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March 30, 2011
Defendant Succeeds On Second Attempt With a Section 230 Dismissal--Mealer v. GMAC
By Eric Goldman
Mealer v. GMAC Mortgage LLC, 2011 WL 1103357 (D. Ariz. March 25, 2011)
I previously blogged about this case a few weeks ago. Mealer claims that a GM employee, Kordella, bad-mouthed him in a comment on Mealer's blog, and that comment killed Mealer's hopes for a $200M business. Among a number of other defendants, Mealer sued GMAC, a separate company from GM, because the GM employee apparently used an Internet connection through GMAC to post the comment. Thus, effectively, GMAC was the Internet access provider in this triangle.
In the prior ruling, GMAC tried to end the case using 47 USC 230(c)(2), the immunity for filtering decisions. The court rejected the argument, saying that GMAC didn't explain its filtering efforts well enough. The court then added: "Although [Section 230(c)(1)] might defeat Mr. Mealer’s claims against GMAC, no such argument has been made."
GMAC's lawyers got the hint and moved for summary judgment on 230(c)(1) grounds. In a brief opinion, the court grants summary judgment and dismisses the case. The court runs through the elements of a 230(c)(1) defense:
* GMAC is an interactive computer service because it was functioning as an IAP here
* Mealer claims defamation, which is covered by the immunity
* the GM employee was a third party to GMAC
Check, check, check = successful immunity. The court then continues with an impossible-to-parse statement, so I quote it:
Mr. Mealer's argument seems to rest on the idea that Kordella committed a trespass to chattels and that GMAC is somehow also responsible. Mr. Mealer's argument reflects a fundamental misunderstanding of that common law tort. Mr. Mealer has not asserted a claim for trespass to chattels, nor could he. Mr. Mealer never had the $200,000,000 in prospective growth funding that he characterizes as a chattel.
If you understand what that means, let me know!
Fortunately, this case reaches its logical conclusion. I think this ruling "fixes" any problems created by the court's prior ruling on Section 230(c)(2), which I think was erroneous because I think both 230(c)(1) and 230(c)(2) could apply here. However, as Pat Carome indicated at our 230 shindig, clients gravitate towards 230(c)(1) instead of 230(c)(2) because they think it's easier to win. This case might further reinforce that trend.
UPDATE: Mealer emailed me to say that he plans to appeal the ruling.
Posted by Eric at 10:58 AM | Derivative Liability | TrackBack
March 29, 2011
Court Rules That Instant Message Conversation Modified the Terms of a Written Contract -- CX Digital v. Smoking Everywhere
[Post by Venkat Balasubramani with a few comments from Eric]
CX Digital Media, Inc. v. Smoking Everywhere, Inc., 09-62020-CIV-Altonga (S.D. Fl.; Mar. 23, 2011)
As contract cases go, this one is interesting. It's more than interesting, it's awesome! The court held that an instant message exchange effectively modified a written agreement which contained a "no-oral modification clause." This resulted in a judgment in favor of a marketing agency against the seller of electronic cigarettes to the tune of $1,235,655 (along with fees, costs, and interest)!
Smoking Everywhere sells e-cigarettes through its website. It contracted with CX Digital, which ran an affiliate marketing network. CX's affiliates run websites or campaigns and, when they refer a sale to CX's clients, CX is paid a referral fee by the client (and CX pays a portion to its affiliates). Smoking Everywhere and CX signed an insertion order under which CX would get paid $45 per "sale" of "Gold E-Cigarette Kit Free-Trials." Sale was specifically defined as filling out a one page registration form and submitting credit card information. The insertion order contained a limit of 200 sales per day.
The parties signed the insertion order in August 2009. In August, CX generated 670 sales. It invoiced Smoking Everywhere $25,150 for these sales. It was never paid for this invoice. In early September, the parties have an instant message conversation which covered a variety of topics. CX asks Smoking about removing the 200 sale per day limit:
[CX] (2:50:08 PM): We can do 2000 orders/day by Friday if I have your blessing
[CX] (2:52:13 PM): those 2000 leads are going to be generated by our best affiliate and he's legit
[Smoking Everywhere]: is available (3:42:42): I am away from my computer right now
[CX] (4:07:57 PM): And I want the AOR when we make your offer #1 on the network
[Smoking Everywhere] (4:43:09 PM): NO LIMIT
[CX] (4:43:21 PM): awesome!
In September, CX's referrals went through the roof and it was referring an average of 1,244 sales per day. The parties had some discussions and quibbles about whether CX was referring potential sales to the correct version of Smoking Everywhere's landing page. (Apparently, an older version of the site promoted e-cigarettes as a smoking cessation device as recommended by doctors, and Smoking Everywhere changed this practice. The written agreement referred to the old version of the site.) Smoking Everywhere did not pay the August invoice, and CX put the Smoking Everywhere campaign on hold. When Smoking Everywhere declined to pay CX's August and September invoices, CX sued. Following a bench trial, the court rules for CX.
Modification of the Agreement: One of the key issues was whether CX could invoice Smoking Everywhere for the multitude of referrals, despite the 200 sales per day limit in the insertion order. The other issue was whether CX was entitled to the referral fees despite sending referrals to a link other than the one listed in the insertion order. There was a final issue as to whether the sales were fraudulently procured.
The issue of fraudulent sales: Smoking Everywhere tried to argue that many of the sales were "fraudulent," but the insertion order contained language that was favorable to CX on this point. Smoking Everywhere would be relieved of its obligation to pay for sales only if it provided documentation "beyond a reasonable doubt" within five days of the sale, with time being "of the essence." Smoking Everywhere failed to procure this evidence so it lost its fraud argument.
Whether traffic was sent to the correct link: On the issue of whether the traffic was sent to the appropriate link, the court says that the instant message conversation clearly demonstrated an intent to agree on a different link:
A close reading of the instant messages and careful consideration of the behavior of the parties during the conversation indicate clear assent on the part of both parties to stop sending traffic to the 'old' ecig link and to begin sending the traffic to the two new URLs.
The representatives of Smoking Everywhere and CX exchanged links (via email) that went to the new ecig langing page and both ran tests on the new links to make sure they were coded to track referrals from CX affiliates.
The modification of the 200 sale per day term: The court finds that the instant message conversation around modifying the 200 sale per day limit was equally definitive. CX asks about whether CX can refer 2000 referrals per day and asks for Smoking Everywhere's "blessing." In response, Smoking Everywhere says "NO LIMIT." (caps in original). The court finds that CX's suggestion of a 2000 sale per day limit was an offer of a new term. Smoking Everywhere's response of "NO LIMIT" was a counter-offer which suggested a new term, which varied the terms of the original offer. CX accepts this counter-offer by signifying assent - i.e., saying "awesome!" Smoking Everywhere tried to argue that its counter-offer of "NO LIMIT" could have been referring to another term of the agreement (and didn't necessarily refer to the sale per day limit) but the court does not buy this. Smoking Everywhere was unable to come up with a credible explanation of what other terms it could have been referring to.
The Signed Writing Clause: Smoking Everywhere also argued that a term in the insertion order which provided that it could only be "changed . . . by a subsequent writing signed by both parties" barred modification of the agreement by the exchange of instant messages. The court held that the instant message exchange was not oral (it was in writing) but it wasn't signed by both parties. However, under Delaware law, conduct or statements could modify a written contract with a signed writing clause, and therefore, an unsigned writing could as well. CX changed its position in reliance of the modification (and based on Smoking Everywhere's statements) by agreeing to pay its downstream affiliates for referrals. In these circumstances, Smoking Everywhere was estopped from asserting the signed writing clause as a defense.
Did the Vice President of Advertising Have the Authority to Bind Smoking Everywhere: Smoking Everywhere also argued that Nick Touris, the VP of advertising - who engaged in the instant message conversation with CX - did not have the requisite authority to bind Smoking Everywhere. The court held that Touris had apparent authority to bind Smoking Everywhere, and CX reasonably relied on this authority. There was plenty of indicia of Touris's authority: (1) he was the VP of marketing; (2) he negotiated the insertion order; and (3) he personally implemented the URL change. Smoking Everywhere argued that Touris informed CX that Touris could not get agreements signed without the approval of Smoking Everywhere's president, but Smoking Everywhere failed to come through and provide solid evidence on this point. Touris testified on the final day of trial that CX was aware that Smoking Everywhere could not enter into agreements without the permission of Smoking Everywhere's president, but the court was concerned about "the comportment of [Touris]" and the fact that the testimony was procured at the request of Smoking Everywhere's counsel, after he requested a recess during closing argument.
___
From the practitioner's standpoint, this looks like a significant ruling (or at least a good reminder that informal communications can modify written agreements). Written contracts are the currency of business dealings, and as a standard term, written contracts contain provisions that say they cannot be modified without a signed writing (signed by authorized representatives). Business representatives increasingly engage in informal communications and most people would reduce any later agreement to a writing in the form of an addendum. Here, the parties did not do that, and in the short time after the conversation in question, CX acted in reliance of the modification, and as a result Smoking Everywhere ends up with a whopping judgment against it. Yikes!
I'm guessing there is a body of case law to the effect that email exchanges can effect a modification of a signed contract, but this case is a useful reminder that even more informal communications such as instant message conversations can do the same.
Smoking Everywhere may appeal, and a footnote from the court's order indicates that its ultimate ruling on the no modification without a signed agreement clause came as a surprise to counsel for Smoking Everywhere, but the larger takeaway from the case (regardless of how it resolves) is that informal exchanges can result in the modification of written agreements.
______
Eric's comments:
It doesn't get more awesome than to have a contract counter-offer given a million dollar consequence through an IM saying, in total, "awesome!" Well, maybe it would be more awesome if he had scribbled the word "awesome!" on a bar napkin while he was high as a Georgia pine. (See Lucy v. Zehmer).
It's standard for contracts to restrict oral amendments. It's also standard for business partners to "talk" using email, IM, text messages, Twitter @replies, comments to Facebook status reports, etc., etc. The default rules should be that all of these electronically-mediated communications qualify as writings. (But see John O's post on an odd case from last summer). If you fear the legal effects of these communications, you could try to restrict contract amendments to terms printed on a piece of paper mutually signed in ink. But I think lawyers are fighting an uphill battle trying to denigrate the legal effect of these electronic communications. They are an integral part of the relationship, and there's not much we as lawyers can do to change that.
Posted by Venkat at 01:29 PM | Licensing/Contracts | TrackBack
March 28, 2011
Website Privacy Policy Supports Pseudonymous Poster's Expectation of Privacy -- Cornelius v. Deluca
[Post by Venkat Balasubramani]
Cornelius v. Deluca, 10-Cv-027-BLW (D.Id.; Mar. 15, 2011)
A district court judge in Idaho denied a request to unmask the identity of a pseudonymous forum poster. In support of its decision, the court looked to the website's privacy policy to find an expectation of privacy.
The case revolved around comments made on bodybuilding.com which Cornelius and his company are not happy about. The lawsuit has spanned two jurisdictions (Idaho and Missouri) and spawned two rulings mentioned on this blog. Professor Goldman's initial post describes the situation as follows:
DeLuca runs bodybuilding.com, a fitness website and online retailer. The plaintiffs sell dietary supplements ("syntrax," whatever that is). The plaintiffs allege that their competitors posted shill reviews to bodybuilding.com designed to harm the plaintiffs' business. The plaintiffs sued both bodybuilding.com and the putative shillers.
The first time around, the Missouri judge awarded bodybuilding.com an easy Section 230 win to the extent plaintiff tried to hold it liable for posts made by third parties. ("Online Retailer Isn't Liable for User Comments.") In a second ruling (after the dispute moved to Idaho), the court strayed from the Section 230 path and said that bodybuilding.com could be held liable for posts made by "moderators." ("Troubling Ruling About 47 USC 230 and Moderators.") In response to this ruling, plaintiff tried to find out the identity of a pseudonymous poster named "INGENIUM," who posted the following:
despite S103's constant matrix pimping in CASEIN threads, matrix is not a micellar casein product.
[I'm not even sure what the products in question are, and what claims are being made about them, but the extensive litigation activity in this case makes me think that they must be useful in some way.]
After a November 2010 hearing, the court allowed plaintiff to discover INGENIUM's identity, based in part on defense counsel's purported concession that bodybuilding.com did not object to disclosure of INGENIUM's identity. The court's earlier decision was also based on the court's conclusion - relying on a recent Ninth Circuit case (In re Anonymous Online Speakers) - that the statement in question was commercial speech. Bodybuilding.com complained, saying that counsel was not authorized to make this concession, and requested that the court reconsider its prior ruling. Also, in between the court's earlier ruling and its reconsideration of the order, the Ninth Circuit withdrew its opinion in In re Anonymous Online Speakers and left the opinion intact, except for the language that characterized the speech as commercial speech versus core political speech.
Anonymity v. Disclosure of INGENIUM's identity: The court decides that INGENIUM's speech is neither purely commercial nor core political speech, and it then looks to the question of whether plaintiffs' need for INGENIUM's identity outweigh INGENIUM's right to speak anonymously. Without deciding the appropriate test in this context, the court looks to previous cases and settles on five relevant factors (citing Sony Music v. Does, Dendrite, 2TheMart): the plaintiff's ability to establish a prima facie case; the specificity of the discovery request; the availability of alternate means to obtain the information; the need for discovery to advance plaintiff's claim; and defendant's (or the speaker's) expectation of privacy.
The court reverses itself and finds that plaintiffs could advance their claim without obtaining INGENIUM's identity - i.e., this information was not central to plaintiffs' claims. Noting that an 'extra-high hurdle' exists when a non-party's information is involved, the court finds that plaintiffs failed to clear that hurdle here. In particular plaintiffs sought to identify the precise nature of the relationship between bodybuilding.com and INGENIUM, but plaintiffs hadn't conducted any discovery directed to bodybuilding.com on this issue. Bodybuilding.com submitted a declaration setting forth its relationship with INGENIUM (that INGENIUM was a community-elected volunteer), but plaintiffs did not bother deposing the individual who submitted the declaration. Thus, there was no need for plaintiffs to unmask INGENIUM to obtain this information, at least not at this stage.
The privacy policy: The court also added that:
INGENIUM has an expectation of privacy based on bodybuilding.com's terms of service and privacy policy. Bodybuilding.com's terms of service state that no poster may make any post that would infringe on another poster's right to privacy. Bodybuilding.com's privacy policy also states that protecting users' privacy is a top priority, and bodybuilding.com has taken reasonable measures to protect users' private information.
Ultimately, the court concludes that plaintiff's attempt to discover INGENIUM's identity "is a fishing expedition based on speculation that INGENIUM was or is an agent or representative of bodybuilding.com."
__
There have been a couple of cases dealing with website privacy policies and their effect on whether a user should be unmasked. I blogged about Sedersten v. Taylor, where the court held that language in the policy providing that the site could freely use user information did not result in a waiver of the right to post anonymously. ("Online Commenter Did Not Waive Right to Anonymity by Agreeing to News Website's Privacy Policy.") In McVicker v. King, the court held - as the court did in this case - that language in the policy created an expectation of privacy. (Here's Tom O'Toole's post on that case: "Newspaper Website's Privacy Policy Creates Expectation of Privacy for Commenters?")
The expectation of privacy that is derived from a site or service's terms is something that courts have looked to in the Fourth Amendment context, in dealing with questions of privilege or whether an employer has the right to access employee communications, and whether disclosure of a person's social networking profile and communications is appropriate in civil litigation. But thus far, it has not made an appearance in anonymity cases. There are a couple of questions or concerns that this approach raises: (1) whether looking to terms in privacy policies would leave anonymous users at the whim of website terms (which may change from time to time based on business considerations), and (2) whether it makes sense to impute the expectation of privacy on users based on policies that they don't necessarily read or digest? (See Chris Soghoian's post the Twitter/Wikileaks disclosure order on the second point: "Federal judge in Twitter/Wikileaks case rules that consumers read privacy policies.") The First Amendment cases dealing with online anonymity do not discuss whether the poster had a "reasonable expectation" of privacy, and looking to the online terms and privacy policy will just muddy the analysis. While it bolsters the poster's privacy in this case, it may leave online posters in general worse off. Also, in many instances it will not be determinative because sites tend to include wiggle room in their policies so they can disclose user information if it's in their interest to do so.
Interestingly, the issue is in front of the court only because of its ruling that bodybuilding.com could be held liable if INGENIUM is found to be an "agent or representative of bodybuilding.com." See Professor Goldman's skepticism about this conclusion in his earlier post on the case: "Troubling Ruling About 47 USC 230 and Moderators."
Posted by Venkat at 12:55 PM | Derivative Liability , Evidence/Discovery , Privacy/Security , Publicity/Privacy Rights
Groupon Hit With Two Lanham Act Lawsuits, and One Takes Google Along for the Ride
By Eric Goldman
Groupion, LLC v. Groupon, Inc., 3:11-cv-00870-EMC (N.D. Cal. complaint filed Feb. 24, 2011)
San Francisco Comprehensive Tours, LLC v. Groupon, Inc., CV-1300 (N.D. Cal. complaint filed March 17, 2011)
__________
A company doesn't reach a purported $6B valuation without generating some angst. Groupon's marketing litigators will be earning their keep.
The Groupion Suit
Groupion is CRM software vendor. It's a pretty young company itself. having registered its domain name in 2007. It's unhappy with big spotlight on its friend without the "i," including being irked when Google suggests "Groupon" for searches on "Groupion."
It seems like the world should be big enough for Groupion and Groupon to coexist given their different spellings and market niches. I'm more interested in the fact that Groupion also named Google as a defendant. Apparently Groupon is buying "Groupion" as a keyword, so Groupion sues both Groupon and Google for these ads.
Side note: why is Groupon buying the keyword Groupion? Is it because consumers often make that misspelling? I also noticed that LivingSocial showed up as a keyword advertiser when I searched "Groupion" today. Will LivingSocial be the next defendant in Groupion's quest?
