Technology & Marketing Law Blog

June 30, 2009

Roommates.com Infects the Tenth Circuit--FTC v. Accusearch

By Eric Goldman

F.T.C. v. Accusearch Inc., 2009 WL 1846344 (10th Cir. June 29, 2009). My blog post on the district court opinion.

Introduction

June has been an active month for 230 jurisprudence. Cases this month include Doe IX v. MySpace (actually a May opinion but I blogged it in June), Gibson v. Craigslist, the Barnes v. Yahoo amendment, and Zango v. Kaspersky--all defense-favorable outcomes. As I mentioned in my post on the Doe IX case, the Ninth Circuit Roommates.com en banc decision has not cast a long shadow on 230 jurisprudence; it has been cited less than 10 times in the past year, and prior to yesterday, only once in favor of the plaintiff. Unfortunately, those good times may be over. The Tenth Circuit has largely adopted the rule and reasoning of Roommates.com in FTC v. Accusearch, effectively making Roommates.com the governing law west of the Rockies.

The FTC's Enforcement Action Against Accusearch

This is a prime example of bad facts making bad law. Accusearch runs Abika.com, a website that tried to style itself as a matchmaker between customers seeking, and vendors selling, private/personal records about people. The specific records at issue here contain "customer proprietary network information" (CPNI), the metadata about telephone calls. CPNI resales were probably illegal at the relevant time periods; following the Hewlett-Packard pretexting scandals, Congress cleared up any confusion and criminalized the resale of CPNI via the Telephone Records and Privacy Protection Act of 2006, 18 U.S.C. §1039.

If Abika.com was structured as a pure advertising site to facilitate off-site transactions, like Craigslist or eBay, perhaps Abika.com would have a stronger case for qualifying for 47 USC 230 protection for the sale and delivery of CPNI reports from Abika's vendors to their customers. However, Abika.com apparently was structured as a classic retailer in that it advertised the third party reports, processed customer payments, and delivered the subsequent reports to customers as if the reports were its own (Abika.com even stripped out the third party vendor's identifying information). So the veneer of Abika.com simply being a passive intermediary between customers and vendors may have been overwhelmed by Abika's active and overwhelming presence in the transaction.

The FTC went after Accusearch claiming that Abika.com was engaged in "unfair" trade practices under the FTC Act. (Note: the FTC has the power to pursue unfair commercial practices, even when they are not deceptive. However, the standards for "unfair" are amorphous, making such enforcements potentially problematic and controversial. Fortunately, the FTC generally wields this power sparingly). Accusearch's principal defense was 47 USC 230 on the theory that Accusearch procures the CPNI reports from third party vendors and merely republishes the third party reports to Accusearch's customers.

It's really hard to defend CPNI resales, and the court says that Accusearch had the requisite scienter that such resales were illegal/impermissible. With the combination of scienter, illegal transactions, active intermediation and the FTC as a plaintiff, it really seemed to me that Accusearch had no chance of winning this case. But this combination also tempted the judges to use loose reasoning to reach that unavoidable result.

The Opinion’s Discussion of 47 USC 230

A defendant must establish three elements of a successful 230 defense, and the majority opinion muddles the discussion on all of them:

1) "provider or user of an interactive computer service." Based on the funky definition of ICS, the FTC argued that websites qualify for 230 protection only when they enable user-to-user communications. The majority declines to accept this argument but doesn't reject it outright either, basing its decision on another prong. Although the statute could be clearer (like, for example, saying that websites qualify for 230 protection), the caselaw is extremely thick that every website qualifies for 230 protection. Unfortunately, with the majority's pathetic response, I wouldn't be surprised if plaintiffs unnecessarily put this issue into play in future 10th circuit cases.

2) "publisher or speaker of content" The concurring judge argues for a speech/conduct distinction and argues that the FTC is pursuing Accusearch for its conduct, not its speech. The speech/conduct distinction is almost meaningless in this case given that Accusearch was reselling information, which means that Accusearch was electronically republishing that information. The majority disagrees with the speech/conduct distinction but otherwise doesn't discuss this prong.

3) "created or developed by another information content provider." Adopting the arguments from the Roommates.com case, the majority says that Accusearch didn't "create" the reports but it was "responsible" for "developing" the reports. To reach this conclusion, the majority defines "responsible" and "develop":

* citing old French, "develop" means to "unwrap." Huh? Thus, "when confidential telephone information was exposed to public view through Abika.com, that information was 'developed.'" Does this definition make "develop" a synonym for "publish"?

* the majority initially says when "responsible" doesn't mean: "to be 'responsible' for the development of offensive content, one must be more than a neutral conduit for that content." This reference to "neutral conduit" parallels the Roommates.com case, which used the term "neutral tools" five times but never defined the term once.

The majority then says "a service provider is 'responsible' for the development of offensive content only if it in some way specifically encourages development of what is offensive about the content." This phrasing allows the court to distinguish the old 10th Circuit Ben Ezra precedent, which absolved AOL of liability for republishing inaccurate stock quotes. There, AOL didn't ask its vendors to give it false reports; here, the majority says that Accusearch asked its vendors to get information it knew was illegal to obtain:

Accusearch solicited requests for such confidential information and then paid researchers to obtain it. It knowingly sought to transform virtually unknown information into a publicly available commodity. And as the district court found and the record shows, Accusearch knew that its researchers were obtaining the information through fraud or other illegality.

Implications

I doubt the literal holding of this case is all that troubling to most folks. If you're in the business of reselling illicit phone records and the FTC comes calling, 230 isn't likely to help you.

However, this opinion could be problematic for any online retailers who thought they could use 230 to insulate themselves. It's never been clear how much 230 protects online retailers when they are making sales for their own account (as opposed to advertising services like eBay or Craigslist), and this opinion raises the specter that 230 won't apply even when "retailing" involves republishing third party content. Indeed, the loose language means the case could be a major carveback of 230's coverage in the Tenth Circuit. As the concurrence points out, the majority's reading is "an unnecessary extension of the CDA’s terms 'responsible' and 'development,' thereby widening the scope of what constitutes an 'information content provider' with respect to particular information under the Act."

Then again, between its role as a retailer and the illicit nature of its goods, Accusearch was always at the periphery of 230's coverage. Today, 230 would be irrelevant if a federal government agency pursued a CPNI reseller under the new criminal provisions in 18 U.S.C. § 1039. So I think a better interpretation of this case is that where an online provider is dabbling too close to third party illegal activity, judges simply will ignore 230 as a bailout. Framed that way, this ruling is akin to Roommates.com, which was a largely a normative judgment by the Ninth Circuit that the Fair Housing Act should trump 230 regardless of 230’s precise statutory contours.

I'll conclude with a few more thoughts about the concurrence. Although the concurrence's proposal to distinguish between speech and conduct wasn’t a good one, there was a useful nugget embedded in it. To bypass 230, perhaps the case could have focused on first party content published by Accusearch--namely, copy written by Accusearch advertising the availability of CPNI records, including any express or implied statements that it was reselling legitimate records. I've repeatedly blogged on the challenges of first-party/third-party content distinctions in 230 (see, e.g., my recent discussion about 230 and consumer protection), but in this case, I think focusing on Accusearch's own representations may have led to a cleaner doctrinal result than the one we got.

Finally, in the concurrence's FN5, Judge Tymkovich says:

If Accusearch had run a traditional business out of a physical location and offered similar services, it would seem the FTC would have the same unfair business practices complaint. Nothing would immunize Accusearch’s conduct had it chosen to deliver the confidential telephone records to requesters through hard copy print-outs either in person or through the mail. Accusearch’s duty to refrain from engaging in the solicitation and distribution of unlawfully-obtained confidential telephone records should not depend on the medium within which it chooses to operate.

Uh, NO. As with some other bright judges dealing with 230 cases, Judge Tymkovich has fallen into the mental trap that smart common law judges applying their powers of reasoning can simply intuit what the law should be. Congress has made it abundantly clear that it did exactly what Judge Tymkovich rejects; via 230, Congress created medium-specific rules that make some activities online permissible even if their offline analogue would not be. As challenging as it may be, judges should resist the temptation to make these kinds of normative assumptions in the face of clear Congressional intent.

Posted by Eric at 10:28 AM | Derivative Liability , E-Commerce , Privacy/Security | TrackBack

June 08, 2009

May 2009 Quick Links Part 1

By Eric Goldman

Just a reminder that I'm posting some quick links exclusively to my Twitter account.

Trademarks

* Texas International Property Associates v. Hoerbiger Holding AG, 2009 U.S. Dist. LEXIS 40409 (N.D. Tex. May 12, 2009). Domainer loses ACPA claim over typosquatted domain name. The PPC advertising constituted bad faith intent to profit. Ryan Gile recaps the action.

* GunBroker.com LLC v. Heckler & Koch Inc., No. 09-cv-00051 (M.D. Ga. complaint filed May 14, 2009). Interesting lawsuit by an online auction site for guns seeking a declaratory relief action against a trademark owner who deployed an enforcement agency, Continental Enterprises, to send a driftnet takedown letter that apparently targeted used gun resales or compatible goods. Ryan Gile has more.

* Miranda v. Guerroro, 2009 WL 1381250 (S.D. Fla. May 14, 2009). Miranda is “Paola Morena,” a Latin singer. Her former manager convinced her to do some nude photo shoots in an effort to get a Playboy gig. The Playboy gig didn't materialize, and the manager stopped representing Miranda/Morena. After Morena's career took off, the manager then allegedly threatened to publicly post the photos unless she paid him $70k. Morena rebuffed the request, so the manager allegedly followed through with his threats by launching a website paolamorena.com [I got a nasty Google malware warning when I tried to visit the site], calling it her “official” site and posting some of the photos. The court enjoined the manager under trademark law. I'm a little confused how Morena had protectable trademark rights in her name. Did she make any use in commerce in the United States? Did her name achieve secondary meaning? This could be another case where trademark law is being stretched to stop bad behavior.

* Eric Menhart, the self-purported owner of a trademark in the term Cyberlaw, has gotten his very own personal gripe site.

Advertising and Marketing

* How much can Behavioral Targeting Help Online Advertising? HT Greg Linden

* Yingling v. eBay, 5:2009cv01733 (N.D. Cal. complaint filed April 21, 2009). A class action lawsuit alleging that eBay Motors overcharged merchants.

* IAB has issued its Click Measurement Guidelines designed to answer the Q “What is a Click?” See if their 28 page report actually answers the Q.

* A confusingly written LA Times article reports that 4 South Korean dissident bloggers are being criminally prosecuted for artificially inflating impression counts in order to game rankings of most popular pages.

* Perennially funny: unfortunate product names.

Copyright

* Solicitor General recommends against granting cert in Cartoon Network v. CSC.

* AV v. iParadigms, April 16, 2009. The Fourth Circuit says that the Turnitin system is fair use. My initial blog post on the district court ruling.

Security

* News.com: Interview with FBI cybercrime agent working undercover.

* Oddee: problematic CAPTCHAs. Funny.

Google

* Everyone wants to talk about whether Google is a monopolist
- In early May, I heard Susan Athey, Microsoft's Chief Economist, give a lunchtime attack speech on Google at a George Mason event
- Google is circulating a document explaining why it's good for competition
- Google is blanketing DC with lobbyists too.
- And Google says it's actually small potatoes.
- Wired: Will Wolfram Alpha forestall antitrust inquiry into Google? As I've argued before, we continue to see new entrants into the search business all the time—it’s just too big a market to ignore.
- NYT weighs in too. And the Washington Post discusses how Microsoft and others are complaining about how many Google folks are going into the Obama administration.

* Danny Sullivan: State Of Search: Google Will Stay Strong Despite Bing & Yahoo

* Wired: Secret of Googlenomics: Data-Fueled Recipe Brews Profitability

Posted by Eric at 04:03 PM | Copyright , Derivative Liability , E-Commerce , Licensing/Contracts , Marketing , Privacy/Security , Search Engines , Trademark | TrackBack

May 11, 2009

George Mason Talk and Paper on Economics of Reputational Information

By Eric Goldman

Last week I presented a version of my Economics of Reputational Information talk at the Third Annual Conference in the Law and Economics of Innovation series, an event co-sponsored by George Mason Law School and Microsoft. My talk slides. Apologies for the slide formatting, but I honored the organizers' request to use a standardized template. If you've seen my slides from previous presentations of this topic, these slides will look familiar, but I did change them around a bit for this audience.

In conjunction with the talk, I also posted a short draft essay giving an overview of the research project generally. This is my first time I've organized my thoughts about this project into an essay, so those of you interested in a high-level overview of the project might find this interesting. Then again, it's a rough draft, incomplete and not very decisive.

In response to the talk, I got some excellent questions from the audience, including:

Q: How do we know service providers will honor their promises in the future? A: life is uncertain, so there will always be future risk. However, my goal is to help design systems that gather the relevant information available at the decision-making time that allows the best decision about future performance.

Q: Why don't platforms have more incentives to police against fraud? A: 47 USC 230 provides some of that incentive by insulating websites for their fraud-policing efforts. With this regulatory freedom, we have seen many websites voluntarily adopt increased anti-fraud efforts. For example, consider how much more eBay does to mediate the buyer-seller transaction today than it did 10 years ago (see, e.g., this article). Indeed, we've repeatedly seen reputable websites increasingly undertake more voluntary efforts to protect their users over time.

Q: Reputational information is strewn all over the web. Why isn't there one-stop shopping for reputational information? A: One-stop shopping would be convenient. But competition among reputational systems is also useful.

Q: Why shouldn't reputational systems turn over information about anonymous posters? A: First, reputable websites already have incentives to manage content from anonymous posters to avoid garnering a reputation as a cesspool of content. Hence, JuicyCampus went out of business because it lacked credible content. Second, with respect to turning over information, websites already do in many cases, but only if they keep IP address information. However, we may not need a law requiring websites to retain IP address info. As proceedings in the AutoAdmit lawsuit showed, plaintiffs sometimes can overcome the information deficiency to unmask anonymous posters through other means.

Posted by Eric at 05:29 PM | Derivative Liability , E-Commerce | TrackBack

May 03, 2009

April 2009 Quick Links

By Eric Goldman

[Just a reminder that I am posting some “quick links” exclusively to my Twitter account, so if you want to keep up with everything, follow me at Twitter or subscribe to the RSS feed.]

Marketing/Spam

* Zango is dead (and so is adware), Ken Smith, Zango's CTO, conducts a post mortem: What Zango Got Wrong and What Zango Got Right. Mike Masnick's post-mortem.

* The FDA's instructions about pharmaceutical search marketing have led to lots of confusion. See Search Engine Land and the NYT.

* NYT: "Never Mind What It Costs. Can I Get 70% Off?"

* Tsan Abrahamson on social media and marketing law.

* Asis Internet Servs. v. Consumerbargaingiveaways. A district court diverges from Mummagraphics and says CAN-SPAM does not preempt CA's anti-spam law even if there is no common law fraud.

* Jackson v. American Plaza Corp., No. 08-8980 (S.D.N.Y. April 28, 2009), A Craiglist advertiser isn't a third party beneficiary of Craigslist's contract for purposes of stopping another advertiser from breaching the contract (in this case, spamming the forum).

Defamation

* Gardner v. Martino (9th Cir. April 24, 2009). I'm not a fan of talk radio, and the 9th Circuit apparently isn't either. The court upheld an anti-SLAPP dismissal of a defamation claim against the radio talk show host because "The Tom Martino Show is a radio talk show program that contains many of the elements that would reduce the audience’s expectation of learning an objective fact: drama, hyperbolic language, an opinionated and arrogant host, and heated controversy." Accord DiMeo v. Max. As Marc Randazza notes, rulings like this pose a challenge for those who think contextually ridiculous statements should be treated as "cyberbullying" or "cyber-harassment." Cf. the Finkel v. Facebook case involving asinine but clearly meaningless chatter on a private Facebook page.

* Some big defamation losses reported by CMLP:
- Blogger hit with $1.8M damage award.
- $12.5M defamation judgment against a gripe site.

* CMLP has a page organizing all of its 47 USC 230 material.

Intellectual Property

* Publicly republishing a private email leads to a default judgment of copyright infringement.

* Bryant v. Europadisk, Ltd., 2009 WL 1059777 (S.D.N.Y. April 15, 2009). In 2000, musicians authorized distributors to distribute their [hard copy] recordings, which the defendants ultimately ripped and allowed Amazon and Rhapsody to deliver via downloading. The resulting lawsuit turned on the interpretation of the license agreement term “internet sites.” The court says the term "is not ambiguous and does not extend to websites selling digital copies of songs. At the time the parties entered into the agreements, The Orchard sold physical copies only. As its Vice President explained by affidavit testimony, digital downloads of music did not become a “viable business” until iTunes was launched in approximately April 2004, long after Media Right and Gloryvision entered into contract."

* Octomom is seeking trademark registrations.

Miscellaneous

* GeoCities is shutting down.

* eBay will referee customer disputes.

* Wilson Sonsini's VC financing term sheet generator.

* Oddee: 10 Most Bizarre [Online] Gaming Incidents

Posted by Eric at 06:31 AM | Adware/Spyware , Content Regulation , Copyright , Derivative Liability , E-Commerce , Internet History , Licensing/Contracts , Marketing , Spam , Trademark , Virtual Worlds | TrackBack

April 27, 2009

Catching Up on Three Keyword Advertising Cases--Hearts on Fire, Romeo & Juliette, AAA

By Eric Goldman

Three trademark owner v. advertiser rulings from the past month:

Hearts on Fire Co. v Blue Nile, Inc., 2009 WL 794482 (D. Mass. March 27, 2009). The Justia page.

This is an interesting and potentially very important keyword advertising case.

The plaintiff is a diamond manufacturer which sells its products under the "Hearts on Fire" brand. The plaintiff does not sell its diamonds directly to consumers. The defendant is an Internet retailer that does not sell the "Hearts on Fire" brand of diamonds. The plaintiff alleges that Blue Nile bought the keyword "hearts on fire" at WebCrawler and then displayed an ad that included the words "hearts on fire" in the ad copy.

In this ruling, Blue Nile tries to dismiss the trademark claims for lack of use in commerce. The ruling came out before the Rescuecom case, but it doesn't matter. (The court did not feel bound by the First Circuit's Venture Tape case, which did not address use in commerce in a metatags case). After canvassing the statute and the precedent, the court says "there is little question that the purchase of a trademarked keyword to trigger sponsored links constitutes a "use" within the meaning of the Lanham Act." Post-Rescuecom, this is even more likely to be true.

The court also discussed consumer confusion. Noting that "there is no suggestion that diverted consumers inadvertently believed they were purchasing Hearts on Fire diamonds at Blue Nile's website," the sole possible basis of consumer confusion is initial interest confusion. In an understatement, the court notes that doctrine is a "somewhat ill-defined concept."

Unfortunately, the court proffers its own definition of initial interest confusion (one of dozens of different definitions), and its definition is a regressive throwback to 1990s legal conceptions of search processes:

[a] classic example [of IIC] is where a consumer sets out in search of one trademarked good, but is then sidetracked en route to his or her original destination by a competitor's advertisement or offering. He or she is never confused as to the source or origin of the product he eventually purchases, but he may have arrived there through either misdirection or mere redirection. In effect, initial interest confusion involves the diversion of the consumer's attention from one trademarked good to a competing good, even if he is not confused about the source of the products he ultimately considers or buys

As I've repeatedly explained, this definition (and its emphasis on attention diversion) is analytically corrupt because it overassumes a linear search process. How do we know when a consumer is "sidetracked" or, in fact, discovers more helpful information? And how can a court determine this?

Despite this odd and unfortunate construction of initial interest confusion, the court acknowledges an alternative story that searchers might be able to distinguish between competitive offerings, which would preempt any initial interest confusion. The court hypothesizes that some keyword advertising listings might be akin:

to a menu--one that offers a variety of distinct products, all keyed to the consumer's initial search. Sponsored linking may achieve precisely this result, depending on the specific product search and its context. When a consumer searches for a trademarked item, she receives a search results list that includes links to both the trademarked product's website and a competitor's website. Where the distinction between these vendors is clear, she now has a simple choice between products, each of which is as easily accessible as the next. If the consumer ultimately selects a competitor's product, she has been diverted to a more attractive offer but she has not been confused or misled

So where does Blue Nile fit on this spectrum between attention usurper and menu-option? The court isn't willing to let Blue Nile off the hook because it advertised on a trademark for a product it does not sell, saying a "consumer who had just entered a search for Hearts on Fire diamonds might easily believe that the Defendant was one such authorized retailer when presented with Blue Nile's sponsored link, even if the accompanying text did not contain the trademarked phrase."

As a result, the court reserves this case for a full multi-factor likelihood of consumer confusion analysis—but not the normal multi-factor analysis. Instead, the court plans to look at a bunch of additional factors beyond the normal ones:

under the circumstances here, the likelihood of confusion will ultimately turn on what the consumer saw on the screen and reasonably believed, given the context. This content and context includes: (1) the overall mechanics of web-browsing and internet navigation, in which a consumer can easily reverse course; (2) the mechanics of the specific consumer search at issue; (3) the content of the search results webpage that was displayed, including the content of the sponsored link itself; (4) downstream content on the Defendant's linked website likely to compound any confusion; (5) the web-savvy and sophistication of the Plaintiff's potential customers; (6) the specific context of a consumer who has deliberately searched for trademarked diamonds only to find a sponsored link to a diamond retailer; and, in light of the foregoing factors, (7) the duration of any resulting confusion.

This is a good news/bad news development. The good news is that this is a very productive inquiry for courts to make. It does not matter what judges or plaintiffs intuitively think will confuse consumers; it only matters what consumers think and how they process the information presented to them. The bad news is that I have no idea how the parties will provide credible evidence to support this inquiry, and a new and even more complex multi-factor test is destined to compound the existing judicial difficulties with the multi-factor likelihood of consumer confusion test.

Some implications of this case:

1) In the past, some language in First Circuit cases implied that the First Circuit did not recognize the initial interest confusion doctrine. This case offers more evidence that the initial interest confusion doctrine, like a virulent weed, has taken root (in some form or another) everywhere.

2) A ruling like this shows how courts are analytically tortured by keyword advertising cases.

3) Assuming that Blue Nile falsely advertised that it sold "Hearts on Fire" diamonds, isn't this a paradigmatic bait-&-switch? In other words, do we really need to go through these doctrinal contortions? On the other hand, if the Blue Nile ad copy had a clearer exposition that it sold diamonds but not Hearts on Fire branded diamonds, wouldn't that also be an easy case? Thus, the only difficulty is when Blue Nile keys its ads to Hearts on Fire but doesn't reference the trademark in the ad copy at all (which, for example, would be the result in any Google ads if Hearts on Fire blocks its trademark). Personally, I would love to see some empirical evidence about how consumers evaluate ads without any reference to the triggering brand. Meanwhile, for you SEMs, if you are not already doing so, you should be running your ad copy by your lawyers. Clear ad copy ought to reduce or eliminate the risk of lawsuits like this.

4) I will be interested to see if other courts embrace the court’s addition of new factors to the multi-factor consumer confusion test. If so, this could make these cases much more complicated and expensive, but it could also prevent quick plaintiff wins by trademark owners who have no evidence of consumer confusion/initial interest confusion/whatever.

Other opinions on the case: Wendy Davis, Ryan Gile and David Kelly at Finnegan,

Romeo & Juliette Laser Hair Removal, Inc. v. Assara I LLC, 2009 WL 750195 (S.D.N.Y. March 20, 2009). The Justia page.

The litigants are competing laser hair removal vendors. The plaintiff alleges that the defendant ran the following ad:

Romeo And Juliette Laser
Unlimited Laser Hair Removal
$599/Month. Free Consultations.
www.assaralaser.com
New York, NY

Clicking on the URL took consumers to a website where the second line allegedly read "romeo juliette laser Unlimited Laser Hair Removal-$599/Month. Free Consultations."

The defendant alleges that the offending website was operated by a third party, ReachLocal. The court doesn't describe the Assara-ReachLocal relationship in detail, but it does say that ReachLocal is a "third party that Assara hired to manage its advertisements."

In any case, the defendant also seeks dismissal based on a lack of use in commerce. Although this ruling was also pre-Rescuecom, it doesn't matter because the plaintiff's trademark was referenced in both the ad copy and the linked website, which easily satisfies the use in commerce requirement. See, e.g., the Hamzik case.

Ron Coleman has more to say on this case.

The American Automobile Association v. Darba Enterprises, 2009 WL 1066506 (N.D. Cal. April 21, 2009). The Justia page.

Normally I stay away from jurisdictional rulings. However, occasionally keyword advertising plays a key role in the jurisdictional analysis (see, e.g., the Optihealth Products case), and those cases can be a little more interesting.

The defendants operate "several websites that purport to match consumers seeking auto insurance quotes with third-party insurers." AAA complains that the defendants "displayed the AAA Marks without authorization for the purpose of tricking internet users into believing that the site was affiliated with AAA," bought keyword ads triggered by AAA marks, and displayed AAA marks in the ad copy. Further, AAA complains that consumers submitted the lead generation form expecting AAA to be included but the form did not actually get submitted to AAA for a quote.

The court has little problem establishing jurisdiction over the defendant. The court deems the site "commercial" and "interactive" for purposes of the Zippo jurisdictional test. There were also 2 California consumer complaints against the defendants, and the lead generation form had a zip code field to indicate when consumers were from California. "Moreover, by utilizing pay-per-click advertisements to ensure that its name would come up when internet users searched for "AAA insurance," defendant intended to lure internet users to its website, including California residents."

It’s difficult for advertisers on third party trademarks to avoid jurisdictional responsibility in the trademark owner’s home court, so this ruling is not very surprising. However, as discussed with the Hearts on Fire case, I hope the court rethinks its perceptions about advertisers “luring” consumers.

Posted by Eric at 09:56 AM | E-Commerce , Marketing , Search Engines , Trademark | TrackBack

April 20, 2009

eBay Resales Constitute Trademark Infringement Despite First Sale Doctrine--Beltronics v. Midwest

By Eric Goldman

Beltronics USA Inc. v. Midwest Inventory Distribution, No. 07-3340 (10th Cir. April 9, 2009)

This is yet another online channel leakage case (for my last visit to this topic, see the Mary Kay v. Weber case). Beltronics makes radar detectors. Some unnamed distributors bought radar detectors from Beltronics at wholesale prices but subject to a minimum resale price promise. The distributors removed Beltronics' unique identifiers from each detector and resold them to Midwest. Midwest then resold the detectors on eBay.

Removing the unique identifier made it difficult for Beltronics to identify the rogue distributors who were supplying Midwest. Without Beltronics' unique identifier, Beltronics also refused to provide warranty coverage (and some other minor post-sale services) to buyers. However, Midwest claimed that it offered buyers its own 1 year warranty and disclosed in the eBay auction listings that Beltronics would not provide any warranty coverage. Nevertheless, Midwest's claim didn't get much credit because Beltronics claimed that it received inquiries from Midwest buyers seeking warranty coverage, thus leading the courts to conclude that Midwest's disclosures weren't doing a very good job.

The district court concluded that the resales of the Beltronics radar detectors as "new" detectors when they lacked the manufacturer's warranty and other post-sale services created a likelihood of consumer confusion sufficient to support a preliminary injunction blocking Midwest from reselling Beltronics detectors without unique identifiers (which in practice cuts off Midwest's supply because now any rogue distributors can be caught). Midwest attacked the PI on the basis that its resales were protected by the trademark first sale doctrine. The 10th Circuit, heavily citing its atrocious Australian Gold v. Hatfield decision, held that the first sale doctrine didn't apply because Midwest sold a materially different good without the manufacturer's warranty and without adequate disclosures to buyers about the differences.

The net result then is that eBay buyers willing to pay a discount for an identical radar detector but with only Midwest's warranty instead of Beltronics' won't get that choice. Instead, they get the pleasure of buying at the minimum resale price set by Beltronics. However, the 10th Circuit implies, without saying, that it could have reached a different result if Midwest had done a better job with its disclosures. But, after anti-competition rulings like this and the Australian Gold case, I'm guessing Midwest isn't too excited about experimenting in the 10th Circuit.

Posted by Eric at 08:26 PM | E-Commerce , Trademark | TrackBack

April 12, 2009

Q1 2009 Quick Links, Part 4

By Eric Goldman

Security

* Massachusetts Data Security regulations were amended.

* In Facebook v. Power.com, Facebook brought another lawsuit to block extraction of user data from the site (similar to the Facebook v. ConnectU lawsuit). Venkat, Masnick, News.com, NYT, Justia. In this case, I wonder if Facebook has adequately distinguished between Power.com's behavior and the operation of its own "Find a Friend" service that taps into third party email servers to extract email addresses. Power.com’s response.

* Andritz, Inc. v. Southern Maintenance Contractor, LLC, 2009 WL 48187 (M.D. Ga. Jan. 7, 2009). IP infringement isn't a cognizable harm under the Computer Fraud & Abuse Act.

Adware/Spyware

* Who says Valentine's Day is just a Hallmark holiday? Sales of spyware and other tools to track cheating SOs also increase around Valentine's Day.

* Susan Brenner on the Cybercrimes Treaty and the US's decision not to criminalize possession of malware as required by the treaty.

Venture Capital

* BusinessWeek: Silicon Valley innovation is being stifled by VCs who only want to make small bets, not big bets. But VC investing is faddish, so the wind might change tomorrow.

* $600M of VC investments in virtual worlds.

Contracts

* Burcham v. Expedia, Inc., 2009 U.S. Dist. LEXIS 17104 (E.D. Mo. Mar. 6, 2009). Buyer was bound to user agreement even though he argued (without any evidence) that someone else established the account he used. This dovetails nicely with the broad reading of who is bound by an online user agreement; see my discussion in the Lori Drew case. Jeff Neuburger's writeup. Aside: I wonder if Expedia will be insulated by 47 USC 230 for the allegedly wrong description of amenities if they got the description of the hotel from third parties. For an analogous result involving the binding of users who didn't agree to the initial contract, see CoStar Realty Information, Inc. v. Field, 2009 WL 841132 (D. Md. March 31, 2009).

