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October 31, 2006
Steinbuch v. Cutler Update
By Eric Goldman
Steinbuch v. Cutler, 2006 WL 3060084 (D.D.C. Oct 30, 2006)
Steinbuch v. Cutler has the attributes of a modern cyberlaw classic--it's got sex, power, politics, blogs, and sex. You may recall the story. Jessica Cutler was an intern on the Hill and engaged in multiple simultaneous relationships. She then commenced an affair with Robert Steinbuch, a staff counsel for the Senate Judiciary Committee. She documented some of the affair's lurid details on a "private blog" that allegedly was just for a few of her closest friends. Although she never used Robert Steinbuch's name in full, she relayed enough details that his identity was deducible by others. Then, the details on this "private blog" became very public when picked up by Wonkette, one of the largest blogs around. Ultimately, Steinbuch sued Cutler for invasion of privacy and emotional distress. My previous posts on the complaint and Cutler's motion to dismiss (which was denied in April).
In yesterday's ruling, Steinbuch sought to amend the complaint and to add Ana Marie Cox, the then-principal author of Wonkette, as a defendant. The court granted the motion, but with respect to adding Cox as a defendant, the court did so with reservations. The plaintiff's key allegation is that Cutler and Cox were working together, but the details about their interaction matter a great deal. Generally, Cox's behavior should be preempted by 47 USC 230 (a statute not cited by the court in this ruling). Pursuant to 47 USC 230, Cox cannot be liable for linking from Wonkette to Cutler's blog, nor should Cox be liable for quoting the blog if the words were written by Cutler (see, e.g., Batzel v. Smith; D'Alonzo v. Truscello). As the court says, "The Court cautions, however, that plaintiff should seek to add defendants to this case only where he has a good faith belief that those persons are liable under the tort claims that he pleads and meet each element of those claims." When the court dismisses the claims against Cox based on 47 USC 230, I hope the court will revisit this admonishment and make appropriate economic recompense.
In other news, Steinbuch has left DC and is now a law professor at Univ. of Arkansas, Little Rock (his school bio).
Posted by Eric at 10:23 AM | Derivative Liability | TrackBack
October 30, 2006
Sex.com -- An Update
By Eric Goldman
Judge Alex Kozinski recently guest lectured in my Cyberspace Law course, which prompted me to reread Kozinski's opinion in the Kremen v. Cohen Sex.com case. Because that opinion came out in 2003, it made me curious--what's happened to the lawsuit and the domain name since then?
Before getting into specifics, a quick recap. The Sex.com story has been oft-told, yet it's such a classic tale that it bears repeating. In early 1994, an enterprising Gary Kremen registered Sex.com with Network Solutions back when registrants could register domain names for free with just an email. In Oct. 1995, an interloper, Stephen Cohen, "stole" the domain name by submitting forged transfer papers to NSI. When Kremen discovered the transfer and demanded that NSI fix its mistake, NSI shrugged its shoulders and said to Kremen that he would have to go to court to resecure the domain name. Kremen did exactly that, sparking a decade-long legal battle over perhaps the most valuable domain name of all time. In the interim, Cohen allegedly reaped enormous profits (at least $40M, maybe hundreds of millions) from Sex.com during the time he possessed it.
The legal battle can be organized into 3 different fronts.
Kremen against Stephen Cohen
Kremen's first attack was against the interloper, Cohen. Kremen won a $65M judgment (which included a $25M punitive damages award) against Cohen in 2001. However, as I stress in my Cyberspace Law course, winning a judgment is a win only if it's enforceable. In this case, Cohen did everything possible to frustrate collection by fleeing the country (to Mexico, then Monte Carlo, and back to Mexico) and using clever machinations to move his money offshore and out of reach. Kremen was able to execute against 2 homes of Cohen's, including a house in upscale Rancho Santa Fe outside of San Diego that Kremen still uses as a personal residence. Meanwhile, based on Cohen's repeated acts in contravention of the judge's orders, the judge issued a contempt order and arrest warrant for Cohen.
After Kremen unsuccessfully offered $50,000 to bounty hunters to find Cohen, there was a break in the case in October 2005. Cohen was located in Tijuana, arrested by the Mexican police and extradited to the US. The judge has demanded that Cohen spill the beans about the location of the money, and Cohen refuses to do so. As a result, Cohen still sits in jail on the contempt order.
Kremen against Network Solutions
When it looked like Cohen wasn't going to pay up, Kremen went after Network Solutions as the domain name registrar, alleging breach of contract and conversion. The district court rejected the claims, but on appeal, Judge Kozinski reversed the conversion claim dismissal, concluding that California law permits intangible assets to be converted. The case was remanded to district court, but NSI settled the case in 2004. The settlement amount was confidential, but reports have put the amount at $20M.
Reading through the opinion again, I was struck by how Kozinksi's arguments could be used to support a conversion claim for other types of intangible assets, such as virtual world assets. I probed Kozinski on this very point in my class, and in his mind there's a distinction between assets taken within the game rules and outside the game rules.
