Technology & Marketing Law Blog

September 01, 2010

Griping Patient Goes Too Far Posting Fake Content in Doctor's Name--Eppley v. Iacovelli

By Eric Goldman

Dr. Barry Eppley v. Lucille Iacovelli, 2010 WL 3282574 (S.D. Ind. Aug. 17, 2010). The CMLP entry. The Internet is filled with commentary about this long-running saga if you want more information.

Dr. Eppley is a plastic surgeon. In 2001, he performed a facelift for Iacovelli. After a few months, Iacovelli complained of an obstructed airway. Dr. Eppley believes there is no way the facelift caused the obstructed airway. Iacovelli apparently saw it differently, and she took to the Internet to blame and criticize Dr. Eppley--allegedly including (directly or through cohorts) making fake postings in Dr. Eppley's name and publishing critical content at domain names that include Dr. Eppley's name. Dr. Eppley claims that this criticism has cost him a lot of money; at least 1 or 2 patients a month cancel appointments with him (presumably because the search results scare them off), and an unknown number never contact him in the first place. He has also fought back with a reputation management campaign costing $2-3k/month. Dr. Eppley has a registered trademark in his name.

[note: the court says Iacovelli did not properly contest Dr. Eppley's summary judgment motion, so the court appeared to accept Dr. Eppley's statement of facts. It’s unclear if Iacovelli’s no-show related to her failing health; but in a sad development, she passed away on August 2, before this ruling was issued.]

The court’s description makes Iacovelli sound like a fairly typical griper. For example, the court says:

Ms. Iacovelli has utilized Dr. Eppley's name in tabs, links, websites and throughout her campaign of internet disparagement, with the conscious design of driving internet traffic away from Dr. Eppley's authorized websites and toward her own.

Right, that’s what gripers do. However, there is one key exception: the fake postings in the doctor’s name. The court drops the boom on Iacovelli for this. The court grants Dr. Eppley summary judgment for defamation and false light (although I think the false light actually should have been normal defamation) and says Dr. Eppley is entitled to damages and attorneys' fees, both to be quantified in a later proceeding. Given Iacovelli’s death, I’m not sure any of that will matter.

The allegations in the case also suggest that the false postings might have constituted criminal epersonation in California if Gov. Schwarzenegger signs the pending bill into law. The court even says Iacovelli engaged in "virtual identity theft" of Eppley's trademark. Rhetorically, this is a little over-the-top; I half-expected the court also to say that Iacovelli shanghai'ed his identity.

However, in the zeal to take down Iacovelli, the court goes too far in concluding that Iacovelli committed a false designation of origin. There are several problems with this discussion.

First, Iacovelli allegedly misdesignated the origin of content, rather than the origin of marketplace offerings. As the court says:

The creation of internet sites with names such as "barryeppleyplasticsurgeon.com" and "barry-eppley.owndoc.com," the undertaking to create a series of "Eppley sites," and the appropriation of Dr. Eppley's name and likeness in social network and other websites demonstrate a deliberate effort to attract internet users to the websites controlled by Ms. Iacovelli and her associates and to create the false impression that they are websites and pages created or authorized by Dr. Eppley.

My position is that the Lanham Act applies to misrepresentations about marketplace offerings, not misrepresentations about the *source of information* about marketplace offerings. See my deconstruction of the SMJ Group v. 417 Lafayette Restaurant case. So in my opinion, structurally, the Lanham Act doesn’t apply to misdesignated content about Dr. Eppley’s services.

Second, even if the Lanham Act applies to falsely sourced content, Iacovelli’s griping seemingly lacks the requisite commerciality to satisfy the Lanham Act. Unfortunately, the court strains itself to find commerciality:

The record indicates an effort to elevate Ms. Iacovelli to celebrity status by publicizing her as the "star" of an HBO documentary and to promote the market for the book about her that Mr. Bergeron is writing. Ms. Iacovelli, furthermore, has asserted that her internet publications are regarded by her as her primary occupation, and that she operates them on a "sole-proprietor" basis. It is apparent that Ms. Iacovelli has sought to enhance her fame and notoriety by associating her story and her defamatory message with Dr. Eppley's name. A desire to achieve derivative celebrity status by diverting the internet traffic arising from Dr. Eppley's trademarked name constitutes a calculated effort to take advantage of his name recognition in order to boost the status and attention paid to her "sole-proprietor" sites. In addition, some of the websites and postings have included advertising content, apparently generating advertising revenue or other valuable consideration.

I disagree with the last point that ad-supported content should qualify as commercial activity under the Lanham Act. See my Online Word of Mouth article. But I'm more interested in the first argument--that a desire for fame, even if it doesn't actually translate into revenues, is a commercial activity. It reminds me a little of the Napster Ninth Circuit opinion, where the court found that Napster had a direct financial interest in the infringing P2P files being shared because the files were a "draw" to the system, even though Napster had not actually earned a dime of revenue. If no revenue = direct financial benefit, then I guess a desire for fame = commercial activity. Maybe the judge was overly influenced by Goldhaber's Attention article from the 1990s.