* Fractional Villas Inc. v. Tahoe Clubhouse, No. 08cv1396 (S.D. Cal. Feb. 25, 2009). Citing the RMG case, the court says that merely visiting a site may be sufficient to bind visitors to a browsewrap. However, in this case, there was insufficient evidence that the defendant had ever visited the site.

* Cherny v. Emigrant Bank, 2009 U.S. Dist. Lexis 2486 (March 12, 2009). Latest case that breach of privacy policy isn’t actionable unless there are actual damages. Venkat’s writeup.

* A stat I fully believe: "studies have shown that more than half of all companies cannot even locate signed copies of 10% or more of their contracts." The Zen Master asks: if both parties think they have entered a contract but neither can find a copy, do they have a contract? (this has really happened to me before).

Taxes

* Amazon v. New York and Overstock v. New York (N.Y. Sup. Ct. Jan. 12, 2009). Kudos to New York for finally figuring out a way to break the Internet and defeat the Internet Tax Freedom Act by treating Amazon Associates as traveling salespeople for sales tax collection purposes. I imagine every state in the country will jump on this bandwagon, at which point some e-tailers will kill their affiliate program and others will end up imposing sales tax collection nationwide.

* Pitt County v. Hotels.com, L.P. (4th Cir. Jan. 14, 2009), Online travel aggregators aren't "retailers" (as referenced in the statute) for purposes of collecting local hotel occupancy taxes.

General

* Some interesting cyberspace exceptionalism developments involving cases where paper presentation may be different from electronic presentation of the exact same content. In Smith v. Under Armour, Inc., 2008 WL 5486764, web payment confirmations displayed on-screen are not "printed" within the meaning of the Fair and Accurate Credit Transactions Act. Accord Smith v. Zazzle.com, Inc., 2008 U.S. Dist. LEXIS 101050. See generally this Proskauer recap. In Saulic v. Symantec Corp., a California law prohibiting data collection with credit card sales was held inapplicable online.

* Sudduth v. Donnelly, 2009 WL 918090 (N.D. Ill. April 1, 2009). Plaintiff got stiffed on his eBay transaction and sued eBay for 1983 equal protection and conspiracy claims as well as a Title VI civil rights claim. Because eBay isn't a state actor, however, the court dismissed eBay.

* My colleague Steve Diamond is blogging every detail of the battle for SAG's soul over at his new blog, King Harvest. For example, he summarizes the travails of the Screen Actor's Guild.

* Oddee: 10 Geekiest T-Shirts. I own a t-shirt that says "I'm Blogging This" (a gift from a former student) and a mug that says "Vegetarian Blogger" (gift from a colleague).

* Oddee: 15 Most Unfortunate Town Names. I think Licking County should have been a contender.

* Is there any better sign of Cyberlaw's maturity than the publication of Internet Law in a Nutshell? [Amazon Affiliates link]

* Oddee: 12 Most Ridiculous Lawsuits. I welcome your nominations for the most ridiculous Internet lawsuits of all time. I hope to write that up some day.

* Happy birthday, Gmail! Best email software I've ever used. The battles over Gmail privacy seem so...2004!

Free Stuff

* The Ninth Circuit recently updated its website...with RSS feeds!

* Nolo Press' "NDAs for Free." Potentially useful site.

* I have one extra copy of my Fall 2008 Cyberspace Law course reader. First person to send an email with their mailing address gets it. [CLAIMED]

Posted by Eric at 12:03 PM | Adware/Spyware , E-Commerce , Licensing/Contracts , Privacy/Security , Trade Secrets , Virtual Worlds | TrackBack

March 03, 2009

Online Resale of Expired Cosmetics May Be Trademark Infringement--Mary Kay v. Weber

By Eric Goldman

Mary Kay, Inc. v. Weber, 2009 WL 426470 (N.D. Tex. Feb. 20, 2009). The Justia page. There are a number of Mary Kay meta-sites tracking this and other Mary Kay lawsuits. For more filings and commentary on this case, see pinklighthouse.com.

Amy Weber is a former Mary Kay Cosmetics independent salesperson (in Mary Kay-speak, "Independent Beauty Consultant," or "IBC"). To retain her IBC status, she was required to buy $200/mo of cosmetics. It sounds like Weber wasn't able to move this much product through traditional Mary Kay sales techniques, so she ultimately lost her IBC status. Meanwhile, apparently stuck with an inventory of unsold goods, Weber started reselling the cosmetics on eBay. Over time, she started buying cheap Mary Kay products on eBay from other folks and flipping them on eBay for more. Eventually she started an e-commerce website, initially called "marykay1stop" but later renamed "touchofpink.com." It sounds like the venture became quite successful.

Not surprisingly, Mary Kay wasn't pleased with the channel conflict that the defendants were causing. A Mary Kay representative first contacted the defendants in 2005, ordering them to change their e-commerce site's name (so that it didn't reference Mary Kay) and remove any copyrighted product shots. The parties dispute this conversation; the defendants say that the representative promised that they would be legally OK if they took these steps, while Mary Kay says that its demands didn't promise safety. Not satisfied with the defendants' responses, Mary Kay sued in 2008 for trademark infringement and a variety of other claims.

Regular blog readers will recognize this fact pattern. We've seen a number of similar lawsuits where a manufacturer/brand owner with restricted distribution channels sues because those channels break down and legitimate original goods hit the Internet. See, e.g., Standard Process. v. Total Health Discount (E.D. Wis. 2008); Australian Gold v. Hatfield (10th Cir 2006); S&L Vitamins v. Australian Gold (EDNY 2007); Standard Process v. Banks (E.D. Wis. 2008); Designer Skin v. S&L Vitamins (D. Ariz. 2008); and Tiffany v. eBay (SDNY 2008). The legal principles developed in these cases are decidedly mixed.

In this case, it sounds like one possible problem is that Mary Kay forced its retailers (i.e., the IBCs) to buy more product (through the minimum monthly orders) than the retailers could sell--which would be a type of channel stuffing that leads to big inventories of unsold goods being held by retailers. If so, then Mary Kay got blitzed by all of this unsold inventory when an Internet sales channel opened up. If anything, the minimum monthly order probably exacerbates the problem because those orders are probably at the reduced distributor prices, which would allow IBCs to flip a portion of the inventory at cost to Weber (keeping the rest for personal consumption at the discounted distributor price or resale through traditional means), enabling Weber to undercut standard retail prices.

Trademark Infringement

From a legal standpoint, the trademark infringement claim looks easy to dispose of. Due to the First Sale doctrine, IBCs and any downstream resellers should be free to resell legitimate goods at whatever price they want; and they should be free to let consumers know of the availability of those goods. However, the First Sale doctrine applies only when the resold goods are not "materially different." Mary Kay argued that the goods were materially different because "(1) they are expired, (2) they do not carry the same product guarantee, and (3) they are old, used, discontinued, or otherwise defective." Some of these arguments are questionable (why are discontinued but unmodified goods "materially different"?), but everyone agreed that Weber was reselling expired goods, and with perishable goods this could matter. Not being a cosmetics consumer, I'm not sure how perishable cosmetics are; I suspect some aren't, even if they are stamped with an expiration date. In any case, the court denies summary judgment, making this a fact question for the jury.

The defendants also claimed nominative use, which allows the defendants to use "Mary Kay" to refer to the vendor/licensor Mary Kay. The nominative use defense is only available if the defendants did not take more of the trademark than necessary and did not imply any sponsorship or affiliation.

In addition to the defendants' website references, the defendants spent $20,000/mo on Google keyword advertising to purchase 79 keywords, of which 75 included the phrase Mary Kay or the name of a Mary Kay product. Further, some of the text ads included Mary Kay in the ad copy. Citing the Total Health case, Mary Kay argued that purchasing keyword ads categorically precluded a nominative use defense because the defendants took more of the trademark than necessary. The court rejects this argument, reading the Total Health case more narrowly. The court goes further to say that it would disagree with a broader reading of the Total Health case because Mary Kay's proposed reading would mean that "second hand sellers could not advertise on search engines such as Google without facing liability for trademark infringement."

Instead, the court cites Tiffany and Designer Skin for the proposition that keyword advertising on third party trademarks does not automatically create an implied sponsorship or affiliation. As the court says:

the law will destroy the valuable resource that search engines have become if it prevents those search engines from doing what they are designed to do: present users with the information they seek as well as related information the user may also find helpful or interesting [cite to Designer Skin]

Yes! However, the court says that a fact issue remains whether the ad copy created an implied sponsorship/affiliation. The ad in question read:

"Mary Kay Sale 50% Off: Free Shipping on Orders over $100 Get up to 50% Off-Fast Shipping www.touchofpinkcosmetics.com."

The court says the language "Mary Kay Sale 50% Off" could be read to imply that the ad was from Mary Kay itself.

As for the Mary Kay references on the touchofpink.com website, the court says that the likelihood of confusion factors point heavily in favor of a plaintiff win, so on that basis summary judgment for the defense is inappropriate. The court's whole discussion of likelihood of confusion is entirely odd; the court seems to miss the point that the likelihood of confusion factors necessarily will point towards infringement when dealing with an unauthorized reseller of legitimate goods.

Other Discussion

* The court dismisses the tortious interference claims because the defendants didn't actively recruit other IBCs to resell goods to them, even if the defendants knew that the IBC contract had a restriction on Internet resales, and because the defendants sale of the "trappings" of being an IBC didn't substitute for becoming an IBC.

* The court also dismisses the unjust enrichment claim because unjust enrichment isn't a standalone cause of action. Why why why do so many plaintiffs waste their time alleging unjust enrichment as a standalone cause of action???

* The court partially tosses Mary Kay's consumer survey putatively showing the consumers assumed an affiliation between Mary Kay and the touchofpink website: "confusion that stems solely from the fact that the Webers are reselling Mary Kay products is not legally relevant and might confuse the jury. As a result, the court cannot allow the jury to hear the bald statement that forty five percent of consumers were confused about touchofpinkcosmetics.com's affiliation with Mary Kay." However, respondents' narratives about why they assumed affiliation are admissible.

Conclusion

Mixed rulings like this often produce a settlement. Frankly, I could see both sides wanting to keep this case out of a jury's hands. In court, defense counsel will hammer on the fact that Mary Kay is trying to suppress legitimate resales because they don't like the competition; plaintiff's counsel will probably argue that the defendants deliberately went too far in pretending to be Mary Kay instead of being clearer that they were an unauthorized reseller. I don't know which argument will appeal more to a Texas jury, and this unpredictability increases the attractiveness of a settlement.

Doctrinally, I suspect the defendants hoped for a better ruling. Their First Sale defense was so palpable that it's frustrating the defendants couldn't get the court to embrace it fully. Then again, unauthorized resales of legitimate goods that have leaked out of a controlled channel have really confounded the courts, so perhaps a mixed ruling is to be expected--especially in light of some questionable (in hindsight) decisions by the defendants, such as their original choice for their website name, the ambiguous references to Mary Kay in their ad copy, and the heavy reliance on reselling expired cosmetics.

While the defendants' failure to get a solid win was a loss of sorts, this case does offer some good news for future defendants--especially the court's clear conclusion that simply buying trademarked keyword ads, without more, does not create an implied sponsorship or affiliation with the trademark owner. It would have been nice for the court to rely on some social science to support this proposition, but let's celebrate the court's wisdom however it got there. This, combined with the recent case saying that keyword advertising isn't a false designation of origin, suggest that we are slowly overcoming past rulings that have treated keyword advertising as having some mystical power to hypnotize and divert consumers.

Finally, while completely irrelevant to the case, I'd be remiss if I didn't link to a Mary Kay pink Cadillac--perhaps the most enduring attribute of the Mary Kay brand for a non-consumer like me. Wow.

Posted by Eric at 12:54 PM | E-Commerce , Search Engines , Trademark | TrackBack

February 17, 2009

Affiliate Liability Talk Notes from SMX West

By Eric Goldman

Last week, I spoke for 10 minutes (actually, I took 12) at SMX West on the topic of advertiser liability for affiliates' actions. My talk notes:

General Principles

Issue: when are advertisers liable for their affiliates’ behavior?

General rule: a company isn’t automatically liable for the acts of independent contractors.

Main exception: principal-agency liability. Principals are automatically liable for agent’s behavior within scope of agency. Agency can be express, implied or apparent. Generally, to form an agency, principals must control the agent’s behavior; an agency isn't formed merely by telling an independent contractor the desired results.

Application of general rule: Unless affiliates are agents, advertisers aren’t liable for their behavior, and most affiliates aren’t agents.

CAN-SPAM

CAN-SPAM is a statutory exception to the general rule. State anti-spam laws may have similar statutory extensions.

15 USC 7705: Advertiser liability if advertiser (1) knew that affiliate is spamming, (2) is economic beneficiary of spam, and (3) doesn’t take reasonable steps to prevent or report.

Numerous advertisers have settled with the FTC based on the FTC’s theories of how to interpret this statute. However, the FTC's interpretations don’t have a great track record in court:

* U.S. v. Cyberheat, Inc., 2007 WL 686678 (D. Ariz. March 2, 2007). Government’s theory of strict liability for affiliate behavior rejected—liability requires advertisers’ knowledge and control of affiliate behavior.

* US v. Impulse Media. Government took Impulse Media’s liability for affiliate spam to a jury and lost.

Also, most civil plaintiffs have lost trying to hold advertisers liable for affiliate spam. See, e.g., Fenn v. Redmond Venture, Inc., 2004 UT App 355 (Utah Ct. App. Oct. 15, 2004); Hypertouch, Inc. v. Kennedy-Western University, No. 3:04-cv-05203-SI (N.D. Cal. Mar. 8, 2006); People v. Synergy6, Inc., Index No 404027/03 [Sup Ct N.Y. Co 2006]; ASIS Internet Services, v. Optin Global, Inc., 2008 WL 1902217 (N.D. Cal. March 27, 2008; unsealed April 29, 2008),

Other Types of Affiliate Liability

* Fraudulent ads prepared by affiliates. Florida's AG office has pursued mobile content ads, including those prepared by affiliates to promote the advertiser.

* Adware. The FTC and NYAG have taken expansive view of advertiser liability for running ads in adware. Indeed, based on these theories, the NYAG procured a settlement from Priceline, Travelocity, and Cingular Wireless in Jan. 2007 for $30-$35k each. But the NYAG’s expansive theories about affiliate installations of adware were soundly rejected in People v. Direct Revenue LLC, 2008 WL 1849855 (N.Y. Sup. Ct. March 12, 2008).

* Trademarks. In at least three cases, trademark owners have alleged that advertiser liable for trademark infringement due to affiliate behavior (such as affiliates bidding on trademark owner’s keywords). See DSW v. Zappos.com (S.D. Ohio complaint filed May 12, 2008); NameSafe v. LifeLock (M.D. Tenn. complaint filed June 26, 2008); Rosetta Stone v. Rocket Languages (C.D. Cal. complaint dated July 2, 2008). This is an unsettled area of trademark law. I think it should be analyzed as contributory trademark infringement, which probably would result in no liability for advertisers. As a point of comparison, advertisers are not liable for ads appearing on a site that infringes trademarks. See Fare Deals v. World Choice Travel.com case, 180 F. Supp. 2d 678 (D. Md. 2001),

Other Consequences of Affiliate Liability

Even if advertiser isn’t liable for affiliate’s behavior, advertiser-affiliate relationship may still create problems:

* NY sales tax collection obligation. NY Tax Law Section 1101(b)(8)(vi) enacted April 2008 says:

a person making sales of tangible personal property or services taxable under this article ("seller") shall be presumed to be soliciting business through an independent contractor or other representative if the seller enters into an agreement with a resident of this state under which the resident, for a commission or other consideration, directly or indirectly refers potential customers, whether by a link on an internet website or otherwise, to the seller, if the cumulative gross receipts from sales by the seller to customers in the state who are referred to the seller by all residents with this type of an agreement with the seller is in excess of ten thousand dollars during the preceding four quarterly periods

Legal challenge to the statute: Amazon and Overstock v. NY, decided Jan. 12, 2009. The court upheld the statute against dormant commerce clause, due process and equal protection claims. I think this is a goofy ruling.

Implications of the NY Sales Tax law:

1) If upheld, other states undoubtedly will adopt the same model.

2) Web retailers will either double-down on affiliate programs or kill them (Overstock killed its NY affiliates).

3) This may be the effective death knell for retailer-sponsored online affiliate programs, which could have a significant consequence on the Internet advertising community.

* Competition with affiliates for AdWords/organic placement.

* Public opinion, including FTC shaming, adverse media coverage, and disgruntled consumers.

Best Practices for Advertisers

1) Advertisers' affiliate contracts should prohibit ads in spam, adware, etc. This has successfully cut off advertiser liability in several cases (Fenn, Hypertouch, Impulse Media, Synergy6)

2) Affiliate contract should restrict the affiliates' keyword ad practices. Note, however, the more the affiliate contract controls affiliate behavior, the greater the risk that a court will misinterpret the contract to form an agency relationship.

3) Escrowed/delayed payments are the best way to minimize affiliate fraud and manage contract compliance. It's rare for advertisers to bring lawsuits against affiliates (e.g., Land’s End v. Remy, eBay v. Digital Point Solutions). The best way to curb bad affiliates is to keep dollars out of their pockets.

4) Advertisers must actually police affiliate behavior

5) Especially in light of NY tax law, advertisers must do a cost-benefit analysis of affiliate programs. Are they net-profitable, after considering all of the costs? The answer may surprise you.

For more reading on this topic, see my lengthy article from last year, Affiliate Liability Extravaganza.

Posted by Eric at 10:07 AM | Derivative Liability , E-Commerce , Marketing , Trademark | TrackBack

February 13, 2009

Yahoo's Sale of Competitive Keyword Ads Isn't False Designation of Origin--Heartbrand Beef v. Lobel's

By Eric Goldman

Heartbrand Beef, Inc. v. Lobel's of New York, LLC, 2009 WL 311087 (S.D.Tex. Feb. 5, 2009). The Justia page.

Heartbrand sells Akaushi beef, a special and very expensive Japanese variety of beef. Heartbrand brought an enforcement action against several defendants, including Yahoo for selling a retailer, Lobel's, the first ad position for the keyword "Akaushi." Lobel's sells very expensive beef but not Akaushi beef. Heartbrand alleged that Yahoo's display of the ad constituted Lanham Act false designation of origin and common law unfair competition. I suspect that other plaintiffs have alleged that the search engine makes a false designation of origin by presenting keyword ads, but I can't recall an actual ruling on this issue before.

From my perspective, the natural analytical approach would be to assume the advertiser makes the false designation of origin and then consider Yahoo's liability under some kind of "contributory" or "derivative" false designation claim (if such a thing exists). However, stated this way, the claim then should be preempted by 47 USC 230; other cases have concluded that 47 USC 230 preempts non-trademark portions of the Lanham Act. See, e.g., Kruska v. Perverted Justice Foundation Inc. But see Doe v. Friendfinder.

The court sidesteps this direct-v.-contributory issue entirely, even though it acknowledges that Heartbrand's claim doesn't make sense because "Yahoo! obviously does not fit into these classic models [of false designation of origin] because Yahoo! is not in the business of selling beef." Instead, the court rejects the false designation claim because (1) Yahoo doesn't make any "statement" (the advertiser does), and (2) even if Yahoo does make a statement, it's not designating the origin of Yahoo's offerings.

This case reminded me of the Overstock v. SmartBargains opinion from last August, where the Utah Supreme Court said that trademark-triggered competitive pop-up ads do not constitute common law unfair competition or tortious interference. (Note that in that case, the defendant was the ad buyer, not the ad seller, so there is a significant factual difference). In both the Overstock case and this one, the courts rejected plaintiffs' efforts to fit their claims in doctrines that are ancillary to the more traditional trademark infringement claim. In that respect, this case helps channel the lawsuits back to trademark infringement and might help curb claim sprawl.

Ryan Gile has also blogged on the case.

UPDATE: Rebecca weighs in.

Posted by Eric at 12:02 PM | Derivative Liability , E-Commerce , Marketing , Search Engines , Trademark | TrackBack

February 06, 2009

2008 Cyberlaw Year-in-Review

By Eric Goldman

It's a sign of my schedule that I'm just now getting to this, and this post will be more pithy than I initially conceived. This post recaps some of the Cyberlaw highlights from last year. Frankly, the two biggest stories of 2008 were the financial markets meltdown and the ascension of President Obama, neither of which have a lot of Cyberlaw angles. In light of those big developments, Cyberlaw in 2008 was comparatively quiet. However, there is still plenty of interesting developments to revisit.

Broad Themes

A few broad themes emerged last year:

* Ludicrous trademark claims. 2008 hardly had a monopoly on dumb trademark claims; those are perennial. But 2008 certainly saw some asinine entries, including putative Cyberlawyer Eric Menhart's claim to own a trademark in the term "Cyberlaw," Jones Day's efforts to claim that a web page referencing its name as the employer of some homebuyers violated its trademark rights, and putative Cyberlawyer John Dozier's claim that if his name is used as anchor text, the link must go to his website or it violates his trademark right.

* This was a good year for expansive readings and applications of user agreements. Some examples:
- the Lori Drew prosecution, where Lori was convicted of violating an agreement that someone else clicked through.
- Jacobsen v. Katzer, where a user of copyrighted material is bound by a contract that he/she never clicked through at all.
- AV v. iParadigms, where kids were not allowed to void a user agreement despite their status as minors (and despite the fact that some of them had no meaningful choice about whether or not to consent).
- JuicyCampus enforcement action, where the New Jersey Attorney General's office tried to treat a negative user behavioral restriction in a user agreement as an affirmative marketing representation that such user behavior would not occur on the site.

* One of the long-standing Cyberlaw memes is that websites must either be passive conduits to avoid liability or active editors to manage their liability, but if a website chooses the latter, the website is liable for any editorial mistakes. That is, if the website edits its site but misses something, it's fully liable for what it missed. This simply isn't true under 47 USC 230, which allows websites to choose to be passive, active or anything in between without varying liability. In the IP context, this passive v. active meme has had more traction, but 2008 saw two solid cases suggesting that if a website tries to police its premises and fails, courts will be sympathetic and excuse any omissions. Example #1: Tiffany v. eBay, where the court gave eBay extra credit for its VeRO program as a basis to excuse any counterfeit goods that slip through. Example #2: Io v. Veoh, where the court was more willing to excuse Veoh because it had undertaken extra policing efforts than was required for the 17 USC 512 safe harbor. Finally, although not an IP case, the court in Cisneros v. Yahoo also lauded search engines for their affirmative efforts to block gambling ads, which the court acknowledged was a hard challenge.

* Despite some adverse rulings early in the year, punctuated by the Ninth Circuit's en banc ruling in Roommates.com, the 47 USC 230 immunization is still extremely robust. We saw a number of expansive and pro-defense rulings per 230 throughout the year, including Craigslist, Doe v. MySpace, Cisneros v. Yahoo and Goddard v. Google. Perhaps more importantly, in the three 230 cases I've seen since Roommates.com that cited to the opinion, all three cited the opinion in ruling for the defense.

* Battles over keyword advertising are hardly over, even though Utah officially backed off its attempt to ban them. The ABA IP Section tried to get into the act, and American Airlines sued Google, settled, and then sued Yahoo.

Top 11 Cyberlaw Developments of 2008

#11: Utah Trademark Protection Act repealed. The Utah Trademark Protection Act had the potential to throw the entire keyword advertising business into turmoil. Instead, now that it's repealed, it just remains as a dramatic reminder of the Utah legislature's incompetence regarding Internet legislation.

# 9 and 10: Fair Housing Council v. Roommates.com and Goddard v. Google. The Roommates.com en banc opinion makes the list based mostly on its potential consequences, not its actual effect. It remains one of the most significant pro-plaintiff incursions into the solidly defense-favorable interpretations of 47 USC 230, but it's so riddled with contradictory and ambiguous language that no one really knows what to do with it. I think Judge Fogel's reading of the case in Goddard v. Google has the potential to become the defining interpretation of the case, and his solidly defense-favorable reading of the precedent in excusing Google for ads placed by its advertisers may only reinforce how little Roommates.com changed the law.

#8: AV v. iParadigms. This case was a terrific win for online fair use enthusiasts because the for-profit commercialization of a database of third party copyrighted works was still deemed fair use. The upholding of the contract against the minors forced to enter into it was also significant. Before this ruling, my assumption is that any plaintiff trying to form a class action lawsuit in the face of an adverse user agreement could always form the class on behalf of any minors who had the right to void the contract. This case seems to shut down that loophole in user agreement protection.

#7: Io v. Veoh. The 17 USC 512(c) safe harbor has been law for over a decade and has produced a couple dozen rulings, but few are cleaner and more decisive for the defense than this one. It was a textbook example of a court rejecting the many different arguments plaintiffs make to kick a defendant out of the safe harbor, and as mentioned before, it was a great validation for Veoh's decision to do more than 512 required.

#6: Jacobsen v. Katzer. From a doctrinal standpoint, this case raises really difficult questions about how a copyright consumer can be bound to terms that he/she never "assented" to. Even so, this case had huge implications because it effectively validated that open source licenses can be binding on licensees, giving much more legal credibility to the entire multi-billion open source software industry. However, an odd footnote: on remand, the district court denied an injunction for the plaintiff, raising more issues about what exactly the plaintiff won at the Federal Circuit.

#5: Tiffany v. eBay. A fantastic validation of eBay's practices against a very serious and sympathetic challenger who had plenty of evidence that counterfeit goods were being sold on eBay's site. The case also shows that courts can grow tired of IP owners simply making up their own rules about how online sites should protect them and then suing the sites for breaching these artificial rules.

#4: Mazur v. eBay. A more scary case to 47 USC 230 defense enthusiasts than the Roommates.com opinion. The court says that eBay isn't protected by 230 for some of the marketing representations it makes, even if those representations are rendered untrue by third parties. While this makes a lot of doctrinal sense, it is also a green light for plaintiffs to mine a website's marketing representations as a way to bypass the otherwise-fatal consequences of 230 on a lawsuit triggered by user behavior or content.

#3: Google Book Search settlement. This makes the list for two independent reasons. First, many folks were hoping the case would establish solid precedent on online fair use, and the settlement ended that hope. Second, the proposed Book Rights Registry has the potential to reshape a number of major industries, including the book publishing business, the book retailing industry and the library industry.

#2: the Lori Drew prosecution. I think this may have been the most polarizing Cyberlaw development of 2008, exposing deep divides in people's appetite for punishing bad conduct online. It's hard to assess the overall implications of her conviction because no one rallied to praise Lori Drew's choices, and her case is still a ways from a final legal outcome. However, the possible implications of the case were so complex that it took a special three part series for me to explore its nuances (1, 2, 3).

#1: Cartoon Network v. CSC (the "Cablevision" case). Boy, the more I think about this case, the more important it becomes. The case upends our assumption that if we see it online, it's fixed, creating a new class of unfixed electronic works. Also, the court treats the users, not the service, as making the requisite copies, which reinforces the possibility that online providers can be just "dumb technology providers" for copyright law purposes and reinvigorates the possible defense that a service provider's copying is just done as a proxy for its users. However, the Supreme Court's ambiguous response to the cert petition--not yes, not no, but a request to the Solicitor General for comments--leaves this decision in a precarious position.

Other Developments of Special Note

47 USC 230

* Doe v. MySpace. The Fifth Circuit soundly rejects the argument that MySpace had an obligation to police its “premises.”

* Craigslist. Judge Easterbrook's language in Doe v. GTE had given plaintiffs some hope that the Seventh Circuit would provide a friendly venue to plaintiffs trying to overcome 47 USC 230. Judge Easterbrook may still love his language (which he quoted extensively in the Craigslist ruling), but his practical and no-nonsense ruling for the defense squelches the hope that the Seventh Circuit will become a plaintiff's haven.

* New Jersey's enforcement action against JuicyCampus. State AG offices HATE 47 USC 230.

Affiliate Liability

* Impulse Media. A jury thumped the FTC's overly expansive views of affiliate liability for spam.

* NY v. Direct Revenue. A state judge emphatically rejected the NY AG's office's expansive views of affiliate liability for adware.

Trademarks/Domain Names

* American Airlines' lawsuits against Google and Yahoo. No one I know fully understands why American Airlines sued Google for selling its trademarks for keyword ads. No one I know understands what concessions Google gave to American Airlines to settle the case. And no one I know understands why American Airlines decided to sue Yahoo after procuring the Google settlement. It's all a big mystery.

* NSI's grabbing of domain names in response to WHOIS queries. Is there any better example of ICANN's failings to police domain name retailers than to have one retailer selling a scarce good grabbing the good exclusively (blocking attempted sales by all other retailers) when a customer merely inquires about it?

* Kentucky's attempted seizure of 141 gambling-related domain names. As I wrote before, "Is a domain name property? Yes. See the Sex.com case. Can a plaintiff seize a domain name pursuant to a favorable judgment? Yes. Is it appropriate for Kentucky to seize domain names for gambling websites available in Kentucky? Of course not, because this would effectuate an extraterritorial reach by curtailing non-Kentucky residents from making possibly legal uses of the domain name."

* Eric Menhart, a lawyer who claims to practice Cyberlaw, doesn't know that Cyberlaw is a generic term.

* New gTLDs. Maybe I should reserve this development for 2009...if it happens.

Others

* McCain complains about 512(c)(3) notices taking down his YouTube videos. Surprise! 512(c)(3) notices are unforgiving. Sen. McCain, now that you've had a first-hand taste of their power, maybe you'd like to revisit the statute to see if it's producing the right incentives?

* FCC's bust of Comcast. The pro-regulatory forces were queued up to pounce on any examples where an IAP violated Net Neutrality principles, and Comcast's chicanery in forging reset packets was impossible for anyone to defend.

* NebuAd's flameout. Behavioral ad targeting is in our future unless regulators stop it. NebuAd won't be the winning provider of targeting services, but legislators will keep trying to regulate it further out of existence nonetheless.

