Wednesday, December 31, 2014

Pom Wonderful's happy new year on likely confusion

Pom Wonderful LLC v. Hubbard, No. 14-55253 (9th Cir. Dec. 30, 2014)

The Ninth Circuit is the source of some of IP’s highest highs and its lowest lows.  The reader is invited to consider where this decision fits.  The district court found that Pom was unlikely to succeed on the merits of its trademark infringement claim against defendant (d/b/a Pur) for Pur’s “pŏm” pomegranate-flavored energy drink. The court of appeals found an abuse of discretion and therefore reversed and remanded, leaving Pom only with the Herb Reed hurdle.  (Query: what effect will the delay caused by the appeal have on Pom’s burden of showing irreparable harm under Herb Reed?  Even though the delay wasn’t Pom’s fault, it would arguably provide an opportunity to develop evidence of irreparable harm that is often unavailable in a preliminary injunction context.)
Pom owns a number of POM registrations, used with various goods including pomegranate juice beverages.  POM also occasionally licenses the use of POM marks to other companies. Before 2002, when Pom first began using the POM marks for beverages, no one in the industry used “pom.” Since then, Pom has sold more than 190 million bottles of pomegranate juice.  It’s the leading seller 100% pomegranate juice in US supermarkets, with sales over $60 million.  It spent $24 million in 2011 and 2012 on promoting its juices (not clear whether this is yearly or aggregate).
Pom discovered that Pur was selling a pomegranate-flavored energy drink, “pŏm,” sued, and moved for a preliminary injunction, which was denied.  The court of appeals declined to exercise de novo review.  “Although legal standards certainly inform a district court’s application of the Sleekcraft factors, Ninth Circuit precedent requires us to review the district court’s Sleekcraft-factor findings for clear error.”  Nonetheless, clear error there was.
Pom showed an ownership interest in the standard character mark POM for fruit juices.  This established “Pom Wonderful’s exclusive right to use the mark in connection with fruit juices.”  And, because it was a standard character mark, it covered all design variations.  (Citing only Federal Circuit/registration precedents.) “Therefore, Pom Wonderful’s exclusive right to use its ‘POM’ standard character mark is extremely broad, covering the word in all types of depictions.”
OK, this sounds like a troubling mingling of the registration/infringement inquiries, but then the court takes it back by saying that ownership is only part one of the inquiry; the rest is confusion.
Sleekcraft is a “fluid” test, and a plaintiff doesn’t need to satisfy every factor if there are strong showings on some.  It’s always the totality of facts that matters.  Here, though the district court correctly weighed mark strength, relatedness of goods, and consumer care in favor of Pom, it incorrectly weighed mark similarity, marketing channels, actual confusion, intent, and product expansion against Pom. Absent that error, likely confusion was clear.
The district court was right to weigh mark strength in Pom’s favor.  The mark was merely suggestive, because “pom” “is not ascribed independent pomegranate-related meaning by conventional dictionaries” and “requires customers to use some additional imagination and perception to decipher the nature of Pom Wonderful’s goods.”  (Aaaaaaargh.  That’s not what “suggestive” is supposed to mean.  “Quik” for a print shop doesn’t tell you the nature of the shop’s goods.  The question is, once you know the mark and the goods, is imagination required to understand their relationship?  Here, the answer is plainly “no.”)  Suggestive marks are “presumptively weak” (which at least undoes the damage caused by the initial mistake).  However, Pom showed substantial market strength, making it strong.
Juice beverages were also related to energy drinks. “Both beverages are pomegranate-based or pomegranate-flavored, single-serve, and marketed for their healthful properties.”  And consumer care was likely to be low, given that the beverages at issue cost between $1.99 and $2.49.
The district court clearly erred in weighing the similarity of the marks against Pom. This factor is always important because when “marks are entirely dissimilar, there is no likelihood of confusion,” while “as the similarities between two marks increase, so too does the likelihood of confusion.”  Basic rules: evaluate similarity by sight, sound, and meaning; evaluate similarity as it appears in the marketplace; and similarities weigh more heavily than differences.
Pom argued that the trade dress should be ignored in assessing mark similarity.  The court of appeals disagreed.  Marks aren’t considered in the abstract (as they are in the registration context) but rather as they’re encountered in the marketplace.  Moreover, although Pom’s mark is registered in standard character form without design elements, the court considered the Pom design’s heart-shaped “O” in evaluating the visual similarities because “the only images of Pom Wonderful’s products included in the preliminary injunction record [show that] the ‘O’ in ‘POM’ is in the shape of a heart.”  (Again, correcting much of the potential mischief from the holding on what it is that Pom owns, as long as other courts notice this.)
The marks’ many visual similarities were obvious:

Pom Wonderful and pŏm marks

Most significantly, each mark is comprised of the same three letters. These three letters are presented in the same order, with a stylized second letter (i.e., the “o” in “POM” is heart-shaped, and the “o” in “pŏm” has a breve over it). In addition, the letters in both marks are uniformly cased (i.e., they are either all uppercase, or all lowercase) and presented in a simplistic, white front that is offset by a dark maroon background.
There were also some visual dissimilarities in terms of prominence on the package, font, size, and capitalization, and the middle letter was stylized differently in each:

