September 01, 2010
Griping Patient Goes Too Far Posting Fake Content in Doctor's Name--Eppley v. Iacovelli
By Eric Goldman
Dr. Barry Eppley v. Lucille Iacovelli, 2010 WL 3282574 (S.D. Ind. Aug. 17, 2010). The CMLP entry. The Internet is filled with commentary about this long-running saga if you want more information.
Dr. Eppley is a plastic surgeon. In 2001, he performed a facelift for Iacovelli. After a few months, Iacovelli complained of an obstructed airway. Dr. Eppley believes there is no way the facelift caused the obstructed airway. Iacovelli apparently saw it differently, and she took to the Internet to blame and criticize Dr. Eppley--allegedly including (directly or through cohorts) making fake postings in Dr. Eppley's name and publishing critical content at domain names that include Dr. Eppley's name. Dr. Eppley claims that this criticism has cost him a lot of money; at least 1 or 2 patients a month cancel appointments with him (presumably because the search results scare them off), and an unknown number never contact him in the first place. He has also fought back with a reputation management campaign costing $2-3k/month. Dr. Eppley has a registered trademark in his name.
[note: the court says Iacovelli did not properly contest Dr. Eppley's summary judgment motion, so the court appeared to accept Dr. Eppley's statement of facts. It’s unclear if Iacovelli’s no-show related to her failing health; but in a sad development, she passed away on August 2, before this ruling was issued.]
The court’s description makes Iacovelli sound like a fairly typical griper. For example, the court says:
Ms. Iacovelli has utilized Dr. Eppley's name in tabs, links, websites and throughout her campaign of internet disparagement, with the conscious design of driving internet traffic away from Dr. Eppley's authorized websites and toward her own.
Right, that’s what gripers do. However, there is one key exception: the fake postings in the doctor’s name. The court drops the boom on Iacovelli for this. The court grants Dr. Eppley summary judgment for defamation and false light (although I think the false light actually should have been normal defamation) and says Dr. Eppley is entitled to damages and attorneys' fees, both to be quantified in a later proceeding. Given Iacovelli’s death, I’m not sure any of that will matter.
The allegations in the case also suggest that the false postings might have constituted criminal epersonation in California if Gov. Schwarzenegger signs the pending bill into law. The court even says Iacovelli engaged in "virtual identity theft" of Eppley's trademark. Rhetorically, this is a little over-the-top; I half-expected the court also to say that Iacovelli shanghai'ed his identity.
However, in the zeal to take down Iacovelli, the court goes too far in concluding that Iacovelli committed a false designation of origin. There are several problems with this discussion.
First, Iacovelli allegedly misdesignated the origin of content, rather than the origin of marketplace offerings. As the court says:
The creation of internet sites with names such as "barryeppleyplasticsurgeon.com" and "barry-eppley.owndoc.com," the undertaking to create a series of "Eppley sites," and the appropriation of Dr. Eppley's name and likeness in social network and other websites demonstrate a deliberate effort to attract internet users to the websites controlled by Ms. Iacovelli and her associates and to create the false impression that they are websites and pages created or authorized by Dr. Eppley.
My position is that the Lanham Act applies to misrepresentations about marketplace offerings, not misrepresentations about the *source of information* about marketplace offerings. See my deconstruction of the SMJ Group v. 417 Lafayette Restaurant case. So in my opinion, structurally, the Lanham Act doesn’t apply to misdesignated content about Dr. Eppley’s services.
Second, even if the Lanham Act applies to falsely sourced content, Iacovelli’s griping seemingly lacks the requisite commerciality to satisfy the Lanham Act. Unfortunately, the court strains itself to find commerciality:
The record indicates an effort to elevate Ms. Iacovelli to celebrity status by publicizing her as the "star" of an HBO documentary and to promote the market for the book about her that Mr. Bergeron is writing. Ms. Iacovelli, furthermore, has asserted that her internet publications are regarded by her as her primary occupation, and that she operates them on a "sole-proprietor" basis. It is apparent that Ms. Iacovelli has sought to enhance her fame and notoriety by associating her story and her defamatory message with Dr. Eppley's name. A desire to achieve derivative celebrity status by diverting the internet traffic arising from Dr. Eppley's trademarked name constitutes a calculated effort to take advantage of his name recognition in order to boost the status and attention paid to her "sole-proprietor" sites. In addition, some of the websites and postings have included advertising content, apparently generating advertising revenue or other valuable consideration.