Posted by Eric at 05:50 PM | Adware/Spyware , Copyright , Derivative Liability , Domain Names , E-Commerce , Internet History , Licensing/Contracts , Marketing , Publicity/Privacy Rights , Search Engines , Spam , Trademark | TrackBack

February 04, 2009

Online Retailer's Link to House Brand from Manufacturer's Product Page Might Infringe--BabyAge v. Leachco

By Eric Goldman

BabyAge.com, Inc. v. Leachco, Inc., 2009 WL 82552 (M.D. Pa. Jan. 12, 2009). The Justia page.

Welcome to the cutthroat world of pregnancy pillows. Leachco manufactures pregnancy pillows and has a patent on them. BabyAge is an online retailer of baby and maternity goods and sells pregnancy pillows, including Leachco's pillows as well as the "Cozy Comfort," BabyAge's house-branded pillow.

Leachco asserted patent and trademark claims against BabyAge for the Cozy Comfort. The patent claims get tossed on summary judgment.

The trademark claim is based on the fact that BabyAge creates "featured brand" web pages for each manufacturer it carries. (See the current page, although the relevant action was before 2007). This featured brand page contained a "pregnancy pillows" section that had a 200 word narrative educating consumers about pregnancy pillows and informing them of two competitive brands--the Cozy Comfort and another brand. Each of these brand references included a hyperlink to the product page for those pillows. Leachco's brands weren't mentioned in the narrative at all.

Leachco argued that this narrative constituted a "bait and switch" because the Leachco brand lured consumers to the featured brand page, where they were then redirected to these competitive brands. The court conceptualizes this as initial interest confusion. After running through the multi-factor likelihood of consumer confusion test irresolutely, the court denies summary judgment to BabyAge on the trademark infringement claim.

The possibility of BabyAge being liable for the featured brand page is ludicrous for at least three reasons:

1) BabyAge should be protected under the First Sale doctrine for using the Leachco brand in the featured brand page. (Surprisingly, First Sale wasn't mentioned in the opinion at all). Due to the First Sale doctrine, BabyAge is allowed to advertise that it sells Leachco products, which it did. The advertisement does not have to be exclusively for Leachco products, any more than a grocery store does not need to feature only one brand in any particular ad.

2) There is no possibility of "real" consumer confusion. The 200 word narrative is entirely clear that the pillows being discussed are not from Leachco; and any consumer investigating the linked product pages will be even more clear about the distinction. Thus, the only possible confusion is any initial interest confusion (whatever that means) that occurred before reading the narrative...but since the narrative self-corrects any confusion, where is the harm at all?

3) As I discuss in my Brand Spillovers paper, this looks like cyberspace exceptionalism. Offline retailers create these types of multi-brand product adjacencies all the time. As just one example, a retailer may have a dedicated area for a single brand (such as the clothing area of a department store), but there may be placards or signage in that area that inform consumers of other options, or there may be a salesperson assigned to the area who might orally inform consumers of other options. The signage or salesperson communications not only aren't trademark infringement (initial interest confusion or otherwise), but (as evidenced by the complete lack of cases making such arguments) it would never occur to most trademark owners that they might sue the retailer for this "bait-and-switch." Yet, somehow, when the signage and product information is all digital, suddenly consumers now might be bait-and-switched. Huh? As my Brand Spillovers paper explains, this is both doctrinally wrong and potentially detrimental to consumer search costs.

Posted by Eric at 08:48 AM | E-Commerce , Trademark | TrackBack

January 22, 2009

Brand Spillovers Article Now Available

By Eric Goldman

I have finally posted my article, Brand Spillovers, to SSRN. It will be published in the Harvard Journal of Law & Technology later this year. I have blogged about this project several times over the past 4 years, but for most of you, this is your first public opportunity to read the article in full. Please take a look!

This article has been in the works nearly 5 years, so a few words about this project. It started with my Deregulating Relevancy article. While writing that in 2004, I had a few paragraphs regarding the analogies between retailer shelf adjacency and keyword triggering--a popular meme then, and one that still gets used a lot. I ultimately removed most of that discussion from the draft and set it aside to explore in a separate paper. I initially conceptualized the paper about the role of physical and temporal adjacencies in trademark law, and I presented on that topic at Law & Society Association in May 2005. (See my slides from 2005).

After several drafts, many presentations and lots of very helpful comments, the paper has evolved substantially. The paper now explores the analogy between shelf adjacencies and keyword triggering in careful detail, explaining why the analogy is legally and factually complicated but also useful. My hope is that the paper will become the key reference any time anyone in the future wants to make that analogy.

Also, the paper is one of the few articles that analyzes the unique role of retailers in trademark infringement lawsuits. My research suggests that retailers are universally ignored by trademark lawyers, judges and regulators, even though retailers do a lot of things with third party trademarks that look actionable. I've thought a lot about this over the past 5 years, and I keep coming back to the unavoidable conclusion that trademark plaintiffs seem to be erring by not suing more retailers even in manufacturer-vs-manufacturer lawsuits. The paper tries to explain why retailers get a free pass nonetheless, but if you have alternative explanations after reading my attempts, I would be extremely grateful.

Finally, this paper is noteworthy because it is the last stop in a multi-year project on how trademark law can damage the Internet. Other papers in the series include Deregulating Relevancy, Online Word of Mouth (which also was a branch-off of the Deregulating Relevancy article) and, to a lesser extent, a Coasean Analysis of Marketing. I'm still interested in Internet trademark law, but next few projects are going to focus on other topics. The next article in queue is a short essay detailing why Wikipedia will fail. After that, I will be focusing on my Economics of Reputational Information project, which I expect to be working on over the next couple of years, and a big stealth project.

In any case, the Brand Spillovers paper remains a draft, and I have limited opportunities to make changes. Accordingly, I gratefully welcome any comments you have.

The abstract:

This Article considers the spillover effects of trademarks—in particular, “brand spillovers,” which occur when consumer interest in a trademark increases the profits of third parties who do not own the trademark. Using techniques such as loss leaders and shelf space adjacency, retailers routinely create brand spillovers for their profit, and trademark law generally has not restricted these activities. Online intermediaries, such as search engines, also create and profit from brand spillovers by selling manufacturers’ trademarks for advertising purposes (“keyword triggering”). However, in contrast to retailer practices, keyword triggering has sparked a heated and irresolute battle over its legitimacy under trademark law. By drawing lessons from retailers’ experiences with brand spillovers and through an analysis of the ways intermediaries can add value to consumers, this Article offers a new way to resolve the keyword triggering debate. The Article proposes that all intermediaries—including both retailers and online intermediaries—should be permitted to use brand spillovers as part of their effort to reduce consumer search costs, even if the intermediaries profit from the brand spillovers along the way.

Posted by Eric at 09:57 AM | Derivative Liability , E-Commerce , Marketing , Search Engines , Trademark | TrackBack

January 15, 2009

Cautionary Tale of Website Co-Ownership--Mikhlyn v. Bove

By Eric Goldman

Mikhlyn v. Bove, 2008 WL 4610304 (E.D.N.Y. Oct. 15, 2008). The Justia page.

In my Co-Blogging Law article, I discussed the potentially ugly legal consequences of "blog divorces" when co-bloggers fall out of love with each other and start fighting. I wrote:

Whether a limited liability entity or a private agreement is the better choice depends on the bloggers’ specific circumstances and goals. However, either choice is preferable to co-bloggers doing nothing proactive to override the default rules.

When I wrote the article in 2005, I didn't have any dramatic examples of how bloggers got screwed by the default rules, nor I was able to say with confidence exactly how a judge would resolve a blog divorce. I still don't know the latter, but if I were writing the article today, I would discuss Mikhlyn v. Bove as the cautionary tale. The case involves an e-commerce website divorce that involves cousins, embroidery, alleged drug use, a scramble for website passwords, and the current denouement, a hailstorm of litigation (with both groups suing each other for about a dozen causes of action each) that will surely cost each side more than the business was ever worth. If you are a co-blogger or a co-operator of a website and you don't have a documented exit strategy, take note!

(Please note that the parties contest just about every fact, so my recitation of what happened is based on the court's opinion as best as I could read it, and I've omitted a lot. You have to read the whole opinion if you want the complete story).

This case reinforces the maxim that you should never do business with family members. The case involves Israeli neighbors Ana and Polina (Group 1), who in 2002 established an e-commerce business selling embroidery designs through eBay and their website. The business ultimately expanded to include embroidery supplies in addition to designs. Over time, Ana's cousin-in-law Inga and cousin Vadim, both from Brooklyn, got involved in the business (Group 2). Group 1 says they hired Group 2 as employees; Group 2 says that Groups 1 and 2 were all partners in the venture. Uh oh.

It sounds like business did well financially for a while. Then the relationships turned south in 2007 and into 2008. Ana relocated from Israel and moved in with Inga and Vadim, but they allege Ana started abusing drugs and scaring the kids, which may have prompted them to kick Ana out of the house. Starting in Spring 2008, the parties brought in the lawyers, thus commencing the formal legal fight over the venture's assets. And it turns out there were a fair number of assets to fight over, including several websites under the "ABC" brand (including domain names and the website design/text--Ana obtained a (contested, of course) copyright registration for the latter), an eBay storefront, a registered trademark in "ThreaDelight" (held in the name of all four parties), embroidery designs by Ana (but no copyright registrations in them), and various trademark rights in the name "Anna Bove" (note 2 "N"s instead of 1).

Ana brought an unsuccessful UDRP to get the ABC-based domain names. However, because co-defendant Polina was the listed owner for some of the domain names, Ana was able to assume technical control over those domain names. Doing so apparently split the technological empire, such that Group 2 is running certain websites and Ana or Group 1 is running other websites. This is an unstable allocation of the business, so in August, Group 2 sued Group 1, which prompted counterclaims from Group 1.

What a mess. WHAT A MESS!

Just how messy is it? Check out how the court resolves the partnership v. employees dispute at the core of the lawsuit. The court says that Groups 1 and 2 were neither partners nor employer-employee. OK...so what were they? I don't know, and the court doesn't seem to know either, but it hypothesizes--without concluding--that the parties may co-own certain copyrights and trademarks of the venture. As I explain in my Co-Blogging article, IP co-ownership can come with numerous unexpected pitfalls, so I suspect no one is happy with the co-ownership resolution. Ugh.

Ana also tried to stop Group 2 from using her name (the modified "Anna Bove" mark) as part of their business. The court rejects the effort, saying that both groups have been using the Anna Bove mark in parallel with each other for a number of years, and thus Ana's claim is barred by acquiescence or laches. Accordingly, it looks like Ana has effectively lost control over her own name because Group 2 can continue to operate an "Anna Bove" business that she can't stop or restrict. Double ugh.

As should be obvious, the current resolution is complex, ugly and unsatisfying to everyone. The good news is that the parties are going to mediation. Maybe they can do some horse-trading and find a mutually improved outcome than the one the court's opinion leaves them in. If mediation doesn't work out, I could see the groups being locked in a death struggle where no one other than the lawyers emerges with anything of value.

I'm sure the parties wish they could go back in time and make a nice, clean agreement documenting their relationship that would avoid all of this heartache. If you are a co-blogger or co-operator of a website without such an arrangement, what are waiting for?

Posted by Eric at 11:06 AM | Copyright , E-Commerce , Trademark | TrackBack

October 14, 2008

September 2008 Quick Links, Part 3

By Eric Goldman

eBay

* Universal Grading Service v. eBay, Inc. More fallout from the National Numismatic v. eBay case--another lawsuit alleging antitrust and defamation because eBay designated some coin rating services as preferred and impliedly devalued others.

* Windsor Auctions v. eBay has been refiled in a new jurisdiction.

* Mehmet v. Paypal, Inc., 2008 WL 3495541 (N.D. Cal. Aug. 12, 2008). Upholding the consequential damages waiver in PayPal’s user agreement.

* A company's failure in the marketplace can drive up the value of its collectibles on eBay.

Google

* Stelor Productions, Inc. v. Google, Inc., 2008 WL 4218107 (S.D. Fla. Sept. 15, 2008). In the lawsuit alleging that Google causes reverse confusion of Googles.com [warning: annoying music ahead], the plaintiff doesn't get to depose Sergey or Larry yet. Rose Hagan, Google’s long-time chief trademark counsel, is the lucky substitute.

* Lots of rhetoric in the Google/Yahoo ad syndication deal. Google’s advocacy website. Google Chief Economist Hal Varian explains why the deal won’t raise ad prices in the auction. Randall Stross weighs in.

* Google has changed course and now allows religious groups to advertise on the keyword “abortion.”

* Kubit v. Google Groups, 2:2008cv00738 (M.D. Fla. complaint filed Sept. 29, 2008):

I then would like to sue Google Groups for not removing the posts when I repeatedly asked them to for 2 years. I believe I am entitled to at least a small amount of compensation for the emotional distress and lost business income that has resulted from them allowing these posts to remain on their Google Groups, even though I offered them VERY solid proof that I do not have HIV. If they had stopped the posts when they first occurred, they would not have proliferated to hundreds of websites. I became suicidal for a period of time after the posts started. I incurred a lot of emotional pain and fear because of the posts and had to seek psychiatric and psychological help to get my life back together. I still suffer from fears of dating, living a public business life and trusting others.

Yes, this is a pro se complaint. Yes, it is preempted by 47 USC 230.

Marketing/Advertising

* NebuAd is dead (1, 2). Even so, the lure of intermediaries aggregating deep data about consumers for commercial purposes will never die.

* Is Gator/Claria dead?

* The EU passed a non-binding resolution against sexual stereotypes in advertising.

* Celebrity branded merchandise run amok.

Miscellaneous

* Valleywag: "The 5 most laughable terms of service on the Net." For more laughs, see Mark Lemley’s Terms of Use paper.

* Murakowski v. University of Delaware, 2008 WL 4104087 (D. Del. Sept. 4, 2008). This reminded me a lot of the Jake Baker case from the mid-1990s.

* The Virginia Supreme Court reversed itself on the Jaynes anti-spam prosecution, and Jaynes walks. Does Virginia routinely pass unconstitutional laws?

* Becker v. Toca, 2008 WL 4443050 (E.D. La. Sept. 26, 2008). Ex-wife's alleged delivery of "Infostealer" program to grab passwords from ex-husband could violate the ECPA, SCA and CFAA.

* Interesting article on ESPN’s exclusive distribution and bundling agreements with Internet access providers.

* Funniest law firm names.

* Silly? Horrifying? A sign of the apocalypse?

Posted by Eric at 06:17 PM | Adware/Spyware , Content Regulation , Derivative Liability , E-Commerce , Internet History , Licensing/Contracts , Marketing , Privacy/Security , Search Engines , Spam | TrackBack

July 16, 2008

eBay Denied 230(c)(2) Defense Over Counterfeit Coin Policing

By Eric Goldman

National Numismatic Certification, LLC. v. eBay, Inc., 2008 WL 2704404 (M.D. Fla. July 8, 2008)

This is the fourth time in a week that I'm blogging about an eBay lawsuit (see the Windsor Auctions, Tiffany and StubHub postings). There must be something in the water.

I'm a little confused by the facts in this case (the opinion isn't a model of clarity), but let me see if I can boil it down. In 2007, eBay decided to clean up its coins category by adopting a policy that sellers could designate their coins as "certified" only if they used one of four approved rating services. (Sellers can still advertise a designation under other rating services under some conditions but can't use the word "certified"). If a seller violates this rule, then eBay will take down its listing and send an email with the subject line "eBay Listing Removed: Counterfeit Currency and Stamps." Needless to say, some of the rival coin rating services are miffed because eBay sellers now won't want to use their services; and the rival services think that sellers will infer from the subject line that using these alternative services mean that their coins are counterfeit, which also isn't good for repeat business. This prompted the rival services to sue eBay and others for trade libel (and conspiracy thereof) and unfair/deceptive trade practices.

The court dismisses the case with leave to amend, but it refuses to dismiss eBay based on 47 USC 230(c)(2), the comparatively lightly litigated immunization for filtering decisions (most cases interpret 230(c)(1)). Putatively the statute could apply here because eBay adopted its certified coin policy and endorsed specific rating services to hinder the sale of counterfeit coins, so eBay's policy filters out seller-supplied advertising of unwanted products. However, the court rejects eBay's 230(c)(2) defense for two reasons:

1) The statute requires eBay to make "good faith" decisions. eBay says it acted in good faith, but the plaintiffs allege otherwise. The court says this can't be resolved on a motion to dismiss.

2) The statute enumerates a list of appropriate bases for filtering, including a determination that the filtered content is "otherwise objectionable." eBay says ads for counterfeited coins are objectionable. The court, applying the statutory interpretation principle of "ejusdem generis," says that the term "objectionable" has to be read in the context of the previous adjectives in the list, which relate to porn and "bad" content. As a result, eBay's efforts to stretch the word "objectionable" to cover counterfeit coin ads goes too far.

I think the court got it wrong on both fronts. Most frustratingly, the court didn't cite to the directly relevant precedent that it should have had little trouble finding. In a footnote, it says the only 230 case it found interpreting "objectionable" was the Langdon case, which was also a defense win on a motion to dismiss, but that case didn't sway this judge because the holding fit well with the statutorily enumerated basis of filtering for "harassing" content. Unfortunately, though, the court overlooked two other directly relevant 230(c)(2) opinions:

* the Zango v. Kaspersky lawsuit, where the court reached opposite conclusions on both the "good faith" and "objectionable" standards and granted a motion to dismiss. The Zango case is on appeal to the Ninth Circuit, and Zango made a big point in its briefs about ejusdem generis. I assume their lawyers will submit this case to the Ninth Circuit for its supplemental consideration.

* the e360Insight v. Comcast case, which agreed with the Zango case that any good faith requirement in the statute was subjective, not objective, and also granted the motion to dismiss on that basis.

Based on these two cases, the court could have (and IMO should have) required the plaintiffs to allege that eBay had no subjective basis to believe that the targeted listings were objectionable, which plaintiffs typically can't do (at least, not in compliance with Rule 11) without discovery. So this should have been an easy dismissal for eBay.

While I think the court muffed it, I would also note that eBay's decision to implicitly call a mischaracterized coin auction as violative of its "counterfeit" policy is a little confusing to me. There was probably a better way to word its communication to sellers. As a result, I think this ruling dovetails nicely with the Mazur case, where a different court also found that 230 didn't protect eBay for the words it selected to describe third party behavior. Once again, this case reminds us that a website may own the words it chooses even if they characterize or describe third party behavior.

Posted by Eric at 04:31 PM | Derivative Liability , E-Commerce | TrackBack

July 10, 2008

eBay Not Bound By Robinson-Patman Act--Windsor Auctions v. eBay

By Eric Goldman

Windsor Auctions, Inc. v. eBay, Inc., 2008 WL 2622791 (N.D. Cal. July 1, 2008)

The Robinson-Patman Act is a Depression-era law designed to reduce the ability of manufacturers to engage in price discrimination. At the time, large buyers (such as newly emerging chain retailers) were consolidating so much buying power that they were able to strongarm manufacturers into deals that were arguably unfair to the manufacturers and competitive but smaller retailers. The Robinson-Patman Act putatively tries to prevent these buyers from engaging in "predatory" buying prices by forcing the manufacturer to sell its goods at the same price to all similarly situated buyers. Prof. Paul Stancil published a nice summary of the law in Business Law Today in 2004.

I'm skeptical about the justifications for this law in the context of the Depression, but I'm crystal-clear about its validity today. In the modern age, the law has become farcically anachronistic, and I'm not sure I've ever met a single person who thinks the law is still a good idea. In practice, the Robinson-Patman Act is one of those obscure laws that typically arises only as a "gotcha" claim against defendants who don't know better or inadvertently run afoul of its technical provisions while engaged in normal commercial decision-making. There's certainly little evidence that the law actually improves competition or the marketplace.

In the case du jour, the plaintiff sells jewelry through eBay's live auction. (It looks like Live Auction is turning into quite the lawsuit trap for eBay; see my most recent blog post about it). Windsor sold nearly $1.5M in merchandise through the site in 2005 and 2006. Windsor thought sales would double in 2007 but instead realized that its sales were decreasing. Windsor alleges that eBay gave a competitive jewelry vendor, Molayem, better listing tools than provided to Windsor, and these tools allowed Molayem's listings to get more prominent placement in eBay's interfaces than Windsor's listings. Windsor claims that eBay's differential treatment between Windsor and Molayem violated, among other things, the Robinson-Patman Act.

The court dismisses the Robinson-Patman Act claim because eBay is not providing "commodities" under the act. The act, like many others, distinguishes between goods (covered) and services (not covered). At its core, eBay's relationship with its sellers is a service relationship of providing promotional/advertising services. Windsor tries to get around this by arguing that the software tools eBay provides its sellers ("Mr. Lister"/"Turbo Lister" and the "Batch Uploading Tool") and its documentation manuals are goods. This argument is not totally ridiculous; indeed, software is routinely treated as a "good" for purposes of UCC Article 2. However, even if true, the software is just a bit part of an overall service relationship, so the court rightly rejects the Robinson-Patman Act without leave to amend. However, the case isn't entirely over, as the court left open a claim for breach of the implied covenant of good faith and fair dealing.

I think this case is closely related to the search engine bias cases such as KinderStart v. Google. A website/search engine's decisions about what content to highlight (and, by implication, what not to showcase) can have dramatic effects on both consumers and vendors--to the tune of $1.5M in perceived foregone revenues in Windsor's case. The Robinson-Patman Act was a pretty feeble legal tool to challenge a website's interface decisions, but given the cash and emotions at stake, I'm sure plaintiffs will think creatively about other legal doctrines in their quest for recourse.

Posted by Eric at 03:00 PM | E-Commerce , Licensing/Contracts | TrackBack

July 01, 2008

June 2008 Quick Links

By Eric Goldman

Trademarks/Domain Names

* Utah Lighthouse Ministry v. Foundation for Apologetic Information and Research, 2008 WL 22043807 (10th Cir. May 29, 2008). CMLP writeup. Nice 10th Circuit win for a gripe site against trademark infringement and cybersquatting. This case, plus the SKI VAIL case, indicate that the 10th circuit is making progress undoing the harm it created in the Australian Gold v. Hatfield case.

* Georgia has a new anti-phishing law (16-9-109.1) that acts as a para-trademark law. See my comments on the analogous California anti-phishing law.

* After initiating a trademark lawsuit against a consumer review site and soundly losing in court, Lifestyle Lift paid $17,500 to settle its own lawsuit and avoid claims for legal fees under Rule 11 and the Lanham Act.

* Marty reports on a German case saying that white-text-on-a-white-background is a trademark use.

* Update on the battle over the trademark registration for "SEO."

* Will TLD proliferation lead to a new open era in domain name administration, or will the resulting anarchy just reinforce that top search engine placement is the really important online real estate? It seems like the currently limited number of TLDs has some benefits from a bounded rationality standpoint, and those benefits will be lost in a cacophony of unknown TLDs.

Patents

* My colleague Colleen Chien has posted "Patently Protectionist? An Empirical Analysis of Patent Cases at the International Trade Commission" (forthcoming William & Mary Law Review). She empirically demonstrates that the ITC mostly involves disputes between two domestic litigants, making it a redundant battleground with federal district court but nevertheless an attractive venue for plaintiffs due to a number of procedural advantages. She makes a number of recommendations to eliminate the litigation gamesmanship offered by having parallel venues. Check it out.

Search Engines

* Udi Manber, chief algorithm keeper for Google, reiterates why it's silly for lawyers and judges to put too much legal emphasis on the relative placement of search engine results, saying "it's definitely the case that if you do the same search on a different cluster, you may get slightly different results at a given time. It's also the case that if you do the same search on different days you may get different results, because some of the results are things we indexed five minutes ago."

(Over)Regulation

* In response to an enforcement effort by the NY AG's office, several Internet access providers have blocked access to newsgroups that are putatively sources of child pornography. See the NYT story and the NY AG press release. In practice, this means wholesale takedowns of newsgroups that may have nothing to do with child porn. For example, Verizon is killing all USENET hierarchies except comp.*, misc.*, news.*, rec.*, sci.*, soc.*, and talk.*. Wired suggests this is the death of online intermediary freedom as conceptualized in 47 USC 230. Of course, 230 never protected intermediaries from criminal exposure for child porn, and this isn't the first time that an access provider has knuckled under to the NY AG's office. See the BuffNet enforcement action from 2001.

* Ohm, Paul. The myth of the superuser: fear, risk, and harm online. 41 UC Davis L. Rev. 1327-1402 (2008). A neat article on how regulators manufacture a fake bogeyman, the unbeatable "superuser," as a justification for expansive regulatory power.

* No evidence that data breach disclosure laws actually help reduce identity theft. Surprised?

* The FTC wants civil enforcement authority for spyware actions. Haven't they heard that the adware battle is already over...and they won?

Contracts

* Mark Radcliffe expresses concern about the ALI's proposed software licensing project on open source licenses.

* Sarah Bird on a messy contract lawsuit involving an SEO contractor.

Anonymity

* Tendler v. www.jewishsurvivors.blogspot.com, 2008 WL 2352497 (Cal. App. Ct. June 10, 2008). A subpoena request to identify a blogger doesn't support an anti-SLAPP cause of action.

* In the AutoAdmit lawsuit, Doe 21's motions to squash the subpoena and proceed anonymously were both denied. David Hoffman provides an update on the case.

Event Tickets

* Chicago has moved against eBay for reselling tickets in violation of its amusement tax law.

* The Ticketmaster v. RMG case ended with a default judgment granting a permanent injunction and $18.2M in damages.

General

* Vanity Fair: How the Web Was Won.

* Paul Levy blogs about a plaintiff's effort to bypass 230 by suing the authors of complaints about the vendor and then joining the consumer complaint site as a necessary party as a cost-increasing tactic.

* BusinessWeek on emerging technological tools to protect workers' attention against unwanted/untimely interruptions.

* Text message-savvy kids educate the North Carolina DMV about the meaning of the term "WTF," which was used on a license plate example on the DMV's website.

* I have one free pass to OMMA Behavioral in San Francisco July 21. First person to send me an email asking for the pass gets it.

Posted by Eric at 12:32 PM | Adware/Spyware , Content Regulation , Derivative Liability , Domain Names , E-Commerce , Internet History , Licensing/Contracts , Marketing , Patents , Privacy/Security , Search Engines , Trademark | TrackBack

June 05, 2008

Keyword Metatags and Keyword-Triggered Ads Don't Create Initial Interest Confusion--Designer Skin v. S&L Vitamins

By Eric Goldman

Designer Skin, LLC v. S & L Vitamins, Inc., 2008 WL 2116646 (D. Ariz. May 20, 2008)

An Arizona district court has ruled that the surreptitious use of trademarks doesn't create a likelihood of initial interest confusion, granting summary judgment on the trademark claims to the defendant.

This case is another enforcement action brought by a manufacturer trying to keep its goods from leaking out of its restricted channel and being sold on the Internet. For other lawsuits along this line, see Australian Gold v. Hatfield, S&L Vitamins v. Australian Gold (yes, the same S&L...and the same lawyer) and Standard Process v. Banks. The plaintiff tries the typical arsenal of claims to control the independent online retailer, including trademark infringement and dilution, copyright infringement for displaying product shots, interference with contract and other related claims.

Trademark Infringement

With respect to trademark infringement, the plaintiff only complained about the surreptitious trademark uses in the keyword metatags and in keyword advertising, not any uses visible to consumers. The plaintiffs argued that these surreptitious uses created initial interest confusion (the discussion skips over the trademark use in commerce question). As I've said repeatedly, no one really knows what initial interest confusion means or how to develop a doctrinally rigorous test for measuring it, so every court makes up its own definition. This court's manufactured definition anchors initial interest confusion in "deception." This is consistent with the general Seventh Circuit articulation of initial interest confusion (although the 7th Circuit doesn't understand initial interest confusion any better than the other circuits), and the court cites to the 7th Circuit Dorr-Oliver case. However, the court partially breaks with some of the controlling Ninth Circuit jurisprudence, which in Brookfield rooted the doctrine in attention diversion, not deception.

By grounding initial interest confusion in deception, it makes the doctrine easy to apply in this case. S&L Vitamins didn't deceive consumers--it was selling legitimate goods and accurately describing this fact. The case has some odd discussion about the possible inherent deception if S&L Vitamins ranked well in the organic search results, but the court rejects this line of thinking, saying anyone confused by good search engine placement on a competitor's trademark will be the "naive few" because S&L operated under a distinguishable domain name. This is the right result but the wrong reasoning--for the right reasoning, see here.

Instead of thinking that keyword metatags and ads creates deception, the court sees them as information-enhancing, thus getting the point that the goal is to match interested consumers with willing vendors:

In contrast to the deceptive conduct that forms the basis of a finding of initial interest confusion, S & L Vitamins uses Designer Skin’s marks to truthfully inform internet searchers where they can find Designer Skin’s products. Rather than deceive customers into visiting their websites, this use truthfully informs customers of the contents of those sites. Indeed, in practical effect S & L Vitamins invites Designer Skin’s customers to purchase Designer Skin’s products. The fact that these customers will have the opportunity to purchase competing products when they arrive at S & L Vitamins’ sites is irrelevant. The customers searching for Designer Skin’s products find exactly what they are looking for when they arrive at these sites. S & L Vitamins is not deceiving consumers in any way.

Bingo! Summary judgment for S&L Vitamins.

Even though this IIC-qua-deception meme is generally consistent with 7th Circuit law, this result appears to be directly contrary to the uncited 7th Circuit Promatek v. Equitrac case, where the court waffled on whether keyword metatags were inherently deceptive, even when used by a legitimate provider of services for the trademarked good.

More importantly, this result also runs directly contrary to the 2006 10th Circuit Australian Gold case, which found that keyword metatags in a virtually identical situation (unauthorized seller of leaked legitimate goods) constituted initial interest confusion. The court acknowledges this conflict but dismisses the 10th Circuit case as "unpersuasive" because the mark usage is designed to attract consumers to the trademark owner's actual goods. From my perspective, this is more evidence that courts are not following the Australian Gold v. Hatfield precedent--the most obvious example being the 10th Circuit's own Ski Vail case, which took a big chunk out of the Hatfield precedent. I know plaintiffs love citing the Hatfield precedent, but it's becoming increasingly less credible to do so.