Pom Wonderful bottle, Pur bottle with pŏm at the bottom, Pur label with pŏm at the top
But sound and meaning were identical. Semantic similarity was particularly noteworthy because meaning can itself substantiate similarity.  Moreover, nonvisual similarities were particularly important where, as here, there was no evidence that consumers encountered the marks side by side in the marketplace.  If you asked a friend to buy you a ‘POM’ drink, unless your friend already knew your preferences, she could easily return with Pur’s pŏm. 
Considering the “many visual similarities, perfect aural similarity, and perfect semantic similarity more heavily than the marks’ visual dissimilarities,” similarity weighed “heavily” in Pom’s favor.  Moreover, a lesser degree of similarity is required when the accusing mark is strong. This made the district court’s holding clear error.
There was also clear error in the district court’s finding that marketing channel convergence weighed against Pom.  Both companies used parallel market channels: supermarkets across the country.  “In addition to selling their products in at least one overlapping state (Texas), both companies sell their products in an overlapping supermarket chain (Albertson’s).” It wasn’t clear whether they were sold in the same Albertson’s stores, “a channel of trade is not limited to identical stores or agents.”  Plus, the products were highly similar.  “Although Pom Wonderful advertises its products using a much broader range of outlets than Pur uses, the similarities between the products suggest an overlapping general class of consumers.”  The district court mistakenly required Pom to prove that its drinks were sold in the very same brick and mortar stores as Pur’s.  “Although such proof would surely increase the likelihood of consumer confusion, the absence of identical channels does not, by itself, undermine Pom Wonderful’s likelihood of proving that the marketing channels converge.”
As for the absence of actual confusion evidence, lack of evidence of bad intent, and lack of evidence of Pom’s intent to expand product lines, the district court erroneously weighed these against Pom rather than treating them as neutral, as it properly should have done in this case.  Difficulty in gathering evidence of actual confusion makes its absence generally unsurprising, especially at the preliminary injunction stage. Nor is bad intent or product expansion required; Pom’s failure to present evidence on these “neither undermines nor advances its ability to prove likelihood of confusion.”
Five factors weighed in favor of Pom and none weighed in favor of Pur.  Sleekcraft isn’t a counting exercise, though.  In this case, the district court clearly erred by (1) mistakenly weighing differences in the marks more than similarities, (2) requiring Pom to prove too much in terms of convergent marketing channels, and (3) weighing three neutral factors against Pom. Thus, the district court’s likelihood-of-confusion holding left the court of appeals with the “definite and firm conviction that a mistake has been committed.”
On remand, the district court could allow more evidence on the Herb Reed factors.

Tuesday, December 30, 2014

Transformative work of the day

Indiana Bones and the Raiders of the Lost Bark.  Via ST.