I disagree with the last point that ad-supported content should qualify as commercial activity under the Lanham Act. See my Online Word of Mouth article. But I'm more interested in the first argument--that a desire for fame, even if it doesn't actually translate into revenues, is a commercial activity. It reminds me a little of the Napster Ninth Circuit opinion, where the court found that Napster had a direct financial interest in the infringing P2P files being shared because the files were a "draw" to the system, even though Napster had not actually earned a dime of revenue. If no revenue = direct financial benefit, then I guess a desire for fame = commercial activity. Maybe the judge was overly influenced by Goldhaber's Attention article from the 1990s.
In the same paragraph, the court concedes "Ms. Iacovelli has also been motivated in part by non-commercial goals, but this does not affect her trademark transgressions." Um, say what? Could you go over that again?
The court’s finding of false designation of origin is misguided and unsupportable. However, it’s also clear that false content isn’t cool. Consider this ruling as another data point in the developing legal precedent about inauthentic online content. See also the FTC’s settlement with Reverb, Lifestyle Lift’s settlement with the New York Attorney General’s office, the RealSelf v. Lifestyle Lift lawsuit and settlement, Meyerkord v. Zipatoni and Buckles v. Brides Club. It’s already pretty clear that adjudicators won’t tolerate inauthentic online content.
Posted by Eric at 08:31 AM Permalink | Content Regulation , Marketing , Trademark | TrackBack (0) | Printable Version
August 31, 2010
Broadcaster Gets 230 Defense for Readers' Website Comments--Miles v. Raycom
By Eric Goldman
Miles v. Raycom Media, Inc., 1:09-cv-00713-LG-RHW (S.D. Miss. Aug. 26, 2010).
WLOX is a TV broadcaster in coastal Mississippi (although with those call letters, I expected it would be located in Brooklyn). Toni Miles, a WLOX anchor at the time, was arrested during a drug bust and subsequently fired from her job. WLOX reported on the bust via a story on its website (this story?), allegedly defaming Miles in the process, and user comments piled onto the story with allegedly false statements. Miles ultimately was not indicted for the drug bust.
With respect to the user comments, WLOX claims immunity under 230. This is a super-easy case, especially after the cited Collins v. Purdue case, and the court expends few words granting the immunity. The relevant discussion:
In the present case, Miles alleges that the defendants “ran a news article and subsequently allowed unfiltered online comments which contained false information.” (Compl. at 5). Miles does not allege that the defendants wrote or revised the false comments. In fact, she alleges that the comments were not filtered by the defendants. Furthermore, she complains that the defendants merely allowed the comments, and there is no indication or allegation that the defendants encouraged defamatory comments on their website. As a result, the Court finds that the defendants are immune from liability for the allegedly defamatory third-party comments published on its website pursuant to the Communications Decency Act.
The publisher also avoids liability for defamation and negligent emotional distress, but other claims are still pending.
Posted by Eric at 12:56 PM Permalink | Content Regulation , Derivative Liability | TrackBack (0) | Printable Version
August 26, 2010
FTC Dings PR Firm for Fake Reviews -- In re Reverb Communications
[Post by Venkat]
In re Reverb Communications, FTC No. 092-3199 (Aug. 26, 2010) (Settlement)
Professor Goldman has posted a bunch about the FTC's endorsement guidelines. (See, e.g., "Do the FTC's New Endorsement/Testimonial Rules Violate 47 USC 230?;" "A Fuller Explanation of Why the FTC Endorsement/Testimonial Guidelines Violate 47 USC 230.") He posted in April about the FTC's look into the practices of Ann Taylor, which ended without any FTC action and looked like a warning shot: "FTC Drops Investigation of Advertiser Who Gave Gifts to Bloggers." Now the FTC actually conducted an investigation and settled with a PR firm which the FTC alleged wrote (and encouraged its employees to write) bogus reviews for the PR firm's clients in the iTunes store.
