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July 31, 2009

Google Not Liable for False Ads--Goddard v. Google

By Eric Goldman

Goddard v. Google, Inc., 5:08-cv-02738-JF (N.D. Cal. July 30, 2009)

I previously blogged on this case in December 2008. The case involves AdWords advertisements for allegedly fraudulent mobile subscription services. In an underappreciated opinion, Judge Fogel wrote the smartest 47 USC 230 opinion of 2008 dismissing the case with leave to amend. In that ruling, he said that plaintiffs could state a valid claim if "Plaintiff could establish Google's involvement in 'creating or developing' the AdWords, either 'in whole or in part.'"

It was pretty clear then that further efforts would be a waste of time. I wrote "the writing is on the wall for this lawsuit. The plaintiff can't win, and it would be a mistake for the plaintiff to refile." But hope springs eternal among many plaintiff's lawyers, so naturally they tried anyway. Not surprisingly, their second attempt was futile, and Judge Fogel shuts the door by dismissing without leave to amend this time. Among other things, he is sensitive to the costs of fruitless litigation undercutting 230’s policy objectives. He writes "this Court’s conclusion that Plaintiff almost certainly will be unable to state a claim compels the additional conclusion that Google must be extricated from this lawsuit now lest the CDA’s ‘robust’ protections be eroded by further litigation." I hope other judges will embrace early ends to 230 cases for the same reason.

The Roommates.com Attack

To plead around 230, the plaintiffs allege that Google's keyword suggestion tool encourages advertisers to buy "free ringtone" as a keyword when advertisers are buying "ringtone." The plaintiffs then argue that Google should know that "free ringtone" is frequently used by shady players, and therefore suggesting the term to other advertisers kicks Google out of 230. This weak argument makes numerous unsupported inferences, and Judge Fogel easily rejects it. He says:

a plaintiff may not establish developer liability merely by alleging that the operator of a website should have known that the availability of certain tools might facilitate the posting of improper content. Substantially greater involvement is required, such as the situation in which the website “elicits the allegedly illegal content and makes aggressive use of it in conducting its business.” [cite to Roommates.com]

I'm not exactly sure what it means to make aggressive use of content, but I'm glad to see the Google's keyword suggestion tool isn't that.

The Barnes Attack

The plaintiffs also attack 230 using the promissory estoppel discussion from Barnes v. Yahoo. The basic argument is a familiar one in 230 jurisprudence. The plaintiffs allege that Google's AdWords contract had negative covenants restricting the advertisers' behavior, and this language in the Google-advertiser contract acted as a promise to consumers that the restricted advertiser behavior would not occur on Google's network. I have repeatedly criticized the illogic of these arguments, and fortunately it doesn't fly here. Judge Fogel guts it when he points out that "there is no allegation that Google ever promised Plaintiff or anyone else, in any form or manner, that it would enforce its Content Policy."

I'm sure we'll see many plaintiffs make this same bogus argument in future cases, and I hope other judges reach the same conclusion. At the same time, I think websites should prune their ever-expanding lists of negative behavioral covenants in their contracts to curb plaintiffs’ misdirected arguments and to avoid unintentionally criminalizing users (see the Lori Drew conviction).

Dismissal on 12(b)(6) Motion

A major gripe about the initial Ninth Circuit Barnes opinion was its loosely worded and poorly researched conclusion that 47 USC 230 was an affirmative defense that could not support a 12(b)(6) motion to dismiss. The plaintiffs argue that Judge Fogel shouldn’t dismiss the case now for that reason, even though the Ninth Circuit withdrew that portion of the opinion. Judge Fogel cites to several cases allowing a 47 USC 230 defense on a 12(b)(6) motion to dismiss before doing the same himself.

Posted by Eric at 10:59 AM | Derivative Liability , Marketing , Search Engines | TrackBack

July 30, 2009

Google Down to 7 AdWords Lawsuits--Ascentive v. Google Voluntarily Dismissed

By Eric Goldman

Ascentive v. Google, Inc., 2:09-cv-02871 (E.D. Pa. voluntary dismissal July 30, 2009)

The litigation count on Google's keyword ad lawsuits has started trending downward. For the second time in a week, a plaintiff has voluntarily dismissed its trademark lawsuit over Google AdWords. Last week Jurin dismissed his lawsuit voluntarily because he had a falling out with his attorney. Today Ascentive voluntarily dismissed its lawsuit, although I don't know why. (As usual, the filing is silent). You may recall that Ascentive's lawsuits raised some interesting issues about organic search in addition to the AdWords issues; apparently those will have to wait.

Ascentive's dismissal leaves 7 pending cases against Google over AdWords:

* Ezzo v. Google
* Rescuecom v. Google
* FPX v. Google
* John Beck Amazing Profits v. Google
* Stratton Faxon v. Google (not initially a trademark case)
* Soaring Helmet v. Bill Me
* Ascentive v. Google
* Jurin v. Google
* Rosetta Stone v. Google

Posted by Eric at 02:07 PM | Derivative Liability , Search Engines , Trademark | TrackBack

July 29, 2009

Microsoft-Yahoo Alliance Comments

By Eric Goldman

Some comments on the proposed search alliance between Microsoft and Yahoo:

* I remember a time, long ago back in the mid-1990s, when Yahoo was the unquestioned leader in search.

* The beginning of the end is when Yahoo outsourced search to Google almost a decade ago (check out the old 2000 press release). We all know how that turned out. Yahoo lost control over one of its core assets, and Google proved to Yahoo's customers that Google could do a much better job.

* Yahoo is now in its weakened position in the search industry due to this choice from a decade ago. Google has been and will continue to be a formidable competitor, but Yahoo's current search problems are partially its own making.

* Outsourcing its search operations to Microsoft can't possibly work out better for Yahoo than the initial Google outsourcing. I can't conceive of a circumstance where Yahoo will exit the Microsoft deal stronger than it enters it. Obviously Yahoo sees value in being a mass-market media company, but without any proprietary differentiation in search, I wonder how successful that will be. To me, it looks like Yahoo has conceded one of its core assets to others.

* As a result, I assume that Yahoo necessarily is going to exit the search business one way or another. It will exit by outsourcing its search operations to someone else, or it will continue its ongoing slide to irrelevancy. Either way, it is not a viable long-term competitor against Google.

* Yahoo was unbelievably crazy for passing on Microsoft's acquisition proposal from a year-and-a-half ago. It looked like a foolish mistake at the time, and hindsight has definitely not improved that assessment! Danny Sullivan points out how badly Yahoo's assets have depreciated in value, saying "Microsoft is getting a huge bargain courtesy of the US Department Of Justice."

* Assuming that Yahoo is going to exit the search business one way or another, the DOJ has the following options:

- it could let Yahoo hand off the search reins to Google. The DOJ has already voted no on that option
- it could let Yahoo hand off the search reins to Microsoft. This makes Microsoft a much more potent competitor to Google
- it could veto the Microsoft-Yahoo deal and let the Google juggernaut continue to flatten a limp competitor

From a pro-competition standpoint, it seems fairly clear that option #2 is better than the first and the third options. So if the DOJ thinks it can help the search marketplace, then it should approve the deal as fast as possible.

* Despite this, I bet Googlers are wearing a big smile today. Grabbing the business from Yahoo would have been a more definitive win for Google, but this deal should be good news for Google for two reasons. First, it should provide ample fodder for Google to argue to the DOJ to call off the dogs and stop hassling it; after all, the combined Yahoo-Microsoft efforts will have significant marketplace presence of its own, and Microsoft is a well-funded and aggressive competitor. Second, Google should be licking its chops at the prospect of tangling with the alliance in search. I expect Google can steamroller even the combined operations, so getting some breathing room on the antitrust side while still continuing to roll up the competition would be very helpful for Google.

* I could see the DOJ slightly hesitating about the deal solely because the Google alternative will be...Microsoft. I'm sure the DOJ would much prefer a marketplace competitor to Google who didn't have so much antitrust baggage of its own!

* Although I think Google oversimplifies things by arguing that its competition is always a click away, I do think that the competition to Google isn't just Microsoft even if the alliance is completed. It's hard to know exactly who will provide a bona fide competitive offering to Google, but it could come from anywhere. For example, Twitter's real time search has lots of advantages over Google's real-time search (and will improve if Twitter can ever figure out its search algorithms). The search market is simply too big to ignore, and consumers will find and embrace solutions that offer real value.

UPDATE: Lots of folks are writing on this topic today. I liked Jason Calacanis' title: "Yahoo committed seppuku today."

Posted by Eric at 11:02 AM | Search Engines | TrackBack

July 28, 2009

Biosafe-One v. Hawks Dismissed

By Eric Goldman

Biosafe-One, Inc. v. Hawks, 2009 WL 2170150 (S.D.N.Y. July 25, 2009)

I previously blogged about this case in 2007. The parties are competitors in the septic system cleaning products business. The plaintiff alleged that the defendant ripped off its business concept through improper means. As part of the effort to shut down its competitor, the plaintiff sent 512(c)(3) notices to defendant's host to get the defendant's website offline. In the previous ruling, the court enjoined the plaintiff from issuing more 512(c)(3) notices during the litigation pendency--an extraordinary remedy I haven't seen before or since.