I think this is right, but it may depend on the defendant. In the Kremen v. NSI case, the defendant was the service provider; but this was a truly unique situation where the customer (Kremen) and the service provider (NSI) didn't have a valid contract for the domain name registration because domain names were free. Thus, there was no consideration from Kremen for the domain name registration contract. In contrast, there is typically an airtight contract between the VW user and the service provider, and that contract will likely contain provisions that protect the service provider from any liability for asset conversion. I don't think Kozinski's reasoning could be read to extend conversion liability to the service provider in the face of such a contract. However, some other interloper who takes a virtual world asset outside of game rules could face conversion liability under the Ninth Circuit rule.
One more point about this case. When Kozinski's Ninth Circuit decision was issued, a number of commentators hailed it as a landmark case on protection of cyberproperty. It might ultimately be that, but I did a citation count and there are actually a surprisingly small number of cases citing to it so far (and none of particular note). So I personally think the Ninth Circuit decision is so fact-specific (service provider conversion of an intangible asset without any governing contract) that it's unlikely to be a true watershed decision.
Kremen against ARIN
The Sex.com battle has quietly spilled onto a third front. As part of Kremen's 2001 judgment against Cohen, the court imposed a constructive trust on all of Cohen's assets, including a large block of IP addresses assigned by ARIN. ARIN has refused to transfer the block as Kremen has asked, instead directing Kremen to follow ARIN's internal transfer policies, which Kremen apparently refuses to do. So in April 2006, Kremen sued ARIN for antitrust violations, conversion, unfair business practices and breach of fiduciary duties. See the complaint in Kremen v. American Registry for Internet Numbers (N.D. Cal.).
This is a case worth watching. ARIN is a relatively obscure and insular group, and over the years I have heard lots of frustration about their IP address block allocations and restrictions on transfer. This lawsuit has the potential to challenge these practices and change the process for IP address block allocations.
The Status Today
In Jan. 2006, Kremen sold the domain name to a low-profile pornography company, Escom, for $12M-14M. As a result, Kremen has received, so far, over $30M and 2 properties for the domain name, plus a pending $65M judgment (now over $80M including interest) against Cohen, plus any ongoing revenues he generated during the time he possessed the domain name. Talk about a lucrative domain name!
Earlier this month, Escom announced a strategic partnership with Playboy Enterprises, with the practical consequence that Sex.com has turned into a marketing portal for Playboy's content. Given the apparent value of this domain name, I'm sure we haven't heard the last word on its exploitation.
If you are interested in more of this story, Kieren McCarthy is publishing a book, Sex.com, in Britain in 2007.
UPDATE: Violet Blue writes an entertaining recap.
Posted by Eric at 05:44 PM | Domain Names , Internet History , Licensing/Contracts , Virtual Worlds | TrackBack
October 25, 2006
NY v. DirectRevenue Hearing Transcript
By Eric Goldman
I previously blogged on the New York v. DirectRevenue case and the amicus brief that David Post, Scott Christie and I filed. Last week, there was a hearing on DirectRevenue's motion to dismiss. The transcript. Note that all transcript references to "Mr. Christie" actually should be to Justin Brookman of the NYAG's office.
One exchange that caught my attention: the judge got feisty with Brookman over the NYAG's continued misuse of the term "spyware" to describe software that lacks a report-back feature (see the Merriam-Webster definition of spyware). On page 17, the judge says to Brookman:
Wait a minute. You called it spyware. And then when your adversary says wait a minute, none of this is alleged in their papers. Forget spyware. It's not spyware unless you tell me different.
I've complained before about the problems created by the lack of standard nomenclature for adware and spyware. This sloppy nomenclature can benefit plaintiffs to the extent they can use the term "spyware" as a scary smear tactic. But as the judge's retort indicates, it can also backfire when judges realize that the term is being used to misportray the facts.
Posted by Eric at 02:51 PM | Adware/Spyware | Comments (3) | TrackBack
October 20, 2006
Courts Can't Figure Out if Buying Keywords Constitutes Trademark Use--Buying for the Home v. Humble Abode
By Eric Goldman
Buying for the Home, LLC v. Humble Abode, LLC, 03-CV-2783 (JAP) (D.N.J. Oct. 20, 2006)
2006 has been a bit of a jurisprudential disaster on the question of whether buying/selling keywords constitutes a trademark use in commerce. Basically, courts can't agree, so plaintiffs and defendants are trading wins--sequentially by date, the answer to whether keyword advertising is a use in commerce has been yes (Edina), no (Merck), yes (800-JR Cigar), no (Rescuecom) and yes (Buying for the Home). At least we have a predictable pattern emerging (consistent with the pattern, the next case should be a "no")...but the alternating pattern is hardly confidence inspiring.
In this case, the parties are competitors in the online furniture business. The plaintiff claims a trademark in the phrase "Total Bedroom" and alleges that the defendant bought keyword ads at Google on "total bedroom." (There is a factual debate on this point--the defendant alleges that its ads were broad-matched to the phrase "bedroom"). It appears undisputed that the defendant never displayed the phrase "total bedroom" in its ad copy, so the lawsuit is based purely on the trademark implications of buying the keyword.