The complaint itself is minimalist drafting in a bad way. The actual claims appear to be cut-and-paste from a form book; the complaint simply recites the claim elements without applying any of the legal standards to the alleged facts. So it's a little hard to tell exactly why Groupion is beefing with Google. I imagine Groupion will have to do a better job explaining what Google did wrong if it wants to survive a motion to dismiss.
Groupion's pursuit of Google in an otherwise garden-variety trademark case reminded me a little of the Parts Geek v. US Auto Parts lawsuit, where a competitor-vs.-competitor suit similarly ensnared Google as a collateral victim. Parts Geek ended up voluntarily dropping Google, which is what I imagine Groupion will do eventually. Why tangle with a $30B/year company if you don't really need to???
San Francisco Comprehensive Tours suit
The plaintiff offers San Francisco area tours. It has successfully bid on keywords such as "San Francisco Tours," "Alcatraz Tours" and "Napa Wine Tours" for years. Then, starting in September, Groupon started bidding on these terms as well--and ranking very well, driving up the plaintiff's costs. The plaintiff is unhappy that Groupon uses those phrases in its resulting ad copy, although it asserts Groupon rarely offers "tours" as such. This made me wonder if Groupon was broad-matching to the place name and then automatically filling the ad copy with the search term as a variable. The complaint never addresses this possibility.
Even if Groupon is broad-matching, the plaintiff's beef could be legitimate if Groupon's ad copy constitutes false advertising. The complaint (para. 17) gives the example where, in response to the keyword "Alcatraz Tickets," Groupon's ad copy read "Alcatraz Tickets - 1 ridiculously huge coupon a day / Do Alcatraz CA at 50-90% Off." Yet, the ad that day was for acting lessons. The complaint further gripes about the resulting landing page, which it says are essentially content-free.
In this sense, the complaint tells a pretty good story that Groupon is using an algorithmic-driven ad campaign that has gone awry, much like eBay's algorithmic AdWords campaign used to reach farcical results. Even if Groupon wins this lawsuit, I hope they take a closer look at their AdWords campaign to make sure it's not generating nonsensical ads. What's less clear to me is why Google's ad relevancy scores aren't adequately punishing Groupon if this is the case. The complaint offers some hypotheses for Groupon's high rankings, none of which seemed very convincing to me. If Google drops the boom on Groupon for AdWords spamming, Groupon could end up being very unhappy itself.
The plaintiff alleges violations of the Lanham Act, California's false advertising law (B&P 17500) and other claims. Wisely, the plaintiff doesn't try to drag Google into this lawsuit.
The Pending Google AdWords Cases
One update of note: in the FPX and John Beck Amazing Profits cases, the court held a consolidated hearing regarding class certification. The court does not appear to have issued its ruling yet.
The roster of pending AdWords cases (I most recently double-checked the status of pending cases on March 27, 2011):
* 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 [on appeal]
* Flowbee v. Google
* Parts Geek v. US Auto Parts
* Dazzlesmile v. Epic
* Pathak v. ICG
* Groupion v. Groupon
Posted by Eric at 08:55 AM | Derivative Liability , Marketing , Search Engines , Trademark | TrackBack
March 27, 2011
Another Advertiser Class Action Lawsuit Filed Against Google--Woods v. Google
By Eric Goldman
Woods v. Google Inc., 5:11-cv-01263-HRL (N.D. Cal. complaint filed March 15, 2011)
Since Google settled its click fraud lawsuits in 2006 and the CLRB Hanson case in 2009, it's been a little quiet on the advertiser-vs.-Google class action lawsuit front. This lawsuit breaks that calm. It's a 300 paragraph broadside against many of Google's advertising practices that lead to alleged overcharges, which the complaint characterizes as click fraud.
A quick note about the named plaintiff: he describes himself in the complaint (para. 16) as "an Arkansas attorney advertising his legal services." (Is this him?) What is it with lawyers who sue Google as plaintiffs? I previously noted how lawyers suing for their own account were unusually common plaintiffs against Google.
Beneath the bloated and mind-numbing prose in the complaint, there could be some potentially juicy allegations here. Unfortunately, weak drafting prevents me from fully understanding the plaintiffs' beefs. It appears to have something to do with Google's AdSense terms restricting certain publisher behavior, which the complaint appears to treat as promises to advertisers that they would not be charged for such behavior. If I'm reading this correctly, the plaintiffs' complaints are predicated on the unfortunately all-too-common but nevertheless obviously flawed logic that Z's negative behavioral covenants with party X are Z's affirmative promises to party Y that such behavior won't occur. See, e.g., para. 70, which tries to convert the AdSense terms into affirmative promises to advertisers. More typically, Y tries to take advantage of X's negative behavioral covenants by claiming to be a third party beneficiary of the Z-X contract, but those arguments rarely work, and the plaintiffs don't try them here.
As a specific application of the flawed logic about advertisers as beneficiaries of the Google AdSense terms, the plaintiffs appear to be unhappy that Google cut special deals with big advertising distribution partners (such as IAC and Infospace) who were governed by different (and less advertiser-friendly) ad display rules than rank-and-file AdSense publishers. I believe this gripe is predicated an implicit assumption among advertisers that the published AdSense contract is the only rules that govern AdWords distribution. The cloak-and-dagger stuff about special partners having favorable hidden deals can be pretty interesting, but the complaint's assumption that advertisers didn't know that some AdSense publishers had customized terms seemed dubious to me.
The complaint also goes into some detail about Google's "Smart Pricing" mechanism and argues that it didn't work properly. The complaint gives some examples where the advertiser's bids allegedly were inflated because Smart Pricing wasn't turned on as it expected. I must confess that I find Google's explanation of this mechanism pretty opaque (the explanations talk about "business results," whatever that means), so I had a tough time evaluating the significance of the complaint's gripes.
Based solely on the complaint, it's virtually impossible to gauge the likelihood of the plaintiffs getting a payoff here. There are the usual challenges to class certification, including commonality/predominance of class issues. In this case, there's the additional variables of how the prior class action settlements might limit this complaint, plus the overlay of any statute of limitations (a number of citations were to 2007 publications). And, as usual, so much depends on discovery (if the plaintiffs survive the inevitable motion to dismiss)--can they find smoking guns, or will their arguments remain mostly conjecture and assumptions? Despite all of these potential impediments, I can't imagine Google is thrilled to be wrangling with a lawsuit like this.
Posted by Eric at 10:12 AM | Licensing/Contracts , Marketing , Search Engines | TrackBack
March 26, 2011
Illinois Identity Theft Statute Partially Invalidated--People v. Madrigal
By Eric Goldman
People v. Madrigal, 2011 WL 1074427 (Ill. March 24, 2011)
Many state anti-identity theft laws are written very broadly. This loose drafting creates the possibility that they unintentionally restrict innocent--and indeed socially desirable--activity. Today's case is a good example of sloppy statutory drafting. Fortunately, a vigilant Illinois Supreme Court fixed the legislative error.
The Illinois statute at issue said: "A person commits the offense of identity theft when he or she knowingly...(7) uses any personal identification information or personal identification document of another for the purpose of gaining access to any record of the actions taken, communications made or received, or other activities or transactions of that person, without the prior express permission of that person."
I don't understand what that means, but the court easily finds several examples of possibly criminalized conduct swept into this broad language. As one example, the court says:
doing a computer search through Google or some other search engine or through a social networking site such as Facebook or MySpace, by entering someone's name, could uncover numerous records of actions taken, communications made or received, or other activities or transactions of that person. Thus, the statute as it currently reads would criminalize such innocuous conduct as someone using the internet to look up how their neighbor did in the Chicago Marathon.
Oops. As a result, the court invalidates this provision. It appears the state legislature could fix the provision by adding a requirement that the defendant have a culpable mental state. Even better, the state could do the harder work of precisely defining the harms of identity theft and drafting the criminal provisions to precisely fit those harms.
Posted by Eric at 09:49 AM | Privacy/Security | TrackBack
March 25, 2011
Yelp Beats "Implied Extortion"/"Pay-to-Play" Lawsuit in Round #1--Levitt v. Yelp
By Eric Goldman
Levitt v. Yelp, 3:10-cv-01321-MHP (N.D. Cal. Mar. 22, 2011). See the motion to dismiss, the opposition and the reply. This ruling deals with the Second Amended Complaint. Levitt's initial complaint. Cats & Dogs Animal Hospital's first amended complaint.
This lawsuit rolls up several "pay-to-play" lawsuits against Yelp, all alleging that Yelp manipulated star ratings and user reviews based on whether or not businesses bought advertising from Yelp. Judge Patel reinterpreted the plaintiffs' allegations as claims of "implied extortion." (It wasn't express extortion because Yelp never explicitly threatened to harm their businesses if they failed to advertise). In this ruling, Judge Patel grants Yelp's 12(b)(6) motion to dismiss. However, she gives the plaintiffs leave to amend, so the case isn't over yet.
Judge Patel taxonomizes the plaintiffs' allegations into four groups:
"1) Yelp removed positive reviews, thereby changing the overall star rating, immediately after plaintiffs declined to purchase advertising or terminated their advertising contracts
2) Yelp maintained negative reviews even though the reviews violated Yelp’s Review Terms
3) Yelp manufactured its own negative reviews of plaintiffs’ businesses
4) Yelp stated that paying for advertising would help Plaintiff’s overall star rating because Yelp “tweaks” the ratings, “manually adds and removes reviews in its own discretion” and its employees have the ability to remove reviews"
None of these survive the 12(b)(6) motion, but for different reasons.
The court says #2 (continuing to publish negative reviews) is preempted by 47 USC 230(c)(1). Stitching together various statements from Roommates.com and Barnes, she says "Yelp cannot be held liable on a theory that it extorted plaintiffs by refusing to de-publish negative business reviews."
In contrast, 47 USC 230 doesn't preempt #3 (Yelp manufacturing fake reviews). Citing her own Mazur opinion from 2008, she also says #4 isn't preempted.
47 USC 230's preemption of #1 (removing positive reviews for failing to buy ads) is a "closer question." The judge concludes it isn't preempted for two reasons. First, "Choosing not to publish content for the purposes of harming a particular business or to coerce that business into purchasing advertising seems quite distinct from the traditional editorial functions of a publisher." Second, 230(c)(2) only applies when the filtering decision is exercised "in good faith," and the alleged conduct wouldn't qualify (citing Smith v. TRUSTe, which was just reversed by the district court in an opinion I need to blog, and the National Numismatics case).
So allegations #1, #3 and #4 survive the 47 USC 230 preemption challenge. Nevertheless, they still fail.
First, the plaintiffs' factual assertions are "entirely speculative": "The SAC provides no basis from which to infer that Yelp authored or manipulated the content of the negative reviews complained of by plaintiffs."
Second, the plaintiffs haven't adequately alleged that Yelp communicated an extortionate threat. The plaintiffs show correlation between Yelp's offers and good/bad consequences but do not show causation, and the mere fact of a correlation doesn't communicate a threat. The judge noted alternative hypotheses to explain the plaintiffs' experiences: "These fluctuations could just as easily be the result of planted ads by plaintiffs, the functioning of Yelp’s automated filter, or negative attacks from competitors or former employees." The various statements allegedly made by Yelp's salespeople don't change the analysis--Levitt was just promised more pageviews if it advertised, Paver Pro didn't talk to the salespeople at all, and with respect to Chan/Cats & Dogs Animal Hospital, "offers of favorable treatment in exchange for ad purchases are not the equivalent of an extortionate threat of harm."
Although this ruling is a little less 47 USC 230 favorable than I would have liked, overall this ruling is a fairly sensible assessment of the situation. However, as usual for consumer-oriented litigation like this, the opinion does set up a squeeze for the plaintiffs. Judge Patel wants the plaintiffs to provide a better causation story, but much of the evidence that might support the causation story is likely to be obtained only through discovery--which the plaintiffs won't get if they can't get past the 12(b)(6) motion to dismiss.
A final thought: given the discussion about implied extortion, I was surprised that the court didn't explore Reit v. Yelp (which also advanced the implied extortion claim as a 230 workaround) or the multitudinous Ripoff Report cases, many of which have addressed the 230/extortion interface.
[I have several other 47 USC 230 cases to blog, including Hill v. StubHub, the Holomaxx cases and Smith v. TRUSTe. I'll blog them as soon as I can!]
Posted by Eric at 01:57 PM | Derivative Liability , Marketing | TrackBack
March 24, 2011
Photo Hosting Site Gets DMCA 512 Safe Harbor--Wolk v. Photobucket
By Eric Goldman
Wolk v. Kodak Imaging Network, Inc., 2011 WL 940056 (S.D.N.Y. March 17, 2011)
Wolk (is this her?) is a visual artist whose work was allegedly infringed on Photobucket. She sent some 512(c)(3) takedown notices to Photobucket, which were promptly honored. At some point, it appears that she tired of sending 512(c)(3) notices, so she took the position that she didn't need to send any more--the prior notices had sufficiently put Photobucket on notice to guard against future infringements. The court summarizes her position: "Plaintiff contends that Photobucket is now aware that her copyrights are being infringed on its site, and it must now police its sight [sic] to uncover current infringements and prevent future infringements, without her providing DMCA-compliant notice in each instance." She felt strongly enough in this reading to litigate the issue pro se.
Her (mis)reading of the statute meets a predictable fate. The ruling itself doesn't break much new ground--although it has some rare discussion about 512(j) injunctions--but its routine nature makes the ruling remarkable. A sufficient body of defense-favorable 512 rulings have developed (in particular, this case repeatedly cites Io v. Veoh and Viacom v. YouTube) that the court treats this litigation as a fairly easy and routine case. Given how many tortured 512 rulings we've seen, this opinion is a refreshingly uncomplicated read.
The court guts Wolk's basic argument as follows:
The requirement that DMCA-compliant notices identify and locate specific acts of infringement undermines Plaintiff's position, as her past notices do not identify and locate other, and future, infringing activity. The Court does not accept her invitation to shift the burden from her to Photobucket....Without receiving notices identifying and locating each instance of infringement, Photobucket did not have "actual knowledge" of the complained of infringements or "aware[ness] of facts or circumstances from which infringing activity is apparent."
The court reiterates its rejection of Wolk's desired burden-shift later in the opinion:
Plaintiff contends that failure to grant her relief will require her to find infringing activity on Photobucket's site and report it to them through DMCA-compliant notices. She contends that this will be difficult and labor intensive. However, the purpose of her motion is to shift that same burden to Photobucket, without Photobucket having the benefit of knowing whether Plaintiff has authorized any of her works to be displayed on its site. While, as Plaintiff points out, Photobucket is the larger enterprise, the burden it would bear in having to continually search its site for infringing activity is heavy. Furthermore, saddling Photobucket with this responsibility is out of step with the DMCA, which, as noted above, places the burden of uncovering infringing activity on copyright holders.
Wolk tried to kick Photobucket out of the safe harbor by arguing that Photobucket could set up technological filters, presumably fingerprinted on the photos she had already identified as copyright infringing. The court rejects the argument because "Plaintiff concedes that such technology is very burdensome to implement and notes Photobucket's contention that it would not be feasible to use such technology." The court also says Photobucket doesn't derive financial benefit from the infringement, even though it has a financial tie-in with Kodak. The court says that tie-in doesn't turn on the infringing nature of the photos.
The court also discussed 512(j) injunctions. I did a quick Westlaw search and I found less than 10 cases citing 512(j) at all, and I believe none of them have ever done more than cite the statute. This court doesn't get into lots of detail, but this is the most detailed judicial discussion of 512(j) to date.
512(j)(1)(A)(i) authorizes an "order restraining the service provider from providing access to infringing material or activity residing at a particular online site on the provider's system or network." The court interprets this to mean that "Photobucket [must] block access to infringing material when given proper notice"--in other words, if the service provider hasn't already honored the 512(c)(3) takedown notice, a court can force it to do so. Here, since Photobucket had honored Wolk's 512(c)(3)-compliant notices, there wasn't anything to order Photobucket to do.
512(j)(1)(A)(iii) is a "catch-all" authorization for "Such other injunctive relief as the court may consider necessary to prevent or restrain infringement of copyrighted material specified in the order of the court at a particular online location, if such relief is the least burdensome to the service provider among the forms of relief comparably effective for that purpose." Because the language references "a particular online location," which is what Wolk refused to provide, the court says her requested relief falls outside this provision.
Considered together, the court's interpretation of (i) and (iii) indicates that copyright owners can't effectively force service providers to prospectively prevent further infringement of a work previously subject to a 512(c)(3) takedown notice. Because we don't often discuss 512(j), I don't know how many copyright owners actually thought they could get such an order. Nevertheless, this is a useful boundary-setting for service providers when dealing overzealous copyright owners who want turnkey never-infringe-my-stuff-again services.
Overall, the lessons remain fairly clear for copyright owners. Send 512(c)(3) takedown notices, and you'll get the results you want from most service providers; but if you're trying to find a way to avoid sending 512(c)(3) takedown notices, the courts aren't going to be very sympathetic.
Posted by Eric at 11:04 AM | Copyright , Derivative Liability | TrackBack
March 23, 2011
Judge Rader Talk Recap
By Eric Goldman
Last week, we had Chief Judge Rader of the Federal Circuit on campus for a lunchtime talk to a capacity crowd. Judge Rader is always an entertaining speaker, and he is typically more willing to publicly discuss doctrine and to self-evaluate than most judges. The theme of this particular talk was international issues.
Judge Rader always makes it clear that he is speaking with his "academic" hat on rather than his official judge's hat. Further, as usual, these notes are my impressions, not verbatim transcriptions. We will be posting the video shortly so you can watch the talk first-hand.
He started by saying that we have much to learn from the rest of the world. We're leaders in patents but our patent laws aren't the best. He gave two examples: best mode (which he called a trap for the unwary) and inequitable conduct (which has morphed from a fraud prevention rule into a disclosure requirement).