The court finally resolves the "merits" of the parties' cross-litigation in this ruling. I put "merits" in quotes because clearly Judge Chin wasn't impressed with the plaintiff's driftnet complaint. As he says in a footnote politely communicating his irritation, "Attorneys representing plaintiffs should realize that the pleading of numerous causes of action--here, twenty-five--is not a sign of strength. To the contrary, a kitchen-sink approach is often a sign of weakness, an admission that no claim has merit." Ouch!

The opinion would be more interesting if the judge wasn't so clearly trying to clean his docket quickly. The most interesting piece is the dismissal of the defendant's 512(f) counterclaim because the defendant didn't introduce evidence that plaintiff was aware of the non-infringing status of defendant's website. Still, anticipating some potential abuse by the plaintiff, the court says in a footnote: "I note that plaintiffs would have no good faith basis to file a new DMCA notice, as all of their claims have been dismissed. The Court will retain jurisdiction over this case, however, and in the event plaintiffs do file a new DMCA notice, defendants may turn to this Court for relief." Glad to see the judge is keeping an eye out for future tomfoolery.

Posted by Eric at 09:37 PM | Copyright | TrackBack

July 27, 2009

Griping Blogger Gets Fair Use and Anti-SLAPP Win--Sedgwick v. Delsman

By Eric Goldman

Sedgwick Claims Management Services, Inc. v. Delsman, 2009 WL 2157573 (N.D. Cal. July 17, 2009). The Justia page.

Delsman had a big issue with Sedgwick. The details of his gripes aren't all that important. To make his point, Delsman set up several griping blogs (e.g., 1, 2) and mailed out postcards styled as "WANTED" posters featuring photos of two Sedgwick executives. Delsman cut-and-paste those photos from the Internet. Sedgwick called out the big litigation guns to smush Delsman, who defended himself pro se. Fortunately, Delsman drew a sympathetic judge (Judge Brown) who clearly wasn't interested in wasting time on Sedgwick's overreaction to a small-time griper. Thus, she liberally construed Delsman's imprecise filings to dismiss the case early.

Judge Brown concluded that the republication of the photos on the "WANTED" postcards was fair use. She summarized her analysis:

Defendant's uses of the photographs of North and Posey are highly transformative and serve an entirely different function than originally intended. It was reasonable for Defendant to use the entire photograph in order to evoke the image of a "WANTED" poster. His use could not have had impacted the market for the photographs because no such market is alleged to have existed. But even if it did, Defendant's use was sufficiently transformative that it could not be deemed to be a substitute for the original. Allowing Defendant to use the photographs in the context of publicly criticizing and warning the public regarding Sedgwick's business practices is precisely the type of activity the fair use doctrine is intended to protect.

As Eugene Volokh says, the "fair use analysis strikes me as quite right."

Judge Brown then tossed the rest of the claims on anti-SLAPP grounds. This isn't the first time a blogger has won an anti-SLAPP motion (see, e.g., GTX v. Left), but it's still nice to see.

Posted by Eric at 05:45 PM | Content Regulation , Copyright | TrackBack

July 23, 2009

Google Down to 8 AdWords Lawsuits--Jurin v. Google Voluntarily Dismissed

By Eric Goldman

Jurin v. Google, Inc., 2:09-cv-03934-GHK-E (C.D. Cal. voluntarily dismissed July 23, 2009)

Google's AdWords litigation docket has reversed direction, at least temporarily, as Jurin has voluntarily dismissed his lawsuit against Google. This dismissal came shortly after Jurin had a falling-out with his attorneys, which prompted his attorneys to ask to withdraw from the case. The voluntary dismissal means that Jurin is free to pursue his case elsewhere if he chooses, but I am fairly confident that this case won't be coming back.

Jurin's dismissal leaves 8 pending AdWords lawsuits against Google:

* Ezzo v. Google
* Rescuecom v. Google
* FPX v. Google
* John Beck Amazing Profits v. Google
* Stratton Faxon v. Google (not initially a trademark case)
* Soaring Helmet v. Bill Me
* Ascentive v. Google
* Jurin v. Google
* Rosetta Stone v. Google

Posted by Eric at 07:47 PM | Derivative Liability , Search Engines , Trademark | TrackBack

July 22, 2009

AP Gets It Right and Then Overreaches--AP v. AHN

Faced with an allegedly cut-and-dried case of someone systematically copying and reusing its news articles, the Associated Press brought what should have been an easy copyright suit. Unfortunately, it also tried to lever these sympathetic facts to stretch the scope of the DMCA's CMI-stripping provisions and revive the dead dog legal doctrine of 'hot news misappropriation.'

By Ethan Ackerman

The Associated Press generates a very large number of copyrighted works. This means it is often involved in legal tussles surrounding copyright law. Last year my post on this blog covered an incident where the AP took a very debatable stance over whether news headlines were copyrightable, and many other blogs have covered a more recent case where the AP has asserted copyright infringement over a news photo it may not even own the copyright to. So when the AP filed suit against competitor All Headline News, it was refreshing to see the AP asserting plausible copyright infringement claims.

Unfortunately, the AP levered the facts of this case to breath some life into the moribund 'hot news misappropriation' doctrine, and even secured an unfortunate opinion on one of the rarer provisions of the DMCA - section 1202's copyright management information provision. In February of this year, in the Southern District of New York, Federal District Court Judge Castel denied AHN's motions to dismiss on these two claims, and granted dismissal on some related trademark-stripping claims. Eric Goldman's earlier post on the opinion covered all these legal issues in thorough detail. Denying AHN's motion to dismiss doesn't carry the same weight as a final opinion endorsing the AP's legal theories, but it was a court ruling nonetheless, and a clear win for the AP.

Now, AHN has sensibly settled. (For a bit of journalistic humor, read AHN's own, slimmer coverage of the settlement here.)

The settlement is notable for two things: money changed hands and AHN is subject to an injunction. As far as the settlement's impacts on the validity of AP's legal theories, well... settlements don't validate legal theories, court opinions do. That said, part of the settlement required AHN to pseudo-admit the viability of the hot news misappropriation doctrine.

The excellent bloggers at the Citizen Media Law Project have gone over the narrowness of the 'hot news misappropriation' doctrine before, and the Copyright Litigation Blog also takes some time focusing on choice of law issues, important since the doctrine's viability is strongest in the 2nd Circuit. In this post however, I wanted to highlight an under-discussed issue - 17 USC 1202. 1202 is the provision of the DMCA prohibiting removal or modification of Copyright Management Information, or CMI.

At issue is the scope of section 1202's prohibition on removing CMI. Does 1202 apply only to digital or metadata-like CMI, or does it extend to analog information on tangible goods like newspaper bylines, book flyleaves and painting signatures as well? When section 1202 was enacted, as part of the Digital Millenium Copyright Act, clearly the former were contemplated, but the plain words of the statute could include the latter as well. David Johnson artfully details the split in cases that have developed over the scope, so I'll just point to his post. Interestingly enough, David's post suggests that the AP earlier found itself on the other end of byline-stripping accusations, and was presumably arguing for a narrower reading of section 1202. Eric Goldman's earlier comments on the 1202 issue pointed out a potential copyright/TM catch-22 as well.

Finally, Fred von Lohmann at the EFF has an excellent post on a strategic reason why 1202 claims are often made - potentially big statutory damages, much larger than infringement damages, may incent settlement. Fred also spends some time on the weaknesses in expanding 1202 beyond digital CMI to tangible examples.

Posted by Ethan Ackerman at 09:44 AM | Copyright | TrackBack

July 21, 2009

Ripoff Report Hires New General Counsel

By Eric Goldman

I don't normally blog on personnel matters, but news about the Ripoff Report is a perennial favorite of blog readers. So I'm sharing the news that David S. Gingras has taken the mantle as the General Counsel at Ripoff Report. His law firm bio page and his LinkedIn page. Before David, the Ripoff Report's General Counsel was Thomas Duffy.

My impression is that, pound-for-pound, the Ripoff Report is probably involved in more litigation (mostly defense, but occasionally on offense (e.g., 1, 2)) than any other organization I track. Therefore, having David in-house should be very helpful to the organization. Fortunately, David is already very familiar with the Ripoff Report, as he previously worked at Jaburg & Wilk, an Arizona boutique law firm that handles a lot of Ripoff Report litigation, including several that David was personally involved with.

Coincidentally, I just blogged about joining a technology organization as its new General Counsel. Congratulations on the new gig, David, and best of luck!

