Wednesday, April 01, 2015

ANA conference: Miss. AG Jim Hood

Keynote Address, Jim Hood, Attorney General, State of Mississippi, President, National Association of Attorneys General (NAAG)
 
Law enforcement has to be moving to the internet, where crime is going. Worked with ISPs on child porn/hash screening. We do hacking, extortion, data breach, IP theft.  He fears in our lifetime a hacker will shut down our electric grids. Survived Katrina; carried a gun the first few weeks thereafter.  Law-abiding people will steal water, gasoline, whatever they need to protect their families if the electrical grid is shut down.
 
AGs have multistate working groups. If you have a data breach, and call my office as GC, I have a direct link to that company.  If you hire a large firm with a data breach practice, most AGs will think “this is the defense firm we have to deal with” and their eyes glaze over. Work with the AG instead.  If you hire a defense firm, we assume you’re guilty, that’s our law enforcement action.  BP oil spill: initially well handled, GC reached out; then they figured out they were really in trouble.  If you have a small data breach, work with AG’s office. Hard to point a finger when we may not have protected our own gov’t systems as we should.  Compare to your competitors—big box store may need different procedures than a bank. AGs are putting together a manual with suggestions; not necessarily best practices.  Primarily for small businesses suffering a data breach.
 
Most AGs want federal legislation to be as stringent as the most stringent state legislation. Probably will see some movement in the next year or two.  We fight federal preemption every day, Democrats and Republicans.  There is a lot of overreach—federal district judges in particular haven’t respected state sovereignty as they should.  (Heh.)  CAFA: 49 AGs said “exempt AG actions from this act,” and Senators said they wouldn’t be covered, but the 5th Circuit said that AGs were covered anyway; SCt reversed 9-0. There’s a constant battle.  But we’ll probably reach agreement on data breach.
 
We just appealed the Google decision.  The Sony hack: I didn’t have a clue they knew Mississippi had an AG; I didn’t know anything about operation Goliath or any of this stuff.  They acted like the movie theaters got an AG to go after them, but I’ve been doing it for 6-8 years. Motion picture industry has been involved since the 1920s when people stole film off trucks. Counterfeit items hurt our consumers.  Drugs, etc. 
 
After Google entered into a plea w/fed. gov’t, paid $500 million to avoid conviction, b/c DOJ found that marketing division was getting around their system to allow Canadian pharmacies to advertise—really dope dealers in South America and Russia. Google folded b/c DOJ got their emails.  Complaints from parents: investigators made buys online, like oxycodone. Autocomplete used to complete “prescription” with “buy prescription drugs without prescription.”  We bought from their ads.  Monetizing the sale of illegal drugs is a problem.  YouTube videos would say “here’s how to buy drugs w/o a prescription.”  (§230?) 
 
IP theft is important—Mississippi has an inordinate number of artists and writers—but the AGs weren’t badgering Google out of nowhere.  We bought pain and birth control pills; often we got ripped off, or got counterfeits—during Google’s 2 year probationary period and we provided that information but the fed gov’t hasn’t done anything so far. Engaging on these tech issues is not new.  3-D printers are an emerging issue.  Will change business more than the internet. Will be able to print a cellphone. Won’t need Chinese labor. Also IP theft.  Guns, drugs.
 
Encryption: will you get sued if you don’t encrypt? You can’t encrypt w/in business, but if you send it to someone else, they need to decrypt.  Apple iOS: Now we have digital info in almost every criminal case—texting, photos, emails. We rescue kids by working with Facebook: we find them if they’ve run away. FB works with us.  Law enforcement access saves lives.  Crooks want privacy protection—helps sell phones.  (So much for data breach concerns.)   If we can’t get cellphone companies to keep some code for us, we need a law to give us the best evidence.  What if a guy gets shot and the video on the phone is the only evidence?
 
Q: in the past, NAG has cooperated w/FTC. What’s it like now, and how do you see it going forward?  What are the priorities in consumer protection, and do they match those of the FTC?
 
A: have a good relationship w/FCC and FTC.  Antitrust can be slow, but generally they deal with a bigger bureaucracy.  Ads to kids: higher standards. Particularly online, all the apps targeted at kids.
 
Q: why aren’t you boycotting Indiana? Aren’t civil rights a critical issue as well?
 
A: Governor of Conn. banned state funds for travel there.  They’re going to have to deal with their own problem.
 
Q: distinguishing between ads and content—are the AGs involved?
 
A: not as much, but in the area of Google ads/AdWords, when we see “how to murder your wife” for a YouTube video, we notice that.  Have to disclose where you place ad.  We will look at putting legit ads beside illegit ads. 
 
Q: self-regulation, including on piracy: ecosystem challenge is where the liability should be put.  There’s a challenge in putting liability on intermediaries.  We’ve come out on having advertisers do contracts and push down limitations on ads delivered on pirate sites.
 
A: companies have a role here. Talk to the AGs but AGs can’t carry all your water.  A lot of times competitors come to us. We try to stay out of individual class actions.

ANA conference: surveys

What Do Consumers Think? Using Online Surveys To Demonstrate Implied Claims
 
David G. Mallen, Co-Chair, Advertising Disputes, Loeb & Loeb LLP: NAD now forum of choice for many ad challenges, especially since the standard of proof is different for implied claims. Survey not required but may be useful. 
 
Kelsey Joyce, Senior Director, Legal Affairs, T-Mobile USA
 
We deal with competitive ads all the time.  Survey: in 43(a), very helpful; is it worth spending the money on survey for NAD?  Discussed with marketing clients as well as external lawyers/survey expert.  Timing: if this is an ad we really want out of the market—and they all are!—we might not want to take the time to do a survey in order to get the challenge started. 
 
Hal L. Poret, Senior Vice President, ORC International: possible to put together a survey with 2 weeks’ notice, which can be important w/NAD.  Difference between online and mall survey may allow you to supply a rebuttal survey in short time.
 
Mallen: what’s candidate for online survey and needs mall intercept?
 
Poret: what’s the ad and how is it being shown? Online survey may have very small screen.  Could be desktop/laptop.  Even tablet/mobile phone, though you want to stop that if you can. Can it be fairly presented on computer screen?  TV ad w/small print, or graphics/charts that might be harder to read, think carefully about whether showing it on a computer screen would be challenged.
 
People also move quickly through unsupervised online surveys; want to get through it.  Human interviewer: social pressure to respond; interviewer takes down answers for them = longer, more detailed, thorough answers. If you need people to speak in their own words, online may be more difficult.
 
You don’t always need a human interviewer—majority of NAD cases allow online; advertisers are often trying to go up to the line between true and false, and thus you almost always need a closed-ended question, and online surveys are ideal for closed-ended questions.
 
Q: “Nobody knows you’re a dog”—is that an issue?
 
Poret: it’s not to me; that’s how marketing research works these days. We work with large online panels that recruit lots of people and work to comply with standards. We have techniques to know who we’re inviting—DOB, gender, etc. to know who’s taking the survey.
 
Q: controls?
 
Poret: in some ways online surveys lend themselves to what you want as a control—often the most effective thing is altering the original ad to clarify something or make it true. Digital alteration is often most desirable, and presenting it online makes sense.
 
Joyce: NAD Case No. 5686, T-Mobile challenged Sprint’s campaign for Unlimited My Way monthly service plans. Challenges: Ads w/specific scenarios depicting how consumers can save money imply that consumers will save. Guaranteed Unlimited For Life confuses consumers about whether “for life” applied to the $80 monthly fee or the unlimited talk, text, and data.  “Guaranteed for life and only from Sprint” implied that only Spring had unlimited talk, text, and data. Considered not doing a survey because it seemed misleading on its face. We thought consumers would take away message that the price was part of the fee.  Decided to survey because (1) wanted backup, (2) were challenging another Sprint ad that they thought needed a survey, so taking the time was a nonissue.
 
Poret: control was clear cut because the issue was combination of “for life” with $80 in close proximity.  Control: unlimited for life, eliminating $80.  Challenge: didn’t show entire webpage, just ad banner. But NAD was satisfied with explanation that nothing else on the page clarified the offer and that this was a standalone ad.
 
Mallen: issue is net impression, but net impression of what? You may sometimes have to test an entire webpage.  When would that be?
 
Poret: other content possibly right above or below that bears on that.  Headline, graph, and then a paragraph of text. 
 
