “on a movement and face that appear obviously antique.”

Nicely, the court pointed out that complete disclosure about
the production process on the product itself isn’t required by Champion.
“ It was sufficient in that case that the sparkplugs clearly conveyed that they
were ‘used’ or ‘repaired.’  While the
watches in this case have been modified to a greater extent than the sparkplugs
in Champion, the Court finds that the Lancaster itself provides more disclosure
as to the extent of the modification and restoration.”

Since the Hamilton components had been restored, it was not
a misnomer to call the components bearing the Hamilton trademark by their
original name, and the disclosure “prevents undue interference with the ability
of Plaintiff to control its reputation.” Stamping “used” or “repaired” on the
watch wasn’t required as long as there was “full disclosure with sufficient
clarity and conspicuousness,” which was done here by overall design and the
engravings. (Citing Ford Motor Co. v. Ultra Coachbuilders, Inc., Case No. EDCV
00-00243-VAP, 2000 U.S. Dist. LEXIS 20173 (C.D. Cal. July 11, 2000) (stretch
limousine version of Ford automobile did not infringe on Ford’s trademark
because the modifications were “apparent”).)

Hamilton argued that the burden was on Vortic to show that
the disclosure worked. First, Vortic’s principal’s testimony “to the effect
that neither he nor his company encountered individuals who were confused about
the relationship or lack thereof between Vortic and Hamilton would seem to meet
this burden, particularly given Vortic’s small size.” But second, the case law
Hamilton cited wasn’t about modified genuine products. (Citing Home Box Office,
Inc. v. Showtime/The Movie Channel, Inc., 832 F.2d 1311, 1316 (2d Cir. 1987).)
“Champion, which did involve a modified genuine product, did not place
such a burden on the defendants and neither have courts in this circuit that
have applied Champion.”

Second, Hamilton argued that the disclosure was insufficient
“because it fails to disclose particular modifications to the movement or that
Vortic sometimes uses parts from other antique Hamilton watch movements in its
restorations.” The uncontroverted evidence was that the modifications were
minor and didn’t alter the function of the movement; there was no reason to
believe that this was “particularly significant to consumers” or “somehow
material to a likelihood of confusion.” In terms of using parts from other
watches, “this is a technique that virtually anyone would expect in the
restoration of an antique watch movement.” (Citing Champion, 331 U.S. at 129
(“inferiority is expected in most second-hand articles.”).) Nor was it material
to likely confusion: “the watch still contains an antique Hamilton watch
movement with antique Hamilton watch parts.”

Third, Hamilton argued that post-sale confusion could occur.
A member of the general public, seeing a Lancaster on someone’s wrist, “would
not know that it was Vortic rather than Hamilton that had done the restoration
and modification.”  But third-party
confusion is “only relevant if their views are somehow related to the goodwill
of the aggrieved manufacturer.” There was no reason to conclude that the
appearance of the Hamilton mark “on the inner workings of the watch—visible
only upon close inspection—would result in initial interest confusion among
members of the public.” [Also, so what?]

With that out of the way, the Polaroid analysis
didn’t favor a finding of likely confusion. A number of the Polaroid factors weren’t
helpful: strength of mark and similarity doesn’t matter where there is a
modified genuine product with full disclosure. “Likewise, proximity of the
products, bridging the gap, and the quality of the product are all also
unhelpful, because application of these factors would penalize defendants who
have only lightly modified a genuine product. Yet, under Champion, these
are the defendants who have the lowest burden to meet the full disclosure
standard.”  Thus, only actual confusion,
the defendant’s good faith, and the sophistication of the buyers were relevant Polaroid
factors.

Even if the court considered all the Polaroid
factors, the result would be the same. The mark is relatively conceptually
strong (the court calls it “fanciful,” even though that’s clearly wrong), but
there was limited evidence of market strength, especially of such a kind as to
make the views of non-purchaser members of the public important to its
goodwill. Similarity, likewise, isn’t assessed in a vacuum, and so the context pointed
to dissimilarity. Proximity of the products was “a wash,” because of
presumptive variation within the watch market; Hamilton didn’t show that it
sold any watch similar to the Lancaster, “such as a wristwatch that looks like
a pocket watch or any kind of restored watches,” and bridging the gap was
irrelevant/Hamilton submitted no evidence. [Beautiful example of stampeding the
factors.] Product quality: There was no evidence about the quality of either
party’s actual watches.

Actual confusion: Hamilton relied on a single email sent to
a Canadian brand manager in 2015: “my friend is looking for a vintage hamilton
as per attached,” but Hamilton failed to establish that the attached was a
Vortic ad (as claimed), and anyway the email wasn’t clear about whether the
sender’s friend actually thought that Vortic’s product was made by/affiliated
with Hamilton.

The court found that Vortic acted in good faith, seeking to
“preserve American history” by salvaging and restoring the hearts of antique
pocket watches rather than to cause confusion. Its principal

viewed himself as “upcycling,”
restoring previously nonfunctional antique watch movements and parts, and
making them into something of “much greater value.” To be sure, Mr. Custer did
intend to gain some benefit from displaying the Hamilton mark, albeit more from
Hamilton’s historical significance rather than its modern-day reputation. But
the benefit Mr. Custer sought was no more than what he fairly believed he was
entitled to by including restored, genuine antique Hamilton movements, hands,
and faces. 