Posted by Eric at 11:05 AM | Derivative Liability | TrackBack

July 20, 2009

47 USC 230(c)(2) Talk Slides Draft--COMMENTS REQUESTED

By Eric Goldman

Later this week I'm giving a brand new talk on 47 USC 230(c)(2), the overlooked sibling of 47 USC 230(c)(1). With the help of a research assistant, we tried to identify and review every case referencing 47 USC 230(c)(2). I was surprised at how many cases cited 230(c)(2) (>30) and how few of them (<12) involved an actual holding turning on 230(c)(2) instead of discussing the provision in dicta or just citing it. I was also surprised at how little interpretative material discusses 230(c)(2) in any cogent way. The legislative history is useless, and the provision appears to have been virtually ignored in the law review literature--which itself is fascinating because 230(c)(2) is a really interesting and provocative doctrinal solution that warrants, at minimum, an appropriate theoretical justification (if one is possible). My talk is surely not the first to explore 230(c)(2) in a systematic way, but my research assistant and I really didn't find much to guide us.

That's where you come in. I've posted my draft slides. I would be very grateful if you could take a look and let me know what you think about my taxonomy of 230(c)(2) cases (and if you think I missed any cases) and my list of Constitutional and statutory substitutes. Also, if you are aware of any law review articles or other secondary materials that specifically discusses 230(c)(2) (and not just 230(c)(1) or 230 generally), I would appreciate the citation. For that matter, I would gratefully welcome all comments on the slides!

If I make any changes to my slides before I give the talk, I'll repost the "final" version of the slides by early next week to the same URL and announce the new version via Twitter.

Posted by Eric at 06:06 PM | Content Regulation , Derivative Liability | TrackBack

July 15, 2009

Lifestyle Lift Settles NYAG Claim Over Fake Consumer Reviews

By Eric Goldman

Lifestyle Lift has settled a claim from the New York Attorney General's office over its employees posting fake consumer reviews to the web. According to the NYAG press release, Lifestyle Lift will stop posting anonymous positive product reviews and pay $300k plus costs.

This is not the first time I've blogged about Lifestyle Lift. In early 2008, I blogged about a cross-suit between Lifestyle Lift and my client RealSelf.com, which allows consumers to share their perspectives about cosmetic treatments. Lifestyle Lift was getting hammered on RealSelf, so it sued RealSelf for trademark infringement for allowing consumers to discuss the company. Not only was this lawsuit a bald attempt to use trademark law to stifle unwanted critical commentary about the company, but RealSelf hit back with a counterclaim that Lifestyle Lift was illegally posting fake reviews on RealSelf. The parties ultimately settled, which ended RealSelf's efforts to demonstrate Lifestyle Lift's bad behavior.

Fortunately, the NYAG saw RealSelf’s concerns to a conclusion, and I'm glad the NYAG did so. Fake consumer reviews are a real issue on the Internet. They generally come in three flavors: (1) a company posting favorable reviews of itself, (2) a company posting negative reviews of its competitors, or (3) a griping consumer who goes rogue. Each of these types has the potential to distort consumer decision-making. Competitive fake consumer reviews also can create wasteful arms races involving the review website and competitors trying to stomping out the bad behavior. In some cases, competitors are drawn into the morass, feeling like they have to emulate their competition to keep the playing field level.

While the NYAG got a good settlement, it's not clear exactly what legal rules govern fake consumer reviews today. The NYAG press release doesn't mention the NYAG's legal theory, and in general there is no single law that clearly prohibits fake reviews. In that sense, there is a fairly obvious implicit gap in legal doctrines that makes it hard to crack down on fake reviews.

Even so, I am not convinced that regulation is a preferred option to combat fake consumer reviews. Ultimately, I believe the burden should largely rest on review websites to provide a forum that is sufficiently game-resistant that consumers can trust the information on the website. I can't say Epinions was perfect on this score, but we had a number of techniques that I thought discouraged fake reviews more effectively than many other websites. Review websites that can effectively suppress fake reviews should earn consumers' trust, which should deliver a premium economic payoff. So there are strong marketplace mechanisms to encourage review websites to fight fake reviews.

This mechanism doesn’t work as well when fake consumer reviews are published in less mediated fora, such as standalone marketer-created websites that consumers find through search engines. Lifestyle Lift used this technique as well (the NYAG posted some examples; another example). These situations are potentially more pernicious because (1) there is no intermediary website who is concerned about managing its own reputation, and (2) searchers tend to trust highly ranking sites in Google search results on that basis alone. (If the site isn't highly ranking, then the odds that it will influence consumer decision-making go way down). Anti-fake review enforcement efforts can have some value to improving information credibility in our society, but they can only do so much. Too many publication venues, not enough enforcement capacity. As a result, the odds are way too stacked in the gamer's favor.

In my opinion, the only real "solution" to fake consumer reviews is to teach consumers proper techniques for searching for information and evaluating the credibility of the information they consume. This is one of those crucial life-coping skills that everyone needs to learn at an early age, right up there with the three Rs and how to manage money. Education is the only scalable answer to the problems of information credibility in our complex information society.

This settlement is a small part of ongoing marketing law battles over testimonials, editorial content v. advertising and the degree of required transparency about an author's biases and financial interests. We know that marketers play games in this area and that consumers can be misled by non-credible information (I'm reminded of my recent post on the efficacy of testimonials). So consumers may need some protection. But we can also make some serious regulatory missteps here. The editorial/advertising distinction is incoherent, it's not clear if consumers want or benefit from additional transparency, no one has figured out how additional transparency viably can be provided in restrictive interfaces like Twitter or search engine text ads, and any efforts to suppress anonymous reviews could have serious collateral consequences. So while it's good to see Lifestyle Lift get smacked down, I remain a little nervous where some of the other regulatory efforts may take us.

More on this story:
* Kate Kaye at ClickZ looks at the current and possibly inadequate disclosures at some Lifestyle Lift-operated standalone sites
* Paul Levy

Posted by Eric at 04:31 PM | Marketing | TrackBack

July 14, 2009

Republishing Third Party Ratings in Marketing Material Might Be Copyright/Trademark Infringement--Health Grades v. Robert Wood Johnson Univ. Hospital

By Eric Goldman

Health Grades, Inc. v. Robert Wood Johnson University Hospital, Inc., 06-CV-02351-JLK (D. Colo. June 19, 2009)

A Colorado judge has reached the remarkable conclusion that a hospital publicizing its star ratings and other recognition from a third party rating service in its marketing material might be committing copyright and trademark infringement. This is a little like saying that it could be copyright and trademark infringement for a law school to include its US News rankings in its marketing material or for a book publisher to issue a press release announcing its ranking on the New York Times bestseller list. CRAZY.

Although I suspect there are messier facts than were described in the opinion, the situation as described in the ruling is pretty straightforward. Health Grades [great TM, guys] publishes "objective" ratings of hospitals, doctors and other healthcare providers, including 1-3-5 star ratings and "provider awards." The ratings are published on Health Grades' website behind a clickthrough agreement. Health Grades earns revenues by licensing the ratings and awards to evaluated providers for their promotional use. This business model is rarely a recipe for credible ratings. RWJ University Hospital apparently liked its Health Grades' ratings and awards so much that it republished them in press releases and on its website without paying a licensing fee to Health Grades. Health Grades sued, and this ruling is a response to the hospital’s motion to dismiss.

(Note: In PACER, I saw Health Grades was a plaintiff in at least 5 other pending or closed lawsuits in Colorado federal court since 2004. I didn’t investigate these to see if they were IP enforcement claims like this lawsuit or something else altogether, but Health Grades is a more active plaintiff than I would have anticipated for a company I had never heard of).

Copyright

Let me start with a basic proposition. A single numerical value can never be copyrighted. Ever. I don't care what formula produced the value; I don't care how many digits the number has; I don't care what explanatory text is used to describe the value. I know cases occasionally have reached the absurd result that individual numerical values can be copyrighted, including one of my least favorite copyright cases of all time, the CDN v. Kapes Ninth Circuit case. They are wrong wrong WRONG.

Courts can reach this erroneous conclusion by treating a numerical output as a "compilation" of underlying data values. If you squint, you can almost see how this makes sense. The publisher chooses the underlying values to include, uses editorial judgment to build the algorithm crunching those values, and sometimes layers subjective judgments on top of the algorithm's output. However attractive this logic is, I think fundamentally misreads the copyright statute’s definition of "compile." Under the copyright act, a compilation must represent a "collection and assembling of preexisting materials or of data that are selected, coordinated, or arranged." When a single number distills but obscures the underlying numerical values, the single number cannot reflect a selection, coordination or arrangement of the underlying numbers. Thus, according to my argument, numerical values cannot be compiled unless the reader can see those underlying values directly.

In this case, the judge gets led astray by contemplating the idea/expression dichotomy as a spectrum with "discoveries" on one end and "expression" on the other. Because the ratings aren't discoveries, the court concludes they should qualify as expression. But the court’s dichotomy is fatally incomplete. Instead, the inquiry is whether a single numerical value can represent an original work of authorship because it expresses an idea. A single numerical value cannot express an idea any more than a single word ever could.