Joyce: we captured the entire page so we could show how the test and control were displayed.  Control: “only Sprint delivers unlimited for life,” without the $80.  The control ad is an ad that we can live with in the marketplace at the end of the day. Create a blueprint for Sprint to fix what we think is the deception.
 
Poret: NAD skepticism about closed ended questions makes it really, really important to have a good control that shows that closed ended questions on the control didn’t produce the deceptive answer. “Based on the ad, what is guaranteed for life?” Please be as detailed and specific as possible.” After other filter questions, including whether the ad communicated anything about a guarantee for life.  NAD will want that.
 
Test group: 34.5% said guaranteed $80/life when asked the intro broad questions “what did this ad communicate?” 5.5% in the control group said the same thing. Net 29%. Didn’t even need the closed-ended questions.  If you did, 57%/9%, net 48%.  NAD accepted the survey evidence.
 
Joyce: other challenged ads were tougher.  $83/year offer depended on buying one particular phone, iPhone 4. Disclaimer was at the bottom but we thought it wasn’t clear; offer was “our most popular free smartphone”—but that wasn’t the most popular phone, smartphone, free phone, or iPhone even at Sprint: it was the most popular free smartphone at Sprint.
 
Poret: problem was not that something needed to be removed, but that something needed to be added: “when you choose an Apple iPhone 4” was control.  Here we needed closed-ended questions much more because it wasn’t the kind of ambiguity people would resolve on their own.  Online survey works well here because you need the closed-ended questions.  55% in test said that the savings would apply to any phone; went down to 18% with control ad—helped convince NAD that the survey was reliable.
 
Joyce: we’re more willing to run a pilot survey before the NAD, because that’s not discoverable. But we do think about discoverability even at the NAD; just because we’re not litigating now doesn’t mean we won’t be soon, especially when we’re an advertiser defending the claim.  Follow-on consumer class action lawsuit is often an issue.
 
I need a control ad that we can live with if we won in the marketplace.  We absolutely every time we challenge an ad, we think about how this will impact our own advertising. 
 
Poret: Different perspective because it’s not his role to design Sprint’s advertising for them, and there’s no magic answer to the question of how it should be. I’m trying to create something that will allow me to test whether my questions are producing answer X when I know from this ad that they shouldn’t answer X. I have to be satisfied that a reasonable person shouldn’t come away from the control thinking the offer applies to any phone instead of a still confusing version, so I know what I see is just noise.
 
Q: what about TV ads?
 
Poret: that would go to what’s in the ad.  I do such surveys frequently, mainly where there are strong takeaways. Sometimes important info is on the screen in the ad that I worry about someone seeing in an online survey.  Maps/charts/graphs/legents/mouseprint. Don’t want to risk people can’t see that in certain scenarios.
 
Go to court: you don’t know what judge you’re getting, whereas NAD knows me and probably the other survey expert—familiar with expert battles.
 
Joyce: some judges will accept any survey, while others will never accept one.

ANA conference: keynotes

2015 ANA Conference
Keynote Address: Michael O’Rielly, Commissioner, FCC
Missed most of this due to transit, but he thanked advertisers for defending their interests before the FCC and said they should be involved before an issue reaches his desk.  Not every call from a legitimate business is a form of harassment, so TCPA rules need to be relaxed.
 
Q: how will new rules affect the FTC?
 
A: trying to work together.  Net neutrality: broadband = telecom provider and thus under FCC jurisdiction, extending into privacy area. Workshop exploring those issues later this month. Past experience in privacy has been rather narrow and restrictive/problematic than other agencies, including FTC’s approach to info sharing.  Narrow compared to world of data available on internet.
 
Q: will there be regulatory forbearance?
 
A: have no faith in that.  I call it faux-bearance. They pick and choose which provisions they keep. They have forborne from 56% of Title II, but that leaves 44%.  Truth: number means nothing. Previous drafts: real heart of Title II is sec. 201, and you don’t need the other provisions to get the same results.  All those forborne provisions are applicable under 201, “just and reasonable.” Very vague.  Will be chipped away over time by substantive folks and enforcement bureau.
 
Q: what’s the basis for the claimed jurisdiction over privacy?
 
A: in declaring broadband a telecom provider, they’re subject to sec. 222 of Title II, dealing with security and privacy. Targeted towards customer proprietary network info like time, date, length of calls (CPNI). Not towards internet data. We’ve subsumed all that authority. My statement: not only because lines b/t broadband and edge are blurry, but also regulatory bodies don’t stop at the lines designed today. Will continue to extend until we get edge providers in FCC jurisdiction. This will make privacy very important.
 
Q: For marketing teams, what would you tell them?
 
A: Be very vigilant in examining what’s being done at FCC and in explaining how the products and services you represent are beneficial to consumers. Don’t wait until there’s a crisis. Staff may be focused on something else but they’ll appreciate that you came in before something bad happened. At that point, it’s very messy (data breach, etc.).
 
Q: You worried about global regulators adopting/expanding the plan—Euro carriers reportedly said that US uncertainty gives them an edge in the internet of things.  Could you talk about int’l implications?
 
A: They see this as an opportunity to get ahead in an industry they’ve always lagged.  Tickled pink that US may go down this path.  (RT: what would getting ahead mean here? Charging more?)  A number of nations look to US as telecom/tech policy leader and tend to adopt what we adopt. We fund a number of programs teaching int’l regulators.  (I see a different kind of connection between those two sentences.) One teaching: independence of the regulator is important.  We’ve had difficulty—this administration has bridged new era in involving itself in FCC activities, and worries that next admins will not put the genie back in the bottle. When you take that internationally, you’ll see breakdown of independence in other countries.  South Korea ITU: African nations were appreciative of the time they’d spent learning the benefits of an independent regulator, but we’ve let an administration weigh in and that’s very problematic. It’s not a partisan issue. (Really.) 
 
Q: Should we expect changes in sponsorship identification rules? Program-length commercials, particularly for kids?
 
A: Hasn’t heard anything about program-length commercials. We do have waiver petition before us on sponsor IDs, moving that info to the internet, contest rules, etc.  No longer need to have them on radio & TV. I have looked favorably on that in the past. The place where the info is may change, but has heard nothing about examining content of info.
 
Q: can you elaborate on comment that net neutrality would prohibit sponsored data plans?
 
A: not “would,” but staff is examining various issues. Based on past experience, skeptical that FCC will view sponsored data plans/data caps favorably.  It’s been beneficial in poor nations to bring tech to consumers; differentiates carriers in the US; can be beneficial for new tech.
 
Q: Given CPNI covers who you’re talking to and when you do it, and that info is captured by browsers and ad serving networks online, will we make ISP responsible for controlling that?  Will we pull browser/website creators in on CPNI rules?
 
A: don’t know scope of issues, but wouldn’t be surprised if all were on the table. Complete panoply of info sharing will be examined.  That’s why you should be vigilant.
 
Q: any further views on CPNI beyond the workshop coming up?
 
A: I have tried to be a public servant: examine all the issues, read all the record, do all the workshops. So doesn’t want to preclude what may happen.
 
Q: legislation?
 
A: when people think they’ve won, they don’t try to find common ground.  If the courts change that, things may change.
 
Dan Jaffe, Group Executive Vice President, Government Relations, ANA
What The New Political Reality Means For Advertisers  (AKA news for storage jars—I love this)
 
Radical political change.  Congress was close to comatose; hard to take your own efforts seriously.  Now we’ve moved from comatose to superheated. ANA favors lowering overall corporate tax, but traditional treatment of ads doesn’t have to be sacrificed—we must not be duped into thinking this is necessary. 
 
(1)   Rapid political change. Historical “Do-Nothing Congress” passed 273 bills, and this past did fewer than that, mostly naming post offices. Republicans are claiming they will push tax, privacy, data security, patent trolling legislation, all w/substantial impacts on ad industry.
 
New range of players on key committees, all w/activist agendas. But intra and interparty divisions persist.  Boehner and Obama and McConnell all have trouble making their constituencies follow a leader.  Reid is diminished by retirement.  So serious questions about agenda implementation exist.  Many divisive issues; bills containing poison pills are lined up to exacerbate these issues—e.g., human trafficking bill.  Democrats still have leverage too: filibuster, veto pen.  2016 looms large: small window for action.  Republicans will be driven by drive to create contrast w/Hillary Clinton.
 