Trademark Dilution

Given the more rigorous requirements for fame post-TDRA, it seems like many manufacturers who tightly control their channel and restrict Internet sales may inherently have a problem establishing fame. Perhaps I'm not part of the target audience, but I had never heard of Designer Skin products before.

The court doesn't get into the fame issue, instead granting summary judgment to S&L based on the nominative use defense because all of S&L's trademark uses refer to the plaintiff's trademark. I'd have to do some research to confirm this, but I believe this is one of the first (if not the first) post-TDRA cases dismissing a dilution claim on nominative use grounds. Personally, I think S&L's usage neatly fits my characterization as a "commercial referential trademark use," but it's great to see a court get the point, whatever terms it uses to describe the behavior. The court also (correctly, IMO) says that a commercial referential trademark use effectively can't cause a likelihood of dilution because it's neither blurring (there's no new definition) nor tarnishing (it's an accurate reference).

Copyright Infringement

Designer Skin complained that S&L copied the photos posted to its website. S&L claims that it simply recreated the product shots independently. This factual dispute is enough to prevent SJ. Patry believes that 17 USC 113(c) should have protected S&L here, but as Rebecca explains very well, 113(c) may not be germane--Designer Skin admitted that S&L could recreate its own shots if it wants to (see FN9 of the opinion), so the only question is whether the photos actually displayed on S&L's site were independently created.

If S&L snatched the photos from Designer Skin's website, then the court says republishing those would not be a fair use. I think this is probably right, although it's rather silly from a social welfare perspective to make people recreate product shots when invariably they will look effectively the same, and certainly the manufacturer isn't going to stop producing product shots simply because legitimate downstream retailers "free ride" on that investment. Rebecca has more to say about the fair use discussion.

Other Claims

The court dismisses the interference with contract claim and S&L's unfair competition claim, but it preserved Designer Skin's unfair competition claim (which, as Rebecca rightly points out, should be preempted by copyright's preemption clause).

Conclusion

As I've said before, I don't understand why plaintiffs try to control their channel so tightly to preclude Internet sales. I mean, I get the fact that they are trying to increase profits by reducing retailer competition, but those efforts will pay off only in the short run at best. Time to develop a new business model! Meanwhile, courts are realizing that they are being asked to facilitate anti-competitive practices, and wisely they are balking. Thus, a case like this illustrates that a judge will find limits to the initial interest confusion doctrine (a doctrine that otherwise has no natural doctrinal limits) and interpose pro-competitive defenses to trademark dilution.

Posted by Eric at 10:49 AM | E-Commerce , Search Engines , Trademark | TrackBack

March 23, 2008

Adwords Ad Creates Initial Interest Confusion--Storus v. Aroa

By Eric Goldman

Storus Corp. v. Aroa Marketing Inc., 2008 WL 449835 (N.D. Cal. Feb. 15, 2008).

(Sorry for my delay blogging this one).

A federal district court has held that displaying a competitor's trademark in Adwords ad copy constitutes impermissible initial interest confusion, leading to a summary judgment win for the trademark owner. This is one of the first competitor-vs.-competitor search advertising cases where the plaintiff has won the trademark claims. This case also has an interesting and rare discussion about the trademark implications of a retailer’s internal search engine.

Claims Against Aroa

Storus distributes money clips under the trademark "smart money clips." Storus was able to get a federal registration for the mark, which is interesting because I’d love to see the showing of secondary meaning. Given the registration, Aroa instead tries to knock out "smart" as a laudatory phrase, but the court isn't convinced. Thus, the court permits Storus to proceed with a pathetic descriptive mark.

Aroa sells competitive money clips. Through Adwords, it purchased the keyword "smart money clip" to display the following ad:

Smart Money Clip

www.steinhausenonline.com Elegant Steinhausen accessories. Perfect to add to any collection.

Per Google's standard formatting, the trademark shows up bold and underlined, which the court says overshadows Aroa’s display of its own trademarks in the ad copy. The court also invokes initial interest confusion (as part of the Ninth Circuit's inconsistently invoked "Internet trilogy" likelihood of consumer confusion analysis) and notes that "defendants offer no evidence to show a lack of actual initial interest confusion." Summary judgment for plaintiff.

Claims Against Skymall

Skymall is an online retailer of Aroa products. Storus alleges that Skymall included the term "smart money clip" on Aroa product pages, which meant that if a person searched for "smart money clip" in Skymall's internal search engine, Aroa's products would appear in the search results. Storus portrayed this as initial interest confusion, but the court wasn't persuaded enough to grant summary judgment. Instead, the court observes that "a page offering an Aroa money clip will appear as a search result solely because the consumer searches using the phrase “money clip,” irrespective of whether the consumer adds the word “smart” to the search term and irrespective of whether the page contains the word “smart.”" Isn't it amazing that a page containing the phrase "smart money clip" would also appear for a search on "money clip"?!

Implications

On the surface, this case looks problematic for the search advertising industry. Any time a search advertising practice is deemed infringing, it should promptly eliminate all similar ads from other advertisers, taking a chunk of revenues out of search engine pockets. Further, when advertisers are liable for trademark infringement, it increases the risk that search engines will be contributorily liable for those infringing ads.

Yet, Aroa’s practices here (displaying a competitor’s trademark in the ad copy) are already restricted by all of the search engine trademark policies. Therefore, this ruling shouldn’t reduce much ad revenue for search engines.

But that raises the obvious question: why didn't Storus just invoke these search engine policies to shut down Aroa? As Dennis Toeppen might have said, perhaps Storus' lawyer wanted a new boat, because this trademark lawsuit made absolutely no financial sense for Storus. The court determines that over 11 months Aroa got 1,374 clicks on its ads (from 36,164 ad impressions, yielding a 3.7% clickthrough rate--not bad). If we value each click at $1/click (a generous amount given that Aroa sells its money clip for $30), Storus could have acquired the "diverted" clicks for $1,374--an amount that is surely no more than 5% (and perhaps even less than 1%) of what Storus spent in this lawsuit. Smart business decision there, guys.

Doctrinally, this case is a textbook example of how the initial interest confusion doctrine is completely bogus. As I’ve said before, a defendant cannot mount an adequate defense against the initial interest confusion doctrine because the doctrine lacks any rigorous definition or normative support in the first place. The defense challenge is especially problematic where, as here, a court improperly puts the burden on the defendant to disprove that consumers experienced initial interest confusion. Exactly what proof would satisfy the court here? I can’t answer this and I bet the court couldn’t either, and I can go further and assert that evidence to disprove initial interest confusion simply does not exist at all.

This court also unfortunately buys into the tired and outdated syllogism that every click on Aroa’s ad was a “diverted” consumer. As I’ve explained here, this massively overstates the quantum of “diversion” (whatever that means) because we don’t know what consumers expected to find when they entered the search term “smart money clip.” The low general risk of diversion is even lower here because consumers saw Aroa’s trademarks in the ad copy, further reducing the risk that anyone was confused by the time they decided to click on the ad.

Other comments on this case:
* Thomas O'Toole
* Tech LawForum
* IP Law Observer
* Las Vegas Trademark Attorney

Posted by Eric at 10:05 PM | E-Commerce , Search Engines , Trademark | TrackBack

March 13, 2008

eBay Denied 230 Defense for Its Marketing Representations--Mazur v. eBay

By Eric Goldman

Mazur v. eBay Inc., 2008 WL 618988 (N.D. Cal. March 4, 2008)

I declared Monday "47 USC 230 Day" here at the Technology & Marketing Law Blog, but with this new case, I'm declaring it 47 USC 230 Week. This case explores one of the frontiers of 47 USC 230 jurisprudence--when can 230 preempt a claim that a website made false marketing representations? This issue has been lurking in numerous recent 47 USC 230, but it arises squarely here. Unfortunately, the legal analysis isn't clean or easy.

eBay offers its users the ability to engage in "live bidding" (i.e., bidding via the Internet on auctions taking place in physical space) through third party vendors. eBay's marketing materials described these vendors as "safe" and "carefully-screened, reputable international auction houses" and that the bidding was against "floor bidders" (i.e., people bidding on the physical floor of the auction). The plaintiff claims that instead shill bidders at the auctions caused her to overpay. eBay defends against the claims based on 230 because any falsity introduced into its statements was attributable to the actions of third party vendors.

Judge Patel found that 230 helped eBay in a number of respects:

* "to the extent plaintiff seeks to hold eBay liable for information provided by [a third party vendor], eBay is immune from liability".
* "plaintiff’s assertion that eBay knew of the seller’s illegal conduct and failed to prevent it is nevertheless under the ambit of section 230"
* "eBay’s assertion that the auction houses were screened is not actionable" because the screening is an editorial function [note: I'm not sure screening vendors for quality is really an editorial function in the traditional sense. Perhaps this particular issue would have been more appropriately handled under 230(c)(2)?]

At the same time, the court says that three other statements at issue--that live bidding is "safe," is conducted against "floor bidders" and involves "international" auction houses--are not preempted by 230. In doing so, the court distinguishes several cases, including:

* the Gentry case (involving eBay's liability for fake sports memorabilia) because eBay's communications there were distilled from user-supplied feedback
* the SexSearch case (where the site claimed its users were 18+ but a minor lied about her age) because the marketing claims "were merely a regurgitation of its users’ representations" whereas here, apparently eBay made no regurgitations
* the infoUSA case (where infoUSA said that it verified data in its database) and the Barnes case (where Yahoo failed to take down bogus user profiles) because each involved the accuracy of data, while this case involves the promise of safety. [Note: I think the court makes a rather fine distinction here. Clearly the word "safe" means something special to this judge: "eBay’s statement regarding safety affects and creates an expectation regarding the procedures and manner in which the auction is conducted and consequently goes beyond traditional editorial discretion."]

The court doesn't discuss the Accusearch case, which seemed like the most analogous case to me. That case involved a vendor's resale of illicit phone records that were procured by third parties via pretexting, and the court held that 230 didn't protect the vendor even though the underlying asset being sold was information from a third party. The Accusearch opinion doesn't directly hold the vendor responsible for marketing these illicit records as legitimate, but that would be a fair way to read the opinion. The court also could have cited (but didn't) the CafePress opinion, which also involved a 230 denial for a website selling tortious third party goods.

So, what does all of this mean? The bad news is that this case seems to open up a major bypass to 230 for plaintiffs. They don't need to sue a website for a third party-caused tort by asserting the prima facie tort against the website; instead, following the "logic" in this opinion, all a plaintiff needs to do is find that the website made a marketing representation somewhere that says or implies the tort wouldn't occur, and the claim for bad marketing should be outside 230's coverage. [Note: I understand that's not exactly what Patel said because she did reject the claims for eBay's marketing representation about screening. But the claim over "safety" fits this pattern neatly.]

On the other hand, I'm not sure this case reached the wrong result. Assume for a moment that per 230, eBay isn't liable for the marketing claim that its vendors are "safe." This seemingly would mean that eBay could freely make such claims, true or not, reap the economic benefits from consumer choices driven by those claims, and yet completely avoid liability. I don't think 230 should provide a free pass for commercial misrepresentation. eBay picks the words to describe its business; it should own those words.

In any case, as this case illustrates, I think it's fair to say that 230's preemption of marketing representations remains a major open area in 230 jurisprudence. If you're looking for a term paper project, this looks like a good one to me.

Even if 230 doesn't apply, eBay has other defenses against liability for the alleged marketing misrepresentations. The court rejects eBay's defense based on the release in the eBay user agreement, but it does dismiss the fraud claim (with leave to amend) because it lacked the requisite specificity.

The opinion also discusses one of the auction vendor's user agreements, which specified a highly expedited extrajudicial adjudication as the sole dispute resolution option. The court tosses the contractual adjudication procedure as unconscionable due to the contract's formatting and substantive unfairness. Along the way, the court casts some doubt on extrajudicial adjudication clauses that have "no witness" provisions. If you're interested in forming enforceable online user agreements, you should check out this opinion.

Posted by Eric at 09:40 AM | Derivative Liability , E-Commerce , Licensing/Contracts , Marketing | TrackBack

March 11, 2008

Iowa Offers Tax Breaks to "Web Search Portal Businesses"

By Eric Goldman

Iowa, showing its technological savvy, has passed a law providing some tax abatements for "web search portal businesses" that invest $200M in the state in 6 years. See HF 2233, enacted Feb. 28, 2008. Most industry participants would not use the term "web search portal business," but the statute provides a useful definition as an "entity whose business among other businesses is to provide a search portal to organize information; to access, search, and navigate the internet, including research and development to support capabilities to organize information; or to provide internet access, navigation, or search functionalities." Well, that helps narrow down the universe of qualifying companies.

Given the size of investment required, I'll give you three guesses who the Iowa legislature might have been thinking of. Give up? Check out this handy list of lobbyists for the bill and see if you spot any familiar names.

As the fiscal note indicates, they anticipate a whopping TWO buildings to be built pursuant to this abatement. Not that this is special interest legislation or anything... On that note, one of the Iowa senators blogs on the law. Why is he winking at me?

Posted by Eric at 08:13 PM | E-Commerce , Search Engines | TrackBack

March 02, 2008

Feb. 2008 Quick Links

By Eric Goldman

Advertising

* BusinessWeek: Monetizing social networking sites isn't as easy as everyone had hoped, clickthrough rates are through the floor (0.04%!), and ad proliferation on the sites is driving users away.

* Wilbur, Kenneth C. and Zhu, Yi, "Click Fraud" (January 2, 2008). This paper appears to argue that search engines can increase their profits by failing to disclose the true rate of click fraud on their network.

* In re Miva, Inc. Securities Litigation, 2008 WL 450037 (M.D. Fla. Feb. 15, 2008). This lawsuit alleges that Miva and some associated individuals understated or misreported Miva’s reliance on click fraud, spyware and third party distributors in its public statements and thus inflated the company's stock price. Last year, the court dismissed many of the allegations but let a couple survive. In this ruling, the court dismisses a few more defendants from some statements and lets the rest of the case proceed.

* Going-out-of-business sales are often just another scam. (HT ContractsProf). Note this is completely consistent with economists’ theoretical predictions of final-period behavior of trademark owners.

Google

* Google's stock has lost $70B in market cap in 7 weeks. Oh darn. Clickz offers some theories about why Google's clicks are declining. Could lower rates of click fraud be part of it?

* Hal Varian, Google's Chief Economist, argues that Google's marketplace success is solely due to its "secret sauce" (i.e., the advantage of learning by doing) rather than any defects in the marketplace.

Spam

* Jaynes v. Virginia (Va. Sup. Ct. Feb. 29, 2008). By a 4-3 vote, the Virginia Supreme Court upheld Jeremy Jaynes' 9 year sentence for violating Virginia’s spam law.

* Silverstein v. Experienced Internet.com, 2008 U.S. App. LEXIS 3364 (9th Cir. 2008). Ninth Circuit dismissed a CAN-SPAM lawsuit for lack of jurisdiction when the defendants attest that they didn't send the message and aren't local.

Domain Names

* NSI has been sued for its practice of grabbing pre-registration domain names based on WHOIS searches. The complaint. Good luck defending those practices, NSI!

* Two more breathy articles about the economics of domaining from the New York Times and Network World.

47 USC 230

* Johnson v. Barras, 2007 CA 001600 B (DC Superior Ct Feb. 1, 2008). Court dismisses a lawsuit against a website for republishing a defamatory story per 47 USC 230.

* Yet another doomed lawsuit against MySpace for facilitating communications between an adult male and an underage female that led to sex. Sam Bayard's comments.

Pornography

* NY Lawyer (login required): "Defense Bar Sees Growing Practice in Internet Sex Crimes"

* A federal obscenity prosecution for publishing graphic short stories (without pictures) on the Internet? As Tim Wu says, "astonishing."

* The Utah legislature is considering entering the marketplace again, this time through a certification mark program for Internet access providers who are willing to combat porn. See HB407. Of course, the Utah legislature has had terrific success in the past creating successful new business opportunities that the marketplace has overlooked.

User-Generated Content

* Nick Carr: "What we've seen happen with self-regulating communities, both real and virtual, is that they go through a brief initial period during which their performance improves - a kind of honeymoon period, when people are on their best behavior and rascals are quickly exposed and put to rout - but then, at some point, their performance turns downward. They begin, naturally, to decay." Like, I think, Wikipedia.

* Slate on the top-heavy nature of contributions to Wikipedia and Digg.

* Christian Science Monitor: Teachers Strike Back at Students' Online Pranks.

* Sam Bayard on a motion to quash in the AutoAdmit case.

Reputation

* eBay no longer lets sellers leave negative/neutral feedback for buyers. This putatively stops sellers from retaliating against buyers who leave legitimate complaints, but it also skews the database towards only positive reviews, which ultimately undercuts its credibility.

* In India, where courtships remain very brief by US standards and grooms can be paid dowries by the bride's families, there is an emerging trend for brides to hire "wedding detectives" to ferret out the scoop on grooms and whether their representations are correct.

* Funny article on being a secret shopper for Consumer Reports.

* Dan Solove's book, The Future of Reputation, is now available online for free. Ethan's review of the book.

Patents

* Six years later, eBay finally buys it now: eBay v. MercExchange settles with eBay buying out some of MercExchange's patents and licensing others.

* Mike Masnick: "Psst! Patent Examiners Do Not Scale"

Copyright

* Mike Masnick: “Why We Should All Want Politicians Who Plagiarize.”

* Do Not Resuscitate...My Copyrights (funny).

Miscellaneous

* Citizen Media Law Project has a useful discussion on getting insurance for cyberlaw risks.

* People v. Fernino, 2008 WL 382348 (N.Y. City Crim. Ct. Feb. 13, 2008) (woman violated a no-contact order when sending a MySpace message to the person).

* Mike Masnick: "We Need A Broadband Competition Act, Not A Net Neutrality Act"

* A retrospective on some of the leading dot-coms from the 1990s.

Posted by Eric at 05:32 PM | Content Regulation , Copyright , Derivative Liability , Domain Names , E-Commerce , Internet History , Marketing , Patents , Privacy/Security , Search Engines , Spam , Trademark | TrackBack

February 14, 2008

Classic Article on "Cybermediaries"

By Eric Goldman

Mitra B. Sarkar et al., Intermediaries and Cybermediaries: A Continuing Role for Mediating Players in the Electronic Marketplace, J. COMPUTER MEDIATED COMMUNICATIONS, 1995

I've been working on my Brand Spillovers paper, which in part addresses the trademark legal principles that govern intermediaries including retailers and search engines. The Sarkar article is one of the most prescient and clear-sighted articles assessing the role of online intermediaries. In particular, it provides a terrific checklist of ways that intermediaries can provide valuable services to consumers and producers, thus continuing to add value to the distribution chain even as transaction costs generally decrease due to electronic mediation. This article is even more remarkable because it was written in the mid-1990s, at the height of cyberspace exceptionalism and at the time when conventional wisdom was that the Internet was going to create widespread disintermediation. A refreshing read, even today.

Posted by Eric at 11:09 AM | Derivative Liability , E-Commerce , Internet History | TrackBack

December 14, 2007

Oct.-Nov. 2007 Quick Links, Part 2

By Eric Goldman

Marketing/Branding

* To stimulate demand for its services, the British postal service is pointing out that snail mail is a good way to use olfactory marketing. Try to keep up with THAT, spammers! But doesn't this give new meaning to the observation that “junk mail stinks”...?

* Dunlop Tires offered a free set of tires to people who would get a tattoo of the company's logo. This tops a past promotion where they gave free tires to anyone who got tire tracks shaved into their hair. As a promotion, tattoos have an obvious advantage over hair-shaving because hair grows back. See my comprehensive post on tattoo advertising.

* As the Internet increases price competition and reduces margins in the jewelry market, diamond manufacturers are trying to prop up prices by branding their diamonds.

* Another lawsuit over the scorching-hot Hannah Montana concert tour—this time, alleging that the Hannah Montana fansite overpromised priority access to tickets.

* Anthony v. Yahoo, which involved a claim that Yahoo misled consumers of its dating service, has settled for $4M.

* I enjoyed this YouTube Video, Mr. Spam Man. Brought to mind the Spam-Free-or-Die video, which is still funny today.

Copyright

* William Patry on crazy copyright rulings against the “segOne,” a device that allows retailers showing broadcast TV to their patrons to substitute in ads sold by them instead of the ads sold by the broadcasters.

* Textile Secrets International, Inc. v. Ya-Ya Brand, Inc. (C.D. Cal. Oct. 31, 2007). 17 USC 1202 (the restriction on modification/removal of “copyright management information”) has been rarely interpreted, so this is a noteworthy case on that basis alone. This case involved the removal of CMI in offline activities. The court concludes "Court nevertheless cannot find that [1202] was intended to apply to circumstances that have no relation to the Internet, electronic commerce, automated copyright protections or management systems, public registers, or other technological measures or processes as contemplated in the DMCA as a whole."

* The Copyright Office has (finally) updated its electronic copy of Title 17.

Blogging

* David Hoffman discusses some considerations when structuring a group blogging LLC's operating agreement.

* U.S. v. Citgo Petroleum Corp., 2007 WL 4116066 (S.D. Tex. Nov. 19, 2007). An attendee at a trial blogs some of her observations about the jury. Her reward? One of the litigants can depose her as having potentially relevant information about jury impartiality. See my first-hand experience with potentially being deposed due to a blog post.

E-Commerce

* College students are ordering tires, pool tables and Winchester rifles online.

* The Canadian taxing authorities have won a victory allowing them to order eBay’s US company to disclose vast amounts of transactional data that presumably will be cross-checked against Canadian PowerSeller tax returns.

Miscellaneous

* Express Media Group, LLC, v. Express Corp., No. C 06-03504 WHA (N.D. Cal., May 10, 2007). Martin Samson's summary: "Court finds defendant, who claimed to have purchased plaintiffs' Express.com domain for $150,000 from someone who purported to be, but was not, the domain's Administrative Contact, guilty of conversion and directs defendant to return the domain to plaintiffs."

* Fallout from the Oracle v. SAP case: SAP may sell TomorrowNow, and several TN executives have been axed.

* A good use for a geolocated cellphone-mediated information service: the location of the nearest public toilet.

* Declan rallies against a federal "Do Not Track" list.

* NYT: US News & World Reports is getting into the consumer review business by aggregating third party opinions. According to the NYT, "The magazine has searched the work of dozens of automotive reviewers at newspapers and magazines, assigned a numerical value to each review (a process U.S. News describes as complex, rigorous and top secret), and then aggregated those into final scores. The Web site offers a description of each vehicle, sprinkled with snippets of quotes from those reviewers, so that it reads as much like a Zagat's restaurant blurb as something you might find in Consumer Reports."

* Don'tcensorme.com: a website for commenters who believe that their comments have been deleted by moderators on hubris overload.

* BusinessWeek: 101 Best Web Freebies.

Posted by Eric at 08:20 AM | Copyright , Domain Names , E-Commerce , Marketing , Privacy/Security , Spam | TrackBack

December 13, 2007

Internet Doctor Gets Extra Jail Time for Using Website--US v. Hanny

By Eric Goldman

U.S. v. Hanny, 2007 WL 4322265 (8th Cir. Dec. 12, 2007)

Given its blatant illegality, I'm a little surprised that we don't hear more about busts of companies and individuals selling prescription drugs over the Internet. I did a quick search in Westlaw and it looks like there have been a few dozen cases, but they don't seem to get much mass-media attention. I also wonder if the enforcement actions have succeeded in actually reducing consumers' ability to order prescription drugs over the Internet. I don't see as many brazen spammed come-ons as I recall getting a few years ago, but I'm not sure how generalizable my experience is.

Today's case involves the criminal prosecution of Dr. Thomas Hanny, a Connecticut-licensed doctor who retired after 30 years as a surgeon. He then hopped on the dot-com bandwagon, writing Internet-mediated prescriptions first for Pharmacon and then, after Pharmacon was shut down by law enforcement, for Jive. Hanny initially had doubts about the propriety of this line of work and even went so far as to hire his own attorney (who also expressed doubts), but Hanny either felt the issue was colorable enough or decided to look the other way, going so far as to ignore a cease-and-desist letter from Missouri prosecutors. Collectively, these proved to be poor decisions that will cost Hanny 33 months of his liberty.

It's a little hard to feel sorry for Hanny renting out his doctor's license, especially given that he doubled down after the Pharmacon flameout by going to another dot-com and double doubled down by persisting after the Missouri C&D. On the other hand, Hanny did get screwed on the issue decided in this opinion by the Eighth Circuit.

The issue is the 2 level sentencing enhancement for "the distribution of any controlled substance 'through mass-marketing by means of an interactive computer service.'" The government did not appear to introduce any evidence that Pharmacon or Jive used spamming or other advertising methods to generate traffic to their websites. Instead, the government contended that the mere existence of an e-commerce website itself constitutes mass marketing. The Eighth Circuit signs off on this interpretation, invoking some moldy-oldy analogies when it says "A public, interactive website reachable by an ordinary web search engine is, at the least, a billboard on the information superhighway." [If it were up to me, any Cyberlaw opinion invoking a tired and misused billboard metaphor would itself be subject to a 2 level enhanced penalty]

My problem with this is that the court conflated retailing with marketing. Simply operating a retail store without marketing to generate traffic cannot qualify as "mass marketing" under any reasonable interpretation of that phrase. As a result of this confused interpretation, every Internet retailer automatically qualifies as engaging in "mass marketing" for purposes of the sentencing enhancement.

Posted by Eric at 10:50 AM | Content Regulation , E-Commerce , Marketing | TrackBack

December 10, 2007

Yale Reputation Economies Symposium Recap

By Eric Goldman

Reputation is a hot topic in Cyberlaw circles, so the Yale ISP conference on Reputation Economies in Cyberspace came at a propitious time. Some of my meta-observations from the talks.

1) We lack a uniformly accepted definition of reputation. During the conference, it was clear that most speakers were working with their own idiosyncratic definitions. Without a standardized definition, people can easily talk past each other.

2) Reputational systems are everywhere--FICO scores, letters of recommendation, Google PageRank, product review sites like Epinions, spam filters, employee evaluations, etc. I plan to catalog them in my next big paper. For now, Jonathan Zittrain gave two interesting examples: (1) British pubs are now taking patrons’ fingerprints and publishing a blacklist of rowdy pubgoers to other pubs, and (2) websites allow angry drivers to criticize bad drivers by license plate number.

3) We often treat reputation as a monolithic assessment (good or bad), but it is granular and contextual. Reputation systems need to reflect these nuances, and we’re seeing movement in that direction. For example, eBay is considering more granular feedback scores, which might entail different scores for product description accuracy and shipping speediness. However, increased granularity is subject to the accuracy/simplicity tradeoff—increased complexity improves accuracy but makes it more costly to participate in the system.

To overcome the accuracy/simplicity tradeoff and reduce collection costs, reputational data can be collected automatically. Bill McGeveran compared Facebook’s automatic collection of recommendations through Beacon with ratemyprofessor.com (a site I’ve critiqued before--1, 2, 3), where the communication costs discourage students from providing feedback unless they hold extreme views (i.e., love it/hate it).

Jonathan Zittrain suggested that people should be able to request that some information should not become part of their reputation. He gave robots.txt as an analogy; it is a voluntary standard that web publishers can use to keep content (that might have reputational implications) out of the search engines, which in turn significantly reduces its visibility. Although robots.txt is voluntary, it is widely followed. Jonathan thinks a similar voluntary system might be helpful for reputational data.

4) As noted by several speakers, reputation has economic value that can be converted into cash. For example, spammers have better delivery success—and thus make more money—if they can work with a high-reputation email address that is less likely to be blocked/filtered, and an seller with high feedback commands premium prices for his/her auctions. These payoffs create incentives for “bad guys” to capitalize on undeserved reputation, leading to the hijacking of high-feedback accounts and feedback-inflating activity (such the serial consummation of penny auctions) that can be used for a short but intense burst of fraud.

Bill McGeveran gave Facebook’s Beacon as another example of reputation’s selling power. In that case, Facebook and marketes are engaged in “reputational piggybacking” to get extra credit from the “recommending” user’s validation.

Because reputation has economic payoffs, we are tempted to provide property-like protections for reputation. Trademark law is an example of this in the commercial context. In contrast, with respect to individuals, damaged reputations can have significant non-economic harms that are not well-handled through property systems. Discussions about legal protection for reputations can get confusing when economic protectionism are conflated with these non-economic harms.

5) No reputational system will be perfectly accurate. Any system will have Type I and Type II errors. So how accurate must a reputational system be for it to be credible? We should assess this question by comparing a reputational system’s errors against the errors from alternative systems (or the absence of the system altogether).

A reputational system might be improved through more robust error correction mechanisms. Jonathan Zittrain gave the example of the Google News feature that allows a quoted individual to add comments right below the article. This reminded me a lot of Frank Pasquale’s asterisk proposal.

6) Reputational information is time-sensitive in that more recent reputational information is more useful to assessing reputation. Jonathan Zittrain proposed a concept of “reputational bankruptcy” where "old" information could be permanently suppressed because it is not useful to make future assessments. He analogized this to the time-based degrading of eBay’s feedback score, which segregates transactional information by date (i.e., 1 month, 6 month, all time).

More resources on this topic:
* notes from my talk
* my article on the intersection between online word of mouth and trademark law
* the collection of position papers from the event
* other recaps: the conference wiki, Jenny Ambrozek, James Grimmelmann, Aldon Hynes, Greg Lastowka, Andy Oram, Frank Pasquale (1, 2), Rebecca Tushnet (1, 2, 3, 4), Michael Zimmer

Posted by Eric at 10:27 PM | E-Commerce , Publicity/Privacy Rights , Spam , Trademark | TrackBack

December 05, 2007

eBay Sued for Failing to Take Down Listings--Hansson v. Brower

By Eric Goldman

Hansson Inc. v. Brower, 4:07-cv-05898-CW (N.D. Cal. complaint filed Nov. 21, 2007)

In my Cyberspace Law course, I teach students that they should not just consider the liability of the person who committed the allegedly tortious behavior, but they must always ask who else is liable for that behavior. We saw that principle illustrated recently in the ISC2 v. Degraphenreed case, where Google and Yahoo got pulled into a trademark lawsuit for hosting some content that allegedly infringed the plaintiff's trademark.