Failure to disclose potato variety isn't misleading

Zuckerman Family Farms, Inc. v. Bidart Bros., No. 1:14–cv–01529, 2014 WL 7239423 (E.D. Cal. Dec. 17, 2014)
Plaintiffs sued for violation of the Plant Variety Protection Act (PVPA), the Lanham Act, and California Business Practices Code section 17200 et seq.  They alleged that Bidart imported, planted, and propagated Sifra, a PVPA-protected variety of potato, without authorization. The court denied a preliminary injunction and dismissed the complaint.
HZPC registered a new potato variety in the Netherlands in 2008, and was issued a PVPA certificate in 2012.  It entered into a Sifra production agreement with Zuckerman providing that Zuckerman was authorized to certify [Sifra] seed potatoes ... for its own use and shall have the Priority Right for marketing and sales of seed potatoes of the [v]ariety in the States of California, Oregon, and Washington. Priority right is defined as the right of [Zuckerman] to first right of refusal to use or market seed of the [v]ariety in California, Oregon, and Washington.”
Bidart was allegedly selling Sifra potatoes from a source other than Zuckerman or HZPC, below the price offered by plaintiffs, which had affected the sale of as many as 280,000 fifty-pound units of plaintiffs’ Bella Blanca brand potatoes.
The court found that plaintiffs lacked standing to bring PVPA claims because they didn’t own any relevant exclusive right.  HZPC agreed not to appoint other marketing agents in the territory, but retained its own right to sell seed potatoes to other growers.  And while Zuckerman had the exclusive right to market Sifra to other growers (except for HZPC’s rights), and to propagate in order to market Sifra for non-table use, plaintiffs didn’t allege that Bidart propagated Sifra to market for growing purposes, so that exclusive right hadn’t been infringed.  Neither Zuckerman nor HZPC had the right to exclude others from table production of Sifra unless they both agreed. In order to exclude a potential grower from growing or selling Sifra for table use in the territory, first Zuckerman would have to decline to exercise its right of first refusal, then HZPC would have to refuse permission. Thus, they were best described as co-exclusive rightsholders, and Zuckerman alone didn’t have constitutional standing to bring its claim.  (It could amend to add HZPC, if that were possible.)
The complaint wasn’t clear about the nature of the Lanham Act claim.  It alleged that any sale of Sifra within the relevant territory impliedly represented that the potatoes came from plaintiffs, causing consumer deception about the affiliation between the parties or the origin, sponsorship or approval of Bidart’s sales.  But plaintiffs also alleged that Bidart’s conduct of “marketing the Sifra variety without representing its true nature and that it is subject to protection under the PVPA” harmed plaintiffs’ Bella Blanca brand and reputation.
The false association claim didn’t work because it was predicated on the assumption that plaintiffs had exclusive rights in the territory.  Plus, plaintiffs didn’t explain how the confusion would happen given that Bidart wasn’t alleged to have used any marks associated with plaintiffs.  In theory, plaintiffs could be arguing that Sifra potatoes are distinguishable enough from other white, round potatoes to have a protectable trade dress, but they didn’t plead any facts to this effect or any facts indicating nonfunctionality.  Plaintiffs wanted to stop Bidart from selling Sifra potatoes—a patent remedy, not a false association remedy. (There also seems to be a lurking Dastar issue here, as the court suggests when it notes that Bidart was the origin of the potatoes it sold.)
As for false advertising, that theory too was tied to nonexistent exclusivity.  Plaintiffs argued that Bidart’s sales deprived plaintiffs of their right to advertise that they were the exclusive source of Sifra potatoes, commanding a premium. Plus, even did exclusivity exist, mere failure to disclose that the potatoes were Sifra wasn’t itself false or misleading.  Bidart advertised the potatoes that it sold as “white, round potatoes.” This was literally true and plaintiffs didn’t explain why it was misleading.  There was no authority suggesting that a grower or seller needed to use the specific varietal in its advertising. 
The state-law unfair competition claims failed to justify a preliminary injunction too, for the same reasons.  Plus, the court concluded, a UCL claim couldn’t be founded on PVPA or Lanham Act violations to established predicate unlawful conduct—such a claim was preempted. (Citing patent law, but not Lanham Act cases, because the Lanham Act actually doesn’t preempt state law except for a few unusual situations not at issue here.)
The motion to dismiss was granted for the same reasons, with leave to amend for the PVPA to add HZPC.  It’s not clear that amendment could save the Lanham Act claims, and the court commented that “[e]ven assuming that a trade dress or other false association claim could be alleged in this case based solely on sale of Sifra, Defendant’s sale of Sifra could only imply that Zuckerman or HZPC has approved of the sale.”  The court didn’t elaborate, but it may be that unless the parties are sufficiently related, such probabalistic confusion can’t inflict an actionable injury on either one of them.  After all, in the unlikely event that a consumer really thought “either Zuckerman or HZPC approved this product,” the consumer doesn’t actually expect the product to come from Zuckerman; she just thinks it might or might not be the case.  (Another instance where materiality would be very useful in trademark.)
Then the court told plaintiffs to be clearer about their §43(a) claims, stating that the Ninth Circuit imposes different standing requirements on the different subsections (and quoting Ninth Circuit cases only even though the intro discussion mentioned Lexmark, which is a bit odd). For false advertising standing, the plaintiff needs to show (1) a commercial injury based upon a misrepresentation about a product; and (2) that the injury is “competitive.”  (Lower courts are largely ignoring Justice Scalia’s claim that Lexmark wasn’t a standing decision.)  For false association, standing comes from alleging commercial injury based upon the deceptive use of a trademark or its equivalent.  (Lexmark doesn’t make this distinction, but many courts apparently assume it was only a §43(a)(1)(B) case, despite Lexmark’s reliance on language that does not differ in its application to the subsections.)  To replead, plaintiffs would have to identify specific statements that caused false association or constituted false advertising.  Though plaintiffs pled lost sales through lower prices, they didn’t plead any facts indicating that Bidart’s advertising of Sifra as “white, round potatoes” or the omission of the name “Sifra” or any other alleged misrepresentation caused plaintiffs to lose sales to Bidart.

Monday, December 29, 2014

Seen at the Spy Museum

Matzohball, an Israel Bond thriller, a new adventure of Hebrew secret agent Oy-Oy-7, by Sol Weinstein, author of Loxfinger.