On the use in commerce factor, the court acknowledges that "the law is unsettled regarding whether the purchase of another’s protected mark as a search engine keyword can constitute unfair competition or infringement." After recapping the muddled precedent, the court casts its vote:
the Court finds Plaintiff has satisfied the “use” requirement of the Lanham Act in that Defendants’ alleged use was “in commerce” and was “in connection with any goods or services.” 15 U.S.C. 1125(a)(1). First, the alleged purchase of the keyword was a commercial transaction that occurred “in commerce,” trading on the value of Plaintiff’s mark. Second, Defendants’ alleged use was both “in commerce” and “in connection with any goods or services” in that Plaintiff’s mark was allegedly used to trigger commercial advertising which included a link to Defendants’ furniture retailing website. Therefore, not only was the alleged use of Plaintiff’s mark tied to the promotion of Defendants’ goods and retail services, but the mark was used to provide a computer user with direct access (i.e., a link) to Defendants’ website through which the user could make furniture purchases. The Court finds that these allegations clearly satisfy the Lanham Act’s “use” requirement.
As a result, the court denied the defendant's motion for summary judgment on the use in commerce issue. For more on why this result is wrong, see my writeups on the Edina Realty and 800-JR-Cigar cases.
In an ironic twist, the defendant alleges that the plaintiff buys the "Humble Abode" keyword at Google and displays an ad saying: "Save on Humble Abode. Find many of the Humble Abode.com beds at a significant discount" and providing a link to the plaintiff's website. I really don't understand how a plaintiff can complain with a straight face about competitive keyword purchases on its trademarks when it does the same thing itself. (But this seems to happen fairly frequently--for example, it was an embarrassing fact in the 1-800 Contacts case as well).
In this ruling, the defendant sought SJ on its counterclaim against the plaintiff for buying its trademarks. This should set up a mirror image opinion--if keyword purchases are a problem, the plaintiff should be liable too. The judge sidesteps this parallelism by ignoring the use in commerce question altogether, instead citing the possibility that the plaintiff is protected by the nominative use defense to deny the defendant's SJ motion on the counterclaim. Of course, this raises a highly ironic question, but the irony appears to have been lost on (or ignored by) the judge.
Posted by Eric at 10:44 AM | Search Engines , Trademark | Comments (2) | TrackBack
Patent Policy in the Supreme Court and Congress--October 27, 2006
By Eric Goldman
The High Tech Law Institute at Santa Clara University School of Law is co-sponsoring, with the Berkeley Center for Law and Technology, a conference on Patent Policy in the Supreme Court and Congress. This event will bring together over two dozen of the leading patent thinkers throughout the country to discuss patent reform in Congress and the patent jurisprudence of the Supreme Court and the Federal Circuit. This is a first-rate group of patent scholars discussing the latest cutting-edge issues, so it should be a can't miss event for anyone interested in patent policy. The details:
Date: October 27, 2006, 8:15-5:30
Location: Santa Clara University School of Law, Bannan 127
Registration Fee: Free, but registration is required
I'm sorry for the late notice of this event. It looked like we were going to have a full house, but we've made a last minute switch in venues that has opened up some new seats. I look forward to seeing you there!
Posted by Eric at 09:30 AM | Patents | TrackBack
October 19, 2006
Consumer Reviews May Lift E-Commerce Conversion
By Eric Goldman
Judith Chevalier & Dina Mayzlin, The Effect of Word of Mouth on Sales: Online Book Reviews, Journal of Marketing Research, August 2006. [see a free earlier version from 2003]
For a while, Epinions got into the "syndication" business. We aggregated all of the consumer-provided reviews and made them available for licensing to e-tailers. The intuition was that consumer reviews would "lift" e-tailers' conversion to sale, increasing profits by more than the license fee.
At the time, our data supporting this theory was a little sketchy, but now 2 professors at Yale's Management School have tried to quantify this by looking at the relationships between consumer reviews and sales at Amazon.com and BarnesandNoble.com. Their findings:
the addition of new, favorable reviews at one site results in an increase in the sales of a book at that site relative to the other site. We find some evidence that an incremental negative review is more powerful in decreasing book sales than an incremental positive review is in increasing sales. Our results on the length of reviews suggest that consumers actually read and respond to written reviews, not merely the average star ranking summary statistic provided by the Web sites.
These results are not trouble-free. The paper explains how the "sales rank" data at both Amazon and BN is unreliable. It also discusses how Amazon culled user-written reviews to unknown effect. Finally, it shows that reviews are generally positive, with the mode being a 5 star ranking and the mean being 4+.
Ultimately, I think this implicitly raises the issues of review credibility. Consumer reviews generated by most e-commerce sites tend to be "love it' or "hate it" with comparatively few nuanced reviews. (The paper shows that the 1 and 5 star reviews are generally shorter than the 2-4 star reviews). There's the risk of fake/shill reviews (recall the 2004 NYT story; see also this article on fake merchant ratings). And then there is the overall concern about decreased credibility of anonymous reviews.
According to this paper, it doesn't matter. E-commerce sites want to generate consumer reviews because it's almost guaranteed that positive reviews will be provided (either by shills or by the "love it" crowd), and these positive reviews will increase conversion to sale. So the consumer review system, seemingly exemplifying consumer empowerment, may just be a really clever artifice for consumer manipulation.
I can't say that Epinions avoids these pitfalls entirely, but the Epinions review-collection process is much more rigorous than a typical e-commerce website's collection system, and that rigor tends to enhance the production of credible reviews. In contrast, personally I would not rely on an Amazon.com (and certainly never on a BN.com) review to make a purchasing decision except as a starting point for more careful research from more credible sources.