Today's case in point is Hansson v. Brower, a seemingly garden variety trademark enforcement action. Hansson makes dollhouse furniture and claims that Brower is selling competitive items under the Hansson name via eBay, so Hansson is suing Brower for trademark infringement, dilution and related causes of action. But Hansson goes further. Hansson claims it sent 8 takedown notices to eBay and that they were all ignored and that it sent a C&D letter and that too was ignored. So Hansson has added eBay as a defendant for contributory trademark infringement.

Some questions I have:

1) What happened to those 9 communications from Hansson to eBay? Did they all get lost in the mail? Did eBay make a policy choice that they should be rejected? Did eBay just muff them?

2) What is the appropriate legal standard for eBay's liability? This is a big open question mark in Cyberlaw. 230 doesn't apply by its terms to federal trademark claims, and 512 only applies to copyright. eBay might be able to claim the innocent printer/publisher defense in 15 USC 1114(2), although Hansson has alleged that eBay has the requisite scienter to negate "innocence." So at the moment, eBay's risk of contributory liability may be governed by the common law of contributory trademark liability, and we really don't have many good/illustrative precedents for how this applies to a platform like eBay's. We're closely watching the Tiffany v. eBay lawsuit in NY, which is an analogous lawsuit, but we don't have any useful precedent from that yet. So should eBay be liable if they actually received notice of infringement and failed to take down the noticed auctions? Perhaps.

3) Even so, was it wise to drag eBay into this otherwise ordinary enforcement lawsuit? As I explored with the ISC2 lawsuit, suing eBay ensures that a well-funded litigant with good lawyers will be on the defense side. I swapped emails with James Cai, attorney for Hansson, asking him why he named eBay, and he said the goal was to get eBay to intervene. I'm sure he'll get eBay's attention now, but he may get more of it than he wanted.

Posted by Eric at 02:28 PM | Derivative Liability , E-Commerce , Trademark | TrackBack

December 02, 2007

Taxonomies and Commercial Reputations

By Eric Goldman

This coming Saturday, the Information Society Project at Yale Law School is sponsoring a very attractive event entitled "Reputation Economies in Cyberspace." I'm especially excited about this event because I think my next big project will focus on reputation topics, so this should be a fantastic learning experience. I'm on the last panel, which is a precarious time because of the high preemption risk. As a result, I've picked a less-than-mainstream topic with a low preemption risk, although I may move into more mainstream topics depending on what gets discussed earlier in the day. Here's the short summary I provided to the conference organizers:
_____________

Taxonomies and Commercial Reputations

A “taxonomy” is a structure for organizing content. It provides the anchors that allow topically relevant content to be grouped together in a logical fashion. Among other benefits, taxonomies can provide a system for designating unique identifiers for marketplace offerings. These unique identifications are crucial for the development and management of commercial reputations. For reputational mechanisms to work properly, objective and subjective data about offerings need a place to be associated uniquely with the offering. Without this, the data has no place to attach, distorting the reputational mechanism.

Proprietary rights threaten the ability to optimally taxonomize marketplace offerings in at least two ways. First, taxonomy developers can assert a proprietary interest in their taxonomies. Second, trademark owners can use their proprietary rights to distort the taxonomy or content attached to it.

Taxonomy Developers’ Rights

Taxonomy developers may be able to claim copyright in their taxonomies. See American Dental Association v. Delta Dental Plans Association, 126 F.3d 977 (7th Cir. 1997); but see Southco, Inc. v. Kanebridge Corp., 390 F.3d 276 (3d Cir. 2004); ATC Distribution Group, Inc. v. Whatever It Takes Transmissions & Parts, Inc., 402 F.3d 700 (6th Cir. 2005). Even if they cannot, online taxonomy developers can restrict access to their taxonomies through server protection doctrines (such as trespass to chattels, Computer Fraud & Abuse Act, computer tampering doctrines, etc.).

Excludable taxonomies create two problems. First, competitors need to recreate taxonomies. This leads to duplicative efforts that are socially wasteful, and implicitly it increases barriers to entry by new intermediaries. Second, and perhaps more importantly, it hinders consumers’ abilities to do apples-to-apples comparisons between marketplace offerings, because consumers must do extra research to determine if taxonomical nodes in two different taxonomies are the same offering. As a result, consumers miss valuable reputational information because they cannot find it.

There is a licensing market for taxonomical data in many (but not all) product verticals. These licensing programs can be expensive for new entrants. Some licensors provide unique identifiers that can enable consumers to make apples-to-apples comparisons, but in other cases, catalog standardization/normalization remains a challenge. Furthermore, if there are competitive licensors in a particular vertical and they use different identifiers, then consumers may face a cacophony of identifiers.

This could be solved through a comprehensive and non-excludable product taxonomy with unique identifiers for all marketplace offerings. The exemplar is the ISBN taxonomy, which has done a remarkable job of allowing consumers to find and compare books. Because this economy-wide taxonomy hasn’t developed via private efforts, and because any developer will likely assert proprietary interests in the taxonomy in ways that would hinder its functioning, government sponsorship may be necessary (and appropriate) to develop the uniform taxonomy.

Trademark Owners’ Rights

By definition, trademarks should act as unique identifiers for marketplace offerings. Presently, trademarks provide the main taxonomical structure for marketplace offerings in most industry verticals. However, the proprietary interests of trademark owners limit the utility of trademarks as a taxonomy in at least two ways.

First, trademark owners can use trademark law to limit the use of their trademarks as a taxonomical node. Retailers can generally use trademarks for the products they sell under the trademark exhaustion doctrine. However, other intermediaries (such as product review sites) have no such defense, and their usage may qualify as a trademark use in commerce, meaning that any trademark inquiry becomes messy and unpredictable. Furthermore, search engines provide consumers with access to unstructured databases and use user-initiated search keywords—which may be trademarked—as a type of “dynamic taxonomy,” and this has exposed search engines to potential trademark liability as well.

Second, trademark owners may also use trademark law to strip out content that has been anchored at the trademarked taxonomical node. For example, in a group of product reviews, trademark owners could attack negative reviews as violating their trademarks. Once again, those reviews might satisfy the trademark use in commerce doctrine, leading again to messy and uncertain analysis. Indeed, trademark owners have every incentive to use trademark law to produce “lopsided databases” where favorable opinions remain and unfavorable ones are excised.

Some solutions to address these problems include:

1) We should provide a legislative safe harbor allowing search engines to use trademarks to create dynamic taxonomies for unstructured databases.

2) We should use the innocent printer/publisher safe harbor (15 U.S.C. §1114(2)(A)-(C)) more extensively to curb efforts to produce lopsided databases.

3) We should categorically exclude all referential trademark uses (i.e., uses of a trademark for its referential value), even if made by commercial actors in commercial settings, from trademark scrutiny. I build this argument out here.

Posted by Eric at 08:03 AM | Copyright , Derivative Liability , E-Commerce , Trademark | TrackBack

November 13, 2007

Geolocation and A Bordered Cyberspace

By Eric Goldman

I recently gave a talk on the general theme of the future of e-commerce, and I was allowed to take the topic in any direction. I decided to talk a little about the propagation of geolocation technology and its consequences for a borderless Internet. My notes from the talk:
______

A constant problem in Cyberlaw: the difficulties of authenticating users for age and geography. With respect to geography, in the mid-1990s, there was a strong belief that cyberspace was borderless. Examples:

* John Perry Barlow's 1996 Declaration of the Independence of Cyberspace

* 1997: ALA v. Pataki, where a state anti-Internet porn law (a baby CDA) was struck down as violating the dormant commerce clause. In that case, Judge Preska said: "Geography is a virtually meaningless construct on the Internet."

But there are ways to restore geographic borders to the purportedly borderless Internet:

1) Ask users to self-report. Users may want to self-report geography, especially in the e-commerce context where they want physical goods delivered or need to report their address to authorize a credit card purchase. But the law could force online actors to compel users to self-report geography and then act on the reported information. Examples:

* LICRA v. Yahoo. The French court envisioned that Yahoo could do 90% effective geographic authentication through a combination of IP address analysis and user self-reporting if Yahoo popped up windows asking users to self-report before being allowed to access the website.

* Alaska SB 140, an anti-adware law. To combat pop-up ads, the statute requires software vendors to display pop-up windows asking users to self-report geography.

A world with compelled requests for user self-reporting of geography would be a pop-up filled world constantly asking "where are you now? where are you now?" [see the analogous Verizon ad campaign] This makes user self-reporting undesirable, in addition to being unreliable.

2) IP address analysis. IP addresses are allocated on an International scheme. Yahoo used this scheme to display local ads, a fact noted in the LICRA court. IP address analysis can be more regional; for example, Google does geo-targeting on a more granular basis. Ex: if I search for "mercedes" in Google, I get local Mercedes dealers in the Bay Area. But IP address analysis is incomplete/imperfect.

So if the only geographic authentication tools were IP address analysis or user self-reporting, the Internet would remain more borderless than bordered. However...

3) Geolocation technology. In the future, Internet access devices will be coupled with GPS technology that will automatically report user geography. For example, many mobile phones already have GPS technology in them, and consumers use other mobile devices (e.g., Blackberries) that have geolocation technology. Inevitably, the boundaries between computers and these geolocated mobile access devices will dissolve, meaning that Internet access devices will be geolocated and will automatically self-report user geography as part of interacting with other online actors.

A geolocated Internet will have some benefits. Most obviously, ads can be geographically targeted in ways that can help consumers (i.e., a driver searching for gas can get ads from nearby gas stations). It will also enable other localized content where that matters (weather, directions, location of friends).

But a geolocated Internet will also enable governments to force online actors to "honor" the geographic information. Thus, states could legitimately enact state-specific laws and require online actors to customize their offerings for state residents. Governments could also use the geolocation information to created walled environments, including more highly filtered/screened content. We've already seen this in China and some other countries. In these situations, Internet users will have very different Internet experiences based on their geography. Thus, a geolocated Internet should contribute to the demise the Internet utopianism. Instead of bringing people together over a borderless network, a geolocated world reenables borders that will keep us further apart.

Posted by Eric at 05:44 PM | Content Regulation , E-Commerce , Internet History | TrackBack

November 10, 2007

Google Resists Subpoena for Keyword Ad Purchases--Connor Sport Court v. Google

By Eric Goldman

Connor Sport Court International, Inc. v. Google Inc., CV-06-3066 PHX JAT // CV 07-80252 (N.D. Cal. motion to compel filed Oct. 31, 2007)

This summer, I reported on trademark litigation between Connor Sport Court and Rhino Court. The parties had settled the lawsuit, but then Connor complained that Rhino violated the settlement by buying keyword advertising triggered to Connor's trademarks. Connor then submitted a discovery request to Google seeking records of other people who had bought Connor's trademarks as keywords. As I noted at the time, the requested information had significant competitive value, and Google's delivery of the information could prompt a lot of other similar discovery requests to Google.

Initially, Google seemed inclined to give Connor the data it asked for, but apparently Google changed its mind. Instead, Google has refused to turn over any data related to third party purchases and didn't turn over much related to Rhino. Connor apparently still believes the requested information is worth pursuing, because it has now filed a motion to compel Google to comply with its discovery request.

Google might take the opportunity to clarify its policies regarding the disclosure of keyword ad purchases. Connor's brief claims that Google provided Rhino with information about a third party's ad purchase, including the ad copy, the maximum cost-per-click bid, the number of clicks and impressions, the average ad position and more. Is Google handing out this information merely based on a subpoena, or is Google going to make it harder for litigants to get access to this data? According to the filing, the hearing is scheduled for Dec. 7 at 9 am in San Jose.

Posted by Eric at 12:53 PM | E-Commerce , Marketing , Privacy/Security , Search Engines , Trademark | TrackBack

October 30, 2007

Vendor of Illicit Phone Records Not Protected by 230--FTC v. Accusearch

By Eric Goldman

Federal Trade Commission v. Accusearch, Inc., 06-CV-105-D (D. Wy. Sept. 28, 2007)

Accusearch (a/k/a Abika) offers for sale records of telephone calls made by telephone subscribers. Abika doesn't acquire the records itself directly from the phone companies; third parties do that. Even so, I believe the collection and resale of these phone records was illegal throughout the relevant time period. (Michael Erdman explores this more).

The FTC brings an action against Abika for unfair trade practices. Abika defends on 230. The FTC argued that Abika was the retailer; Abika argues that it is just an intermediary making matches between buyers and sellers of the records. The court rejects the 230 defense for two separate reasons:

* the statutory terms publisher/speaker are ambiguous, at least as applied to this case. Thus, the court turns to 230's legislative history to conclude that Congress didn't mean to protect these types of claims. The court says snarkily "It is ironic that a law intended to reflect a policy aimed at deterring 'stalking and harassment by means of computer' is now being urged as a basis for immunizing the sale of phone records used for exactly those purposes." (Fair enough, but see Zeran!)

* reselling the records meant that Abika "participated in the creation or development of the information" and thus became an information content provider itself.

Both of these arguments are pretty strained. The statutory references to "publisher" and "speaker" aren't entirely clear, but dozens of cases have interpreted them. It would have been nice to see the court consider those precedents before jumping to the legislative history as if the court is reading a 10 year old statute for the first time. As for the interpretation of "creation and development," I don't see how anyone can interpret those words to include retailing a record without any modifications at all.

Despite these analytical deficiencies, I think the court reached the right result. In my opinion, the retailer/intermediary distinction is the critical linchpin. It's pretty well accepted that an intermediary between buyers and sellers is fully eligible for 230 even if the purchase/sale involves illegal goods--see, e.g., Gentry v. eBay (fake sports memorabilia), Stoner v. eBay (bootlegged recordings). In those cases, eBay was the venue to publish the seller's advertisements to buyers. (See also Ramey v. Darkside Productions, another case holding that a publisher of third party ads wasn't liable for the ads, even if the publisher helped prepare the ads).

In contrast, I think a retailer who acts as the merchant of record of third party goods generally should be liable for selling those goods, even if the goods were acquired for resale from third parties. I don't see how 230 protects a retailer selling goods for its own account--I don't think the claim is appropriately styled as either a "publisher" or "speaker" claim at that point. But see Prickett v. infoUSA, where infoUSA resold data it obtained from third parties but was still eligible for 230.

Unfortunately, I think the court's biggest mistake is that it apparently forgot that it was addressing summary judgment motions, because the court made numerous factual inferences (some apparently contested) against Abika. So I think this ruling is best understood not as an SJ motion, but instead as a bench ruling where the court simply disbelieved that Abika was an eBay-like intermediary and instead concluded that a retailer can't claim 230 for reselling illegal goods for its own account. Rephrased this way, I think the court reached the right result.

For more on this case, see Michael Erdman's nice writeup.

Posted by Eric at 11:26 AM | Derivative Liability , E-Commerce , Marketing , Privacy/Security | TrackBack

October 21, 2007

Ticketmaster Wins Big Injunction in Hannah Montana Case, But Did the Public Interest Get Screwed?--Ticketmaster v. RMG

By Eric Goldman

Ticketmaster L.L.C. v. RMG Technologies, Inc., 2007 WL 2988403 (C.D. Cal. Oct. 16, 2007)

You may remember Ticketmaster's multi-year battle against Tickets.com over data aggregation and deep linking. Ticketmaster never got a solid win in that case, but here Ticketmaster successfully advances the same legal theories against someone gaming its allocation of tickets. Hannah Montana fans might cheer this ruling, but some of the court’s analysis makes this a troubling Cyberlaw development.

Introduction

This case involves what I'll call "ticket sniping"--the practice of quickly snapping up highly-sought-after tickets when they first go on sale and then reselling them at higher prices. When it comes to hot concerts--such as the upcoming Hannah Montana tour--Ticketmaster's price may be well below the prices people are willing to pay in the secondary market. Why don't event promoters use auctions or other dynamic pricing scheme to capture this upside on the first sale? I'm reminded of the odd pricing systems for IPOs--just like that market, perhaps Ticketmaster (as an intermediary) deliberately underprices below the market-clearing price to increase its profits.

In any case, initial ticket buyers from Ticketmaster can get an economic windfall, which naturally motivates people to game the initial first-come, first-served ticket allocation system. RMG was one such gamer. They developed software that helped its customers beat other buyers in the rush to get hot tickets. Ticketmaster sued RMG to stop their gaming activities; the court issues a preliminary injunction:

Copyright

The court says that RMG directly infringed Ticketmaster's copyright in its web pages by browsing them to test the operation of its software tool. Effectively, then, the court says that web browsing is copyright infringement. This isn't the first time a court intimated as much, but it's troubling every time we see it.

The court overlooks any implied license to browse because Ticketmaster's "browsewrap" on its home page (which says "Use of this website is subject to express Terms of Use which prohibit commercial use of this site. By continuing past this page, you agree to abide by these terms") acts as an express restriction on browsing, so any access in contravention of those terms constitutes copyright infringement.

One of the key Qs is how RMG's software differs from other search engine robots. The court skirts this Q, simply pointing to Perfect 10 v. Amazon as excusing the cache copies made by web users who follow search engine links. Of course, search engine robots make lots of other copies, and we think these copies are excused because the final presentation (the display of search results snippets) doesn’t infringe. The court doesn't address this at all.

The court also says that RMG is indirectly infringing based on a Grokster inducement theory because RMG's marketing said it's offering "stealth technology [that] lets you hide your IP address, so you never get blocked by Ticketmaster." This is a pretty expansive interpretation of copyright inducement because the marketing references IP address blocks, not copyright infringement, but it's very consistent with the court's moral condemnation of RMG's behavior.

Anti-Circumvention

The court says that website pages are protected by copyright, and the website used a CAPTCHA to restrict access to these copyrighted works. Thus, distributing the software tool designed to circumvent the CAPTCHA to access the copyrighted website violates 1201(a)(2) and 1201(b)(1). Not only does this give unexpected copyright protection for CAPTCHAs, this ruling seems inconsistent with several precedents holding that bypassing a password protection system doesn't violate 1201.

Breach of Contract

As indicated above, the court upholds Ticketmaster's browsewrap. Admittedly, Ticketmaster has improved its contract formation processes since it litigated against Tickets.com, but I'm not sure this was as easy as the court treated it.

Computer Fraud & Abuse Act

Surprisingly, the court denies relief for this claim because Ticketmaster couldn't allege $5,000 of loss. I tell my students that if they can't construct $5,000 of loss under the CFAA, then they aren't thinking creatively enough.

Conclusion

It's easy to point at RMG and its customers as the bad guys. After all, they are trying to get an unfair advantage in the first-come, first-served allocation of scarce tickets for their economic benefit, with the result that later comers have to pay more to get the same tickets.

But what about Ticketmaster's role in this situation? They haven't designed a technologically gaming-resistant allocation of tickets, so they need legal help to solve that deficiency. I also remain suspicious about Ticketmaster's incentives here, both in setting prices and in policing against ticket allocation gaming. Their motives may not be nearly so consumer-friendly as they try to portray.

And this opinion is hardly pro-consumer either. This ruling won't be a problem if future courts limit this ruling solely to a company's efforts to legally protect a competently designed anti-gaming strategy. But some of the more dramatic rulings are anything but consumer-friendly, such as the implicit holding that browsing is copyright infringement and the upholding of Ticketmaster's browsewrap. If other courts apply these principles more broadly, Hannah Montana concertgoers may have gotten a benefit at the expense of us all.

Posted by Eric at 03:45 PM | Copyright , Derivative Liability , E-Commerce , Internet History , Licensing/Contracts , Privacy/Security | TrackBack

October 15, 2007

Online Trust Conference Recap

By Eric Goldman

On October 2, Santa Clara University held a half-day conference called "Trust Online." This event was co-sponsored by the Center for Science, Technology and Society, the High Tech Law Institute, the Markkula Center for Applied Ethics and Microsoft. We brought together policymakers, technologists, lawyers and academics to explore the process by which online companies engender trust from their customers. The topic of "trust" is complicated because it cuts across privacy, security and branding issues. In the end, we discussed all that and more.

The day started off with a keynote by Richard Clarke, formerly Bush's chief cybersecurity czar. His talk started out on a disconcerting note as he described cyberspace as a place of "chaos" and "crime" (shades of California CIO Clark Kelso calling the Internet a "sewer"). But he got onto more productive grounds when talking about how consumers develop trust in different entities:

* trust in the government. Americans' trust in government has fallen to an all-time low. This lack of trust in the government undermines trust across-the-board because, for example, consumers may be reluctant to disclose personal data to websites knowing that the government could get access to it.

* trust in the private sector. He echoed the conventional sentiment among privacy advocates that we need to worry more about Little Brother than Big Brother.

* trust in individuals. He blamed the Internet for the "pandemic" of identity theft--especially lax security.

He proposed five solutions:

1) Biometric ID cards--we need 2 factor authentication online
2) We should ask the government to regulate. He thinks the FCC has the authority to regulate the Internet, and the FCC could instruct ISPs to take specific actions that would reduce risks. He acknowledged that when a person suggests the government should regulate the Internet, others want to take the person away in shackles. That pretty much summed up my reaction to this proposal!
3) We should keep critical infrastructure from being Internet-connected.
4) Industry should improve the security of its code.
5) We should form a government entity that people could trust to safeguard their privacy and civil liberties concerns

Next was a panel on Enforcing and Enabling Trust, moderated by Lise Buyer (one of the star Internet analysts from the dot com boom). Panelists: Scott Charney of Microsoft, Mozelle Thompson (a former FTC Commissioner who is doing a lot of consulting work for Facebook) and Jim Ransome from Cisco. Some notes I made during this panel:

* Charney: consumers need just-in-tirme, actionable information to make trust decisions
* Thompson: people are clamoring for context
* Charney: security and privacy are conflated in the concept of "safety." People just want to feel safe.
* Thompson: people don't want anonymity, then want control over their data (Eric's comment: this makes sense in a Facebook context; not sure if it is more broadly extensible)
* Charney: goal should be risk management, not risk elimination
* Charney: we think of security as binary (is it secure or not), but privacy is a continuum
* Charney: we accept the fact that people may die in the name of privacy (examples: anthrax mailed without a return address; disposable cellphone to make bomb threat)
* Charney: we need to marry authentication with reputation

Next was a panel on Branding and Building Trust. Lise also moderated. Panelists: Alessandro Acquisti of Carnegie Mellon, Chris Hoofnagle of UC Berkeley, and Fran Maier of TRUSTe. Some notes I made:

* [not sure who made this point]: there is a positive correlation between good business practices and consumer perceptions that the company has good privacy practices (Eric's comment: this would certainly explain sentiments towards Google)
* Acquisti: a study showed that stock prices drop after companies announce a security breach, but they quickly rebound after a few days
* Q: what is trust worth? Acquisti: according to his study, people will pay extra for privacy in some cases. Maier: TRUSTe has a case study showing that their logos improve consumer willingness to provide data (Eric's comment: I'd need to look through this case study to see how it regresses possible co-variables)
* Hoofnagle: consumers erroneously believe that companies' ability to use their data is regulated
* [not sure who made this point]: we should give kids amnesty for their youthful postings. i.e., we need to forget some information
* Maier: 15-20% of TRUSTe applicants don't get certified.

The day ended with a keynote by Dave Cullinane, eBay's Chief Information Security Officer who recently joined the company from Washington Mutual. A few notes from his talk:
* eBay employs 2,000 people in its trust & safety department
* eBay/PayPal investigators currently assist in over 2 arrests per day
* He implied that the Department of Homeland Security was trying to get a dataset from eBay to see if they can crunch the data to identify patterns that look like terrorism. I'd like to know more about this!
* Rootkitted Linux boxes--not (as commonly believed) Microsoft boxes--are the vast majority of security threats

Other comments on the event:

* SCU Law student Erik Schmidt at TechLawForum on Richard Clarke's talk
* Cade Metz at the Register on Richard Clarke's talk
* Cade Metz at the Register on Dave Cullinane's talk
* Robert McMillan at InfoWorld on Dave Cullinane's talk

UPDATE: Listen to the podcasts!

Posted by Eric at 01:42 PM | E-Commerce , Privacy/Security | TrackBack

September 07, 2007

August 2007 Quick Links, Part II

By Eric Goldman

* e360 Insight v. Spamhaus Project, 2007 U.S. App. LEXIS 20725 (7th Cir. Aug. 30, 2007). An email marketing company was listed on Spamhaus' ROSKO and sued for defamation and other torts in Illinois. Spamhaus took the position that US courts have no authority to render a judgment on a UK-based operation. The district court ultimately awarded $11.7M in damages and various equitable relief. The Seventh Circuit affirmed the default judgment but vacated the damages and equitable relief, sending those back to the district court to reevaluate the appropriate remedies. I understand that Spamhaus wanted to make a philosophical point by not fighting the lawsuit in the US, but had they overlooked their philosophical objections, they should have won a quick victory per 47 USC 230(c)(2).

* Perfect 10 has appealed its Ninth Circuit 230 loss in ccBill to the US Supreme Court.

* Search Engine Land had a good overview/recap article on geolocation technology. It provides a clear and easy-to-read explanation why the folks who think online businesses can just stay out of a state that enacts dumb regulations are full of crud.

* Pisciotta v. Old National Bancorp, No. 06-3817 (7th Cir. Aug. 23, 2007). Another court (this time, the Seventh Circuit) says that consumer fretting about possible future identity theft isn't enough harm to support a lawsuit. See the analogous JetBlue, Acxiom and Key cases.

* Wikipedia Scanner--an automated tool to determine who is editing Wikipedia pages. Katie Hafner's NYT article on the matter. David Hoffman does a little sleuthing on law firm edits.

* NYT: In the 1990s, a lot of people sought to build an infrastructure for micropayments. Consumers resisted them, but today those efforts seem a little silly--AdSense advertising can generate the same financial benefits for a web publisher without the overhead. Meanwhile, the credit card systems are being stretched to cover micro-transactions because merchants are aggregating a consumer's orders and processing them in bulk (rather than processing each one individually) as a way to reduce the transaction costs.

* NYT: "As video games have surged in popularity in recent years, politicians around the country have tried to outlaw the sale of some violent games to children. So far all such efforts have failed."

* AP: Chinese animated cops will be patrolling the Information Superhighway beat.

* Tired of negative reviews on Yelp, a San Francisco restaurant put up a sign saying "no Yelpers." I wonder if a sign like that lessens or exacerbates negative publicity.

* NYT: Book authors obsessively check Amazon sales rankings and try to game them.

* Facebook accidentally posted some of its source code to a public website. Surely an interesting development for ConnectU's discovery team!

* Another Internet company hires its own in-house economist--this time, virtual world Eve Online.

* A nice retrospective on the Cleveland Free-net, which at one point was a prominent component of the Cyberspace community.

* I have one free guest pass to the CLE International New Media Law conference in SF on Oct. 1-2. Free to the first person who sends me an email request. [SORRY--TAKEN!]

Posted by Eric at 09:48 AM | Content Regulation , Derivative Liability , E-Commerce , General , Internet History , Privacy/Security , Virtual Worlds | TrackBack

August 01, 2007

July 2007 Quick Links, Part II

By Eric Goldman

Virtual Worlds

* After a remarkable run as media darlings, Second Life is now experiencing some of the inevitable backlash. Case in point: Wired's "How Madison Avenue Is Wasting Millions on a Deserted Second Life." In this respect, Second Life reminds me a little of Keen.com--both provide fantastic platforms for monetizing user-generated content, but that powerful economic platform is likely to take root primarily in the sin businesses (porn, gambling, etc.). (FWIW, Keen.com appears to have cleaned up the dial-a-porn and is now focused exclusively on dial-a-horoscopes). As a result, it will be interesting to see what happens to Second Life's numbers in response to their anti-gambling crackdown. Meanwhile, lawyers--the classic late adopters--are gushing about Second Life's potential as a business generator--an interesting counter-perspective to the Wired article.

* World Copyright Law Report: "Some residents have been using a rogue version of a program called CopyBot to make a copy of anything in the Second Life world, thus threatening to undermine the whole basis of the Second Life economy."

Wikipedia

* More marketers wake up to the value of inserting links into Wikipedia despite Wikipedia's nofollow tag. See my earlier explanation of this. Meanwhile, a Wikipedia administrator talks about what Wikipedians consider white hat practices for marketers.

* Willing to cite to Wikipedia in your legal briefs? Need some custom-tailored authority to support your argument? Edit Wikipedia to say what you want!

* Mike Godwin has become Wikimedia’s GC. You may recall that Mike and I bet about Wikipedia’s future; it appears he has raised the stakes on that bet substantially!

User Generated Content

* "GC's Client from Hell": Whole Food's CEO John Mackey pseudonymously posted about his company's stock and his competitor's stock on Yahoo Finance. The WSJ article has some of the juiciest postings. The NYT on CEO "sock puppetry."

* A restaurant owner used consumer reviews from Yelp as part of deciding to fire employees.

* Interesting interview with the pseudonymous founder of a pay-for-Diggs business.

Blogs

* The ABA Journal has entered the crowded field of blawg directories with one of their own.

* Blawgworld 2007: 77 blawgers chose their favorite posts, which were compiled into an e-book. The compilation turns out to be a great way to get noisy blawgers to promote their brilliant contributions to the e-book, which generates traffic and link love for the publisher, which in turn creates a nice delivery vehicle for sponsored content/advertising.

Miscellaneous

* Asch Webhosting, Inc. v. Adelphia Business Solutions Investment, LLC, 2007 U.S. Dist. LEXIS 52932 (D. N.J. July 23, 2007). IAP terminates customer based on complaints that customer was a spammer. Court holds that the consequential damages waiver applies, effectively negating customer's alleged damages. Rejecting the customer's argument that the termination was in bad faith, the court says: "Plaintiff’s arguments about the accuracy of the spamming complaints do not change the Court’s determination because regardless of the ultimate accuracy or veracity of the spamming complaints, defendant was entitled to rely on those complaints so long as it did so in good faith, and plaintiff has not demonstrated any bad faith by defendant." HT: Technology Law Update.

