Tuesday, May 31, 2016

Friday, May 27, 2016

Thursday, May 26, 2016

Techdirt on the MPAA v. the Writers Guild of America West on set-top boxes

Mike Masnick has the story, and I'm just going to quote him (and WGAW):


Meanwhile, in what might seem like a surprising source, another group calling bullshit on the MPAA is the local Hollywood writer's guild, the Writers Guild of America, West. Their full filing is totally worth reading. They basically make the exact point we've made for years: every time the MPAA fears some new innovation, it's not just wrong, but it often misses how that new innovation actually helps Hollywood in addition to the public:
It is often the case that when new technology emerges incumbent providers make alarmist predictions about guaranteed harms resulting from these innovations. While some concerns may be reasonable, the overwhelming majority of outlined harms are never realized. As CBS Chairman and CEO Les Moonves said in 2015, “All these technology initiatives that supposedly were going to hurt us have actually helped us. SVOD has helped us. DVR has helped us. The ability to go online with our own content, CBS.com, and the trailing episodes – all have helped us.” With the entertainment industry currently dominated by a handful of companies that have never been more profitable, it is clear that new technology and forms of content distribution have helped, not hurt the industry. 

While new technology can create some business uncertainty, there is strong evidence that pro-consumer developments that make legal content more accessible to viewers benefits both consumers and content creators.

Wednesday, May 25, 2016

Copyright Office NPRM indicaties desire to strip sites of 512(c) protection

Eric Goldman explains here.  We already could tell that the Office was interested in shrinking the safe harbors; apparently the Office wants to do that in part by purging the list of registered DMCA agents every three years.  As someone who had the OTW's initial registration bounced for not having a fax number (we ... don't have a fax machine?) (I used mine in the end), I have a bit of whiplash on the technical requirements side.  Per the NPRM, written comments are due June 24.

Law firm advises: protect your brand via (c)

The advice from Drinker Biddle includes using the DMCA to get uses of your TM taken down, which is pretty much exactly the definition of one significant category of DMCA abuses.  Update: I do not think that Drinker Biddle itself is advocating abusing the DMCA.  I do think that the advice assumes that there is an increment of protection that one can gain by asserting copyright claims that would not be available from asserting trademark claims; it is my belief, based on the situations I've seen, that the situations within this increment are very often based on misuses or misunderstanding of the scope of IP law to suppress criticism or competition.  Under Tiffany v. eBay, a website already ignores a legitimate TM-related takedown at its peril.

Tuesday, May 24, 2016

EFF/Copyright professors' comment on FCC's proposed set-top box rule

Content companies have opposed the FCC's proposed set-top box rule on the grounds that it would allow copyright infringement because people who'd paid for cable would be watching it without additional payments from the set-top box providers.  As you can tell, I think this is incorrect.  I and several other professors have signed on to the EFF's letter responding to these concerns.  You can read the letter here.

Dilution question of the day, handbag edition

Betsey Pop Betsey Johnson Kitsch "soda" handbag

So, what's the dilution verdict?

Another trademark claim asserted for political purposes

Paul Alan Levy responds to a C&D against a candidate for local government who is being threatened with claims of trademark infringement for using the city’s logo on his campaign materials.  As always, it’s a refreshing read. Of particular note, Levy points out that §2(b) bars registering the insignia of any state or municipality; the claimant’s registration is in the name of “City of Mesa Municipal Development Corporation,” for specialized services such as construction planning.  The registration did not claim that it was for a  city logo, and yet the C&D letter asserts that it is.  The PTO has apparently been construing §2(b) narrowly to allow some government agencies to register logos for narrow purposes, and Public Citizen questions whether this is a permissible interpretation of the statute.  To the extent that the registrant represents that the mark is in fact the city’s logo, Levy notes that §2(b) invalidates any registration, whether the registrant is the city or some other entity.  Given the claims made to the candidate, he contends, the claimant will be estopped from arguing that it isn’t the city’s logo.

Monday, May 23, 2016

Who's responsible for Amazon product detail pages for TM and (c) purposes?

Oriental Trading Company, Inc. v. Yagoozon, Inc., 2016 WL 2859603, No. 13CV351 (D. Neb. May 16, 2016)
 
This is a pretty interesting dispute because it suggests that Amazon’s business practices may be exposing certain entities who sell through Amazon to substantial business risks, and even discovery may leave outstanding issues unknown.
 
Yagoozon sells various novelty products through Amazon; OTC sued it for copyright and trademark infringement, as well as deceptive trade practices under Nebraska’s Uniform Deceptive Trade Practices Act and violations of the Nebraska’s Consumer Protection Act. The claims are apparently based on the fact that, for various products OTC sells, consumers can also buy from Yagoozon on pages using OTC’s photos (and perhaps other elements).
 
The court denied OTC’s motion for summary judgment.  As to direct copyright infringement, the parties disputed whether Yagoozon, Amazon, or another third-party seller was responsible for displaying the copyrighted photographs. Although OTC argued that Yagoozon was the one to select the relevant Amazon product detail pages on which to sell its products and also used the product detail pages whenever it sold inventory, there were genuine issues of material fact exist as to whether Yagoozon “created the product detail pages at issue, edited the pages, and/or is ultimately responsible for the displaying of plaintiffs’ copyrighted photographs.”
 
“[A]ccording to Amazon’s own documents, in order to create a product detail page, the seller/creator must be advertising a product that is not already available on Amazon.” Once a detail page has been added, the product becomes part of Amazon’s catalog, and other sellers can create listings for the same product.  Amazon also allows product detail pages to be edited after their creation.  Which sellers have control over the product detail page when multiple sellers request edits is determined by Amazon’s algorithm.  OTC didn’t submit evidence allowing the court to conclude as a matter of law that Yagoozon created or was otherwise responsible for the product detail pages at issue. Likewise, there were disputed issues about whether Yagoozon intentionally induced or encouraged either Amazon or any other third-party seller to directly infringe OTC’s copyrighted photographs.
 