Finally, the paper has a few other interesting tidbits, mostly explaining how BN.com is inferior to Amazon.com:
* prices at BN.com were consistently higher than at Amazon.
* Amazon.com had much better review coverage (87% to 46% of products)
* Amazon.com's reviews were longer than those at BN.com
Posted by Eric at 11:23 AM | E-Commerce | TrackBack
October 18, 2006
Acxiom Not Liable for Security Breach--Bell v. Acxiom
By Eric Goldman
Bell v. Acxiom Corp., 4:06CV00485-WRW (E.D. Ark. Oct. 3, 2006)
Acxiom is a major data miner/data broker. As a result, they have lots of sensitive personal data stored on their computers. Between 2001-2003, they suffered a major security breach when a bad actor (now in jail) extracted personal data and resold it to marketers. Bell brought a putative class action against Acxiom for this security breach that may have resulted in her data being resold.
Specifically, Bell alleged two injuries: (1) increased risk of receiving junk mail, and (2) increased risk of identity theft. However, she did not allege that she actually experienced either increased junk mail or identity theft. Thus, the court brushes the concerns about possible future risks aside, saying that both injuries were not sufficiently concrete to satisfy the "case or controversy" pleading standard. As a result, the court granted Acxiom's motion to dismiss.
This case reminds me of the In re JetBlue case, where the airline provided passenger records to the government in contravention of its articulated privacy policy. That lawsuit died because the plaintiff could not show any cognizable injury from the data transfer/privacy policy breach. In the Acxiom case, the lawsuit died because the plaintiffs couldn't plead a sufficiently tangible harm to clear the motion to dismiss standard. So it appears that some courts are demanding more from privacy plaintiffs than just their mere apprehension about privacy--a significant standard that could keep privacy lawsuits in check.
UPDATE: A very similar ruling rejecting a fear of increased risk of identity theft as an injury sufficient to support standing: Key v. DSW, Inc., 2:06-cv-00459-GLF-TPK (S.D. Ohio Sept. 27, 2006).
Posted by Eric at 07:12 PM | Privacy/Security | Comments (3) | TrackBack
October 14, 2006
Google AdWords Contract Upheld--Person v. Google
By Eric Goldman
Person v. Google Inc., 2006 WL 2884444 (S.D.N.Y. Oct. 11, 2006)
Carl Person is a candidate for New York's Attorney General and an AdWords advertiser. He complains about a variety of Google's AdWords' policies, including its minimum pricing, its restrictions on buying certain keywords, the quality score component of its sorting algorithm, the allegedly misleading nature of calling the process an "auction" when Google exercises subjective judgments, and other practices. Thus, he sued Google for antitrust and other violations in the federal courts in New York City.
To become an AdWords advertiser, Person entered into an online clickthrough Google's AdWords agreement that contains a forum selection clause for Santa Clara County, CA. The court notes that forum selection clauses are presumptively valid, and after a fairly brief analysis, the court concludes that there's no reason to overturn this presumption. Thus, the court transfers the case to the federal court in San Jose, CA.
As far as I can remember, this is the first case upholding Google's AdWords contract. However, this isn't the first time that a Google online clickthrough agreement was validated; in 2004, a New York court upheld its contract for Google Groups. Novak v. Overture Servs., 309 F. Supp. 2d. 446 (E.D.N.Y. Mar. 25, 2004).
I wonder if NY voters will count this decisive loss (in a lawsuit of his own choosing) against Person when deciding if he's worthy of the role of Attorney General?
Posted by Eric at 09:25 AM | Licensing/Contracts , Search Engines | Comments (3) | TrackBack
October 13, 2006
One Judge's Derisive View of Junk Faxes as Conversion
By Eric Goldman
Rossario's Fine Jewelry, Inc. v. Paddock Publications, Inc., 443 F. Supp. 2d 976 (N.D. Ill. Aug. 17, 2006).
I've blogged before on courts' rejection of a common law conversion claim based on the receipt of junk faxes. I've always viewed such claims as not really passing the smell test because of the de minimis nature of the putative harm. So I couldn't resist Judge Shadur's crunchiness when presented with this issue (Rossario is the recipient and Paddock is the sender):
What Rossario's counsel identifies as the "property" purportedly converted by Paddock is the "ink or toner and paper" in Paddock's [sic--I think the court meant Rossario's] fax machine that were consumed in generating the one-page fax production. As modern a development as the fax may be, that contention reconfirms the teaching of Ecclesiastes 1:9 that "[t]here is no new thing under the sun," for the ancient maxim "de minimis non curat lex" might well have been coined for this occasion.
More importantly, even apart from the niggling nature of the claim in those terms, it is lacking in the formal requirements of a conversion claim....
...it would impermissibly warp the concept of "conversion" if that label were to be attached to Rossario's property (ink, toner and paper) that never came into Paddock's possession at all--that was never "unlawfully held" by Paddock and as to which Paddock could be said to have "assumed control, dominion or ownership over the property" (Cirrincione v. Johnson, 184 Ill.2d 109, 114-15, 234 Ill.Dec. 455, 703 N.E.2d 67, 70 (1998)) only by stretching that language beyond its normal meaning....
Under Rossario's approach this Court could well charge it and its counsel with "conversion" for the Court's having had to waste paper and ink in the just-completed analysis...