* Consumer Law & Policy Blog: "companies in two recently filed federal cases explicitly invoke [the recent Supreme Court decision in] Leegin as a justification for terminating the eBay auctions of competitors that charge lower prices online."

* Declan on whether anti-spyware vendors are screening for "fedware" (government keystroke loggers designed to capture data before it's encrypted).

Fun

* More proof that technology can save lives: During a power outage at a hospital, doctors were able to complete a surgery using the light of open cellphones.

* I’m a new fan of Oddee. Some recent posts (it helps to think about sexual connotations when interpreting the photos):
- "15 Unfortunately Placed Ads."
- "Most Unfortunate Logos Ever"
- "Unfortunate Business Names.”

Posted by Eric at 11:06 AM | Adware/Spyware , E-Commerce , General , Internet History , Marketing , Spam , Virtual Worlds | TrackBack

April 09, 2007

March 2007 Quick Links Part 2

By Eric Goldman

Yesterday I posted the Google edition of my list of interesting items from March. Today I post the remainder of items that caught my eye last month.

Trademarks/Brands

* Bosley Medical Institute v. Kremer, 2007 WL 935708 (S.D. Cal. Mar. 22, 2007). On remand from the Ninth Circuit, the district court denies Kremer's motions to dismiss/for SJ. Michael Atkins recaps the ruling and case's history.

* Milbank Tweed Hadley & McCloy LLP v. Milbank Holding Corp. d/b/a Milbank Real Estate Services, No. CV 06-187-RGK (JTLx), (C.D. Cal. Feb. 23, 2007). After passage of the Trademark Dilution Revision Act, the court rejects the existence of "niche fame" as support for a dilution action. I’m a little surprised that this plaintiff would bring this losing argument.

* ICANN votes down a .XXX TLD. Again.

* NYT on the increasing challenges of creating a unique global brand in very crowded namespaces.

* Trademarked Sentences: A tool that helps you generate poetry by mixing trademarked slogans.

Blogs/UGC

* BidZirk v. Smith, No. 06-1487 (4th Cir. March 6, 2007). The Fourth Circuit, in a non-substantive opinion, denied a company's request for an injunction against a griping blogger's use of its trademarks. My initial write-up of the case. With this loss, the plaintiff's ill-advised decision to appeal the case is now even more clearly a complete waste of the plaintiff's money and our judicial resources.

* Chapman v. Merchandise Mart Properties, 2007 WL 922258 (D. Vt. Mar. 23, 2007). Woman tries to get TRO against physical-space trade show based on trademark interests in the term "GreenStyle," which is her blog’s title. The court rejects the request, but interestingly doesn't seem fazed by the argument that she may have a trademark interest generated from her blog name. Blog names can be trademarkable with sufficient use in commerce, a factor the court ignored completely.

* Sifry: "70 million weblogs. About 120,000 new weblogs each day, or...1.4 new blogs every second."

* A nice retrospective on the history of blogging.

* Wikipedia is requiring some credentialing after getting burned by a pseudonymous contributor who falsely claimed he was a professor.

* Ed Felten has some terrific observations about building distributed reputation systems like Digg (and, for that matter, Epinions). Ed is 100% correct that reputation systems need substantial stabilization; they don't just work deus ex machina.

Contracts

* Dorr v. Yahoo, No 3:07-cv-01428-MJJ (N.D. Cal. complaint filed March 7, 2007). Yahoo offered a premium subscription service allowing users to send email without Yahoo's ads attached. Then, allegedly, they changed the service's terms, and some of the paying customers were unilaterally bumped to a tier where Yahoo's ads were again attached to their email. Steve Bryant has more. In general, if people pay to eliminate ads, during that period of time, Yahoo should not be able to unilaterally amend the terms so that the user is paying but still getting ads.

* Ken Adams blogs on Affinity Internet, Inc. v. Consolidated Credit Counseling Services, Inc., 920 So. 2d 1286 (Fla. Dist. Ct. App. 2006), where the court held that a contract clause saying "This contract is subject to all of SkyNetWEB's terms, conditions, user and acceptable use policies located at http://www.skynetweb.com/company/legal/legal.php" was insufficient to incorporate an arbitration clause contained in the referenced document. Ken's suggested fix: "The SkyNetWEB user agreement located at http://www.skynetweb.com/company/legal/legal.php constitutes part of this agreement."

Government Agencies

* The National Do Not Call Registry: Annual Report to Congress for FY 2006 Pursuant to the Do Not Call Implementation Act On Implementation of the National Do Not Call Registry (April 2007): "The Commission believes that the fundamental goal of the National Do Not Call Registry — to provide consumers with a simple, free, and effective means to limit unwanted telemarketing calls — has been realized." My curmudgeonly take on why the do-not-call registry isn’t great policy.

* Implementing the Children's Online Privacy Protection Act: A Federal Trade Commission Report to Congress (February 2007). The FTC remains pretty pleased with itself about COPPA, but it's worried about social networking sites and the continuing lack of age verification technology. I'm not as impressed with COPPA as the FTC is; see here and here. In any case, if you're doing COPPA research, this report helpfully recounts the 12 COPPA enforcement actions to date.

* Hard to believe, but payola busts are still being made. The latest: a $12.5M settlement. See the NYT and WaPo .

* Terrific post by the EFF’s Seth Schoen about a misguided report on P2P file sharing by the USPTO and the issues with empowering users to control their computers. A must-read.

Miscellaneous

* ACLU v. Gonzales, No. 98-559 (E.D. Pa. March 22, 2007). On remand from the Supreme Court, the court once again holds that the 1998 Child Online Protection Act is unconstitutional.

* CRS Report for Congress: An Overview of Recent U.S. Supreme Court Jurisprudence in Patent Law, March 16, 2007, discussing the last 8 Supreme Court patent cases.

* We've all heard about the magic of network effects. But as this Mercury News article explains, when an Internet start-up company's network takes root principally overseas, it can leave the company with a large audience of unmonetizable users.

* Jacob Loshin, Property in the Horizon: The Theory and Practice of Sign and Billboard Regulation, 30 Environs 101 (2006). A thoughtful discussion of the history of billboard regulation and some regulatory considerations.

* Coca-Cola's launch campaign for "Coke Zero" is premised on the idea that the executives of Coca-Cola want to sue the executives of Coke Zero (i.e., other executives within the same company) for "taste infringement" because the taste is so similar. Personally, I find commercials about faux lawsuits HILARIOUS. Ha ha ha. Except...if there isn't currently a cause of action for "taste infringement," with the expansion of IP rights, it may only be a matter of time... This turns the joke about how hard it would be to establish taste infringement on its head. Ironically, the commercial features Coke's actual lawyers. Yet more on this sorry story.

Posted by Eric at 09:14 AM | Content Regulation , Copyright , Domain Names , E-Commerce , Internet History , Licensing/Contracts , Marketing , Patents , Privacy/Security , Trademark | TrackBack

April 03, 2007

Utah Bans Keyword Advertising [Updated]

By Eric Goldman

Utah SB 236 (the "Trademark Protection Act"), enacted March 19, 2007

Legislators enact stupid laws all of the time, but some laws transcend mere stupidity and produce a single 3 letter response: WTF? And no legislature has passed more WTF Internet laws than Utah's. Consider this track record:

* in 1995, Utah enacted the nation's first digital signature legislation designed to spur PKI-based digital signatures. But no one cared, and no company ever qualified for the statutory safe harbor. Completely unused, last year Utah repealed the law entirely after 11 years of futility.

* In 2005, Utah passed a law requiring Internet access providers to allow Utah's AG nee porn czar to designate porn websites as off-limits in Utah. Utah had to repeal some of that law, but litigation over the remainder is ongoing.

* Utah recently enacted a "don't email the kids" registry. Putting aside the major problems of state-based email laws (i.e., mapping geographic-based laws onto a borderless email infrastructure), email is much more suited to client-side filtering than centralized do-not-contact registries, and there's always the risk of bad actors getting their hands on the database of kids' email addresses. As a result, this law is such a bad idea that even the consumer protection-oriented FTC advocated against it.

Based on this list alone, I think it's safe to say that Utah has an unrivaled track record of enacting dumb, regressive, unproductive Internet laws. But Utah's 3 year battle against keyword advertising represents the strongest support for this assertion.

In 2004, Utah enacted the Spyware Control Act, a completely misguided (and misnomered) law designed to protect a few noisy Utah trademark owners with weak trademarks (such as 1-800 Contacts and Overstock.com) from legitimate competition via adware. In the process, the law took technology out of consumers' hands--even if consumers wanted and valued the technology. I have previously deconstructed in great detail why this law was terrible policy.

Unfortunately, our system doesn't have good checks/balances against dumb laws other than voting the politicos out (hey, Utah readers--hint hint). Fortunately, the initial implementation of the Utah Spyware Control Act was so grossly and obviously unconstitutional that a judge had no problem quickly enjoining the law in summer 2004.

Recognizing the futility of defending that law, Utah abandoned it and amended the Spyware Control Act in 2005 to merge it with trademark law. These amendments effectively eviscerated the law because, as amended, the law required plaintiffs to establish that keyword advertising via adware made a trademark use in commerce. This legal proposition was soundly rejected in the Second Circuit's subsequent holding in 1-800 Contacts v. WhenU. After that ruling (even though it wasn't binding on Utah courts), it's relatively clear that the post-2005 Spyware Control Act failed.

Apparently undeterred by its first two misfires with the Spyware Control Act, Utah has tried to enact regressive anti-consumer legislation for a third time. This time, they've stopped messing around with adware vendors. Instead, they have made a frontal assault on all keyword advertising across-the-board. So this law now appears to cover anyone selling keyword ads, including every major search engines (including Google), many adware vendors, and plenty of other e-commerce sites (eBay, Amazon, etc.).

Specifically, the law creates a new intellectual property right called an "electronic registration mark," defined as a "word, term, or name that represents a business, goods, or a service." This definition may be broad enough to protect domain names even if the domain names are otherwise generic or unprotectable under TM law. Owners of eligible words can register the terms in a new registry by paying a nominal fee.

Once registered, an infringement occurs if another person "uses an electronic registration mark to cause the delivery or display of an advertisement for a business, goods, or a service: (i) of the same class, as defined in Section 70-3a-308, other than the business, goods, or service of the registrant of the electronic registration mark; or (ii) if that advertisement is likely to cause confusion between the business, goods, or service of the registrant of the electronic registration mark and the business, goods, or service advertised."

I read this law to restrict all competitive ad buys of registered terms, even if the advertiser is engaged in comparative advertising that would be completely permissible under existing trademark law and not confusing to any consumer. (Interestingly, the law apparently excludes ad buys by affiliates unless their ad buy causes confusion.) Both the advertiser and the ad vendor are on the hook for an infringement.

To try to limit the law's effect to just Utah, the law only applies if the ad is displayed in Utah or the advertiser or keyword vendor is located in Utah. This caveat tries to overcome the obvious dormant commerce clause problems with this law. Utah, of course, is familiar with this problem given that the first version of the Spyware Control Act was struck down on DCC grounds.

But does this qualifier save the law? The practical reality is that every advertiser, wherever they are located, would have to check Utah's registry before buying keywords that might contain a trademark of a competitor, either because the competitor might be located in Utah or the competitor might have a registration nonetheless and the ads will be displayed to Utah residents (there's no way to buy keyword ads that exclude delivery to Utah residents). So I'm 100% convinced that this law has an extraterritorial effect.

However, I've made the same argument about state do-not-spam registries (where a sender based outside Utah must check the Utah registry before sending) and other state anti-spam laws, yet most of those laws have survived a DCC challenge--including a very recent DCC challenge to Utah's don't-spam-the-kids registry (See Free Speech Coalition v. Shurtleff, 2:05CV949DAK (D. Utah March 23, 2007)). Despite that, Utah's general counsel informed the legislature that the law probably violated the DCC, and I can't imagine judges won't find that compelling. Further, there are other grounds for a challenge here, including the First Amendment and other types of preemption. So I'm reasonably confident that the law ultimately will be struck down on some basis when challenged, although plenty of resources will be needlessly spent in the process.

Irrespective of the legal analysis, I'd be remiss if I didn't say what we're all thinking: this law is terrible policy created by a legislature out of control. We've learned over the last 15 years that keywords are a uniquely empowering tool to enable consumers to express their interests more accurately, concisely and cheaply than other alternatives, which in turn enables intermediaries like search engines to cater to their informational interests. The result is lower search costs for consumers, which in turn creates big social welfare payoffs by making more socially beneficial matches between consumers and producers. So as a matter of social policy, we should be encouraging the use of keywords, not banning it (see my extended support for this argument here (and, to a lesser extent, here)).

UPDATE: Whoops, I can't believe I forgot to mention this. On top of the major DCC problems with the law, there's a very good argument that search engine/online intermediary liability under this law is preempted by 47 USC 230. Last week, the Ninth Circuit in Perfect 10 v. CCBill held that 47 USC 230 preempted all state IP claims, including state TM laws. Online intermediaries can argue that advertisers select the keywords and provide the ads, meaning those items are "provided by another information content provider," in which case online intermediaries should not be liable for that content. This argument won't help advertisers themselves, so the law still creates plenty of friction for online advertising and could still hurt online intermediaries by suppressing demand for their ad inventory. However, if other courts buy the Ninth Circuit's reading of 47 USC 230, any frontal assault on Google or adware companies using this law might very well fail.

UPDATE 2: In response to this post and others, Sen. Eastman has blogged an explanation/defense of the law. I link to his post and provide more commentary in this post.

Posted by Eric at 01:58 PM | Adware/Spyware , Derivative Liability , E-Commerce , Search Engines , Trademark | TrackBack

March 25, 2007

Miva Securities Litigation Rejects Most Click Fraud/Syndication Fraud Claims

By Eric Goldman

In re Miva, Inc. Securities Litigation, 2007 WL 809686 (M.D. Fla. Mar. 15, 2007)

Stockholders of Miva (formerly FindWhat) sued Miva, alleging that Miva had inflated its stock price by making false public statements. In this ruling, Miva successfully dismisses most of the allegations, substantially narrowing the lawsuit. While Miva would have liked to dismiss the complaint entirely, Miva can still find some solace in the fact that the court clearly was underwhelmed by the overreaching nature of the plaintiffs' claims.

The Allegations

The court reports the plaintiffs' allegations at the center of the lawsuit:

two of FindWhat's main revenue generating distribution partners (Saveli Kossenko and Dmitri l/n/u), who represented 36% of FindWhat's revenues, were using illegal means to inflate revenues. This included the use of spyware, browser hijacking software, and “non-human traffic.” The use of such illicit methods of creating internet traffic, commonly referred to as “click-fraud,” meant that advertisers were not forwarded legitimate leads of consumers interested in acquiring their products. This resulted in advertisers refusing to place high bids with FindWhat, causing FindWhat's revenue shortfall to worsen…

Based on this, the plaintiffs introduced eleven public statements to show that Miva was painting a rosier picture than reality, including the following statements:

1) 9/3/03 press release: "Through FindWhat.com, online marketers are able to cost-effectively promote their websites and find highly qualified prospects who have already expressed an interest in their product or service." The court says that the plaintiffs did not allege that the defendants knew its two distributors were sketchy in September 2003.

2) 9/19/03 press release: "The FindWhat.com Network includes hundreds of distribution partners, such as CNET's Search.com, Excite, Webcrawler, MetaCrawler, Dogpile, and Microsoft Internet Explorer Autosearch." The implication is that the defendants had a high quality distribution network when they didn't. The court soundly rejects this contention, saying:

Stating that the FindWhat network “includes hundreds of distribution partners” and identifying seven of the well-known distribution partners says and implies nothing about the Saveli and Dmitri traffic. The press release did not claim these distribution partners were representative of the others, and made no assertion as to the traffic attributed to any of them.

3) 10/20/03 press release: "FindWhat.com's services are a source of revenue and relevant keyword-targeted listings for its partners, while providing its managed advertisers with exposure to potential customers across the Internet. As with the Yellow Pages in the offline world, FindWhat.com's managed advertisers get their message in front of prospects at the exact time they are looking for the advertisers' products and services. Unlike the Yellow Pages, advertisers only pay for those visitors that “walk” into their virtual stores." The court says that this quote does not address the quality of FindWhat's network.

4) 12/10/03 press release: "FindWhat.com operates online marketplaces that connect the consumers and businesses that are most likely to purchase specific goods and services with the advertisers that provide those goods and services....This cost-effective, pay-for-performance model allows Web advertisers to pay only for those prospects which click-through to their sites, and increase their potential for exposure through the millions of advertisements distributed throughout the network per day." The court says this press release predates Miva's alleged knowledge of click fraud in its network, which (as alleged by plaintiffs) started June 2004.

5) 3/5/04 10-K: "We expect that our consultants, agents, resellers, distributors, subcontractors, and other business partners will adhere to lawful and ethical business practices. It is important to our company's reputation that we avoid doing business with companies which violate applicable laws or have reputations which could harm our business. Our policy prohibits engaging agents or other third parties to do indirectly what we as a company should not do under our own policies outlined in this code....The FindWhat.com Network is dedicated to delivering high-quality keyword ads as a result of an Internet user's search query. As such, we have written and strictly enforce advertising guidelines to try to ensure high relevancy standards....We are dedicated to delivering high-quality traffic to our advertisers' websites. We employ an integrated system of numerous automated and human processes that continually monitor traffic quality, often eliminating any charges for low quality traffic proactively from the advertisers' accounts. We enforce strict guidelines with our Network partners to ensure the quality of traffic on the system....We purchase Internet traffic from our distribution partners. Expressed as a percentage of revenue, Internet traffic purchases from one distribution partner represented over 10% of total revenue for each of fiscal 2003 and 2001 and Internet purchases from two individual distribution partners represented over 10% of total revenue for fiscal 2002....During the years ending December 31, 2003, 2002, and 2001, no advertiser represented more than 10% of the Company's total revenue. The Company purchases Internet traffic from distribution partners. Expressed as a percentage of revenues for the year ending December 31, 2003, Internet traffic purchases from one distribution partner represented over 10% of total revenue, for the year ending December 31, 2002, Internet traffic purchases from two distribution partners each represented over 10% of total revenue, and in the year ending December 31, 2001, Internet traffic purchases from one distribution partner represented over 10% of total revenue. However, none of these distribution partners represented more than 15% of total revenue during the three-year period ended December 31, 2003."

Plaintiffs take several swipes at this language, including (a) its 2 distribution partners had acted unethically, (b) the math doesn't add up when 2 distribution partners were about 1/3 of total revenues, and (c) Miva had failed to strictly enforce its policies against the distribution partners.

The court says that there was no promise that all business partners were ethical, dedication to a high-quality network isn't inconsistent with having some bad apples in the network, Miva properly disclosed that 2 distributors represented over 10% of revenue, and these statements were mostly protected forward-looking statements tempered with appropriate cautionary statements.

6) 7/6/04 conference call statements about revenue growth. The court says these statements weren't alleged to be untrue. Also, the plaintiffs alleged that Miva had an obligation to disclose bid deflation, but the court says that this wasn't required in a between-reporting-period conference call.

7) 11/1/04 conference call: an analyst asked about Miva's traffic sources, Although the Miva execs gave a garbled and ambiguous response, the court says that both execs' responses were the equivalent of "no comment."

8) 12/16/04 Jeffries research report. The court says that statements in that report don't bind Miva because they were made by an independent analyst.

9) 2/23/05 press release: Miva made some projections for 2005 revenue, which plaintiffs say were tainted by the fact that they included revenue from the questionable distributors. The court says that these projections were protected forward looking statements.

10) 2/23/05 conference call: Miva claimed that it has terminated specific rogue distributors, but plaintiffs introduced evidence that in fact Miva hadn't terminated those distributors. The court said that this was adequately pled.

11) 3/16/05 10-K. "Plaintiffs allege that statements made in the Form, “[w]e do not rely on ‘spyware’ for any purpose and it is not part of our product offering,” were false and misleading because the two largest distribution partners did in fact rely upon spyware. (¶¶ 89-90.) Additionally, statements made in the Form assuring that FindWhat was implementing screening policies and procedures to minimize fraudulent clicks were allegedly false and misleading because Defendants knew or should have known that the majority of their distribution network relied on click fraud, (¶¶ 91-92); statements made that “none of the traffic purchased from any of these distribution partners represented over 10% of consolidated revenue in 2004” were false and misleading because the percentage of revenue generated by two distribution partners exceeded the threshold without disclosure, (¶¶ 93-94); and statements that distribution partners were taken off line in the fourth quarter of 2004 were untrue. (¶ 96.)" The court said that these were adequately pled.

Implications

All told, the court dismissed the lawsuit for 9 of the 11 statements identified by the plaintiffs, leaving only statements #10 and 11 for further proceedings. As with the other recent Miva click-fraud ruling, Miva would have loved to see the entire lawsuit dismissed, but the lawsuit’s narrowing still represents good news for them.

This lawsuit also illustrates how hard it will be for the plaintiffs to succeed in the "syndication fraud" lawsuit against Yahoo from last year. Although Yahoo used different language, the court’s ruling regarding statements #2 and 3 pertain directly to the gist of the Yahoo plaintiffs’ allegations. That lawsuit is currently on hold while the parties try mediation and settlement discussions, but as part of those discussions I suspect Yahoo will be pointing this opinion out to the plaintiffs.

Posted by Eric at 03:05 PM | Adware/Spyware , E-Commerce , Marketing , Search Engines | TrackBack

February 02, 2007

January 2007 Quick Links

By Eric Goldman

* Marketers (including Microsoft) are paying authors to write Wikipedia entries. Surprised?!

* Also on the topic of Wikipedia and marketers, Wikipedia has tagged all of their pages NOFOLLOW so that there's no way a marketer or website can get PageRank credit from inserting a link in Wikipedia. A reporter emailed me to ask "Do you think this move staves off the potential demise you have predicted?" My response: "No. This was actually raised in the comments to my initial post on the topic in Dec. 2005. Two points: (1) People who recycle Wikipedia content on their own site (such as Answers.com) may not use the nofollow attribute, so there still may be a PageRank payoff by inserting links on Wikipedia pages. (2) More importantly, marketers may want Wikipedia traffic directly (rather than the indirect boost in search engines). Wikipedia is already highly placed in the search engines, so it is a big traffic source in its own right."

* Speaking of my prediction of Wikipedia’s future, NPR picked up on it.

* Now that MyBlogLog is owned by Yahoo and thus increasing its traffic, Greg Linden reports that it's getting spammed.

* I previously reported that ICANN was thinking about retiring some TLDs. The first casualty? .um (for US Minor Outlying Islands, such as the Midway and Johnston Atolls), which got chucked because the registry operator didn't want to continue operating it and there were no registrations in the TLD.

* "The Search Tax: Are Search Engines Leeches?" This article discusses the role of search engines as intermediaries between consumers and marketers, able to charge marketers for access to consumers (hence, the "tax" reference). The article also discusses the value of buying trademarked keywords:

What's difficult for marketers to swallow, however, is the clear evidence the search engines (and affiliate marketers with good organic rank on brand terms) have the power to insert themselves between the consumer and the brand, even when consumers clearly have an interest in the brand (as indicated by their search query containing the brand or trademark).

Marketers' temptation may be to refuse to pay for brand keywords, sticking instead to the generic keywords that are also clearly aimed at any given target audience. In every case we've tested (and I have tested many and will likely test many more), that would be a mistake, even when the marketer has high organic rank on his brand. The results of every test we've executed indicate the incremental gain received when paying for traffic on a brand term has a very high net ROI (define) because: [1] Significant additional screen real estate on the SERP is gained. [2] The total control over title and description allows for greater offer control. [3] Top positions on one's brand usually aren't very expensive due to the engines' relevance algorithms. [4] The ability to control and tune the landing page results in a conversion rate percentage in many cases is higher for the combined pages than for one alone.

* We might consider the contrast between the prior post and this one: "Should Google Pay Off Brand Owners With Cut Of Keyword Sales?"

* Brand advertisers resist using Google because Google doesn't allow third party ad serving technology. But compare a BusinessWeek article reporting that big brands are buying up CPC inventory and pricing out small- and medium-sized advertisers.

* Google revised its algorithm to eliminate most of the famous Googlebombs (like "miserable failure"). Danny's recap. Google hasn't specified details, but I'm assuming that Google has somehow reduced the weight given to anchor text.

* A search engine marketer predicts the death of SEO with the emergence of personalized search. I agree! (HT: Greg Linden).

* eBay is blocking the auction of virtual assets due to the "legal complexities" of such sales. Because of its differentiated EULA, Second Life virtual assets can still be auctioned. The News.com article suggests that these transactions will move from eBay to other trading fora. Even so, this might inhibit the liquidity of these secondary market transactions, which could reduce the return of virtual asset speculators.

* According to Jakob Nielsen, about 1/2 of online giftcard recipients either junked their email notification or didn't trust it (i.e., thought it was phishing).

* HER, Inc. v. Re/Max First Choice, LLC, 2007 WL 43747 (SD Ohio Jan. 5, 2007). Competitor 1 registers domain names containing Competitor 2's trademarks, Competitor 2's principals' names and the principals' home address and phone number. The domains roll over to Competitor 1's website. Competitor 1 then sends a couple of gripe spam to Competitor 2's employees from some of the registered domain names bashing Competitor 2's business practices. The court isn't sympathetic, granting a PI based on ACPA and trademark infringement. While this type of competitor-bashing isn't permissible (and, frankly, registering domain names with the target people's home address and phone number is bizarre), Competitor 1 should have been able to find ways to deliver the same content without running afoul of the law.

* Google has lost an appeal at the OHIM in Europe over the rights to use the trademark "Gmail" for its email services.

* Does a "lactivist's" t-shirt saying "the other white milk" infringe the Pork Board's trademark in "the other white meat"? No, and what a dumb question!

* The RipOffReport.com has appeared on this blog several times (see here and here, among others). The Phoenix New Times (the local Phoenix alternative weekly) runs a lengthy and interesting story about the Ripoff Report and its principal, Ed Magedson. Worth reading.

Posted by Eric at 02:08 PM | Domain Names , E-Commerce , Licensing/Contracts , Marketing , Search Engines , Spam , Trademark , Virtual Worlds | TrackBack

December 22, 2006

Top Cyberlaw Developments for 2006 – Part 2

By John Ottaviani

(Eric Goldman is away until the New Year. He left me the keys to the blog. I warned him that this may be like leaving the teenagers the keys to the house when the parents go away for the weekend!)

As Eric pointed out, our “Top Ten Cyberlaw Developments for 2006” list left out several notable developments. Here are a few more that were “near misses” for the list. In no particular order of importance:

· Electronic Voting – There was a lot of buzz about electronic voting and the perceived failures of the various systems. Given the proliferation of machine-human interfaces that we encounter on a daily basis, it is difficult to comprehend why problems continue to plague this industry.

· Apple v. Does – A California state appeals court held that online journalists had the same right to protect the confidentiality of their sources as offline reporters do under California’s reporters’ shield law. This result is not surprising, but it appears to be the first formal confirmation that courts would apply the same rules to traditional and online reporters. In addition, the court ruled that the federal Stored Communications Act does not permit a civil subpoena of stored e-mail from a service provider, only direct subpoenas from the account holders.

· Snow v. DirecTV – In June, the 11th Circuit held that, in order to be protected by the Stored Communications Act, an Internet website must be configured in some way as to limit ready access by the general public. An anti-DirecTV activist had created a public bulletin board, with a banner containing purported terms of service forbidding DirecTV representatives from entering the site or using its message board. However, the site was configured such that anyone in the public (including the DirecTV representatives) could enter the site, create a profile and use the message board. The court recognized Congress’s intent not to criminalize or create civil liability for acts of individuals who “intercept” or “access” communications or websites that otherwise readily are accessible by the general public. The court suggested that even a statement in the complaint that a plaintiff screens the registrants before granting access may have been sufficient to infer that the site was not configured to be readily accessible to the general public. However, in the absence of any such statements, the court granted DirecTV’s motion to dismiss for failure to state a claim. As a result, website operators who want to take advantage of the provisions of the Stored Communications Act must take some affirmative actions to be able to demonstrate that the website was not configured to be readily accessible to the general public. Relying on those who are not the website’s intended users to voluntarily excuse themselves will not be sufficient.

· eBay v. MercExchange – In May, the U.S. Supreme Court ruled that, once a patent is found valid and infringed, an injunction does not automatically have to be issued. Trial judges are free to weigh competing factors, including the effect of enforcing a patent on the public interest, as the trial judges do in other injunction proceedings. The case revolved around eBay’s “buy it now” feature, which allows customers to purchase items without participating in an auction. In 2003, a jury found that this feature infringed on two of MercExchange’s patents. The Supreme Court’s decision requires the patent owners show “irreparable injury” resulting from defendant’s infringement in order to receive injunctive relief. While this standard should be relatively straightforward for patent owners who practice their technology, the decision may lessen the ability of patent owners who don’t practice their inventions to obtain an injunction (or threaten to obtain one as a negotiating tool).

If anyone else has any Cyberlaw developments that they feel should be on the “Top Ten” list, please feel free to let us know!

Our list of “Top Cyberspace Intellectual Property Cases” for 2006 will be available in January.

Posted by John Ottaviani at 12:18 PM | E-Commerce , Patents , Privacy/Security | TrackBack

December 13, 2006

Unlawful Internet Gambling Enforcement Act of 2006

By Eric Goldman

No one is better at coughing up legislative hairballs than Congress. The Unlawful Internet Gambling Enforcement Act of 2006 (grafted to the end of the SAFE Port Act) was passed over 2 months ago, but my repeated attempts to blog on it have been stymied by its Byzantine drafting. If you want a flagship example of how special interest lobbying combined with legislative mumbling can produce an unreadable mess, check out this beauty.

The statute assumes that some gambling is unlawful under state/federal law, but it doesn’t say what. For example, there is a split of authority about whether the Federal Wire Act (18 USC 1084) already prohibited Internet gambling. This law doesn’t answer that question for us, although the statute (in response to special interest lobbying) “helpfully” excludes a number of specific gaming-related activities from its purview.