These same issues precluded summary judgment on direct and contributory trademark infringement claims.  OTC argued that Yagoozon chose to use the product detail pages at issue, making it responsible for infringing sales of competitor products under OTC’s marks. But there were genuine issues about whether Yagoozon intentionally induced Amazon or any other third-party seller to infringe, or whether it continued to supply products knowing that the recipient was using the product to engage in trademark infringement.
 
The same reasoning applied to the state law claims.

Second Circuit muddies nominative fair use more than 9th Circuit ever has

International Information Systems Security Certification Consortium, Inc. v. Security University, LLC, No. 14-3456-cv (2d Cir. May 18, 2016)
 
The Second Circuit manages to make its multifactor confusion test worse (and you thought it had already hit rock bottom by considering quality of the goods, which hurts the defendant if there’s a quality difference and hurts the defendant if there’s equal quality).  ISC2 sued Security University and Sondra Schneider, alleging that SU’s use of ISC2’s certification mark constituted trademark infringement and dilution.  The district court’s finding of lack of fame and thus no dilution isn’t challenged on appeal.  The court of appeals reversed the district court’s finding of nominative fair use and remanded both for consideration of the multifactor test, now with three new factors added, and also for consideration of endorsement confusion as well as source confusion.
 
ISC2 registered a certification mark, CISSP, to denote a “Certified Information Systems Security Professional” who has met certain requirements and standards of competency in the information security field, including passing the CISSP certification examination that ISC2 administers.  Schneider is CISSP-certified, and offers information security training through SU, which used the CISSP mark in connection with certification-specific training courses.  ISC2 doesn’t object to SU using the mark to indicate that its services attempt to prepare students for the CISSP certification examination. SU instructors also may accurately identify themselves as being CISSP-certified, so long as they follow ISC2’s regulations governing the use of the mark.
 
But ISC2 objected to ads run between 2010 and 2012, which, ISC2 argued, misleadingly suggested that SU’s instructor, Clement Dupuis, had attained some higher level of certification as a “Master CISSP” or “CISSP Master.” E.g., “MASTER THE CISSP DOMAINS with the Master CISSP Clement Dupuis”; “You are taught by CISSP Master Clement Dupuis, the father of www.ccure.org website.”  When ISC2 objected, Schneider responded that “SU will continue to use the word Master. Master Clement Dupuis is a Male Teacher [and] thus he is a Master according to the dictionary.” (I share Eric Goldman’s distaste for this response.)
 
The district court found that, applying nominative fair use, there was no source confusion.  Adding “Master” didn’t implicate source confusion or mislead anyone about who was offering the services in question.  It reasoned that, “[b]ecause a certification mark is intended to signal a quality-related characteristic of the good, rather than source or origin, . . . it is hard to imagine a case in which use of a certification mark by a person who has met the requirements for certification would likely lead to confusion as to source or origin, or would not be a nominative fair use.”  Though the district court “asserted” that no reasonable juror could find sponsorship or endorsement, “its conclusion was based entirely on the fact that the advertisements did not ‘suggest[] that (ISC)2 itself is offering the classes.’”  The district court also pointed to disclaimers at the bottom of some of the ads disclaiming endorsement/sponsorship by ISC2.
 
The court of appeals began by chiding the district court for not applying the standard multifactor test.  “[T]he Polaroid factors are not, of course, ‘exclusive’ and should not be applied ‘mechanically.’ No single factor is dispositive, and cases may certainly arise where a factor is irrelevant to the facts at hand. But it is incumbent upon the district judge to engage in a deliberate review of each factor, and, if a factor is inapplicable to a case, to explain why.” 
 
Also, confusion over source isn’t the only actionable confusion; confusion over affiliation or sponsorship is also actionable. Weight Watchers International, Inc. v. Luigino’s, Inc., 423 F.3d 137 (2d Cir. 2005) (confusion over endorsement of or other involvement in defendant’s product was actionable); Original Appalachian Artworks, Inc. v. Granada Electronics, Inc., 816 F.2d 68, (2d Cir. 1987) (unauthorized importation and sale of Cabbage Patch dolls manufactured in Spain with the foreign language adoption papers and birth certificate infringed because plaintiff’s “domestic good will is being damaged by consumer confusion caused by the importation of the [Spanish] dolls,” which were materially different from American dolls).
 
Further, a certification mark can be infringed in numerous ways. A professional who uses the mark without being certified can infringe, as can a competing certification organization, but it’s also possible to infringe in other ways, even if the party has met all the requirements for certification. The court of appeals pointed to a TTAB ruling that “even where a defendant’s product contains ingredients which have been certified by the owner of a certification mark, the defendant’s incorporation of that certification mark into its own composite trademark might be likely to cause confusion as to sponsorship, affiliation or connection.” Tea Bd. of India v. Republic of Tea, Inc.,  U.S.P.Q.2d 1881 (T.T.A.B. 2006).  Thus, SU  may have infringed on ISC2’s certification mark by identifying its certified instructor as “Master CISSP” and “CISSP Master.”  Just to hammer the point home, the court of appeals noted that it wasn’t necessary that the defendant’s use be use “as a [certification] mark.” Even though neither ISC2 nor SU offers a “Master CISSP” or “CISSP Master” certification, “customers [may] be led to believe [ISC2] has introduced a new line” of certifications. The court could also take into account the lack of such a certification in the proximity of the products/bridging the gap factors.
 
So what is the proper analysis?  “This Court has repeatedly urged district courts to apply the Polaroid factors even ‘where a factor is irrelevant to the facts at hand.’”  Nominative fair use is a test that replaces the ordinary multifactor test in the Ninth Circuit and thus is used to determine whether confusion is likely.  It’s an affirmative defense in the Third Circuit, which “affords defendants broader protection” because it applies even if confusion is likely. [Note that this is a really weird reading of the defense; in practice the Ninth Circuit version is a ton broader.]  The court of appeals rejected both approaches; nominative fair use isn’t an affirmative defense because it’s not in the statute, unlike descriptive fair use.
 