Even if one reaches the incredible conclusion that a single numerical value is an original work of authorship, then surely it is preempted from copyright coverage by the merger doctrine, which says that if there are a limited number of ways to express a fact or idea, then the idea and expression merge into a single uncopyrightable whole. It seems like the star ratings in a 1-3-5 star rating system would, by definition, be subject to merger. Sorry to state the obvious, but how many ways are there to express that someone is rated one star??? Nevertheless, this court distorts the merger doctrine by saying the idea being expressed here is the rankings of healthcare providers. This is too high a level of conceptual generality. If every judge used this level of abstraction, the merger doctrine always would be a null set.

The court doesn't rule on the fair use defense at this early stage of the lawsuit (this opinion just addresses the hospital's motion to dismiss), but any guess where this judge is going to come out on fair use?

Trademark

Having butchered copyright law, the judge then makes a mess of trademark law as well. The ratings provider claimed that referencing its name as the source of the ratings in the marketing material constitutes a trademark infringement. Again, the analogy is that saying "US News" when publicizing a US News rankings constitutes an infringement of US News' trademark.

There are many reasons why this argument should be clearly wrong, but on the motion to dismiss, the hospital emphasized the nominative use defense. That seems like as good a ground as any for the court to kick out the trademark claim. For example, in the Terri Welles case from 2002, the Ninth Circuit said that nominative use permitted Terri Welles to publicize that she was "Playboy Playmate of the Year 1981" when, in fact, Playboy had bestowed that title upon her.

Unfortunately for the hospital, it drew a judge who apparently HATES the Ninth Circuit's articulation of the nominative use defense. The court says that the "nominative fair use doctrine as stated and applied by the Ninth Circuit is…at odds with recent Supreme Court precedent" and that the "Ninth Circuit's 'nominative fair use' analysis has not been widely adopted. In fact, all of the circuit courts that have considered it to date have either rejected the Ninth Circuit's approach outright [cite to the 6th Circuit PACCAR decision]...or modified it in some fashion to allow likelihood of confusion to be determined based largely on the traditional multi-factor analysis of this element." Just to clarify the latter point, the nominative use defense doesn't really do anything useful if defendants already can show a lack of consumer confusion, nor does looping the nominative use defense back into the standard likelihood-of-consumer-confusion test help judges end unmeritorious cases quickly. But that's exactly what the court does here, reserving the nominative use inquiry as a question of fact to be evaluated in conjunction with the multi-factor test. As a small bone to the defendant, the judge says that the defendant has the burden to show likelihood of consumer confusion, which in turns means that the plaintiffs implicitly must overcome a nominative use claim.

However, I wouldn't be too excited about that the forthcoming review if I were the hospital. The court goes on to say "the very nature of Health Grades' product, its rankings of healthcare providers, carries with it at least the possibility that consumers will consider RWJ's use of the Health Grades' marks to communicate Health Grades' ratings and awards for RWJ an implied endorsement by Health Grades of RWJ and the services it provides." Well, yes. By definition every "objective" rating of third party goods and services communicate the rater's assessment of quality—that’s the whole point. But to assume an "endorsement" seems like a wholly different matter. That's kind of like saying that US News "endorses" law schools by ranking them. Thus, the judge made a major cognitive leap by equating a quantitative assessment with an endorsement, and this subtle shift seems to extend trademark law into places it should not go.

One more point. Some trademark wonks believe that we can rely on doctrines like nominative use to do a lot of the heavy doctrinal lifting of segregating meritorious from unmeritorious cases. To those folks, I say—read this opinion! After you see how this court mangles the nominative use doctrine to effectively eliminate it, let me know if you still think the nominative use doctrine is a reliable safety valve for socially beneficial speech.

Breach of Contract

After having laid waste to big chunks of copyright and trademark law, the judge still had one more doctrinal surprise up his sleeve. The court says that the rating service's contract, which restricted licensees' republication of ratings, was preempted by copyright law because it lacked an extra element from the copyright infringement claim. Now, I freely confess that copyright preemption befuddles me, and I think it befuddles a lot of other copyright geeks, so it's a little hard to say with confidence that any copyright preemption decision is clearly wrong. But this result certainly contravenes oodles of precedent that have held that copyright and breach of contract claims can co-exist harmoniously. In my opinion, the breach of contract claim seemed way more promising than either the copyright or trademark claims.

Conclusion

For those of you keeping score, you may have noticed that I think the results should have been exactly opposite to the judge's conclusions. The copyright and trademark claims should have been easy dismissals, and the breach of contract claim should have survived. Opinions like this make me question my knowledge sometimes.

Opinions like this also make my blood boil. At one level, the opinion is almost correct if you apply the most tendentious reading of legal doctrines at each and every decision-point. (Although, this opinion also expressly turned its nose up at significant amounts of adverse precedent). On the other hand, the opinion is so clearly incorrect if one steps back and looks at the problem from a holistic common sense standpoint. Asking the question as "Can IP law prevent a company from telling others how a third party service has rated it?," the answer should be clearly and unequivocally "no," and it shouldn't even be close.

Ironically, the court even tangentially acknowledges the value of product ratings as a tool to facilitate consumer decision-making. As the court says, "Health Grades' individual ratings and awards also advance learning by providing consumers with a more concise and accessible evaluation of these providers than the consumers could obtain by reviewing the underlying data sources themselves." Yet, somehow, the judge lost sight of the fact that regressive copyright and trademark protection for numerical ratings makes the ratings less accessible, thereby hindering their value to help consumers make good decisions in the marketplace. From that perspective, the judge really whiffed.

As a result, if other courts follow this judge's "logic," the potential for mischief from cases like this is enormous. Think of every reputational system that spits out a numerical assessment of the subjects it evaluates. Now, assume each and every one of those numbers is copyrighted. Individual eBay feedback scores? Individual FICO scores? Individual Billboard rankings of songs and albums? All possibly copyrighted and requiring the initial publisher's consent to republish. Add in potential trademark claims, and the crazy-o-meter goes off the charts.

UPDATE: Bill Patry has posted on this case as well.

Posted by Eric at 04:08 PM | Copyright , Licensing/Contracts , Trademark | TrackBack

July 13, 2009

Facebook Sued for Click Fraud--RootZoo v. Facebook

By Eric Goldman

RootZoo, Inc. v. Facebook, Inc., 5:09-cv-03043-HRL (N.D Cal. complaint filed July 7, 2009)

Facebook appears to have run into some trouble with click fraud recently. Last month, TechCrunch had a series of articles about Facebook click fraud. TechCrunch postulates the following story: competitors are clicking on each others' ads to reduce their ROI and drive each other off Facebook. To ensure that the click fraudders can see Facebook's microtargeted ads, the fraudsters are creating thousands of fake accounts with heterogeneous profile information. The fraudster's software eventually finds a target ad and clicks on it like crazy, so fast that the advertiser's page never loads. This is distorting the advertisers' server logs, causing a big discrepancy in reporting and making it impossible for advertisers to track down the click fraud. TechCrunch reports that it spoke with Facebook and Facebook claims the situation has been addressed. Of course, could Facebook say otherwise?

I'm not clear if it's related to the TechCrunch coverage or not, but last week a putative class action against Facebook was filed, alleging click fraud. The plaintiffs allege that they were charged for clicks that never occurred at alarming rates--in RootZoo's case, they claim they were charged for 804 clicks on a single day when their servers recorded about 300 clicks. Now, I'm never sure how much credit to assign to plaintiffs' allegations like this. First, advertisers always want more performance for less cash. Second, advertisers' tracking systems are not always reliable, so RootZoo's undercounting could be due to their system, not Facebook's. However, combined with the TechCrunch reports, it raises some concerns that something could have been amiss at Facebook (and maybe still is?).

That's not to say the plaintiffs will get a check out of Facebook. The plaintiffs face many hurdles, including potential difficulties establishing a class, the many challenges getting competent evidence, and Facebook's contract and all of the various protective provisions contained therein. So the plaintiffs have plenty of work ahead of them. Then again, so may Facebook.

Posted by Eric at 09:43 AM | Licensing/Contracts , Marketing , Search Engines | TrackBack

July 10, 2009

Ninth Lawsuit Against Google Over AdWords--Rosetta Stone v. Google

By Eric Goldman

Rosetta Stone Ltd. v. Google, Inc., 1:09-cv-00736-GBL-JFA (E.D. Va. complaint filed July 10, 2009)

[Note: some of you may wonder how my litigation count reached #9 when my last blog post in this series was at #7. I subsequently realized that I had forgotten to include Ezzo v. Google, a doomed-to-failed pro se lawsuit filed pre-Rescuecom. Indeed, I remain unclear precisely how many lawsuits are pending; the number could be greater than 9].

Kudos to Rosetta Stone for its fine PR work. It was able to get a number of major media outlets to cover its lawsuit against Google alleging trademark infringement and related claims for Google's AdWords practices, even though by my count this is merely the 9th pending lawsuit and these lawsuits are becoming a near-daily routine.

Obviously, I'm suffering a little ennui on this topic. Another trademark owner doesn't like Google's AdWords practices and decided to sue in court. And in other breaking news, the sun rose in the east and set in the west today.