(2)   Increasing threats to ad tax treatment.  (I’m pretty sure this is his perennial theme.)  Draft ad amortization proposals for 2014—Senate Bill saying you can deduct only 50% of advertising and remaining should be written off over 5 years, House 10 years. Could cost over $169 billion in increased taxes over 10 years.  (You mean some of these guys might owe Uncle Sam money?)  Chairman Ryan of Ways & Means says he wants a major tax reform move this summer.  Five different subgroups in the Finance Committee in the Senate studying the issues; we’re submitting comments against amortization.
 
Main arguments for amortization: (1) It would raise a lot of money.  That’s not an argument at all.  Claim: Everyone has to give blood so we can lower corporate tax rate.  (2) An ad today creates lasting value in brand awareness and customer loyalty—generates ongoing revenues.  It would be nice if that were true, but advertisers don’t advertise just every ten years.  (3) Advertising as a whole creates longterm value that needs to be written off over time. But that doesn’t justify changing present treatment of ads; it’s the engine of our economy and drives 21 million jobs/$6.7 trillion of economic activity. 
 
Life of an ad is getting shorter, not longer.  Better consumer info, targeting, faster response time to market changes. If ads not performing, advertisers know about it almost immediately and change them. Competitors are also responding more rapidly.  Many advertisers use ads w/an expiration date—coupons, sales.
 
Ads do build brands, but that only happens through constant reiteration/hammering. If you stop for a day, begins to erode. Famous companies have gone bankrupt: Borders, Circuit City, Radio Shack, Polaroid, Pets.com, Lehman Bros.  Their ads are not effective today.  (Not my field, but: Isn’t that true of a lot of their assets, though, inasmuch as they are bankrupt?)   Are we really like an office building (40 years), laptop, car?  Congress is not seeing the obvious.  If you advertised a 2015 model car, you’d have to amortize 9 years past when the model was sold.  Stigler & Arrow says it’s not reasonable/rational.  None of the other major economic powers have needed to amortize advertising to lower corporate tax rates (China, Japan, Germany, France, UK).  Every country w/lower tax rates than us has done this w/o burdening advertising—why are we the only country that needs to do so?  (Oh, so many possible answers there.)
 
Tax threat isn’t just federal—Pa., Ill., Cal., and Puerto Rico are considering applying service taxes to advertising.
 
(3)   Present status of privacy and data security/breach legislation. President’s Privacy Bill of Rights was DOA—business, consumer groups, FTC, Democrats and Republicans thought it was too weak or too strong. Major privacy legislation is unlikely this Congress. Though breach/security legislation is absolutely essential in response to major breaches in 2014-2015. If you haven’t had a breakin, you just haven’t realized you’ve had one.  Result: reasonable consumer concern.  Breach of security legislation is not separate from privacy legislation.  If you can’t convince people their data is secure, they will resist agreeing to give you that data, and they’ll put more restrictions on its use.  47 inconsistent, conflicting state data breach laws across the US, plus Puerto Rico, V.I., D.C., and Guam.  Laws are constantly being changed. Hard to stay on top even for large companies. Virtually impossible for everyone else.
 
Data breach legislation is moving, focused on federal preemption; material financial harm triggers to avoid meaningless breach notification; and expansion of FTC authority into new areas. Likely to expand to triggers for health info and geolocation info.  Markup expected in full committee after Easter recess. Companies w/a POV should weigh in now.
 
(4)   How the digital revolution is upending existing regulation. Regulatory world is developing away from clear divisions between media.  Convergence is ever more rapid.  Regulatory divisions may need to be recalibrated/drastically altered. Most pronounced between FTC/FCC but we’ll see it in other areas like CFPB.  Need to avoid overlapping/inconsistent rules.  House legislation looks to give FTC more authority, while FCC proposed to regulate more activities under Title II.  FCC says “trust us” on forbearance over 30 statutes and 700 existing rules.
 
(5)   Who if anyone will control the regulation of the internet?  FCC’s net neutrality rules take authority from FTC; FTC data breach and security legislation takes authority from FCC.  Delegation of root to ICANN—e.g., .SUCKS issues.  EU’s right to be forgotten—attempting to extend it internationally, along with other types of privacy issues. 
 
Q: with ads to millennials increasing, and millennials less concerned about privacy, how will that shift policy?  (This is a great example of the rhetoric that danah boyd so incisively deconstructs, deployed for a specific purpose—loosening of scrutiny of what is done with data, as if posting selfies for friends were the same thing as sharing medical data with advertisers.)
 
A: As they start taking more control of legislatures and courts, that voice may be heard louder, but in the interim, old people run legislatures and courts and are unsophisticated about these issues. Politicians, often with good reason, are particularly sensitive about data.  Less sophisticated and highly concerned—in the short run, even though millennials don’t care what they put on Facebook, that won’t drive policy.
 
Q: about harms of amortization.
 
A: would cost millions of jobs.  If they can’t find the money for something, they will come looking for advertising—they haven’t mentioned ads for funding the Highway Trust Fund, but he fears it.
 
Q: realistically, what are the chances for patent reform or privacy legislation being signed?
 
A: High chance of legislation for tax reform—highest nominal corporate tax rate in developed world, resulting in inversions.  Tax reform is going to happen; we need to be working right from the beginning or we will be lost at the end.  Does not see privacy legislation going forward, but data security/breach legislation has a better chance than it’s had for many years.  Wouldn’t bet anything for sure, but better than 50/50.  Patent reform: better chance of moving forward—was moving quickly in last Congress.

Tuesday, March 31, 2015

Reading list: descriptive and suggestive TMs

Jake Linford, The False Dichotomy Between Suggestive and Descriptive Trademarks. Abstract:
Classifying a trademark as descriptive rather than suggestive fundamentally alters the scope of trademark protection. A descriptive mark, derived from a feature of the product or service sold, only qualifies for protection after the mark has acquired source significance, i.e., consumers see it as a trademark. A suggestive trademark, which indirectly invokes qualities of the product or service, is protected without evidence of source significance. Courts often struggle to distinguish between suggestive and descriptive marks. The effort would nevertheless be reasonable if the differences between suggestive and descriptive marks justified their disparate legal treatment. But in light of cognitive and historical research into language change, protecting a suggestive mark without evidence of source significance may not be warranted. In fact, trademark law erroneously inflates the difference between suggestive and descriptive marks. This mistake becomes apparent in light of theoretical, historical, and cognitive research into “semantic shift”: the process of words gaining and losing meaning over time. Linguistic analysis reveals an inconsistency between how trademark doctrine treats suggestive and descriptive trademarks and how consumers likely process them. Suggestive and descriptive marks are not so dissimilar as to justify different treatment. Instead, they likely influence consumers in similar ways. As a result, trademark law should reposition the line between descriptive and suggestive trademarks. A suggestive mark, like a descriptive mark, should be protected only upon a showing that the mark has developed source significance in the minds of consumers.
Very interesting and largely persuasive, though I think he misreads my Gone in 60 Milliseconds--he argues that quick mistakes are very hard to correct, but my points was that (accurate) recognition delays, allegedly produced by the presence of diluting marks, haven't been shown to affect real purchases, for pretty much the reasons he offers to explain why descriptive and suggestive marks are more similar than different: context matters a lot.

Friday, March 27, 2015

A legitimate affiliation confusion claim?

Grubbs v. Sheakley Group, Inc., 2015 WL 1321126, No. 1:13cv246 (S.D. Ohio Mar. 18, 2015)
 
The court adopted the magistrate judge’s recommendations in this case, dismissing Lanham Act claims (and RICO claims) and declining to retain jurisdiction over state claims.
 
Grubbs was the sole owner of Capital Concepts, Inc., a financial planning, wealth management, and tax preparation firm, which bought Tri–Serve Ltd. and Triserve # 1 LLC, companies that provided human resources and financial services to corporations. Defendant Strunk–Zwick worked for Tri–Serve as a managing director, then as the manager of Capital Concepts, then Tri–Serve again. Plaintiffs alleged that she schemed to defraud Capital Concepts, and later Tri–Serve, and to embezzle assets for her own purposes and for the benefit of other defendants. She allegedly worked with other defendants to transfer clients, employees, and other assets from Capital Concepts and Tri–Serve to entity defendants.  After Grubbs presented evidence of Strunk-Zwick’s scheme, including falsified bank documents, Strunk-Zwick was charged and ultimately convicted of wire fraud.
 