Rogers applies when film is simply named for character

Valencia v. Universal City Studios LLC, No. 1:14–CV–00528, 2014 WL 7240526 (N.D. Ga. Dec. 18, 2014)
Valencia, professionally known as Honey Rockwell, sued Universal for invasions of privacy; fraud, false advertising, and unfair competition; and trademark dilution.
Valencia alleged that she’s a hip hop dancer and dance teacher, performing under the stage name “Honey Rockwell” since 1994. Valencia, “a native of the Bronx and of Hispanic descent, performed and taught dance at various community dance centers and theaters in the Bronx.”  She also appeared in various dance productions and magazines, and created, produced, and released a music video. 
In 2003, Universal released Honey, a movie chronicling “the dreams and struggles of Honey Daniels, a native of the Bronx of Hispanic descent who performs and teaches hip hop dance in the Bronx.” In 2011, Universal released Honey 2, in which a hip hop dancer inspired by Honey Daniels achieves success and fame.  
Valencia alleged that this misappropriated her life story, including her teaching and music video appearances; that both she and the character were affiliated with dance studios the Bronx Dance Theater and Hunts Point; that a producer for the film was notified of the similarity; and that she’d been approached and identified as the dancer depicted in Honey, and on one occasion was contacted to appear at a movie release party as “the real [H]oney.”  Valencia alleged that this made her look like a copycat (reverse confusion), damaging her image.
The common-law privacy/right of publicity claims were time-barred, since she waited more than two years after the initial release.  Valencia’s unjust enrichment failed because it wasn’t an alternative theory of recovery for a failed contract, as required under Georgia law.
Her Lanham Act and Georgia trademark claims were subject to the same analysis, and failed because she didn’t sufficiently allege rights in the mark “Honey” as opposed to the mark “Honey Rockwell.”  Rights in the latter, which the court assumed she sufficiently pled, couldn’t be sufficient to generate secondary meaning in “Honey.”
However, the court found that Valencia’s Georgia Uniform Deceptive Trade Practices Act Claim did not fail for the same reason, since it provided a cause of action for conduct that caused “likelihood of confusion or of misunderstanding as to the source, sponsorship, [or] approval ... of goods or services,” or “as to affiliation, connection, or association with ... another,” or “[r]epresents that goods or services have sponsorship[ or] approval ... that they do not have.” Given Valencia’s allegation that she’d been approached as “the real Honey,” this count couldn’t be dismissed as not plausibly alleged.
But then there’s Rogers.  Valencia’s argument that First Amendment protection for the movies was limited because they’re sold for profit was unavailing.  The Eleventh Circuit adopted Rogers in Univ. of Alabama Bd. of Trustees v. New Life Art, Inc., 683 F.3d 1266 (11th Cir. 2012). (Thank you, Mark McKenna!)  The title Honey was artistically relevant because it was the protagonist Honey Daniels’s first name.  Honey 2 was artistically relevant because the protagonist of that movie drew inspiration from Honey Daniels.
Comment: without noting that it’s doing so, the court resolves a predicate question some courts have not properly understood.  The title is artistically relevant to the content of the film, even though it’s not necessarily a reference to Valencia.  That suffices, as it should.

Sony in the Killzone: case over resolution continues

Ladore v. Sony Computer Entertainment America, LLC, 2014 WL 7187159, No. C–14–3530 (N.D. Cal. Dec. 16, 2014)
Ladore sued Sony for allegedly false advertising of its video game Killzone: Shadow Fall. Sony allegedly represented that Killzone’s “multiplayer” mode renders graphics in full (or “native”) 1080p resolution, when in fact Killzone’s multiplayer graphics are rendered with significantly less resolution than advertised.
The court largely refused to dismiss the complaint, except for the negligent misrepresentation claim.
Sony launched the PS4 in 2013, almost at the same time as the competing Xbox One.  The focus of the “console battle” allegedly was on performance, including resolution as a key indicator.  Resolution measures image clarity, and typically depends on the number of pixels.  A monitor that displays 1,920 lines of pixels in the vertical direction and 1,080 lines of pixels in the horizontal direction is called “1080p,” while 1,280 by 720 is “720p.” 1080p allegedly offers “double the graphical detail” as one displayed in 720p.
An image originally created or rendered at a lower resolution can be displayed at 1080p by using interpolation, a “common name for methods that attempt to fill in blank pixels that are created when an image is transformed from a lower resolution to a higher resolution.” Algorithms guess what pixels should look like by analyzing nearby pixels.  But some believe that using interpolation is a “horrible kludge that results in soft, slightly blurry images.”
Guerrilla Games, a Sony subsidiary, developed Killzone, released for sale along with the debut of the PS4. Marketing allegedly focused heavily on Killzone’s claimed ability to render the game in multiplayer mode at “native 1080p” resolution.  This was material because the PS4 was supposed to be “more powerful in graphical terms” than the competing Xbox One, and Sony allegedly wanted Killzone to be a “showcase for the PS4’s technical capabilities.”  
Ladore alleged that he read numerous internet accounts—many published by Sony or citing statements made by Sony employees—representing that Killzone’s multiplayer mode would render graphics in “native 1080p and 60 fps [i.e., frames per second].” For instance, a “Killzone director” reportedly told an “official” PlayStation news site that “the first thing that people notice is fidelity ... Killzone is running in 1080p, whereas the last game was running in 720p.” Describing a demonstration/teaser version, Sony wrote on its website that “[a]s you can probably tell from the footage, Killzone Shadow Fall multiplayer outputs at a native 1080p, rendering uncapped but always targeting 60 [frames per second].”
Ladore allegedly relied on these reports, and also examined the packaging, which appeared to confirm the native 1080p misrepresentation:

He bought the game and opened the package, rendering it unreturnable, then realized that the multiplayer graphics were blurry and not native 1080p.  Others noticed the same problem, including video game critics.  Eventually, reported that Killzone used interpolation for the multiplayer mode, and a Killzone producer allegedly confirmed this, conceding that “[n]ative is often used to indicate images that are not scaled,” and “[i]f native means that every part of the pipeline is 1080p, then [interpolation] is not native.” The producer continued: “[w]e recognize the [video game] community’s degree of investment on this matter, and that the conventional terminology used before may be too vague to effectively convey what’s going on under the hood. As such we will do out best to be more precise with our language in the future,” though the producer contended that interpolation “gave substantially similar results” to rendering in full/native 1080p.
Ladore alleged that, had he known the truth, he wouldn’t have bought Killzone or would have paid substantially less for it.
Sony argued that there was no misrepresentation, in that Killzone output 1080p in multiplayer mode.  That misunderstood the gravamen of the complaint and ignored critical factual assertions that were properly alleged.  Ladore didn’t allege misrepresentations about final output resolution, but rather about the creation/rendering of the multiplayer graphics, represented to be 1080p when they weren’t.  Sony’s own words indicated that the method it used appeared “subjectively similar” to 1080p, though Ladore characterized the resulting images as subpar. The misrepresentation concerned native 1080p, contrasted to interpolation.  Indeed, arguably Killzone didn’t “output” video at all—the PS4 does.  Ladore’s allegations concerned the resolution of the images first rendered by the game software, not the ultimate resolution on his TV set.  Even if interpolation produces 1080p images, that doesn’t undercut claims that Sony affirmatively misled Ladore about the ultimate quality of the graphics Killzone offered.
In addition, the complaint adequately pled reliance, despite Sony’s argument that the statement on its box said nothing explicit about how Killzone’s graphics are rendered. Ladore pled that he examined several pre-release statements, including a statement attributed to Sony’s Social Media Manager that “competitive multiplayer mode ... runs at native 1080p.” Ladore alleged that he read the packaging, which corroborated (or at least did not affirmatively correct) Sony’s earlier misrepresentations, and bought the game.  That was enough.
Plus, even if Ladore simply alleged reliance on the box, that likely would have been enough to survive a motion to dismiss. “Because the PS4 is capable of outputting all games at 1080p, a specific representation on a particular game that the output is 1080p would likely convey to the average consumer that the particular game’s graphics are, in fact, natively rendered at 1080p. A completely unqualified legend, like the one at issue here, would have no real meaning if it could be applied to all PlayStation games, including the substantial majority of games that do not natively render in 1080p.”  The complaint, in fact, alleged that Sony used a different on-box label for games that didn’t render natively in 1080p.
Sony also argued that it disclosed that Killzone used interpolation in multiplayer mode in at least two posts in March 2014, two months before Ladore’s purchase.  Sony’s act of “coming clean” didn’t make Ladore’s reliance unreasonable as a matter of law.  Ladore alleged that he read the misrepresenations, but not that he read or became aware of Sony’s corrections until he sued. Sony’s argument was inappropriate at the motion to dismiss stage.
The court also found Killzone to be a “good” under the CLRA because it came on a physical disc.  Ladore didn’t simply buy or download intangible software or play an online game.  He went to a brick and mortar store and received the disc in a box, accompanied by tangible documentation.  Sony’s argument that the disc was nothing but a physical mechanism for delivering an intangible right to use software was wrong, because if it were accepted, many tangible commodities could be so recharacterized.  A book is a tangible chattel, even though the physical object is a “delivery mechanism” for information.  Insurance contracts and credit cards are by contrast not delivery mechanisms; they are physical representations of intangible agreements.  Discs and books don’t memorialize or prove the existence of an agreement; they are objects that can be possessed or used, and that’s why people buy them.

However, the economic loss rule barred Ladore’s negligent misrepresentation as presently pleaded.

Do you have to buy the IP to buy the "company"?