Regarding patent litigation discovery, he said that we've taken meritorious principles and stretched them out of proportion. Discovery is now an excuse to bombard the other side with discovery requests to increase their costs. He said "I believe in a little injustice," by which he meant that he'd be willing to cut off some discovery even if it may result in some erroneous outcomes at the margins. He's working on model rules for discovery limits. This would be a good deal if we can get a more efficient systems. His guiding philosophy: judges need to facilitate, not frustrate, the international marketplace.
He favors our system to the specialized courts in Germany (where different courts hear infringement and validity claims). However, we're moving closer to that model with re-exams. If re-exams become a full-fledged validity evaluation, we will become a two track system.
He noted that we're the only country in the world that involves juries in patent cases. I think he is wary of juries' contributions to the process, even as he acknowledged they are involved in only a small number of cases. He believes that summary judgment is key to our system. He pointed out that one notorious district court doesn't work because they don't use summary judgment enough--they believe in trying cases, inferentially to the system's detriment.
Prof. Chien asked him about the ITC. Judge Rader said it's not surprising when two Taiwanese companies square off in the ITC because we're a unitary global market. Because the ITC is an administrative procedure, not a court, it's OK if they have a different standard for injunctions than the eBay standard.
Judge Rader spoke about Chinese patent issues. His message to China: you need to act like a leader in IP. Chinese judges have circumscribed independence compared to our judges; they are officers of the state, which means they must carry out state policy and put China first.
He thinks it won't be long before Chinese IP laws dictate terms to the world. We'll be listening.
Regarding NPEs, Judge Rader thinks the court system has addressed a lot of issues. WRT damages, it's harder for NPEs to reap windfalls. The courts have also cut back on willfulness. He had sharp words for patent marking cases. He said it's non-productive litigation and isn't facilitating innovation. It's a burden on the system, and the Federal Circuit is raising the bar. However, he also thinks judges shouldn't make judgments based on the litigant's identity.
Judge Rader is still grousy about eBay. He said its a sad misapplication of an effort to deal with the NPE problem. His biggest disappointment is seeing the Supreme Court move from law to politics. eBay was a policy-oriented result and an overreaction to NPEs. His academic concerns: IP is property, but eBay doesn't treat patents like property. Trial judges have always been able to consider the public interest before granting an inunction, such as health/safety issues.
He gave a big shoutout to Peter Lee's Patent Law and the Two Cultures.
Many thanks to Judge Rader for yet another insightful and enjoyable romp through patent law!
UPDATE: Judith Szepesi's coverage of the talk.
Posted by Eric at 10:51 AM | Patents | TrackBack
March 21, 2011
Ninth Circuit Upholds Anti-SLAPP Ruling for Blogger/Griper--Sedgwick v. Delsman
By Eric Goldman
Sedgwick Claims Management Services v. Delsman, 09-16809 (9th Cir. March 21, 2011).
Delsman is a blogging griper about Sedgwick. He made some griping material that included cut-and-pasted headshots of Sedgwick's managers. Sedgwick sued Delsman aggressively. Delsman got a favorable ruling in the district court, including a fair use ruling on the headshots and an anti-SLAPP ruling on the other claims. Shockingly, rather than quietly licking their wounds, Sedgwick appealed the ruling to the Ninth Circuit.
The Ninth Circuit gave Sedgwick a cool reception. In an unpublished 2 page memorandum opinion issued without oral argument, the court breezily told Sedgwick to buzz off. The entire substance of the ruling:
The district court properly dismissed Sedgwick’s defamation and trade libel claims under California’s anti-SLAPP statute because defendant Delsman’s conduct was in furtherance of his free speech rights in connection with an issue of public interest, and Sedgwick did not meet its burden of establishing a probability of prevailing on its claims. See Cal. Civ. Proc. Code § 425.16; Ruiz v. Harbor View Cmty. Ass’n, 37 Cal. Rptr. 3d 133, 140-46 (Ct. App. 2005) (setting forth § 425.16 analysis, and concluding that defendant’s letter containing rhetorical hyperbole was free speech in connection with an issue of public interest and that plaintiff did not establish a probability of prevailing on his libel claim).
The court's final words are: "Sedgwick’s remaining contentions are unpersuasive." It would be hard for the Ninth Circuit to make their lack of interest in Sedgwick's appeal any clearer.
This is a good example of why I think we need a federal anti-SLAPP law. It's not clear the same results would occur in other states with anti-SLAPP laws; undoubtedly, worse results would occur in states with no anti-SLAPP protection.
Posted by Eric at 11:56 AM | Content Regulation | TrackBack
47 USC 230 Retrospective Conference Recap
By Eric Goldman
Earlier this month, we had a major academic event on 47 USC 230. My notes are especially incomplete because I had lots of administrative duties that day. I didn’t get any usable notes from the introductory sessions by Sen. Wyden or Chris Cox. Fortunately, you can read Sen. Wyden’s written remarks. As usual, my notes are my impressions of the conversation and not verbatim transcriptions; you should double-check anything you want to cite or rely upon. Fortunately, we had several other folks covering the day’s proceedings:
* Joyce Cutler of BNA
* Mike Masnick of Techdirt had several posts: 1, 2, 3
* Joe Mullin of paidContent
* Eric Johnson of Univ. of North Dakota
We also recorded the day’s proceedings and plan to post the video soon. I’ll circulate the announcement when the video is live.
In-House Counsel Panel
Laura Pirri: IP complaints are more expensive than 230 complaints—they take more resources and in-house attorney time
Alex Macgillivray: Twitter has 1,000 tweets posted a second. Twitter gets 10k complaints a month, and most of those are completely not actionable. Twitter has 24 people dealing with user complaints. “People who work with angry complaining users are some of the most fun people” but they are a bit weird. Alleged defamation is among the most useful stuff online (as opposed to real defamation which is among the worst).
Sandy Baron: has any judicial decision changed your practices? Pirri: Barnes v. Yahoo prompted her to look at the company’s processes. Linden Labs won’t make any representations about what LL will do for a complaining user until LL has actually done the work, even though that approach frustrates users. Laurence Wilson: our “message is ‘we’ll take a look at it.’”
Kai Falkenberg: She is closely following the pending lawsuit Parisi v. Sinclair (D.D.C.). Barnes & Noble’s and Amazon’s product pages include a book synopsis and publisher blurb that was allegedly defamatory. The plaintiff claimed that the heading “synopsis” isn’t clear to the reader if it came from Amazon/B&N or the third party publisher. Her lesson: the site should be clear where the content is coming from.
Alex: lots of complainers try to shoehorn defamation into copyright complaints. Twitter now sends its received takedowns to Chilling Effects. Laurence: unhappy businesses try to assert copyright in business listing or trademark in name to try to prevent discussion about the business altogether.
Sandy: how often do you get requests for user identifications? Laurence: not that frequently. Laura: never received an unmasking request covered by 230. Kai: zero. Laurence: Yelp might lend a hand to squash a subpoena targeted at a power user (presumably like a Yelp Elite member).
Sandy: what amendments would you like to see? Laurence: get 47 USC 230 passed in every country in the world. We don’t have to imagine a world without 230—he lives it every day.
Rep. Zoe Lofgren
1995 was a primitive time for the Internet. In 1996, she didn’t anticipate how the Internet would develop. Think of all the companies that didn’t exist then, including Google, Yelp, Facebook. Amazon and Yahoo were new start-ups. She called Yahoo’s GC TWICE about the Communications Decency Act—normally, companies are chasing her. She knew if we put liability on technology, we would stifle innovation.
Technology changes, but Hollywood, the recording industry and the FBI are always with us.
The threat is not gone: DHS takedowns of domain names without due process or consideration of fair use. [Lofgren expands on that point here.] Plus COICA could have an adverse impact on technology itself—no consideration of free speech or fair use. We should not let anti-piracy efforts impede innovation.
Declan McCullagh: are any changes to 230 necessary? Lofgren: it would be “unwise” to attempt to make adjustments. The courts are “not too far off” in terms of statutory interpretation. If there is any statutory change, it will be a change for the worse. Ex: anti-child porn advocates want permanent data retention.
Ken Zeran
(Ken has promised to send written notes for his talk, so I remain hopeful you will get to see his words verbatim). UPDATE: his comments are available here.
Zeran didn’t sue because he felt like a victim. Based on his background, he knew media law and felt that the statute wasn't consistent with the law. He wouldn’t have sued if he had felt AOL operate in the spirit of good faith.
Congress didn’t contemplate the statute’s effects of online anonymity. Zeran: "the underbelly of the internet is an engraved invitation for anonymous crime."
Congress mislabeled 47 USC 230 as a “Good Samaritan Act.” Zeran explained the biblical origins of the phrase. Today, he wants to play good Samaritan and come to the aid to 230. He proposed a statutory change where the FBI can put the squeeze on servers that facilitate harassment at penalty of civil liability.
Litigator Panel
Maria Speth: some of plaintiffs’ creative and not-so-creative attempts to get around 230:
* Claim the website is an ICP. This should be Rule 11able.
* Claim 230 doesn’t apply to injunctive relief. The Gentry case says otherwise. [I note that Noah v. AOL squarely addressed this issue as well]. The Blockowicz case provides even more support.
* Argue that the website is an ICP because it creates metatags and URLs. This exception would swallow the 230 rule. The Herman case rejected the argument.
* Argue the website isn’t following its own T&Cs, such as an anti-defamation covenant. Websites should write the T&Cs carefully. [Eric’s note: I made this point in response to the Lori Drew case. Also, I would broaden Maria’s argument to include false advertising claims based on site text beyond the T&Cs.]
* Assert IP claims. 1) Trademark infringement because the site references the plaintiff’s company name. [Eric’s note: see, e.g., the Lifestyle Lift v. RealSelf lawsuit.] 2) Copyright via the Medical Justice workaround.
* Make a promissory estoppel claim. Websites should not say “let me see if I can help you.” [Eric’s note: as we heard from the in-house counsel panel, well-advised companies have gotten this message.]
* Make an appeal to the court to ignore 230 because “there just has to be a remedy.”
Mike Rhodes discussed trendlines in last 15 years. Old days: it was easy to separate the content author from the technology provider. Now: 1) tools help shape content (Metrosplash, Roommates.com, Goddard) and that channels users into unlawful content. It’s hard to distinguish “neutral tools” from tools that shape content. 2) Complaining users are claiming privity via T&Cs—which creates direct liability instead of basing the claims on third party content. These trends have made his 230 practice harder than it was 10 years ago.
Pat Carome: Section 230 is counterintuitive. The statute lets intermediaries remove content without fear that such involvement increases liability exposure. Most intermediaries have been very responsible in taking down problematic content (he then made a not-so-subtle dig at Ripoff Report). He gave a nod to Judge Wilkinson. The Zeran decision was breathtaking in its scope when it didn’t need to be. The case interpretation went beyond the defamation/negligence claim; it reached all claims—not what you expect from a conservative judge. This helped increase the decision’s credibility. Amazing how quickly other courts followed behind the ruling.
Cindy Cohn: She is not in it to protect Google; she’s in it to protect Google’s users. We don’t see enough of the things Section 230 protects. She made an appeal: help EFF make visible all of the good things that Section 230 enables. She pointed to another way around 230: advance state IP claims. This was shut down by ccBill in the 9th Circuit.
In light of the observations by Maria and Mike R. that plaintiffs are invoking website T&Cs, Cindy asked: why do so many websites have T&Cs for web browsing? This seems to set up the privity bypass that plaintiffs are claiming.
Users are dramatically better under 230 than the DMCA/17 USC 512—censorship is much higher via 512 takedowns. A notice-and-takedown regime would result in flood of takedowns.
Colette Vogele: is 230 an immunity from suit or an immunity from liability? Carome: defendants can ask the judge to restrict discovery to just this issue. Rhodes: Sometimes it's hard to tell your client that you just spent a million dollars litigating an immunity from suit.
Speth: doesn’t think there’s a legal split at all about 230’s application. Rhodes: at trial court level, there is a big variation throughout the country. Some judges who aren’t technology-savvy are results-driven. Carome: confusion about line between first party content and third party content. This isn’t a well-drawn line. Most courts don’t parse the words like “responsibility,” “create,” “develop.” This line will get greyer with new technology innovations.
Cohn: fallout from Roommates.com: the more you help users to express themselves, more risk you take on. Websites won’t make their sites user-friendly.
Paul Levy: thinks Roommates.com was correct in all its respects. (By this time, Judge Kozinski had entered the room, so the litigators started fawning all over him). Lots of businesses are pushing the 230 envelope. Every immunity has its limits.
Vogele: what does “good faith” mean in 230(c)(2)? Carome: anti-competitive motivations may be bad faith. Good faith standards in immunity are always problematic because they invite litigation, which is why defendants go for 230(c)(1). Many cases have possible 230(c)(2) defenses, but clients don’t go there. Levy: one possible example of bad faith: if a website always takes down content that criticizes the website, its lawyer or its advertisers.
James Grimmelmann: what about harassthem.com? [Eric’s note: there seemed to be some confusion in response to James’ question. Harassthem.com was a fictional example in Judge Kozinski’s first Roommates.com opinion, and Joe Gratz subsequently registered the domain name for fun. Some of the responses from the panelists seemed to treat harassthem.com as if it were once an actual site.] Cohn: are those sites even visible? Levy: a lot of people would like to reopen the First Amendment. Cohn: remember that federal criminal law isn’t covered by 230 [Eric’s note: but which way does this cut?]
Mark Lemley: data retention as prerequisite to immunity? Cohn: this would eliminate controversial anonymous speech.
Judge Kozinski
Before the conference, Chris Cox sent Judge Kozinski an email saying that Judge Kozinski got the Roommates.com opinion correct. Judge Kozinski said this email was like a rabbi getting an email from God saying that swordfish is kosher.
When litigants argue “if you do X, you’ll bring down Google,” it's the equivalent of saying “if you do X, you’ll bring down the government.”
The Roommates.com en banc opinion reflects limits to the immunity, even though the Internet is a cool place. The Internet is a big commercial enterprise, not the Wild West. But the dissent is brilliant! Every time he reads the dissent, he thinks “gee, I must've been wrong.” Judges aren’t as awe-struck by the Internet as they were 5 or 10 years ago.
Lemley: is 230 just about protectionism for infant industry? Kozinski: The First Amendment doesn’t need protection. We don’t need a statute to help us interpret it. 230 goes beyond the First Amendment. 230 is an anti-liability statute, and those are swell. "I don't think there's anything I can do to sink the internet." Nothing persuades him that the Internet is any different from airplanes or other industries that both do good and cause harm. People shoot themselves over things online.
He lived fine without the Internet. He could live fine without it. If he could flip the switch to personally get rid of the Internet, he’s not sure which way he would go. The Internet has enabled instantaneous communication, perhaps to our detriment. He lamented the mentality: “you went 25 minutes without responding to my email. Are you dead?”
Why is anonymity the sine qua non of 230 protection or First Amendment? "Where is it written that you have a right to speak anonymously and commit defamation?" He’s skeptical of the absolutist position.
When he first looked at 230, it looked like overkill—an overreaction to a bad case. But he’s not so sure any more—judges can shape it through interpretation. He’s now moderately optimistic, now that we’ve gotten past the anything-goes on the Internet, that boundaries are getting to the right place. Thus, the statute may not need additional tinkering by Congress.
Academic Panel
David Ardia presented the results of his empirical study. My prior comments.
Felix Wu talked about 230’s application to the email forwarding cases.
I spoke about 47 USC 230 as good economic policy. My talk notes.
Nancy Kim recapped her arguments that websites should be treated like any other retailers.
Posted by Eric at 09:25 AM | Derivative Liability | TrackBack
March 17, 2011
Employee's Twitter and Facebook Impersonation Claims Against Employer Move Forward -- Maremont v. Fredman Design Group
[Post by Venkat Balasubramani]
Maremont v. Susan Fredman Design Group, 2011 U.S. Dist. LEXIS 26441 (N.D. Ill.; March 15, 2011)
As alleged in the complaint, Fredman is a prominent interior designer who runs the Susan Fredman Design Group (SFDG). SFDG also has an internet presence. Maremont is an interior designer that started working at SFDG in October 2005 (as SFDG's Director of Marketing, Public Relations, and e-commerce).
Maremont was active in the online community and created "a popular personal following" on Twitter and Facebook. Maremont also created a SFDG blog entitled "Designer Diaries: Tales from the Interior" ("Designer Diaries") that is hosted on SFDG's blog." Maremont's likeness was tied to her online activities:
she authored frequent Posts and Tweets to her personal Facebook and Twitter accounts, along with the material for the Defendants' "Designer Diaries" blog. Maremont's image appeared on each personal Post and Tweet, which unmistakably distinguished her likeness.
In September 2009, Maremont was injured in an accident and was in the hospital for an extended period of time. While Maremont was at the hospital, Fredman and another SFDG employee visited Maremont and asked Maremont about various work projects. Meanwhile, one of Maremont's visitors at the hospital advised that Fredman and SFDG was impersonating Maremont by:
impersonating her by authoring Posts and Tweets to her personal Facebook and Twitter followers promoting SFDG . . . each Post and Tweet displayed Maremont's name and image giving followers the appearance that [Maremont] was the author.
Maremont then asked Fredman and SFDG to stop this practice. Apparently, the practice continued, but in December 2009, Maremont's husband read some of the posts which Fredmand and SFDG authored and published via Maremont's account and this caused Maremont to suffer distress. Maremont and her husband changed the passwords to her personal Facebook and Twitter accounts.
Maremont ultimately returned to work at SFDG on a part-time basis in February 2010 but found that she got a chilly reception at work. In May, Fredman expressed misgivings about Maremont's part-time schedule and that SFDG was having cash flow problems. In response to the perceived hostility towards her, Maremont quit, and brought claims against SFDG and Fredman.