In July 2009, Strunk–Zwick sent emails to a limited number of Tri–Serve clients stating that individual defendants were partnering with Sheakley HR and moving their offices, but that there would be no change to the services provided other than new contact information. The new address was listed as: “TriServe LTD c/o Sheakley HR Solutions,” and Tri–Serve’s address and logo appeared at the bottom of the emails. Plaintiffs alleged that this represented an affiliation between Tri-Serve and Sheakley.
 
The court found that plaintiffs failed to plead likely confusion.  Before using the multifactor confusion test, the threshold question was “whether the defendants are using the challenged mark in a way that identifies the source of their goods.” Here, the Tri–Serve name and logo were used in a “non-trademark way.” The emails specified that clients “will begin to see the Sheakley HR name” as opposed to the name TriServe in future communications. “The use of TriServe’s mark in a ‘non-trademark way’ as a source of comparison between the two organizations and to identify to the email recipients a change in service provider does not make the Entity Sheakley Defendants liable to plaintiffs for trademark infringement. Because the emails sent by defendant Strunk–Zwick clearly identify Sheakley as the future service provider, there is no likelihood of confusion as to the origin of the future services coming from TriServe.”
 
Comment: wow, an affiliation confusion claim that I think should’ve been taken more seriously.  Will wonders never cease?  The problem isn’t that it wasn’t clear that Sheakley would be the service provider.  The problem with the quoted emails was that they made it sound like Tri-Serve was becoming Sheakley in voluntary fashion.  Parts of the emails not quoted in the opinion may have made clear that it was the individual defendants, not the whole Tri-Serve enterprise, that was moving, in which case the court’s ruling makes sense.  But “TriServe c/o Sheakley” sure sounds like an affiliation claim standing alone.
 
False advertising: Here the problem was “commercial advertising or promotion,” using the Gordon & Breach test.  The 2009 emails had only 23 recipients, and “[a]bsent allegations as to either the size of the relevant market or the number of entities within that market that [defendants] contacted, it remains entirely speculative as to whether [defendants’] communications have been ‘disseminated sufficiently to the relevant purchasing public to constitute advertising or promotion within [plaintiffs’] industry.”

Thursday, March 26, 2015

Fair use quote of the day

Rigsby v. Erie Ins. Co., No. 14-cv-905 (W.D. Wis. Mar. 16, 2015): “It is difficult to imagine how it could not be fair use for an insurer to copy or distribute a photograph for the purpose of evaluating an insured’s claim.”

The cartoonist has no idea how fair use works

Story here.

Reading list: Campbell at 21/Sony at 31

Jessica Litman, Campbell at 21/Sony at 31. As you'd expect, insightful and a pleasure to read. Extracts:
 
When copyright lawyers gather to discuss fair use these days, the most common refrain is its alarming expansion. This distress about fair use’s enlarged footprint seems completely untethered from any appreciation of the remarkable increase in exclusive copyright rights.  ...
The idea … that copyright owners’ rights could be greatly inflated without inspiring a comparable expansion in fair use seems delusive. If many, many more uses are arguably prima facie infringing now than before, it follows that fair use will need to stretch to permit more of them. None of the voices expressing the hope that fair use could be confined or returned to its mid-20th Century boundaries seem to endorse a proposal to cut back copyright rights to their mid-20th Century limits. …
When Congress enacted the 1976 Act, it apparently believed that consumers’ personal copying would not subject them to liability for copyright infringement under the new statute, but nothing in the language of the statute made that understanding explicit. Congress did not consider and did not provide for claims that making devices that facilitate consumer infringement might subject device makers to infringement liability. The Sony case, filed shortly after the Act’s enactment, raised both questions.  Confronted with a choice between finding liability where Congress had not intended to impose it or construing the statute to reach a narrower set of uses than the literal language might warrant, the Supreme Court settled on a new formulation of the fair use privilege that allowed it to avoid finding Sony liable for consumers’ personal copying. That fair use analysis wreaked a lot of mischief in the decade it controlled, chiefly by making it much more difficult for commercial uses to claim their uses were fair. It also, for good or ill, encouraged both consumers and businesses to structure their interactions around the assumption that consumers’ personal copying would normally be fair use. In 1994, the Court decided Campbell, and replaced the analysis it had adopted in Sony with a test that focused primarily on the transformativeness of the allegedly fair use. It left the implications of that change for secondary liability and consumer personal uses uncharted.
. . . Advocates for copyright owners resist any proposal to incorporate specific privileges and exceptions into the statute to privilege uses that Congress deems non-infringing. They warn that any new privilege or exception poses a grave risk that future pirates will make use of the privileges to shield wrongful behavior.  The uncertainty surrounding consumer liability, moreover, is itself a weapon that can be deployed against newfangled trumpet makers and the venture capital firms that might fund them.  With no specific exceptions, though, courts have little recourse but to construe fair use as expansively as they have recently construed copyright rights. And that is very expansively indeed.

Wednesday, March 25, 2015

Wannabe competitor lacks standing to challenge false advertising

Maine Springs, LLC v. Nestlé Waters North America, Inc., 2015 WL 1241571, No. 2:14–cv–00321 (D. Me. Mar. 18, 2015)
 
Maine Springs was founded seven years ago to start a bottled water operation in Poland Spring, Maine. Maine Springs owned the natural springs, bottling facility, bulk water facility and necessary equipment for bottled water operations. The bottling facility was located in Poland Spring, and the bulk water facility was about 2 miles away in Poland, Maine. Each had its own spring water source, and Maine Spring’s permits make it the holder of the single largest natural spring water withdrawal permit issued by the State of Maine.
 
Nestlé Waters is the largest distributor of bottled water in the US, with a 31.6% share of all bottled water sales in the United States, almost double that of its closest competitor. Among its 15 brands is Poland Spring, America’s leading brand of bottled water.  Nestlé Waters represents that Poland Spring® bottled water is 100 percent natural spring water. The bottle says: “not all water is created equal. Poland Spring® Brand 100% Natural Spring Water comes only from carefully selected mountain springs that are continually replenished. What starts out as rain and snow, soaks into the ground and is filtered naturally by the earth with a distinct composition of minerals to create our crisp, refreshing taste.” This is part of a general strategy by bottled water sellers to differentiate their products from regular bottled tap water.
 
Although Nestlé Waters has a bottling plant in Poland Spring, the original Poland Spring is not used as a resource for Poland Spring water, because that spring has been dry for decades. Nestlé’s product doesn’t come from the same aquifer as the original source. Thus, Maine Spring alleged that Nestlé Waters’ representation that the Poland Spring was one of its sources was literally false.  (Wouldn’t the mark be subject to cancellation on this ground if the falsity were material?) In addition, Maine Springs alleged that the ground or well water sold as Poland Spring doesn’t necessarily come from “carefully selected mountain springs that are continually replenished,” as advertised. Though Poland Spring was sold as 100% natural spring water Main Springs alleged that the water comes from a variety of sources including springs, ground water and well water in the Maine geographic area.
 
Maine Springs made attempts to supply bottling companies with its bulk water, but was rejected, and it alleged that “[o]ther bottling companies and at least one distributor have similarly rejected Maine Springs’ proposals for fear of threatened litigation by Nestlé Waters.” Thus, the bottling and distribution facilities have sat idle. Nestlé Waters threatened litigation against Maine Springs for trademark infringement: Nestlé Waters’ position was that Maine Springs could not identify the source of its water, Poland Spring, without creating confusion.  As it wrote, “While we appreciate that there is a geographic location known as Poland Spring, Maine, the predominant associations created by the statement are that the ‘Poland Spring’ is the source of the water and that its contents are associated with the Poland Spring® brand.” 
 
Nestlé Waters demanded that Maine Springs not use any label that identified Poland Spring, Maine as the source of its water, but, as a matter of federal and state law, bottled water must identify its source on the label, including city, state and ZIP code.  (Sounds like an interesting preemption/preclusion defense.)  Maine Springs thus changed its label from “Source: Poland Spring, Maine” to “Source: Located in Poland Spring, Maine,” but Nestlé Waters advised that it did not approve of the change.
 