Here's the FTC's press release: "Public Relations Firm to Settle FTC Charges that It Advertised Clients' Gaming Apps Through Misleading Online Endorsements."
The FTC's Complaint [.pdf] outlines the key problems the FTC had with Reverb:
1. Reverb, its principals and employees posted reviews about Reverb's clients' gaming application and these reviews were posted "using account names that would give the readers . . . the impression they had been submitted by disinterested customers."2. The reviews were not independent reviews. Reverb was hired "to promote the gaming applications and [was] often paid a percentage of the applications' sales," and there was no disclosure of this.
As a result of the investigation, Reverb settled with the FTC. The settlement requires Reverb to, among other things:
(1) cease misrepresenting "the status of any user or endorser;"
(2) not make future statements which are not accompanied by a "clear and prominent" disclosure of any "material connection" between the person writing the statement and any third party (including Reverb);
(3) take down any reviews that do not comply with the settlement;
(4) maintain records for five years of compliance with the settlement, including future reviews posted and any consumer complaints;
(5) deliver a copy of the settlement/consent decree to all employees and agents; and
(6) provide proof of compliance.
____
Ouch. Fake consumer reviews are not anything new. Previously, "Lifestyle Lift" settled with the New York AG's office over allegations of posting fake reviews, and was also involved in litigation with Realself.com where Realself brought counterclaims over Lifestyle Lift's alleged posting of fake reviews. (Here's Professor Goldman's post on the Lifestyle Lift settlement with the New York AG's office: "Lifestyle Lift Settles NYAG Claim Over Fake Consumer Reviews.") Reverb's conduct predated the FTC's recent issuance of its endorsement guidelines. (The guidelines aren't new law. They're interpretative rules that the agency put out to let businesses and the public know that it was taking a look at the online endorsement issue (and to provide guidance).)
Reverb's settlement with the FTC shouldn't come as a big surprise, but I guess is a good reminder that the FTC is out there policing the internet! I would think common sense would prevent a public relations firm from being paid to post faux reviews and posting them without disclosure, but this settlement illustrates that this isn't necessarily the case. The name of Reverb's client was not disclosed in this case, but a fake review brought to light seems harmful to the brand that is reviewed.
One thing that was surprising was the actual reviews posted by or on behalf of Reverb:
"Amazing new game"
"ONE of the BEST"
"Really Cool Game"
"GREAT, family-friendly board game app"
"One of the best apps just got better"
You would think if someone was paid to write reviews, they would write reviews that made it look like they actually tried the product or service in question? These reviews look awfully similar to comment spam.
It's also worth noting that I didn't see anything out there about the FTC going after the company who was reviewed - i.e., Reverb's client (which is what the FTC considered doing in Ann Talyor's case). This settlement should send a message to Reverb's clients and others in its shoes.
Additional coverage: NYT: "Charges Settled Over Fake Reviews on iTunes" (with a quote from Prof. Goldman: "fake reviews [are] 'a pervasive problem on the Internet'").
Related: "A Fake Amazon Reviewer Confesses" (WSJ, July 2009)
Posted by Venkat at 03:10 PM Permalink | Content Regulation | Printable Version
Internet Rewards Program Class Action Survives Initial Motion to Dismiss -- In re Easysaver Rewards
[Post by Venkat]
In re: Easysaver Rewards Litigation (S.D. Cal.) (Aug. 13, 2010)
Plaintiffs brought a class action lawsuit against Provide-Commerce (which operated Pro.Flowers.com). The lawsuit alleged that effecting transactions on the Proflowers website resulted in plaintiffs being unwittingly enrolled in a rewards program and being charged credit card fees. The court denied the motion to dismiss brought by defendants.
