August 31, 2010
Broadcaster Gets 230 Defense for Readers' Website Comments--Miles v. Raycom
By Eric Goldman
Miles v. Raycom Media, Inc., 2010 WL 3419438 (S.D. Miss. Aug. 26, 2010).
WLOX is a TV broadcaster in coastal Mississippi (although with those call letters, I expected it would be located in Brooklyn). Toni Miles, a WLOX anchor at the time, was arrested during a drug bust and subsequently fired from her job. WLOX reported on the bust via a story on its website (this story?), allegedly defaming Miles in the process, and user comments piled onto the story with allegedly false statements. Miles ultimately was not indicted for the drug bust.
With respect to the user comments, WLOX claims immunity under 230. This is a super-easy case, especially after the cited Collins v. Purdue case, and the court expends few words granting the immunity. The relevant discussion:
In the present case, Miles alleges that the defendants “ran a news article and subsequently allowed unfiltered online comments which contained false information.” (Compl. at 5). Miles does not allege that the defendants wrote or revised the false comments. In fact, she alleges that the comments were not filtered by the defendants. Furthermore, she complains that the defendants merely allowed the comments, and there is no indication or allegation that the defendants encouraged defamatory comments on their website. As a result, the Court finds that the defendants are immune from liability for the allegedly defamatory third-party comments published on its website pursuant to the Communications Decency Act.
The publisher also avoids liability for defamation and negligent emotional distress, but other claims are still pending.
August 26, 2010
FTC Dings PR Firm for Fake Reviews -- In re Reverb Communications
[Post by Venkat]
In re Reverb Communications, FTC No. 092-3199 (Aug. 26, 2010) (Settlement)
Professor Goldman has posted a bunch about the FTC's endorsement guidelines. (See, e.g., "Do the FTC's New Endorsement/Testimonial Rules Violate 47 USC 230?;" "A Fuller Explanation of Why the FTC Endorsement/Testimonial Guidelines Violate 47 USC 230.") He posted in April about the FTC's look into the practices of Ann Taylor, which ended without any FTC action and looked like a warning shot: "FTC Drops Investigation of Advertiser Who Gave Gifts to Bloggers." Now the FTC actually conducted an investigation and settled with a PR firm which the FTC alleged wrote (and encouraged its employees to write) bogus reviews for the PR firm's clients in the iTunes store.
Here's the FTC's press release: "Public Relations Firm to Settle FTC Charges that It Advertised Clients' Gaming Apps Through Misleading Online Endorsements."
The FTC's Complaint [.pdf] outlines the key problems the FTC had with Reverb:
1. Reverb, its principals and employees posted reviews about Reverb's clients' gaming application and these reviews were posted "using account names that would give the readers . . . the impression they had been submitted by disinterested customers."
2. The reviews were not independent reviews. Reverb was hired "to promote the gaming applications and [was] often paid a percentage of the applications' sales," and there was no disclosure of this.
As a result of the investigation, Reverb settled with the FTC. The settlement requires Reverb to, among other things:
(1) cease misrepresenting "the status of any user or endorser;"
(2) not make future statements which are not accompanied by a "clear and prominent" disclosure of any "material connection" between the person writing the statement and any third party (including Reverb);
(3) take down any reviews that do not comply with the settlement;
(4) maintain records for five years of compliance with the settlement, including future reviews posted and any consumer complaints;
(5) deliver a copy of the settlement/consent decree to all employees and agents; and
(6) provide proof of compliance.
Ouch. Fake consumer reviews are not anything new. Previously, "Lifestyle Lift" settled with the New York AG's office over allegations of posting fake reviews, and was also involved in litigation with Realself.com where Realself brought counterclaims over Lifestyle Lift's alleged posting of fake reviews. (Here's Professor Goldman's post on the Lifestyle Lift settlement with the New York AG's office: "Lifestyle Lift Settles NYAG Claim Over Fake Consumer Reviews.") Reverb's conduct predated the FTC's recent issuance of its endorsement guidelines. (The guidelines aren't new law. They're interpretative rules that the agency put out to let businesses and the public know that it was taking a look at the online endorsement issue (and to provide guidance).)
Reverb's settlement with the FTC shouldn't come as a big surprise, but I guess is a good reminder that the FTC is out there policing the internet! I would think common sense would prevent a public relations firm from being paid to post faux reviews and posting them without disclosure, but this settlement illustrates that this isn't necessarily the case. The name of Reverb's client was not disclosed in this case, but a fake review brought to light seems harmful to the brand that is reviewed.
One thing that was surprising was the actual reviews posted by or on behalf of Reverb:
"Amazing new game"
"ONE of the BEST"
"Really Cool Game"
"GREAT, family-friendly board game app"
"One of the best apps just got better"
You would think if someone was paid to write reviews, they would write reviews that made it look like they actually tried the product or service in question? These reviews look awfully similar to comment spam.
It's also worth noting that I didn't see anything out there about the FTC going after the company who was reviewed - i.e., Reverb's client (which is what the FTC considered doing in Ann Talyor's case). This settlement should send a message to Reverb's clients and others in its shoes.
Additional coverage: NYT: "Charges Settled Over Fake Reviews on iTunes" (with a quote from Prof. Goldman: "fake reviews [are] 'a pervasive problem on the Internet'").
Related: "A Fake Amazon Reviewer Confesses" (WSJ, July 2009)
Internet Rewards Program Class Action Survives Initial Motion to Dismiss -- In re Easysaver Rewards
[Post by Venkat]
In re: Easysaver Rewards Litigation (S.D. Cal.) (Aug. 13, 2010)
Plaintiffs brought a class action lawsuit against Provide-Commerce (which operated Pro.Flowers.com). The lawsuit alleged that effecting transactions on the Proflowers website resulted in plaintiffs being unwittingly enrolled in a rewards program and being charged credit card fees. The court denied the motion to dismiss brought by defendants.
Background: Provide operated ProFlowers.com. At the time of completion of transactions on ProFlowers, consumers were offered a chance to enroll in a "rewards program" which was operated for Provide by Encore Marketing. Plaintiffs alleged that they were "unwittingly" enrolled in the program:
Plaintiffs allege that Provide leads customers to believe they will receive a complimentary $15.00 gift code to use on their next flower order as a thank you gift. After Plaintiffs completed the purchase of flowers on Provide's website by providing their personal and payment information, 'a window popped up that thanked Plaintiffs and Class Members for their order and offered a gift code for $15.00 off their next purchase at ProFlowers. The window also contained a link for Plaintiffs and Class Members to click on to claim the gift code.' Plaintiffs contend the pop-up window is part of an intentionally misleading and deceptive scheme, jointly orchestrated by Provide and EMI.
The named plaintiffs all testified to slightly different experiences. Some closed the pop-up window and did not provide any personal information, others responded to the pop-up by clicking on "I accept" and entering their personal information. Ultimately, plaintiffs were unable to have the charges relating to the EasySaver program reversed, and brought a variety of claims against both Provide and Encore.
Breach of Contract Claims:
Finally, Provide argued that the "EasySaver Rewards Policy" was not supported by an exchange of consideration, since it only came up after the flower transaction was complete. The court rejects this argument as well, finding that the rewards program was "part and parcel of the underlying flower purchase."
Provide also tried to disclaim liability for Encore's actions by arguing that it was not responsible for anything Encore did. The court cites to language in the description of the rewards program that indicates the program was jointly operated (the program was described as "our" program and Encore was described as Provide's "partner").
A separate sub-class of plaintiffs brought contract claims against Encore. These plaintiffs argued that they did not "knowingly" consent to the rewards program, and even if they did, Encore breached the terms of the program by not providing the stated benefits. Encore argued that these plaintiffs could not have it both ways - either they enrolled in the program (in which case plaintiffs accepted the terms were clearly stated) or they didn't. The court finds that plaintiffs could plead in the alternative that they did not enter into an agreement, and even if they did, Encore breached the terms of the agreement.
Conversion: Plaintiffs argued that defendants converted plaintiffs' "private payment information." With respect to plaintiffs' conversation claim, the court notes the historical trend away from limiting conversation claims to tangible property (citing to Kremen v. Cohen, among other cases). The court analogizes conversion of plaintiff's "Private Payment Information" to conversion of bank account information, and finds that plaintiffs adequately state a claim based on conversion of private payment information.
EFTA: The Electronic Funds Transfer Act prohibits, among other things, unauthorized billing. Provide argued that it was Encore and not Provide who engaged in the unauthorized billing. The court agrees and grants Provide's motion to dismiss as to the EFTA claim, finding that there is no liability under the statute for aiding and abetting an EFTA violation. With respect to Encore, the court denies the motion to dismiss. Among other things, the court rejects Encore's argument that the plaintiffs agreed to the membership charges by "entering [their] email address[es] and zip code[s] and clicking the green acceptance button."
Defendants will have another opportunity to show that plaintiffs' claims are without merit, but I think the court's resolution at the pleading stage is interesting. A more robust disclaimer and a non-leaky acknowledgment would have no doubt been useful here. (See professor Goldman's post on Scherillo v. Dun and Bradstreet for some good pointers.)
The case also illustrates the importance of the transaction flow and process (the user experience). Often lawyers provide advice, but implementation is left to the business or marketing folks. This case illustrates that in addition to the language of the terms, courts will look to the transaction process to poke holes in the contract formation argument.
It was also interesting that defendants tried to rely (and have judicial notice taken of) the online terms, but the court refused to do so, in light of the changing content of the webpages. When defendants pushed this argument, the court predictably trotted out the "[i]nformation from the internet does not necessarily bear an indicia of reliability" argument.
August 24, 2010
Ghostwritten Attorney Newsletter is an "Ad" for TCPA Junk Fax Law Purposes--Holtzman v. Turza
By Eric Goldman
Holtzman v. Turza, 08 C 2014 (N.D. Ill. Aug. 3, 2010)
This case is a unremarkable straight-down-the-middle analysis of when editorial content becomes a regulated ad, which in turn makes it a remarkable case. Most editorial-content-as-ad cases have quirky hooks that undercut their broader applicability.
The defendant is an Illinois lawyer. The court says:
In August 2006, he hired Top of Mind Solutions, LLC ("Top of Mind") to create and distribute by fax and email one-page documents titled the "Daily Plan-It" to a list of persons supplied by defendant. Defendant's target list included a combination of contact information he purchased from the Illinois CPA Society and numbers he obtained from business contacts and students.
Top of Mind issued 41 versions of the Daily Plan-It on defendant's behalf, every two weeks, from August 2006 to March 2008. All 41 versions include a masthead with the words "The `Daily Plan-It'" in italicized, bolded, and underlined text. "Gregory P. Turza, JD" appears just below the masthead along with the date, volume and issue number of the document. Beneath this title, the page is divided into two columns that contain an editorial article offering advice about various topics. Each article runs the length of the left column of the page and concludes in the middle of the right column....
