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).
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?
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.
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.
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