In the same paragraph, the court concedes "Ms. Iacovelli has also been motivated in part by non-commercial goals, but this does not affect her trademark transgressions." Um, say what? Could you go over that again?

The court’s finding of false designation of origin is misguided and unsupportable. However, it’s also clear that false content isn’t cool. Consider this ruling as another data point in the developing legal precedent about inauthentic online content. See also the FTC’s settlement with Reverb, Lifestyle Lift’s settlement with the New York Attorney General’s office, the RealSelf v. Lifestyle Lift lawsuit and settlement, Meyerkord v. Zipatoni and Buckles v. Brides Club. It’s already pretty clear that adjudicators won’t tolerate inauthentic online content.

Posted by Eric at 08:31 AM | Content Regulation , Marketing , Trademark | TrackBack

August 24, 2010

Ghostwritten Attorney Newsletter is an "Ad" for TCPA Junk Fax Law Purposes--Holtzman v. Turza

By Eric Goldman

Holtzman v. Turza, 08 C 2014 (N.D. Ill. Aug. 3, 2010)

This case is a unremarkable straight-down-the-middle analysis of when editorial content becomes a regulated ad, which in turn makes it a remarkable case. Most editorial-content-as-ad cases have quirky hooks that undercut their broader applicability.

The defendant is an Illinois lawyer. The court says:

In August 2006, he hired Top of Mind Solutions, LLC ("Top of Mind") to create and distribute by fax and email one-page documents titled the "Daily Plan-It" to a list of persons supplied by defendant. Defendant's target list included a combination of contact information he purchased from the Illinois CPA Society and numbers he obtained from business contacts and students.

Top of Mind issued 41 versions of the Daily Plan-It on defendant's behalf, every two weeks, from August 2006 to March 2008. All 41 versions include a masthead with the words "The `Daily Plan-It'" in italicized, bolded, and underlined text. "Gregory P. Turza, JD" appears just below the masthead along with the date, volume and issue number of the document. Beneath this title, the page is divided into two columns that contain an editorial article offering advice about various topics. Each article runs the length of the left column of the page and concludes in the middle of the right column....

The content of each Daily Plan-It was created entirely by Steven Patrick Riley ("Riley"), Top of Mind's owner. Defendant did not contribute to the editorial content. At the end of each article, in the lower right corner, defendant's name is listed (in a font larger than any other type on the page, with the exception of "The `Daily Plan-It'"). He is identified as an attorney and counselor at law, and the words "estate planning," "post mortem administration," and "business succession planning" appear before his name. Each fax also includes two or three graphic images: defendant's business logo, a photo of the building in which defendant has his office, or a head shot of defendant. Also included are his business address, telephone and fax numbers, e-mail address, and website address. At the bottom of the fax the document repeats defendant's name and phone number. This "identifying information" occupies approximately 20 to 25 percent of total area of the fax.

Three things stand out from this recitation of facts:

* it was bad form to buy a list of fax numbers and start blasting fax messages every 2 weeks. I've repeatedly noted that I think the days of buying email lists are long dead. Buying fax lists strikes me as an even worse idea.

* it's interesting to think that a lawyer would rely upon a vendor to generate editorial copy that goes out under the lawyer's name. The facts don't indicate if Turza reviewed and approved the content before it went out. I don't use ghostwritten material; I usually even extensively rewrite co-authored material.

* while the content's marketing intent is clear and unmistakable, the newsletter's substance is also unambiguously editorial content however broadly or narrowly we conceive of it. The law doesn't handle editorial-content-as-marketing overlaps very well, unfortunately.

The court applies the FCC's interpretation that faxed editorial newsletters aren't regulated advertising so long as any advertising content in the newsletter is "incidental," which in turn depends on whether the ad is a "bona fide informational communication." As you can see, the quest for synonyms doesn't really advance the analysis; it just shows that if you don't know how to parse between ads and editorial content, synonym proliferation tries to mask that fact (unsuccessfully, I might add).

The court concludes that the newsletter is regulated advertising. The court appears to focus on the sender's intent: "the record is replete with evidence demonstrating that the primary purpose of defendant's agreement with Top of Mind was to generate awareness of defendant's services and build his client base." The court continues: "defendant has provided no facts to show that his genuine, primary motivation in paying Top of Mind to distribute the Daily Plan-It was to educate CPAs and his business contacts on various industry-related topics rather than to build brand recognition and solicit business referrals for his law practice."

To me, this suggests the case would have been much harder if the editorial content hadn't been ghostwritten because the newsletter's educative intent would be clearer. Nevertheless, the court's sender-payoff-oriented standard--"to generate awareness of defendant's services and build his client base"--is unworkable because those payoffs are exactly what most professional service providers seek every time they publish editorial content.