Uh, in case this wasn't clear, claim dismissed!
Posted by Eric at 09:22 AM | Adware/Spyware , Marketing | TrackBack
October 12, 2006
Google Wins Lawsuit Over Search Results--Maughan v. Google
By Eric Goldman
Maughan v. Google Technology, Inc., 2006 WL 2874791 (Cal. App. Ct. Oct 11, 2006)
In 2004, Mark Maughan sued Google over the way that Google crafts the site description part of its search results. As the minority opinion in this case describes it:
Mark G. Maughan and Brown & Maughan (the firm is included in my references to Maughan) filed this class action against Google Inc., seeking damages and injunctive relief for libel, products liability, and unfair business practices on the ground that a Google search for "Mark Maughan Accountancy" (or a variation on that theme) generates a list of websites "suggesting" he was disciplined by the California Board of Accountancy for "gross negligence" and accepting a contingent fee for the preparation of tax returns, which he says are "veritable scarlet letters in the accounting world." Maughan concedes he has been disciplined for other wrongful conduct, and that the allegedly libelous search results showed his name and, separated by ellipses, statements describing misconduct by other accountants in a listing of disciplinary actions created by the Board of Accountancy.
Not surprisingly, Google adopted its typically aggressive litigation strategy and went on the counteroffensive by filing an anti-SLAPP motion to strike. In an unreported Feb. 2005 decision, the trial court granted that motion. Not only did Google squelch the lawsuit, but it became eligible for attorneys' fees and costs. Google requested $112k but the trial court cut that to $23k.
In this decision, the appeals court upholds both the anti-SLAPP motion to strike and the award of $23k. Thus, this lame lawsuit has been quickly crushed (not surprising given its total lack of merit) and the plaintiff got stuck with an extra $23k expense for its efforts (and was lucky not to have to pay the full $112k--the trial court's haircut was pretty arbitrary). Plaintiffs beware--ill-conceived lawsuits against search engines can be expensive!
Posted by Eric at 09:56 AM | Search Engines | Comments (2) | TrackBack
October 11, 2006
Article on Regulating Marketing--A Coasean Analysis of Marketing
By Eric Goldman
Eric Goldman, A Coasean Analysis of Marketing, 2006 Wis. L. Rev. __ (forthcoming).
In 2001, I had a career-altering epiphany while I was working at Epinions (this is the topic that prompted me to consider becoming a full-time academic). Epinions was morphing from a content generation engine (generating consumer reviews of products and services) into a shopbot where a core value proposition was to refer users to vendors to consummate transactions. As we made this transition, I realized that we were really entering the attention broker business. We aggregated consumer attention, principally from search engine referrals, using copyrighted content (the consumer reviews) as marketing to capture consumer attention. We then redirected that attention to vendors for our economic benefit. To the extent we bought the consumer's attention (say, through paid search listings), we were just in the attention arbitrage business (i.e., we wanted to sell the attention for more than we paid to buy it).
As a result, I realized that we competed against every other attention broker, including adware vendors (who were nascent in 2001), spammers, and every other marketing intermediary. But I couldn't resolve an underlying question--what gave us (or anyone) the right to broker a consumer's attention? Who "owned" attention, and when was it permissible to profit from someone else's attention?
It took me 5 years and 8 complete rewrites to complete my paper, A Coasean Analysis of Marketing, that answers these questions. This was one of the hardest things I've ever done professionally. It was truly a labor of love!
Part of my difficulty is that I ultimately realized that "attention" wasn't the real issue (and, in fact, it was distracting me). Instead, "attention brokering" is really a matching problem--marketers and consumers want to match with each other, but the matching process is costly. In particular, the key challenge is that consumers incur costs to express their preferences, a problem exacerbated by rising data glut.
Thus, the only sustainable solution allows consumers to express and manage their preferences at a near-zero cost. This will require a technological, not legal, solution, and the technology will look a lot like what we currently call adware and spyware. In turn, we may be doing ourselves a disservice if our efforts to regulate adware and spyware inhibit the development of technology that provides improved marketer-consumer matching in an information overload environment.
Certainly, many of these themes will be familiar to blog readers. However, this article ties together numerous threads that I've addressed on an ad hoc basis and, for the first time, lays out my vision comprehensively. Thus, I hope you'll take a look at it. I welcome your comments and thoughts.
Some discussion about the article from around the blogosphere:
* Peter Huang's comments
* Frank Pasquale's comments
* Conglomerate Junior Scholars Workshop comments (including responses to Peter's and Frank's comments)
* Daniel Solove's comments
The abstract:
Consumers claim to hate marketing - mostly, because they get too much unwanted marketing. In response, regulators develop medium-by-medium marketing suppression regulations. Unfortunately, these ad hoc solutions do little to satisfy consumers, and dynamic technologies and business practices quickly render them moot. Instead of continuing this cycle, there would be some benefit to developing a cross-media marketing regulatory scheme.
However, any holistic solution must be predicated on a clear rationale for regulating marketing. The most common justification is that marketing imposes a negative externality on consumers, but this argument ignores the private and social welfare created by marketing and can lead to cost overinternalization and marketing undersupply.
The Coase Theorem also suggests that social welfare improves by reducing the costs of matching marketers with interested consumers. To achieve this, consumers need a low cost but accurate mechanism to manifest their preferences. This Article shows that typical regulatory and marketplace solutions do not provide effective mechanisms.