Maine Springs sued for violation of the Lanham Act; Nestlé Waters argued that Maine Waters didn’t come within the zone of interests protected by the Lanham Act and failed to sufficiently allege proximate cause. But that was distinct from Article III standing, which the court had to address independently, and found wanting. Maine Springs needed to show that Nestlé Waters has invaded “a legally protected interest that is ‘concrete and particularized.’”  It didn’t. Its claims of harm from the false advertising were bald and conclusory.
 
Maine Springs alleged that consumers of bottled water choose Poland Spring water due to Poland Spring’s false statement that its water is natural spring water from the Poland Spring, whereas if Poland Spring were truthful consumers would buy Maine Springs water instead.  But Maine Springs hadn’t actually entered or attempted to enter the bottled water market in any way. Instead its facilities are idle and the complaint didn’t allege that it was prepared to sell bottled water. Thus, the allegedly false advertising couldn’t have diverted consumers. Maine Springs’ plans of eventually marketing and selling bottled water were “too speculative to constitute an injury-in-fact for its Lanham Act claim.”
 
Maine Springs also alleged that bottling and distribution companies rejected its supply proposals, which was a concrete and particularized injury, but it failed at the causation stage. The alleged violation of the Lanham Act was the false advertising, but the rejection of supply proposals wasn’t connected to that.  (This also prevented Maine Springs from alleging proximate cause under Lexmark.)
 
The court declined to exercise supplemental jurisdiction over Maine Springs’ tortious interference claim.

post-POM claim based on false implication of FDA approval survives

Par Sterile Products, LLC v. Fresenius Kabi USA LLC, 2015 WL 1263041, No. 14 C 3349 (N.D. Ill. Mar. 17, 2015)
 
Par’s vasopressin injection product, Vasostrict, is a FDA-approved pharmaceutical. Fresenius’s vasopressin injection product is not.  Vasopressin is a natural hormone that has been used in medicine for over one hundred years, since before the FDCA’s new drug requirements. The FDA has encouraged drugmakers to seek FDA approval for older drugs. However, according to Par, “absent overriding safety concerns, the FDA generally does not take enforcement actions to halt the marketing of unapproved drugs.”
 
Par previously sold an unapproved vasopressin product like Fresenius’s product, but it submitted a New Drug Application to the FDA for a vasopressin injection product called Vasostrict. Vasostrict was finally approved by the FDA in April 2014. Par sued shortly thereafter, accusing Fresenius of misrepresenting its product as safe, effective and FDA-approved, when in fact Par markets the only FDA-approved vasopressin injection product on the market. “Fresenius allegedly represents to wholesale generic drug purchasers, distributors, group purchasing organizations, and integrated delivery networks that it is in compliance with all applicable laws, which these purchasers take to mean that the Vasopressin Injection is FDA-approved; represents that its product is ‘generic’ in providing drug and pricing information to drug and pricing databases known as ‘price lists,’ which buyers believe include only FDA-approved drugs; and places its drug on the market with the sort of standard labeling and packaging typical of FDA-approved drugs.”
 
Fresenius moved to dismiss for lack of standing because Par hadn’t yet begun to sell Vasostrict.  The court found other cases involving plaintiffs who hadn’t begun to sell products distinguishable, because in those cases the alleged harm was remote, speculative and ill-defined. “Unlike the products in the cited cases, Par’s product is already FDA-approved, fully developed and ready for sale.”  Par’s concrete competing product gave it standing and made its allegation of likely sales harm plausible.
 
Fresenius also moved to dismiss for failure to state a claim, arguing that Par was impermissibly trying to enforce the FDCA.  It cited Mylan Laboratories, Inc. v. Matkari, 7 F.3d 1130 (4th Cir. 1993), to support the argument that the mere implication, rather than an explicit statement, of FDA approval is insufficient to state a Lanham Act claim.  Par responded that Pom Wonderful changed the game.  See also JHP Pharmaceuticals, LLC v. Hospira, Inc., No. CV 1307460, 2014 WL 4988016 (C.D. Cal. Oct. 7, 2014) (Lanham Act claim that the defendant misrepresented that its product was FDA-approved, in part by describing it as “generic,” was not precluded by the FDCA). 
 
Again, the court agreed with Par: this wasn’t just pure implication, but a particularized claim that its competitor “misrepresents its product as FDA-approved by offering it for sale in certain marketing channels alongside FDA-approved generic drugs.” That was a classic Lanham Act dispute over consumer deception. “As long as there is no allegation that Fresenius must do something that directly conflicts with the FDCA or an FDA regulation, or may not do something that the FDCA or an FDA regulation specifically requires (not merely authorizes), Par’s Lanham Act claim is not precluded by the FDCA.”
 
Fresenius argued that, under Mylan, mere implication, rather than an explicit statement, of FDA approval was insufficient to state a Lanham Act claim. But Par did more than allege an implication by Fresenius.  Par alleged that “buyers believe all prescribed drugs identified on the Price Lists are ... FDA-approved,” and that surveys showed up to 91% of pharmacists were actually confused about whether all drugs that appear on industry price lists are FDA-approved. Lanham Act claims can be based on implicit falsity where consumers are deceived.  Mylan shouldn’t be read to bar all implicit falsity claims involving FDA approval, particularly in light of Pom Wonderful.  (Par contended that Fresenius’s claim that its product was “generic” was literally false, but it wasn’t necessary to determine whether the issue was literal falsity or misleadingness at this stage.)  “[W]hether a product is FDA-approved is a simple, easily verifiable matter, not the sort of complex inquiry that might be beyond the Court’s competence or might require the Court to invade the FDA’s rule-making authority,” and thus there was no need for preclusion.
 
Mylan stands for the proposition that “the mere act of placing a pharmaceutical product on the market, without more, cannot support a Lanham Act claim.” But Par went further, alleging that, by placing a product on the market in a particular marketing channel—the industry price lists—and by making certain statements such as that its product was “generic,” Fresenius represented that its product was an FDA-approved generic drug and deceived consumers.  Mylan didn’t involve those allegations.
 
Fresenius also argued that the price lists were controlled by third parties, but its responsibility for the price lists couldn’t be decided on a motion to dismiss. “[L]iability under the Lanham Act has been construed to extend beyond those who actually misrepresent goods or directly place such goods in commerce ... to any person who knowingly causes a false representation to be used in connection with goods and services in commerce.” Fresenius could be held liable if Par could prove that “Fresenius knows that buyers believe all prescribed drugs identified on the Price Lists are ... FDA approved.”
 
However, the court did dismiss claims based on Par’s allegation that Fresenius misrepresented in its contracts with purchasers that its product “complies with all relevant state and federal laws, including the FDCA when, in fact, [it does] not.” Misrepresentations made in the course of negotiating or executing an individualized contract with a purchaser weren’t “advertising or promotion.”
 
Par also alleged that Fresenius misrepresented the safety and effectiveness of its product in labels and package inserts, and that by including unapproved indications and omitting recommendations, Fresenius would lead consumers to believe that Par’s product was less effective than Fresenius’s product.  The court dismissed claims based on these allegations, because Par didn’t plead facts showing that the implied message of greater effectiveness was actually transmitted to consumers, nor did it plead facts showing that Vasostrict was at least as effective as Fresenius’s product.  The dismissal was without prejudice.
 
Par’s claims based on Fresenius’s touting its product as “safe” and “effective” were also dismissed.  They might well fall within the FDA’s primary jurisdiction or be precluded, but the court didn’t have to decide that because Par didn’t allege facts to show lack of safety or effectiveness.
 
State law claims rose and fell with the federal claims.  (Where preclusion is the issue, this is not obvious since preemption and preclusion aren’t the same thing, but the parties didn’t dispute it.)

Monday, March 23, 2015

Farley and Tsai on the Redskins trademark

At Prawfsblawg, Professors Christine Haight Farley and Robert Tsai analyze the First Amendment case against the Redskins cancellation, and conclude that 2(a) should survive scrutiny.

Bad 230 ruling for LivingSocial

Faegin v. LivingSocial, Inc., 2015 WL 1198654, No. 14cv00418 (S.D. Cal. Mar. 16, 2015)
 
After losing its attempt to mandate arbitration, LivingSocial gets a terrible §230 ruling in this trademark infringement etc. case involving vouchers it sold.
 