UPDATE: Carolyn Elefant has more to say about this case.

Posted by Eric at 03:30 PM | Marketing , Spam | TrackBack

August 18, 2010

The Problems With Google House Ads

By Eric Goldman

[Note: This blog post has taken me 7 months to write, so I'm glad to be sharing it finally. I am cross-posting it to Search Engine Land.]

Introduction

Many publishers run “house ads” to self-promote their own offerings. Google does too. However, Google differs from most publishers because it auctions ad space on its network. Thus, when Google runs house ads, it simultaneously conducts the auction that it is bidding in—an impermissible conflict of interest. This post explains when Google uses house ads, why I think Google house ads undercut the auction integrity, and what Google should do differently.

Google’s House Ads

I have seen Google house ad campaigns in at least three circumstances:

1) Occasionally, Google uses AdWords ads to explain problematic organic search results. Two prominent examples are the search results for “Jew,” which regularly displays an anti-Semitic organization as a top organic result, and “Michelle Obama,” which last year displayed an offensive image as a top organic result. In these situations, Google runs an AdWords ad that links to an explanation of its search algorithms.

2) Google promotes its own services to increase their visibility. In preparing this post, earlier this year I approached Google about its usage of house ads, and a Google spokesperson informed me that Google has “run search marketing campaigns on Google for search products like iGoogle, Google Maps, and mobile products as well as for specific issues in order to provide information to our users.” Barry Schwartz recently gave an example of an image house ad promoting image ads. The latter point may include defensive keyword purchases, such as when it displayed ads for some of the search terms it highlighted in Google’s Super Bowl commercial.

In some cases, Google’s house ads appear in ad spots unavailable to other advertisers, such as its promotion of Nexus One on its home page. Barry Schwartz has catalogued examples of Google’s home page advertisements. This post focuses on house ads in AdWords, but I will come back to these non-traditional ad spots in a bit.

3) As a type of public service announcement, Google runs house ads in AdWords during crises to promote a crisis response page—mostly recently, in response to the BP oil spill.

Why Google House Ads in AdWords Are Problematic

Google characterizes AdWords is an advertising auction system for advertisers to bid on keywords against each other. Google runs these auctions as the auctioneer—a term Google doesn’t use and presumably would avoid, but an appropriate descriptor of Google’s proclaimed role vis-à-vis advertisers. Because Google merely conducts the auctions for advertisers, Google argues that it does not set AdWords advertising prices; instead, the prices are set by the market (i.e., the collection of advertisers’ auction bids). Google’s positioning as an auction conductor has emerged as a central defense to the increasing antitrust attention being paid to Google’s remarkable share of the search advertising market.

However, Google’s positioning breaks down when Google buys house ads via AdWords. In those situations, Google is both running the auction and bidding in that auction as an advertiser. The conflicts of interest in this situation should be self-evident, but let’s look at them in more detail.

Google Can Win Every Auction It Enters.

When Google runs a house ad in AdWords, it does not cost Google anything out-of-pocket. However, those clicks aren’t necessarily “free” because Google’s ads have opportunity costs. Clicks on Google’s house ads may siphon away clicks from revenue-generating ads, which may reduce Google’s revenue from the bidded term.

Google’s spokesperson told me that Google’s house ads “are subject to internal marketing budgets.” I assume this means that a Google department running house ads must “pay” for its clicks by transferring money from its department budget to a different Google department. In theory, the scarcity of marketing budgets forces Google departments running house ads to internalize the opportunity cost, even if no cash changes hands.

However, I don’t believe this cures the defects in auction integrity for at least four reasons. First, Google’s behavior lacks any auditability or verifiability; as outsiders, we have no idea what Google is doing under the hood. Second, Google has access to better information to optimize its bidding than any other bidder. That information may not be functionally available to individual employees placing auction bids, but because of the first point (lack of auditability/verifiability), we as outsiders don’t know that either. Third, because all Google bids just involve internal funds transfers and no out-of-pocket cash payments, Google can easily increase departmental budgets to enable more aggressive bidding—after all, if no cash changes hands, it’s just funny money anyway. Fourth, actual ad placement depends on ad quality scores, and Google has acknowledged that it has “exceptionally high Quality Scores” which should automatically give it a bidding advantage over everyone else. And, once again, no one else can audit or verify Google’s self-designated ad quality scores.

As a result, Google’s advantages over other bidders should allow it to “win” its auctions whenever it decides to bid.

Google’s Bids Can Affect the Prices Paid by Its Advertisers.

As far as I know, Google has never publicly addressed how its house ads affect the prices paid by other bidders. In response to my inquiry, the Google spokesperson opaquely informed me that “Google's ads are not guaranteed to appear in any given spot. How this affects CPCs depends on the quality scores and bids of others in the auction.” I interpret this to mean that Google’s presence in the auction could affect the CPCs paid by other bidders. Let’s take a look at how this might happen.