A.Hak Industrial Services BV v. TechCorr USA, LLC, 2014 WL 7272796, No. 3:11–CV–74 (N.D. W. Va. Dec. 18, 2014)
Berkeley Springs Instruments (BSI) sold certain IP rights in robotic tank inspection and cleaning technology to A.Hak. TechCorr argued that the sale shouldn’t have occurred because TechCorr had a right of first refusal to the IP and a perpetual license to the associated trademarks; A.Hak counterclaimed for violations of the Lanham Act.
The relevant technology allows inspection of tanks in service, eliminating the need to drain them for inspection. Associated trademarks were InTANK, OTIS for the robot probe, and a non-robotic probecalled  SCAVENGER, owned in 2006 by Praxair/AST.  Praxair sought a buyer and negotated with TechCorr, resulting in a non-binding letter of intent to Praxair indicating TechCorr’s desire to buy “the physical assets for the above ground storage tank inspection business.”  In 2007, Praxair/AST and TechCorr entered into an asset sale and purchase agreement; Praxair/AST also entered into a transfer agreement with BSI, transferring the IP, including trademarks, to BSI.  TechCorr alleged that, as a precondition for the closing, BSI  gave TechCorr a right of first refusal in any future sale of the IP by BSI. BSI sent a letter indicating that BSI granted TechCorr “a perpetual right to use the Intellectual Property and registered brand name of ‘In–Tank®’ for the ‘In–Tank® Robotic Assets’ being acquired by TechCorr from AST Services, LLC.”  BSI also agreed to “support” the acquisition.  The parties disputed the license’s scope and relevance.
In 2010, TechCorr found that BSI was now competing in the tank inspection market under the name InTANK.  Internally, a TechCorr principal wrote that BSI “owns the patents and trademark but we have a separate letter agreement attached saying we have ‘... perpetual right to use the Intellectual Property and registered brand name of ‘In–Tank’ robotics assets ...’ So we can not stop [BSI] from using the name to compete with us.” 
A.Hak then bought the IP, including the relevant marks, from BSI.  TechCorr objected, based on its alleged right of first refusal.
TechCorr argued that, because A.Hak admitted the existence of a license, it couldn’t state a claim for trademark infringement.  A.Hak argued that TechCorr exceeded the scope of the license by claiming to own the marks, by virtue of (1) references on TechCorr’s website to “the TechCorr inTANK® system,” “TechCorr’s Scavenger XT® 2000,” and OTIS®; a press release titled “TechCorr USA, LLC Announces Completion of Multi Tank In Service Inspection with New Robot Added to the Wholy [sic] Owned ‘In–Tank’ Inspection Robotics Program”; and (3) statements in a proposal issued to the TVA using terms such as “TechCorr’s InTANK In–Service Inspection services.”  In addition, statements such as “We acquired the company in 2007” and “[W]hat is the relation between ‘inTANK’ and ‘TechCorr’?”/“TechCorr purchased the In Tank company 3 or 4 years ago” allegedly suggested that TechCorr bought the marks.
TechCorr argued that (1) some of the statements weren’t actionable because they weren’t made to customers; (2) they were true, because TechCorr bought the InTank operations and assets and had a license to use the marks for those assets; (3) they were within the scope of the license; and (4) any difference in the scope of the purchase was immaterial.
The court denied A.Hak’s motion for summary judgment on the trademark/false designation of origin claims.  On summary judgment, TechCorr’s position that it could use its name as a possessive (“TechCorr’s”) in connection with the mark and that its reference to “wholly owned” referred to the physical assets was not unreasonable under the terms of the license agreement.
In addition, A.Hak argued that TechCorr’s claims that its OTIS® robot was “intrinsically safe” misled customers because it lacked the necessary third-party certification to call it “intrinsically safe,” as certain internal documents indicated.  TechCorr argued that it bought an intrinsically safe robot from AST.  It also restated its trademark claims as false advertising claims.
TechCorr argued that its statements via email weren’t made to customers and thus weren’t commercial advertising or promotion.  The court agreed with respect to one statement, made to a potential provider of services, not to a potential customer.  Another statement was made to a middleman vendor rather than an ultimate customer; this could support a false advertising claim because statements don’t have to reach the ultimate consumer to be actionable (though the court doesn’t address the question of whether one email is sufficient dissemination to the relevant purchasing public under Gordon & Breach).
The court then found a genuine issue of material fact as to whether statements that allegedly claimed ownership of the trademarks or “full” ownership of InTANK were literally false.  (I’m not a fan of the literal/implicit distinction, but I don’t get this.  If there are two reasonable meanings, one of which is concededly true, shouldn’t that be only potentially implicitly false?  I guess the theory is that claiming to have bought the “the whole InTANK operation” and “the In Tank company” could have only one reasonable meaning, thus literal falsity.)
On the “intrinsically safe” robot/associated claim to have “each component certified,” A.Hak argued that TechCorr never had an operational intrinsically safe OTIS robot, while TechCorr responded that it bought an intrinsically safe OTIS robot from AST.  These statements were arguably ambiguous about what “each component” and “certified” meant—if each separate component was separately certified as intrinsically safe, then this could be true.  Thus, summary judgment for A.Hak was inappropriate.
Other claims for breach of contract and tortious interference were trimmed down.
The court also rejected TechCorr’s false advertising counterclaim based on A.Hak’s statement that  “Our third-generation OTIS inspection robots can be found nowhere else in this world.” “Third-generation” was not shown to be a statement of fact capable of being falsified; I omit discussion of some other claims. 

Wednesday, December 24, 2014

scientific claims in ordinary ads aren't protected opinion

Eastman Chemical Co. v. Plastipure, Inc., 2014 WL 7271384, No. 13–51087 (5th Cir. Dec. 22, 2014)

A jury found that Plastipure (and defendant CertiChem) engaged in false advertising (discussed here).  The court of appeals affirmed the entry of an injunction.  Despite Plastipure’s reliance on the Second Circuit’s ONY decision to claim First Amendment protection for its speech, the court ruled, “the Lanham Act prohibits false commercial speech even when that speech makes scientific claims.”

Eastman makes a plastic resin, Tritan, and sells it to make water bottles, baby bottles, food containers, and other consumer products.  Consumers became concerned that polycarbonate, to which Tritan is an alternative, contained a chemical, bisphenol A (BPA), that could be harmful to humans.  These concerns were based on studies “purporting to show that BPA could activate estrogen receptors in the human body.”  Estrogenically active chemicals can trigger hormone-dependent cancers, reproductive abnormalities, and other negative health conditions.  Eastman conducted tests that, it contended, showed that Tritan was not estrogenically active.