The content of each Daily Plan-It was created entirely by Steven Patrick Riley ("Riley"), Top of Mind's owner. Defendant did not contribute to the editorial content. At the end of each article, in the lower right corner, defendant's name is listed (in a font larger than any other type on the page, with the exception of "The `Daily Plan-It'"). He is identified as an attorney and counselor at law, and the words "estate planning," "post mortem administration," and "business succession planning" appear before his name. Each fax also includes two or three graphic images: defendant's business logo, a photo of the building in which defendant has his office, or a head shot of defendant. Also included are his business address, telephone and fax numbers, e-mail address, and website address. At the bottom of the fax the document repeats defendant's name and phone number. This "identifying information" occupies approximately 20 to 25 percent of total area of the fax.
Three things stand out from this recitation of facts:
* it was bad form to buy a list of fax numbers and start blasting fax messages every 2 weeks. I've repeatedly noted that I think the days of buying email lists are long dead. Buying fax lists strikes me as an even worse idea.
* it's interesting to think that a lawyer would rely upon a vendor to generate editorial copy that goes out under the lawyer's name. The facts don't indicate if Turza reviewed and approved the content before it went out. I don't use ghostwritten material; I usually even extensively rewrite co-authored material.
* while the content's marketing intent is clear and unmistakable, the newsletter's substance is also unambiguously editorial content however broadly or narrowly we conceive of it. The law doesn't handle editorial-content-as-marketing overlaps very well, unfortunately.
The court applies the FCC's interpretation that faxed editorial newsletters aren't regulated advertising so long as any advertising content in the newsletter is "incidental," which in turn depends on whether the ad is a "bona fide informational communication." As you can see, the quest for synonyms doesn't really advance the analysis; it just shows that if you don't know how to parse between ads and editorial content, synonym proliferation tries to mask that fact (unsuccessfully, I might add).
The court concludes that the newsletter is regulated advertising. The court appears to focus on the sender's intent: "the record is replete with evidence demonstrating that the primary purpose of defendant's agreement with Top of Mind was to generate awareness of defendant's services and build his client base." The court continues: "defendant has provided no facts to show that his genuine, primary motivation in paying Top of Mind to distribute the Daily Plan-It was to educate CPAs and his business contacts on various industry-related topics rather than to build brand recognition and solicit business referrals for his law practice."
To me, this suggests the case would have been much harder if the editorial content hadn't been ghostwritten because the newsletter's educative intent would be clearer. Nevertheless, the court's sender-payoff-oriented standard--"to generate awareness of defendant's services and build his client base"--is unworkable because those payoffs are exactly what most professional service providers seek every time they publish editorial content.
UPDATE: Carolyn Elefant has more to say about this case.
August 23, 2010
Google Avoids Liability for Failed Google Search Appliance Installation--Market America v. Google
By Eric Goldman
Market America, Inc. v. Google, Inc., 2010 WL 3156044 (D. Del. Aug. 9, 2010)
This lawsuit comes from an unhappy Google Search Appliance (GSA) customer, Market America, who (like many unhappy systems purchasers) claims that Google and its systems integrator LTech overpromised and underdelivered. Unfortunately for Market America, like so many unhappy customers, it didn't get the necessary promises in writing. As a result, the defendants knock out a chunk of the case.
Market America operates an online mall. I don't exactly understand its value proposition; see if you can figure it out. It wanted a mallwide search functionality that scaled to nearly 100M products. Market America entered into a million dollar contract for GSAs to provide that functionality. The implementation did not go well (with allegedly very long search latencies), and ultimately Market America gave up on the GSA implementation.
The fraud/fraudulent inducement claims are dismissed per Twombly for conclusory allegations about scienter. Even if Market America's allegations about Google's and LTech's performance promises are true, Market America didn't adequately plead that Google or LTech had the requisite scienter to make false promises.
The rescission claim is dismissed because neither Google nor LTech promised a minimum quantified performance standard in their contracts, and the contracts contained standard vendor-favorable risk mitigation clauses. As usual, if buyers really care about a promise made by the vendor, make sure the promise gets into the contract.
Trivia: I had previously blogged about Market America in a jurisdictional matter. Market America has a surprisingly active litigation docket for a mass-market consumer-facing company I haven't heard of otherwise.
August 20, 2010
Selling Replacement Supplies Could Constitute Contributory Trademark Infringement–Georgia Pacific v. Von Drehle (Guest Blog Post)
by guest blogger Mark Bartholomew
[Eric's introduction: Mark is a law professor at the University of Buffalo. He has written several articles on secondary copyright and trademark infringement. See his SSRN page. We were swapping emails about this ruling, and he graciously agreed to write a post about it. I've appended a brief comment after his.]
Georgia Pacific Consumer Products LP v. Von Drehle Corp., 2010 WL 3155646 (4th Cir. Aug. 10, 2010)
The Fourth Circuit recently held that a maker of paper towels may violate the Lanham Act when it convinced merchants to stuff its paper towels into Georgia Pacific’s branded automatic towel dispensers instead of using towels provided by Georgia Pacific. The case is worth a look as it touches on issues of contributory trademark infringement, post-sale confusion, and antitrust law.
Plaintiff Georgia Pacific (GP) leases hands-free enMotion brand paper towel dispensers to distributors. The distributors then sublease the dispensers to businesses that have a use for them, like stadiums and restaurants. In its leases, GP conditions any use of the dispensers on exclusive use of GP brand paper towels. Unlike other automatic paper towel dispensers, enMotion dispensers are specifically designed to accept only a particular sized towel manufactured by GP.
Von Drehle is also in the paper towel business. In 2004, it developed a new type of toweling specifically for use in GP’s enMotion dispensers. It then instructed its sales staff to go out and convince distributors to resell its cheaper toweling to customers for use in enMotion dispensers. GP sued for contributory trademark infringement under the Lanham Act, along with violations of North Carolina’s unfair competition law and tortious interference with contractual relationships. Von Drehle counterclaimed for violation of the Sherman and Clayton acts.
The district court held in favor of Von Drehle on the trademark infringement and unfair competition claims. It explained that in evaluating likelihood of confusion, it was the mind sets of the business owners who purchase paper towel rolls for their restrooms that matter, not the expectations of restroom visitors. The court rationalized that restroom users don’t have a choice as to what type of paper towel they will receive, and “[n]o evidence exists to indicate that restroom visitors play any meaningful role in deciding which paper towel roll a business owner purchases from a distributor.” It held in GP’s favor on the antitrust claim because it found that GP had not taken coercive actions to enforce its lease agreements.
The Fourth Circuit reversed on the trademark and unfair competition claims. It described “the judicially created doctrine of contributory trademark infringement, derived from the common law of torts” as boiling down to a simple formula enunciated by the Supreme Court in a footnote to its landmark 1984 copyright decision, Sony v. University City Studios:
[A] manufacturer or distributor could be held liable to the owner of a trademark if it intentionally induced a merchant down the chain of distribution to pass off its product as that of the trademark owner's or if it continued to supply a product which could readily be passed off to a particular merchant whom it knew was mislabeling the product with the trademark owner's mark.
Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 439 n. 19 (1984).
The Fourth Circuit decided that there could be actionable post-sale confusion here because GP’s survey evidence showed that over 40 percent of the public expected the paper towels they used to match the brand of the enMotion dispenser, and GP’s reputation may be hurt if it could not control the quality of the toweling used in its dispensers. To the extent Von Drehle intentionally created and distributed its towels for use in the enMotion machines and continued to supply its towels to distributors knowing how they were to be used, Von Drehle could be liable for contributory trademark infringement.
What’s interesting to me about this case is not so much the court’s specific analysis of contributory trademark infringement or post-sale confusion. Both of these topics are controversial issues in trademark law and have been dealt with much more thoroughly in other cases. What’s interesting is how the case shows how these controversial doctrines intersect with antitrust law, and the serious threat wide application of these doctrines poses to the competitive goals trademark law is designed to further. GP designed a new device and required any user of that device to purchase its own, more expensive paper towels. Although in decline in recent years, the doctrine of patent misuse prevents patent holders with sufficient market power from suing a licensee for infringement when the licensee uses a patented device in conjunction with certain materials outside of the patent. A copyright misuse defense has been used to defeat an infringement claim when the copyright holder requires a licensing agreement for use of its work that also prohibits use of competing works. Instead of a patent or copyright claim here, GP is using trademark law to compel users of its device to purchase arguably extraneous goods. The big question here is whether this decision allows GP to make an end run around antitrust concerns.
Yet the Fourth Circuit spends no time on the competitive consequences of its decision. Maybe this is understandable—von Drehle did not appeal the district’s courts adverse ruling on its tying claim. Even so, the Fourth Circuit’s decision strikes at the heart of what is and is not fair competition and the policy issues surrounding enMotion’s practices probably deserved further discussion. (A concurrence by Judge Samuel Wilson hinted at this, noting that the antitrust implications of an arrangement like GP’s “will have to play out . . . on another day and, perhaps, on a different stage.”) In his treatise, McCarthy notes that in not a single reported case has a court refused to enforce a trademark because it was used in violation of antitrust law. But if doctrines like contributory trademark infringement liability and post-sale confusion continue to expand and receive widespread acceptance by the courts, the competitive position of individual manufacturers will continue to strengthen and a defense of “trademark misuse” may deserve more attention.
GP's distribution scheme for its towel dispensers is, from an IP standpoint, both brilliant and insidious. If you're a manufacturer looking to control the sale of complementary goods, this case provides a playbook for how to use trademark law to assert control over secondary markets in a way that courts might uphold--despite, as Mark explains, a thick set of antitrust issues. I share Mark's disappointment that the majority opinion basically was blind to the hugely anti-competitive effects of its ruling. But make no mistake, this opinion will not help improve marketplace competition. If GP succeeds with this litigation, it will have successfully kicked out a competitor out of the replacement supplies marketplace, and I expect many, many other manufacturers will try to follow in GP's footsteps to do the same.
August 19, 2010
47 USC 230 Preempts Sponsorship/Endorsement Liability--Black v. Google
By Eric Goldman
The Blacks run a roofing company. They claim someone posted an anonymous defamatory comment on an unspecified Google website, and this "comment misrepresents their work and has devastated their businesses." They sued Google for several business torts (although, interestingly, not defamation). I posted the complaint back in May and tweeted:
Roofing contractor sues Google over negative business review. Hello 47 USC 230!
I believe the plaintiffs and 47 USC 230 are now properly introduced. The court efficiently gets to the heart of the matter: "A fair reading of Plaintiffs’ complaint demonstrates that they seek to impose liability on Defendant for content created by an anonymous third party...Based on these allegations, Defendant is immune from their suit."