Google auctions aren’t winner-take-all. Instead, Google runs a “second-price auction.” As Google describes it, each advertiser-bidder pays “the minimum amount necessary to maintain their position on the page,” which is the amount bid by the next-lowest bidder. To illustrate this, assume a keyword with the following bids:

Bidder 1 bids $1.25 per click
Bidder 2 bids $0.75 per click
Bidder 3 bids $0.50 per click

Pursuant to the second-price auction, Bidder 1 pays $0.75 per click (i.e., the amount that Bidder 2 bid). After all, if Bidder 1 had only bid $0.75 per click, it still would have shown up as the top bidder. Bidder 2 pays $0.50 per click, the amount required to stay in the second position.

[Note: my examples assume that the bidders have the same ad quality scores and that one bidder’s presence or behavior does not cause Google to recompute the ad quality scores of other bidders.]

Now, consider what happens when Google enters a bid in this auction.

Google bids more than $1.25 per click [the result is the same if Google bids $1.25 or $1M per click]
Bidder 1 bids $1.25 per click
Bidder 2 bids $0.75 per click
Bidder 3 bids $0.50 per click

I’ll just focus on Bidder 1, who was getting first position for $0.75 per click before Google’s entrance. Due to Google’s entry into the auction, Bidder 1 now pays the same per-click amount to show up in second position rather than first.

Bidder 1’s reduced position may change the commercial value of the consumers who investigate the links. That is, the consumer who clicks on the second ad may have a different profit potential than the person who clicks on the first ad. In some cases, clicks on lower-placed ads may be more profitable per click, so we don’t know a priori if this is good or bad for any particular advertiser.

We can anticipate that Bidder 1’s lower position will reduce the overall volume of clicks it gets at that price. A second position ad usually gets substantially fewer clicks than the first position ad. Further, if Google syndicates the house ad via AdSense, then Bidder 1’s ads may no longer be syndicated in AdSense (for example, if Google syndicates only 1 ad via AdSense). [Note: when Google house ads are syndicated, Google pays the AdSense publisher for clicks out-of-pocket—but presumably Google pays a wholesale discounted price, while all other advertisers must pay the 100% retail price.]

Naturally, some advertisers will seek to reclaim their prior ad position by increasing their bids. Indeed, Google’s AdWords tools will automatically encourage advertisers to pay more to generate more clicks. For advertisers using Google’s automated bidding tool (sometimes called the “Budget Optimizer”), Google may automatically increase an advertiser’s bid to increase click volume. Thus, Google’s entry into the auction could cause other bidders to increase their bid amounts in a variety of ways.

Let’s revisit my discussion about Google’s opportunity cost of clicks on house ads. If the other bidders’ prices stay the same and Google siphons away some clicks from them, Google’s ads have a clear opportunity cost. However, if Google’s entry into the auction prompts other bidders to pay more, some or all of that opportunity cost will be made up by increased revenue on the remaining clicks. It’s even possible that Google’s house ads could create net new profit. From an auction integrity standpoint, it’s unacceptable for Google’s entry into the auction to affect the prices bid or paid by other bidders (its advertisers), whether Google’s profits increase or decrease.

Alternatives for Google

Google’s spokesperson told me that “[l]ike hundreds of thousands of other businesses, we believe in the value of search marketing to connect with web users.” That makes sense to me, and I encourage Google to go for it—just not by bidding against its other advertisers. Google can benefit from keyword advertising other ways without undermining its auctions’ integrity.

First, Google can buy keyword ads from third parties. Apparently Google already does this regularly, including buying ads from Yahoo and Bing. See this comprehensive survey as well as this example.

Second, as Google already does on occasion, Google can create new ad units outside AdWords exclusively for house ads. Running ads in a separate ad unit would obviate the need for Google to compete with advertisers in an auction, although I imagine some advertisers still will be annoyed by any click siphoning.

Third, Google could refuse all advertiser bids on terms that Google chooses to use for house ads. Advertisers wouldn’t be thrilled if Google did this either, but it would maintain the auction integrity for those terms. This would be the most expeditious way for Google to handle objectionable organic search results, although creating a new unit outside AdWords would work as well.

Conclusion

I feel a little silly writing nearly 2,000 words explaining why auctioneers should not bid in the auctions they run. We all already knew that. Yet, Google apparently violates this basic rule every time it runs house ads in AdWords auctions. Google should fix this—and restore integrity to its AdWords auctions—by no longer competing with its advertisers in those auctions.

UPDATE: A Google spokesperson sent me this response:

"As we've always said, all search engines run ads to inform users about services that they provide. Google is no exception to this practice. We believe in the value of our advertising platform and use it in the same way that other advertisers do."