Plastipure likewise “hoped to seize on the opportunity created by the public’s desire for BPA-free plastics” with its own competing plastic resin sold to manufacturers.  Plastipure and CertiChem were founded by Dr. George Bittner, a professor of neurobiology at the University of Texas at Austin.  While Plastipure sells the resin, “CertiChem’s primary focus is on testing materials for various sorts of hormonal activity.”  “In 2011, CertiChem published an article [in a peer-reviewed journal published by NIH] summarizing the results of its testing of more than 500 commercially available plastic products.” Tritan products were tested, but Tritan was not mentioned by name.

Before the article was published, Plastipure distributed a sales brochure, “EA [Estrogenic activity]–Free Plastic Products: Beyond BPA–Free.” The brochure contained a chart depicting products containing “Eastman’s Tritan” as having significant levels of EA. The caption stated: “Examples of test results of products claiming to be EA-free or made from materials claiming to be EA-free are given in the figure to the right. Most examples are made from Eastman’s Tritan resin.”  Eastman sued. 
Chart from Plastipure's brochure
The parties offered competing scientific evidence at trial.  The jury ruled for Eastman, and the district court found a willful violation of §43(a), unfair competition under Texas common law, and conspiracy.  The district court enjoined Plastipure from distributing its sales brochure or claiming that “(1) Tritan resins and products leach chemicals having significant estrogenic activity; (2) Tritan, or products made with Tritan, are dangerous to human health because they exhibit estrogenic activity; or (3) Tritan resins and products leach chemicals having significant estrogenic activity after common-use stresses.”

On appeal, Plastipure claimed that its statements were scientific opinions, not factual claims.  A statement of fact can be judged true or false using empirical methods.  It must be a specific and measurable claim, “capable of being proved false or of being reasonably interpreted as a statement of objective fact.”  By contrast, bald assertions of superiority and exaggeration, bluster and boast are nonactionable opinions, as are predictions of future events.

Plastipure argued that “commercial statements relating to live scientific controversies should be treated as opinions for Lanham Act purposes,” in order to protect academic freedom and the free flow of scientific ideas.  It relied on ONY, Inc. v. Cornerstone Therapeutics, Inc., 720 F.3d 490 (2d Cir. 2013), which the court here characterized as concluding that “the First Amendment places scientific debates unfolding within the scientific community beyond the reach of the Lanham Act.”  Statements in scientific literature are, ONY reasoned, more like opinions than factual claims.

This case wasn’t governed by ONY, because the plaintiff there sought to enjoin statements “within the academic literature and directed at the scientific community.”  (Which just happened to be the consumer community, too.)  Here, Eastman didn’t sue Plastipure for publishing in a scientific journal, but for ads directed at nonscientist customers without the full scientific context, including a description of the data, the methodology, conflicts of interest, and divergences between raw data and the experimenter’s conclusions.  “In this commercial context, the First Amendment is no obstacle to enforcement of the Lanham Act.”

It didn’t matter that the commercial speech here concerned a topic of scientific debate:

Advertisements 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.” [Central Hudson.] The Supreme Court has “made clear that advertising which links a product to a current public debate is not thereby entitled to the constitutional protection afforded noncommercial speech.” [Bolger.] … The First Amendment ensures a robust discourse in the pages of academic journals, but it does not immunize false or misleading commercial claims.

True, ONY also rejected a tortious interference claim regarding the defendants’ “touting and distributing the article’s findings for promotional purposes.”  Even were that binding, it wouldn’t matter here.  First, that was a tortious interference claim, not a Lanham Act claim.  Second, the “nature” of the secondary distribution in ONY differed: there, it was limited to issuing a press release summarizing the article’s findings and disseminating the article itself.  By contrast, the conduct here didn’t include any dissemination of the article.  The sales brochure, distributed prior to the article’s publication, specifically highlighted Tritan’s alleged EA content, while the article never even mentioned Tritan by name.  This was the difference between presenting an article’s conclusions and “transform[ing] snippets of ... a paper which never mentions Tritan or Eastman by name ... into commercial advertisements claiming Tritan is harmful.”

The injunction only applied to statements made “in connection with any advertising, promotion, offering for sale, or sale of goods or services.” Plastipure could continue researching and publishing.  But it couldn’t push its product by making the claims the jury found to be false and misleading.

The injunction allowed Plastipure to seek relief if new research proved that the statements at issue were no longer false and misleading.  Plastipure argued that this provision showed that its statements weren’t statements of objective fact: a statement of historical fact such as “Tritan has EA” couldn’t be false one day and true the next.  That mistook the nature of the issue.  The fact that Plastipure might someday prove the truth of its statements didn’t make the injunction improper; “[i]f it did, companies could make all sorts of unsupported claims and then avoid liability by arguing that they might be able to prove the truth of the claims at some point in the future.”  Instead, an injunction could be modified or dissolved if the factual circumstances changed. 

Comment: I think Plastipure’s argument collapses the idea of truth with the idea of evidence.  Courts and juries use evidence to determine what is true.  They might be wrong; that’s implicit in the process.  But “wrong” means that there is a “right”—a verifiable, objective reality.  Compare: “not even wrong.”  The Lanham Act targets objective claims.  That we may revise our beliefs in what the objective truth is doesn’t mean that it doesn’t exist, or that a decision was against the weight of the evidence at the time it was made.