Lanham Act Claim: Maremont brought a Lanham Act claim for "false endorsement". In order to bring a claim, she should show that she has commercialized her name or likeness. (See Stayart v. Yahoo, discussed by Eric here: "Seventh Circuit Tosses Beverly Stayart's False Endorsement Claims.") The court says that she has commercialized her name:
Maremont has . . . alleged that - as a professional interior designer - she became well-known in the Chicago design community allowing her to create a popular following on Facebook and Twitter. Maremont also alleges that her Tweets and Posts relate to her work in a commercial context, namely, as a professional interior designer and employee of SFDG.
The court did not discuss whether Maremont's online activity inured to the defendants' benefit since Maremont was posting and built up her following while she was an employee of SFDG. It's unclear whether defendants made this argument, but even if they did, given how egregious the facts were alleged to be, it would not be a surprise for it to have fallen on deaf ears. That said, given that Maremont was an employee and clearly posted on behalf of SFDG, SFDG had a possible argument that any copyright or trademark rights accrued to SFDG's benefit and not to Maremont. Also, given that some of Maremont's followers were following because of her official employment status, and assume that some of the posts related to her job. Shouldn't SFDG have an argument here that it should be able to keep up with its audience via the accounts in question?
Right of Publicity: The right of publicity claim requires Maremont to show that her identity was used for "commercial purposes . . . without [her] . . . written consent." Defendants did not argue that Maremont failed to satisfy this claim. Instead, defendants argued that the claim was barred by the statute of limitations since it first accrued in September 2009, "the approximate date of defendants' first Tweet impersonating Maremont." The court rejects this argument, citing to the "continuing violation rule." Defendants allegedly continued to exploit Maremont's publicity rights, despite Maremont's instructions to the contrary. No luck for defendants here.
Privacy Claim: Maremont also brought a common law privacy claim based on misappropriation of her likeness. Defendants argued that the Illinois publicity statute replaced the common law tort of misappropriation of likeness. In response, Maremont argued that she could also state claims for intrusion into seclusion and false light. With respect to her false light claim the court says she failed to allege actual malice. With respect to her claim that defendants "intruded into her personal 'digital life'" the court finds that she failed to develop this argument fully. The court dismisses these claims without prejudice and gives her a chance to replead.
__
I'm not sure what SFDG was thinking, but its head was not on straight when it accessed and continued to post from its hospitalized employee's Twitter and Facebook accounts. This pretty much fails every common sense test there is out there. But employers seem to want to access employee accounts (see, e.g., "Pure Power Boot Camp v. Warrior Fitness Boot Camp - Ex-Employees Awarded $4,000 for Email Snooping by Employer"). Maybe employers think that they own the accounts since they are employee accounts, but this is not the case. For some reason, employers seem slow to realize this.
In accessing the accounts, SFDG potentially incurred liability under the Stored Communications Act as well. Illinois does not seem to have an online impersonation statute, but if Maremont was in California, she could have thrown in this argument as well.
The case highlights the importance of having a social media policy, which should at a minimum designate "official" employer accounts and specify when an employee's Twitter/Facebook posts are their own vs. the employers. The case also brings up the question of who owns a company's Facebook fans and Twitter followers. Given the value companies are placing on their Facebook and Twitter presences, litigation over this issue is likely to increase. Professor Goldman recently posted about a case where two companies were fighting over their Facebook fan page: "Business Sues Facebook to Restore Its Fan Page--Complexions v. Complexions Day Spa." We can expect to see more of this litigation activity in the future.
Posted by Venkat at 10:11 AM | Marketing , Publicity/Privacy Rights
March 16, 2011
FTC Online Endorsement Guidelines Strike Again - FTC Dings Legacy Learning Over Allegedly Misleading Affiliate Reviews
[Post by Venkat Balasubramani with some comments by Eric]
In re Legacy Learning Systems, Inc., FTC File No. 102 3055 [FTC Release] [Complaint (pdf)]
An FTC press release notes that the FTC settled with Legacy Learning over allegations that Legacy improperly utilized affiliates to "promote its courses through endorsements in articles, blog posts, and other online editorial material." Specifically, the FTC complaint alleges:
[Legacy] recruited "Review Ad" affiliates for [Legacy's affiliate program], who promote Legacy’s instructional courses through positive endorsements in articles, blog posts, or other online editorial copy that contain hyperlinks to Legacy’s website in close proximity to the endorsements. [Legacy's] Review Ad affiliates often post such endorsements using statements that give readers the impression the endorsements have been submitted by ordinary consumers.
As noted in the release, the guidelines - which govern endorsements or testimonials - require disclosure of a material connection between a reviewer and a company. Under these guidelines, a positive review from a person connected with the seller or product ("someone who receives cash or in-kind payment to review a product or service" or who gets a cut of the sales) should come with a disclosure. The complaint alleges that twenty-five of Legacy’s "review ad" affiliates were responsible for at least $5 million in sales of Legacy's products.
What did the reviewers do wrong?: Reviewers did not disclose that they were affiliates of Legacy - i.e., received a cut of the sales, and in some cases were paid to review Legacy products . These were not "the independent reviews reflecting the opinions of ordinary consumers." (Examples of the reviews can be found in Exhibit A to the Complaint [pdf].) In some cases, the reviewer websites had disclosures, but the disclosures were anemic at best and were not contained in the posts themselves (e.g., "we are paid by some of the companies who's [sic] products we review" - not exactly a robust disclaimer). [Italics added.]
Where did Legacy go astray: For one thing, Legacy called these affiliates "review ad" affiliates. I would probably avoid this terminology. The complaint did not include a copy of the affiliate terms, so we don't know whether Legacy contractually required the affiliates to comply with the FTC's guidelines or explained how to comply. The complaint also does not specify whether Legacy paid the reviewers for their reviews (it alleges that the affiliates received a cut of the sales), but judging from some of the reviews and the websites of the reviewers, and from Legacy's suggestions to its affiliates, this seems to be the case (at least with some reviewers). Legacy offered suggested disclaimers (to affiliates) on its website but even these were ambiguous ("Affiliate Disclosure Requirements and Examples Legacy Learning Systems"):
[Suggested] Disclosure: We are a professional review site that receives compensation from the companies whose products we review. We test each product thoroughly and give high marks to only the very best. We are independently owned and the opinions expressed here are our own. [emphasis added]
Regardless of what Legacy may have suggested or required of its affiliates, Legacy also did not have any sort of compliance program to make sure that its affiliates made the necessary disclosures.
As part of the (proposed) settlement, Legacy will:
- pay $250,000;
- monitor and submit monthly reports about their top 50 revenue-generating affiliate marketers;
- make sure that affiliates disclose they earn commissions for sales and are not misrepresenting themselves as independent users or ordinary consumers.
Professor Goldman has posted a bunch about possible section 230 issues with the FTC's guidelines ("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"). The facts are somewhat similar to those alluded to in his example. Here, Legacy set up an online affiliate program (on its site, using ShareASale). Legacy is the provider of an interactive computer service. Its affiliates are third parties, and Legacy is being sued for content generated by third parties (its affiliates). This looks like Blumenthal v Drudge, where AOL was sued for allegedly defamatory content provided by Drudge and AOL had paid Drudge for the content. The only difference is that here, Legacy was subject to potential liability for content that was placed on the affiliates' websites, whereas AOL was sued for content which Drudge submitted to AOL's website. I don't have a good answer on the Section 230 issue (here's a response to Paul Levy to Professor Goldman's posts on the FTC guidelines and Section 230: "Do the FTC's New Advertising Guidelines Run Afoul of Section 230?"), but it looks like the FTC isn't too worried about Section 230 acting as a bar to enforcing their guidelines against companies whose products are promoted without proper disclosures.
Previously, the FTC went after a company which posted fake reviews on behalf of its client. ("FTC Dings PR Firm for Fake Reviews -- In re Reverb Communications.") The FTC also issued a warning shot to AnnTaylor over gifts to bloggers. ("FTC Drops Investigation of Advertiser Who Gave Gifts to Bloggers.") This time, rather than merely firing the warning shot, the FTC went after Legacy, and extracted a settlement.
_________________
Eric's Comments: I agree with Venkat's post, especially the questions about 47 USC 230's applicability to this situation. I should note that my view on 47 USC 230's applicability is idiosyncratic. In addition to Paul's post, Rebecca Tushnet has also voted that my arguments are bunk. Rebecca Tushnet, Attention Must Be Paid: Commercial Speech, User-Generated Ads, and the Challenge of Regulation, 58 Buff. L. Rev. 721 (2010). Nevertheless, I would love to see someone test the FTC's theory here. I don't see it as a slam dunk that a judge would accept the FTC's theories.
For this post, I'll raise a different issue. I wonder if this case is another step in an ongoing winddown of the online affiliate industry. We're already seeing a big contraction of online affiliate programs due to states' adoptions of the "Amazon tax." As we've seen repeatedly, Amazon and others toss their affiliates overboard when states adopt these laws. (Which ironically makes these laws a type of fool's gold for state legislatures: the laws have failed to generate new sales tax revenues but have reduced income tax bases for the states that have adopted them).
Now, the FTC is taking the position that an affiliate program operator is legally responsible for consumer reviews written by its affiliates that failed to make appropriate disclosures. Furthermore, the program operator's main crime is that it failed to check out these affiliates and find out what they were writing and whether they had made adequate disclosures. The FTC's fix is to require the program operator to monitor 100 affiliates (the top 50 plus another randomly selected 50) each month to see if they are up to no good. What a hassle. The FTC settlement also requires than any non-complying affiliates are supposed to get the axe immediately, without notice or a cure period--a one-strike rule. Nice. At the peril of an FTC investigation, who needs crap like this? For most affiliate program operators, the profit-maximizing response is to just cut loose the long-tail affiliates or shut down the program entirely. Combining this effect with the Amazon tax sweeping the nation, the affiliate industry is on the run.
Another ironic note: I bet many of the program operator's affiliates are, in fact, experts in that market niche and therefore are better positioned than many other consumers to evaluate the product offerings in the niche. So the FTC crackdown may counterproductively reduce the flow of USEFUL consumer reviews about products.
A final irony: courts are less willing to extend liability to affiliate program operators than regulators are. As the most recent example, see the 1-800 Contacts v. Lens.com ruling. We didn't see an affiliate program operator-friendly ruling in the Amazon tax litigation in New York, but I keep hoping that gets reversed on appeal. If it does, and if anyone actually stands up to the FTC juggernaut, perhaps we'll see the courts revitalize the affiliate industry. If not, I say we're at the beginning of the end for affiliate programs as we've known them for the past 15 years.
Posted by Venkat at 02:54 PM | Content Regulation , Derivative Liability , E-Commerce , Marketing
Jury Awards Damages Against Web Designer/SEO/Host on Contributory Trademark Infringement Theory--Roger Cleveland v. Prince
By Eric Goldman
Roger Cleveland Golf Co. v. Prince, 2:09-cv-02119-MBS (D.S.C. jury verdict March 10, 2011 and judgment March 14, 2011). See also the jury instructions.
I blogged about this case back in December. That ruling was a puzzling head-scratcher holding that a web design/SEO/host firm working with an alleged online retailer of counterfeit goods could be liable for contributory trademark infringement. The ruling didn't make any sense substantively, but the court clearly didn't appreciate the defense counsel's 1.5 page citationless summary judgment brief. The court separately ruled that the website did engage in counterfeiting--thus removing that issue from the jury's consideration--leaving two principal questions for the jury: (1) was the designer/SEO/host secondarily liable, and (2) damages.
The jury concluded that the designer/SEO/host was in fact contributorily liable and that both the website and the designer/SEO/host willfully infringed. The jury then awarded $28,250 in total damages against the website operator and $770,750 in total damages against the designer/SEO/host. As big as these numbers are, they are a drop in the bucket compared to the theoretical case maximum--the jury could have awarded statutory damages for willful counterfeiting of $2M per mark, or $22M in this case.
There are many puzzling aspects of the jury's verdict, but the one that has had me scratching my head all day is how the jury could award greater damages against the contributory infringer than it awarded to the direct infringer--28X greater. We've seen other massive damage awards against contributory IP infringers, but usually those awards are an amalgamation of many individual direct infringers' activities. Here, the jury verdict is only predicated on a single customer's infringement but awards 28X the damages against the secondary infringer. I think I'm missing something big.
The conclusion that the designer/SEO/host infringed willfully is also noteworthy. I haven't gone through the jury arguments, but the earlier ruling hinted that the designer/SEO/host coaxed the web operator into the counterfeiting world and was optimized for providing services to counterfeiting websites. The prior ruling did an absolutely horrendous job explaining exactly what the designer/SEO/host did wrong (a partial reflection of the unhelpful advocacy by its defense counsel), so we don't have a good sense of how likely it is that other web designers or SEOs/hosts will be sucked into the same liability trap. I do think we have some good reason to believe that courts are allergic to the entire "copycat"/"replica" business. Those code-words aren't fooling anyone.
Plaintiff's counsel released a press release touting their victory, saying:
This represents the first time that an SEO/Web Host or other Internet Intermediary was found liable for contributory infringement without having first received actual notification of the counterfeit sales from a third party. The case was presented and pursued by Cleveland Golf/Srixon based on a theory that Bright Builders knew or should have known of the infringing conduct based on the name of the website, the content of the website, and certain discussions Bright Builders had with Prince regarding his web site.
The NLJ article has more chest-beating.
I agree that I can't think of another case where contributory trademark infringement has been found online without so much as a takedown notice. I disagree that this portends a new era of secondary trademark liability; instead, I think it reinforces the likelihood that this case is a one-off attributable to a confluence of things that went wrong (starting with that 1.5 page summary judgment motion).
Even so, I expect that trademark owners will be revving up their engines looking for new defendants. Already, recently I've been hearing a lot of gleeful talk from trademark owners about the utility of the Akanoc case and especially the Gucci v. Frontline case to their enforcement efforts. This case completes a troika of cases in the past year where service providers to counterfeiters have gotten nailed. As the saying goes, bad things come in threes, and three may be the magic number to unleash a flood of new litigation.
Posted by Eric at 09:28 AM | Derivative Liability , Trademark | TrackBack
March 15, 2011
Intelius May be Liable for Deceptive Online Marketing Practices Based on Third Party Transaction at Checkout -- Keithly v. Intelius
[Post by Venkat Balasubramani]
Keithly v. Intelius, No. C09-1485RSL (W.D. Wash.; Feb. 08, 2011)
A district court judge in Washington held that Intelius could potentially be held liable for allegedly deceptive marketing practices based on its making available third party services as part of the online checkout process.
Background: Intelius offers "background check" and look-up services to customers on the web. Customers brought a putative class action alleging that they were deceived during the online check-out process into buying third party subscription services.
The plaintiffs' experiences varied slightly, but some of the plaintiffs alleged that after they selected the desired services from Intelius, they were offered these services for $49.95, but were also presented with an option to enroll in a "mysterious 'Identity Protect'" service and pay $39.95 (i.e., get a $10 discount on the product which they ordered). These customers were taken through several pages which mention the basic and add-on services, and in one of the pages, the customer was informed that enrolling in 'Identity Protect' would result in the customer's credit card being billed monthly (if the customer did not cancel after the seven day free trial).
At this point the customers could complete the order, but another group of customers were told that they could take a "Community Safety Survey," and receive $10.00 cash back, when they tried the "Family Safety Report." Customers who responded favorably to this were then presented with a survey - one of the questions is related to community safety, and the other question is billing related. Here, the customer is again presented with (what the court describes as) confusing options, one of which allows the customer to complete his or her order, and the other which sends the customer further down the path which ultimately results in the purchase of the "Family Report" service. As the court describes it, "[n]o information is provided regarding the company that is offering this service."
As alleged by plaintiffs, the services are offered after the customer has input his or her payment information and were offered by third party defendant Adaptive Marketing. [Intelius settled with the Washington AG's office in late 2010 around marketing practices that look similar to those alleged here. Adaptive parent's company was also recently hit with a big ($32.6 million) judgment in Iowa: "Judge hands down $32.6 million consumer protection verdict; hundreds of thousands of Iowans could receive restitution."]
Washington Consumer Protection Act: Defendants argued that the complaint failed to adequately allege deceptiveness. In order to satisfy the deceptiveness element, a plaintiff "need not show that defendants intended to deceive or defraud, but only that the practice had the capacity to deceive a substantial portion of the purchasing public." Additionally, deception (which is evaluated by the "net impression" created by the solicitation) "may result from the use of statements not technically false or which may be literally true." Under this standard, the court finds that two of the three marketing techniques were deceptive.
Identity Protect Plaintiffs: This group of plaintiff selected the background report for purchase. They had to click two different "continue" buttons to complete the transaction, and in between the two steps, "Identity Protect" was added to their orders, "without any meaningful disclosure regarding the service or its price." At some point down the road (in step 4), the pricing details of "Identity Protect" were revealed, but they were the least conspicuous elements on the page. As described by the court:
[t]he elements that are most noticeable at Step 4 convey the impression that the consumer is purchasing a background report for $39.95 (a savings of $10.00) and that Identity Protect costs nothing. A reasonable consumer in Keithly's position could believe that clicking the red "Continue" button would answer his every need: it would allow him to purchase the product he wanted for a total of $39.95. Nothing about the key design elements would suggest that Keithly should be hunting for other terms and conditions and, and even if he did, the details of the offer blend in with the description of "Identity Protect Benefits" and the site security information to such an extent that he could miss them. The consumer could reasonably believe that clicking "Continue" would complete the order he had initiated at least four screens ago.
After step four, these consumers were not presented with any opportunities to remove Identity Protect, despite the transaction running the course of "ten screens." Similarly, after step four, there were no other disclosures regarding the pricing or terms for the Identity Protect service. In fact, "every order summary presented between Step 4 and the end of the transaction indicated that Identity Protect would cost $0.00." The court does note that not everyone would be fooled by this marketing technique:
[s]ome individuals would understand that obtaining something for nothing is a rare event and, at Step 3, would decline the offer of a $10.00 discount on the assumption that there was a catch. Others would take the time to read every word of the screen shot labeled Step 4 and realize that the advertised $0.00 price tag for Identity Protect would jump to $19.95 per month after the first seven days. But not everyone is so wary and/or detail-oriented, nor is the CPA designed to protect only those who need no protection. The capacity of a marketing technique to deceive is determined with referenced to the least sophisticated consumers among us. The FTC has noted that on-line consumers do not read every word on a webpage and advises advertisers that they must draw attention to important disclosures to ensure that they are seen.