How routine has this become? Rosetta Stone's law firm is Gibson Dunn, which includes Terence Ross on the team. Terence lost some of the early WhenU keyword ad cases including the once-seminal 1-800 Contacts v. WhenU ruling. He also sued and procured a settlement from Google on behalf of American Airlines. Gibson Dunn's team also has a pending lawsuit against Yahoo on behalf of American Airlines. I haven't put all of Gibson Dunn's complaints side-by-side, but I have observed over the years that they have mastered the skill of cloning-and-revising--right down to recycling a stock phrase that might become Terence Ross' signature line (and perhaps his trademark some day?) that the plaintiff "does not bring this lawsuit lightly." (Para. 6 of the complaint; compare Para. 6 of the AA v. Google and AA v. Yahoo complaints). I'm glad Gibson Dunn's clients don't sue lightly. I wish all lawyers could say the same of their clients. Then again, at the lofty fees I suspect their clients are paying for the firm's services, this statement is probably the one assertion in the complaint that no one--not even Google or the judge--could possibly dispute.

As a partially cloned-and-revised complaint, it shouldn't surprise you that this complaint doesn't break much new ground. See my deconstruction of the American Airlines v. Google complaint--because many of the provisions were recycled, my commentary of that complaint applies almost in toto. However, a couple of small points that did jump out at me from this complaint:

* Rosetta Stone has some really, really weak trademarks. "Global Traveler"??? "Language Library"??? "The fastest way to learn a language. Guaranteed"??? Are you serious?

* Among the keyword advertisers that Rosetta Stone complains about are retailers who sell both Rosetta Stone and other language products. Whoa. I'll be interested to see how Rosetta Stone gets around the First Sale doctrine for those advertisers.

Two concluding thoughts

* Is it time for these 9+ lawsuits to be consolidated in a multi-district litigation yet? From my perspective, that seems inevitable, but I'm not much of an expert on the procedural aspects of MDLs.

* Any predictions on whether another trademark lawsuit over AdWords will be filed in the month of July?

The other eight lawsuits I'm tracking:

* Ezzo v. Google
* Rescuecom v. Google
* FPX v. Google
* John Beck Amazing Profits v. Google
* Stratton Faxon v. Google (not initially a trademark case)
* Soaring Helmet v. Bill Me
* Ascentive v. Google
* Jurin v. Google

Posted by Eric at 01:10 PM | Derivative Liability , Search Engines , Trademark | TrackBack

July 09, 2009

"Keyword Advertising Law" Talk (New and Improved!)

By Eric Goldman

I recently spoke on the state of keyword advertising law, which prompted me to rewrite my PowerPoint slides from scratch in light of the many recent developments. So, now available for your enjoyment:

* my talk slides
* an 80 minute free audio recording of my June presentation of this slide deck (plus Q&A) to the IAB Legal Affairs Committee. You can listen in QuickTime or download from iTunesU (for free; go to item 26)
* the CLE written material, a compilation of recent blog posts on the many lawsuits against Google and Google's two trademark policy changes. I would now add the Ezzo, Ascentive and Jurin cases to the written materials.

If this isn't enough for you, I am participating in two expensive (overpriced?) webinars on keyword advertising law in July:

* On July 10 (tomorrow!), "Keyword Advertising Do's and Don'ts," a 1 hour PLI webinar co-presented with Marty Schwimmer of the Trademark Blog.

* On July 22, "Trademark-Based Keyword Advertising: Potential Liability and Avenues for Relief," a 90 minute Pike & Fischer webinar co-presented with Rose Hagan of Google, Elisabeth Escobar of Marriott and John Slafsky of Wilson Sonsini.

Posted by Eric at 10:37 AM | Derivative Liability , Search Engines , Trademark | TrackBack

July 08, 2009

Mixed Ruling on Damages in Premier League v. YouTube

By Eric Goldman

The Football Association Premier League Ltd. v. YouTube, Inc., 07 Civ. 3592 (S.D.N.Y. July 3, 2009)

This is a ruling about potential damages in one of the copyright infringement lawsuits against YouTube. It's a pretty technical ruling interpreting some arcane aspects of copyright law, including the "live broadcast exception" in 17 USC 411(c) (which until a year ago was 411(b)). I'll confess that I had never given any thought to the 411(c) exception, and I don't even know who to call who is guaranteed to have expertise in it. (When in doubt, I always take my tough copyright questions to my colleague Tyler Ochoa). And like you, my eyes glaze over when I see "Berne" and "TRIPs" in a legal opinion.

The substantive rulings in the case can be understood even if 411(c), Berne and TRIPs all go over our collective heads. The court says:

1) Unregistered foreign copyrights are not eligible for statutory damages...
2) ...except for some broadcasts of live events if the copyright owner complies with some statutory formalities, including a requirement that the copyright owner send what is effectively a pre-event prospective "take-down" notice.
3) Punitive damages aren't available in copyright claims.

[Note: the ruling only addressed foreign copyrights, so potential damages on domestic copyrights are unaffected by this ruling. However, domestic works should follow an identical formula.]

#3 is not news; “no punitive damages” has been well-accepted copyright doctrine for as long as I can remember. #1 was perhaps a little more contestable as applied to foreign works but was also pretty well-accepted. #2 is new ground for me and probably for lots of other copyright lawyers who don't normally deal with copyrights in live events, but the result is fairly intuitive from a fresh reading of the statute. So although I'm not sure how often the precise issues have come up, overall this ruling seemed to be a fair and straightforward reading of the statute.

It's less straightforward declaring who "won" this ruling. Ignoring the claim for punitive damages, an argument which struck me as never having a chance in the first place, the ruling is a mixed bag for the parties--YouTube won #1 and the plaintiffs won #2. As a putative class action, though, #1 seems more important. Considering the overall class of copyrighted works potentially eligible for coverage under the class action, the court has said that some of those works are now eligible only for actual damages. My guess is that actual damages are less valuable than statutory damages for those works. The plaintiffs may be to show actual damages for some infringing YouTube clips, such as if the plaintiffs can establish a bona fide market rate for licensing short clips (a meaningful possibility in some cases). However, I think most works will have zero actual damages from YouTube infringements. If so, this ruling implicitly knocks most foreign unregistered copyrighted works out of the lawsuit.

YouTube still faces potential statutory damages for foreign live broadcasts that complied with the requisite formalities. The ruling cites a declaration by plaintiffs that there are at least 340 such works. While YouTube would have preferred to knock out statutory damages for all unregistered foreign works, I think this ruling should effectively reduce the parties' overall dollar value assessment of the case's worth. Unfortunately, I doubt the ruling reduces that dollar value enough to enable meaningful settlement discussions.

Posted by Eric at 07:51 AM | Copyright , Derivative Liability | TrackBack

July 07, 2009

June 2009 Quick Links, Part 2

By Eric Goldman

State Regulation of the Internet

* iAWFUL, the Internet Advocates Watchlist for Ugly Laws

* Texas HB 2003. Part of the anti-cyber-harassment mania. Very broad statute with lots of room for prosecutorial mischief.

* BNA (BNA subscription required): "State Legislatures Consider Criminal, Civil Restrictions on Ticket Purchasing Software": "At least six state legislative bodies are considering bills this session that would place restrictions on the use of “ticket bots.""

* Because states are embracing the Amazon affiliate tax, the online affiliate industry is shrinking as we speak (1, 2, 3). But in one of his rare good moves, Schwarzenegger has vetoed CA's attempt to impose the Amazon tax.

* Clive Thompson in Wired: "By severing the link between location and geography, the internet turned everything upside down. Now mobile phones are inverting everything again, in the other direction — because your location becomes most important thing about you. So how is the return of geography going to change our lives?" My previous commentary on geolocation and the law.

Blogs/Social Networking Sites

* Yath v. Fairview Clinic, 2009 WL 1751767 (Minn. App. Ct. June 23, 2009). Posting illegitimately obtained health information to a MySpace page qualified as “publicity” for purposes of an invasion of privacy claim. The court says: “Yath's private information was posted on a public MySpace.com webpage for anyone to view. This Internet communication is materially similar in nature to a newspaper publication or a radio broadcast because upon release it is available to the public at large.” As a result, the publication qualified as “publicity” even if the material was posted for less than 48 hours and the plaintiff could only prove that a small number of folks actually saw it. Compare the Moreno v. Hanford Sentinel case, where republication of information the plaintiff voluntarily published on her MySpace page could not support an invasion of privacy claim.

Nevertheless, the defendants were excused because they had not created the MySpace page, even though they had supplied the information republished on the MySpace page.

* Richerson v. Beckon. Ninth Circuit upheld reassignment of teacher-mentor based on negative blog comments. My blog post on the district court opinion.

* Kaufman v. Islamic Soc. of Arlington, -2009 WL 1815641 (Tex. App. Ct. June 25, 2009). An online-only journalist qualified as a "member of the electronic or print media" for purposes of an interlocutory appeal statute.

* After von Brunn committed his hate crime outside the US Holocaust Museum, a bunch of his digital trails went dark as websites newly realized his vitriol was posted there.