And the Ninth Circuit approach is wrong because “we see no reason to replace the Polaroid test in this context,” even though “we also recognize that many of the Polaroid factors are a bad fit here and that we have repeatedly emphasized that the Polaroid factors are non-exclusive.” [This is really, really dumb lumping.  “Bad fit” and “irrelevant” aren’t reasons?  The Second Circuit has doubled down on its initial decision, decades ago, to treat infringement of competing and noncompeting goods with the same test.] 
 
In Tiffany v. eBay, the Second Circuit already “recognized that a defendant may lawfully use a plaintiff’s trademark where doing so is necessary to describe the plaintiff’s product and does not imply a false affiliation or endorsement by the plaintiff of the defendant.”  [Apparently the court is not overruling its prior decision in Tiffany, even though that decision didn’t apply the Polaroid factors or fulfill its alleged duty to explain why the Polaroid factors didn’t apply, because reasons.  If I were a defendant, I would point to this court’s endorsement of Tiffany to justify sticking with the initial analysis.]
 
As a result, “district courts are to consider the Ninth Circuit and Third Circuit’s nominative fair use factors, in addition to the Polaroid factors.”  Specifically, courts are to consider:
 
(1) whether the use of the plaintiff’s mark is necessary to describe both the plaintiff’s product or service and the defendant’s product or service, that is, whether the product or service is not readily identifiable without use of the mark; (2) whether the defendant uses only so much of the plaintiff’s mark as is necessary to identify the product or service; and (3) whether the defendant did anything that would, in conjunction with the mark, suggest sponsorship or endorsement by the plaintiff holder, that is, whether the defendant’s conduct or language reflects the true or accurate relationship between plaintiff’s and defendant’s products or services.
 
In assessing (2), courts are to consider whether the alleged infringer “step[ped] over the line into a likelihood of confusion by using the senior user’s mark too prominently or too often, in terms of size, emphasis, or repetition.”  In assessing (3), “courts must not, as the district court did here, consider only source confusion, but rather must consider confusion regarding affiliation, sponsorship, or endorsement by the mark holder.”  [How would you tell whether the defendant did “anything” other than using the mark that would suggest sponsorship or endorsement?  I will let the classic X-Files episode Jose Chung’s From Outer Space answer for me:]
 
"How the hell should I know?"
[So, does comparative advertising qualify for the defense in the Second Circuit?  It does in the Ninth Circuit version because using the P’s mark is necessary to identify the P, which is all that the Ninth Circuit requires.  It does not in the Third Circuit version because using the P’s mark is not necessary to identify the D, even if it is necessary to convey the comparative message.  If district courts are to consider both circuits’ factors, as suggested by the Second Circuit’s initial language, then comparative advertising at least has a case for nominative fair use protection, but if courts are to consider only the restatement offered by the Second Circuit here, which tracks the Third Circuit’s version, then comparative advertising should be excluded.]  
 
Remand “for reconsideration of the Polaroid factors in addition to the nominative fair use factors, keeping in mind the numerous types of confusion that are relevant to an infringement analysis other than mere source confusion and the numerous ways in which a certification mark may be infringed.”  That ought to be fun.

Consultant's speech to potential customers wasn't pure scientific speech protected by First Amendment

Underground Solutions, Inc. v. Palermo, 2016 WL 2866099, No. 13 C 8407 (N.D. Ill. May 17, 2016)
 
Related decisions discussed from 2012, 2014, and 2015.  Plaintiff UGSI sued Palermo for trade libel and false advertising under California and federal law (having previously dismissed a tortious interference claim).  UGSI alleged that Palermo, as a paid spokesperson for one of UGSI’s competitors, made false or misleading statements about UGSI’s products, subterranean pipes used for water transmission.  Here, the court granted partial summary judgment in favor of UGSI on the Lanham Act claim and dismissed the trade libel claim.
 
This is what I love about Lanham Act cases: you learn about details of how the world works.  Underground water pipes include ductile iron pipe, high-density polyethylene (HDPE) pipe, and polyvinyl chloride (PVC) pipe.  Rapid crack propagation (RCP) is pretty much what it sounds and can occur up to several hundred feet per second; it can happen in any type of pipe when the right (wrong) event occurs, such as someone bending or pressurizing a pipe too far or an external object hitting the pipe.  Whether RCP happens after a break depends on many factors, including the pipe’s diameter and wall thickness, the internal operating pressure, and the pipe’s chemical makeup. Although RCP can’t occur in 100% water pressurized pipe, a small amount of air in a pipe could enable RCP.
 
Municipalities typically use more than one pipe to create a network.  HDPE pipe sections are often ‘butt fused,’ connected end-to-end by thermal fusion techniques. Ductile iron or PVC pipe traditionally uses ‘bell-and-spigot’ joints to latch each pipe to the next. UGSI is the only producer of Fusible PVC pipe, where thermal fusion eliminates the need for bell-and-spigot junctures. “Some Fusible PVC pipes stretch seamlessly for miles, which simplifies and speeds up installation, avoids the potential for corrosion and seepage intrinsic to bell-and-spigot joints, and eliminates associated maintenance requirements and costs.”
 
Palermo operates a consulting firm that provides litigation consulting and failure analysis services. During the relevant period, Palermo had a consulting agreement with Performance Pipe, which makes HDPE pipe. “Along with two HDPE pipe interest groups (the Plastics Pipe Institute and the Alliance for PE Pipe), Performance Pipe paid Palermo to attend trade shows and give presentations about Fusible PVC pipe.”  Palermo designed a PowerPoint slideshow for these presentations, and put it on his website.  The slideshow ‘Plastic Pipe for Water Distribution – What You Need to Know About RCP and Butt Fusion Integrity,’ was primarily focused on illustrating the high RCP risk associated with butt-fused PVC pipe, rather than butt-fused pipe of all types.  The presentation stated that PVC pipe is more vulnerable to RCP than HDPE and that butt-fused PVC pipe’s RCP risk is even higher, because “without bell-and-spigot joints to relieve pressure, cracks can spread farther and faster without meeting resistance.” 
 