The plaintiffs, working pro se, try to get around 230 by arguing that they seek to hold Google liable for its "programming." Neither the judge nor I are clear on what that means, but we're both clear that the allegation doesn't change the answer.
Next, the plaintiffs argue that Google endorsed or sponsored the allegedly tortious content. The court recognizes this for exactly what it is: "an end-around the prohibition on treating it as the publisher or speaker of it." The court continues: "Such a ploy, if countenanced, would eviscerate the immunity granted under § 230."
I heartily agree. I made this exact point when critiquing the FTC's Endorsement and Testimonial Guidelines, where the FTC sought to impose liability on advertisers for online content posted by independent third parties; and I made a similar point when critiquing the SEC's proposal to impose liability on issuers for linking to third party websites. This case is entirely clear that 230 preempts liability premised on endorsing or sponsoring third party online content. Hey, FTC and SEC, I hope you're paying attention! The courts may not back up your expansive liability theories.
Finally, the plaintiffs argue that Google lacked an adequate dispute resolution procedure. 230's immunity isn't predicated on having such a procedure, and the court treats this as a subspecies of the unsuccessful argument that notice of a problem disqualifies the service provider from 230's immunity.
Thus, an easy case leads to a quick dismissal with prejudice.
August 18, 2010
The Problems With Google House Ads
By Eric Goldman
[Note: This blog post has taken me 7 months to write, so I'm glad to be sharing it finally. I am cross-posting it to Search Engine Land.]
Many publishers run “house ads” to self-promote their own offerings. Google does too. However, Google differs from most publishers because it auctions ad space on its network. Thus, when Google runs house ads, it simultaneously conducts the auction that it is bidding in—an impermissible conflict of interest. This post explains when Google uses house ads, why I think Google house ads undercut the auction integrity, and what Google should do differently.
Google’s House Ads
I have seen Google house ad campaigns in at least three circumstances:
1) Occasionally, Google uses AdWords ads to explain problematic organic search results. Two prominent examples are the search results for “Jew,” which regularly displays an anti-Semitic organization as a top organic result, and “Michelle Obama,” which last year displayed an offensive image as a top organic result. In these situations, Google runs an AdWords ad that links to an explanation of its search algorithms.
2) Google promotes its own services to increase their visibility. In preparing this post, earlier this year I approached Google about its usage of house ads, and a Google spokesperson informed me that Google has “run search marketing campaigns on Google for search products like iGoogle, Google Maps, and mobile products as well as for specific issues in order to provide information to our users.” Barry Schwartz recently gave an example of an image house ad promoting image ads. The latter point may include defensive keyword purchases, such as when it displayed ads for some of the search terms it highlighted in Google’s Super Bowl commercial.
In some cases, Google’s house ads appear in ad spots unavailable to other advertisers, such as its promotion of Nexus One on its home page. Barry Schwartz has catalogued examples of Google’s home page advertisements. This post focuses on house ads in AdWords, but I will come back to these non-traditional ad spots in a bit.
3) As a type of public service announcement, Google runs house ads in AdWords during crises to promote a crisis response page—mostly recently, in response to the BP oil spill.
Why Google House Ads in AdWords Are Problematic
Google characterizes AdWords as an advertising auction system for advertisers to bid on keywords against each other. Google runs these auctions as the auctioneer—a term Google doesn’t use and presumably would avoid, but an appropriate descriptor of Google’s proclaimed role vis-à-vis advertisers. Because Google merely conducts the auctions for advertisers, Google argues that it does not set AdWords advertising prices; instead, the prices are set by the market (i.e., the collection of advertisers’ auction bids). Google’s positioning as an auction conductor has emerged as a central defense to the increasing antitrust attention being paid to Google’s remarkable share of the search advertising market.
However, Google’s positioning breaks down when Google buys house ads via AdWords. In those situations, Google is both running the auction and bidding in that auction as an advertiser. The conflicts of interest in this situation should be self-evident, but let’s look at them in more detail.
Google Can Win Every Auction It Enters.
When Google runs a house ad in AdWords, it does not cost Google anything out-of-pocket. However, those clicks aren’t necessarily “free” because Google’s ads have opportunity costs. Clicks on Google’s house ads may siphon away clicks from revenue-generating ads, which may reduce Google’s revenue from the bidded term.
Google’s spokesperson told me that Google’s house ads “are subject to internal marketing budgets.” I assume this means that a Google department running house ads must “pay” for its clicks by transferring money from its department budget to a different Google department. In theory, the scarcity of marketing budgets forces Google departments running house ads to internalize the opportunity cost, even if no cash changes hands.
However, I don’t believe this cures the defects in auction integrity for at least four reasons. First, Google’s behavior lacks any auditability or verifiability; as outsiders, we have no idea what Google is doing under the hood. Second, Google has access to better information to optimize its bidding than any other bidder. That information may not be functionally available to individual employees placing auction bids, but because of the first point (lack of auditability/verifiability), we as outsiders don’t know that either. Third, because all Google bids just involve internal funds transfers and no out-of-pocket cash payments, Google can easily increase departmental budgets to enable more aggressive bidding—after all, if no cash changes hands, it’s just funny money anyway. Fourth, actual ad placement depends on ad quality scores, and Google has acknowledged that it has “exceptionally high Quality Scores” which should automatically give it a bidding advantage over everyone else. And, once again, no one else can audit or verify Google’s self-designated ad quality scores.
As a result, Google’s advantages over other bidders should allow it to “win” its auctions whenever it decides to bid.
Google’s Bids Can Affect the Prices Paid by Its Advertisers.
As far as I know, Google has never publicly addressed how its house ads affect the prices paid by other bidders. In response to my inquiry, the Google spokesperson opaquely informed me that “Google's ads are not guaranteed to appear in any given spot. How this affects CPCs depends on the quality scores and bids of others in the auction.” I interpret this to mean that Google’s presence in the auction could affect the CPCs paid by other bidders. Let’s take a look at how this might happen.
Google auctions aren’t winner-take-all. Instead, Google runs a “second-price auction.” As Google describes it, each advertiser-bidder pays “the minimum amount necessary to maintain their position on the page,” which is the amount bid by the next-lowest bidder. To illustrate this, assume a keyword with the following bids:
Bidder 1 bids $1.25 per click
Bidder 2 bids $0.75 per click
Bidder 3 bids $0.50 per click
Pursuant to the second-price auction, Bidder 1 pays $0.75 per click (i.e., the amount that Bidder 2 bid). After all, if Bidder 1 had only bid $0.75 per click, it still would have shown up as the top bidder. Bidder 2 pays $0.50 per click, the amount required to stay in the second position.
[Note: my examples assume that the bidders have the same ad quality scores and that one bidder’s presence or behavior does not cause Google to recompute the ad quality scores of other bidders.]
Now, consider what happens when Google enters a bid in this auction.
Google bids more than $1.25 per click [the result is the same if Google bids $1.25 or $1M per click]
Bidder 1 bids $1.25 per click
Bidder 2 bids $0.75 per click
Bidder 3 bids $0.50 per click
I’ll just focus on Bidder 1, who was getting first position for $0.75 per click before Google’s entrance. Due to Google’s entry into the auction, Bidder 1 now pays the same per-click amount to show up in second position rather than first.
Bidder 1’s reduced position may change the commercial value of the consumers who investigate the links. That is, the consumer who clicks on the second ad may have a different profit potential than the person who clicks on the first ad. In some cases, clicks on lower-placed ads may be more profitable per click, so we don’t know a priori if this is good or bad for any particular advertiser.
We can anticipate that Bidder 1’s lower position will reduce the overall volume of clicks it gets at that price. A second position ad usually gets substantially fewer clicks than the first position ad. Further, if Google syndicates the house ad via AdSense, then Bidder 1’s ads may no longer be syndicated in AdSense (for example, if Google syndicates only 1 ad via AdSense). [Note: when Google house ads are syndicated, Google pays the AdSense publisher for clicks out-of-pocket—but presumably Google pays a wholesale discounted price, while all other advertisers must pay the 100% retail price.]
Naturally, some advertisers will seek to reclaim their prior ad position by increasing their bids. Indeed, Google’s AdWords tools will automatically encourage advertisers to pay more to generate more clicks. For advertisers using Google’s automated bidding tool (sometimes called the “Budget Optimizer”), Google may automatically increase an advertiser’s bid to increase click volume. Thus, Google’s entry into the auction could cause other bidders to increase their bid amounts in a variety of ways.
Let’s revisit my discussion about Google’s opportunity cost of clicks on house ads. If the other bidders’ prices stay the same and Google siphons away some clicks from them, Google’s ads have a clear opportunity cost. However, if Google’s entry into the auction prompts other bidders to pay more, some or all of that opportunity cost will be made up by increased revenue on the remaining clicks. It’s even possible that Google’s house ads could create net new profit. From an auction integrity standpoint, it’s unacceptable for Google’s entry into the auction to affect the prices bid or paid by other bidders (its advertisers), whether Google’s profits increase or decrease.
Alternatives for Google
Google’s spokesperson told me that “[l]ike hundreds of thousands of other businesses, we believe in the value of search marketing to connect with web users.” That makes sense to me, and I encourage Google to go for it—just not by bidding against its other advertisers. Google can benefit from keyword advertising other ways without undermining its auctions’ integrity.
Second, as Google already does on occasion, Google can create new ad units outside AdWords exclusively for house ads. Running ads in a separate ad unit would obviate the need for Google to compete with advertisers in an auction, although I imagine some advertisers still will be annoyed by any click siphoning.
Third, Google could refuse all advertiser bids on terms that Google chooses to use for house ads. Advertisers wouldn’t be thrilled if Google did this either, but it would maintain the auction integrity for those terms. This would be the most expeditious way for Google to handle objectionable organic search results, although creating a new unit outside AdWords would work as well.
I feel a little silly writing nearly 2,000 words explaining why auctioneers should not bid in the auctions they run. We all already knew that. Yet, Google apparently violates this basic rule every time it runs house ads in AdWords auctions. Google should fix this—and restore integrity to its AdWords auctions—by no longer competing with its advertisers in those auctions.
UPDATE: A Google spokesperson sent me this response:
"As we've always said, all search engines run ads to inform users about services that they provide. Google is no exception to this practice. We believe in the value of our advertising platform and use it in the same way that other advertisers do."
August 17, 2010
"Electronically Printed" Does not Include Automated Merchant Email -- Shlahtichman v. 1-800 Contacts
[Post by Venkat]
Shlahtichman v. 1-800 Contacts, Inc., Case No. 09-4073 (7th Cir.; Aug. 10, 2010)
The Seventh Circuit recently concluded that the words "electronically printed," as used in the Fair and Accurate Credit Transactions Act of 2003, does not include a computer generated email receipt sent by a merchant. The opinion is a fun read and offers a look at how courts deal with changing technologies and commercial practices, when construing legislation.