Background: Provide operated ProFlowers.com. At the time of completion of transactions on ProFlowers, consumers were offered a chance to enroll in a "rewards program" which was operated for Provide by Encore Marketing. Plaintiffs alleged that they were "unwittingly" enrolled in the program:
Plaintiffs allege that Provide leads customers to believe they will receive a complimentary $15.00 gift code to use on their next flower order as a thank you gift. After Plaintiffs completed the purchase of flowers on Provide's website by providing their personal and payment information, 'a window popped up that thanked Plaintiffs and Class Members for their order and offered a gift code for $15.00 off their next purchase at ProFlowers. The window also contained a link for Plaintiffs and Class Members to click on to claim the gift code.' Plaintiffs contend the pop-up window is part of an intentionally misleading and deceptive scheme, jointly orchestrated by Provide and EMI.
The named plaintiffs all testified to slightly different experiences. Some closed the pop-up window and did not provide any personal information, others responded to the pop-up by clicking on "I accept" and entering their personal information. Ultimately, plaintiffs were unable to have the charges relating to the EasySaver program reversed, and brought a variety of claims against both Provide and Encore.
Discussion:
Breach of Contract Claims:
Provide first argued that the privacy policy is not "an actionable contract" but was instead a "general statement . . . of policy." The court doesn't treat this as a colorable argument, citing to the alleged user experience and plaintiffs' reliance on the privacy policy and terms of use, which popped up every step of the way. (But see In re JetBlue, discussed in Professor Goldman's post here: "When Does a Privacy Policy Breach Support a Breach of Contract Claim? In re JetBlue.")
Provide also argued that the applicable privacy policy allowed it to transfer information to third parties, but the court holds that there is a disputed factual issue as to whether Provide agreed to only transfer the information with consumers' "informed consent or authorization," and would not share the information "beyond that which was necessary to complete the flower order."
Finally, Provide argued that the "EasySaver Rewards Policy" was not supported by an exchange of consideration, since it only came up after the flower transaction was complete. The court rejects this argument as well, finding that the rewards program was "part and parcel of the underlying flower purchase."
Provide also tried to disclaim liability for Encore's actions by arguing that it was not responsible for anything Encore did. The court cites to language in the description of the rewards program that indicates the program was jointly operated (the program was described as "our" program and Encore was described as Provide's "partner").
A separate sub-class of plaintiffs brought contract claims against Encore. These plaintiffs argued that they did not "knowingly" consent to the rewards program, and even if they did, Encore breached the terms of the program by not providing the stated benefits. Encore argued that these plaintiffs could not have it both ways - either they enrolled in the program (in which case plaintiffs accepted the terms were clearly stated) or they didn't. The court finds that plaintiffs could plead in the alternative that they did not enter into an agreement, and even if they did, Encore breached the terms of the agreement.
Fraud Claims: Provide raised a variety of arguments against plaintiffs' fraud claims (failure to plead fraud with particularity, failure to allege causation). The court rejects these arguments, holding that whether plaintiffs read the privacy policy or had adequate notice is not something that was amenable to resolution at the motion to dismiss stage.
Conversion: Plaintiffs argued that defendants converted plaintiffs' "private payment information." With respect to plaintiffs' conversation claim, the court notes the historical trend away from limiting conversation claims to tangible property (citing to Kremen v. Cohen, among other cases). The court analogizes conversion of plaintiff's "Private Payment Information" to conversion of bank account information, and finds that plaintiffs adequately state a claim based on conversion of private payment information.
EFTA: The Electronic Funds Transfer Act prohibits, among other things, unauthorized billing. Provide argued that it was Encore and not Provide who engaged in the unauthorized billing. The court agrees and grants Provide's motion to dismiss as to the EFTA claim, finding that there is no liability under the statute for aiding and abetting an EFTA violation. With respect to Encore, the court denies the motion to dismiss. Among other things, the court rejects Encore's argument that the plaintiffs agreed to the membership charges by "entering [their] email address[es] and zip code[s] and clicking the green acceptance button."