Instead, marketer-consumer matchmaking will improve from technology that will automatically infer consumer preferences and use these inferences to filter incoming marketing and seek out wanted content. This technology is rapidly emerging, but regulation of surreptitious monitoring devices (like adware and spyware) may inadvertently block the development of this socially-beneficial technology. As a result, current regulatory overreactions to developing technology may counterproductively foreclose social welfare improvements
Posted by Eric at 11:33 AM | Adware/Spyware , E-Commerce , Marketing , Privacy/Security , Search Engines , Spam | TrackBack
October 10, 2006
Trademark Dilution Revision Act of 2006
By Eric Goldman
Last week, President Bush signed the Trademark Dilution Revision Act of 2006 into law. Ostensibly, this law was intended to overturn the Moseley case's requirement that plaintiffs show "actual dilution" instead of a "likelihood of dilution." However, the act morphed into an omnibus dilution revision effort that reshapes dilution law on a number of fronts. The result is a mixed bag--there is a little good news mixed in with the bad. Based on my new sunny California optimism, I'm going to start with the good news:
The Good News
* No Third Basis of Dilution. The law defines dilution by blurring and dilution by tarnishment and limits dilution claims to one of those. Some courts had suggested that there might be activities other than blurring and tarnishment that would constitute dilution. The statutory revisions eliminate the possibility of a third basis of dilution.
* No Niche Fame. The statute defines a famous mark as being "widely recognized by the general consuming public of the United States." This should eliminate niche fame, where a mark is famous only within a narrow subcommunity. Thus, many marks should not qualify for dilution protection.
* Fair Use Defenses. The fair use defenses were clarified a bit, including express protections for comparative advertising, parodies, criticism and comments. These aren't radically different from the past statute, though, and all of these behaviors could have been more clearly protected through a tighter definition of "use in commerce" (see below).
The Bad News
* Likelihood of Dilution standard. The "actual dilution" standard was a high bar for plaintiffs, so the Moseley case had the practical effect of stopping a lot of dilution claims in their tracks. From the perspective of academics who didn't think much of the theoretical underpinnings of dilution law, this was not a bad practical outcome from the case. The "likelihood of dilution" standard is a more relaxed standard, and it had supported a lot of questionable dilution outcomes pre-Moseley. The problem is that no one knows how to measure a "likelihood of dilution," so this standard allows for a lot of intuition-driven results that lack any empirical evidence and may be completely inconsistent with social science literature.
* Definitions of "Blurring" and "Tarnishment." No one exactly understood what behavior caused blurring or tarnishment before. Now, we have definitions, which is a positive development. Unfortunately, the definitions are sweepingly broad:
- Blurring = an association that impairs a mark's distinctiveness. The statute provides some unhelpful factors to evaluate this. However, I have no idea what this language means, and on the surface it appears to cover a lot of behavior.
- Tarnishment = an association that harms the mark's reputation. Once again, I have no idea what this means or how broadly courts will interpret it.
* Use in Commerce. The good news is that statutory revisions reduced the awkward "commercial use in commerce" requirement to just "use in commerce." The problem is that no one knows what "use in commerce" means. There's a raging debate over whether the phrase is Congress' nod to the Commerce Clause, which simply means that any behavior regulatable under the Commerce Clause is covered by the dilution act, or if it requires the behavior described in the definition for "use in commerce" in 15 USC 1127 (Lanham Act Sec. 45), which generally contemplates some display of the trademark on external packaging. The latter interpretation acts as a meaningful bar to dilution claims; the former interpretation exposes lots of non-commercial actors to coverage under the dilution act. Combined with the amorphous definitions of blurring and tarnishment, there is plenty of room for courts to nail socially beneficial speech under the dilution act.
* Damages. The act has modified the damages provision to apply if the defendant willfully trades on the mark's recognition or intends to harm the mark's reputation. I'm not sure how courts will evaluate willfulness here, and perhaps more importantly, I have no idea how courts will measure these damages. But we're dealing with famous marks that by definition should have significant economic value. Dilution arguably jeopardizes all of this value, so huge damage awards seem possible. This is particularly problematic for any non-commercial actors caught in the dilution cross-fire, who could face life-altering damage awards under the statute. However, I expect we'll also see some strategic litigation between competitors to try to game the possibility of enormous dilution damages.
Conclusion
On balance, the news is generally unfavorable for trademark dilution defendants. There was some narrowing of dilution law through the redefinition of famous marks, but this is substantially outweighed by the amorphous likelihood of dilution standard and the possibility of big damages. Ultimately, we'll have to wait to see how the courts interpret the statute before we know the full extent of the damage.
Posted by Eric at 02:25 PM | Trademark | Comments (6) | TrackBack
October 09, 2006
Must Websites Comply with the ADA (and State-Law Equivalents)? National Federation of the Blind v. Target
By Eric Goldman
National Federation of the Blind v. Target Corp., No. C 06-01801 (N.D. Cal. Sept. 6, 2006)
This case got a fair amount of attention when it first came out, so I'm a little late to this party. However, I think there were some key points from this case that got overlooked.
Must Websites Comply with the ADA?