Background: Shlahtichman purchased contact lenses over the internet at 1-800 Contacts. 1-800 Contacts emailed him a confirmation of his order which contained the expiration date for Shlahtichman's credit card. FACTA includes a prohibition on including the expiration dates of a credit card but this prohibition only applies to "receipts that are electronically printed." The question addressed by the Seventh Circuit was whether an automatically generated email confirmation message is a receipt that is "electronically printed."
Discussion: Most courts had construed the term "electronically printed" to refer only to paper receipts, incorporating the ordinary meaning of the term "print," and the court here takes the same route:
What FACTA covers are printed receipts. The Same technological advances that have given consumers multiple means of paying their bills and purchasing goods and services have also made it possible for the receipts confirming those transactions to be provided in the form of a voicemail, email, and text message as well as the traditional paper receipt. But when one refers to a printed receipt, what springs to mind is a tangible document. To "print" a receipt thus ordinarily connotes recording it on paper. That is why [the plaintiff] had to print a copy of his receipt to get it off of his computer; it is why the machine used to transfer text from a computer to paper is called a printer, and it is why a judge who asks a law clerk to print a case does not intend for the clerk to merely display the case on his computer screen. [Wait, Seventh Circuit judges don't read cases on their iPads?]
The court looks to the dictionary definition of "print" and notes that it typically refers to the transfer of information to paper (although, as the court acknowledges, you can "print to pdf"). Shlahtichman argued that the addition of the word "electronically" suggests Congressional intent to modernize the definition of the word "print," but the court disagrees, noting that this suggests intent to capture receipts that are printed by a machine rather than credit card slips or receipts that are imprinted or handwritten. The court notes that where a receipt is automatically emailed by a vendor, the printing is done by the consumer, rather than the vendor (at whom the statute is aimed). Taking Shlahtichman's logic to its conclusion, a vendor "prints" a receipt "simply by sending [an] email to the consumer." As the court notes, this is contrary to the ordinary or natural meaning of the term "print."
The court also looks to the context of the statute and notes that the prohibition on printing expiration dates is aimed at receipts "that are printed and 'provided to the cardholder at the point of the sale or transaction.'" This raises a host of issues - most importantly,
[w]here is the point of sale for such a purchase - the consumer's computer? the vendor's headquarters? the vendor's server? cyberspace generally?
The statute references "cash registers" as a typical point of sale example, as the statute was written during a time when email receipts were not necessarily the norm. Indeed, since the enactment of the statute, consumer-owned devices [you guessed it, the iPad] have emerged that function as the equivalent of the cash register. [The court cites to a TechCrunch article by Erick Schonfeld: "Square Turns Your iPad Into A Cash Register."] Nevertheless, the court notes that even at the time the statute was enacted, e-commerce was "common," and the statute does not contain any references to terms such as "Internet" and "email." Coupled with the fact that the statute expressly refers to cash registers, the court concludes that the absence of any reference to electronic receipts evinces Congressional intent to not capture those types of receipts.
Finally, the statute contains two different effective dates: one effective date for "cash register[s] or other machine[s]" in use before January 1, 2005 and an earlier effective date for "any such machine or device" that is first used on or after January 1, 2005. To the extent electronically printed can include material that is printed on a customer's computer or equipment, having an effective date that is tied to when this equipment is first put into use problematic, since the effective date is made "dependent on a fact . . . that [is] wholly beyond the contemplation and control of the vendor facing liability."
I'm not sure where to begin with this one. The first point that jumps out at me is that courts are routinely criticized for not staying up to date on the latest technological advances. This decision makes clear that at least some courts are not so clueless when it comes to the latest technology. If anyone deserves the "out-of-touch-with-tech" label, I think it's the drafters of legislation. Regardless of where you come out on the merits of the case, it's tough to argue with the fact that the court took a careful and informed look at changing practices in construing the statute. [You have to give the court kudos for citing to TechCrunch!]
I didn't see overwhelming evidence cited in the court's opinion for this, but it's possible that Congress intended the statute to cover harm caused by improper access of a paper receipt containing credit card information (such as through dumpster diving). There is risk of harm from improper access to credit card information when stored in electronic (non-paper) form, but as the court noted, other laws are directed towards this (e.g., the Computer Fraud and Abuse Act).
This case is somewhat reminiscent of another case involving the application of a consumer protection statute to changing internet merchant practices: Powers v. Pottery Barn. In that case, the plaintiff brought claims alleging that Pottery Barn improperly collected personal information (an email address) in violation of a California statute that limited the type of information a merchant could collect at the point of transaction. The defendant (Pottery Barn) argued that to the extent the California law extended to the collection of email addresses, it was preempted by CAN-SPAM. The court didn't reach the issue of whether the statute covered email collection and instead concluded that the statute fell under CAN-SPAM's exceptions to preemption. (Ethan's blog post: "CAN-SPAM Doesn't Preempt CA Privacy Law--Powers v. Pottery Barn.")
Finally, FACTA is similar to CAN-SPAM in that often plaintiffs who suffered no apparent "injury" sued to obtain statutory damages under the statute. In the process, they stretched the statute to fit some far out fact patterns. Congress should keep these examples in mind as it enacts statutes which provide for civil causes of action along with statutory damages (particularly in the realm of informational or privacy harms).
[I thought it was also worth noting the court's usage: capital "I" "Internet" and no-hyphen "email" (and "voicemail" as one word). I agree with Tom O'Toole, who favors "internet" and "website" ("Web site, Website, web site, Internet, internet") but neither the prevailing style guides nor the Seventh Circuit (which seems to be a trend-setter of sorts in matters of style) are on board with this.]
August 16, 2010
Creation of False Blog and LinkedIn Account Targeting Utah Resident Supports Personal Jurisdiction in Utah -- Buckles v. Brides Club, Inc.
[Post by Venkat]
Buckles v. Brides Club, Inc., Case No. 2:08-cv-00849 CW (D.Utah; Aug 11, 2010)
A federal district court in Utah recently concluded that several individuals who were allegedly involved in the creation of a false blog and LinkedIn account targeting a Utah resident are properly subject to personal jurisdiction in Utah. Internet personal jurisdiction cases are not very exciting in my opinion, but this case highlights some interesting issues worth discussing.
Background: Brides Club was formed initially by John Buckles, and employed John's two sons, Brad and Ash. In 2005, Brad purchased the company from John. Following the purchase, Ash continued to work for Bride's Club as an independent contractor. Ash oversaw many technical aspects of the company's operation, including "web site, e-mail marketing, [etc.]" In 2008, Ash's agreement with Bride's Club terminated.
Around the time Ash's contract terminated, Bride's Club started experiencing technical problems, including "problems with its blogs, Web photos, YouTube links, security breaches, and other such disruptions." Brad alleged that Ash caused these problems and "masqueraded as 'E Knight' to conceal that he was the one tampering with Bride's Club's Web site, links and accounts." Brad tried to resolve the issue informally with Ash, including trying to obtain the "needed answers regarding the accounts and passwords," but his efforts were unsuccessful. Ultimately, Brad took the self-help measures that culminated in the lawsuit.
The Alleged Wrongful Acts Underlying the Lawsuit: In 2008, an "impersonating" blog appeared on the internet - the blog was made to look like it was Ash's blog (by including pictures of Ash). One entry on the blog was titled:
Ash Buckles - Mastering the art of bringing [sic] hurtful to me.
The blog also contained a link to a fake LinkedIn account in Ash's name that stated Ash only "had six months of experience in the Internet industry." [In internet terms, how is this harmful . . . isn't six months equal to a lifetime?] The fake LinkedIn account also linked to three domain names (ashbucklesblog.com; ashbuckles.net; and ashbuckles.org) that were not registered by Ash. These domain names were registered in Bride's Club's name through private registration services.
According to the complaint, Brad did not engage in these acts alone. Although Brad admitted he "drafted the text of the blog" (allegedly out of frustration, to send a 'private' message to Ash), Brad testified that he was assisted by Ed Steenman, who registered the domain names and created the blog. (Steenman is a Washington-based advertising agent who owns Steenman Associates, Inc. and who had done some work for Brad.) Separately, one of the other defendants, Munish Sangar allegedly posted Ash's pictures on the impersonating blog. Brad testified that Sangar had no involvement in creating the blog or registering the domain names.
How Did the Blog Injure Ash: Ash testified that he worked in "online marketing [and] search engine optimization." Because the blog contained some nonsensical entries, Ash alleged that the very existence of the blog would hurt his credibility on the internet. Additionally:
Ash testified that in Internet marketing there are 'black hat' methods and 'white hat' methods of doing business. Creation of multiple domain names that direct a person to the same site can be viewed as a dishonorable means of boosting rankings and doing business. Finally, the timing of the blog posting also was allegedly damaging. It occurred seven days before Ash spoke 'at Word Camp Utah, which was published for broadcast around the world.' Consequently, anyone who searched the Internet following the conference for information about Ash and his professional abilities could have seen the impersonating Web site that contained nonsensical language and said Ash was unemployed and has only six months of experience in the Internet field.
Munish Sangar: The court easily dismissed Sangar for lack of personal jurisdiction. The sole evidence of Sangar's involvement was submitted through hearsay - i.e., Ash's and his wife's testimony that "Brad had said Sangar posted pictures of Ash" at Brad's request. The court finds this evidence insufficient to establish minimum contacts and dismisses Sangar.
Brad Buckles: Brad had an uphill battle on the jurisdictional front. He admittedly was involved in creating the fake blog and LinkedIn profile. His sole argument was that since the blog was created in Washington, it did not have any contacts with the State of Utah. The court runs through internet personal jurisdiction principles (including the Calder "effects test" and the sliding scale inquiry based on the level of interactiveness of a website) and notes that although the case involves a blog rather than a magazine or more old school publication, "the medium of communication is not the relevant question." Here, Brad created the profile, knew Ash was a Utah resident and this was sufficient to conclude that Brad undertook acts which were aimed at the State of Utah or the effects of which would reasonably be felt there. Brad also tried to argue that he wanted to "send a message" to Ash. Whatever he argued after the fact, the court rejected the notion that the blog and profile were intended to send a private message. The court concludes that "Brad's conduct was aimed at Utah" and he took action "with the knowledge that the brunt of the injury would be felt in Utah." No big surprise here.
Bride's Club: Bride's Club argued that it was a Nevada corporation and could not be haled into court in Utah. The court rejects this argument, concluding that Brad created the blog and profile, and as the president of a corporation who used corporate resources in undertaking the alleged wrongful acts, his acts could be imputed to Bride's Club. Accordingly, personal jurisdiction was proper over Bride's Club.
Steenman and Steenman Associates: Steenman - according to his own testimony - was involved with the blog. He also registered the three domain names and set up the "false LinkedIn account." For the same reasons that Brad was subject to personal jurisdiction in Utah, Steenman was as well. With respect to Steenman Associates, the court came to a different conclusion. The court determined that there was no evidence showing that Steenman was acting within the scope of his employment at Steenman Associates or furthering the interests of that company. Accordingly, the court dismisses Steenman Associates without prejudice.