Posted by Eric at 10:07 AM | E-Commerce , Marketing , Search Engines | TrackBack

August 04, 2010

Google Gets Complete Win in Rosetta Stone Case

By Eric Goldman

Rosetta Stone Ltd. v. Google Inc., 1:09-cv-00736-GBL-TCB (E.D. Va.). Opinion granting Google's motion to dismiss filed August 3, 2010, 2010 WL 3063152. Order granting Google's motion to dismiss the unjust enrichment claim filed August 2, 2010, 2010 WL 3063857.

Back in late April, many of us were eagerly awaiting the impending trial in Rosetta Stone v. Google, which was going to be the first trial in a trademark owner v. search engine keyword advertising case since the GEICO v. Google case in 2004. Then, just days before the scheduled trial, the judge granted Google's motions to end the case, which negated the scheduled trial. However, because the case had been moving too fast in the Rocket Docket, the judge made that ruling without providing any written explanation of why. For about 3 months, we've been wondering how good a win Google got.

The opinions are finally out, and we've learned that Google got a complete win, in that the judge endorsed Google's basic business structure. As I explore below, the specifics are a little sketchy (the judge obviously cut some analytical corners), but the opinion’s overall tenor is that the judge completely rejected Rosetta Stone's fundamental contention that Google was doing something wrong by making money off Rosetta Stone's trademarks. Because Rosetta Stone's core liability paradigm failed to convince the judge, all of opinion's detailed reasoning is less essential.

Unfortunately for Google, the opinion contains several minor doctrinal errors that could attract attention from an appellate court. That makes this ruling vulnerable on appeal. I could see why Rosetta Stone would choose to appeal the case to fix those errors--although even a Fourth Circuit reversal would be only marginally helpful to Rosetta Stone if the case gets remanded to the same judge, who clearly isn’t going to find for Rosetta Stone.

Irrespective of subsequent proceedings in this case, for now this opinion could prove extremely useful to Google in trying to finish off the half-dozen remaining trademark lawsuits against AdWords (and thwarting new cases). In particular, I expect Google will tout two of the key rulings in this opinion--summary judgment on the likelihood of consumer confusion, and Google's eligibility for the trademark functionality defense. If other judges accept either of these two rulings, Google might quickly clear its AdWords litigation docket.

A deeper look at some of the judge's discussion:

* the judge grants Google summary judgment on the likelihood of consumer confusion question. The court says "no reasonable trier of fact could find that Google's practice of auctioning Rosetta Stone's trademarks as keyword triggers to third party advertisers creates a likelihood of confusion as to the source and origin of Rosetta Stone's products." This is just the latest defense win on the factual question consumer confusion attributable to keyword advertising, joining such recent cases as College Network v. Moore and Fair Isaac v. Experian (both trademark owner v. advertiser lawsuits). As precedent builds that trademark owners aren't likely to win on the central consumer confusion question, we might see a categorical reduction in AdWords-related litigation.

* In reaching this conclusion, the court rejects several typical plaintiff arguments:
- on the question of Google's intent, the court rejects that an intent to profit is sufficient, even if Google liberalized its trademark policy to goose its revenues. Instead, the judge requires evidence of palming off by Google--which keyword ad sales clearly are not.
- on the question of actual confusion, Rosetta Stone offers the testimony of 5 allegedly confused individuals. The court says this de minimis confusion out of the 100M ad impressions delivered on searches for Rosetta Stone's trademarks. Further, those 5 testimonials apparently all relate to counterfeit Rosetta Stone purchases, and the court attributes those sales to confusing web vendors and not Google's role in the keyword advertising of those sites. Other consumer complaints in Rosetta Stone's logs weren't necessarily attributable to keyword advertising. Finally, the court rejects the plaintiff's survey on whether consumers thought Rosetta Stone "endorsed" the ads, saying endorsement confusion isn't the same as source confusion. I'm not sure about that distinction, but clearly the court wasn't interested in the survey.
- on the question of consumer sophistication, a language learning system is an expensive and complicated purchase, which makes consumers more cautious.
- the court says the parties didn't contest the other likelihood of consumer confusion factors, although it's unclear how many of those other uncontested factors favored Rosetta Stone. Thus, the court does a truncated multi-factor analysis, only looking at the 3 contested factors, saying they all weigh in favor of Google, and then finding this supports SJ for Google. I could see an appellate court wanting to look more closely at the other undiscussed factors.

* The court's most novel ruling is that Google's use of trademarks as keyword ad triggers qualifies for the trademark functionality doctrine. Typically, the functionality defense arises only in trade dress cases. The functionality defense in the keyword advertising context failed in the 9th Circuit's Playboy v. Netscape ruling, which this court surprisingly doesn't cite. The court says that the trademarked keyword triggers "have an essential indexing function because they enable Google to readily identify in its database relevant information in response to a web user's query." This is correct, of course, but doctrinally I think this conclusion better fits into a doctrinal conclusion that Google isn't using the trademark as a mark. (See more on this point in my Deregulating Relevancy article). Nevertheless, Google and other keyword advertising sellers will be thrilled if other courts accept the functionality defense. I expect most other courts will address the 9th Circuit's Netscape ruling before doing so.