Palermo began with twenty Fusible PVC RCP failures in the field, from 43 feet to 3,300 feet long.  “He showed pictures of massive cracks in the butt-fused PVC pipe at some failure sites, and he provided details of the damage done and replacement requirements for some of the RCP events described.”  He then discussed test results from lab experiments on PVC and HDPE pipe, showing test results that indicated that HDPE’s resistance to RCP was higher than that of PVC for given water/air mixes.  It’s possible for pressurized pipes to contain up to 10% air, and he showed graphs indicating that when a PVC pipe has 10% air volume, it is vulnerable to RCP at much lower pressures than HDPE pipe with 10% air.  Palermo claimed that modern HDPE pipes had even higher critical pressures (the point at which the vulnerability emerges) “which meant that ‘RCP is never an issue.’”  Further, Palermo reported that HDPE butt-fused joints passed tests that PVC butt-fused joints didn’t.
 
As a result, some people exposed to the slide show were reluctant to use or recommend Fusible PVC pipe.  For example, “Julie Morrison, a consulting engineer in Illinois, testified that she had been open to the possibility of recommending Fusible PVC for a project in Illinois but had changed her mind after finding and reading Palermo’s presentation online.”  UGSI produced a slide show of its own which it used to reassure a contractor that expressed grave concerns based on Palermo’s slide show.  UGSI sent Palermo a C&D in March 2012, and in July 2013, Palermo said that he would “no longer provide negative information about butt fusion of PVC Pipe” because he felt “UGSI [had] conducted significant testing to develop the proper butt fusion procedure for PVC Pipe.” Nonetheless, Palermo continued to deliver his message at trade shows and on the Internet.
 
Palermo argued that the Lanham Act claim had to fail because he was engaged in private, noncommercial speech, trying to advance scientific inquiry on a matter of public concern rather than advertising or promoting HDPE.  But “an activity is promotional if it involves dissemination to anonymous members of the purchasing public.”  Members of the polyethelene pipe industry paid Palermo to deliver presentations to anonymous purchasers and prospective consumers at trade shows throughout the country, converting his speech into commercial speech for Lanham Act purposes.  Since he was paid to make his statements in a commercial setting to potential purchasers, his statements weren’t made purely to advance scientific discourse.  Cf. Eastman Chem. Co. v. Plastipure, Inc., 775 F.3d 230 (5th Cir. 2014) (statements made in a commercial setting and directed at customers “do not become immune from Lanham Act scrutiny simply because their claims are open to scientific or public debate. Otherwise, the Lanham Act would hardly ever be enforceable—many, if not most, products may be tied to public concerns with the environment, energy, economic policy, or individual health and safety.”) (internal quotation marks omitted). Moreover, commercial speech need not directly propose a commercial transaction.  Jordan v. Jewel Food Stores, Inc., 743 F.3d 509 (7th Cir. 2014). 
 
UGSI argued that there were five false or misleading statements in Palermo’s slide show: (1) Four of the crack lengths were grossly inaccurate, overstating crack lengths by hundreds or thousands of feet (specifically, reporting a crack as 300 feet long when it was only 3 feet long; 2200 versus 1700, 800 versus 430, and 2000 versus 200, plus stating that 13 miles of pipe needed to be replaced after one incident, where there were only 7 miles of pipe to begin with). (2) Palermo described PVC’s critical pressure at 10% air volume, as shown by the key study, as much lower than it was.  (3) Palermo used the study even though Fusible PVC used far more advanced pipe than that tested in the study.  (4) Palermo described cracks without disclosing the installation or maintenance errors that caused them to rupture in the first place. (5) The joint tests Palermo used weren’t designed to test PVC.
 
The study on which Palermo relied to report PVC’s critical pressure at 10% air volume unambiguously said it was 2.3 bar, whereas Palermo said it was 1.6 bar.  He argued that this simply reflected scientific disagreement, and that he used the study’s regression line and data generated by another lab (the one that conducted the joint tests Palermo used):
 
Because scientific truth is elusive, Palermo says, settling the dispute between methodologies should be left to the scientific community. But Palermo’s slides do not indicate that he was approximating, nor do they make reference to any other tests than those conducted by Greenshield and Leevers. Instead, they unequivocally state that Greenshield and Leevers found that the critical pressure at 10% air volume was 1.6 bar. In fact, they did not. Assigning a lower critical pressure than the test actually indicated is a classic example of literal falsity.
 
The evidence would permit a jury to determine that Palermo did not materially misrepresent the length of one crack, where the damage had to be approximated. However, it was undisputed that Palermo falsely reported the amount of pipe that needed to be replaced in one incident and the crack lengths in three.  Palermo argued that he substantially underestimated another crack length, favoring UGSI.  But for liability purposes it didn’t matter that one of his literal falsities favored UGSI; the others didn’t.  Thus, the literally false statements about critical pressure at 10% air volume, the three crack lengths, and the amount of pipe that needed to be replaced in one city violated the Lanham Act, without further need to show consumer confusion; UGSI was entitled to summary judgment on liability for these statements.
 
UGSI asked for an injunction against these statements.  Palermo argued that Winter and eBay prevented the court from presuming irreparable harm.  The circuits have an inconsistent treatment: the Fourt Circuit continues to state that false advertising is typically irreparable “because diminished goodwill is difficult to quantify,” while the Third Circuit expressly disavowed a presumption of irreparable harm from false advertising.  Because there were still outstanding falsity issues on liability, the court decided to wait until after the jury trial, which would result in further findings about the remaining statements.  This would allow the court to make a better finding on whether a permanent injunction was appropriate.
 