[The defendants brought motions to dismiss on personal jurisdiction grounds only and the court's order does not evaluate the complaint on the merits. I don't see a great section 230 argument here, but I wondered whether one or more defendants would try to use section 230 - their efforts will probably be complicated by the contractual relationships in place, among other things.]
As I initially noted, the issue of personal jurisdiction over the internet has been hashed out to death, and I don't think the case is noteworthy for this reason. [It's also not noteworthy because it involves LinkedIn, although this is why it caught my eye.]
So, what was interesting about the case?
First, Brad committed a cardinal error by entrusting password and account information to a contractor that he did not seem to have a stable relationship with. When people conduct business over the internet, often they entrust their technical people or web designers with the task of registering domain names, setting up accounts, and generally controlling the back end of their site. This leaves you exposed from a practical standpoint. (Cf. the Zipatoni case.)
Second, the details of Bride's Club's revenue and lead generation activities are worth noting. In 2008, Bride's Club's total revenue was between $1.5 and $1.7 million. The court did not mention what its profit figures were, but it can be somewhat surprising that a small family owned internet business generated this level of revenue. (Obviously from a Fortune 500 perspective, the figure may not seem significant, but it's probably well above the level of the corner liquor store.) Bride's Club also generated 35-300 "bridal names" (leads) per week. That's a fair number of people who sign up or provide their contact information to receive information from Bride's Club (more than I would have guessed).
Ash's allegations of injury were also interesting. His basic claim was that as an SEO professional, having a blog out there with nonsensical entries and an unprofessional LinkedIn profile could damage him. At the end of the day, he'll obviously have to prove this up, by producing some credible people who testify that they would have purchased services but for the fact that they saw his bogus profile, and evidence that people actually viewed the blog, but it's a testament to the power of the internet in the reputation space that he could even make this argument credibly. The fake blog seems marginally defamatory, but Ash's allegation of harm is that be setting up a non-flattering profile of him on the internet, this harmed his reputation as an internet professional. I'm not sure he would have been able to make this argument five years ago.
Finally, I wonder if there's something to be gleaned from the court's analysis of whether Steenman (and Brad for that matter) were acting on behalf of their respective companies. In both instances, it was undisputed that the individuals had participated in the allegedly wrongful conduct personally, but their conduct was not automatically imputed to their companies. You hear a lot about social media policies and whether companies need them. I don't have a strong position on this yet (I think it's early to tell and use by companies and their employees seems to be constantly changing, so I'm not sure today's policy will serve you well tomorrow). That said, I wonder if a blanket policy that said "you will not create any accounts in the company's name or using the company's resources without email or written approval" would have helped here? I guess if such a policy existed and the President of the company (Bride's Club) used company resources to create the account, the policy probably would not have helped Bride's Club much, but if Brad was a lower level employee and a policy that was reasonably enforced was in place, I wonder if the court would have viewed things differently?
Self help can be a tempting alternative, but as this case illustrates, bypassing a straightforward resolution in favor of a counter-attack on the internet can lead to some rough consequences. This isn't the first case where two parties are battling it out and one party who likely has a legally cognizable injury takes the self-help route which ultimately results in greater liability for this party. It's unclear as to how this lawsuit will play out but it's likely that Brad has spent significantly more money than he would have spent initially resolving the issue through legal channels.
Some related blog posts:
August 11, 2010
Facebook Friendship May Undermine University Disciplinary Board Decision -- Furey v. Temple Univ.
[Post by Venkat]
Furey v. Temple University, Civ. No. 09-2472 (E.D. Pa.) (Aug. 3, 2010)
The Eastern District of Pennsylvania recently concluded that a Facebook 'friendship' between a Temple University disciplinary board member and a witness may have procedurally undermined a disciplinary hearing.
Kevin Furey, a Temple University student, was involved in an exchange with an off-duty police officer while technically on school grounds. As described in the order, Furey went out partying and returned to a friend's house where he was staying. Furey's friend "locked himself out his bedroom, [so Furey] went to retrieve a machete [??] from his car to pry open the bedroom door." While at his car, Furey was approached by some men who Furey believed might try to attack or mug him (one of the men, Travis Wolfe, was an off-duty police officer). Furey and the officer engaged in a physical struggle and ultimately Furey was taken down and arrested by additional officers who arrived on the scene.
Furey was charged with a violation of Temple's code of conduct. The panel adjudicating the charge consisted of three faculty representatives and two student representatives. Malcolm Kenyatta was one of the student representatives. Kenyatta was Facebook "friend[s]" with Officer Wolfe, the officer who had the altercation with Furey. Ultimately, the panel recommended that Furey be expelled. Furey appealed his decision to a review board which found that suspension (rather than expulsion) was a more appropriate sanction. The review board also found that the Facebook friendship between Kenyatta and Officer Wolfe constituted a "procedural defect" for which additional investigation into the propriety of the hearing was warranted (the review board did not order a new hearing). The review board made its recommendation to the VP of Student Afffairs, who ultimately decided to go with expulsion.
The "Code Investigator" who was asked to look into the procedural defects by the review board asked Kenyatta about the Facebook friendship. Kenyatta responded that:
he and Wolfe were friends on Facebook, but he had over 400 friends, and [Kenyatta and Wolfe] were not "friends" in the traditional sense.
Furey filed a lawsuit asserting a variety of claims, including due process violations stemming from procedural improprieties underlying the hearing. The court agreed with Furey that procedural defects underlying the disciplinary process could constitute due process violations. Although the court did not itself comment on whether the Facebook friendship undermined the process, the court noted that the review board found that the Facebook friendship constituted a procedural defect, and the code governing the disciplinary process provided that where a procedural defect is found, the review board should recommend a new hearing that would take place in front of a new panel. Based on this and one other procedural defect, the court denied summary judgment to the university, holding that the plaintiff's claims for procedural due process violations could go forward.
Facebook friendships between judges, witnesses, and parties should not be viewed as inherently problematic. Litigants, judges, and parties share social connections all the time. However, disclosure is key, and recently, one court found it problematic where a juror didn't disclose a MySpace 'friendship' with the defendant and then gave an unconvincing explanation for it when questioned. (See West Virginia Appeals Court Grants New Trial Based in Part on Undisclosed MySpace Friendship.) On the other hand, more than one court has sneered at the the "friend" label, treating Facebook friendships as something less than real life friendships.
In Williams v. Scribd (see Professor Goldman's post on that case here), a case involving copyright and publicity claims against Scribd, the court noted:
it’s no secret that the ‘friend’ label means less in cyberspace than it does in the neighborhood, or in the workplace, or on the schoolyard, or anywhere else that humans interact as real people.
In another case (Quigley Corp. v. Karkus) coincidentally also from the Eastern District of Pennsylvania - the court also turned up its nose at the concept of Facebook friendship:
[T]he Court assigns no significance to the Facebook "friends" reference. Facebook reportedly has more than 200 million active users, and the average user has 120 "friends" on the site. . . . Indeed, "friendships" on Facebook may be as fleeting as the flick of a delete button.
Here, there was some evidence that the panel and certain panel members displayed hostility towards the plaintiff. Plaintiff also presented evidence that Kenyatta and Officer Wolfe were part of some club. In any event, the underlying rules provided that where a procedural defect was found, the review board should have ordered a new hearing and this did not take place. [The court's views on Facebook friendship were not central to the case, but since the case mentioned Facebook, I figure I should blog about it. Thanks in advance for cutting me some slack on this!]
New Anti-Libel Tourism Act (HR 2765) Extends 47 USC 230 to Foreign Judgments
By Eric Goldman
President Obama signed HR 2765, the "SPEECH Act," into law, codified at 28 USC Secs. 4101-4105. The act prohibits US courts from enforcing foreign defamation judgments unless (1) the judgment would satisfy First Amendment or similar state constitutional protections, and (2) the foreign court making the ruling had jurisdiction that comports with our due process requirements. To get a US court to enforce the foreign judgment, the plaintiff bears the burden of proof that the judgment meets these standards. Effectively, these requirements will prevent a defamation plaintiff from forum-shopping globally; even if the plaintiff finds a more friendly jurisdiction, it will still have to satisfy US legal requirements for defamation before enforcing the judgment here.
The act also applies 47 USC 230 to foreign judgments; if the subject information would have been protected by 47 USC 230 in the US, the plaintiff has the burden to show that the foreign judgment comports with 230. Very late in the drafting process, I raised a minor concern that the shield only applies to "providers of interactive computer services" and not ICS "users," even though 230 protects both providers and users. This is a minor drafting error, but I hope it will not result in any judgments that slip through the cracks. Also, the statute expressly pertains only to defamation claims; other causes of action do not get the shield, and usually multiple causes of action are asserted alongside a defamation claim.
As far as I can recall, this is only the third time that Congress has monkeyed with 230 since its initial passage. The other two:
* In 1998, Congress added 230(d), which requires ICSs to tell their customers about the availability of filtering technology. 230(d) is a stupid disclosure requirement, and I rarely see it complied with in the field. I have often wondered if plaintiffs will ever try to argue that making the 230(d) mandatory disclosure is a precondition to 230(c)'s immunity. I've not seen that argued before, and I don't think the statutory construction supports that interpretation, but plaintiffs are running out of creative arguments to get around 230's immunity.
* In 2006, Congress passed the Unlawful Internet Gambling Enforcement Act of 2006, which attempted to regulate Internet gambling. At the time, I wrote:
The statute partially reduces the 230 limitations by allowing the DOJ or state AGs to seek a court order requiring ICSs to take down a lawbreaking website. 31 USC 5365(c). Without this statutory exception, 230 should have barred any civil orders. At the same time, the statute appears to expand 230 protection to eliminate ICS liability under the Wire Act unless the ICS has “actual knowledge and control of bets and wagers” and owns or operates an illegal gambling website. I’m not exactly sure it means to have “actual knowledge and control of bets and wagers,” but my suspicion is that this defines a very narrow universe of activities. So, on balance, it looks like this law may have slightly expanded ICS immunization by providing some limits on ICS liability for third party criminal gambling activities.
Because Congress so rarely modifies 230's coverage, the SPEECH Act is important for that reason alone. However, in practice, I can't recall a foreign judgment being enforced in the US against a service provider that would have claimed 47 USC 230 in the US, while we have seen libel tourism against the direct publishers. As a result, I don't expect the 230-related prong of the SPEECH Act to be invoked frequently, but it's definitely nice to have.
A final nice touch: successful defendants under the statute should generally get their attorney's fees.