[emphasis added]
In other words, online retailers should not hide the ball as to what is being purchased, or as to the terms of the purchase. This applies to the text of the webpage, but also applies to the checkout process itself. If the process is confusing, it does not matter is the text is technically accurate! Consumers should be able to assume that they can "safely complete an uncomplicated internet transaction without fear of being swindled or saddled with unwanted goods and services if her reviews the order summary and clicks on the link or button that purportedly completes the purchase."
The court ruled with respect to a second group of Identity Protect plaintiffs that the practices were - as a matter of law - not deceptive because there was a disclosure on every screen that Identity Protect could be cancelled any time, but that "[a]fter [the] trial, [the consumer] will be billed $19.95 per month."
Family Safety Report Plaintiffs: The court similarly finds that the Family Service Report transactions could be deceptive. After the consumer bought the report from Intelius (and after the consumer clicked on the "show my report button") the consumer is presented with an option to "take the 2008 Community Safety Survey and claim $10.00 CASH BACK when you try Family Safety Report." Here the consumer is presented with a choice to try the Family Safety product or not, but the option to try the Family Safety Report is more prominently presented. If the customer clicks on the "Yes" button and provides his or her email address, the customer actually authorizes Intelius to "transfer" the customer's account information to the undisclosed third party who is offering the service. The court points to the design elements on the page that all fail to highlight that the consumer is actually signing up for something that he or she will be on the hook for:
None of the normal cues related to a consumer transaction are presented: no product is selected, no order summary is provided, no payment information is exchanged, and no confirmation of the transaction is generated. By providing an email address and clicking the red button, the consumer will have purchased an on-going service from an undisclosed entity. Unless the consumer had the forethought to print the webpage before moving on, he will have no idea how to contact the purveyor of the service once the subscription fee starts showing up on his account statement.
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I blogged about the VistaPrint case where the plaintiffs argued that they were improperly signed up for a rewards program. There the district court and Firth Circuit both found that a disclaimer and the language of the transaction effectively undermined the claims. The court in this case disagrees with the approach in VistaPrint, noting that such "a truncated analysis is improper under Washington [law]" because the court should look at the transaction as a whole. Aside from the deference given to any disclaimers or disclosures, the processes in VistaPrint and in this case appear fairly different. There the customers had to check the box saying they agreed to the terms, enter their email address twice, and most importantly, the rewards program offer was presented after the transaction with VistaPrint.
In contrast, in this case, the court intimates that the merchant was doing everything it could to thwart the effective completion of the transaction, and the consumer is guided through a maze of steps where the merchant or third party tries to add an unwanted product into the consumer's shopping cart at each step. A big takeaway is that the flow of the transaction and overall impression to the consumer is equally as important to the text, and if the overall process is viewed as deceptive, a few disclaimers will not save you. Here, it was obvious that (taking the plaintiffs' allegations as true), customers were being put through a maze of a checkout process, with numerous traps along the way.
The practice of injecting third party service (with recurring billing) into a transaction has drawn the ire of regulators. State AG's have gone after companies, and recently President Obama signed the Restore Online Shopping Confidence Act. (Here's an interesting background article on this statute: "How an Oil Baron's Heir Cleaned Up a $1.4 Billion Internet Scam.") The act covers sales by "third party sellers," and prohibits the data pass that the plaintiffs are complaining about here. The act requires the third party seller to disclose the terms, and the fact that the third party seller is not affiliated with the merchant. The act also requires the third party seller to obtain "the express informed consent" for the charge by obtaining the account number, name and address, and a means to contact the consumer from the consumer, and requiring the consumer to check the box of perform some other affirmative act to indicate consent. It looks like the transactions in question would have been covered by the statute. The act is intended to be enforced by the FTC and the State Attorneys General, but it does not rule out private enforcement, and I'm sure plaintiffs will be citing it aplenty.
Previous posts:
"Fifth Circuit Blesses Vistaprint's Rewards Program Sign-Up Process -- Bott v. Vistaprint USA Inc."
"Internet Rewards Program Class Action Survives Initial Motion to Dismiss -- In re Easysaver Rewards"
Posted by Venkat at 04:39 PM | E-Commerce , Licensing/Contracts
How 47 USC 230 Improves Marketplace Efficiency
By Eric Goldman
I have been working on a draft article currently titled "In Defense of 47 USC 230" (I'm probably going to change the name). As part of our 15 year retrospective of 47 USC 230, I presented a short sketch of the article's outlines.
I will blog a more thorough recap of the conference shortly, but in this post I am just sharing my talk notes. As you'll see, my work is a direct outgrowth of my broader project on reputation systems. See some of my past talk slides.
My main argument is that 47 USC 230 helps improve marketplace efficiency. I hope this argument opens up a new and productive area for discussion. So often "debates" about 47 USC 230 devolve into irresolute slogans. On the pro-230 side, some argue that it advances First Amendment values (whatever that means) or that it protects innovation (whatever that means). On the anti-230 side, some argue that it breaks tort law (usually expressed as an expectation that websites should adopt "reasonable precautions") or leaves injured victims remediless. There is merit to all of these arguments--but no clear way to decide how to favor one outcome over the other.
I can't fix that problem, but I do hope to shift the debate into 47 USC 230 as economic policy, not just social policy. If I can make the case that 47 USC 230 turbocharges our economy, then perhaps we can better appreciate some real-world economic sacrifices associated with any proposed change. We might still desire to make changes, but we'll also see the opportunity costs more clearly.
My talk notes:
* 230 advances many 1st Amendment interests, but I’m more interested in how it can improve our marketplace. In particular, I’m interested in 47 USC 230’s effect on “reputational information” = information about an actor’s past performance that helps predict its future performance
* Something truly new to the Internet: consumer review websites
- Offline, consumer opinions about marketplace goods/services were rarely published
- Online, consumer review websites can gather, organize and disseminate reputational information in the form of consumer reviews
- The result = explosion of consumer review content, much of it through consumer review websites. Practically every good/service in the marketplace is subject to consumer review website coverage
- 47 USC 230’s immunity enables consumer review websites in several ways. (1) Websites don't need to default to a notice-and-takedown scheme, pursuant to which vendors would only target negative reviews. (2) Empower review websites to cover long-tail items, which would not be financially viable in different liability regime. (3) 230's financial subsidy can be reinvested to subsidize review production. (4) Websites can experiment with different ways of organizing and disseminating consumer reviews without being locked into liability-minimizing approach, including fighting fake reviews without liability fears for exercising editorial control
* Why consumer review websites matter: they can help consumers make better marketplace decisions
- We want marketplaces to reward good producers and punish bad ones
- Marketplaces require readily available information about good/bad producers
- Consumer review websites help produce that information and make it readily available
- Thus, consumer review websites help guide the marketplace’s invisible hand
* Added bonus: if US has more favorable liability regime than our global competitors, we benefit in 2 ways
- New job creation from new consumer review website startups. US has emerged as global incubator of Web 2.0 start-ups, and we get the domestic jobs accordingly.
- Our domestic marketplace becomes more efficient over time than other countries’ domestic marketplace = our relative global position improves
* 47 USC 230 is already a good result, but we can improve its operation:
- Close the trademark hole (see, e.g., Lifestyle Lift)
- Enforce sanctions for clearly immunized cases
- Enact federal anti-SLAPP law
- Enact a “threats” action for bogus C&Ds
- Close the 512(c)(3) hole
- Extend the immunity to offline publishers
Posted by Eric at 01:41 PM | Derivative Liability | TrackBack
March 14, 2011
Court Refuses to Set Aside Order Requiring Disclosure of Twitter Users' IP Addresses
[Post by Venkat Balasubramani with some comments by Eric]
In re: sec. 2703(d) Order; 10GJ3793; Miscellaneous Case No. 1:11dm00003 (E.D. Va. March 11, 2011) [pdf]
A federal magistrate judge refused to vacate a previously issued order granting the government's request to reveal information regarding various Twitter accounts for people allegedly associated with Wikileaks.
On December 14, 2010, at the government's ex parte request, the court entered a sealed order granting the government's request for the following information associated with the Twitter accounts of WIkileaks, rop_g, ioerror, birgittaj, Julian Assange, Bradley Manning, Rop Gonggrijp, and Birgitta Jonsodottir:
1. subscriber names, user names, and identities;
2. physical addresses, email addresses, and other contact information;
3. "connection records," records or session times and durations;
4. length of service and the types of service utilized;
5. "telephone or instrument number or other subscriber number or identity, including any temporarily assigned network addresses";
6. means and source of payment for service.
The order also required disclosure of all records and other information relating to these accounts, including the timing and method of connections, data transfer volumes, and "source and designation" IP addresses; "non-content information" associated with any communications, such as "source or destination email addresses and IP addresses;" and correspondence and notes of records relating to the accounts.
Twitter sought to have the order partially unsealed and give an opportunity for the affect account-holders to contest the order. (Kudos to Twitter for taking this step. ("Why Twitter Was the Only Company to Challenge the Secret WikiLeaks Subpoena.")) Several interested parties (Applebaum, Jonsdottir, Gonggrijp), represented by the ACLU and EFF, filed a motion seeking to vacate the order, but they were unsuccessful.
Standing Under the Stored Communications Act:
The first question was whether the moving parties had standing to challenge the order under the provisions of the Stored Communications Act. The court says that standing to challenge under section 2704(b)(1) is restricted to those customers who can show that the "contents" of their electronic communications have been sought. "Contents" are defined in the statute as information "concerning the substance, purport, or meaning" of the communications, and the court finds that the government did not seek the contents of any communication. [The court notes here that the moving parties face difficulties in challenging the application because they have not seen a copy of it - the application is under seal.]
First Amendment Arguments:
The First Amendment arguments centered around free association and the chilling effects that would result from the government being able to "create a 'map of association'" from obtaining the information in question. The court is unpersuaded by the First Amendment association argument, partially because the moving parties had "made their Twitter posts and associations publicly available." The court does not specify whether the accounts were set to private, but I assume if any of them were, the court would have mentioned it.
Fourth Amendment Arguments:
Finally, the moving parties made a Fourth Amendment argument that the disclosure order should have been vacated because it amounted to a warrantless search in violation of the Fourth Amendment. In particular, the moving parties argued that they had a privacy interest in their IP address information, and argued that requiring Twitter to produce IP address details for specific dates and times would be "'intensely revealing' as to location, including the interior of a home." The court is not sold on this argument. The court cites to a slew of federal appellate cases (including US v. Bynum, which was the subject of a brief post: "4th Cir.: No Expectation of Privacy in Internet and Phone Subscriber Info") holding that there is no privacy interest in an ISP subscriber's information. The moving parties argued that they never voluntarily conveyed their IP address to Twitter, but the court disagrees, and points to Twitter's privacy policy:
[b]efore creating a Twitter account, readers are notified that IP addresses are among the kinds of "Log Data" that Twitter collects, transfers, and manipulates . . . . Thus, because petitioners voluntarily conveyed their IP addresses to Twitter as a condition of use, they have no legitimate Fourth Amendment privacy interest.__
I had not followed the goings on closely, but the moving parties had an uphill battle given that the government did not seek the contents of any communications. This is a fact that is sometimes obscured in media reports, which often paint the picture of the government getting access to sensitive and private communications. That isn't the case. The fact that the accounts in question were not set to private did not help either. (Also, in the consumer context, courts have held that IP addresses are not personally identifiable information. See "Court: IP Addresses Are Not 'Personally Identifiable' Information.")
On the expectation of privacy issue, Chris Soghoian makes a good point that I've alluded to before - it's awkward to measure the consumer's expectation of privacy based on the language of a privacy policy because people rarely read the policies: "Federal judge in Twitter/Wikileaks case rules that consumers read privacy policies." That said, most people would expect services like Twitter to collect and use IP addresses. It's just a question of how long Twitter may retain this information for and under what circumstances it would turn this information over. On this issue, the privacy policy was of no help.
[As a side note, I think this may be somewhat indicative of how many of the Facebook privacy lawsuits may shake out. Those lawsuits are heavily dependent on federal statutes which grant protection to the contents of communications, and if all that's being collected and used is the parameters of a person's internet activity, the plaintiffs will have a tough time arguing that any statutory violations occurred.]
EFF & the ACLU plan to appeal, so this isn't the last word.
Other coverage:
EFF: "Court Rules Against Privacy in Battle Over Twitter Records"
cnet (Declan M.): "DOJ wins access to WikiLeaks-related Twitter accounts"
Wired (Threat Level): "Judge Won’t Stop WikiLeaks Twitter-Records Request"
Chris Soghoian: "Federal judge in Twitter/Wikileaks case rules that consumers read privacy policies"
_______________
Eric's comments: In my recap of top cyberlaw issues from 2010, I ranked Wikileaks as the #1 issue of the year and wrote:
Wikileaks finally forces us to confront many of the cyberspace governance issues we were debating in 1996. I'm sad to say that our government, and many private businesses, failed the test.
This ruling appears to be another datapoint in support of that assessment. The government's request for Wikileaks-related information from Twitter very well may be lawless, but this judge--like so many others confronted with Wikileaks-related issues--is willing to roll with it using highly formalist reasoning. In this respect, Wikileaks may be the new Napster--whenever its name is invoked, the rule of law gets suspended in an overall effort to kick the unwanted enterprise out of the ecosystem; and everyone who touches Wikileaks gets tarred with the taint-by-association brush.
The court's ruling on 2704 standing to challenge a 2703(c) request is a fine example of the problem. The court says that, based on the statutory wording, the affected subscribers lack standing to challenge the records request. OK, but when do the affected subscribers have standing to challenge a 2703(c) request? According to this ruling, the answer may be never. That can't be right. Surely we as citizens have some way to fight back against overreaching government requests for non-public information about us...don't we?
We encounter the same problem with the court's discussion regarding IP addresses. The court makes a troubling categorical statement: "petitioners have no Fourth Amendment privacy interest in their IP addresses." As with the 2703(c) records request, is there any circumstance where a subscriber could prevent his/her IP address from being disclosed to the government? According to this court, the answer may be no.
Overall, the court seems tone-deaf about the possible consequences of revealing the information to the government. We've made a lot of progress striking a balance regarding unmaskings in the civil context; here, the court doesn't consider the possibility of balancing at all.
I'd like to think the Wikileaks participants used anonymizers for their IP addresses. If you are doing anything likely to incur the wrath of the US government, consider this a cautionary warning of the need to use good anonymizers for your activity.
For Twitter, there is a silver lining to the ruling. In a footnote, the court says "By clicking on "create my account", petitioners consented to Twitter’s terms of use in a binding “clickwrap” agreement to turn over to Twitter their IP addresses and more." Surely Twitter likes a judicial vote in favor of its online contract formation. However, the court's citation of Twitter's privacy policy reinforces that privacy policies are not just about the private arrangements between sites and their users. The government will trawl through a site's privacy policy to cite terms against the site's users as part of the government's rapacious desire to know everything about its citizens. As drafters of privacy policies, we might consider how we balance our clients' needs for information flexibility with the fact that the government will abuse that same flexibility for its own possibly lawless interests.
UPDATE: Jennifer Granick's post on the opinion.
Posted by Venkat at 11:43 AM | Licensing/Contracts , Privacy/Security
March 11, 2011
Social Search Services Duel Over "Post Post" Mark -- Boathouse Group v. TigerLogic
[Post by Venkat Balasubramani]
Boathouse Group v. TigerLogic Corp., 10-12125-NMG (D. Mass.; March 7, 2011)
Background: Boathouse developed a "social media search and curation application" called POSTPOST which it launched at postpo.st in August 2010. Its application allows users to conduct keyword searches of twitter, Flicker and RSS feeds and post relevant search results to the user's profile. Although its search didn't cover Facebook, Boathouse asserted that it planned on launching a search for Facebook from day one. TigerLogic also launched an application called POSTPOST which it launched at postpost.com in December 2010. TigerLogic described its application as a "real-time personal social newspaper" which aggregates "links, pictures, and videos [from Facebook] and presents them . . . in newspaper format." Boathouse sued, alleging trademark infringement.
Was TigerLogic the Senior User?: The first issue was which of the companies was the senior user. TigerLogic tried to get crafty, and obtained an assignment from DK New Media, which used POSTPOST (since 2007) in connection with "computer software and computer and social networking services." As part of the assignment, TigerLogic licensed back rights to use the mark to DKNM. The court was quite skeptical of the use of the assignment to obtain priority, and among other things, points out a timing discrepancy in the assignment documents (the license back was dated after the assignment) and points out that the timing of the assignment indicates that it was used as an attempt to obtain seniority for the purposes of the lawsuit. The court also notes that as a practical matter, TigerLogic probably did not exert the requisite control over DKNM's services which were distributed under the mark. The assignment also probably suffers from the defect that there's no goodwill or equipment transferred to TigerLogic as part of the assignment. (Is TigerLogic producing the same quality and type of goods as DKNM?) However, what the court ends up focusing on is the fact that the services covered by DKNM's registration were distinct from those provided by TigerLogic. Thus the assignment failed to confer priority.
Was Boathouse's Pre-Sale Use Sufficient to Establish Trademark Rights?: A follow up question was whether Boathouse's release of its beta service was sufficient to establish trademark rights. TigerLogic argued that Boathouse failed to achieve significant traction in the market and that Boathouse used its search product internally (for its existing clients), but the court rejects these arguments. The court notes that Boathouse's launched its service in the "trial phase" via postpo.st on August, 2010, publicized its use via Twitter and other sites, and achieved over 800 registered users. Based on this, the court finds that Boathouse's "use" of the mark was sufficient to establish its rights. [As a side note, the court rejects TigerLogic's arguments that Boathouse's launch of the service through the .st TLD, rather than the .com undermined Boathouse's claim of priority. Apparently, the .com was for sale and although the registrant asked $35,000 for it, TigerLogic ended up acquired it for $3,000.]