Because of the existing legal uncertainty and this statute’s deliberate decision not to address the uncertainty (see 31 USC 5361(b), saying that this law doesn’t change any state/federal/tribal law prohibiting or permitting gambling), no one knows with confidence what actually constitutes illegal Internet gambling. Despite this, Congress prohibits those engaged in the business of betting/wagering (an effectively undefined term) from accepting money in connection with illegal Internet gambling. In other words, Congress can’t figure out what’s illegal, but it’s happy to require some financial gatekeepers to make those decisions for it. There is some rulemaking to work out the procedures for how money should be blocked (AG Gonzales and the Federal Reserve Board get the pleasure of drafting those), so we’ll have to see what the rules say before we can tell how conservative financial gatekeepers will become.

To me, the more interesting piece relates to liability for interactive computer services. As a starting point, 47 USC 230 already immunizes ICSs from any liability based on state gambling laws or any federal civil laws related to gambling. However, 230 does not insulate ICSs against federal criminal laws. Thus, for example, if the Wire Act applies to Internet gambling, 230 would not apply, and ICSs could be criminally liable for third party gambling activity.

The statute partially reduces the 230 limitations by allowing the DOJ or state AGs to seek a court order requiring ICSs to take down a lawbreaking website. 31 USC 5365(c). Without this statutory exception, 230 should have barred any civil orders. At the same time, the statute appears to expand 230 protection to eliminate ICS liability under the Wire Act unless the ICS has “actual knowledge and control of bets and wagers” and owns or operates an illegal gambling website. I’m not exactly sure it means to have “actual knowledge and control of bets and wagers,” but my suspicion is that this defines a very narrow universe of activities. So, on balance, it looks like this law may have slightly expanded ICS immunization by providing some limits on ICS liability for third party criminal gambling activities.

Posted by Eric at 12:34 PM | Content Regulation , Derivative Liability , E-Commerce | TrackBack

November 21, 2006

Griping Blog Post Leads to Lawsuit--BidZirk v. Smith

By Eric Goldman

BidZirk, LLC v. Smith, 2006 WL 3242333 (D.S.C. Nov. 7, 2006)

Despite all of the hype about blog law, the reality is that we've had comparatively few blog-specific lawsuits. As a result, we give extra attention to the early disputes (like this one) as possible predictors of what's to come.

This case involves a classic griping blog post. The author, Smith, runs a blog called Fix Your Thinking, which purports to cover "editorial news & news commentary covering eBay & Apple drama." On Dec. 31, 2005, he ran a lengthy post entitled "Special Report: You Gotta Be Berserk To Use An eBay Listing Company! The Whole Story " In this post, he relates his unfavorable experiences with BidZirk, one of the many companies that help people resell goods on eBay. As part of this post, he used BidZirk's logos several times.

In response to this gripe post, BidZirk sued Smith for Lanham Act violations, defamation and invasion of privacy. Smith fought back with unspecified counterclaims. At a March 16 hearing, Smith promised to remove all but one of BidZirk's logos. On April 10, the judge denied BidZirk's motion for a preliminary injunction because Smith's use of the trademarks was for news reporting and commentary (which isn't actionable under trademark law). BidZirk has appealed the denial of the preliminary injunction to the Fourth Circuit Court of Appeals.

In the Nov. 7 ruling, the judge evaluates BidZirk's motion to dismiss Smith's counterclaims for lack of federal subject matter jurisdiction. Smith's counterclaims relate to his experiences with BidZirk and their dealings in litigation, neither of which the court felt were close enough to BidZirk's claims over the blog post to mandate consolidation, and there was insufficient basis to support federal jurisdiction otherwise. Presumably, Smith can reflie his claims against BidZirk in an appropriate state court.

Putting aside the procedural technicalities, I'm still stuck on why the plaintiff brought this lawsuit in the first place. Smith posted a very idiosyncratic story to a relatively low-profile blog about a small eBay reseller with 3 storefronts in South Carolina. As a result, I assume that very few people would notice the post, let alone be influenced by it. The lawsuit just escalate the attention paid to the post. Meanwhile, I haven't been able to work through all of the facts, but on its face the trademark claim appears pretty bogus, and the defamation and invasion of privacy claims could be as well. So I have an especially difficult time understanding how this lawsuit is economically rational. Finally, given the website modifications that Smith has already made, I can't figure out why BidZirk thinks that a preliminary injunction is worth pursuing all the way to the Fourth Circuit.

Of course, there is always the possibility that this lawsuit is not about the merits and instead is just an abusive effort to punish a blogger for speaking out.... In any case, the seeming illogic of this lawsuit illustrates why there are comparatively few blog-related lawsuits. Most of the time, it just doesn't make sense to sue over a blog post.

Posted by Eric at 02:11 PM | Content Regulation , E-Commerce , Publicity/Privacy Rights , Trademark | Comments (4) | TrackBack

November 03, 2006

October 2006 Quick Links

By Eric Goldman

* All the media wants to do is talk about Google. All Google, all the time. Three major pieces in the span of three days: The NYT on lawsuits against Google. The WSJ on Google's hiring practices. The Washington Post on Google's culture.

* William Slawski discusses some of Google's patent applications for technologies to minimize trademark liability for keyword-triggered ads. A new patent application (with Google's senior trademark counsel listed as an inventor!) was recently published entitled "Automated screening of content based on intellectual property rights." The patent application generally provides a system for bouncing ads that might be infringing. It's interesting that Google wants to patent this system to keep competitors from using it--Google already stands alone among the major search engines in continuing to permit unrestricted competitive keyword buys.

* Randall Stross on how venture capitalists like to invest their money within a 20 minute drive--one of the reasons why the Silicon Valley community is self-reinforcing. Even now, with fancy virtual technology, geography still matters--a lot.

* I've previously blogged on the dark side of consumer-generated content--that it can be a huge liability trap for unsuspecting consumers. And if consumers ever figure this out, we'll see the supply of consumer-generated content dry up. On that note, a negative peer review of a doctor led to a judgment of $142M against the reviewer, $32M against his colleagues, and $161M against the hospital. The judge haircut this down to "only" $23M, with only $12M coming from the reviewing doctor. With numbers like that, all of us are going to keep our mouths shut!

* Like we couldn't see this train wreck coming. Utah passes a law that kids' email addresses can be registered on a do-not-spam list. Whoops, the registry divulged some of these email addresses--gee, thanks for the help protecting the kids from porn spam.

* BusinessWeek has an important article on the impossibility of getting accurate metrics of online activity. If you are drafting web contracts, you as the lawyer absolutely need to clarify whose numbers will govern the contract (and, if the vendor's number controls, you may want to specify the methods for counting).

* CNET has a goldmine of emails and other documents from the HP pretexting scandal. Great fodder for real-life cautionary tales.

* Pinnacle was busted for running a Ponzi scheme. It turns out that Pinnacle had run ads in major publications like Newsweek and the WSJ. So the WSJ Law Blog surveys 2 experts--are newspaper publishers liable for fraudulent ads provided by their advertisers? Answer: No.

* Los Angeles Boy Scouts can earn a "Respect Copyright" activity patch. See the patch here.

* Braver v. Ameriquest Mortgage Co., CIV-04-1013-W (W.D. Okla. Oct. 20, 2006). Spammer generates mortgage leads, including one from an Oklahoma resident, and resells to defendant mortgage lead broker, who in turn flips the leads to Ameriquest. Mortgage lead broker is based in SC and sued in OK. Court grants broker's motion to dismiss for lack of jurisdiction. For more on the plaintiff's multi-year quixotic legal quest, see here.

* A now-familiar story. Teens party hard. Someone snaps photos and posts to MySpace. School finds out and disciplines partiers. The twist? The school only disciplined the female partiers, leading to a sexual discrimination lawsuit.

* Politicians are being Google-bombed by opponents to advance material critical of them.

Posted by Eric at 10:16 PM | Content Regulation , Copyright , Derivative Liability , E-Commerce , Licensing/Contracts , Search Engines , Spam , Trademark | TrackBack

October 19, 2006

Consumer Reviews May Lift E-Commerce Conversion

By Eric Goldman

Judith Chevalier & Dina Mayzlin, The Effect of Word of Mouth on Sales: Online Book Reviews, Journal of Marketing Research, August 2006. [see a free earlier version from 2003]

For a while, Epinions got into the "syndication" business. We aggregated all of the consumer-provided reviews and made them available for licensing to e-tailers. The intuition was that consumer reviews would "lift" e-tailers' conversion to sale, increasing profits by more than the license fee.

At the time, our data supporting this theory was a little sketchy, but now 2 professors at Yale's Management School have tried to quantify this by looking at the relationships between consumer reviews and sales at Amazon.com and BarnesandNoble.com. Their findings:

the addition of new, favorable reviews at one site results in an increase in the sales of a book at that site relative to the other site. We find some evidence that an incremental negative review is more powerful in decreasing book sales than an incremental positive review is in increasing sales. Our results on the length of reviews suggest that consumers actually read and respond to written reviews, not merely the average star ranking summary statistic provided by the Web sites.

These results are not trouble-free. The paper explains how the "sales rank" data at both Amazon and BN is unreliable. It also discusses how Amazon culled user-written reviews to unknown effect. Finally, it shows that reviews are generally positive, with the mode being a 5 star ranking and the mean being 4+.

Ultimately, I think this implicitly raises the issues of review credibility. Consumer reviews generated by most e-commerce sites tend to be "love it' or "hate it" with comparatively few nuanced reviews. (The paper shows that the 1 and 5 star reviews are generally shorter than the 2-4 star reviews). There's the risk of fake/shill reviews (recall the 2004 NYT story; see also this article on fake merchant ratings). And then there is the overall concern about decreased credibility of anonymous reviews.

According to this paper, it doesn't matter. E-commerce sites want to generate consumer reviews because it's almost guaranteed that positive reviews will be provided (either by shills or by the "love it" crowd), and these positive reviews will increase conversion to sale. So the consumer review system, seemingly exemplifying consumer empowerment, may just be a really clever artifice for consumer manipulation.

I can't say that Epinions avoids these pitfalls entirely, but the Epinions review-collection process is much more rigorous than a typical e-commerce website's collection system, and that rigor tends to enhance the production of credible reviews. In contrast, personally I would not rely on an Amazon.com (and certainly never on a BN.com) review to make a purchasing decision except as a starting point for more careful research from more credible sources.

Finally, the paper has a few other interesting tidbits, mostly explaining how BN.com is inferior to Amazon.com:
* prices at BN.com were consistently higher than at Amazon.
* Amazon.com had much better review coverage (87% to 46% of products)
* Amazon.com's reviews were longer than those at BN.com

Posted by Eric at 11:23 AM | E-Commerce | TrackBack

October 11, 2006

Article on Regulating Marketing--A Coasean Analysis of Marketing

By Eric Goldman

Eric Goldman, A Coasean Analysis of Marketing, 2006 Wis. L. Rev. __ (forthcoming).

In 2001, I had a career-altering epiphany while I was working at Epinions (this is the topic that prompted me to consider becoming a full-time academic). Epinions was morphing from a content generation engine (generating consumer reviews of products and services) into a shopbot where a core value proposition was to refer users to vendors to consummate transactions. As we made this transition, I realized that we were really entering the attention broker business. We aggregated consumer attention, principally from search engine referrals, using copyrighted content (the consumer reviews) as marketing to capture consumer attention. We then redirected that attention to vendors for our economic benefit. To the extent we bought the consumer's attention (say, through paid search listings), we were just in the attention arbitrage business (i.e., we wanted to sell the attention for more than we paid to buy it).

As a result, I realized that we competed against every other attention broker, including adware vendors (who were nascent in 2001), spammers, and every other marketing intermediary. But I couldn't resolve an underlying question--what gave us (or anyone) the right to broker a consumer's attention? Who "owned" attention, and when was it permissible to profit from someone else's attention?

It took me 5 years and 8 complete rewrites to complete my paper, A Coasean Analysis of Marketing, that answers these questions. This was one of the hardest things I've ever done professionally. It was truly a labor of love!

Part of my difficulty is that I ultimately realized that "attention" wasn't the real issue (and, in fact, it was distracting me). Instead, "attention brokering" is really a matching problem--marketers and consumers want to match with each other, but the matching process is costly. In particular, the key challenge is that consumers incur costs to express their preferences, a problem exacerbated by rising data glut.

Thus, the only sustainable solution allows consumers to express and manage their preferences at a near-zero cost. This will require a technological, not legal, solution, and the technology will look a lot like what we currently call adware and spyware. In turn, we may be doing ourselves a disservice if our efforts to regulate adware and spyware inhibit the development of technology that provides improved marketer-consumer matching in an information overload environment.

Certainly, many of these themes will be familiar to blog readers. However, this article ties together numerous threads that I've addressed on an ad hoc basis and, for the first time, lays out my vision comprehensively. Thus, I hope you'll take a look at it. I welcome your comments and thoughts.

Some discussion about the article from around the blogosphere:

* Peter Huang's comments
* Frank Pasquale's comments
* Conglomerate Junior Scholars Workshop comments (including responses to Peter's and Frank's comments)
* Daniel Solove's comments

The abstract:

Consumers claim to hate marketing - mostly, because they get too much unwanted marketing. In response, regulators develop medium-by-medium marketing suppression regulations. Unfortunately, these ad hoc solutions do little to satisfy consumers, and dynamic technologies and business practices quickly render them moot. Instead of continuing this cycle, there would be some benefit to developing a cross-media marketing regulatory scheme.

However, any holistic solution must be predicated on a clear rationale for regulating marketing. The most common justification is that marketing imposes a negative externality on consumers, but this argument ignores the private and social welfare created by marketing and can lead to cost overinternalization and marketing undersupply.

The Coase Theorem also suggests that social welfare improves by reducing the costs of matching marketers with interested consumers. To achieve this, consumers need a low cost but accurate mechanism to manifest their preferences. This Article shows that typical regulatory and marketplace solutions do not provide effective mechanisms.

Instead, marketer-consumer matchmaking will improve from technology that will automatically infer consumer preferences and use these inferences to filter incoming marketing and seek out wanted content. This technology is rapidly emerging, but regulation of surreptitious monitoring devices (like adware and spyware) may inadvertently block the development of this socially-beneficial technology. As a result, current regulatory overreactions to developing technology may counterproductively foreclose social welfare improvements

Posted by Eric at 11:33 AM | Adware/Spyware , E-Commerce , Marketing , Privacy/Security , Search Engines , Spam | TrackBack

October 09, 2006

Must Websites Comply with the ADA (and State-Law Equivalents)? National Federation of the Blind v. Target

By Eric Goldman

National Federation of the Blind v. Target Corp., No. C 06-01801 (N.D. Cal. Sept. 6, 2006)

This case got a fair amount of attention when it first came out, so I'm a little late to this party. However, I think there were some key points from this case that got overlooked.

Must Websites Comply with the ADA?

To the limited extent addressed by the precedent, websites have not been obligated to comply with the ADA (or similar anti-discrimination laws). See, e.g., Access Now v. Southwest Airlines; Noah v. AOL. This is because the laws apply to physical spaces, not virtual spaces. This opinion breaks with the precedent by denying a motion to dismiss by target.com. Thus, this case could stand for the proposition that websites may be required to comply with the ADA.

However, I think this opinion is substantially narrower than that. The court says that target.com may be tightly integrated with Target's physical stores to the point where the inability to use the website may interfere with blind people's ability to fully enjoy the physical stores. (On that front, FN 4 is telling: "It appears from a review of the website in question—which the court notes is not in evidence but nonetheless does raise some questions—that Target treats Target.com as an extension of its stores, as part of its overall integrated merchandising efforts.")

Thus, this reasoning should only apply to "bricks 'n' clicks" retailers who have both physical and online stores and integrate the two. Thus, the reasoning does not apply to pure e-commerce retailers with no offline stores or to web publishers of any sort. It should also exclude retailers who completely separate their online and offline stores.

(Having said that, it's a no-brainer that businesses should try to accommodate blind visitors to their websites; not only are blind visitors a valuable market segment, but it's the right thing to do).

In any case, the court just refused a motion to dismiss. As a result, Target's ultimate liability remains to be determined. It may be noteworthy that the judge denied the motion for a preliminary injunction despite the favorable legal ruling to the plaintiff.

Must Websites Comply with State-Level ADA Equivalents?

I think the even more important ruling in this case relates to the dormant commerce clause (DCC). Based on the DCC, Target tried to dismiss claims under some California state laws that overlap the ADA. This is not a new issue on the Internet--there is a pretty good list of DCC cases, but with an odd split. In one line of cases, I believe every court that has opined on state anti-Internet porn laws have deemed them invalid under the DCC. In contrast, most other courts, especially those involving anti-spam laws, have upheld state Internet regulation from DCC challenges.

Here, Target argues that the CA ADA-equivalents will have an extraterritorial effect by forcing Target to change its website even for non-CA residents. Judge Patel breezily dismissed this argument, saying that Target should just build a CA-specific website to comply with CA law. She continued:

Pataki asserts that someone who puts content on the internet has “no way to determine the characteristics of their audience . . . [such as] age and geographical location.” Pataki, 969 F. Supp. at 167. This is simply incorrect. It is common practice for websites for entities operating in multiple countries to have a single site that directs customers to different versions based upon language. Websites can determine the location of a user from information they provide, such as a credit card number, or from the internet service provider an individual uses. It may, or may not, be prohibitively expensive for a website to tailor its content based on the location of its users, but it is certainly technically feasible.

It's true that this is technically feasible, but that's hardly insightful. Other than outcomes that break the laws of physics, anything is possible with the proper application of time and money. But this argument misses two critical points.

First, applying CA law here to require Target to display an interstitial page to request geographic information from web visitors may regulate the interaction between two entities not resident in CA. (This is harder to see when Target chooses to do business generally in CA, but consider this argument in the context of the Alaska anti-adware law where I believe no adware vendor is resident in Alaska but they still must ask non-Alaskan residents for geographic information due to the Alaska law.) This is exactly the kind of extraterritorial effect that the DCC should preclude. This is also a place where the Internet is just different from offline circumstances because of an implicit tautology: the laws require websites to authenticate visitors to determine if these visitors trigger the website's requirement to comply with the law--thus, the laws required the websites to take certain steps even in the circumstances where the laws don't apply because the interaction is between two non-residents. (Which is almost certainly true in 99%+ of adware downloads putatively governed by "ask geography before downloading" requirement of the Alaska anti-adware law).

Second, and more importantly, this would be a terrible policy result. It's hard to imagine the counterfactual Internet where every website visitor is bombarded by interstitials or pop-ups from every website requesting geographic information before they can proceed to see the website's contents. This would be a horrible user experience that would inhibit the seamless floating from website to website that characterizes the web's link economy. We just won't go across websites as freely as we do today. Also, some users would be uncomfortable with providing geographic information to the website. (Some users provide this geographic information unwittingly through their IP addresses, but many do not).

The battle over geographic authentication rages on, and this case's pithy analysis doesn't do much to advance our understanding. Nevertheless, it gives us another important data point that our days of being able to browse the web without constant self-reporting of geography may be numbered. Personally, if that comes to pass, I'll miss the Internet the way it is today.

Posted by Eric at 02:50 PM | Adware/Spyware , Content Regulation , E-Commerce , Spam | TrackBack

October 01, 2006

Sept. 2006 Quick Links

By Eric Goldman

Some stories that caught my eye in September:

* Digg users are gaming the Digg algorithm. Greg Linden's take. Naturally, Digg is fighting back by tweaking its algorithm to reduce the effect of gaming and preserve some editorial integrity to its results. Hmm...this sounds familiar. As I've argued, users inevitably will game algorithms, websites will tweak the algorithms, and the cycle will repeat infinitely. It is the Law of Algorithms. For a user revolt/algorithmic assault that I "enjoyed" first hand, see here.

* Rebecca blogs on "mocketing," the process where brand owners pay people to parody their brands, and its potential implications for trademark law.

* Starbucks emails employees a coupon for a free drink and encourages them to forward the email coupons on to friends and family. A few trillion emails later, Starbucks realizes that it made a horrible mistake and dishonors the coupons. Now, they're staring down a $114M class action lawsuit. See the coupon and more details here. Practice pointer for marketers: NEVER EVER encourage email recipients to forward the emails on to friends and families, especially if some benefit putatively will attach. It's a sure-fire way to become an instant urban legend, and some variation of these emails will still be making the forwarding rounds in the year 2525. Tsan offers some more practice pointers.

* BusinessWeek recaps the social science literature on how eBay sellers can maximize revenues. Recommendations based on the literature: set low starting prices; don't use reserves; use photos; don't flood the market; spell check; use hype; hold longer auctions; watch the auction's ending time; don't overcharge for shipping; and avoid negative feedback.

* About 1 of every 2 searches involves "pogo-sticking" (reviewing a search results page, investigating a search result and back-buttoning to the search results page). Yet more social science demonstrating the junkiness of the initial interest confusion doctrine--consumers have figured out how to investigate search results and back out if they are not relevant.

* In a default judgment, an Illinois judge ordered UK-based Spamhaus, one of the email blocklist maintainers, to pay e360 Insight LLC $11.7M in damages for blocklisting them and to post a note acknowledging that they aren't spammers. However, it remains unclear how e360 can enforce this ruling.

* Google lost a Google News copyright case in Belgium. For a critical view of this case, see Ross Dunn's take. Google's official statement.

* Lengthy NYT article on Marshall, TX, with the second-largest patent docket in the country. Why? Fast trials, plaintiff-favorable results (78% pro-plaintiff instead of a national average of 59%), and Texas-sized damages. More on Marshall as patent litigation capital available here.

* AOL has been sued for its release of search data. Danny's take. Two things: (1) I can't see the ECPA claim at all. A search request is a communication between party A (searcher) and party B (search engine). There's no ECPA violation when either A or B discloses the contents of that communication. However, I think search engines make their life harder when they take the position that they make the factually unsupportable argument that they are just passive conduits between searchers and web publishers (see Field v. Google). (2) the complaint takes the position that AOL is continuing to disseminate the search data because it continues to display search results linking to the data. I think this argument has lost all credibility in the copyright arena; it seems equally bogus here.

* A three year old kid knows how to "buy it now."

* NYT on "orphan brands"/"dormant brands" and efforts to license and revive these brands.

* The US officially joined the Council of Europe (COE) Convention on Cybercrime. It becomes effective Jan. 1, 2007.

* My colleague Tyler Ochoa explains the fallacies of Huntington Beach's trademark claims for the phrase "Surf City USA."

Posted by Eric at 11:07 AM | E-Commerce , Marketing , Patents , Privacy/Security , Search Engines , Spam , Trademark | TrackBack

September 22, 2006

New York v. Direct Revenue Amicus Brief

By Eric Goldman

David Post, Scott Christie and I have filed an amicus brief in New York v. Direct Revenue LLC, No. 401325/06 (N.Y. Supreme Ct.), one of Spitzer's office's high-profile enforcement actions against adware companies.

Among other aggressive positions, the NYAG's office argues that Direct Revenue committed deceptive trade practices by disclosing certain information only in the EULA. Our amicus brief notes the potential implications of this argument given the ubiquity of clickthrough agreements as a disclosure mechanism on the Internet. We don't opine on Direct Revenue's specific practices, but we express concern that the expedited procedure chosen by the NYAG's office isn't the right venue to set precedent implicating the practices of millions of companies.

Posted by Eric at 10:45 AM | Adware/Spyware , E-Commerce , Licensing/Contracts | Comments (1) | TrackBack

September 21, 2006

eBay User Agreement Upheld, Part II--Durick v. eBay

By Eric Goldman

Durick v. eBay, 2006 WL 2672795 (Oho Ct. App. Sept. 11, 2006)

I didn't anticipate this being eBay Law Week, but these issues often seem to arise in cycles. Yesterday I blogged on the Nazaruk case, which upheld eBay's forum selection clause. In that post, I claimed that the Nazaruk case was, to my knowledge, the only currently published opinion upholding eBay's user agreement.

It turns out that a few days before the Nazaruk case, an Ohio appellate court upheld the eBay user agreement. Not only that, Durick was issued by an appellate court, making it the only currently binding precedent that eBay's user agreement is enforceable.

In the Durick case, the plaintiff tried to sell various bottles, in some cases containing prescription drugs or hazardous materials that putatively violated eBay's user agreement. eBay issued 12 warnings to plaintiff over 2 years and then finally suspended his account. Instead of seeking reinstatement, the plaintiff ran to the courthouse, claiming that eBay was in breach of contract by suspending him because his auction items didn't violate the user agreement.

The court dispenses with this lawsuit pretty efficiently. It says that there was a binding contract, the plaintiff violated the contract and therefore eBay wasn't in breach of its contract. SJ for eBay.

Two interesting tidbits:

1) The court says: "The language contained in appellee's user agreement is clear and easily understandable." eBay will happily cite this sentence in future opinions!

2) eBay's user agreement has a lengthy list of documents incorporated by reference, including its "Prohibited, Questionable & Infringing Item Policy," which in turn contains sub-documents incorporated by reference, including its "Prescription Drugs" policy and its "Hazardous, Restricted, and Perishable Items" policy. Thus, for the plaintiff to see the applicable restrictions, he had to scroll down the lengthy eBay user agreement, choose from a variety of referenced links, and click at least two pages down. The court doesn't seem to care at all about this user interaction process, treating the distantly incorporated terms as an integral and enforceable part of the agreement.

Posted by Eric at 09:56 AM | E-Commerce , Licensing/Contracts | Comments (1) | TrackBack

August 01, 2006

Amazon’s Display of Book Cover Doesn’t Violate Publicity Rights—Almeida v. Amazon.com

By Eric Goldman

Almeida v. Amazon.com, Inc., 2006 U.S. APP. LEXIS 17989 (11th Cir. July 18, 2006)

Introduction

Product photos on e-commerce websites’ product pages are a notorious liability trap. During my tenure at Epinions, product page photos were the only reason why we actually got sued (twice…ugh).

Product photos can raise some pernicious copyright issues, but in this case, the plaintiff sues Amazon for publicity rights violations. Ultimately, the court rules in favor of Amazon, effectively creating a strong precedent that online booksellers are immune from right of publicity claims for displaying book covers, even if the publisher in fact violated the right of publicity. However, the court indulges in a sloppy analogy to offline bookstores that may limit the scope of this opinion to just online booksellers and perhaps a few other media vendors. The case is also noteworthy for a goofy but irresolute discussion of 47 USC 230.

Facts

A publisher published a child’s photo on the cover of a book. The publisher got the requisite publicity consent for the first edition, but there are differing views about whether the consent extended to a second edition. Amazon displayed the second edition's book cover on its product page for the book. The plaintiff sued Amazon for publicity and privacy rights violations (these ultimately merged) and civil theft.

Right of Publicity and 47 USC 230

The district court dismissed the publicity rights claim based on 47 USC 230. This was an interesting ruling because 47 USC 230 doesn’t preempt “intellectual property claims,” so the question arises—is a publicity rights claim an IP claim? A precedential case (Perfect 10 v. ccBill) expressly says yes, Black’s Law Dictionary includes publicity rights in the definition of IP, and I venture that most IP professors cover publicity rights (albeit briefly) in IP survey courses. So I think many of us have assumed/believed that 230 does not preempt publicity rights claims.

The appeals court discusses this issue in some detail but ultimately punts on the question. Instead, it explicitly says it’s not opining on the question, basing its ruling on other grounds. So a definitive resolution of 47 USC 230’s application to publicity rights claims will have to wait another day.

Along the way, the court drops some very unfortunate dicta into a footnote. Agreeing with some confusing dicta from the 7th Circuit’s Doe v. GTE case, this court says 230(c)(1) is “phrased as a definition,” even though the footnote acknowledges the extensive precedent treating it as an operative immunization. The court then continues:

there is no issue of actual or constructive knowledge because the Florida right of publicity does not impose upon interactive service providers an obligation to filter or censor content. Moreover, as a factual matter, there is no indication that Amazon had knowledge of the allegedly misappropriated image and it responded promptly to Almeida's notice by removing [the book] from its websites

This completely gratuitous language will unfortunately give plaintiffs a sense of false hope. As I’ve discussed repeatedly on this blog, actual or constructive knowledge is irrelevant to a 230 determination. See, e.g., Zeran. Yet, this court’s sloppiness will give plaintiffs more grist to try their tired and futile argument that scienter matters under 230. I’m very confident that the impending plaintiff frenzy will give the 11th Circuit the pleasure of revisiting this dicta to clarify itself.

Right of Publicity and Physical/Virtual Bookstores

Instead of 230, the court bases its dismissal on the text of the applicable publicity rights statute, which applies to using an image “for trade, commercial, or advertising purposes.” The court says that Amazon’s display of the book cover on a product page doesn’t qualify. Instead, the court analogizes the online bookseller to a physical space bookseller, where the product page is the equivalent of the bookseller placing books on its shelves:

Amazon's role as an internet bookseller closely parallels that of a traditional bookseller. Because internet customers are unable to browse through shelves of books and observe the actual book cover photos and publisher content, Amazon replicates the bookstore experience by providing its customers with online cover images and publisher book descriptions

The court also distinguished two Girls Gone Wild video cases because the defendants in those cases picked the women to showcase on the product packaging and advertising. In contrast, Amazon was reflected the book cover selected by the publisher.

The court concludes:

Amazon's use of book cover images closely simulates a customer's experience browsing book covers in a traditional book store. Thus, it is clear that Amazon's use of book cover images is not an endorsement or promotion of any product or service, but is merely incidental to, and customary for, the business of internet book sales

It’s always dicey to make analogies between physical space and online contexts, and this analogy is suspect as a factual matter. First, there is no question that Amazon’s product page plays a major role in Amazon’s marketing and sales strategy. It is designed to place well in the search engines and uses a variety of tricks to extract additional sales from the customer. So treating the product page as the equivalent of a store bookshelf is a very charitable view.