The plaintiffs were joint owners of A.T. Your Service Cleaning and Janitorial. LivingSocial is a “‘strategic business marketing partner, creating online promotions,’ in other words, a marketplace that partners with vendors to advertise and offer deals and discounts to potential customers.” The other defendants owned At Your Service Housekeeping, a competing service also operating in San Diego County. From March through April 2012, plaintiffs partnered with LivingSocial to advertise A.T. Your Service in San Diego County.  Then in May to July 2012, the At Your Service defendants partnered with LivingSocial to do the same thing.  They allegedly failed almost uniformly to honor vouchers bought on LivingSocial’s website, and consumers were confused about the two services, at least in part because the vouchers failed to contain a phone number for At Your Service, and consumers searched for the phone numbers online and found A.T. Your Service. This allegedly led to “unwarranted negative reviews of Plaintiffs’ services on popular review websites such as Yelp, Google+, Facebook, etc.”
 
The complaint asserted trademark infringement, false advertising, and unfair business practices (as well as a fraud claim against the non-LivingSocial defendants).  LivingSocial moved to dismiss all claims against it.
 
LivingSocial claimed CDA immunity, reasoning that it wasn’t alleged to have played any role in the codefendants’ adoption and use of the name.  Since none of the claims would exist without the name, LivingSocial reasoned, that ended the CDA analysis.  Under Roommates, “so long as a third party willingly provides the essential published content, the interactive service provider receives full immunity regardless of the specific editing or selection process.” The complaint alleged that the codefendants partnered to sell vouchers, and that “[t]he vouchers sold by defendant LivingSocial failed to contain a phone number for At Your Service [Housekeeping], causing customers to search for the phone number online and to confuse and associate Plaintiffs with At Your Service.” Because of the prior partnership, the complaint further alleged, LivingSocial knew about the resulting “dilution,” and profited from the vouchers; it also “permitted 30 days to pass without providing the services ordered.”
 
Eric Goldman is going to hate this:
 
Based on the allegations of the FAC, the Court cannot conclude that Defendant LivingSocial is entitled to immunity as an “interactive computer service” that is not an “information content provider.” The FAC alleges that Defendant LivingSocial advertises and sells the allegedly misleading vouchers. From this allegation, the Court is able to draw the “reasonable inference” that Defendant LivingSocial was “‘responsible, in whole or in part’ for creating or developing” the content made available on LivingSocial’s website.
 
I’m not as militant as Eric is on this point, but this strikes me as entirely wrong.  Amazon advertises and sells lots of books. It is not reasonable to infer that it was responsible in whole or in part for creating and developing the content therein.  We know, under Roommates, that providing guidelines for content is not enough to make a defendant a content provider, if the actual content provider can still choose between legal and illegal content.  How then could it possibly be reasonable to infer that it is more likely than not, per Twiqbal, that LivingSocial bore responsibility for creating or developing the unlawful content from the allegation of advertising and sale of vouchers for third-party services?  The court even quoted the right standard: selection or editing rules don’t strip a provider of §230 immunity.  It seems much more plausible that LivingSocial applied selection or editing rules than that it wrote the unlawful content (or that it barred the other provider from including its telephone number, triggering the resulting confusion).
 
LivingSocial then argued that §1114(2)(B) of the Lanham Act required that federal claims against it be dismissed to the extent they sought anything but injunctive relief, since it provided advertising services for the codefendants’ company and was therefore entitled to the publisher’s safe harbor. Moreover, any request for injunctive relief was moot because “LivingSocial stopped running co-Defendants’ advertisement in July 2013 and the co-Defendants’ website and business is defunct.”
 
Plaintiffs argued that LivingSocial wasn’t an innocent infringer and therefore couldn’t qualify for a safe harbor: it was aware of A.T. Your Service Cleaning and Janitorial’s existence through the parties own business relationship beginning in early 2012. Under §1114(2)(B):
 
Where the infringement or violation complained of is contained in or is part of paid advertising matter in a newspaper, magazine, or other similar periodical or in an electronic communication …, the remedies of the owner of the right infringed or person bringing the action under section 1125(a) of this title as against the publisher or distributor of such newspaper, magazine, or other similar periodical or electronic communication shall be limited to an injunction against the presentation of such advertising matter in future issues of such newspapers, magazines, or other similar periodicals or in future transmissions of such electronic communications. The limitations of this subparagraph shall apply only to innocent infringers and innocent violators.
 
Because the complaint alleged knowing infringement based on the prior relationship, LivingSocial wasn’t entitled to safe harbor protection.
 
Similarly, the claim for willful trademark dilution under state law survived, even though LivingSocial argued that the complaint only alleged that LivingSocial “knew or should have known that the business names were similar and that its advertisements would cause dilution of the famous mark,” a “threadbare recital” of the elements.  Given the prior relationship, the court found that the allegations were sufficient to infer willful infringement.  Comment: I don’t get how knowledge or constructive knowledge became willful intent to dilute—what’s the motive on LivingSocial’s part that justifies that further inference, as opposed to indifference?  Also, the court’s failure to distinguish infringement from dilution hampers it here: intent to infringe (confuse consumers) is different from intent to dilute (whatever that is).
 
Although the court called dilution “infringement,” it correctly recognized that plaintiffs hadn’t plausibly pled federal fame. Plaintiffs argued that any such determination was premature, because they alleged that they’d advertised A.T. Your Service on numerous websites and that the service had been recognized on consumer review websites such as Yelp, Google +, and Facebook.  The complaint further alleged that the advertising partnership with LivingSocial helped make A.T. Your Service’s mark famous and distinguished. But federal fame requires that the plaintiff be a “household name,” and the complaint failed to allege facts demonstrating that A.T. Your Service was “widely recognized by the general consuming public of the United States.”
 
The UCL claim survived because of the other alleged legal violations.
 

The market for lemon smoothies: injunctive class settlement certified

Lilly v. Jamba Juice Co., 2015 WL 1248027, No. 13-cv-02998 (N.D. Cal. Mar. 18, 2015)
 
This preliminary approval for a settlement contains the most extensive analysis I’ve seen of the “deceived consumers do have standing for injunctive relief in consumer deception cases” position.
 
Jamba Juice labeled its smoothie kits “all natural,” but the kits allegedly contained ingredients that consumers would not have understood to be “natural”: ascorbic acid, xanthan gum, steviol glycosides, modified corn starch, and gelatin.  Plaintiffs brought the usual California claims, including breach of warranty, and moved to certify  a class for liability and damages purposes. Due to questions about whether damages could “feasibly and efficiently be calculated,” the Court declined to certify a damages class, but certified a class for the purpose of determining liability and requested supplemental briefing on the 23(b)(2) issue of certification for injunctive relief.  After mediation, the parties reached a preliminary settlement, including injunctive relief.  The court was required to raise standing sua sponte.
 
Standing for injunctive relief requires a plaintiff to allege that a ‘real or immediate threat’ exists that he will be wronged again.” “In a class action, ‘[u]nless the named plaintiffs are themselves entitled to seek injunctive relief, they may not represent a class seeking that relief.’” (This isn’t my area, but I don’t understand why a settlement can’t include relief that a plaintiff might not have gotten at trial.  There can be cy pres uses specified for unclaimed settlement funds, right?  If that’s ok, why not injunctive relief?)  Courts are split on when a consumer class may be certified for the purposes of obtaining injunctive relief against deceptive product labeling. The court here decided that injunctive relief was available, because “[t]o hold otherwise would effectively preclude consumers from ever obtaining prospective relief against mislabeling.”
 
Courts that reached the contrary conclusion “misapprehend the nature of the injury suffered by the consumer. When a consumer discovers that a representation about a product is false, she doesn’t know that another, later representation by the same manufacturer is also false. She just doesn’t know whether or not it’s true.” Misrepresentations injure consumers not just through untruth, but also through lack of certainty about truth.  (The market for lemons!)  Because we already know the purchaser was willing to buy the product with the set of attributes she thought it had, she’s most likely to be injured without an injunction, not least.
 
“Consumers make choices in the marketplace among the alternative goods competing for their dollars.” A purchase is a revealed preference: it justifies the inference that the consumer chose the bundle of characteristics most likely to provide the greatest utility for her money. A consumer who buys a mislabeled product lets us know that “she values most highly the product as it was promised to be – because that’s how she spent her money.”  She may discover the truth, but the manufacturer may later change its product to conform to the label—“[i]n fact, the manufacturer has every reason to do this, since the market apparently values the very attribute the label promises.”  (Well… “every reason” might be going a bit too far in the absence of regulation!) Without injunctions, consumers won’t know whether the labels are true, and will have to suspect a continuing misrepresentation, thus deterring her from spending her money in a utility-maximizing way.  While others may but, our skeptical consumer—“the person most likely to suffer future injury from this misrepresentation” – will be deprived of it.  As a result, a rule denying her standing “prevents the person most likely to be injured in the future from seeking redress.”
 