___
Defendants will have another opportunity to show that plaintiffs' claims are without merit, but I think the court's resolution at the pleading stage is interesting. A more robust disclaimer and a non-leaky acknowledgment would have no doubt been useful here. (See professor Goldman's post on Scherillo v. Dun and Bradstreet for some good pointers.)
The case also illustrates the importance of the transaction flow and process (the user experience). Often lawyers provide advice, but implementation is left to the business or marketing folks. This case illustrates that in addition to the language of the terms, courts will look to the transaction process to poke holes in the contract formation argument.
Data breach claims alleging a breach of the applicable privacy policy have met with little success. (See, e.g., Ruiz v. Gap, discussed in this post: "9th Circuit Affirms Rejection of Data Breach Claims Against Gap.") Where there is out of pocket loss that is a result of a violation of the privacy policy, plaintiffs have a much easier time bringing claims for violation of the privacy policy. In this case, defendants didn't even raise the argument that plaintiffs had not suffered out of pocket loss or lacked standing - it was a nonstarter.
It was also interesting that defendants tried to rely (and have judicial notice taken of) the online terms, but the court refused to do so, in light of the changing content of the webpages. When defendants pushed this argument, the court predictably trotted out the "[i]nformation from the internet does not necessarily bear an indicia of reliability" argument.
Related: "Cuomo says 6 settle on hidden online shopping fees."
Posted by Venkat at 11:45 AM Permalink | E-Commerce | Printable Version
August 24, 2010
Ghostwritten Attorney Newsletter is an "Ad" for TCPA Junk Fax Law Purposes--Holtzman v. Turza
By Eric Goldman
Holtzman v. Turza, 08 C 2014 (N.D. Ill. Aug. 3, 2010)
This case is a unremarkable straight-down-the-middle analysis of when editorial content becomes a regulated ad, which in turn makes it a remarkable case. Most editorial-content-as-ad cases have quirky hooks that undercut their broader applicability.
The defendant is an Illinois lawyer. The court says:
In August 2006, he hired Top of Mind Solutions, LLC ("Top of Mind") to create and distribute by fax and email one-page documents titled the "Daily Plan-It" to a list of persons supplied by defendant. Defendant's target list included a combination of contact information he purchased from the Illinois CPA Society and numbers he obtained from business contacts and students.
Top of Mind issued 41 versions of the Daily Plan-It on defendant's behalf, every two weeks, from August 2006 to March 2008. All 41 versions include a masthead with the words "The `Daily Plan-It'" in italicized, bolded, and underlined text. "Gregory P. Turza, JD" appears just below the masthead along with the date, volume and issue number of the document. Beneath this title, the page is divided into two columns that contain an editorial article offering advice about various topics. Each article runs the length of the left column of the page and concludes in the middle of the right column....
The content of each Daily Plan-It was created entirely by Steven Patrick Riley ("Riley"), Top of Mind's owner. Defendant did not contribute to the editorial content. At the end of each article, in the lower right corner, defendant's name is listed (in a font larger than any other type on the page, with the exception of "The `Daily Plan-It'"). He is identified as an attorney and counselor at law, and the words "estate planning," "post mortem administration," and "business succession planning" appear before his name. Each fax also includes two or three graphic images: defendant's business logo, a photo of the building in which defendant has his office, or a head shot of defendant. Also included are his business address, telephone and fax numbers, e-mail address, and website address. At the bottom of the fax the document repeats defendant's name and phone number. This "identifying information" occupies approximately 20 to 25 percent of total area of the fax.
Three things stand out from this recitation of facts:
* it was bad form to buy a list of fax numbers and start blasting fax messages every 2 weeks. I've repeatedly noted that I think the days of buying email lists are long dead. Buying fax lists strikes me as an even worse idea.