Finally, the customer base was highly sophisticated. The
Lancaster was “very expensive” and expensive-watch consumers are typically
discerning.

Counterfeiting: This requires that use of a counterfeit mark
is “likely to cause confusion, or to cause mistake, or to deceive.” That wasn’t
shown here. [Courts are of course super inconsistent about this. If there were
no genuine goods involved, even full disclosure “these are counterfeit” wouldn’t
work, but the ways that courts distinguish these situations are opaque at best.
Overall, we might be better off talking more openly about “unfair competition”
and what constitutes fairness.]

State dilution: Only blurring was claimed; the factors are
similar to the confusion factors; so Vortic wins.

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court refuses to dismiss TM claims against NRA’s former PR agency

National Rifle Ass’n v. Ackerman McQueen, Inc., 2020 WL
5526548, No. 19-CV-2074-G (N.D. Tex. Sept. 14, 2020)

The NRA sued AMc, an advertising and PR agency, for various claims arising from the parties’ now-terminated relationship and
Ackerman’s statements about the relationship; the court granted in part and
denied in part a motion to dismiss. The temptation is to say “Go it, husband! Go it, bear!” but the NRA’s expansive claims are pretty worrisome from a “people are allowed to truthfully describe their own activities” perspective, so.

The NRA used AMc’s services from “at least the 1980s” until
2019, when the last of their agreements ended. AMc’s services included “public
relations and strategic marketing; planning and placement of media; management
of digital media and websites; and the management of NRATV, a digital-media
platform frequently perceived by the public as the ‘voice’ of the NRA.”

Despite the termination of the services agreement, AMc’s
website allegedly continues to “prominently feature[ ] unauthorized and
unlicensed NRA-owned photos and reference[ ]…the NRA with greater frequency
than any other AMc client.” The NRA alleged: (1) false association under the
Lanham Act (2) copyright infringement.; (3) conversion; (4) fraud; (5) breach
of fiduciary duties; (6) conspiracy to commit fraud and extortion; (7) breach
of the fiduciary duty of loyalty; and (8) breach of contract.

Defendants counterclaimed and moved to dismiss (though not
on the claim for breach of contract).

Consistent with the lack of weight that many courts give to
historical facts in trademark contexts, the court denied the motion as to the
false association claim.  “The crux of
the NRA’s false association claim is that AMc’s continued display of the name
NRA and the NRA’s ‘intellectual property on AMc’s website provides a strong
inference that wrongly suggests to the public—and creates consumer and customer
confusion—that the NRA presently endorses the services that AMc provides and
that the NRA is currently AMc[’s] client.’”

Rather than explicitly arguing Dastar and First
Amendment/nominative fair use, defendants argued that the NRA hadn’t alleged Lexmark
standing or identified any false or misleading content on AMc’s website. The
NRA properly alleged that it was within the Lanham Act’s zone of interests: its
alleged injuries fell within two of the Lanham Act’s enumerated purposes: the
purpose to “mak[e] actionable the deceptive and misleading use of marks in”
commerce within the control of Congress, and the purpose “to prevent fraud and
deception…by the use of reproductions…or colorable imitations of registered
marks.”

The complaint “provides a laundry list of instances in which
AMc’s website references or lists the marks NRA and NRATV, including a total of
fifteen references to the NRA and NRATV under headings entitled ‘Gallery’ and ‘Clients.’”
This allegedly confused the the public about whether the NRA remains an AMc
client and endorses the services provided by AMc.”

Likewise, the NRA properly alleged proximate cause. “This
perceived association between the NRA and AMc, the NRA argues, is harmful to
the NRA’s reputation, diminishes the value of the NRA’s trademarks, and causes
the NRA to lose out on royalties.” That was enough on a motion to dismiss.

And the NRA sufficiently pleaded misleadingness. It alleged
that “AMc continues to depict numerous photographs on AMc’s website that
contain the words ‘National Rifle Association’ written across the bottom.” AMc,
after suit was filed, altered the legends on these photographs such that they
now read “National Rifle Association (Legacy).” That might ultimately suffice,
but the NRA properly pled that the references to the NRA were misleading, since
misleadingness is a fact-specific inquiry “best left for decision after
discovery.”

Copyright infringement: The NRA failed to register the
photos before suing, so the claim was dismissed without leave to amend.

Conversion: This claim was based on defendants’ continued
use of and failure to remove various “creative works and intellectual property”
from AMc’s website, apparently meaning the same photos. Texas conversion law
covers only physical property, and even if Virginia law applied (as the NRA
argued because its HQ is in Virginia) its claim was preempted by the Copyright
Act.

Fraud/conspiracy: the allegations here aren’t IP-related;
the claims were dismissed for failure to plead with particularity. Breach of
fiduciary duty claims also weren’t sufficiently pled against the individual
defendants.

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