To the limited extent addressed by the precedent, websites have not been obligated to comply with the ADA (or similar anti-discrimination laws). See, e.g., Access Now v. Southwest Airlines; Noah v. AOL. This is because the laws apply to physical spaces, not virtual spaces. This opinion breaks with the precedent by denying a motion to dismiss by target.com. Thus, this case could stand for the proposition that websites may be required to comply with the ADA.
However, I think this opinion is substantially narrower than that. The court says that target.com may be tightly integrated with Target's physical stores to the point where the inability to use the website may interfere with blind people's ability to fully enjoy the physical stores. (On that front, FN 4 is telling: "It appears from a review of the website in question—which the court notes is not in evidence but nonetheless does raise some questions—that Target treats Target.com as an extension of its stores, as part of its overall integrated merchandising efforts.")
Thus, this reasoning should only apply to "bricks 'n' clicks" retailers who have both physical and online stores and integrate the two. Thus, the reasoning does not apply to pure e-commerce retailers with no offline stores or to web publishers of any sort. It should also exclude retailers who completely separate their online and offline stores.
(Having said that, it's a no-brainer that businesses should try to accommodate blind visitors to their websites; not only are blind visitors a valuable market segment, but it's the right thing to do).
In any case, the court just refused a motion to dismiss. As a result, Target's ultimate liability remains to be determined. It may be noteworthy that the judge denied the motion for a preliminary injunction despite the favorable legal ruling to the plaintiff.
Must Websites Comply with State-Level ADA Equivalents?
I think the even more important ruling in this case relates to the dormant commerce clause (DCC). Based on the DCC, Target tried to dismiss claims under some California state laws that overlap the ADA. This is not a new issue on the Internet--there is a pretty good list of DCC cases, but with an odd split. In one line of cases, I believe every court that has opined on state anti-Internet porn laws have deemed them invalid under the DCC. In contrast, most other courts, especially those involving anti-spam laws, have upheld state Internet regulation from DCC challenges.
Here, Target argues that the CA ADA-equivalents will have an extraterritorial effect by forcing Target to change its website even for non-CA residents. Judge Patel breezily dismissed this argument, saying that Target should just build a CA-specific website to comply with CA law. She continued:
Pataki asserts that someone who puts content on the internet has “no way to determine the characteristics of their audience . . . [such as] age and geographical location.” Pataki, 969 F. Supp. at 167. This is simply incorrect. It is common practice for websites for entities operating in multiple countries to have a single site that directs customers to different versions based upon language. Websites can determine the location of a user from information they provide, such as a credit card number, or from the internet service provider an individual uses. It may, or may not, be prohibitively expensive for a website to tailor its content based on the location of its users, but it is certainly technically feasible.
It's true that this is technically feasible, but that's hardly insightful. Other than outcomes that break the laws of physics, anything is possible with the proper application of time and money. But this argument misses two critical points.
First, applying CA law here to require Target to display an interstitial page to request geographic information from web visitors may regulate the interaction between two entities not resident in CA. (This is harder to see when Target chooses to do business generally in CA, but consider this argument in the context of the Alaska anti-adware law where I believe no adware vendor is resident in Alaska but they still must ask non-Alaskan residents for geographic information due to the Alaska law.) This is exactly the kind of extraterritorial effect that the DCC should preclude. This is also a place where the Internet is just different from offline circumstances because of an implicit tautology: the laws require websites to authenticate visitors to determine if these visitors trigger the website's requirement to comply with the law--thus, the laws required the websites to take certain steps even in the circumstances where the laws don't apply because the interaction is between two non-residents. (Which is almost certainly true in 99%+ of adware downloads putatively governed by "ask geography before downloading" requirement of the Alaska anti-adware law).
Second, and more importantly, this would be a terrible policy result. It's hard to imagine the counterfactual Internet where every website visitor is bombarded by interstitials or pop-ups from every website requesting geographic information before they can proceed to see the website's contents. This would be a horrible user experience that would inhibit the seamless floating from website to website that characterizes the web's link economy. We just won't go across websites as freely as we do today. Also, some users would be uncomfortable with providing geographic information to the website. (Some users provide this geographic information unwittingly through their IP addresses, but many do not).
The battle over geographic authentication rages on, and this case's pithy analysis doesn't do much to advance our understanding. Nevertheless, it gives us another important data point that our days of being able to browse the web without constant self-reporting of geography may be numbered. Personally, if that comes to pass, I'll miss the Internet the way it is today.
Posted by Eric at 02:50 PM | Adware/Spyware , Content Regulation , E-Commerce , Spam | TrackBack
October 07, 2006
Online Word of Mouth Presentation
By Eric Goldman
Today I was in Pittsburgh presenting a work-in-progress talk called "Online Word of Mouth and Its Implications for Trademark Law." My slides. Frank Pasquale's and Rebecca Tushnet's comments on the presentation.
Posted by Eric at 08:27 PM | Trademark | TrackBack
October 03, 2006
Yahoo and Google Home Pages
By Eric Goldman
Fascinating contraposition of stories on the Google and Yahoo home pages run by the Washington Post and BusinessWeek, respectively.
From BusinessWeek: Yahoo makes its home page decisions strictly by following user clicks. They capture user clickstreams across their site--a total of 10 terabytes of data every day (the same amount of data as the entire Library of Congress). Yahoo learned to focus on clicks rather than simply focus groups after there was a divergence in what users said and what they did. For example, users said they wanted hard news on the home page and not gossip on Britney Spears--but guess where all the traffic went? The solution: give users the hard news as a comfort factor, but don't expect anyone to click on it.