* it's interesting to think that a lawyer would rely upon a vendor to generate editorial copy that goes out under the lawyer's name. The facts don't indicate if Turza reviewed and approved the content before it went out. I don't use ghostwritten material; I usually even extensively rewrite co-authored material.
* while the content's marketing intent is clear and unmistakable, the newsletter's substance is also unambiguously editorial content however broadly or narrowly we conceive of it. The law doesn't handle editorial-content-as-marketing overlaps very well, unfortunately.
The court applies the FCC's interpretation that faxed editorial newsletters aren't regulated advertising so long as any advertising content in the newsletter is "incidental," which in turn depends on whether the ad is a "bona fide informational communication." As you can see, the quest for synonyms doesn't really advance the analysis; it just shows that if you don't know how to parse between ads and editorial content, synonym proliferation tries to mask that fact (unsuccessfully, I might add).
The court concludes that the newsletter is regulated advertising. The court appears to focus on the sender's intent: "the record is replete with evidence demonstrating that the primary purpose of defendant's agreement with Top of Mind was to generate awareness of defendant's services and build his client base." The court continues: "defendant has provided no facts to show that his genuine, primary motivation in paying Top of Mind to distribute the Daily Plan-It was to educate CPAs and his business contacts on various industry-related topics rather than to build brand recognition and solicit business referrals for his law practice."
To me, this suggests the case would have been much harder if the editorial content hadn't been ghostwritten because the newsletter's educative intent would be clearer. Nevertheless, the court's sender-payoff-oriented standard--"to generate awareness of defendant's services and build his client base"--is unworkable because those payoffs are exactly what most professional service providers seek every time they publish editorial content.
UPDATE: Carolyn Elefant has more to say about this case.
Posted by Eric at 03:30 PM Permalink | Marketing , Spam | TrackBack (0) | Printable Version
August 23, 2010
Google Avoids Liability for Failed Google Search Appliance Installation--Market America v. Google
By Eric Goldman
Market America, Inc. v. Google, Inc., 2010 WL 3156044 (D. Del. Aug. 9, 2010)
This lawsuit comes from an unhappy Google Search Appliance (GSA) customer, Market America, who (like many unhappy systems purchasers) claims that Google and its systems integrator LTech overpromised and underdelivered. Unfortunately for Market America, like so many unhappy customers, it didn't get the necessary promises in writing. As a result, the defendants knock out a chunk of the case.
Market America operates an online mall. I don't exactly understand its value proposition; see if you can figure it out. It wanted a mallwide search functionality that scaled to nearly 100M products. Market America entered into a million dollar contract for GSAs to provide that functionality. The implementation did not go well (with allegedly very long search latencies), and ultimately Market America gave up on the GSA implementation.
The fraud/fraudulent inducement claims are dismissed per Twombly for conclusory allegations about scienter. Even if Market America's allegations about Google's and LTech's performance promises are true, Market America didn't adequately plead that Google or LTech had the requisite scienter to make false promises.
The rescission claim is dismissed because neither Google nor LTech promised a minimum quantified performance standard in their contracts, and the contracts contained standard vendor-favorable risk mitigation clauses. As usual, if buyers really care about a promise made by the vendor, make sure the promise gets into the contract.
Trivia: I had previously blogged about Market America in a jurisdictional matter. Market America has a surprisingly active litigation docket for a mass-market consumer-facing company I haven't heard of otherwise.
Posted by Eric at 11:20 AM Permalink | Licensing/Contracts | TrackBack (0) | Printable Version
August 20, 2010
Selling Replacement Supplies Could Constitute Contributory Trademark Infringement–Georgia Pacific v. Von Drehle (Guest Blog Post)
by guest blogger Mark Bartholomew
[Eric's introduction: Mark is a law professor at the University of Buffalo. He has written several articles on secondary copyright and trademark infringement. See his SSRN page. We were swapping emails about this ruling, and he graciously agreed to write a post about it. I've appended a brief comment after his.]