* Google's keyword suggestion tool does not constitute inducement for contributory trademark infringement. The court says it's smart business practices, not inducement, for Google to upsell its advertisers. Per Tiffany v. eBay, Google also lacks the requisite scienter because it contractually prohibits counterfeiter ads, honors takedown notices, and has a Trust & Safety team looking for problems. Plus, like eBay, Google had no way of confirming if advertisers were selling legitimate or counterfeit goods.

* The court uses a goofy legal standard for vicarious trademark infringers, which it says can occur if "Google has joint ownership or controls the allegedly infringing advertisements appearing on its site." This standard is WRONG. Unlike vicarious copyright infringement, vicarious trademark infringement is rooted strictly in agency law. So the vicarious infringer normally requires a principal/agency-like control over the direct infringer's conduct. Here, the court devolves the vicarious trademark infringement test into a bastardized version of the vicarious copyright infringement test. This is a significant doctrinal error. Nevertheless, it proves to be harmless for Google because "Rosetta Stone has not shown that Google controls the appearance and content of the Sponsored Links and the use of the Rosetta Stone Marks in those Links."

* I'm no fan of the dilution doctrine, but this court's rejection of the dilution claim was bizarre. Google wins the dilution claim because it "does not sell language learning software," i.e., Google wasn't using the trademark as an identifier of its own products. Huh? The court also says blurring did not occur because Rosetta Stone's brand awareness grew during the period of time Google is selling keyword-triggered ads. Huh? This confuses correlation with causation. What would Rosetta Stone's brand awareness have been without the keyword ads? We have had very few rulings addressing keyword advertising and dilution (this uncited 2007 ruling is the only one that comes immediately to mind), so this conclusion on dilution could be a fairly influential ruling as well.

* In a separate opinion, the judge rejected Rosetta Stone's unjust enrichment claim on a motion to dismiss. It's a little odd to be dealing with a pending motion to dismiss when the case was on the brink of trial, but that's the consequence of racing too fast in the Rocket Docket. The court rejects the unjust enrichment claim for failure to satisfy the requisite claim elements--basically, because this is not a quasi-contract situation where Google made an implied promise to pay Rosetta Stone. As I mentioned earlier, the court otherwise rejected Rosetta Stone's basic contention that Google has money it doesn't deserve. Interestingly, the court also rejects the unjust enrichment on 47 USC 230 grounds, basically treating the unjust enrichment claim as an attempt to hold Google liable for third party conduct. I didn't totally follow the judge's reasoning, and frankly I'm not sure 230 is the right basis to squelch the unjust enrichment claim. Nevertheless, unjust enrichment claims are almost always junky/throwaway claims, so a 230 immunity would be an effective way to clean them up fast.

In a mostly unrelated development, today Google liberalized its AdWords trademark policy in Europe. I'll blog on that soon.

The roster of pending AdWords cases (I most recently thoroughly double-checked the status of these cases on June 6, 2010):

* Ezzo v. Google
* Rescuecom v. Google
* FPX v. Google
* John Beck Amazing Profits v. Google and the companion Google v. John Beck Amazing Profits
* Stratton Faxon v. Google
* Soaring Helmet v. Bill Me
* Ascentive v. Google
* Jurin v. Google 1.0 (voluntarily dismissed), succeeded by Jurin v. Google 2.0
* Rosetta Stone v. Google
* Flowbee v. Google
* Parts Geek v. US Auto Parts
* Dazzlesmile v. Epic

Posted by Eric at 11:55 AM | Derivative Liability , Marketing , Search Engines , Trademark | TrackBack

July 31, 2010

Ripoff Report Defeats Extortion Claim, But Plaintiffs Keep Trying--AEI v. Xcentric

By Eric Goldman

Asia Economic Institute v. Xcentric Ventures LLC, 2:10-cv-01360-SVW-PJW (C.D. Cal. July 19, 2010). First Amended Complaint filed July 27, 2010.

I've lost track of the different techniques plaintiffs have tried to bypass 47 USC 230 and hold Ripoff Report liable for its UGC business. In this case, AEI played the "extortion" angle--that the combination of bad user reviews that Ripoff Report will not remove plus Ripoff Report's Corporate Advocacy Program (which offers to help businesses rehabilitate their reputation for a substantial fee) equals extortion, a predicate for the plaintiffs' civil RICO claim. This is hardly a new argument against Ripoff Report; but AEI has gotten further than most plaintiffs by getting a scheduled trial date.