As for misleadingness, UGSI argued that it showed substantial differences between the chemical makeup of the pipes tested in the fifteen-year-old study on which Palermo relied and its own PVC pipe.  UGSI also made other criticisms of whether the studies on which Palermo relied reflected real conditions. The court found that genuine factual disputes remained on these and the other remaining falsity/misleadingness claims.  One of the older study’s authors, for example, testified that product improvements likely didn’t change the fundamental qualities of the pipe for the purpose of his test results, while UGSI’s experts testified that its pipe had a substantially different molecular weight, which the study’s author conceded was the most relevant factor in determining fracture resistance.
 
Palermo argued that there couldn’t be any misleadingness because UGSI didn’t provide a survey showing confusion.  But surveys aren’t always required; Mead Johnson & Co. v. Abbott Labs., 201 F.3d 883 (7th Cir. 2000), on which Palermo relied, actually rejected the district court’s improper reliance on a survey. UGSI showed evidence that one consulting engineer developed concerns after seeing a slide show, and that another feared that UGSI’s product was dangerous. This evidence supported a reasonable inference that they were confused.
 
Palermo then argued that UGSI wasn’t harmed by any misleadingness, because the confused consumers testified that they didn’t end up making decisions based on his presentation, after reassurance from UGSI.  “It cannot be the law that where a plaintiff succeeds in retaining its customers by spending an abundance of time, energy, and money to combat false advertising, the defendant who produced and disseminated the false advertisement or commercial promotion escapes liability for violating the Lanham Act.”  Because of UGSI’s need to reassure at least one consumer, a reasonable jury could find that Palermo’s slide show diminished UGSI’s goodwill and reputation.
 
As for the trade libel claims, they required actual trade diversion, and UGSI didn’t provide evidence that particular purchasers refrained from dealing with it because of Palermo.  Thus, Palermo won summary judgment.
 
Palermo argued that the same harm problems justified summary judgment on the California false advertising claim, because of Proposition 64’s lost money or property requirement.  UGSI’s “significant resources” spent rebutting Palermo’s statements, however, qualified.  Nor did the First Amendment preclude liability, for the reasons given above.

Court upholds SF's required warning on sugar-sweetened beverage ads, including pure logos

American Beverage Association v. City & County of San Francisco, No. 15-cv-03415 (N.D. Cal. May 17, 2016)
 
The court denied plaintiffs’ attempt to enjoin a sugar-sweetened beverage warning imposed on certain soda ads by San Francisco.  The warning is: “Drinking beverages with added sugar(s) contributes to obesity, diabetes, and tooth decay. This is a message from the City and County of San Francisco.” S.F. Health Code § 4203(a).   The ordinance’s findings included that consumption of sugar-sweetened beverages (SSBs) was associated with numerous health problems; that obesity is a big problem in the US and SF specifically, particularly with low-income and nonwhite populations; that SSBs contribute way too much sugar and too many empty calories to the average American diet; that even moderate consumption of SSBs is associated with health risks; that children are particularly at risk (“On average, children consumed 11.96 teaspoons of added sugars from sodas and fruit drinks per day – 47% of their total intake of added sugars.”); that the results are costly for California; that food labels typically don’t show whether sugar has been added; and that young adults are targeted by SSB marketers.
 
Thus, the warning, which must occupy at least 20% of the area of each SSB ad.  Some beverages are specifically excluded, such as milk and milk alternatives and 100% natural fruit or vegetable juice. Covered ads include “any logo, that identifies, promotes, or markets a [SSB] for sale or use that is any of the following: (a) on paper, poster, or a billboard; (b) in or on a stadium, arena, transit shelter, or any other structure; (c) in or on a bus, car, train, pedicab, or any other vehicle; or (d) on a wall, or any other surface or material.”  Newspaper, internet, TV and similar ads are excluded, as are containers or packages for SSBs; vehicles used by businesses that make, distribute, or sell SSBs; standalone logos under 36 square inches; shelf tags/labels; and certain signs permitted before the law became effective.
 
Plaintiffs argued that the ordinance covered noncommercial speech, such as Coke ads proclaiming “Love Wins” after the Supreme Court’s marriage equality ruling, and publicity for the Pride Parade and the Chinese New Year’s Festival on signs depicting soda products and logos. The court thought it was debatable whether all of the examples involved inextricably intertwined commercial and noncommercial speech, citing Jordan v. Jewel Food Stores, Inc., 743 F.3d 509 (7th Cir. 2014).  Even if those were examples of noncommercial speech, plaintiffs couldn’t succeed on a facial challenge because they didn’t show that a substantial amount of noncommercial speech would be affected in relation to the amount of commercial speech regulated.
 
Zauderer v. Office of Disciplinary Counsel of Supreme Court, 471 U.S. 626 (1985), not strict scrutiny, applied.  In Retail Digital Network, LLC v. Appelsmith, 810 F.3d 638 (9th Cir. 2016), the Ninth Circuit held that Sorrell v. IMS Health, Inc., 131 S. Ct. 2653 (2011), required the application of strict scrutiny to content-or speaker-based restrictions on nonmisleading commercial speech regarding lawful goods or services.  But Retail Digital involved a restriction on speech, not a disclosure requirement.  And Zauderer applies to disclosure requirements whether or not the relevant government interest is preventing consumer deception.
 
Compelled disclosure doesn’t violate the First Amendment so long as the disclosure requirement is reasonably related to the state’s interest. Plaintiffs argued that some greater scrutiny was required because the warning was imposed only when they decided to speak in the first place, rather than being triggered by a transaction.  But Zauderer was the same situation—the lawyer decided to advertise that there’d be no fees if the case failed, without disclosing that there’d be costs.  In the court’s view, Zauderer was basically a rational basis standard; it wasn’t even clear that “factual and uncontroversial” was required, or whether that was just the Court’s description of the disclosure in Zauderer itself, as long as the disclosure was “reasonably related to the State’s interest.”
 