* If you're looking for a paper topic, here's one: the use of MySpace, Facebook and other social networking sites in family law disputes, especially over child custody. I'm seeing cases every week where social networking site postings are being introduced to corroborate or contradict testimony about a parent's fitness.

Security

* FTC v. Pricewert. The FTC takes down an allegedly rogue Internet access provider. To the extent that the IAP is engaged in criminal activities, no problem; but it's less clear to me if the FTC can get a civil injunction under its Sec. 5 authority to stop the IAP from serving its putatively illegal customers. Such an action could be preempted by 47 USC 230. The FTC, in its brief, says the IAP fits into a Roommates.com exception, an argument presumably bolstered by their 10th Circuit win in FTC v. Accusearch.

* Johnson v. Microsoft Corp., 2009 WL 1794400 (W.D. Wash. June 23, 2009). This is a putative class action over Microsoft’s use of Windows Genuine Advantage (WGA) to validate copies of Windows XP. In this ruling, Microsoft gets SJ on the claim alleging that the contract prevented Microsoft from doing WGA validation. Especially interesting is the court’s conclusion that IP addresses are not personally identifiable information.

* Microsoft v. Lam. Microsoft brings a lawsuit against alleged click fraudders who caused Microsoft to issue $1.5M in credits to advertisers. The NYT article.

* EFF on the most recent amendments to the Computer Fraud & Abuse Act.

Miscellaneous

* Expedia tagged for $184M in damages for improperly marking up its service fees.

* In re Jamster Mktg. Litig., 2009 U.S. Dist. LEXIS 43592 (S.D. Cal. May 22, 2009). Wireless carriers aren’t liable under RICO and false advertising laws for various deceptive practices by wireless content providers.

* New unmeritorious patent lawsuit trend: lawsuits over patent markings for expired patents.

* NYT: Investing in Lawsuits, for a Share of the Awards

* Oddee: 15 geekiest license plates:

Posted by Eric at 09:18 PM | Content Regulation , Derivative Liability , E-Commerce , Licensing/Contracts , Marketing , Patents , Privacy/Security , Publicity/Privacy Rights , Search Engines | TrackBack

ABA Antitrust Section Consumer Protection Conference Recap

By Eric Goldman

Last month I attended the ABA Antitrust Section’s Consumer Protection Conference. This post recaps some highlights from the event.

A few overarching themes:

* in light of the country’s economic malaise, the FTC is focusing its enforcement on economic harms. This is both to combat those who prey on victims of the economic downturn as well as curbing some of the excesses that contributed to the economic downturn.

* there was significant confusion, and some apprehension, about the proposed new Financial Product Safety Commission and how it will affect other government agencies, including the FTC. If nothing else, the proposed new agency creates some turf wars and might send an implicit message that the FTC somehow wasn’t up to the job (a characterization I wouldn't necessarily agree with).

* not exactly news, but the FTC is itching to do something different about regulating online privacy.

* on a related theme, there is widespread hand-wringing about the failures of consumer notices to effectively educate consumers and improve their decision-making. I agree with this, and in fact I’ve noted before that we are experiencing a “crisis of contracts.” While some UI improvement can be made in how information is presented to consumers, we are also stuck with the bigger problem that some consumer decisions are more complicated than consumers are able to handle, no matter how effectively the complexity is disclosed. There is no clear regulatory solution to this problem.

David Vladek’s Opening Remarks

David Vladek, the new director of the Bureau of Consumer Protection, outlined some things to expect from the FTC going forward:

1) The FTC will keep up/step up its aggressive pace of litigation, education and policy-making. In particular, the FTC will have to do more on economic fraud.

2) He expects the FTC will look more at privacy regulation. He said he did not find the notice/consent and harm paradigms for regulating privacy convincing. Regarding the notice/consent paradigm, he said it is hard to know what a person is consenting to. Notices are unintelligible, and they don’t address secondary uses. The harm paradigm doesn't address harms we feel but can’t quantify. So he is wondering, how the FTC can rationalize privacy approach going forward?

3) He expects the FTC to take a hard look at Internet behavioral advertising and ads directed to vulnerable sub-populations.

4) Echoing proposals that have been floated before, he said that the FTC should be on equal footing as other government agencies, including better rule-making authority, civil penalty authority and independent civil litigation authority.

More on Vladek’s presentation from Arnold & Porter, Perkins Coie and Rebecca Tushnet. While there, make sure to look at Rebecca’s introductory remarks, which were excellent but came before I was ready to take notes!

Former Chairmen’s Panel

John Villafranco moderated a panel of Bob Pitofsky and Tim Muris, both former FTC chairmen. The panel’s overriding theme is how much Bob and Tim agree with each other, even though they come from opposite sides of the political spectrum.

Villafranco asked some questions about the FTC’s past. He noted that 40 years ago, the FTC was derided, and there were calls to shut it down. Bob explained that the FTC was viewed as the “Little Old Lady on Pennsylvania Avenue” because it was preoccupied with trivial cases, hired experienced lawyers who weren’t very accomplished, didn’t take advantage of its broad mandate, and was widely regarded as weakest agency in Washington. Bob and Tim also explained why there were deep divisions between commissioners and between commissioners and staff at that time.

Villafranco asked about the biggest misconception by outsiders. Bob said that staff runs the place; Tim said that antitrust lawyers can do consumer protection.

Villafranco also asked about the staff’s biggest misconception about companies they investigate. Tim said that staffers deal with pathologies, so sometimes they assume every business is bad actor. Bob said that the FTC’s rules are on the vague side, so good-intentioned companies can get into trouble because they didn’t understand the rules.

Rebecca’s recap of this panel.

Privacy/Behavioral Advertising Panel

Eileen Harrington of the FTC: Disseminating content online means that the sender surrenders control over that content, even when not wanted or intended. Categories of content dissemination:
* blogging/microblogging
* social networking sites
* first party collection/behavioral advertising (ex Amazon, NetFlix). In these contexts, data collection/use is intuitive, and the consumer can always leave if he/she doesn’t like the site’s practices.
* Gmail ads, which she distinguishes from first party collections. Google discloses its ad practice but buried in a big privacy policy. Also, consumers may expect greater privacy in email. [Eric’s note: I really didn’t understand how Gmail is different from Amazon in this regard, and I didn’t get a chance to push Eileen about this. Having used Gmail for a very long time, the value proposition and the ad presentation is unambiguously clear to me.]
* Third party collection practices. She further broke these down into:
- Third party ad networks. Websites are unrelated and no relationship between consumer and ad network. Consumer may not understand why they receive ads. Also, data sharing increases risks.
- Researchware. Improper disclosures that consumers won’t understand.
- Deep packet inspection. May be less transparent/voluntary. Consumers don’t know to look at their contracts with their connectivity suppliers. Deleting cookies won’t help.

In response to a question about whether there is there a different way to communicate privacy to different generations/subcommunities, Eileen expanded on David Vladek’s comments by saying that it’s time to look again at the commission’s privacy framework. For a time, the FTC followed Fair Information Practices. Then, the FTC moved to a framework focused on harm. The FTC still thinks notice-and-choice can work in some circumstances, but it fails in other circumstances. There is concern that notice hasn’t prevented harm. The FTC wants to develop a better framework, but business practices are constantly changing around the FTC.

I asked Eileen how companies can decide what is important enough to be disclosed. I pointed out that Sears’ privacy policy fully disclosed its researchware practices but only deep within its privacy policies. Eileen responded that Sears wasn’t a close call because their disclosures were completely inadequate and the pop-up ads offered consumers a different value proposition.

Perkins Coie’s recap of Eileen’s remarks.

Wendy Seltzer’s presentation did a nice job summarizing the privacy advocate’s view. What’s new online = more data + better data crunching. Most responses have been self-regulatory and focus on notice and choice. Self-regulation works only if there an effectively functioning market for privacy. Market failures:
* information costs of reading privacy policies.
* Behavioral economics/psychology. Consumers have difficulty evaluating near vs. distant events (i.e., hyperbolic discounting). Consumers are too optimistic that they won’t experience harm, even if disclosed to them. Technology moving too fast, so consumers can’t anticipate future developments (such as better deidentification).

In response, Leslie Harris of the CDT added that the latest generation of kids may value its privacy, they just may not have been faced with privacy challenges yet. We don’t know what we don’t know, and we shouldn’t assume people don’t care about privacy.

Leslie also lauded the FTC behavioral advertising principles because it discourages distinctions between PII and non-PII. Also, self-regulatory efforts have been shaped by FTC’s intervention. But she is not persuaded that self-regulation works.

Rebecca’s recap of this panel.

Research on Consumer Decision-Making

Alan Levy from the FDA. Regulators’ biggest mistake is thinking consumers read labels to learn more information about the product. Instead, consumers read labels when they have specific Qs that the label can answer. But framing the Q requires consumers to have lots of domain knowledge already, and consumers often don’t know enough to ask the Qs.