Georgia Pacific Consumer Products LP v. Von Drehle Corp., 2010 WL 3155646 (4th Cir. Aug. 10, 2010)
The Fourth Circuit recently held that a maker of paper towels may violate the Lanham Act when it convinced merchants to stuff its paper towels into Georgia Pacific’s branded automatic towel dispensers instead of using towels provided by Georgia Pacific. The case is worth a look as it touches on issues of contributory trademark infringement, post-sale confusion, and antitrust law.
Plaintiff Georgia Pacific (GP) leases hands-free enMotion brand paper towel dispensers to distributors. The distributors then sublease the dispensers to businesses that have a use for them, like stadiums and restaurants. In its leases, GP conditions any use of the dispensers on exclusive use of GP brand paper towels. Unlike other automatic paper towel dispensers, enMotion dispensers are specifically designed to accept only a particular sized towel manufactured by GP.
Von Drehle is also in the paper towel business. In 2004, it developed a new type of toweling specifically for use in GP’s enMotion dispensers. It then instructed its sales staff to go out and convince distributors to resell its cheaper toweling to customers for use in enMotion dispensers. GP sued for contributory trademark infringement under the Lanham Act, along with violations of North Carolina’s unfair competition law and tortious interference with contractual relationships. Von Drehle counterclaimed for violation of the Sherman and Clayton acts.
The district court held in favor of Von Drehle on the trademark infringement and unfair competition claims. It explained that in evaluating likelihood of confusion, it was the mind sets of the business owners who purchase paper towel rolls for their restrooms that matter, not the expectations of restroom visitors. The court rationalized that restroom users don’t have a choice as to what type of paper towel they will receive, and “[n]o evidence exists to indicate that restroom visitors play any meaningful role in deciding which paper towel roll a business owner purchases from a distributor.” It held in GP’s favor on the antitrust claim because it found that GP had not taken coercive actions to enforce its lease agreements.
The Fourth Circuit reversed on the trademark and unfair competition claims. It described “the judicially created doctrine of contributory trademark infringement, derived from the common law of torts” as boiling down to a simple formula enunciated by the Supreme Court in a footnote to its landmark 1984 copyright decision, Sony v. University City Studios:
[A] manufacturer or distributor could be held liable to the owner of a trademark if it intentionally induced a merchant down the chain of distribution to pass off its product as that of the trademark owner's or if it continued to supply a product which could readily be passed off to a particular merchant whom it knew was mislabeling the product with the trademark owner's mark.
Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 439 n. 19 (1984).
The Fourth Circuit decided that there could be actionable post-sale confusion here because GP’s survey evidence showed that over 40 percent of the public expected the paper towels they used to match the brand of the enMotion dispenser, and GP’s reputation may be hurt if it could not control the quality of the toweling used in its dispensers. To the extent Von Drehle intentionally created and distributed its towels for use in the enMotion machines and continued to supply its towels to distributors knowing how they were to be used, Von Drehle could be liable for contributory trademark infringement.
What’s interesting to me about this case is not so much the court’s specific analysis of contributory trademark infringement or post-sale confusion. Both of these topics are controversial issues in trademark law and have been dealt with much more thoroughly in other cases. What’s interesting is how the case shows how these controversial doctrines intersect with antitrust law, and the serious threat wide application of these doctrines poses to the competitive goals trademark law is designed to further. GP designed a new device and required any user of that device to purchase its own, more expensive paper towels. Although in decline in recent years, the doctrine of patent misuse prevents patent holders with sufficient market power from suing a licensee for infringement when the licensee uses a patented device in conjunction with certain materials outside of the patent. A copyright misuse defense has been used to defeat an infringement claim when the copyright holder requires a licensing agreement for use of its work that also prohibits use of competing works. Instead of a patent or copyright claim here, GP is using trademark law to compel users of its device to purchase arguably extraneous goods. The big question here is whether this decision allows GP to make an end run around antitrust concerns.