I spend a lot of time bashing legislatures on this blog, so I want to take a moment to commend Congress for getting something right. This law has two meritorious effects: it hinders transborder litigation gamesmanship and ensures First Amendment and 47 USC 230 protections for US defendants so long as they are in US courts. This is great news all around. Many people deserve credit for getting this law to the finish law, but I want to specially commend Rep. Steve Cohen of Tennessee, who sponsored this law as well as the much-needed federal anti-SLAPP law. These two bills represent the kind of work I wish all of our legislators were pursuing.
August 09, 2010
July 2010 Quick Links, Part 1 (IP Edition)
By Eric Goldman
* Rebelution, LLC v. Perez, 2010 WL 3036217 (N.D. Cal. July 30, 2010). The plaintiff is a band named Rebelution. The defendant is a music performer named Pitbull who released an album "Pitbull Starring in Rebelution" without intending to reference plaintiff. No summary judgment to defendant. Wikipedia has a disambiguation page for "Rebelution."
* Southeastern Pennsylvania Transportation Authority v. Mednick Mezyk & Credo (E.D. Pa. complaint filed June 21, 2010). Interesting trademark lawsuit. A government transit authority, SEPTA, has sued personal injury lawyers for the ways they advertise that they represent plaintiffs against SEPTA. I think SEPTA has a tough argument, and they sure look thin-skinned.
* Can Chevrolet get people to stop calling it "Chevy"? Not likely.
* The latest article addressing the Trademark Use in Commerce debate: Lee Ann W. Lockridge, When Is a Use In Commerce a Noncommercial Use?, 37 Florida State University Law Review 337 (2010)
* MGE UPS Systems v. GE Consumer and Industrial Inc., 08-10521 (5th Cir. July 20, 2010). A significant (and possibly incorrect) ruling on 1201: “Because the dongle does not protect against copyright violations, the mere fact that the dongle itself is circumvented does not give rise to a circumvention violation within the meaning of the DMCA.”
* Mattel Inc. v. MGA Entertainment Inc., 09-55673 (9th Cir July 22, 2010). Another Kozinski bull-in-the-china-shop opinion, it is studded with important legal statements. Among the most interesting: an employee agreement purporting to assign copyrights from the employee failed when the language read more like a patent assignment. But read the whole thing.
* Teter v. Glass Onion, Inc., 5:08-cv-06097-FJG (W.D. Mo. July 12, 2010). Troubling ruling. An art gallery selling an artist’s painting does not make a fair use when making and then publishing thumbnail images of the paintings on the gallery’s website. No first sale defense for making the thumbnail images, either, although I’m not sure how the gallery can advertise the paintings for sale online without the thumbnails. The trademark infringement claim for referencing the artist’s name also survives because of the possibility the gallery looked like an authorized dealer when it wasn’t.
* We learned how much the Viacom v. YouTube ruling cost Google: $100M. Can you imagine what good things might have come if YouTube and Viacom had poured their legal fees into innovation rather than litigation? Also, this is a prime example of just how much it costs when a well-funded company (Google) decides to treat a lawsuit as bet-your-business. No way that most start-ups could have coughed up $100M for the lawyers.
* Cable v. Agence France Presse, 2010 U.S. Dist. LEXIS 73893 (N.D. Ill. July 20, 2010), A professional photographer’s claim for 17 USC 1202 for removal of copyright management information survives a motion to dismiss.
* Las Vegas Sun does a thorough expose on alleged copyright troll Righthaven (look at the "related stories" too).
* Copyright enforcement mill gets caught red-handed committing copyright infringement on its website. Whoops!
* SAP has stopped contesting liability in the Oracle/TomorrowNow lawsuit.
* Miller v. Facebook, 2010 U.S. Dist. LEXIS 75204 (N.D. Cal. July 23, 2010). A software copyright registration for a literary work (i.e., the source code) was sufficient to uphold a pleading that the defense infringed the software's look and feel (i.e., an audio-visual work). My most recent post on this case.
* Bimbo Bakeries v. Botticelli: Bimbo Bakeries [great TM!], makers of Thomas English Muffins, gets an inevitable disclosure injunction against a departed employee who knows how to make their "nooks and crannies" and went to a rival baker. See also this post from Trading Secrets.
* Agora Financial LLC v. Samler, WDQ-09-1200 (D. Md. June 17, 2010). This case is similar to the more high-profile Barclays v. theflyonthewall case. The newsletter publisher plaintiff provides stock recommendations to its readers; the defendant republishes the tips on TipsTraders.com. The magistrate rejects a default judgment against the defendant because (1) the hot news doctrine is preempted by copyright law, and (2) even if it isn’t, the “plaintiffs’ writers’ investment recommendations are copyrightable” and therefore ineligible for hot news protection. Ruh-roh. The judge should have stopped at #1. Even the plaintiff admitted that the recommendations were uncopyrightable facts. So now what? Does this now mean everyone who republishes the recommendations is a copyright infringer?
August 08, 2010
Ca. Appeals Ct. Affirms Conviction For Fake MySpace Emails Intended to Influence Custody Dispute -- People v. Heeter
[Post by Venkat]
People v. Heeter, B213696 (Cal. Ct. App.) (Aug. 2, 2010)
Background: In a criminal prosecution stemming from false evidence used in a family law dispute, a defendant was convicted of sending fake emails to herself with the intent that the emails would be used to influence a court proceeding. The appeals court affirmed her conviction.
Heeter (the defendant) was married Chris since 2005 (and is his current wife). Chris and his ex-wife (Aubry) were involved in a custody dispute, and Heeter sent herself abusive emails which appeared to come from Aubry. The emails had the tone of Aubry expressing her angst and anger at Heeter for displacing Aubry as the mother of Aubry's child (e.g.):
My son is not yours and will never be yours[!]. Look you ******* *****, I'm sick and tired of you claiming my son is your own. Get over it. He's mine and always will be.
The emails were presented in the context of the custody dispute where Aubry was seeking a modification of the custody arrangement so she could spend more time with her child. Chris opposed the request, and presented the emails to show Aubry's unfitness as a parent. The judge hearing the custody dispute doubted the authenticity of the emails and declined to modify the custody arrangement (Aubry sought additional time and this was not granted). When Aubry expressed her concerns about identity theft to a detective, the detective subpoenaed and obtained MySpace account records for Heeter, Aubry, and Chris. The logs and IP addresses revealed that the emails "had originated from a MySpace account using an IP address identical to that of the MySpace account created in Aubry's name to which they were sent."
Discussion: Heeter was charged under a California statute that made it a crime to (1) prepare a false document or thing; (2) with the intent to produce it or allow it to be produced at a trial or other proceeding; (3) for any fraudulent or deceitful purpose.
Heeter did not dispute that she created the fake account or that she had sent the emails, but contested that she intended that the fake emails would be used in a judicial proceeding. The IP address tied to the MySpace account and the timing of the emails made the fact that Heeter sent the emails hard to contest.
The court held that there was ample evidence from which the jury could reasonably conclude that Heeter sent the emails with the intent that they would be used in the custody dispute: (1) she was aware the dispute was ongoing, (2) the emails related to the dispute, and (3) her explanation of why she sent the emails (to "vent") did not jibe with the content of the emails ("[i]t is simply not reasonable to conclude one would adopt the posture assumed in the writings if their purpose was, as Heeter claims, simply to allow their author to vent her frustrations").
Heeter also challenged the jury instructions and challenged the statute as ambiguous, but the court rejects these challenges.
The case illustrates the ease with which email evidence (and MySpace accounts) can be faked. Email evidence is frequently used in family law disputes, which is not surprising, since people probably tend to engage in heated email exchanges (given the subject matter of the proceedings). A family law practitioner confirmed my instincts that courts don't necessarily subject email evidence to exacting standards and that email evidence often ends up being influential. (Ex parte orders which remain in effect until challenged are often issued on the basis of email evidence.) Courts don't necessarily operate with the assumption that email and profile evidence can be easily faked, although the judge hearing the custody dispute saw through the fake emails. I blogged about a recent criminal case where a Maryland appeals court allowed for "circumstantial authentication" of a MySpace profile page. This case illustrates the problems with allowing circumstantial authentication.
It's also interesting to note that in the underlying custody dispute, the judge did not modify the custody arrangement. Aubry had sought more time with her child, but the court denied this request, thus leaving the child partially in the custody of parents who engaged in the conduct that ultimately resulted in this criminal proceeding.
Finally, it's also worth noting that the judge rejected the prosecution's request for jail time and instead sentenced Heeter to three years of probation, with the condition that she pay a $100 fine and she not possess or use any credit cards. [It didn't seem from the decision that the prosecution sought any restrictions on internet access.]
Related: This is not the only recent criminal conviction for someone sending fake communications. Wired recently posted about a case where a woman was convicted for sending threatening text messages to herself following a breakup: "Woman Jailed For Texting Threats to Herself."
August 06, 2010
Google Liberalizes Its European Trademark Policy
By Eric Goldman
After the ECJ's favorable opinion in the Google cases, I've been wondering if Google would liberalize its trademark policy in Europe. It took Google 4 months to parse the ECJ's inscrutable opinion and make a call, but it finally decided that the opinion was favorable enough to support liberalization.
After the changed European policy (starting Sept. 14), Google will have a virtually uniform world-wide policy not to block bids on trademarked keywords at the trademark owner's request. Google will block trademark references in ad copy at the trademark owner's request, but this will be subject to regional differences. In the US and (starting Sept. 14) UK, Ireland and Canada, Google will not block TM references in ad copy for resellers, complementary product sellers and information sites. In the EU and some related countries (EFTA), Google's new policy will be to review ads on an ad-by-ad basis as follows:
in response to a complaint from a trademark owner, we will do a limited investigation as to whether a trademarked keyword in combination with particular ad text is confusing as to the origin of the advertised goods and services. If we find that it is, we will remove the specific ad that is the subject of the complaint.
This language "confusing as to the origin of the advertised goods and services" comes from the Google ECJ opinion, but I'm still not sure exactly what satisfies this standard. Google will likely have to develop its own internal common law to figure out how it interprets the term.
Last year, Google liberalized its US trademark policy. That, combined with the 2nd Circuit's Rescuecom decision, helped spur a flurry of trademark lawsuits against Google (which Google has had some success beating back). Will Google's policy liberalization in Europe similarly prompt a deluge of new litigation?
Perhaps not, because Google is acting on the strength of an ECJ decision, plus additional helpful rulings in the Louis Vuitton case on remand to the French high court as well as a recent ECJ decision in Portakabin. In contrast, Google had no clear litigation success in the US to support its trademark policy liberalization; rather, it came on the heels of Google's 2nd Circuit loss in Rescuecom. In fact, I've been told that a number of trademark lawsuits were dropped in Europe after the Google ECJ decision, presumably because the plaintiffs figured they couldn't win.