Nonetheless, the court continued to apply the “factual and uncontroversial” requirement, interpreting it to mean that the compelled disclosure “must convey a fact rather than an opinion and that, generally speaking, it must be accurate.”  “Uncontroversial” didn’t require more than accuracy, because the requirement shouldn’t “be so easily manipulated that it would effectively bar any compelled disclosure by the government,” particularly “where public health and safety are at issue.” As the court had previously held, “[a] ‘controversy’ cannot automatically be deemed created any time there is a disagreement about the science behind a warning because science is almost always debatable at some level.”  Here, the warning was accurate.
 
Plaintiffs argued that the warning was misleading because it suggests that “consuming beverages with added sugar is dangerous regardless of one’s diet or lifestyle” and that “consuming beverages with added sugar necessarily and inevitably contributes to . . . tooth decay at any level of consumption.”  But the warning just said that SSBs “contribute” to tooth decay, which is true, not that they make tooth decay inevitable.  No reasonable consumer would interpret the warning as suggested by the plaintiffs; the Zauderer-related case law doesn’t give an interpretive standard, but the court couldn’t see what other standard could apply; plus, claims are often evaluated from the perspective of a reasonable consumer, as in false advertising law.  “Contribute” isn’t as strong as “causes,” and to hold otherwise would cast doubt on things like tobacco warnings that say “causes” even though lung cancer isn’t inevitable for smokers. 
 
Nor does it matter that other things cause tooth decay; underinclusiveness is not a problem under Zauderer, because “governments are entitled to attack problems piecemeal, save where their policies implicate rights so fundamental that strict scrutiny must be applied. The right of a commercial speaker not to divulge accurate information regarding his services is not such a fundamental right.”  The court concluded that it was ok to target a significant source of sugar per serving, particularly because it didn’t provide healthful nutrients as milk and juice do.
 
The same basic reasoning supported the obesity/diabetes warning.  “[N]o reasonable consumer would likely construe the warning as specific to him or her and instead would understand the warning is directed to the general public.”  Even if, as plaintiffs argued, SSBs represented only 5% of total caloric intake, each serving still offered a substantial number of calories: one serving size was more than 10% of a 2,000 calorie/day diet.  Dietary guidelines recommend a daily limit of 10% of total calories for added sugars, but a single 20-ounce serving exceeds that limit, and it’s worse for kids.
 
Plaintiffs also challenged the size of the warning, but the City had a reasonable  basis for making it be 20% of the advertisement. It had to be “of a sufficient size to be salient – i.e., noticed and attended to – and research on health warnings for tobacco products has led the World Health Organization, for instance, to recommend that tobacco product packaging and labeling bear a health warning of 50% or more, but no less than 30%, of the principal display areas. By comparison, 20% is relatively modest.” Even if a smaller warning would still be effective, Zauderer isn’t a least restrictive means test.
 
Plaintiffs argued that the ordinance still had an unconstitutional chilling effect because the large size of the warning would deter them from advertising at all or from engaging in counterspeech, because counterspeech would transform the ad from promotion into a scientific debate.  However, under Zauderer, as long as the disclosure requirements were “reasonably” related to the State’s interest, the advertiser’s rights were “adequately protected,” meaning that the degree of any chilling effect was already accounted for.
 
Plus, the warning was not unduly large.  Because it was text-only, “the force of the pictorial advertisement is not likely to be overcome by the text warning,” since ads with color and pictures are more salient.  In addition, a paper in JAMA showed that ad messages are still effective in the presence of health warnings on ads: brand information recall remained very high.  Though plaintiffs’ expert noted that recall of an ad’s specific message or heading was lower than in the presence of a warning message, the court pointed out that, “at least for the products at issue in this case – SSBs – the advertising message is, in effect, the brand, and brand recall is not particularly affected by a text warning message.”
 
Moreover, 20% wasn’t unprecedented, though it was substantial and raised serious questions. “Not only is 80% of the space available, Plaintiffs have shown that they have employed pithy advertising on how to achieve balanced diets and lifestyles.”  Moreover, though plaintiffs submitted declarations from major beverage companies stating that they’d decline to run covered ads under the ordinance, the court wasn’t persuaded by these self-serving claims.  Other industries, including cigarette and smokeless tobacco products, have successfully incorporated warnings into ads.  If the medium was as valuable to sales as plaintiffs claimed, they wouldn’t completely abandon it.  Pharmacos, too, still advertise despite having to disclose warnings.  “[A]s anyone who has witnessed a television advertisement for pharmaceutical products will know, the scope of the information required about potential adverse side effects often makes the disclosure seemingly as long as the advertising message itself,” but they still advertise.
 
The court turned to irreparable harm: without showing likely success on the merits, they didn’t show a First Amendment irreparable harm.  Plaintiffs also identified harm to their goodwill and reputation, but the court wasn’t convinced; many consumers were likely familiar with the high sugar content of SSBs and aware of calorie-induced weight gain. Plaintiffs could also “engage in counterspeech to combat the asserted harm, not only in the advertisement containing the warning itself but also through other means and media.”
 
The court did find that the size of the warning raised serious questions going to the merits, assuming that test survives eBay and Winter, but the balance of hardships didn’t tip sharply in their favor given the public health interests at stake.

Friday, May 20, 2016

Notre Dame Deception Roundtable, part 4

Session 4 – Contracts and Securities
Discussion Leaders: Greg Klass, Ann Lipton, Andrea Matwyshyn
 
Matwyshyn: there’s a duty to perform in good faith in the US, but no duty to negotiate in good faith. If you have an integration provision, conversations leading up to the contract will be excluded from contract interpretation. If we let people lie leading up to the contract, what are we showing about our values and also about differences b/t our contract law and EU, where lies in negotiations may be actionable.
 
Klass: integration clause won’t prevent a defense of misrepresentation in negotiations, or the tort of misrepresentation.  Good faith is really interesting, but there’s a separate issue in contract law, the economic loss rule, which will prevent a claim for the tort of deception in the performance. So if you lie about your performance of the contract, only breach damages are available. But a precontractual lie isn’t covered by the economic loss rule.
 
Silbey: Tort cares more about diffuse harms, even if it’s hard to make out a claim, than contract.  Contract is about freedom to contract and freedom from contract, while tort is a different species of social values law cares about.
 