Yet the Fourth Circuit spends no time on the competitive consequences of its decision. Maybe this is understandable—von Drehle did not appeal the district’s courts adverse ruling on its tying claim. Even so, the Fourth Circuit’s decision strikes at the heart of what is and is not fair competition and the policy issues surrounding enMotion’s practices probably deserved further discussion. (A concurrence by Judge Samuel Wilson hinted at this, noting that the antitrust implications of an arrangement like GP’s “will have to play out . . . on another day and, perhaps, on a different stage.”) In his treatise, McCarthy notes that in not a single reported case has a court refused to enforce a trademark because it was used in violation of antitrust law. But if doctrines like contributory trademark infringement liability and post-sale confusion continue to expand and receive widespread acceptance by the courts, the competitive position of individual manufacturers will continue to strengthen and a defense of “trademark misuse” may deserve more attention.
_____
Eric's comment:
GP's distribution scheme for its towel dispensers is, from an IP standpoint, both brilliant and insidious. If you're a manufacturer looking to control the sale of complementary goods, this case provides a playbook for how to use trademark law to assert control over secondary markets in a way that courts might uphold--despite, as Mark explains, a thick set of antitrust issues. I share Mark's disappointment that the majority opinion basically was blind to the hugely anti-competitive effects of its ruling. But make no mistake, this opinion will not help improve marketplace competition. If GP succeeds with this litigation, it will have successfully kicked out a competitor out of the replacement supplies marketplace, and I expect many, many other manufacturers will try to follow in GP's footsteps to do the same.
Posted by Eric at 12:25 PM Permalink | Derivative Liability , Trademark | TrackBack (0) | Printable Version
August 19, 2010
47 USC 230 Preempts Sponsorship/Endorsement Liability--Black v. Google
By Eric Goldman
Black v. Google, Inc., 2010 WL 3222147 (N.D. Cal. Aug. 13, 2010). The complaint.
The Blacks run a roofing company. They claim someone posted an anonymous defamatory comment on an unspecified Google website, and this "comment misrepresents their work and has devastated their businesses." They sued Google for several business torts (although, interestingly, not defamation). I posted the complaint back in May and tweeted:
Roofing contractor sues Google over negative business review. Hello 47 USC 230!
I believe the plaintiffs and 47 USC 230 are now properly introduced. The court efficiently gets to the heart of the matter: "A fair reading of Plaintiffs’ complaint demonstrates that they seek to impose liability on Defendant for content created by an anonymous third party...Based on these allegations, Defendant is immune from their suit."
The plaintiffs, working pro se, try to get around 230 by arguing that they seek to hold Google liable for its "programming." Neither the judge nor I are clear on what that means, but we're both clear that the allegation doesn't change the answer.
Next, the plaintiffs argue that Google endorsed or sponsored the allegedly tortious content. The court recognizes this for exactly what it is: "an end-around the prohibition on treating it as the publisher or speaker of it." The court continues: "Such a ploy, if countenanced, would eviscerate the immunity granted under § 230."
I heartily agree. I made this exact point when critiquing the FTC's Endorsement and Testimonial Guidelines, where the FTC sought to impose liability on advertisers for online content posted by independent third parties; and I made a similar point when critiquing the SEC's proposal to impose liability on issuers for linking to third party websites. This case is entirely clear that 230 preempts liability premised on endorsing or sponsoring third party online content. Hey, FTC and SEC, I hope you're paying attention! The courts may not back up your expansive liability theories.
Finally, the plaintiffs argue that Google lacked an adequate dispute resolution procedure. 230's immunity isn't predicated on having such a procedure, and the court treats this as a subspecies of the unsuccessful argument that notice of a problem disqualifies the service provider from 230's immunity.
Thus, an easy case leads to a quick dismissal with prejudice.
Posted by Eric at 08:59 AM Permalink | Content Regulation , Derivative Liability , Search Engines | TrackBack (0) | Printable Version