At the same time, I can't imagine trademark owners will be happy with Google's new policy. Google has had more adverse rulings in Europe than it's seen in the US, and trademark owners in Europe have a broader array of "unfair competition" doctrines to lob at Google even if they feel constrained by the ECJ rulings. Further, trademark owners might disagree with Google's interpretation of its policy to block confusing ad text/keyword bids. All told, Google could be in for a turbulent ride in Europe.
My main Q is: how much new incremental revenue will this policy change unlock? It bears noting that after Google made its policy changes last year, it subsequently reported huge year-over-year revenue growth. How much of that growth was due to organic growth of Google's business, and how much of it was attributable to new advertising coming from the liberalized policy? I've never gotten a satisfactory answer to that Q. I wonder what will happen with the Europe change. Should we anticipate Google's European revenues are about to get turbocharged by all of the new advertising that was previously squelched by the former policy?
I also wonder if this change will put increased pressure on trademark owners to sue advertisers directly. Already those lawsuits are too numerous to count in the US; and the Google ECJ opinion (combined with the Portakabin opinion, a TM owner v. advertiser suit) put the onus on advertisers not to create confusion through their keyword advertising. Personally, I think most of those TM owner vs. keyword advertiser lawsuits are massive money pits, but far too many TM owners have pursued them nonetheless.
August 05, 2010
Web Host Gets Easy 47 USC 230 Win in Catfight--Johnson v. Arden
By Eric Goldman
I've been looking at over-the-top cute kitty pictures all morning. Just try to suppress the "aahs" on a page like this. I'm on cute overload! But there's nothing cute about litigating 230-preempted claims to the Eighth Circuit.
This lawsuit involves the breeding and sale of Persian and Himalayan cats and related "designer" cross-breeds. “Cozy Kitten Cattery,” run by the Johnsons in Missouri, allege that Heineman, a former business associate now affiliated with BoutiqueKittens.com, and Lowry, whose relationship with the Johnsons isn't clear, both posted allegedly defamatory comments about the Cozy Kitten Cattery business to ComplaintsBoard (run by Arden), which InMotion hosts. (A quick perusal of ComplaintsBoard reveals that cattery-related complaints are disturbingly common.) The plaintiffs filed suit against all of these folks and others, alleging they jointly committed defamation. Insert your own cat-related pun here (maybe involving flying fur or scratching claws). However, the plaintiffs actually served only Heineman, Lowry and InMotion.
ComplaintBoard's eligibility for 230's immunity wasn't discussed, but that should be an easy case despite the conspiracy-esque allegations. InMotion's eligibility for 230, as a service provider to the service provider, is an even easier call--indeed, the savvy district court raised the 230 defense sua sponte!--and the Eighth Circuit appropriately treats it as such in what I believe is the first Eighth Circuit opinion on 230. The court says, "It is undisputed that InMotion did not originate the material that the Johnsons deem damaging," and that pretty much ends the inquiry. The court concludes: "we decline the Johnsons' invitation to construe § 230(c)(1) as permitting liability against InMotion for material originating with a third party." This reminds me a little of the uncited Novins v. Cannon case from earlier this year, where the court says there can be only 1 defendant in an online defamation case--the content originator. Everyone else in the publication chain should get 230 immunity.
The opinion then discusses personal jurisdiction. The court rejects plaintiff's home court jurisdiction over Heineman under the Effects Test despite some highly critical comments about the plaintiff's business. Courts have been splitting about the jurisdictional effects of gripe postings, so it's great to see the Eighth Circuit establish that a gripe post doesn't automatically confer jurisdiction in plaintiff's home court.
The court also rejects jurisdiction on trademark grounds based on allegations that Heineman used the phrase "Cozy Kittens and Cuddly Cats" on BoutiqueKittens.com. The court says "there is no evidence in the record that Heineman engaged in any transaction or exchange of information with a Missouri resident via www.BoutiqueKittens.com, or that a Missouri resident ever accessed the website. We decline to confer personal jurisdiction based on only the possibility that a Missouri resident had contact with Heineman through www.BoutiqueKittens.com."
9th Cir. Smacks Down AOL's Advertising.com Trademark as Likely Generic -- Advertise.com v. AOL
[Post by Venkat]
Advertise.com, Inc. v. AOL Advertising, Inc., Case No. 10-55069 (9th Cir; Aug 3, 2010).
The Ninth Circuit handed AOL a preliminary trademark loss, finding that ADVERTISING.COM is likely generic for internet advertising services.
Background: AOL owned trademark registrations for ADVERTISING.COM, and brought trademark claims against Advertise.com. The district court found AOL's mark to be descriptive (and thus protectable) and granted AOL's request for an injunction, barring Advertise.com's use of a confusingly similar design (to AOL's ADVERTISING.COM) and also enjoining Advertise.com from using the designation and trade name ADVERTISE.COM. Advertise.com appealed the latter portion of the district court's order.
Discussion: The crux of the appeal - as framed by the Ninth Circuit - was whether AOL's mark was descriptive, as the district court concluded, or generic. The parties agreed that AOL offered "online advertising" or "internet advertising" services.
The court initially concludes that taken individually, "advertising" is generic. AOL argued that when considered together, the mark should be viewed as distinctive. The court wasn't persuaded. The court first looked to the "who-are-you/what-are-you" test and noted that AOL (or this particular division) was "an advertising dot-com." The court also noted the rule that the addition of .com or another TLD "to an otherwise unprotectable term will only in rare circumstances result in a distinctive composite." (See discussions of Hotels.com (TTABlog®) and Mattress.com (MediaPost) for recent cases on this.) AOL unsuccessfully tried to argue that this was one of those rare circumstances.
AOL also argued that the addition of a TLD alters the analysis because only one entity can hold the rights to a domain name at any time - i.e., adding a .com could turn an otherwise unprotectable term into a protectable one, because only one entity could practically use the TLD version of the term. Not surprisingly, the court was unpersuaded by AOL's argument that "a per se rule that the addition of a TLD to a generic term results in a protectable mark." As the court notes, the rule proposed by AOL would grant the domain name owner greater rights than the domain name - i.e., it would potentially allow them to go after the other TLD versions, which would be a bizarro result.
Finally, AOL argued that refusing to protect these types of marks would result in parasite marks, such as "addvertising.com," which would divert business from "advertising.com." The court's reaction to this:
this is the peril of attempting to build a brand around a generic term.
It's not necessarily the end of the road for AOL and its mark. This ruling comes at a preliminary stage, so AOL may put forth evidence to win the day. I'm skeptical, but it's possible.
AOL knew its mark was weak at best. The PTO requested a disclaimer of the standard text version of the mark. Although AOL was able to register the stylized version of the mark without a disclaimer, it abandoned its attempt to register the standard text mark. Which is one aspect of the ruling I found puzzling. Since AOL didn't have a word mark, could the stylized version of the mark support issuance of an injunction over use of the words? I didn't think this was the case, but the court didn't really touch on this at all.
One interesting part of the opinion was the discussion about how "dot com" is a generic way of describing an internet business in ordinary conversation:
When any online advertising company . . . is asked the question "what are you?" it would be entirely appropriate for the company to respond . . . "an advertising dot-com." . . . . We see strong evidence of this in the common use of ".com" to refer to internet businesses. For example, the American Heritage Dictionary defines "dot-com" as "of or relating to business connected on the Internet: dot-com advertising." [Ouch - rough for AOL that the dictionary chose to use this particular example to illustrate the definition!]
This has potential to affect many domain names. Domain names that are generic for the services offered are on shaky ground to begin with, but this passage will not help in efforts to secure trademark protection.
At the end of the day, getting a trademark over a .com term is of little use (at least the .com part), and if the underlying mark is weak, the addition of .com doesn't do much for you and may even work against you.
August 04, 2010
Google Gets Complete Win in Rosetta Stone Case
By Eric Goldman
Rosetta Stone Ltd. v. Google Inc., 1:09-cv-00736-GBL-TCB (E.D. Va.). Opinion granting Google's motion to dismiss filed August 3, 2010, 2010 WL 3063152. Order granting Google's motion to dismiss the unjust enrichment claim filed August 2, 2010, 2010 WL 3063857.
Back in late April, many of us were eagerly awaiting the impending trial in Rosetta Stone v. Google, which was going to be the first trial in a trademark owner v. search engine keyword advertising case since the GEICO v. Google case in 2004. Then, just days before the scheduled trial, the judge granted Google's motions to end the case, which negated the scheduled trial. However, because the case had been moving too fast in the Rocket Docket, the judge made that ruling without providing any written explanation of why. For about 3 months, we've been wondering how good a win Google got.
The opinions are finally out, and we've learned that Google got a complete win, in that the judge endorsed Google's basic business structure. As I explore below, the specifics are a little sketchy (the judge obviously cut some analytical corners), but the opinion’s overall tenor is that the judge completely rejected Rosetta Stone's fundamental contention that Google was doing something wrong by making money off Rosetta Stone's trademarks. Because Rosetta Stone's core liability paradigm failed to convince the judge, all of opinion's detailed reasoning is less essential.
Unfortunately for Google, the opinion contains several minor doctrinal errors that could attract attention from an appellate court. That makes this ruling vulnerable on appeal. I could see why Rosetta Stone would choose to appeal the case to fix those errors--although even a Fourth Circuit reversal would be only marginally helpful to Rosetta Stone if the case gets remanded to the same judge, who clearly isn’t going to find for Rosetta Stone.
Irrespective of subsequent proceedings in this case, for now this opinion could prove extremely useful to Google in trying to finish off the half-dozen remaining trademark lawsuits against AdWords (and thwarting new cases). In particular, I expect Google will tout two of the key rulings in this opinion--summary judgment on the likelihood of consumer confusion, and Google's eligibility for the trademark functionality defense. If other judges accept either of these two rulings, Google might quickly clear its AdWords litigation docket.
A deeper look at some of the judge's discussion:
* the judge grants Google summary judgment on the likelihood of consumer confusion question. The court says "no reasonable trier of fact could find that Google's practice of auctioning Rosetta Stone's trademarks as keyword triggers to third party advertisers creates a likelihood of confusion as to the source and origin of Rosetta Stone's products." This is just the latest defense win on the factual question consumer confusion attributable to keyword advertising, joining such recent cases as College Network v. Moore and Fair Isaac v. Experian (both trademark owner v. advertiser lawsuits). As precedent builds that trademark owners aren't likely to win on the central consumer confusion question, we might see a categorical reduction in AdWords-related litigation.
* In reaching this conclusion, the court rejects several typical plaintiff arguments:
- on the question of Google's intent, the court rejects that an intent to profit is sufficient, even if Google liberalized its trademark policy to goose its revenues. Instead, the judge requires evidence of palming off by Google--which keyword ad sales clearly are not.