Likelihood of Confusion Analysis: After concluding that Boathouse is the senior user, the court runs through the likelihood of confusion analysis. The court finds that the marks are similar (nearly identical) and this factor favors Boathouse. The court also finds - despite "profound discord regarding the specific characterization of each product" - that the services were sufficiently similar. The products both "work on widely-used social networks." The court was not swayed by the fact that one of the products requires active input from the user - at the end of the day, they both performed "search and curation functions." The channels of advertising and trade factor also weighed in favor of Boathouse. The products were both marketed via Twitter and both aggregated content from social media platforms. The fact that there was evidence of actual confusion was also a factor which weighed in Boathouse's favor. When all is said and done, the court finds that the factors weighed in Boathouse's favor and the court grants the injunction. (The injunction will require TigerLogic to change the name of its service, although it can continue to use the domain name provided it includes a disclaimer and a link to Boathouse's site. Interestingly, the injunction restricted each party's use of their service to the platforms on which they then offered the service - Boathouse was restricted from expanding to Facebook, and TigerLogic was restricted from expanding to Twitter.)
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One initial observation is that companies continue to spend a fair amount of money litigating trademark disputes prior to having firmly established their brand. Both companies used big law firms, and probably incurred a fair amount of expense. Although Boathouse achieved a successful result, it expended a fair amount of resources on this, and even though it prevailed, both parties may have been better off seeking a business solution, and focusing on their products and customers. TigerLogic certainly should have considered this option, when it realized that it was not the senior user.
Second, companies continue to be willing to chose alternates to .com domain names. In the old days, a non-.com was viewed as the kiss of death, but over the years, there has been a proliferation of successful sites (including URL shorteners) which have adopted non-.com names. Here, Boathouse didn't obtain the .com version of the name, but that did not stop it from adopting the POST POST name (and it looks like it may come out on top - as far as the name game goes). Also, Boathouse may have had a cybersquatting claim against TigerLogic, but wisely chose the trademark infringement route over the ACPA route.
The court engages in a relatively nuanced look at the services in question. TigerLogic purportedly acquired the rights to POSTPOST from DKNM, and DKNM used the mark in connection with "computer software and computer and social networking services," but the court notes that this wasn't similar enough to TigerLogic's social search service:
although DKNM's plugin and TigerLogic's application share some general and broadly-construed similarities (e.g., both are used on the internet), they seem otherwise unrelated with different purposes, thus making the assignment ineffective for the purpose of transferring priority. DKNM's plugin is an optional feature designed to work with specific software. It has limited functionality, requires the user to input content and lacks a search feature. Furthermore, it does not rely on or require access to a user's social network to function, unlike the applications of TigerLogic and Boathouse.
This can cut both ways, and for purposes of arguing confusion, just arguing that products or services are offered via the internet or on social networks is not necessarily going to be enough.
There was also the question of how these services would play with Facebook, Twitter and their users. It's one thing to use the tools provided by those services to share content, but the services can be prickly about who they let play with their platform. (Many companies have learned the hard way that building a service on top of a platform that has the ability to shut you out offers little certainty.)
Finally, the case highlights how using an assignment to obtain priority can be tricky. Apple and other companies have been doing this, but it seems like if your intent is to get rid of a senior user, this is fine, but you may not have as much luck when it comes to establishing priority.
UPDATE: Pamela Chestek's comments.
Posted by Venkat at 12:00 PM | Trademark
Copyright Take-Backs? Supreme Court Grants Cert in Golan v. Holder
by Ethan Ackerman
The Supreme Court has agreed to hear a long-running copyright dispute over a 1994 law that retroactively restored copyright in some expired foreign works.
In what ScotusBlog is calling "a major test of copyright power," the Supreme Court agreed to hear an appeal of the 10th Circuit decision in Golan v. Holder upholding the Uruguay Round Agreements Act, a law that brought the US into compliance with several international treaties. Part of the Act restored copyright protection retroactively to a set of foreign works that had passed into the public domain. Tyler Ochoa has blogged in detail about an earlier ruling on this blog, covering the copyright and First Amendment challenges the Act faced. Tyler Hart also provides a similar writeup of the history of the case and the cert granting. The Center for Internet and Society, at Stanford Law School, has represented plaintiff Golan in the case, and provided their history, supplemented with the relevant filings as well, here.
Posted by Ethan Ackerman at 07:05 AM | Copyright | TrackBack
March 10, 2011
Google Not Liable for Suggested Vanity Searches--Stayart v. Google
By Eric Goldman
Stayart v. Google, Inc., 2011 WL 855316 (E.D. Wis. March 8, 2011)
Beverly Stayart (a/k/a Bev Stayart) has graced these pages so many times, I feel a little silly recapping her story yet again. The short story behind this case: In the course of doing vanity searches, Bev Stayart discovered that Google suggested her name plus the name of a sexual dysfunction drug ("bev stayart levitra"). Rather than ignoring these search results, as almost all of us would do, she boldly clicked on the results and decided they were worth a lawsuit because these searches degrade her sterling reputation and generate profits for Google.
She brought a similar lawsuit against Yahoo and lost. Now, she racks up a loss against Google. Her litigation quest has unquestionably helped define her reputation in the Internet law community, but perhaps not in the way she might desire.
This opinion is relatively brief and breezy, befitting a case so devoid of merit. The court references 47 USC 230 (which should have worked, as it did in her suit against Yahoo) but sidesteps it, instead granting a 12(b)(6) motion to dismiss on the elements themselves. The court rejects Stayart's publicity rights claim because she didn't show her name has any commercial value or that Google made any use of it (commercial or not). Instead, "Google enables internet users to access publically available materials connected to plaintiff’s name." The court also says Google isn't impermissibly selling the phrase "bev stayart levitra" because clearly any resulting ads are broad-matched to "levitra."
The Seventh Circuit already has had one chance to mock Stayart (in the Yahoo lawsuit). I wonder if she will give them a second mocking opportunity.
UPDATE: On the same day, the court also dismissed Stayart's latest foray against Yahoo on less substantive grounds.
Prior blog posts on Beverly Stayart's litigation:
* Seventh Circuit Tosses Beverly Stayart's False Endorsement Claims--Stayart v. Yahoo
* Beverly Stayart Strikes Again! This Time, Stayart Sues Google
* Yahoo's Search Results Snippets Aren't False Endorsement--Stayart v. Yahoo
* Yahoo/Overture Sued for Search Results Snippets Containing Plaintiff's Name--Stayart v. Yahoo
Posted by Eric at 10:02 AM | Publicity/Privacy Rights , Search Engines | TrackBack
March 09, 2011
Important Ninth Circuit Ruling on Keyword Advertising, Plus Recaps of the Past 4 Months of Keyword Ad Decisions
By Eric Goldman
Network Automation, Inc. v. Advanced System Concepts, Inc., 2011 WL 815806 (9th Cir. March 8, 2011)
[warning: this blog post is nearly 5,000 words]
Introduction
We've had surprisingly few appellate decisions involving keyword advertising generally, and almost none involving trademark owners’ lawsuits against keyword advertisers (as opposed to suing keyword sellers like search engines). On that basis alone, this ruling is important. The case is also remarkable because the opinion, written by highly regarded Judge Wardlaw, gets so many things right. Perhaps that sounds like damning with faint praise, but the reality is that the Ninth Circuit's Internet trademark law has become horribly tortured due to deeply flawed opinions like the 1999 Brookfield case. This opinion deftly cuts through the accumulated doctrinal cruft and lays a nice foundation for future Internet trademark jurisprudence.
The only sour note is that the opinion makes some unnecessary and empirically shaky "presumptions"--exactly the kind of unfortunate appellate court fact-finding that got the Ninth Circuit into trouble into the first place. Still, given how this opinion could have turned out, I still give this opinion very high marks.
Background
The litigants both make software for job scheduling and management. This is reasonably expensive ($1k-$10k) software targeted at businesses. The advertiser (Network Automation) purchased the trademark owner's trademark as keywords (at both Google AdWords and Bing) for comparative advertising. Thus, this case deals with a nice, clean example of comparative competitive keyword advertising.
The ad copy read:
The text of Network’s advertisements begin with phrases such as “Job Scheduler,” “Intuitive Job Scheduler,” or “Batch Job Scheduling,” and end with the company’s web site address, www.NetworkAutomation.com. The middle line reads: “Windows Job Scheduling + Much More. Easy to Deploy, Scalable. D/L Trial.”
The ad copy doesn't reference the trademark, presumably because the trademark owner blocked it via the search engines' trademark policies.
The lower court proceedings appear to be fairly typical (other than the fact the advertiser initiated the litigation with a declaratory judgment; hence why its name is first). The trademark owner argued that the comparative competitive ads created initial interest confusion; the court used a bastardized form of the Sleekcraft multi-factor likelihood of consumer confusion test to slam the advertiser; and the court issued a preliminary injunction.
Use in Commerce
The court actually addresses this factor explicitly, a vast improvement over the garbled words in Playboy v. Netscape. Unsurprisingly, the court says that buying keyword ads constitutes a use in commerce. I say unsurprisingly only because no court outside the Second Circuit has ruled otherwise, and the Second Circuit said that selling keyword ads was a use in commerce in the Rescuecom case.
The court doesn't explore the potential differences between selling keywords (a la Rescuecom) and buying keywords (this case). Even so, it continues to be clear that courts aren't going to adopt the use in commerce defense to either buying or selling keyword advertising. Oh well.
A Side Note About Metatags
In recounting the history of the Brookfield case and its discussion of metatags, the court drops FN3: "Modern search engines such as Google no longer use metatags. Instead they rely on their own algorithms to find websites. See McCarthy at § 25:69." Metatag plaintiffs, take note. I don't think this footnote puts the nail in the coffin of judicial overreactions to metatags, but it's a nice incremental step retreating from Brookfield.
Likelihood of Consumer Confusion
As a procedural matter, the court addressed the "Internet trinity/Internet troika" variation of the standard Sleekcraft test. In Brookfield, and then again in the 2000 GoTo case, the Ninth Circuit said that 3 of the 8 Sleekcraft factors were more important in Internet trademark cases and thus should get priority. This expedited version of Sleekcraft tended to work in plaintiffs' favor. Here, the court tries to kill the Internet trinity variation, saying:
we did not intend Brookfield to be read so expansively as to forever enshrine these three factors — now often referred to as the “Internet trinity” or “Internet troika” — as the test for trademark infringement on the Internet. Brookfield was the first to present a claim of initial interest confusion on the Internet; we recognized at the time it would not be the last, and so emphasized flexibility over rigidity....Given the multifaceted nature of the Internet and the ever-expanding ways in which we all use the technology, however, it makes no sense to prioritize the same three factors for every type of potential online commercial activity. The “troika” is a particularly poor fit for the question presented here.
The court also does not expressly kill off initial interest confusion. Instead, it sidesteps that issue altogether. For example, it doesn't define initial interest confusion or explain when it may or may not be present. Nevertheless, it subtly tries to merge initial interest confusion into the standard Sleekcraft test:
when we examine initial interest confusion, the owner of the mark must demonstrate likely confusion, not mere diversion.
Well, if you're going to have to use the Sleekcraft test to evaluate likely confusion, exactly what work does the initial interest confusion doctrine do? It would have been great if the court had just gone ahead and said that initial interest confusion is worthless, but I'll take this. I especially like that the court say diversion isn't enough. Although that is not an express repudiation of the initial interest confusion standard in Brookfield, the Brookfield case was all about diversion, and here the court implicitly undercuts it.
The court then proceeds to work through a standard Sleekcraft test:
Mark Strength. This is the first place (of several) where the court makes unnecessary and unfounded factual assumptions. The court says "a user searching for a distinctive term is more likely to be looking for a particular product, and therefore could be more susceptible to confusion when sponsored links appear that advertise a similar product from a different source. The court continues "Because the mark is both Systems’ product name and a suggestive federally registered trademark, consumers searching for the term are presumably looking for its specific product, and not a category of goods."
Uh, no. As I explained in lengthy detail here, we can't accurately infer a searcher's objectives when they use a trademark as a search term. In fact, I give examples of circumstances where searchers may use a trademark as the search query for a class of goods. The court’s presumption here, an empirical question that the court doesn’t defend, is off-base.
The court partially redeems itself when it says "if the ordinary consumers of this particular product are particularly sophisticated and knowledgeable, they might also be aware that Systems is the source of ActiveBatch software and not be confused at all." True, but I don't think a high degree of sophistication is required to make this type of source distinction. Even poorly educated consumers can distinguish Coke and Pepsi in the marketplace and will not be confused if a Pepsi ad appears in response to a keyword search for Coke. It’s not the consumer sophistication that matters; it’s whether or not the consumer already has a mental map of the various existing brands in the market niche. Ironically, because Google and Microsoft don’t allow a comparative competitive ad to explain the relationship between the brands, it may be harder for comparative advertisers to teach consumers in the ad copy about the relationship between competitive brands.
Proximity of Goods. The court adds a new twist: "the proximity of the goods would become less important if advertisements are clearly labeled or consumers exercise a high degree of care."
Mark Similarity. The court says this factor also depends on ad labeling and consumer sophistication.
Evidence of Actual Confusion. No evidence was introduced for the preliminary injunction, so the court weighs this as a non-factor. This is actually good news, because many courts have counted this factor against defendants by hypothesizing the existence of initial interest confusion as a substitute for any evidence of actual confusion.
Marketing Channels. Given that most companies have an Internet presence now, the court said the district court erred by counting this factor against the defendant.
Purchaser Care. The district court said that Internet consumers categorically exercise low care. Given the rich information on the Internet and the ability of consumers to do more research than ever, this has always been a dumb standard (see, e.g., Ann Bartow's Likelihood of Confusion article).
This court rightly shreds that assumption. The court says we should not rely on "a conclusion reached by our court more than a decade ago in Brookfield and GoTo.com that Internet users on the whole exercise a low degree of care."
Intent. The court says the lower court improperly assumed deceptive intent by the advertiser without considering the advertiser's desire for comparative advertising.
Product Line Expansion. Unimportant when the litigants are already in direct competition, such as in this case.
Other Factors. In a footnote, the court rejects the bonus 7 factor test from the Hearts on Fire case. However, going back to language from Playboy v. Netscape, the court says the "appearance of the advertisements and their surrounding context on the user’s screen" are important, and the search engines' presentation of ads--separated and labeled--should also be considered.
Instead of the Internet trinity or the Hearts on Fire supplemental test, the court possibly offers up a Internet quadrangle of Sleekcraft factors:
the most relevant factors to the analysis of the likelihood of confusion are: (1) the strength of the mark; (2) the evidence of actual confusion; (3) the type of goods and degree of care likely to be exercised by the purchaser; and (4) the labeling and appearance of the advertisements and the surrounding context on the screen displaying the results page.
I'm not sure a new expedited form of Sleekcraft avoids the problems we saw with the Internet trinity. But these factors are a step forward.
Holding
After dissolving the preliminary injunction, the court remands the case to the district court. It's not clear to me what will happen there. On the one hand, the district court judge showed that it was moved by the plaintiff's story, so it still may be sympathetic to the trademark owner. On the other hand, the Ninth Circuit opinion has a lot of language favoring the advertiser, and the district court judge might interpret that language as an imperative to rule for the advertiser lest it get reversed again. I think this is a close call.
Implications
I am often asked by other Internet Law professors for a single keyword advertising case they should consider teaching. Until now, I haven't had a good answer. I've taught several keyword ad cases over the years. The last two years I've taught the Hearts on Fire case, which has been pretty good. Other folks have taught the Second Circuit's Rescuecom case, a theoretically interesting case but a lousy teaching case. In my opinion, this ruling is clearly the best keyword advertising teaching case now available. Unless something better comes along, I'll be substituting this case for the Hearts on Fire case in my Internet Law reader. Assuming many of my colleagues make the same choice, I expect this opinion will be an instant classic.
For more on the opinion, see Paul Levy's take.
UPDATE: Rebecca's cogent critique of the case.
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I have accrued a bunch of other keyword advertising cases over the past 4 months that I simply haven't had time to blog. In the remainder of this post, I'll catch up with recaps of those cases as well. However, for the most part, this nicely written Ninth Circuit opinion trumps the remaining precedential import of these other cases.
Defense Wins
Montana Camo, Inc. v. Cabela's Inc., 2011 WL 744771 (D. Mont. Feb. 23, 2011). Cabela's buys fabric from Montana Camo and manufactures clothes using the fabric. In a hangtag, Cabela's indicates that the fabric is from Montana Camo. Cabela's buys "Montana Camo" as keywords.
The court rejects Montana Camo's 1125(a)(1)(B) false statement of fact claim because "the purchasing of a sponsored link is not a statement of fact. Further, considering that Montana Camo products were sold on Cabela's website, it was not a false statement of fact." The court rejects the 1125(a)(1)(A) unfair competition claim because Montana Camo didn't marshal enough evidence of confusion.
Thus, this case indicates that a manufacturer may be able to bid on the trademarks of its component suppliers without running afoul of Lanham Act false advertising rules.
Consumerinfo.com, Inc., v. One Techs., LP, CV-09-3783-VBF (MANx) (C.D. Cal. jury verdict Jan. 12, 2011).
The TM owner asserted its purported TM rights in "freecreditreport.com," a problematic domain name designed to take advantage of misdirected consumers who were really seeking annualcreditreport.com, the government-mandated website that lets consumers get free access to their credit reports. Consumers at freecreditreport.com get coopted into credit monitoring services that they may not want and probably don't need.