The function of label-based product claims is to ease consumers’ information search. Consumers want to make good decisions, but they satisfice. They look for products that can meet minimum adequacy standard and won’t embarrass them if asked to justify their decision. Most decisions aren’t life-and-death, and consumers usually can fix most bad decisions with their next purchase. Product claims work because they are convenient for consumers and help satisfice.

Consumers assume advertiser claims signal unique attributes of their products compared to their competitors. Consumers don’t generalize claims to the product class. Consumers want new and relevant information. The most effective marketing tells consumers something they do not already know. So claim effectiveness depends on heterogeneous consumer experience and knowledge.

Consumers need reliable information to satisfice. Consumers will accept information if it’s consistent with what they already know and legitimate on its face (i.e., not seemingly manipulative). Disclaimers about product claims can actually make claims more effective or are just ignored.

Health claims on package label front truncates a consumer’s product search—when a claim is on front, consumers won’t read the back of the package label.

Policy-makers focus too much on trying to perfect claim language, and not enough on helping frame the decision for consumers. This is based on mistaken assumption that claims don’t work well enough at educating consumers, but the real risk is that claims work too well at motivating consumer decision-making.

Michael Mazis of American University. Lessons:

* disclosure medium matters. Disclosures are more effective in media that give consumers more time to review them.
* Consumer motivation matters to the efficacy of disclosures
* Marketing claims trump other disclosures/disclaimers

Broadcast ads: text disclosures don’t work.
Print ads: consumers aren’t in search mode, so disclosures aren’t relevant
Web ads: consumers are in product search mode, so disclosures are more likely to be effective

Ways to improve disclosure effectiveness: proximity, prominence, easy to find, comprehensible, no legalese (consumers discount these disclosures), no repetitive “throw away” disclosures.

Findings from a research study about testimonial ads:
* when consumers see testimonials in ads, they assume that results are typical
* general disclosures that “results aren’t typical” aren’t effective
* specific disclosures about lack of typicality are somewhat more effective than general disclosures, but still aren’t very effective

Rebecca’s recap of this panel.

Role of Consumer Surveys in Enforcement/Litigation

Chris Cole of Manatt Phelps said that in every false advertising case, parties disagree about whether claims are literal or implied. Courts vary widely about what constitutes a literal claim; much depends on advocacy quality and the judge’s intuition (results-oriented judgment). There is no uniform standards for survey admissibility. There is a trend towards accepting non-traditional evidence such as internal brand tracking surveys not specifically prepared for the litigation.

Chris also talked about the difficulty designing a defensive survey because it’s hard to prove a negative (i.e., the absence of consumer confusion). To do so requires lots of directed (but not leading) questions to present enough evidence to convince the judge. Further, the other side often tries to reinterpret survey results, which is another reason not to conduct a defensive survey in the first place.

He also said there is no reason to give FTC or State AGs’ interpretation of ad claims any extra deference. The government should have to prove its case.

Finally, Chris discussed problems with trying to do surveys over the Internet, which may be more representative of consumers in practice than mall intercept surveys—who goes to a mall any more? However, he noted that the screen display may not be the same (ex: TV ads shown on a computer monitor may be harder to read), and there may be questions about the motivation and representativeness of panelists who are incented to participate.

Lee Peeler, a long time FTC staffer, said that years ago, FTC was perceived as not using extrinsic evidence because surveys might prove defendant’s case or get tossed out. Now, FTC looks at extrinsic evidence, but non-exclusively.

Patricia Conners of the Florida AG’s office said that state AGs don’t like to do consumer surveys because (1) they are not statutorily required, (2) they are expensive and time-consuming, (3) they distract the case from substantive issues to focus on survey methodology, and (4) many cases are against really bad actors, so survey evidence isn’t necessary to prove the case. On the flip side, defendants often overclaim their extrinsic evidence when trying to avoid regulatory intervention, which makes the regulators skeptical.

Rebecca’s recap of this panel.

More on the Conference

* Rebecca on financial products safety
* Rebecca on green marketing and internet issues. Arnold & Porter on the green marketing panel.
* My post on my talk on 47 USC 230 and consumer protection law.

Posted by Eric at 08:24 AM | E-Commerce , Licensing/Contracts , Marketing , Privacy/Security | TrackBack

July 06, 2009

June 2009 Quick Links, Part 1

By Eric Goldman

Just a reminder that I post some items to Twitter that don’t make it into these monthly recaps. If you want even more, you can track a superset of my online activities at Friendfeed.

Search Engines

* All Things Digital had an interesting 3 part series on the role of humans in configuring Google's algorithms: Scott Huffman; Matt Cutts; Amit Singhal. My initial 2005 blog post on the topic.

* More evidence of the deleterious consequences of latency on users' enjoyment of search results pages.

* Google is stumping in favor of its book search settlement deal and putting on the "charm offensive."

* Wired on niche search engines competing around the edges of Google.

* Google has dropped its feature that allowed quoted sources to reply in Google News.

* First, kosher phones. Now, kosher search engines.

Trademark

* Wendy Davis on a trademark lawsuit against Craigslist for allegedly infringing ad copy supplied by one of its users.

* Rookie mistake: Tony LaRussa publicly announced a settlement deal in his trademark lawsuit against Twitter before the papers were signed. Guess what....NO DEAL! UPDATE: A deal was struck subsequently.

* Speaking of which...the WSJ on Twittersquatting.

* WSJ: Europe's High Court Tries On a Bunny Suit Made of Chocolate. The EU struggles with trademarkability of chocolate bunnies.

* Productive People, LLC v. Ives Design (D. Ariz. May 29, 2009). TRO against a domainer.

* Oddee: 10 of the Worst Restaurant Names ever.

Copyright

* Supreme Court declined certiorari in the Cartoon Network v. CSC case.

* Arista Records LLC v. Usenet.com, Inc., 2009 WL 1873589 (S.D.N.Y. June 30, 2009). Usenet service provider committed (1) direct copyright infringement (because it “actively engaged in the process so as to satisfy the “volitional-conduct” requirement for direct infringement”) as well as contributory infringement, vicarious infringement and inducement of infringement. This case was colored by defendants’ evidence spoliation and the lack of a viable 512 defense; in situations like this, courts smack down defendants hard. The court’s analysis would be troubling for many online service providers if this case isn’t an outlier. Mike Masnick has more on the import (or lack thereof) of this case.

* Brave New Films 501(C)(4) v. Weiner, 2009 WL 1622385 (N.D. Cal. Jun 10, 2009). BNF was denied summary judgment on its declaratory judgment request because (a) Savage never threatened BNF directly, and (b) ORTN, which did threaten BNF directly, isn't the copyright owner. My previous coverage of this case.

User Agreements

* In the Matter of Sears Holdings Management Corporation. The FTC busted Sears for installing tracking software/spyware, even though Sears (1) asked all users to expressly opt-in, (2) paid users $10 to install the software, and (3) made full disclosure of the thorough tracking function of the spyware in the user agreement, albeit late in the installation process and in a buried fashion.

* Universal Grading Service v. eBay Inc., No. 08-CV-3557 (E.D.N.Y. June 10, 2009). eBay venue selection clause upheld.

* McMillan v. Wells Fargo, 2009 WL 1686431 (N.D. Cal. June 12, 2009). Wells Fargo asks some customers to agree to four different documents with differing governing law/venue selection clauses, leading to massive judicial confusion about how to determine governing law and venue.

* I’m using EFF's new "TOSBack" tool to track changes to major online services' user agreements. For my commentary on an article by Becher/Zarsky predicting the development of tools like this, see my writeup.

Posted by Eric at 04:54 PM | Adware/Spyware , Copyright , Derivative Liability , Domain Names , Licensing/Contracts , Marketing , Search Engines , Trademark | TrackBack

Seventh Lawsuit Over Google AdWords--Jurin v. Google

By Eric Goldman

Jurin v. Google, Inc., CV 09-03934 (C.D. Cal. complaint filed June 2, 2009)

Frankly, I don't know exactly how many lawsuits are pending against Google over its AdWords service. I know of seven, including this one, but I don't a high confidence that I've seen all of them. For example, I missed this lawsuit initially because PACER misidentified the defendant as Goggle, not Google. (PACER is notorious for sloppy typos). See the Justia page.

Even if the lawsuit count is currently "only" seven, Google is seeing plenty of litigation activity. Clearly, one or more factors have changed the plaintiffs' cost-benefit calculus sufficient to open the litigation floodgates. Now, I'm wondering when all of these lawsuits will be consolidated into a multi-district litigation (MDL) proceeding...?

Substantively, this complaint isn't materially different from the others. The plaintiff owns a trademark in the term "Styrotrim" for building materials, competitors are buying the term for competitive keyword ads, and Google is suggesting the purchase through its keyword suggestion tool. As with most of the other lawsuits, the plaintiff also alleges consumer confusion about the distinction between sponsored links and organic search results. The plaintiff's press release.

The six other AdWords-related lawsuits I'm tracking. If you think I've missed any, I'd be grateful for the reference.