Defendants previously disputed whether the plaintiff’s declaration that she would consider buying properly labeled smoothie kits was enough to confer standing. The court concluded that willingness to consider future purchase was sufficient, given that the harms avoided by the litigation are not just the harms of buying or using a misleadingly labeled product, “but also the harm of being a consumer in the marketplace who cannot rely on the representations made by Defendants on their product labels. Without injunctive relief, Lilly could never rely with confidence on product labeling when considering whether to purchase Defendants’ product.”
 
In addition, a requirement that a plaintiff articulate a definite intent to buy a product sometime in the future “is inconsistent with the realities of consumer purchase decisions. Consumers make decisions in a dynamic marketplace, based on all the information available to them at the time of purchase, including the other similar products then available and all other potential uses of the funds available to make the purchase at issue.” A plaintiff can’t really know what the competing uses for her money will be sometime in the future, what new products may emerge, or what her tastes may be.  “Nonetheless, injunctive relief enables the Plaintiffs and other consumers to have confidence that the information they receive about the challenged products at the time of purchase is accurate.”  Lilly’s statement of willingness was therefore enough.
 
Under the stipulated injunction, Jamba Juice would relabel the products so that they didn’t use “all natural” on packaging or other advertising, including websites, but would not be required to remove or recall existing products or packaging in inventory or on the market.
 
The Ninth Circuit strongly favors settlement.  Settlement requires a preliminary determination of acceptability on the merits of the settlement and, if the class action settled before class certification, the propriety of certifying the class. Where the parties reach a class action settlement prior to class certification, courts “must be particularly vigilant not only for explicit collusion, but also for more subtle signs that class counsel have allowed pursuit of their own self-interests and that of certain class members to infect the negotiations.” Preliminary approval of a settlement is appropriate if “the proposed settlement appears to be the product of serious, informed, non-collusive negotiations, has no obvious deficiencies, does not improperly grant preferential treatment to class representatives or segments of the class, and falls within the range of possible approval.”
 
The court so found here.  The settlement was both procedurally and substantively fair.  The court’s certification order indicated that plaintiffs faced substantial obstacles to obtaining classwide monetary relief, but otherwise showed that class treatment was appropriate. They just hadn’t shown that common questions predominated for the purposes of determining damages, because they failed failed to present a damages model.  In light of the difficulty of establishing damages and the relatively small amount of money individual class members could get, the difficulties of further litigation supported a conclusion that the settlement was substantively fair. The consumer protection purpose of the class action mechanism was “partially vindicated” by this settlement, which would help future consumers.
 
Notice to absent class members was not required because settlement class members didn’t release any monetary claims for mislabeling. Rule 23(e)(1) states that “[t]he court must direct notice in a reasonable manner to all class members who would be bound by the proposal.” Membership in a Rule 23(b)(2) class is “mandatory,” as “[t]he Rule provides no opportunity for (b)(1) or (b)(2) class members to opt out, and does not even oblige the District Court to afford them notice of the action.”  The court reasoned that “the key question in determining whether notice is required is ‘whether the rights of absent class members were compromised in any way.’” Because class members retained their right to sue for damages, but wouldn’t be able to opt out of the injunction no matter what, the court concluded that no notice was required.

court refuses to enjoin consumer protection law on First Amendment grounds

Loan Payment Administration LLC v. Hubanks, 2015 WL 1245895, No. 14-CV-04420 (N.D. Cal. Mar. 17, 2015)
 
A misinterpretation of nominative fair use mars this otherwise quite sensible rejection of a First Amendment challenge to a consumer protection law.
 
LPA is a subsidiary of Nationwide Biweekly Administration, whose sole shareholder is Daniel Lipsky.  Defendants are deputy DAs with the Monterey and Marin County DA’s offices.
 
Nationwide, perhaps unsurprisingly, administers biweekly loan repayment programs and has approximately 125,000 customers around the country, including over 10,000 in California. The current litigation revolves around its “Interest Minimizer” biweekly program, targeted at borrowers with home mortgages. Nationwide allegedly acts as an intermediary between a borrower and a mortgage servicer, collecting one-half of a monthly mortgage payment from the borrower’s checking account every other week.  This results in a 13th annual payment, which allegedly saves customers money by helping them pay off their mortgage loans faster than they otherwise would.  Nationwide charges a “deferred enrollment fee” equal to one biweekly debit, six months after enrollment in the program. Nationwide’s written solicitations do not disclose the existence of this fee, and the DAs alleged that Nationwide employees “responding to calls from borrowers are carefully trained to obscure the existence or amount of this fee.”
 
The DAs submitted three consumer complaints filed with the Better Business Bureau about Nationwide’s business practices. One consumer who was charged over $1500 complained that Nationwide “never told [the consumer] that there will be [a] deferred enrollment fee and I am sure of it because if they ever mentioned a fee I would immediate[ely] drop discussion and wouldn’t proceed to this program.” According to the consumer’s complaint, Nationwide’s investigation determined that although the Nationwide employee who handled the consumer’s call “did disclose the fact that there was a ‘deferred fee’ that would be collected in 6 months, the manner in which the fee was disclosed was not compliant with [Nationwide’s] policies and procedures.”
 
Nationwide solicits customers by mailing letters to them.  For example, a homeowner received an envelope with the return address of Nationwide Biweekly Administration, Inc. Above the homeowner’s address, the letter stated in large bold font: “Loan Payment Change Request.” To the far right, the letter stated in smaller, non-bolded font: “Nationwide Biweekly Administration is not affiliated with the lender.” The letter used the name of the homeowner’s specific servicer at the top of the letter, in the first sentence of the letter, and at least two other times in the letter. It also referred to the specific amount of the homeowner’s loan several times, often in connection with explicit references to the mortgage servicer. (Nationwide gets consumer loan information from public records.) There was a disclaimer at the bottom of the letter, in smaller font, that Nationwide “is not affiliated, connected, associated with, sponsored, or approved by the lender listed above.”
 
There was an attached Q&A document with questions such as “Does my Lender or loan change?” answered: “No. The bi-weekly program is administered to your current lender. There is no change in your interest rate or the terms of your loan.”  (Administered “to”—not “by.”  I smell misleadingness.)  Another question, “Who is Nationwide Biweekly Administration?” was answered “one of the nation’s largest and most recognized Independent processors.”
 
Another letter sent to the same homeowner was similar; it advised that “[i]f you waive the biweekly option, you will be asked to confirm that you understand that you are voluntarily waiving the interest savings and loan term reduction achieved through the biweekly option.” It contained a comparison chart comparing the homeowner’s “Current Monthly Payment” to the “NEW BIWEEKLY Option.” It had a similar disclaimer.
 
Another consumer complaint to the BBB said that the consumer received a letter “featuring my lender’s name, Mountain West Financial Inc., above my name and address on the top left corner and assumed wrongly that it was coming from my lender.” The consumer said that Nationwide didn’t disclose the deferred enrollment fee; he wrote that “[s]ince I still thought they were affiliated [with] my mortgage company, I assumed no fees were involved and cooperated with them.” The consumer further stated that he was a “[n]ative French speaker” and “I am not comfortable speaking in English, especially on the phone where I may not properly understand and interpret what I am being told.”
 
In 2013, Nationwide got a letter from Hubanks, a deputy DA in the Consumer Protection Unit of the Monterey County District Attorney’s Office. It said that numerous consumer complaints “indicate a pattern of deceptive business practices having an adverse impact on California consumers,” based on Nationwide’s practice of referencing the names of consumers’ lenders and the consumers’ loan information in Nationwide’s solicitation letters.  The letter said that Nationwide’s solicitations violated Business and Professions Code § 14701(a), which prohibits a person from using the “name, trade name, logo, or tagline of a lender in a written solicitation ... without the consent of the lender,” unless the letter is accompanied by a statutorily-prescribed disclaimer. In addition, the letter said that Nationwide’s use of consumers’ loan amounts in Nationwide’s solicitation letters violated Business and Professions Code § 14702, which prohibits a person from using a consumer’s “loan amount, whether or not publicly available, in a solicitation for services or products without the consent of the consumer,” unless the solicitation contains a statutorily-prescribed disclaimer.  The letter continued that these acts were deceptive and misleading; in addition, it stated that “the placement of the lender’s name in the header of the letter may lead the consumer to believe their lender is, in fact, the originator of the correspondence or affiliated with Nationwide.”  It concluded by saying that the DAs were considering what action to take.  (It also mentioned another law, not at issue in this litigation.)
 