Second, and perhaps more importantly, Amazon displays book covers all over its website, not just on the product page. Amazon uses the covers on personalized recommendation pages, in search results, in merchandising emails to its customers, and in content it syndicates to its affiliates (and, I suspect, to other third parties). Basically, Amazon does a ton of marketing for itself using book covers, so Amazon absolutely uses book covers to increase its sales. This sounds a lot like advertising/commercial purposes to me.

Ultimately, as a policy result, I think the court got it right. Amazon is merely depicting the book cover chosen by the publisher, so this ought to be a “contributory” or secondary publicity rights claim—and I don’t think there should be such a doctrine (admittedly, I haven’t researched that topic).

In any case, by making its clumsy analogy to browsing an offline bookstore's shelves, the court effectively limits this precedent to websites that can analogize their pages to such shelves--online book retailers, online music sellers, maybe online poster sellers. However, I think it would be tough to stretch this analogy to, say, search engines—an issue I believe is still live in the Perfect 10 v. Google case.

Civil Theft

Finally, the plaintiff alleged civil theft, which requires knowingly obtaining/using another’s property with the intent to appropriate the property for his/her use. In the context of physical goods, this makes complete sense. In the content of intangible goods, the scope of this statute is very confusing. In copyright cases, we normally don’t have to worry about this claim because it’s preempted by federal copyright law. However, in the context of a publicity rights claim, the copyright preemption doesn’t apply. Here, the court dismisses the claim for Amazon’s lack of scienter (because it didn’t pick the book cover). Even better for Amazon, the civil theft statute has a fee-shifting provision, so the court upholds an award of attorney’s fees to Amazon.

Posted by Eric at 10:12 PM | Derivative Liability , E-Commerce , Marketing , Publicity/Privacy Rights | TrackBack

June 03, 2006

Denver IP Summit Presentation

By Eric Goldman

I attended the Denver Summit on Intellectual Property and Digital Media. The audience was principally cable industry participants, but there were plenty of content creators (and legal academics) in attendance. I spoke about the various ways that content creators can "protect" their content online. My slides.

Posted by Eric at 01:59 PM | Copyright , E-Commerce , Licensing/Contracts

November 29, 2005

Microsoft Will Be an Adware Vendor

By Eric Goldman

Microsoft is considering migrating some of its software titles to an ad-supported model instead of a consumer licensing fee model. This isn't exactly a new idea--this development has been anticipated for at least a decade. However, if Microsoft decides to scrap a licensing fee model (even for a limited number of software titles), this will be a Big Deal. Microsoft has made billions in licensing fees, and giving up upfront cash for the hope of ongoing ad revenues could radically shift their basic economic structure.

Ad-supported software makes a ton of sense to me. CNET reports that Microsoft makes only $2/copy from its Works product, and its Money software loses money. With the $2/copy revenue number, I'm convinced that Microsoft could do better--way better--with ads. Depending on CPCs, Microsoft could make that amount from as little as one click. Surely they can get several clicks during the years that a user uses that software install. Heck, I would gladly pay Microsoft $2/copy for the opportunity to plug Google AdSense into the software. If Microsoft cuts out an intermediary, the profits would be even greater.

From the consumer's perspective, I think ad-supported software is a good move. First, consumers won't have to pay upfront for software they may not even want. (Right now, consumers implicitly pay some license fees as part of the bundled price when they buy new computers). Second, the ads could have significant utility for consumers, especially if they are contextualized based on the consumer's behavior and data.

As for Microsoft, I think the move towards ad-supported software reinforces that Microsoft is a media company, not a technology company. Microsoft may currently sell functionality, but eventually it will be in the business of selling attention.

As that process matures, I expect to have a tough time recognizing the differences between adware and Microsoft ad-supported software. Many adware vendors already provide some software functionality as part of their adware bundle, and Microsoft will do the same. Therefore, the way I see it, Microsoft inevitably will become an adware vendor. Perhaps this confirms that adware is an essential part of our future information economy, current anti-adware sentiments notwithstanding.

Posted by Eric at 06:59 PM | Adware/Spyware , Copyright , E-Commerce , Licensing/Contracts , Marketing

October 20, 2005

California Anti-Phishing Law--Cal. B&P Code Sec. 22948

By Eric Goldman

Going through my stack, I came across Cal. Business & Professions Code Sec. 22948-22948.3 (SB 355), California's recently enacted anti-phishing law. In general, compared to other state anti-Internet behavior laws, this law is relatively targeted and unobjectionable. However, the substantive provision caught my attention for an unexpected reason. 22948.2 says:

"It shall be unlawful for any person, by means of a Web page, electronic mail message, or otherwise through use of the Internet, to solicit, request, or take any action to induce another person to provide identifying information by representing itself to be a business without the authority or approval of the business."

I've highlighted the part that I find interesting. The term "business" isn't defined, but per 22948.3(a), a business either provides Internet access to the public, owns a web page, or owns a trademark.

Because someone can be a web page owner even if they are not a trademark owner, this law is a quasi-trademark law--it gives trademark law-style rights to non-trademark owners. The way I read this, business owner X can prevent competitor Y from representing itself as business owner X (at least, for purposes of eliciting personal information via a transaction) even if business owner X doesn't have a trademark--or even if business owner X can't get a trademark (because, e.g., it is using a descriptive trademark that hasn't derived secondary meaning). Anyone else have a different interpretation of this? If my reading is right, then it seems like this law provides a conceptually significant expansion of trademark law.

Further, if my reading is right, then I think trademark owners who can avail themselves of CA law can go after some alleged Internet trademark infringers under the anti-phishing law, even if there wasn't a technical trademark infringement (at least, in the pure form of a likelihood of consumer confusion). If I were a California plaintiff-side trademark attorney, I would consider adding this cause of action as a standard pleading when online trademark infringement is involved. Note, among other things, 22948.3(a) provides statutory damages of $500,000, which might be a pretty good windfall for some trademark owners (and an even better windfall for someone who can't get a trademark!).

Posted by Eric at 07:14 AM | E-Commerce , Privacy/Security , Trademark

August 23, 2005

Jill, Meet Best Buy's Friendly Human Shopbot/Profiler

I'm a little surprised this article hasn't generated more discussion. Last week, the Washington Post ran an article about Best Buy's efforts to segment and target its customer base. They have developed a set of consumer profiles that they describe with friendly personal names (presumably, to put a human face on the profiles), like Barry (the wealthy professional man), Ray (the family man), Buzz (the young tech enthusiast), and most prominently, Jill.

Jill is a soccer mom who is the family's main shopper. She is well-educated and confident but intimidated by technology.

To help serve Jill better, Best Buy has organized a Jill SWAT team. When a woman enters the store who looks like a Jill, a dedicated sales assistant (dressed in pastels) approaches her and asks "Is there anything special you're looking for today?" The sales assistant then hand-holds the Jill through the store and even has special hard-to-find express checkout lanes that are intended for Jills.

On the plus side, these efforts to sort and treat customers differently improves the experience for the affected customers. The Jills find what they are looking for faster. Best Buy benefits too, extracting 30% more sales from Jills. In aggregate, this seems like this improves consumer welfare, producer welfare and social welfare.

On the minus side, the programs mean that customers get differential treatment. Given my advancing age, I'm probably more of a Ray than a Buzz, and I'm guessing the Ray-schmucks get stuck in the long lines instead of being queued up to the express lanes. This isn't the first time that Best Buy has expressly distinguished between customers, and of course many businesses try to sort and segment customers. I don't have a problem with making distinctions between customers--in fact, I strongly favor it as a way to improve social welfare--but I know many people do.

Perhaps more troubling is the seeming racial profiling of customers. It's possible that Jill-assistants don't make racial/ethnic distinctions, but I doubt it. I wouldn't be a bit surprised if Jills are de facto white, even if there's no corporate policy to that effect (or even if there is a corporate policy against such judgments). This visual profiling definitely makes me nervous and uncomfortable about impermissibly discriminatory treatment.

The imprecise nature of visual targeting (predicated on stereotyped definitions, no less) shows a huge advantage of the Internet. The Internet permits much more accurate behavioral targeting that should lead to consumer, producer and social welfare improvements. Still, Best Buy is showing that offline efforts to segment and target can be effective, so I suspect we'll see more of this in the future.

Posted by Eric at 04:31 PM | E-Commerce , Marketing , Privacy/Security | Comments (2)

August 08, 2005

Search Tidbits from ABA Annual Meeting

At the ABA Annual Meeting, I was on a panel with Rose Hagan of Google and Allison McDade of Dell. A couple of tidbits from the presentations that caught my attention:

1) Rose said that Google has now been sued 23 times in France over keyword advertising. These suits, of course, follow several Google losses in court. One can only imagine the feeding frenzy that would take place in the US if TM owners thought that they could win a TM case against Google.

2) In the Q&A, Mark Partridge of Pattishall had an interesting proposal. He pointed out that the UDRP had a substantial effect on cybersquatting, so could we put into place a similar expedited administrative process was put into place for keyword advertising disputes? Perhaps an administrative procedure where the major search engines would agree to honor the instructions of a neutral.

Two obvious questions with Mark's proposal. First, what substantive law would the neutrals apply? We would need to develop a common set of definitions of abusive advertising techniques, and I don't think we have this yet. Indeed, right now we have a major split between Google and Overture's policies about TM complaints (Google removes TM references from ad copy, while Overture looks at the relationship between the ad's TM use and the promoted URL). Further, I'm not 100% convinced yet that courts will bless either practice as absolving the search engine of liability as the policies are tested.

As a result, while I don't think it was easy to describe cybersquatting, I think there were clearer understandings about impermissible domain name registrations than there are clear understandings about impermissible advertising. Note, of course, that neither the UDRP or ACPA try to define and then eliminate all abusive domain name registrations; these solutions merely targeted the most egregious behaviors. So maybe we're not yet in consensus enough to give clear enough instructions to administrative neutrals to adjudicate claims.

Second, for the search engines to participate, they would need to have a safe harbor from liability (at least to the extent of their participation in the administrative procedure). I've become increasingly convinced that we need a statutory safe harbor to keyword liability lest we find ourselves in the French plaintiff feeding frenzy. However, perhaps a search engine safe harbor would be acceptable to TM owners if it was coupled with an expedited procedure to resolve their concerns.

3) Allison's slides contained the following bullet:

"Studies suggest that broader search terms that do not include a manufacturer name (such as “computer,” “computer memory”) account for a large majority of total search volume and conversions (turning searchers into actual buyers). Trademark-specific searches, meanwhile, account for a much lower percentage of all online searches."

I agree that TM keyword searches are a distinct minority of all searches (the number I recall seeing was 20%). However, in the talk, she clarified this point to mean that her understanding is that TMed keywords convert at a lower rate than generic terms. Is this true? This doesn't sound right to me, and I had thought I had seen empirical evidence to the contrary. I'd welcome any pointers regarding the relative conversion of TMs and generic terms.

Posted by Eric at 11:12 AM | Derivative Liability , Domain Names , E-Commerce , Search Engines , Trademark

July 22, 2005

eBay, the Search Engine

Is eBay a search engine? Of course it is. eBay is acknowledging as much. As the NY Times reports, "In a conference call, Ms. Whitman also described the importance of improving eBay's search capability, calling the service as much a search site as Google."

This really isn't an earth-shattering revelation. As I recall, something on the order of 95% of eBay users find products through eBay's search as opposed to eBay's weak and hard-to-follow taxonomical structure. From an auctioner's perspective, being included in eBay's search database is a significant part of the value eBay provides. Indeed, eBay is susceptible to some of the same search engine spamming tricks that Google has to wrestle with. See, e.g., Daina J. Schemo, In Online Auctions, Misspelling in Ads Often Spells Cash, N.Y. TIMES, Jan. 28, 2004, at A1.

Of perhaps more relevance to this blog, I think eBay faces the same legal issues as any search engine. In other words, I can't distinguish between the legal issues that should concern eBay and Google. For example, both of them should care about liabiilty for third party content and for doctrines like initial interest confusion that may inhibit using trademarked keywords to trigger advertisements.

I've never been a fan of efforts to make distinctions between "search engines" and "portals" and "e-commece sites" (or, in this case, "auction" sites). In the end, all of these websites are in the same business--helping consumers get what they are looking for--and thus will gravitate towards using the same mechanisms: deep databases of third party content delivered by keyword associations.

Posted by Eric at 12:24 PM | E-Commerce , Search Engines

June 18, 2005

AOL Advertises on Competitors to Get Traffic to AOL.com

To build traffic for AOL.com, AOL is buying search ads on Google and Yahoo. The article says:

"AOL had initially considered spending as much as $50 million on television ads to promote the portal. But that changed after the company noticed that the biggest source of traffic to its free music site was free and paid listings on other search engines.

'We started seeing the results and said, 'Oh, my God, what if we took this money and put it into search engine marketing,' ' Mr. Miller said. Now more than half of AOL's marketing budget for the portal will be used to pay for ads on search engines and formatting Web pages so they appear in the free search results."

The article then continues:

"Both Google and Yahoo said they were happy to take AOL's money for ads on their search pages."

Yeah, I would too. Take the money now while a customer is spending like a drunken sailor. It provides a nice ride for a while although, sadly, the gravy train will come to an end.

However, taking the ads is a little odd. It's like ABC or NBC taking commercials for a CBS TV show, or a radio station taking commercials for a competing radio station. It definitely prompts competitive concerns, but my attitude is--if someone is buying free drinks for the house, why not enjoy a cold beer? Unless AOL has something special to hook Google/Yahoo users (and I haven't seen it), Google and Yahoo have nothing to worry about.

The article also discusses another strategy to get new AOL.com customers. As the article says, AOL plans to:

"find users from the more than two million people who cancel their AOL Internet access subscriptions each year. When a user calls to stop service, AOL's phone representatives will offer them a way to keep their e-mail addresses if they agree to use AOL's new free e-mail service at AIM.com."

In other words, AOL is losing so many customers, their key source of non-paying customers will be their former paying customers. This is a good thing?! Given AOL's desperation, there's only one possible direction for AOL to go. It's not up.

Posted by Eric at 05:53 PM | E-Commerce , Search Engines

June 10, 2005

Do You Want Pictures With That Download?

By John Ottaviani

OK, maybe it's just a slow news day, or maybe it's because I'm working on a presentation for next week on the implications of open source software for attorneys involved in mergers and acquisitions of software companies, and I'm ready to be distracted by almost anything.

So one of my searches turns up an article at Newsforge announcing that Playboy has set up a mirror site for Apache, Firefox and Thunderbird downloads at mirrors.playboy.com. Apparently, Playboy uses open source a great deal in its technology operations, particularly servers. Setting up the mirror site is a way for Playboy to say "thank you" to the open source community.

The site is actually very plain and unremarkable. (Yes, I checked, but only to see if there were any articles). No pictures yet, but isn't it only a matter of time before we find out if the marriage of open source and sex is a winning combination on the Internet?

Posted by John Ottaviani at 08:45 AM | E-Commerce

May 16, 2005

Supreme Court on Interstate Shipment of Wine--Granholm v. Heald

Granholm v. Heald, 544 U.S. __ (May 16, 2005). The US Supreme Court, in a 5-4 vote, has declared that states cannot discriminate between out-of-state wineries and in-state wineries in allowing direct-to-consumer sales. Such discrimination violates the dormant commerce clause. As the court says:

“The current patchwork of laws—with some States banning direct shipments altogether, others doing so only for out-of-state wines, and still others requiring reciprocity—is essentially the product of an ongoing, low-level trade war.”

Meanwhile, after an extensive historical and precedent review, the majority concluded that the discriminatory treatment is not saved by the general authorization of powers in the 21st amendment.

As a result, statutory schemes that required out-of-state wineries to sell through a three-tier distribution scheme (winery -> distributor -> retailer) but permitted in-state wineries to sell direct-to-consumer are unconstitutional. This appears to affect about half of the states.

While this is an entirely sensible result, the net effect is less clear. The court gives states the following options:

“A State which chooses to ban the sale and consumption of alcohol altogether could bar its importation; and, as our history shows, it would have to do so to make its laws effective. States may also assume direct control of liquor distribution through state-run outlets or funnel sales through the three-tier system.”

In addition, the court says that states can require permits as a condition of direct shipping, which can act as a way for the state to get taxing authority over out-of-state wineries.

So, the question is, which way will states go? Though they can no longer offer protectionist measures for their in-state wineries, will they go in the direction of erecting other barriers, such as requiring the use of three-tier distribution for everyone, or imposing onerous taxes on everyone? Or will this case finally cause the elimination of the regulatory barriers to the free interstate movement of alcohol, allowing unrestricted sale of alcohol over the Internet? Only time will tell, but I’m hoping we can move in the direction of improving consumer welfare rather than expanding an unnecessary and industry-protectionist bureaucracy.

Meanwhile, because of the differential treatment of in-state and out-of-state wineries and the funky language of the 21st amendment, unfortunately this case does not offer us deeper insights into the dormant commerce clause's application to the Internet. That will have to wait for another case.

UPDATE: Declan's story.

Posted by Eric at 12:14 PM | Content Regulation , E-Commerce

May 09, 2005

Economist on the Long Tail

Good article from the Economist explaining the Long Tail in a basic and understandable way. The article even addresses the thorny organizational/marketing problem implicit in the Long Tail.

(Thanks to the Long Tail blog for the pointer).

Posted by Eric at 07:00 PM | E-Commerce

May 03, 2005

Happy Mother's Day from Your Loving Son (and Your Friendly FTC Bureaucrat)

Nothing tells your mom that you love her like an e-card with soft piano music, floating butterflies, pretty wildflowers…and some consumer protection tips from the FTC.

Thanks to the Washington Post for the pointer.

Posted by Eric at 02:05 PM | E-Commerce

April 24, 2005

Self-Publishing and the Long Tail

The New York Times runs a lengthy article on self-publishing books.

The emergence of self-publishing shops reinforces the Long Tail theory. By reducing the publishing costs, more niche-oriented content can be produced cost-effectively. Thus, self-publishing houses put real pressure on the value added by traditional publishers. Traditional publishers play a variety of roles: gatekeeper, editor, manufacturer, marketer. The manufacturer role is completely outsourceable; the value-added in the editing process, while not zero, is both outsourceable and comparatively low. So the principal roles of traditional publishers will ultimately become as gatekeepers and marketers.

However, each of these roles are also subject to pressure. For example, the article discusses how some self-publication shops are trying to pitch their role as a farm team, which allows some authors to build a track record sufficient to crack into the big publishing houses. Over time, perhaps the self-publishing houses will be able to develop reliable criteria that will serve the gatekeeper role.

Furthermore, the article indirectly discusses how self-published titles are marketed—they are invariably too niche-y to market through expensive traditional intermediaries like booksellers, so they are marketed through friends-and-family networks, guerrilla emails and other niche distribution channels. These haphazard marketing efforts are not a perfect substitute for traditional publishers' marketing campaigns, but the fact that authors are willing to bear some of the marketing responsibility suggests that this function is potentially outsourceable as well.

UPDATE: Over a year later, the NYT revisits this ground again, this time reviewing various offerings.

Posted by Eric at 01:33 PM | E-Commerce , Marketing

April 12, 2005

Anti-Spoofing Protocol

A spammer makes unauthorized use of a company’s trademarks in an email promoting the purchase of goods/services. This isn’t a phishing email per se; it’s not trying to disgorge personal statistics for identity theft or outright theft (although it may be that the seller never plans to deliver the goods, so it may be theft in that sense). On its face, the email's goal is to sell products leveraging the brand of a legitimate company. What should the company do? I wrote up this proposed protocol for dealing with these situations. As you can see, I don't subscribe to the shoot-frist-and-ask-questions-later camp. Please email me with any comments.

Anti-Spoofing Protocol

This document describes a protocol for dealing with an email that spoofs our domain name and uses our trademarks without authorization.

Some general observations:
· Don’t assume anything. It is very possible that the sender has forged or spoofed other contact information as part of the ruse.
· Information is valuable. You can go a long way towards correcting the problem simply by finding out exactly what happened. This requires some restraint—if you falsely accuse the wrong person, they may be less willing to help you find the right person
· Preserve unmodified copies of all evidence in case it’s needed in litigation. Generally, the best approach is to print hard copies and save a copy to your hard drive (note that things saved to your hard drive can change later if they pull information from the Web—so hard copies are critical).

Step 1: Confirm that the email was, in fact, unauthorized

Step 2: Confirm that the email did not originate from our servers
· The sender could be a rogue employee. If so, we may want to disable access ASAP
· There could be an open port. If so, we should close the port ASAP

Step 3: Make a list of possible places to find the sender (look at email headers in addition to email text)
· originating email service provider/Internet access provider
· any email addresses listed in the email
· any URLs promoted in the email
· any payment service provider (PayPal, Western Union)

Step 4: If email has contact information for the sender, contact the sender

Step 5: Approach service providers identified in Step #3 to ask their help. The objective is to cut off the sender’s ability to cause more harm or profit from their actions.

Step 6: If any other trademark owners are referenced in the email, consider involving them to cooperate

Step 7: Consider turning the matter over to authorities
· Postal inspectors
· Federal Trade Commission
· Local police (both in our district and in the sender’s district)
· Federal Bureau of Investigations

Posted by Eric at 10:24 AM | E-Commerce , Spam , Trademark

March 31, 2005

Infomediaries--Where Are They?

I have been thinking a lot about “infomediaries.” If you’re not familiar with the term, John Hagel first described it in a 1997 Harvard Business Review article The Coming Battle for Customer Information (with Rayport) and then fleshed out his vision in the 1999 book Net Worth (with Singer).

Infomediaries interpose themselves between marketers and consumers to facilitate better marketing matches. Consumers disclose their personal preferences to an infomediary, who can then offer marketers the ability to engage in highly targeted marketing without knowing consumers' personal identities. Further, infomediaries will use their aggregated consumer demand to cut consumer-favorable deals with marketers. To make this work, consumers must completely trust that infomediaries will respect their privacy and will not become a biased shill for marketers based on which marketer pays the infomediary the most.

From an academic’s perspective, I think infomediaries would substantially improve social welfare. Consumers get what they want—relevant and trustworthy marketing without sacrificing privacy; marketers get what they want—a cost-effective source of interested consumers; and infomediaries profit by taking cuts of the deal. Society wins due to lowered transaction/search costs and fewer marketing mismatches between consumers who don’t want the marketing and marketers who cannot target granularly enough.

Compare this with our current marketing environment, where consumers lack an easy one-stop way to disclose their preferences (and many consumers refuse to do so due to privacy fears). More regulated solutions of marketing communications have high transaction costs (for marketers, and sometimes for consumers too) and a high risk of Type I and Type II errors (i.e., relevant marketing is squashed; unwanted marketing is unregulated).

Despite all of these benefits, as far as I can tell, the infomediary industry has failed to materialize. In Feb. 1999, James Glave wrote a Wired News story called The Dawn of the Infomediary listing five companies trying to enter the infomediary business: Lumeria, PrivaSeek, InterOmni, @YourCommand, and PrivacyBank. On January 24, 2005, I visited the purported websites of all five infomediaries discussed in Glave’s article. Lumeria’s site still exists but appears not to have been updated since 2000. InterOmni was acquired by Lumeria in 1999. The PrivaSeek and @yourcommand domains appear to have lapsed and been reregistered by others. InfoSpace.com bought PrivacyBank in 2000; it is unclear what happened thereafter.

In other words, it appears that all of these infomediaries are out of the business. Also gone are the group buying sites (like Mercata and Accompany) that aggregated consumer interests to negotiate better deals with merchants.

We have some more success if we broaden our definition of infomediaries further. In some industry verticals, infomediary-like businesses have emerged, like LendingTree for loans and Autobytel for cars. However, to some extent, Autobytel act like messaging services—I submit my information, a message goes to interested dealers, then the dealers spam me directly (sometimes relentlessly). Rather than protecting my privacy (whatever that means), Autobytel just ratchet up the email volume. There is still value to consumers to messaging systems, but I don’t think they rise to the infomediary level. LendingTree actually makes offers, not just referrals. However, I'm not entirely clear how these offers are ordered.

We could also try to analogize the shopbots to infomediaries. Shopbots like Shopping.com, Shopzilla and PriceGrabber have survived the dot com crash and offer some infomediary-like services, such as organizing marketing information by product and pitting merchants against each other. However, shopbots do not personalize the offers based on a consumer’s preferences or try to act as a consumer agent; instead, like some industry vertical sites, shopbots view their role as referral services (i.e., send the consumers to the merchant and get out of the way). Further, merchant listings are generally presented based on merchant willingness-to-pay, so consumers may feel like shopbots put merchant interests ahead of their own.

Why haven’t infomediaries emerged? I am struggling to answer this question. Some of the possible theories I’ve come up with:

· Infomediaries do exist but I’m not defining the term expansively enough.
· Infomediaries cannot convince consumers that they are trustworthy. In my experience, my clients would routinely start out saying that they wanted to protect their customers’ privacy, but inevitably they would, over time, look for ways to monetize their customers’ information. Further, companies usually cater to those who pay the bills; so any infomediary will inevitably be tempted to put merchants’ interests over consumers.
· Consumers’ privacy concerns are not strong enough that they need infomediaries. The empirical evidence here is sharply split. Consumers routinely say that privacy concerns inhibit their online actions, but consumer behavior routinely belies this. There are plenty of good reasons to use an infomediary beyond privacy protection, but perhaps this motivation is not as strong as Hagel predicted.
· There is no viable profitable business here (i.e., the economics simply don’t work).
· There is a market failure that prevents companies from entering the market. If we could find a market failure, would this support government intervention to sponsor the creation/operation of one or more infomediaries?

As you can see, I’m stuck. I ask for your help, and I’m opening comments on this post. (Unfortunately, to prevent comment spam, registration is required—sorry). Why do you think infomediaries have not arisen?

Posted by Eric at 10:04 AM | Adware/Spyware , E-Commerce , Internet History , Marketing , Privacy/Security | Comments (1)

March 06, 2005

Rivlin on eBay Fee Increases

Gary Rivlin writes a good in-depth article on the seller community’s response to eBay’s fee increases. The article articulates eBay’s rationales—eBay wanted to restore some balance in the use of certain tools, so price increases were the ways to drive sellers to use different tools. This rationale is very logical, but it was buried deep in the article and, perhaps, not well-communicated by eBay. However, this also points to perhaps eBay’s biggest challenge of all. It has to keep its seller community happy and invested, and this seller community responds viscerally and emotionally at every eBay change because those changes either eat into the sellers’ profits or make them work harder. Seller community relations is one of the trickiest but most essential pieces to eBay’s growth, and despite the noisy responses to any particular eBay initiative, eBay has a great track record on this front.

Posted by Eric at 12:01 PM | E-Commerce

March 03, 2005

More on Anti-Phishing Act of 2005

Leahy’s Anti-Phishing Act of 2005 (S. 472) is finally online. See my earlier post. I’m still slightly troubled by the inchoate nature of the crime, but its scienter requirement (“intent to carry on any activity which would be a Federal or State crime of fraud or identity theft”) makes the law less objectionable.

Posted by Eric at 12:36 PM | E-Commerce , Spam

March 01, 2005

Anti-Phishing Act of 2005

Sen. Leahy introduced the Anti-Phishing Act of 2005 on Feb. 28. The text is not on Thomas yet, nor is it on Leahy’s website. If you have the text, please let me know. Leahy released a statement about the bill that includes the following summary:

“The Anti-Phishing Act of 2005 would enter two new crimes into the U.S. Code. The first prohibits the creation or procurement of a website that represents itself to be that of a legitimate business, and that attempts to induce the victim to divulge personal information, with the intent to commit a crime of fraud or identity theft. The second prohibits the creation or procurement of an email that represents itself to be that of a legitimate business, and that attempts to induce the victim to divulge personal information, with the intent to commit a crime of fraud or identity theft.”

I have to see the wording of the statute, but at this level of generality, the law doesn’t sound too bad. It does criminalize inchoate activity, but the scienter requirement (“intent to commit a crime of fraud or identity theft”) limits the law’s application. I’ll blog more when I see a copy.

Washington Post story on the topic.

Posted by Eric at 05:50 PM | E-Commerce , Spam

February 24, 2005

Block v. eBay

Block v. eBay, #105CV035930 (Cal. Superior Ct. filed Feb. 17, 2005). Important new class action lawsuit against eBay. Internet News and Reuters have focused on the claim that eBay acts as a shill bidder by exhorting high bidders to up their maximum bid. If the bidder actually responds to the request, then eBay raises the bid even if no other higher bidders emerge.

This claim is somewhat interesting, but I’m much more interested in the claims that eBay is an auction house governed by California’s Auction Act. As far as I can recall (let me know if my memory is fading), this is the first lawsuit against eBay making this claim. (In the Gentry case, the plaintiffs claimed eBay was a seller of sports memorabilia, and I believe some governments have made inquiries to eBay). Whether eBay is an auction house/auctioneer or not is a bet-your-business issue that eBay simply cannot afford to lose. Therefore, it was a high-risk move for Lerach Coughlin to put this issue on the table. This may make eBay more willing to settle; but it also might mean that eBay will invest whatever resources it takes to win this point.

I’m sure seeing this class action claim makes eBay wish that it could have retained the mandatory arbitration clause that implicitly got struck down in the Comb v. PayPal case.

Posted by Eric at 12:54 PM | E-Commerce

February 21, 2005

The Long Tail

I recently caught up with Chris Anderson’s excellent Wired article The Long Tail from October 2004. This article discusses the consequences of disaggregating copyrighted content from the physical manufacturing/distribution/retailing chain that historically has been required to get that content to market. Because of disaggregation, niche content can become economical to distribute, and he gives some great case studies of this phenomenon in action. In particular, he makes a persuasive case that we all have minority interests that are not economical to explore today but can become economical in the future.

However, his article doesn’t do a thorough job of explaining how consumers will find the niche content they want. He cursorily references Amazon’s recommendation engine and some other editorial/filtering processes, but we still have not seen the emergence of a widely-used process that reliably orders a pool of heterogeneous content based on taste preferences. Until then, it remains very difficult to satisfy our niche interests.

Posted by Eric at 01:56 PM | Copyright , E-Commerce , Search Engines