But in a familiar denouement, Rip-off Report defeated the extortion charge on summary judgment. The court evaluated the undisputed evidence and held that evidence did not show extortion. This conclusion was aided by the previously unknown (to me) fact that Ripoff Report has been routinely recording its phone calls without telling callers--a troubling fact, but one that proved helpful as the plaintiffs withdrew and modified their declarations after having their memories refreshed by the recordings. Without the he said/she said disputes over the phone conversations, Ripoff Report was able to cut through the other evidence on summary judgment.

I doubt this will deter other plaintiffs from trying the extortion angle, but there is no reason to believe the extortion 230 bypass will work any better than others.

While Ripoff Report won this ruling, the court left open the possibility of a RICO claim based on wire fraud. The plaintiffs have filed a First Amended Complaint pursuing that.

One curiosity: AEI was a content publisher from 2000-2009 (it's now out of business), and during those 9 years, it had zero revenues. This could make it hard for AEI to garner much judicial sympathy over any harm to its business.

Posted by Eric at 10:09 AM | Content Regulation , Marketing | TrackBack

July 14, 2010

Funky Ninth Circuit Opinion on Domain Names and Nominative Use--Toyota v. Tabari

By Eric Goldman

Toyota Motor Sales, U.S.A., Inc. v. Tabari, 2010 WL 2680891 (9th Cir. July 8, 2010)

Every time I see a federal appellate opinion on domain names, I'm vaguely reminded of the Country Joe song I-Feel-Like-I'm-Fixin'-To-Die Rag, whose course goes "And it's one, two, three, what are we fighting for?" Fortunately, domain name disputes do not lead to the senseless loss of life we experienced from the Vietnam War. Unfortunately, lengthy domain name litigation usually has little more strategic value. Invariably, the domain name litigation has less to do with rational economic decision-making and more to do with chest-beating and posturing.

I bring this up because the Ninth Circuit's latest domain name opinion involves litigation that makes no financial sense for either side. The Tabaris are independent auto brokers that help their customers find and buy Lexus vehicles from an authorized Lexus dealer. They run a business called Fast Imports from the domains buy-a-lexus.com and buyorleaselexus.com.

What is Lexus’ problem with those domain names? The Tabaris are helping people buy Lexuses, so Lexus is going to get its fair share no matter what. The appellate opinion did not indicate that the Tabaris are crooks or trying to divert Lexus customers to other brands. So Lexus, why sue your friends? The opinion hints that Lexus was trying to improve dealer relations by squelching a broker who plays dealers off each other, but hey, that’s fair competition.

From the Tabaris’ perspective, losing these domain names should not be intrinsically fatal to their business. The Tabaris could set up shop at any number of other domain names, in which case they would lose only the built-up clicks from existing links to the site (I wonder how many of those there were in this case) and any extra Google juice from having a seasoned domain name with the trademark in it. I always find it weird when appellate courts treat a defendant’s domain name as the dispositive linchpin of communication between interested parties rather than just one of many SEO tools.

Refreshingly, this opinion does not overestimate the domain name’s value. However, it doesn’t see any reason to consider a switch either: "the Tabaris needed to communicate that they specialize in Lexus vehicles, and using the Lexus mark in their domain names accomplished this goal. While using Lexus in their domain names wasn’t the only way to communicate the nature of their business, the same could be said of virtually any choice the Tabaris made about how to convey their message."

While the opinion focuses on domain names, the Tabaris' websites also, at some point, used copyrighted Lexus photos and displayed the Big L logo. Normally, a photo rip and unauthorized logo display will get a district court judge to rule in favor of the IP owner. Before Lexus sued, the Tabaris cleaned up those issues, so the Ninth Circuit panel focuses solely on the two domain names (because an injunction was the only remedy at issue). This is a logical move by the Ninth Circuit, but most courts will not be so forgiving of sites that borrow the official logo and copyrighted photos.

With the Tabaris' use of the two domain names in their auto brokerage business the only issue on appeal, this should be an easy call per the nominative use doctrine. However, the words "easy" and "nominative use doctrine" go together like peanut butter and artichokes. Personally, I still have no idea when businesses outside a manufacturer's authorized channel can legally include the manufacturer's trademark in their name. Each case seems to be sui generis.

To segregate legitimate from illegitimate uses of third party trademarks in domain names, the opinion lays out a surprisingly lucid taxonomy with 3 categories of presumptively illegitimate domain names:

1) "When a domain name consists only of the trademark followed by .com, or some other suffix like .org or .net, it will typically suggest sponsorship or endorsement by the trademark holder." This makes sense intuitively, but (A) the court doesn't address the seemingly contradictory Lamparello case, and (B) the opinion’s reasoning remains predicated on dicey assumptions about consumer search behavior, such as consumers typing in trademark.com into their web browser address bar—an assumption that has grown dicier with the rise of omniboxes.

2) "Sites like trademark-USA.com, trademark-of-glendale.com or e-trademark.com will also generally suggest sponsorship or endorsement by the trademark holder."