Nationwide then stopped using actual consumer loan information in its solicitation letters and changed the comparison chart to use the “typical monthly repayment plan” of the borrower’s lender instead of the borrower’s actual amount.  The letters also added: “As always we work for you and not the lender. Partnering only with you the customer who we provide all the savings benefit to, is why we do not contract or partner with the lender.”
 
Nationwide had been the subject of similar enforcement actions or inquiries in other states. In 2010, it entered into a stipulated judgment with the Ohio AG; in 2011, it entered into a consent order with New Hampshire’s Banking Department; and in 2012, it entered into a similar consent order in Georgia. Nonetheless, Nationwide sued here, arguing that the relevant California laws unconstitutionally restrained its speech.
 
The speech here was commercial, and the court determined that Zauderer, rather than Central Hudson, applied. This is not a ban on speech, but a disclosure requirement, and commercial disclosure requirements must merely meet the reasonable relationship test, which is more like rational basis review.  A disclosure requirement is valid if its requirements aren’t unduly burdensome and “reasonably related to the State’s interest in preventing deception of consumers.” A commercial speaker’s interest in not providing truthful information is minimal, especially if that protects consumers.
 
The laws at issue required that a person who uses a “solicitation for financial services” and isn’t affiliated with the lender must disclose additional factual information: (1) if a solicitor uses the name, trade name, logo, or tagline of a lender, that the solicitor state the solicitor is “not sponsored by or affiliated with the lender and that the solicitation is not authorized by the lender”; and (2) if the solicitor uses a consumer’s loan number or loan amount, that the solicitor state that the solicitor “is not sponsored or affiliated with the lender and that the solicitation is not authorized by the lender.”  The legislative history made clear that these were anti-deception measures.
 
Nationwide argued that Zauderer didn’t apply because “the Zauderer standard only applies to disclosures about a company’s own products or services.” It relied on Safelite Group v. Jepsen, 764 F.3d 258 (2d Cir. 2014), where a Connecticut law required that an insurance company, if it referred a policy holder to an affiliated company for auto repairs, must also refer the policy holder to at least one other company that was not affiliated with the insurance company. The Second Circuit held that Zauderer didn’t apply because the “law does not mandate disclosure of any information about products or services of affiliated glass companies or of the competitor’s products or services.”. Instead, the law “requires that insurance companies or claims administrators choose between silence about the products and services of their affiliates or give a (random) free advertisement for a competitor.”
 
Safelite was different. The Second Circuit found that “[p]rohibiting a business from promoting its own product on the condition that it also promote the product of a competitor is a very serious deterrent to commercial speech.”  Here, Nationwide didn’t have to disclose any information about a competitor, but rather about Nationwide’s own business, specifically that Nationwide wasn’t affiliated with a consumer’s lender.
 
There was a reasonable relationship here between the purpose of the law and its requirements. The legislature’s goal was “prevent[ing] the deceptive use of lenders’ trade names in consumer solicitations” and prohibiting a person from using “an identical or similar name to a lender in a solicitation where that use confuses consumers as to the lender’s sponsorship of the person or its services.” The mechanisms were restricting uses of lenders’ “name, trade name, logo, or tagline” without a clear and conspicuous statutorily-prescribed disclaimer, and the same with a consumer’s loan number or loan amount. The mechanism bore a reasonable relationship with the statute’s goals.
 
Undue burden: an undue burden exists if  the “detail required in the disclaimer ... effectively rules out” the commercial speech in the first place. Here, the required disclaimer requires the solicitor to state that it is “not sponsored by or affiliated with the lender,” and that “the solicitation is not authorized by the lender, which shall be identified by name.” The disclaimer must be made “in close proximity to, and in the same or larger font size as, the first and the most prominent use or uses of the” lender’s name or logo. The requirements are similar for the use of consumer loan information, including a disclaimer that the information “was not provided by that lender.” These were relatively brief disclosures in the context of Nationwide’s letters, which were one or two full pages of text.  They wouldn’t “effectively rule[ ] out” Nationwide’s use of solicitation letters.
 
Nationwide argued that the laws unconstitutionally prohibited the republication of publicly available information. But disclosure requirements aren’t bans.
 
Nationwide also argued that its speech qualified for a statutory exemption.  The law provided that it was “not a violation of this chapter” for “a person in an advertisement or solicitation for services or products to use the name, trade name, logo, or tagline of a lender” without the statutorily-prescribed disclaimer (1) if the person’s “use is exclusively part of a comparison of like services or products in which the person clearly and conspicuously identifies itself,” or (2) if the person’s use “otherwise constitutes nominative fair use.”  Nationwide argued that it used lenders’ names in comparing the Interest Minimizer with “the typical monthly repayment option offered by most mortgage lenders.”  The court disagreed—first, Nationwide only adopted that new comparison chart after receiving the enforcement letter.  Second, the use wasn’t “exclusively part of a comparison of like services.” “In fact, the very beginning of Nationwide’s solicitation letters (the part which is visible through the envelope window) list the ‘Lender’ of the recipient by name above the recipient’s address.”
 
And nominative fair use?  The court first expressed uncertainty whether this defense only applied when the asserted claim was trademark infringement, rather than violation of these disclosure rules or other non-trademark claims.  Even assuming Nationwide could use nominative fair use, the defense failed.  The elements: (1) the “product or service in question must be one not readily identifiable without use of the trademark;” (2) “only so much of the mark or marks may be used as is reasonably necessary to identify the product or service;” and (3) the user does “nothing that would, in conjunction with the mark, suggest sponsorship or endorsement by the trademark holder.”
 
The court held that, to satisfy the first element, “the party asserting a nominative fair use defense must show that it is not ‘reasonably possible’ to refer to the party’s product or service without use of the trademark.” But it was “reasonably possible” for Nationwide to explain its Interest Minimizer service without using lenders’ names.  That’s not the New Kids standard, though the court says it’s applying New Kids.  New Kids asks whether it’s reasonably possible to refer to the trademark owner/subject of discussion without use of the TM owner’s mark.  The Third Circuit asks whether it’s possible for the defendant to refer to its own product or service without using the mark, which is the standard Judge Koh applies here.  Not that the ultimate decision is wrong!  But the problem is part (3) of the test, not part (1).  Under Abdul-Jabbar v. General Motors, I would argue, the appearance in a commercial solicitation creates the problem.  (Indeed, the court’s reasoning is particularly dangerous insofar as it rejected Nationwide’s argument that its solicitations worked better by using the lender’s name, conferring an advantage relative to “non-targeted mass mailers.”  By accepting the argument that Nationwide’s Interest Minimizer itself was still readily identifiable without use of the name, the court made it seem like use of a mark has to be necessary, not just helpful in conveying a message.)
 
With the merits out of the way, the court then found that Nationwide hadn’t satisfied the requirements for a preliminary injunction. Without likely violation of First Amendment rights, there was no irreparable injury.  Nationwide also argued that an injunction was necessary to prevent its business from being destroyed, because its president Lipsky declared that “[t]he filing of an enforcement action by the District Attorneys ...may result in [Nationwide’s] bank partners refusing to do business with Nationwide,” could lead regulators to suspend or revoke its licenses, and would likely lead consumers to demand refunds, which could bankrupt the company.
 
None of these were real and immediate threats, rather than conjectural or hypothetical. Lipsky offered no facts in support of his assertions that an enforcement action “may” result in the suspension or revocation of Nationwide’s licenses to operate in other states, or that an enforcement action is “likely” to result in customers demanding refunds of their fees, or “may” result in Nationwide’s bank partners refusing to do business with Nationwide. Plus, the fact that irreparable harm depended on the actions of independent third parties lessened the credibility of the claim. Moreover, the fact that Nationwide’s business wasn’t destroyed by the other consent orders in at least three other states undermined the claim of harm here.
 
And the public interest disfavored an injunction, which would “prohibit local officials from enforcing statutes designed to protect consumers from the risk of fraud.”