As an aside, I personally hate Yahoo's home page. It is just too cluttered and confusing for me, so I stay away from it as much as possible. On the rare occasions that I end up there, I do a control-F search of the page to find the right link rather than playing the Hocus Focus game of trying to find the link amidst the clutter. Of course, if I don't know what Yahoo calls a particular link, then I'm SOL.
Now, for a different perspective, the Washington Post' on Google's home page: Google's home page goal is to keep it clean. Google even tracks the number of words on the home page--it once was as high as the mid-50s; yesterday it was 33. So every word needs to count. Despite this, Google retains the "I'm feeling lucky" button, even though it gets <1% of clicks, because it imparts a sense of whimsy. (I'm so conditioned to hitting return for a search that I almost never use the I'm Feeling Lucky button even when it would save me a click; plus, a lot of my searches are now done through the Google toolbar).
Like Yahoo, Google is data-driven about its home page--up to 10 different versions of its pages are being tested at any time. However, placement is not strictly driven by user clicks. To be considered for a home page link, a Google service needs 10M+ users a day and at least 50% of Google users to cycle through it in a week. Any home page changes are vetted by Marissa Mayer, who then seeks approval from Schmidt, Brin and Page. Google is planning a major redesign of its home page, but it will still limit words to about 50.
I think the differing philosophies about the home page reflect some essential differences about the DNA of the respective companies. Yahoo wants to be all things to all people, and this shows in its stuffed-to-the-rafters home page. Google prides itself on technological elegance, which shows in its minimalist home page.
Posted by Eric at 04:11 PM | Search Engines | TrackBack
October 01, 2006
Sept. 2006 Quick Links
By Eric Goldman
Some stories that caught my eye in September:
* Digg users are gaming the Digg algorithm. Greg Linden's take. Naturally, Digg is fighting back by tweaking its algorithm to reduce the effect of gaming and preserve some editorial integrity to its results. Hmm...this sounds familiar. As I've argued, users inevitably will game algorithms, websites will tweak the algorithms, and the cycle will repeat infinitely. It is the Law of Algorithms. For a user revolt/algorithmic assault that I "enjoyed" first hand, see here.
* Rebecca blogs on "mocketing," the process where brand owners pay people to parody their brands, and its potential implications for trademark law.
* Starbucks emails employees a coupon for a free drink and encourages them to forward the email coupons on to friends and family. A few trillion emails later, Starbucks realizes that it made a horrible mistake and dishonors the coupons. Now, they're staring down a $114M class action lawsuit. See the coupon and more details here. Practice pointer for marketers: NEVER EVER encourage email recipients to forward the emails on to friends and families, especially if some benefit putatively will attach. It's a sure-fire way to become an instant urban legend, and some variation of these emails will still be making the forwarding rounds in the year 2525. Tsan offers some more practice pointers.
* BusinessWeek recaps the social science literature on how eBay sellers can maximize revenues. Recommendations based on the literature: set low starting prices; don't use reserves; use photos; don't flood the market; spell check; use hype; hold longer auctions; watch the auction's ending time; don't overcharge for shipping; and avoid negative feedback.
* About 1 of every 2 searches involves "pogo-sticking" (reviewing a search results page, investigating a search result and back-buttoning to the search results page). Yet more social science demonstrating the junkiness of the initial interest confusion doctrine--consumers have figured out how to investigate search results and back out if they are not relevant.
* In a default judgment, an Illinois judge ordered UK-based Spamhaus, one of the email blocklist maintainers, to pay e360 Insight LLC $11.7M in damages for blocklisting them and to post a note acknowledging that they aren't spammers. However, it remains unclear how e360 can enforce this ruling.
* Google lost a Google News copyright case in Belgium. For a critical view of this case, see Ross Dunn's take. Google's official statement.
* Lengthy NYT article on Marshall, TX, with the second-largest patent docket in the country. Why? Fast trials, plaintiff-favorable results (78% pro-plaintiff instead of a national average of 59%), and Texas-sized damages. More on Marshall as patent litigation capital available here.
* AOL has been sued for its release of search data. Danny's take. Two things: (1) I can't see the ECPA claim at all. A search request is a communication between party A (searcher) and party B (search engine). There's no ECPA violation when either A or B discloses the contents of that communication. However, I think search engines make their life harder when they take the position that they make the factually unsupportable argument that they are just passive conduits between searchers and web publishers (see Field v. Google). (2) the complaint takes the position that AOL is continuing to disseminate the search data because it continues to display search results linking to the data. I think this argument has lost all credibility in the copyright arena; it seems equally bogus here.
* A three year old kid knows how to "buy it now."
* NYT on "orphan brands"/"dormant brands" and efforts to license and revive these brands.
* The US officially joined the Council of Europe (COE) Convention on Cybercrime. It becomes effective Jan. 1, 2007.
* My colleague Tyler Ochoa explains the fallacies of Huntington Beach's trademark claims for the phrase "Surf City USA."
Posted by Eric at 11:07 AM | E-Commerce , Marketing , Patents , Privacy/Security , Search Engines , Spam , Trademark | TrackBack