Given the marginal legitimacy of freecreditreport.com, you'd think it would lay low legally. Instead, like other owners of crappy trademarks (see, e.g., 1-800 Contacts, discussed below), they tend to be more bare-knuckled litigious than typical trademark owners. In this case, they sued businesses that registered typosquatting domain name variations of freecreditreport.com. I trust you see the irony--freecreditreport.com plays on consumer misrecollections of annualcreditreport.com, yet they don't like anyone doing the same to their purported trademark. Nice. The jury awarded a big cybersquatting judgment under the ACPA to the tune of $1.9M; however, the jury found that the defendants' keyword bidding did not create a likelihood of consumer confusion.
We don't have many jury verdicts about keyword advertising. The two I can think of are College Network v. Moore and Fair Isaac v. Experian. This would make the third time a jury has found in favor of the keyword advertiser over the trademark owner when the jury finally gets the question asked to them. This reinforces that juries may be more tolerant of keyword advertising than judges (and are certainly more tolerant than trademark owners!). This particular jury ruling is especially noteworthy because the jury thought the defendants were bad guys (hence the very large ACPA judgment), yet the jury still approved the keyword advertising.
1-800 Contacts, Inc. v. Lens.com, Inc., 2010 U.S. Dist. LEXIS 132389 (D. Utah Dec. 14, 2010).
This case, another suit over competitive keyword bidding, got stuck in my blogging queue. It's a tremendously important ruling and a terribly embarrassing one for 1-800 Contacts, so I planned to devote a lengthy blog post exploring its interstices. Unfortunately, the time never materialized in my schedule. Why was this case so high on my list? Three highlights:
1) It was a resounding loss for 1-800 Contacts, a company that has earned my ire over the years for their duplicity and pugnaciousness about trademarks and keywords. (For my blog coverage of them, see here). Some lowlights in 1-800 Contacts' track record:
* they are hyper-aggressive about protecting a marginal trademark. In my mind, it's not a trademark at all, it's a phone number. Frankly, I think we should categorically declare phone numbers as ineligible for trademark protection, just like we no longer recognize trademarks in [noun].[tld].
* they buy third party competitors' trademarks as keyword triggers, yet they sue competitors for buying their name (I can't really call it a trademark) as keyword triggers. Indeed, the court recounts that 1-800 Contacts bought "1 800 lens; 1 800 lense; 1 800 lenses; 1 800 the lens; 1 800 Lens; 1-800 lens; 1800lenses; 1800lens; 1800lenses; 1-800-lenses; 800 lens; 800 lenses; 800lens. These keywords generated 91,768 impressions, 8,477 clicks, and about $219,314 in profits for Plaintiff." HYPOCRITE ALERT. (BTW, their $26 of profits per click is mind-bogglingly impressive).
* they flip-flopped on the Utah legislature's efforts to ban keyword advertising, helping to kibosh the first law and then trying to sneak in a second law that favored their interests--aided by the fact that their in-house lobbyist is also a legislator and voted in favor of the bill her employer advocated. Yet, on its site, 1-800 Contacts claims "1-800 CONTACTS engages on public policy issues related to ocular health and the right of contact lens wearers to choose where they fill their prescriptions. We have not and will not get involved in public policy outside of the scope of this interest." Sorry, I'm going to have to call BS on that.
2) The case rejects 1-800 Contacts' attempt to hold the defendant Lens.com liable for keyword ad buys made by Lens.com's affiliates. Trademark owners have been angling to establish a legal doctrine that online retailers are automatically liable for keyword ad buys by affiliates, but this case gives some additional reason to believe that trademark owners have been overreaching.
3) The case gets into details about how much money Lens.com made and, in theory, 1-800 Contacts lost due to Lens.com's keyword ad buys. The court says Lens.com bought the following keywords:
1 800 contact lenses; 1800 contact lenses; 800 contact lenses; 800comtacts.com; 800contacta.com; 800contavts.com;800contaxts.com; 800contzcts.com; and 800conyacts.com. These nine keywords generated about 1,626 impressions, 25 clicks, and $20.51 in profits
Wait, what? The parties are fighting over Lens.com’s $20 of profits??? Hey, 1-800 Contacts, if you'll stop bringing pitiful lawsuits, I'll send you an Andrew Jackson out of my own pocket. Clearly, the real thrust of this lawsuit were the affiliates' keyword ad buys, but even those weren't voluminous: one affiliate bought 65,000 allegedly infringing impressions generating 352 clicks, and another affiliate allegedly bought 240,000 impressions generating 1,445 clicks.
Are ~1,800 allegedly misdirected clicks worth making a federal case out of? Even at 1-800 Contacts’ impressive (and probably overstated) $26 of profit per click, we’re talking about less than $40k of value that 1-800 Contacts purportedly lost. Yet, 1-800 Contacts was prepared to spend $1.1 MILLION on this lawsuit (and actually spent at least $650k). Great business decision there, guys. WHAT A WASTE. As I wrote in that earlier blog post, "I'm super-skeptical that the value of the consumers "diverted" (whatever that means) by Lens.com's competitive keyword advertising is more than $1.1M." The financial details in the case reinforce that I was 100% right about that.
Substantively, the court says keyword ad buys are a use in commerce. The court correctly explores the effect of broad matching on searches like "1-800 Contacts"--due to broad matching, competitive ads keyed to "contacts" may show up. The court grants summary judgment to Lens.com for its ads.
It suggests that some of Lens.com affiliates' ads may have infringed because they mention 1-800 Contacts in the ad copy. (The court later clarifies that it wasn't the ad buy that infringed; it was the ad copy). However, those actions aren't imputed to Lens.com because Lens.com got its affiliates through Commission Junction, and therefore Lens.com didn't know their identity and had little direct contact with them. The court also rejects 1-800 Contacts' takedown notice to Lens.com because 1-800 Contacts didn't give enough information to find the affiliate who ran the ad.
Finally, 1-800 Contacts tried to argue that Lens.com contractually agreed not to buy its trademarks as keywords during their various correspondences in response to 1-800 Contacts' legal threats. This is similar to Barnes v. Yahoo and Scott P. v. Craigslist in that the plaintiff is arguing that the defendant promised to remediate and thus its failure to do so is a contract breach. The court rejects this bypass.
You can see why I love this opinion. It's a long but rewarding read. Check it out.
(For people interested in Ben Edelman's work, you might be interested in the court's discussion about Ben's expert report on pages 20-23. A sample: "parts of Edelman’s declaration are improper in that he presents evidence not within his personal knowledge by reciting what another said in deposition and stating that testimony as fact, he opines on facts for which no expert testimony is needed, and he draws legal conclusions that are outside his role as an expert").
Plaintiff Wins
FTC v. Cantkier, 2011 WL 742647 (D.D.C. March 3, 2011). The court's recap of the complaint:
The FTC has alleged that Lady and certain other defendants were running deceptive online advertisements featuring the names, phone numbers, and website addresses of federal homeowner relief and financial stability programs. The advertisements allegedly appeared on popular web search engines, such as Google and MSN, and were targeted to users using as search terms keywords related to the federal assistance programs. The Second Amended Complaint alleges that the advertisements represented that they were sponsored by federal homeowner relief and financial stability programs by featuring text and titles associated with those programs, including "makinghomeaffordable.gov" and "financialstability.gov." When web users clicked these ads, they were not directed to the websites for the federal programs, but rather to private Internet websites ("lead collection websites") that collected marketing leads for mortgage loan modification or foreclosure relief services. These lead collection websites had no actual connection with government programs; they solicited consumers to enter personal identifying and confidential financial information, and then the operators of the websites sold the consumers' confidential information as marketing leads to persons who sell mortgage loan modification or foreclosure relief services....
Plaintiff alleges that Lady purchased advertisements on www.google.com ("Google"). On Google, Lady bid on keywords "financial stability.gov," "fha.com," "financialsecurity.gov," "hope now alliance," "hope for homeowners," "www.makinghomeaffordable.gov," and "makinghomeaffordable.gov." On Google, his advertisements displayed titles "Makinghomeaffordable.gov," "Financial Stability.gov," "Fha Gov," "wwwhud.gov," "www.995hope.org," and "www.hopenow.com/." The FTC alleges that consumers who clicked on Lady's advertisements were not directed to the government websites, but rather to his own websites that collected marketing leads for mortgage loan modification or foreclosure relief services. Lady's websites prompted consumers to enter personal identifying and confidential financial information, which Lady then allegedly sold as marketing leads to persons who sell mortgage loan modification or foreclosure relief services. (cites omitted)
On this basis, the FTC alleged deceptive acts under the FTC Act. The court rejects the defendant's motion to dismiss.
There are a number of interesting points in the discussion. Some highlights:
* the defendant argued that consumers understood they were clicking on ads. The court acknowledges this but says the FTC's complaint is that the ad copy was deceptive.
* the defendant argued that his advertised websites didn't look like official government websites. The court responds: "Internet users may not know what the real federal program website looks like until they successfully navigate to it. If they are diverted by advertisements bearing the name and web address of the federal program before ever reaching the program's actual website, reasonable consumers could assume they have reached their intended destination, when, in fact, they have reached a commercial service."
This is a little like the old Promatek v. Equitrac discussion of diversion, to which the "back button" is a solid retort. However, it feels qualitatively different to me that we're dealing with allegedly false ad copy trying to mimic official government services. Contrast the rulings in the Consumerinfo case above, where the jury found no consumer confusion from keyword advertising for a website replicating a government-mandated website, and the recent Canadian decision in Private Career Training Institutions Agency v. Vancouver Career College (Burnaby) Inc., where the defendants’ websites mimicked community colleges. In the latter case, the court said that prospective students would figure out any confusion before enrolling in college. That case clearly expected consumers to be more sophisticated than the FTC did in this case. Also along this lines (but not a keyword ad case) is the lawsuit over dmv.org.
Rebecca's post on the case.
Binder v. Disability Group, 2011 WL 284469 (C.D. Cal. Jan. 25, 2011). This is another lawyer-as-plaintiff suit, so you know we’re in trouble. The advertiser, a direct competitor, purchased the law firm's name as keywords. The court breezily says that keyword purchases are a use in commerce. The district court found a likelihood of confusion by focusing on the Internet trinity of factors; the opinion also made a number of other statements inconsistent with the Network Automation case. Unlike Network Automation, in this case there was some evidence presented of actual confusion, including after users clicked on the ad (so the confusion was not solely attributable to the keyword ad). That might suggest the ruling would withstand further scrutiny, especially given that we're talking about law firms competing with each other and clients could get into trouble by connecting with the wrong law firm.
In underdeveloped parts of the opinion, the court also finds Lanham Act false advertising and California unfair competition violations, saying "Plaintiffs have proven by a preponderance of the evidence that Defendants used Plaintiffs' mark in their advertising campaign through Google to market their business in a manner that was likely to confuse potential clients and that deceived potential clients into thinking they were being led to Plaintiffs' website" and "Plaintiffs have proven by a preponderance of the evidence that Defendants used Plaintiffs' marks in their online campaign and in doing so attempted to pass off their website as Plaintiffs', and/or infringed on Plaintiffs' trademarks." This deserved way more words than the court gave it. The court also has some garbled discussion that the TM owner did not need to mitigate harm by complaining to Google.
Using some questionable methodologies about conversion rates (18%!), revenue per case and costs of serviced cases (95% revenue margin!), the court calculated damages and then doubled them for willfulness to nearly $300k. Regarding willfulness, the court says:
Plaintiffs have established willfulness in this case. As described above, Defendants chose Plaintiffs' marks based on the market. In doing so, Defendants intentionally misled potential clients and directed business away from Plaintiffs and to their own websites. Defendants had the deliberate intent to direct clients to their sites with the false impression that they were Binder and Binder. Defendants also intentionally chose Plaintiffs' marks with knowledge that they were registered trademarks and in an attempt to profit from them.
Equating willfulness with exceptional, the court also awards attorneys' fees and costs. The court also extended liability to the defendant's principal personally. However, the court refused a request for corrective advertising and punitive damages (which were available for the CA unfair competition claim).
On the surface, this looks like a problematic case. Partially in response to this case, a Search Engine Land contributor asked if "Is It Time To Rethink Bidding On Trademarks?". However, there are three mitigating factors that undercut its import:
1) the suggestion that the advertisers engaged in misleading activity after the keyword ad.
2) the court clearly disbelieved the defendant's principal, never a good indicator of a successful defense.
3) I wonder how much of this case survives the Network Automation ruling. It appears potentially vulnerable to an appeal or rehearing request.
1-800 Contacts, Inc. v. Memorial Eye, PA, 2010 WL 5149269 (D. Utah Dec. 13, 2010).
In one of 1-800 Contacts' multitudinous trademark lawsuits against competitors over competitive keyword ad bidding, the advertiser asserted an unclean hands defense (on the basis that 1-800 Contacts buys competitors' trademarks for competitive keyword advertising itself) and a trademark misuse counterclaim. The court rejects both. In general, this ruling is trumped in importance by the Lens.com ruling. However, it is interesting that the court thought 1-800 Contacts engaging in identical behavior as the behavior it was suing over wasn't good enough for an unclean hands defense. In the court of popular opinion, 1-800 Contacts is unacceptably duplicitous.
Posted by Eric at 04:21 PM | Marketing , Search Engines , Trademark | TrackBack
March 08, 2011
Stanford Technology Law Review Symposium on Secondary IP Liability
By Eric Goldman
Last week we had a cyberlaw-fiesta in the Silicon Valley, the likes of which have been rarely (if ever) seen before. The Stanford Technology Law Review hosted a symposium on Thursday on Internet intermediary liability, then we hosted a 15 year retrospective on 47 USC 230 on Friday, then we had the inaugural Internet Law works-in-progress event on Saturday. I will do blog posts on all (the Internet Law works-in-progress post will be at Goldman's Observations).
Today, my notes from the STLR event, Secondary and Intermediary Liability on the Internet. As usual, these are my edited notes/impressions and not verbatim transcriptions, so double-check before attributing anything to anyone. Further, I moderated the trademark panel, so I did the best to capture some high points while also doing crowd control over five strong personalities.
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Copyright
Julie Martin, Mozilla
Mozilla runs into UGC in two places:
1) Add-ons marketplace. 12,000 add-ons are available.
2) Personas gallery (browser skins). Users have posted 242,000 versions. Only 650 skins have been subject to takedowns = ¼%. Mozilla has never gotten a user putback request, even though some affected users have contacted Mozilla other ways. As a result, putting the burden of putbacks on users seems onerous to them.
Sometimes, copyright owners don’t give much thought to takedowns. When companies actually talk with Mozilla, they decide not to send takedowns because they reassess the possible impact of ticking off their fans. Skins are a great way to build brand loyalty, so why interfere with those folks’ relationship with the brand?
Mozilla struggles with jurisdictional questions. Also, when a takedown notice has 150 links, it’s only one letter for the copyright owner but imposes lots of research effort on Mozilla. Mozilla is also stressed by its exposure to high copyright damages.
Fred von Lohmann
Speaking for Google: Google receives takedowns covering 3M items each year in more than 70 languages. Google rejects a majority of takedown notices on receipt for deficiencies (not copyright, incomplete, etc), but even then it reaches out to the sender in each situation.
Not speaking for Google:
His paper will address rightsholders’ fears of a race to the bottom—that if a country grants immunity, intermediaries will do the minimum to comply, and that standard will become the benchmark globally.
Fred’s Q: do we see a race to the bottom empirically? Hypothesis: no, in fact we see the contrary. Ex: 35 hours of video uploaded to YouTube every minute, and Content ID automatically checks all of that. And racers to the bottom haven’t had much success in court.
So why do intermediaries do more than required? Is compliance due to service provider’s legal fears/uncertainty about DMCA? Compare 47 USC 230, where service providers have extremely robust immunity, but we don’t see a race to the bottom there. There are many business reasons why companies want licensed content.
[Eric’s comments: I like where Fred is going, but I wonder if the 230/512 comparison works. Many service providers do more than 230 "requires" because they are trying to establish their own reputation as a credible site—what I call the tertiary invisible hand in this paper. The same dynamic might play out for copyright, in that some service providers might want a reputation as a source of only authorized or licensed content. However, in many cases, a website can have a “legitimate” reputation even if it has a lot of infringing UGC; and there is significant commercial value in being known as a place where infringing content is available (while often there is little or no commercial value to being known as the website which harbors the kind of content that 230 protects). So it seems like a website’s motivations for policing against content immunized by 230 may not reach the same result with respect to infringing content.
However, I do agree with Fred that there are many reasons a website might license content even if not required under copyright law. I always make this point when I teach the Feist case—I ask the students if Feist might license Rural’s data even though the court said the data was completely unprotected by copyright law (the answer is yes, of course). Some reasons why a website might obtain a license even if the website isn’t worried about its copyright exposure:
• speed. The website might get content faster through a license.
• accuracy/authenticity. The website might want content versions that it knows haven’t been modified.
• comprehensiveness. The website might want everything in the content owner's vault, not just what users have uploaded.
• reduced risk of harmful code. The website might fear that user-supplied versions of content have introduced malware or other risks to users.
• package deal. The website and content owner may have multiple points of business overlap that enable them to put together a “package deal.” This is why I still can’t believe Viacom and YouTube didn’t settle their disputes a long time ago.
• reputation. As I mentioned, a website might find it commercially valuable to advertise itself as a licensed source.
• morality. A website might decide that a license is the right thing to do.
I’m sure there are other reasons that haven’t occurred to me quickly. I trust Fred will taxonomize the motives in his paper.]
Peter Menell
We probably all agree that Sony should have been allowed to release VTR machines, but the Supreme Court got there with an overbroad rule. Grokster court needed to create “exception” to that rule. But the inducement rule focuses on mental state, not marketplace actions—not a good focus.
Some low-hanging fruit for doctrinal changes:
1) Statutory damage regime aren’t well-calibrated for the digital age. If we fixed this, the Viacom case might go away.
2) Strong sanctions for bogus takedowns.
Fred's race-to-the-bottom isn’t the right Q. A few rogue actors can break the whole system.