Klass: you want to look at what work the doctrine of pre-contract good faith does in EU.
 
Matwyshyn: people have sued over term sheets successfully in the EU.
 
Klass: before contracting, your duty is not to misrepresent; you don’t have to look out for the welfare of the other party. You can fight for a larger share of the pie as long as you play by the rules.  Related question: can you contract out of fraud liability and say that lying is permitted in your negotiations?  Delaware Ch. Ct. case: the court says you may not do that.  There is an obligation not to lie that’s fundamental; but you can include in your contract a representation of no reliance, effectively precluding any action for misrepresentation.  In M&A, seller is often worried about misrepresentation claims, so they want the buyer to sign an agreement saying it’s not relying on anything outside the agreement. So all you need is the magic words.
 
Lipton: NY has done this w/sophisticated parties.  Mortgage-backed securities/synthetic CDOs contracting w/German bank.  Court said that it was misleading of the P because the P represented that it wasn’t relying on the D’s representations in the contract. 
 
Klass: Maybe one side understands the magic words and the other doesn’t, and instead of saying “there’s no fraud liability” which would be very clear they allow confusion.
 
Lipton: Securities is different b/c of the multiple disclosure obligations.  Deception rules then implement the disclosure obligations; it’s about setting up an information market, and thus it’s not just intentional deception that matters but the quality of information. Capital formation/market structure as well as consumer protection.
 
Klass: Buell comes to it as a federal prosecutor with generic anti-fraud statutes; that’s where he starts, and maybe his approach focusing on deception is more fit to those.
 
Lipton: there is a rather extensive system of claims that don’t require any showing of intent—either strict liability or negligence. Puffery piece by David Hoffman: his framework doesn’t work for securities b/c there’s no intention requirement so his proposal to allow Ds to rebut by showing no intent to defraud is not helpful.
 
Goldman: why the different rules for securities?
 
Lipton: because this is about capital formation.  May have started as consumer protection, but evolved to want a deep and effective secondary market for trading. You therefore need a standardized info package. Lots of products can’t be investigated and are in some ways interchangeable; there are debates about whether/why the market wouldn’t generate the info w/o requirements. Billions of trades a minute.
 
Matwyshyn: it’s all about trust. Risk of investing in low credibility securities and risks of playing poker sometimes aren’t that different in terms of the numbers.  Maybe we are fetishizing this area of the economy in ways we don’t others.
 
McG: because for these other historical reasons and purposes you have such an elaborate set of disclosures, changes the nature of what deception means.  Information you’re owed as a backdrop to define what deception is: there is rough consensus about what has to be disclosed and how.
 
Lipton: there’s now a circuit split on what fraudulent omission is.  The big antifraud statute, 10(b): whether it’s deceptive to fail to disclose required info under 10(b). If you have a background expectation it will be disclosed, 2d circuit says that yes, it’s deceptive; 9th Circuit says no, there has to be something affirmatively said.  She doesn’t see the 9th Circuit’s logic. SEC can definitely bring a claim in either case; the case law is muddled by a view about how much we trust private plaintiffs to bring these cases when no one actually read the documents b/c it’s all a fraud on the market theory anyway.
 
McG: gets it back to who are the right parties to sue—it might not be the people who are deceived.  Systemic problems stemming from deceptive omissions.
 
Lipton: fraud on the market is very much an injury to the market, not to heterogenous consumers. We are supposed to use objective reasonable person standard, but in fraud on the market courts look through the lens of sophisticated people and in calls to widows they look through unsophisticated, even though that’s not the formal doctrine.
 
Matwyshyn: classes of trusted intermediaries have special roles and liabilities in this regime.  [And that interacts w/puffery and falsity, b/c things that might be nonfalse if said by others can be false if said by them.]  Frank Pasquale: new tech means we lose some checks on intermediation we used to have, as w/sophisticated algorithms that engage in billions of transactions/minute.  All it takes is one problem and no one is auditing the code.  Historical example: Brokerages lied about completing trades in-house b/c they couldn’t keep up w/the market: ended up w/regulatory intervention, lots of closed brokerages.
 
Eric Goldman: interested in the idea that securities market needs all this regulatory structure to be trustworthy enough to proceed.  What distinguishes this from other markets, like the eBays of the world where reputation is enough to build a trust market?  They’re both pushing stuff.  Type I/Type II errors: people sue b/c stock price went down; he thinks that’s bad. Should be concerned about both types of errors. 
 
Lipton: Congress made it really hard to bring a securities fraud case right now; pleading requirements, discovery bar; Type II errors are really unlikely.
 
Goldman: shows you that a regulatory structure needs constant tweaking to avoid the pendulum swinging too far. What about securities led to us building that oversight?  Case study of too much regulation.
 
Lipton: eBay as a company has the ability to stand behind sellers. NYSE used to have ability to stand behind companies. Regulation means it’s less necessary to be on NYSE b/c I know you have met requirements that the SEC stands behind. If you come from another country w/lower securities laws and you list here, that sends a signal to investors that you’re more credible and you have lower cost of capital.
 
McKenna: it’s also systemic risk. If eBay goes down, it doesn’t take down the entire economy.  That’s why you care about structural features—runaway effects of a crash. Also explains more extensive reporting requirements: thicker info requirements.  If eBay goes away, you just have to buy stuff in stores, but you don’t get a Great Depression (it’s just depressing).
 
Silbey: these disclosures aren’t actually transparent.
 
Lipton: but computers can and do interpret them, and sophisticated people can look at companies and compare them across an industry, which helps in trading.
 
Silbey: aren’t they routinely scrubbed and managed?
 
Matwyshyn: some things you can’t scrub. You have to talk about material litigation, for example. Bird’s eye view into how the company sees itself.
 