- on the question of actual confusion, Rosetta Stone offers the testimony of 5 allegedly confused individuals. The court says this de minimis confusion out of the 100M ad impressions delivered on searches for Rosetta Stone's trademarks. Further, those 5 testimonials apparently all relate to counterfeit Rosetta Stone purchases, and the court attributes those sales to confusing web vendors and not Google's role in the keyword advertising of those sites. Other consumer complaints in Rosetta Stone's logs weren't necessarily attributable to keyword advertising. Finally, the court rejects the plaintiff's survey on whether consumers thought Rosetta Stone "endorsed" the ads, saying endorsement confusion isn't the same as source confusion. I'm not sure about that distinction, but clearly the court wasn't interested in the survey.
- on the question of consumer sophistication, a language learning system is an expensive and complicated purchase, which makes consumers more cautious.
- the court says the parties didn't contest the other likelihood of consumer confusion factors, although it's unclear how many of those other uncontested factors favored Rosetta Stone. Thus, the court does a truncated multi-factor analysis, only looking at the 3 contested factors, saying they all weigh in favor of Google, and then finding this supports SJ for Google. I could see an appellate court wanting to look more closely at the other undiscussed factors.
* The court's most novel ruling is that Google's use of trademarks as keyword ad triggers qualifies for the trademark functionality doctrine. Typically, the functionality defense arises only in trade dress cases. The functionality defense in the keyword advertising context failed in the 9th Circuit's Playboy v. Netscape ruling, which this court surprisingly doesn't cite. The court says that the trademarked keyword triggers "have an essential indexing function because they enable Google to readily identify in its database relevant information in response to a web user's query." This is correct, of course, but doctrinally I think this conclusion better fits into a doctrinal conclusion that Google isn't using the trademark as a mark. (See more on this point in my Deregulating Relevancy article). Nevertheless, Google and other keyword advertising sellers will be thrilled if other courts accept the functionality defense. I expect most other courts will address the 9th Circuit's Netscape ruling before doing so.
* Google's keyword suggestion tool does not constitute inducement for contributory trademark infringement. The court says it's smart business practices, not inducement, for Google to upsell its advertisers. Per Tiffany v. eBay, Google also lacks the requisite scienter because it contractually prohibits counterfeiter ads, honors takedown notices, and has a Trust & Safety team looking for problems. Plus, like eBay, Google had no way of confirming if advertisers were selling legitimate or counterfeit goods.
* The court uses a goofy legal standard for vicarious trademark infringers, which it says can occur if "Google has joint ownership or controls the allegedly infringing advertisements appearing on its site." This standard is WRONG. Unlike vicarious copyright infringement, vicarious trademark infringement is rooted strictly in agency law. So the vicarious infringer normally requires a principal/agency-like control over the direct infringer's conduct. Here, the court devolves the vicarious trademark infringement test into a bastardized version of the vicarious copyright infringement test. This is a significant doctrinal error. Nevertheless, it proves to be harmless for Google because "Rosetta Stone has not shown that Google controls the appearance and content of the Sponsored Links and the use of the Rosetta Stone Marks in those Links."
* I'm no fan of the dilution doctrine, but this court's rejection of the dilution claim was bizarre. Google wins the dilution claim because it "does not sell language learning software," i.e., Google wasn't using the trademark as an identifier of its own products. Huh? The court also says blurring did not occur because Rosetta Stone's brand awareness grew during the period of time Google is selling keyword-triggered ads. Huh? This confuses correlation with causation. What would Rosetta Stone's brand awareness have been without the keyword ads? We have had very few rulings addressing keyword advertising and dilution (this uncited 2007 ruling is the only one that comes immediately to mind), so this conclusion on dilution could be a fairly influential ruling as well.
* In a separate opinion, the judge rejected Rosetta Stone's unjust enrichment claim on a motion to dismiss. It's a little odd to be dealing with a pending motion to dismiss when the case was on the brink of trial, but that's the consequence of racing too fast in the Rocket Docket. The court rejects the unjust enrichment claim for failure to satisfy the requisite claim elements--basically, because this is not a quasi-contract situation where Google made an implied promise to pay Rosetta Stone. As I mentioned earlier, the court otherwise rejected Rosetta Stone's basic contention that Google has money it doesn't deserve. Interestingly, the court also rejects the unjust enrichment on 47 USC 230 grounds, basically treating the unjust enrichment claim as an attempt to hold Google liable for third party conduct. I didn't totally follow the judge's reasoning, and frankly I'm not sure 230 is the right basis to squelch the unjust enrichment claim. Nevertheless, unjust enrichment claims are almost always junky/throwaway claims, so a 230 immunity would be an effective way to clean them up fast.
In a mostly unrelated development, today Google liberalized its AdWords trademark policy in Europe. I'll blog on that soon.
The roster of pending AdWords cases (I most recently thoroughly double-checked the status of these cases on June 6, 2010):
Ezzo v. Google
Rescuecom v. Google
* FPX v. Google
* John Beck Amazing Profits v. Google
and the companion Google v. John Beck Amazing Profits
Stratton Faxon v. Google
Soaring Helmet v. Bill Me
Ascentive v. Google
Jurin v. Google 1.0 (voluntarily dismissed), succeeded by Jurin v. Google 2.0
Rosetta Stone v. Google
* Flowbee v. Google
Parts Geek v. US Auto Parts
* Dazzlesmile v. Epic
August 03, 2010
Baidu Can Maintain Negligence Claims Against Register.com for Lax Security Practices Which Allegedly Facilitated Cyber-Attack - Baidu v. Register.com
[Post by Venkat]
Baidu, Inc. v. Register.com, Inc., Case no. 10 Civ. 444 (DC) (S.D.N.Y.) (July 22, 2010).
Background: Baidu registered the
The cyber-attacker gained access to Baidu's account with Register through engaging in an online chat with a Register customer service representative. The representative asked the intruder for Baidu's security verification information. The intruder did not provide the representative with the correct information, "but the [representative] nonetheless emailed a security code to the email address that Baidu had on file." When asked for the security code, the intruder did not provide the correct code (the intruder did not have access to the Baidu email address on file). Notwithstanding the discrepancy in the security codes, at the intruder's request, the representative changed the email address on file (to "firstname.lastname@example.org"). From here, the intruder was easily able to access the account, by utilizing the "forgot password" function.
Discussion: Baidu brought claims for breach of contract, negligence (gross negligence), recklessness, and contributory trademark infringement.
The limitation of liability clause: Register pointed to the limitation of liability clause in its Master Services Agreement. The clause provided that Register would not be held liable for, among other things, "termination . . . or modification of [the Services,] . . . inability to use the Service[s], . . . loss incurred in connection with [the customer's] services," or "any other matter relating to [customer's] use of the Service[s]." The agreement also contained a limitation of liability clause that limited Register's liability at five hundred dollars, and also provided that it was the customer's "responsibility to safeguard the User name, password and any secret question/secret answer . . . from any unauthorized use."
The court held that as a general matter, courts in New York enforce limitations of liability clauses, particularly where these limitations are contained in a contract entered into by "those of equal bargaining power." However, New York courts do not enforce such limitations where they purport to limit liability for willful or grossly negligent acts. This "gross negligence exception" applies even to agreements between sophisticated commercial parties, although the standard for gross negligence is somewhat higher in this context. The court held that the complaint satisfied this standard, in alleging that:
(1) the rep proceeded with processing the intruder's request even though the intruder provided an incorrect response to the security question; (2) the rep didn't even bother to compare the code provided by the intruder with the security code on file; (3) the rep failed to notice the red flags raised by the rep providing the "email@example.com" email address (which was tied to Google, a Baidu competitor); and (4) the rep ultimately provided the intruder with Baidu's user name.
Ultimately, the court found that Register's failure to follow its own security procedures (or any minimal security procedures, for that matter) were sufficient to get Baidu past the gross negligence hurdle. Register also pointed to the provision in the contract that the customer was responsible for maintaining the security of any password/security information and thus Register had no duty to maintain any security procedures with respect to Baidu's account. The court rejects this argument, noting that although Register may not have had any duty to provide any security, once it undertook to do so, it was required to do so in a non-negligent manner:
The attack by the Intruder was reasonably foreseeable - it was precisely because these cyber attacks are foreseeable that the security measures were adopted.
Lanham Act Claim: With respect to the Lanham Act claim, Register argued that it was entitled to immunity as a registrar and in any event Baidu failed to adequately allege the elements for contributory trademark infringement.
The court rejects the registrar immunity argument out of hand (registrars are only entitled to immunity when they act as registrars - i.e., "when [a registrar] accepts registrations for domain names for customers"). However, the court agreed with Register that Baidu failed to allege the elements for contributory trademark infringement. Citing to Inwood Labs., Inc. v. Ives Labs., Inc. (a flea market case) the court notes that contributory liability only attaches where the defendant either intentionally induces infringement or continues to supply products or services to the infringer where the defendant knows or has reason to know that the infringer is engaged in infringement. The court also cites to the Tiffany v. eBay case (discussed by Professor Goldman here).
The interesting aspect of this case is the fact that Register's broad contractual protections did not protect it against Baidu's claims. It's unclear as to whether the court's ruling would encompass a situation where someone just plain hacked into Register's system and gained access to Baidu's accounts. I would think not. Disclaimers often insulate service providers (see Duffy v. The Ticketreserve and Grace v. Neeley) but here the facts alleged by Baidu with respect to Register's negligence were pretty egregious. Given the exception in New York law for gross negligence and reckless conduct, I'm not sure any sort of limitation/disclaimer could have saved Register here.
The trademark claims are curious. To be honest, I can't even see where there's basic trademark infringement by the cyber-attacker. The cyber-attacker was not interested in selling any products or services, and the Baidu webpage text clearly stated that the website had been hacked. Moreover, any finding of infringement would have been based on the much-discredited initial interest confusion doctrine. In any event, it's tough to see - given Baidu's allegations of an attack - how Register would have harbored the requisite knowledge to have been able to prevent the infringement.
It's worth noting also that this isn't a typical domain name conversion case (a la sex.com). The case is really about failed security procedures, and the ease of gaining access to an account through social engineering. There's a big lesson in the Register rep's alleged dealings with the cyber-attacker.
Added: This interview with Elisa Cooper by Dancho Danchev ("Hundreds of High Profile Sites Unprotected From Domain Hijacking") looks at the efficacy of using Verisign's "Registry Lock Service." Some interesting bits from the interview:
1. The Registry Lock Service offers protection at the registry-level so even if the registrar account is compromised, the attacker will not be unable to update any domain settings.
2. Elisa notes that DNS hijacking may only amount to a PR/brand hit unless the website is collecting information or conducting transactions.
3. "[D]omains that are registered by large retail registrars are . . . highly vulnerable to social engineering attacks." [That's exactly what happened in the Baidu case.]
Of course, the registrar does not have an obligation to implement the additional security measures that are mentioned in the interview. It would be up to the registrant to do so.