Plastipure also challenged the sufficiency of the evidence, but a reasonable jury could have found falsity.  Eastman provided tests from four separate labs finding no estrogenic activity in Tritan; its expert witnesses testified that Tritan was EA-free and harmless, that most of Plastipure’s tests weren’t scientifically reliable, and that the few reliable tests actually showed no evidence of EA.  There was, naturally, contrary evidence, though no expert ever testified that Tritan was harmful to humans.  The jury was free to credit the evidence of literal falsity, and independently to find misleadingness (including deceptiveness and materiality), an independent basis for injunctive relief.

Thursday, December 18, 2014

you can't a accuse competitor of lawbreaking when courts have ruled against you

Paul Davis Restoration, Inc. v. Everett, No. 14–C–1534, 2014 WL 7140038 (E.D. Wis. Dec. 12, 2014)

Following a series of unsuccessful lawsuits with Paul Davis Restoration, Inc., Matthew Everett, a former franchisee, began running a radio ad:
This is a business advisory. Paul Davis Restoration, Inc., a national operator of fire and water restoration franchises, is seeking a judgment of 25 percent commission on certain prior sales, which constitutes an unenforceable penalty in violation of Wisconsin state statutes and case law governing such restrictions and practices. In addition, they are seeking to impose several other terminations and conditions that are in direct violation of Wisconsin’s Fair Dealership laws, those Wisconsin laws which are designed to protect all Wisconsinites. To learn more, please visit This ad paid for by Paul Davis Restoration of NOWI.
The court enjoined Everett from using “Paul Davis Restoration” as a trade name; he was no longer a franchisee.  Although he agreed to remove that reference from the ad, given the litigation history between the parties, the court found that he hadn’t mooted the claim.

Paul Davis also argued that the rest of the ad was false and misleading; Everett argued that suppressing it would violate the First Amendment. Jordan v. Jewel Food Stores, Inc., 743 F.3d 509 (7th Cir. 2014), used a test for identifying commercial speech assessing whether (1) the speech is an advertisement; (2) the speech refers to a specific product; and (3) the speaker has an economic motivation for the speech.

The speech was undoubtedly in the form of an ad, and presumptively had an economic purpose: “advertising costs money, and most private citizens do not buy ad time merely to express their personal or political views.”  Also, Everett was a competitor of Paul Davis, and the content addressed topics of economic import.  And Everett’s own emails showed a purpose to divert business from Paul Davis to Everett: “This began running today in the markets we serve. It will begin running Statewide next week. …”  Running the ad in “the markets we serve” limited the ad to areas where Everett had an economic interest in driving business away from Paul Davis. “The threat implied by the ad is that Paul Davis’ business from the state and insurance carriers will dry up (and migrate to Everett’s business).” Also, the ad labeled itself a “business advisory,” which the court found to be “an effort to make the communication sound official, rather than something based on a citizen’s private views.” 

The ad didn’t refer to a specific product, but it did refer to a specific company and that company’s services. In context, it was clearly commercial speech.

In addition, the court found that the ad was false.  The ad claimed that Paul Davis was seeking “an unenforceable penalty in violation of Wisconsin state statutes and case law governing such restrictions and practices.” That is, the ad said that Paul Davis was breaking the law.  But it was merely seeking to enforce an arbitration award against Everett.  Even if the arbitrator got it wrong, “the fact that questions of law may be arguable does not mean a competitor can accuse a company of illegal conduct merely for seeking to enforce a lawfully obtained arbitration award. If Paul Davis’ CEO were tried and exonerated for a crime, a competitor would not be able to claim that the CEO committed criminal acts merely on the basis that it was the competitor’s opinion that the jury erred.”  (I should note that this rule must be limited to commercial speech.  If I, acting as a private citizen, opine that OJ Simpson is a murderer, the jury’s verdict of acquittal can’t be dispositive, and couldn’t be even before the civil verdict agreeing with me.)  There was no reasonable argument that Paul Davis was breaking any law by seeking to enforce an arbitration award, making the claim misleading and false.

The next statement, accusing Paul Davis of “direct violation of Wisconsin’s Fair Dealership laws,” also simply took issue with the rulings of the arbitration panel and the courts.  The claim of “direct violation” was not just an opinion but implied that the Paul Davis’s liability was clear, “when just the opposite is true.”  Accepting that many legal questions are arguable, and thus unfalsifiable, “would allow anyone’s subjective legal views to insulate them from liability simply on the basis that they disagreed (for whatever reason) with the rulings of a court.” Everett was free to run an ad expressing disagreement with the arbitration or the courts and arguing why he believed they erred.  “But here, the ad makes the preposterous claim that there is something illegal about attempting to enforce an arbitration award. The only conceivable purpose of such an assertion is to mislead consumers and others into thinking that the Plaintiff has engaged in illegal activity.”

Thus there was a strong likelihood of success on the merits. The parties didn’t much discuss the other factors, but “[g]iven the difficulty of calculating damages due to false accusations of illegal activity, the Plaintiff would suffer irreparable harm and would have no adequate remedy at law.”  So an injunction against the ad issued.