Lipton: I was a plaintiff’s lawyer and I’m skeptical but even I think there’s information there.  Commodities disclosures are different.  Pages of boilerplate disclosures of risks. Earthquakes could affect Twitter. You may think this is useless, but it turns out that people do econometric studies and those risk disclosures do affect stock prices. Computers look for tiny changes in language, and differences are caught that way.  You can find accounting fraud by crunching numbers and looking at language choices. When people commit fraud, they use different language.
 
Matwyshyn: companies in same industry were talking about tech in very different ways. 2004: Google didn’t disclose risks of security breaches in the same way Microsoft did.  You can track learning in the industry. 
 
Lipton: standardized set of disclosures allow you to detect patterns, not even as extreme as detecting fraud, through human and computer review.  When companies have bad news, they use bigger and vaguer words. 
 
McKenna: this is very far to the end of the structural harm line. Also there are lots of mediating sophisticated parties, so disclosures can be more useful here than in privacy. Also more standardized, instead of “say whatever you want and you’re going to be held to it.”
 
McG: there is one standardized disclosure in privacy, and it’s financial.  You don’t have to use the standard form, but there’s a safe harbor, so everyone does. Computer scientists at CMU did a computer analysis of them, which is routine in the securities space, and came up w/lots of interesting observations about regional differences, and found some companies breaking the law by their own disclosures, etc.
 
McKenna: if disclosure is the means to regulate, then should we require standardized disclosures?
 
Lipton: that’s good, but also need capacity to actually read them, whether human or computer.
 
Said: so context sensitive: “promotional consideration furnished by” is standardized but doesn’t solve problem (if problem there is). Extent to which digital tools are worsening deception problems b/c of ability to scrape, use hidden info, unsettle expectations; but also digital tools may be part of solution, whether using info commons or to detect fraud.
 
Perzanowski: nothing stops requiring a disclosure to be effective.
 
Lipton: that works unless there’s a lot of heterogeneity—experts in securities help.
 
Klass: misrepresentation in contracts includes nondisclosure, but it’s a vague standard: reasonable/not disclosing violate goods faith. The only way it works is that you get repeat situations: if there’s termites in your house you have to disclose; if you’re an oil company you don’t have to disclose you know there’s oil on the farmer’s land.  His own take: common law of fraud/contract is that we have clear norms about affirmative lies, and law piggybacks on those; that handles new situations. We don’t have strong intuitions on failure to disclose.
 
McKenna: tort is riddled with uncertainties about acts v. omissions writ large.
 
Matwyshyn: real estate contracts are a good example: regulatory interventions to explain what you have to disclose. It’s cooperative set of regimes working together.  Theme of this session: the focus on methods of detecting deception and fraud when it’s happening.  Sec reg might be better at that than some other contexts. 
 
Lipton: clearly there’s a bunch of fraud; sometimes computers are easier to fool than people, as when there are fake merger announcements that computers think are real and people could easily detect as frauds.  However, there’s a lot of money to be made in early detection, so it also happens.
 
Said: In speech arena, we have lots of worry about chilling through misreading/understanding whether speech is false.  We haven’t talked about listening or interpretation here.
 
Klass: pitch for Grice and implicature. A rich theory about how we interpret not just literal but implied meanings, including irony. Cost-benefit analysis may be built in. That’s how a lot of the law of deception piggybacks on extralegal interpretive norms.
 
McKenna: this all sounds like duty to me. Affirmative misrepresentation v. failure to disclose—this is the difference b/t someone who’s begun to act and thus has the duty to do it reasonably well, versus when I never start and have no duty to continue.  Regulation can also create duty.
 
McG: sometimes untidiness in law is based on different interests being served by different silos, and we should be willing to be comfortable w/that.
 
McKenna: but we should be clear about what we mean rather than assuming it has a fixed meaning.
 
Klass: it’s not common purpose or justification, but that there’s a common set of design questions that repeats across different fields.  My way of thinking: most of those are contained in the common law elements.  In this area of law: what’s the deal w/scienter? What’s the deal w/reliance? 
 
Silbey: basic things are missing from TM that could be borrowed.
 
McG: do you want a scary regulator like the SEC?
 
McKenna: think about why features work in some areas and not others.
 
Lipton: law keeps the corporation and the stock certificate relatively stable in what they are, so they’re relatively interchangeable. B/c of relatively homogeneous set of products, it’s easier to regulate them.
 
Matwyshyn: it takes a “river on fire” moment to have a meaningful evolution.  If we look historically at when quality control has meaningfully improved, what would it take to create change in deception regulation?  [FDA: it took a lot of dead kids.]
 
Gadja: news sites shifted from anonymous comments to Facebook in part b/c of all the defamation.
 
Lipton: scandals also produce incremental responses. Bork issue = just video rentals protected.  Harder to get overarching response, in the US.
 
McG: though other countries have done it.
 
Silbey: dilution added to TM act as a response to market forces.
 
McKenna: Even the SCt has no way of thinking about how to reconcile these different fields, as 1A discussion showed.  Alvarez is totally unsatisfying about why SVA is unconstitutional but TM is just fine.  Modern TM law is nothing like history or tradition was, which is why their explanation was wrong.
 
Silbey: Alvarez was not about TM.
 
McKenna: they think TM law is totally fine; they used TM to explain why the SVA was bad.
 
McG: Alvarez pro-US briefs tried to brief TM law as “uh-oh, be careful what you do so as not to destroy it.”  Thus the Court may have been trying to cabin the force of the opinion.
 
McKenna: gives us reason to think harder about the kinds of harms at issue. 

Silbey: in fundamental rights cases, the Court spends lots of time identifying the harms in fundamental rights like marriage cases. They seem unable to do so in these cases however.
 
McKenna: there’s so much assumption about what deception is.
 
Said: what if we looked for tolerated confusion/efficient confusion? 
 
Silbey: they had that in the briefing in Alvarez—a lot of discussion of the benefits of lies.   Flatness of discussion of variety of interests in IP cases, compared to the discussions of competing values in securities law etc.
 
Lipton: that’s a public choice issue—hasn’t been people with lots of money/big megaphone on the other side of IP cases.