Q&A
Jacqueline Charlesworth: many content owners don’t have the resources to prepare and send takedown notices. Who is cheapest cost avoider? It’s the service.
[Eric’s note: Why, why, WHY do content owners keep repeating this trope? If Viacom cannot figure out which YouTube videos were posted by its own marketing people, there is simply no credible argument that YouTube is the lowest cost avoider to make an infringement determination ex ante. It *might* be true that after YouTube gets an infringement notice, then it is the cheapest cost avoider to prevent further harm. But that’s exactly what 512 codifies.]
Everyone can agree Grokster was bad. But content owners are grumbly about shift of value from content owners to tech providers.
Julie Martin: determining content legitimacy requires facts the service provider doesn’t have. When content owners reflect on it, many of them decide to leave up content—so there’s no way for a service provider to categorically decide what the copyright owner wants.
Matt Neco: in his experience, content owners wanted the service provider to license their content *just to set up the filter.* He also raised the concern that the “standard technical measures” requirements may, over time, favor incumbents who have made investments to accommodate those measures.
Fred von Lohmann: Content ID cost Google tens of millions of dollars to develop. But fingerprinting isn’t silver bullet. On a P2P network with encrypted traffic, fingerprinting is useless. YouTube’s existence spurs unprecedented creativity. The 106 rights are part of that, but all the defenses are an integral part too.
Mark Lemley: filters suck. They are both over- and underinclusive. Content owners can supplement Content ID with takedown notices. But no good solution for filters catching legitimate content. This puts burden on users to fix problems with the filters, and they aren’t in good position to do so.
Fred von Lohmann: Google worked hard to include recourse for user who gets filtered and easy to initiate file dispute. But content owners resent having to look at these disputes.
Trademark
David Bernstein
The Tiffany v. eBay case’s result is inconsistent with Inwood, tort principles and Inwood's progeny, but David thinks it reached the right result. eBay did a lot of things right, such as VeRO and filtering. David wants to avoid generalizing the ruling to create a notice-and-takedown system.
If a service provider can reasonably anticipate that counterfeiting is taking place, the service provider must take reasonable precautions. Notice-and-takedown isn’t enough—service providers should also filter for keywords, authenticate sellers and bar repeat offenders (and prevent whack-a-mole). We can’t say what reasonable precautions are; courts can decide. The courts should not focus on service provider state of mind but instead they should look to see if the problem actually got solved. Example: if someone is selling 5 Tiffany items, it’s probably not a casual seller of personal used good.
Mark McKenna
Secondary trademark liability rules don’t necessarily derive from the common law of torts. Traditionally, torts had three categories of secondary liability:
1) Vicarious infringement. Normally, we restrict the categories of vicarious liability pretty strictly.
2) Accomplice liability = liability for third party intentional tort based on requisite scienter. Look for particularized knowledge of forthcoming harm. Ex: a promoter’s promotion of an illegal boxing match that leads to a battery. This is similar to Grokster, although it focuses on more speculative knowledge.
3) Negligence = probabilistic harm of third party wrongdoing = defendant knows some chance of harm by other people. Ex: gun manufacturers who know some guns will be used criminally.
Typically, these categories involve situations where the third party harm also require scienter; not predicated on strict liability. IP is strict liability infringement, so it differs from typical tort principles.
Tiffany is trying to collapse these three categories.
We should ask what reasonable precautions eBay should take, so he agrees with David. But Mark may disagree with David over whether eBay took reasonable precautions. Tiffany’s standard may push to get eBay to block all infringing activity. Don’t forget costs of such zero-tolerance: it will also shut down of legitimate secondary markets. We should be talking more about proximate causation. When does third party intentional tortious conduct cut off upstream causation?
Stacey Dogan
Secondary trademark law is heading towards a “know it when we see it” standard. Courts are sorting between good guys and bad guys and deciding results accordingly. Good guys get the benefit of the doubt.
Tiffany v. eBay rule leaves room to go after bad guys. Why did district court spend so much time discussing eBay’s efforts? This helped support that eBay’s business model wasn’t designed to promote infringement; instead, it illustrated that eBay’s interests were aligned with TM owners'.
Court also noted willful blindness and inducement doctrines as tools to punish bad guys. Inducement in TM law = people whose goal is to help others infringe.
Copyright and trademark doctrines are different enough that we should be cautious importing copyright rules into TM law. In TM, there may be situations where TM owner and service providers interests are aligned, such as counterfeits. But in many cases, their interests diverge, such as trademark owners’ interests in shutting down secondary markets. Also, the range of legitimate TM secondary uses are even broader than range of legitimate secondary CR uses—any use that doesn’t confuse consumers is legitimate TM use.
Need to guard against the “freeriding” arguments. Appeals courts need to guide lower courts not to overreact to freeriding allegations.
Discussion
Chris Sprigman: [Chris focused mostly on the Carroll Towing formula for reasonable precautions (Burden = Probability x Loss). He then hammered TM owners on the L:] The harm from counterfeits often overstated. Many people are looking for counterfeits because they can’t afford the original, but many of these people often end up buying the original later (his phrasing: “counterfeits are like a gateway drug”). Another faux harm: post-sale confusion. These situations may signal fashion “trends” that stimulate demand for the originals.
Mark McKenna: he thinks it’s right to think of Tiffany v eBay as a negligence case. It would have been nice if court had said so explicitly. We are still struggling with the theoretical split between TMs as consumer protection v. producer protection.
Mark Lemley: did Tiffany v. eBay set the floor of efforts required to police?
Mark McKenna: in tort framework, the reasonable precautions would adjust. But this isn’t clear because court didn’t talk in tort terms.
Posted by Eric at 09:02 AM | Copyright , Derivative Liability , Trademark | TrackBack
March 03, 2011
Jan.-Feb. 2011 Quick Links, Part 4
By Eric Goldman
Internet Freedom
* The EFF points out the inconsistency between Hillary Clinton's speech championing Internet freedom abroad when our own US government has gone rogue on its own citizens, including unlawful domain name seizures and an obsessive vendetta against Wikileaks.
* Fast Company: Why Twitter stood up for its users against the "secret" Wikileaks subpoena when other sites didn't.
47 USC 230
* Fleming v. Duncan: Yahoo wins 47 USC 230 motion to dismiss in Georgia state court.
* Neeley v. NameMedia, Inc., 2010 WL 5677069 (W.D. Ark. Dec. 16, 2010). 47 USC 230 preempts "outrage" claim over displaying nude photos in search results. A complementary follow-up ruling: Neeley v. NameMedia, Inc., 2011 WL 336174 (W.D. Ark. Jan 31, 2011).
* Several professors contributed essays to a book critical of 47 USC 230. Paul Levy takes them on.
* Jonathan I. Ezor, Busting Blocks: Revisiting 47 U.S.C. § 230 To Address The Lack Of Effective Legal Recourse For Wrongful Inclusion In Spam Filters, Richmond Journal of Law and Technology (Fall, 2010).
Spam
* Facebook, Inc. v. Fisher, 2011 WL 250395 (N.D. Cal. Jan. 26, 2011). Facebook gets $360M default judgment against spammers.
History
* Antone Johnson on the dot-com hangover of 2000-2002.
* 25 Best Startup Failure Post-Mortems of All Time.
Miscellaneous
* You can watch video from Next Digital Decade event. More on that event: 1, 2, 3. If you haven’t looked yet, you should check out the book.
* Unique Products Solutions v. Hy-Grade Valve (N.D. Ohio Feb. 24, 2011). Patent false marking qui tam process is unconstitutional.
* Shrader v. Biddinger, 2011 WL 678386 (10th Cir.(Okla.) Feb 28, 2011). In this Internet jurisdiction case, the Tenth Circuit adopts ALS Scan v. DSC as its test rather than Zippo.
* FairSearch.org has a new partial rival, Faretransparency.org, the web front for the Open Allies for Airfare Transparency, "a coalition representing all of the stakeholders in the travel booking industry, works to promote price transparency and full access to airline pricing and fee information." It's chaos in the online travel booking industry right now!
* Very useful table: State Cyberstalking, Cyberharassment and Cyberbullying Laws
* Evony sues its user for automated mapping of its site.
* ABA Journal: "For Federal Plaintiffs, Twombly and Iqbal Still Present a Catch-22"
* Direct Marketing Association v. Huber, No. 10-cv-01546-REB-CBS (D. Colo. Jan. 26, 2011). Judge strikes down Colorado's attempt to impose an "Amazon" tax as unconstitutional. My previous reference to the law.
* In the Silicon Valley, being the "Craigslist Congressman" might be considered a compliment. Unfortunately, that term will now be pejorative.
* Segal v. Amazon, 2:11-cv-00227 (S.D. Fla. Feb. 4, 2011). Amazon's participation agreement's venue selection clause upheld.
* Rep. Matheson wants to require age authentication to access online porn. Been there/done that 13 years ago with COPA. Lest you forget, it was unconstitutional.
Funny Stuff
* French second-graders are shown items like an old Fisher Price record player and 3.5 and 5 inch floppies and are totally baffled by them. Funny video.
* Great Dilbert strip riffing on the old joke of how you know if a lawyer is lying.
Posted by Eric at 11:53 AM | Content Regulation , Derivative Liability , Internet History , Patents , Spam | TrackBack
March 02, 2011
Unsuccessful 230(c)(2) Defense for Blog Comment--Mealer v. GMAC
By Eric Goldman
Mealer v. GMAC Mortgage LLC, 2011 WL 744895 (D. Ariz. Feb. 24, 2011)
Mealer is an automotive entrepreneur. He posted about General Motors to his company blog. He alleges that Kordella, a GM engineer, disparaged Mealer in a comment to Mealer's blog post. Apparently, this was quite a comment, because "Mr. Mealer believes that those remarks had considerable sway on potential investors such that Mealer Companies lost all potential investment capital to the tune of $200,000,000." He sued (pro se, naturally) a whole host of defendants, all of whom are now out of the case except for GMAC and related companies.
The moment Mealer started claiming $200M losses, he kind of lost any possible credibility he might have had. Indeed, the court makes it pretty clear his claim is going nowhere, later on saying "Mr. Mealer has asserted tenuous and abstract defamation-related claims against GMAC on the doubtful basis that GMAC owned computer equipment or provided internet access that facilitated blog commentary." This particular ruling also doesn't address the obvious question of when Mealer deleted the unwanted comment from his blog.
GMAC asserted a 47 USC 230(c)(2) defense against liability for Kordella's comment. We don't get many 230(c)(2) cases (in comparison to 230(c)(1), which comes up a lot). 230(c)(2) immunizes a website's own filtering decisions, as opposed to 230(c)(1)'s immunity for third party content. The short opinion doesn't explain the relationship between Kordella and GMAC--presumably not an employee-employer relationship if Kordella worked for GM--but apparently GMAC didn't do enough to explain how GMAC did the requisite filtering that 230(c)(2) immunizes. Because the facts aren't adequately connected to the legal defense, the court rejects it. The news isn't all bad for GMAC; even though it didn't get its 230(c)(2) defense, it is still clearly going to win this case.
Although GMAC didn't assert it, the court intimates that a 230(c)(1) defense may have been available. Presumably, if Kordella isn't GMAC's employee, then there's no theory to connect GMAC to Kordella's post that survives 230(c)(1). See, e.g., Novins v. Cannon. This case reminded me a little of the uncited Delfino v. Agilent case, where an employer got a 230(c)(1) defense for an employee's Internet conduct when the employer basically only acted as the Internet access provider to the employee for purposes of the tortious conduct. Where GMAC isn't even the tortfeasor's employer, the 230(c)(1) case seems even stronger.
Posted by Eric at 10:21 AM | Content Regulation , Derivative Liability | TrackBack
March 01, 2011
Jan.-Feb. 2011 Quick Links, Part 3 (Trademarks, Domain Names and Trade Secrets Edition)
By Eric Goldman
Trademarks and Domain Names
* From my perspective, the Department of Homeland Security (DHS) domain name seizures are one of the US government’s top 5 all-time worst assaults on the Internet’s integrity. DHS’s ICE division is grabbing domain names—the virtual equivalent of printing presses—citing half-baked legal theories and poorly researched factual claims without any advance notice or adversarial proceedings. This is exactly what we expect our government won’t do.
Yet, I haven’t seen a proportionate blowback. Why aren’t affected domain name owners suing the government for improperly seizing their printing presses? (This takes me back to the 2-decade-old Steve Jackson Games case and the EFF’s founding). Why aren’t there Congressional hearings asking DHS to defend its behavior? Where aren’t other parts of the administration forcing DHS to justify itself? Why aren’t judges pushing DHS to do a better job of demonstrating their cases on an ex parte basis? I’m a little baffled why there hasn’t been a revolt against the DHS’s baldfaced abuse of government power. I confess I’m part of the problem in that I haven’t grabbed the pitchforks either, but I’m not sure how I can best help. If you have any thoughts, I’d welcome them.
A linkwrap on this topic:
- Techdirt raises some general questions.
- One of the DHS affidavits. Techdirt deconstructs it.
- Sen. Wyden seems like our only legislator paying attention.
- Wendy Seltzer explores the due process problems.
- An ICE representative tried to defend its actions, with no success.
- Another 18 names seized.
- In a crackdown aimed at child porn, DHS took down 84,000 websites "by mistake." This is exactly the kind of “mistake” that would not happen if due process were followed and speech restrictions were subject to adversarial proceedings.
- EFF on what the repeated DHS screwups teach us about the "wisdom" of COICA:
- Techdirt: “ICE Boss: It's Okay To Ignore The Constitution If It's To Protect Companies”
* Private Career Training Institutions Agency v. Vancouver Career College (Burnaby) Inc., 2011 BCCA 69 (BC Ct. App. Feb 11, 2011): "The burden was on the appellant to satisfy the judge that there were reasonable grounds to believe that the respondents’ use of keyword advertising was actually or potentially misleading. He found as a fact that the appellant had not established that the respondents’ keyword advertising was actually or potentially misleading. He stated that the appellant had not persuaded him that the respondents’ use of its competitors’ names in keyword advertising “could...lead a student astray or into making a harmful error of judgment”. There was evidence to support those findings."
* NY S953: New York is trying yet again to ban domain name sales to terrorist groups. My prior blog post.
* Kim v. Coach: class action suit for Coach sending trademark takedown notices to eBay for the resales of legitimate goods. AP story.
* Joe Mullin recaps our efforts to crack open the Rosetta Stone v. Google joint appendix.
* LinkedIn allows ad targeting by company name. Competitive poaching, anyone? Will they be the newest defendants in keyword ad lawsuits?
* Rebecca covers an interesting and complicated dispute over a comparable drug being linked to a patented drug in a pharmaceutical reference database, with some parallels to keyword advertising.
* The Supreme Court denied certiorari in the latest appeal in Moseley v. V Secret Catalogue Inc. Prof. McCarthy on the ruling for which certiorari was sought.
* Law.com: Digital Chocolate and Zynga Settle over 'Mafia Wars'
* Ford sues Ferrari for naming one of its race cars "F150" in celebration of Italy's 150th anniversary of unification.
* Subway seeks to trademark "footlong."
* Las Vegas Sun: Double Down Saloon v. Double Down Lounge.
* Technolawyer tries to enforce a trademark in “SmallLaw.”
* Fleischer Studios v. AVELA (9th Cir. Feb. 23, 2011). The Ninth Circuit says that the Betty Boop character is in the public domain. This is quite a remarkable opinion, but I particularly call your attention to the discussion about trademarks and merchandising (cites omitted):
Even a cursory examination, let alone a close one, of “the articles themselves, the defendant’s merchandising practices, and any evidence that consumers have actually inferred a connection between the defendant’s product and the trademark owner,” reveal that A.V.E.L.A. is not using Betty Boop as a trademark, but instead as a functional product. Just as in Job’s Daughters [a 1980 9th Circuit case the majority cites even though it wasn't cited by either party or the district court], Betty Boop “w[as] a prominent feature of each item so as to be visible to others when worn . . . .” A.V.E.L.A. “never designated the merchandise as ‘official’ [Fleischer] merchandise or otherwise affirmatively indicated sponsorship.” Fleischer “did not show a single instance in which a customer was misled about the origin, sponsorship, or endorsement of [A.V.E.L.A.’s products], nor that it received any complaints about [A.V.E.L.A.’s] wares.”...“The name and [Betty Boop image] were functional aesthetic components of the product, not trademarks. There could be, therefore, no infringement.”
The court goes on to discuss Dastar:
If we ruled that A.V.E.L.A.’s depictions of Betty Boop infringed Fleischer’s trademarks, the Betty Boop character would essentially never enter the public domain. Such a result would run directly contrary to Dastar.
I applaud the majority opinion's spirit, and this could be quite a revolutionary opinion if it truly sets Ninth Circuit precedent. However, I’ve repeatedly criticized the Ninth Circuit for making up the rules panel-by-panel (I know I'm not the only one), and I suspect this is just another one-off. Kate Spelman thinks this is a good case for en banc review (I agree).
* WSJ: A quick survey of major legal issues in franchising law.
* Meth Lab Cleanup LLC v. Spaulding Decon, LLC, 2010 WL 5572397(D. Idaho Oct. 25, 2010): "the mere fact that resulting harm from the alleged confusion over the contents of the parties' websites may be incurred by an Idaho company is not sufficient to show that Spaulding “directed” its conduct toward Idaho."
* Walgreens is elevating the profile of its house-branded products.
* Index of WIPO UDRP Panel Decisions
* Oddee: 12 Hilarious Knock-off Fails
Trade Secrets
* Has the original Coca-Cola recipe leaked out?
* Reality Blurred: The producers of Survivor sue over leaked information about the upcoming season, but they drop the suit once they learn the leak source.
* David S. Almeling et al, A Statistical Analysis of Trade Secret Litigation in State Courts
Posted by Eric at 01:44 PM | Domain Names , E-Commerce , Internet History , Trade Secrets , Trademark | TrackBack