* Rescuecom v. Google
* FPX v. Google
* John Beck Amazing Profits v. Google
* Stratton Faxon v. Google (this wasn't a trademark case last I checked)
* Soaring Helmet v. Bill Me
* Ascentive v. Google

UPDATE: As a good example of my imprecise counting, I had forgotten Ezzo v. Google, a doomed-to-fail pro se case filed before the Rescuecom case. So my count is now 8, not 7.

Posted by Eric at 09:06 AM | Derivative Liability , Marketing , Trademark | TrackBack

July 03, 2009

Ninth Circuit Revives TCPA Claim--Satterfield v. Simon & Schuster

By Eric Goldman

Satterfield v. Simon & Schuster, Inc., No. 07-16356 (9th Circuit June 19, 2009)

Satterfield sued Simon & Schuster (and its mobile ad agency) for sending text messages to her cellphone without the requisite permission. The district court dismissed her lawsuit; but in this ruling, the Ninth Circuit revives it. Three aspects of this ruling make it noteworthy.

When is a Text Message a Telephone Call?

The court holds that a text message to a cellphone is a "call" for purposes of the Telephone Consumer Protection Act (TCPA). This isn't unprecedented. The FCC took this position in 2003, and in 2005, I blogged on the Joffe v. Acacia Mortgage case reaching the same conclusion. Nevertheless, as I pointed out in response to the Joffe case, it reminds us of the silliness of medium-specific anti-marketing restrictions when the media collapse into each other. See my Coasean Analysis of Marketing paper for more.

Poor Consent Language

Satterfield signed up for a free ringtone from Nextones. As part of the registration process, Satterfield affirmatively checked off a box next to the following language:

Yes! I would like to receive promotions from Nextones affiliates and brands. Please note, that by declining you may not be eligible for our FREE content.

This language is hardly a model of clarity. What are "Nextones brands"? What are "Nextones affiliates"? The court adopts a trademark-style definition for "brands" and a corporate governance-rooted definition for "affiliates." Interestingly, Nextones posted its own definition of affiliates elsewhere on its site to mean other companies who “sell mobile content such as ringtones and graphics.” As the court points out, "Simon & Schuster does not fall within Nextones’ own definition." Whoops.

Obviously, better drafting could have easily avoided this problem and probably would have had little effect on conversion rates. Say what you mean, and mean what you say!

For what it's worth, one of my past Cyberlaw exams involved an ambiguously drafted online checkbox consent, a problem partially based on a real-life situation encountered by Yahoo. See the exam and sample answer.

Complex Chain of Distribution

Satterfield's cellphone number/text message address fell into Simon & Schuster's hands through a complex chain of distribution as follows:

Satterfield gives # to Nextones =>
Nextones gives # to MIA, its "exclusive agent for licensing the numbers of Nextones subscribers" (huh?) =>
MIA gives # to ipsh!, which describes itself as "the world's award-winning, full-service mobile marketing and advertising agency" =>
ipsh! gives # to mBlox, an aggregator who "handled the actual transmission of the text messages to the wireless carriers" =>
Simon & Schuster contracts with ipsh! to run a text message campaign for Simon & Schuster's new Steven King novel Cell. (Ironic name? Maybe this lawsuit will spur Stephen King to write a sequel, Cellphone).

As you know, lawyers aren't very good at math, but according to my count, it looks like four different intermediaries "touched" Satterfield's number (Nextones, MIA, ipsh! and mBlox) before it was used by Simon & Schuster, the ultimate advertiser. With that many intermediaries, there are significant additional transaction costs to reach cellphone subscribers.

More importantly, this complex chain creates a sizable risk that one or more of the entities along the way would misinterpret or forget any restrictions on the customer's grant of permissions. Certainly, I can't figure out how Nextones/MIA thought this distribution chain fit within the checkbox consent it asked for and received. (Interestingly, neither Nextones nor MIA are defendants in the case).

I also cannot figure out how ipsh!/Simon & Schuster failed to detect this permissions problem in their diligence. They did diligence the source of the cellphone numbers...didn't they? They didn't just blindly assume that they could purchase a package of random cellphone numbers and party on...did they?

Posted by Eric at 09:51 AM | Marketing , Spam | TrackBack

July 01, 2009

MySpace Wins Another 47 USC 230 Case Over Sexual Assaults of Users--Doe II v. MySpace

By Eric Goldman

Doe II v. MySpace, Inc., 2009 WL 1862779 (Cal. App. Ct. June 30, 2009)

Capping off a busy month for 47 USC 230 jurisprudence, MySpace has won another case over its role in facilitating sexual assaults of underaged female users. This victory follows the 2008 Fifth Circuit Doe v. MySpace case and Doe IX v. MySpace from May. (Note: although California is apparently lagging behind Texas in Doe complaints, this opinion consolidates 4 plaintiffs, including Julie Doe V). As with the previous lawsuits, this lawsuit is generally premised on MySpace's allegedly inadequate measures to protect its underaged users and use appropriate age-verification technology.

The court could have simply tossed the case by citing the Fifth Circuit opinion, which had already addressed and rejected these arguments. (I believe the plaintiffs’ attorneys are the same in both cases). As the court points out, the plaintiffs didn’t really try to work around the Fifth Circuit opinion: "Not surprisingly, appellants cannot and do not distinguish the Fifth Circuit's opinion…which is exactly on point. They only contend that the Fifth Circuit was wrong."

Nevertheless, after canvassing the federal precedent (all of which is adverse to the plaintiff), the court considers if California's 230 jurisprudence leads to a different result. The court cited three California cases that have used 230 to reject negligence claims against service providers (Barrett, Delfino, Gentry). The court then correctly concludes that plaintiffs seek to hold MySpace liable for user-to-user communications:

It is undeniable that appellants seek to hold MySpace responsible for the communications between the Julie Does and their assailants. At its core, appellants want MySpace to regulate what appears on its Web site.

That's precisely what 230 precludes plaintiffs from being able to do. The plaintiffs' attempt to focus on the offline physical harm doesn't change that analysis:

In all but one of these [precedent 230] cases, the harm actually resulted from conduct that occurred outside of the information exchanged, whether that information was actionable or not.

This is a crucial point that sometimes gets overlooked. The 1997 Zeran case involved online postings that led to offline harms--in that case, a high volume of angry telephone calls, including death threats. And Zeran was a negligence case, not a defamation case. So the MySpace cases, alleging the service provider was negligent in preventing offline harms, seem to be substantively indistinguishable from the Zeran precedent from a dozen years ago.

The plaintiffs also try a Roommates.com attack on 230, arguing that MySpace loses 230 protection because it helped users create profiles and structured the search of these profiles. Doe IX v. MySpace had already expressly addressed and rejected this argument. The court doesn't cite Doe IX (or any other cases interpreting Roommates.com, for that matter), but still rejects the argument:

Unlike the questions and answers in Roommates.com, however, Appellants do not allege that MySpace’s profile questions are discriminatory or otherwise illegal. Neither do they allege that MySpace requires its members to answer the profile questions as a condition of using the site.

The voluntariness of the profiles was the same ground relied upon in the Doe IX case. The lack of illegality in the questions is a new point.

So, yet again, Roommates.com is cited in a defense win. My updated scorecard on Roommates.com citations is 8-2 for the defense:

Roommates.com Cited for Defense: GW Equity v. Xcentric, Best Western v. Furber, Goddard v. Google, Joyner v. Lazzareschi, Atlantic Records v. Project Playlist, Barnes v. Yahoo (note: although the case was a partial loss for the defendant, the Roommates.com discussion came in the defense-favorable part), Doe IX v. MySpace and this opinion (Doe II v. MySpace)

Roommates.com Cited for Plaintiff: NPS v. StubHub, FTC v. Accusearch

Posted by Eric at 11:17 AM | Derivative Liability | TrackBack

Securities Fraud Case Premised on Click Fraud Allegations Dismissed--Brodsky v. Yahoo

By Eric Goldman

Brodsky v. Yahoo, Inc., 2009 WL 1766002 (N.D. Cal. June 18, 2009).

The legal battles over click fraud are pretty much played out, but some legacy cases are still working through the system. This lawsuit was a securities fraud action alleging that Yahoo inflated its stock price by, among other things, deliberately ignoring some click fraud activity to grab quick revenue. The lawsuit was dismissed in October of last year with leave to amend. Having tried again, the plaintiffs still didn't satisfy the judge, so the judge booted the case permanently. However, given the plaintiffs’ investments in this case, it would not surprise me if the plaintiffs appeal.

The actual opinion isn't all that remarkable. For the click fraud allegations, the plaintiffs rely principally on confidential witnesses who are former Yahoo employees. The cloak-and-dagger Deep Throat stuff is mildly interesting, but the court still wasn't convinced that these insiders had enough personal knowledge about Yahoo's revenue recognition practices (except for one witness, who didn't allege malfeasance). As I wrote in October, "it will be interesting to see if the plaintiffs can produce any witnesses who can testify about the rate of Yahoo's click fraud overcharging sufficient to satisfy legal standards." This ruling seems to answer that with a big "negative."

Posted by Eric at 09:53 AM | Licensing/Contracts , Marketing , Search Engines | TrackBack