3) "domains like official-trademark-site.com or we-are-trademark.com affirmatively suggest sponsorship or endorsement by the trademark holder and are not nominative fair use"

By implication, other domain names generally should be eligible for nominative use. At minimum, buy-a-TRADEMARK.com and buyorleaseTRADEMARK.com should be fair game for resellers and related parties like buying agents. In support of this, the court rejects Lexus' argument that there was something untoward about the Tabaris brokering other auto manufacturers if their customers decided they didn't want a Lexus. For more on this, see my Brand Spillovers article.

The opinion suggests that the following domain names should qualify for nominative use or otherwise be permissible as well:

* mercedesforum.com
* mercedestalk.net
* starbucksgossip.com
* frys-electronics-ads.com
* mercedesboots.com
* mercedeshomes.com [although I wonder about dilution with these two]
* comcastsucks.org

Procedurally, the opinion addresses several key issues about the interaction between the nominative use test and the likelihood of consumer confusion test. The opinion says that an evaluation of consumer confusion is implicitly built into the New Kids on the Block nominative use test. Therefore, "if the nominative use satisfies the three-factor New Kids test, it doesn’t infringe" without needing to consider the likelihood of consumer confusion test at all. Thus, "nominative fair use 'replaces' Sleekcraft as the proper test for likely consumer confusion whenever defendant asserts to have referred to the trademarked good itself." Further, once a "defendant seeking to assert nominative fair use as a defense...show[s] that it used the mark to refer to the trademarked good," the trademark owner bears the burden of disproving nominative use. All of these procedural points have been hotly contested in prior cases.

The court concludes that the district court's injunction against the Tabaris using "Lexus" in domain names was too broad and remands the case to the district court to try again. Although the court doesn't tell the district court exactly what to do, it does indicate: "At the very least, the injunction must be modified to allow some use of the Lexus mark in domain names by the Tabaris."

This is a rich and multi-faceted opinion written in a confident and emphatic style…perhaps too emphatically, as the opinion swings around like a bull in a china shop, breezily overturning or sidestepping numerous 9th Circuit precedents on both domain names and nominative use. Were this opinion to become the definitive 9th Circuit statement on either domain names or nominative use, this case would be a landmark opinion. However, the 9th Circuit's Internet trademark jurisprudence has awkwardly accreted on a case-by-case basis for more than a decade, and I doubt this opinion will meaningfully affect the next 9th Circuit panel’s considerations.

Even so, this case has to be good news for shopbots. Although the Tabaris were “manual” shopping agents, the case's reasoning should apply equally well to all shopbots comparison search engines and review sites that use third party trademarks as part of their taxonomy. These sites regularly get nastygrams from trademark owners. It will be interesting to see if this case helps turn that tide.

A final oddity: Judge Kozinski wrote both this opinion and the recent eVisa decision. Although the opinions involve different trademark doctrines applicable to domain names (a nominative use defense instead of dilution), their spirit couldn't be more different. The eVisa case was decidedly pro-plaintiff, while this opinion is very defense-favorable. I wonder if Kozinski bent over backwards to help a pro se litigant (the Tabaris represented themselves), or perhaps Lexus' anti-competitive intent set him off. Otherwise, although the split opinions in theory can be harmonized on numerous bases, they struck me as schizophrenic.

More comments from Rebecca Tushnet (smart and challenging, as always—especially about the numerous empirical deficiencies in the opinion), Ryan Gile and Tom O’Toole.

Posted by Eric at 01:08 PM | Domain Names , E-Commerce , Marketing , Trademark | TrackBack

July 09, 2010

Online Sports Ticketing Exchange Wins Dismissal Under Website User Agreement -- Duffy v. The Ticketreserve, Inc.

[Post by Venkat]

Duffy v. The Ticketreserve Inc. (FirstDIBZ.com), Case No. 09 C 1746 (N.D. Ill. July 6, 2010)

FirstDIBZ.com operates an online market place where end users can "buy, sell, and trade options to purchase tickets to sporting events." Plaintiffs who attempted to purchase tickets to the 2009 Super Bowl brought claims alleging fraud and breach of contract. FirstDIBZ scores a win. While plaintiffs get another chance, it's unlikely that they're going to be able to make out a complaint that survives a second motion to dismiss. The case overflows with interesting issues.

Background: FirstDIBZ essentially "operates as a futures market for tickets [for sporting events]." [This probably explains why I've never heard of it.] A "DIBZ" is an instrument which (i) gives the holder the right to purchase a ticket for an event, or a possible event and (ii) obligates the holder to purchase the ticket if the event occurs. As an example, the court notes that if you bought a DIBZ for Game 1 of the World Series at Wrigley Field,

in the event . . . the Cubs overcome their decades-long World Series Drought, the happy fan would then be guaranteed the right to purchase the ticket for Game 1 at face value. Should the Cubs disappoint, the DIBZ-holder would receive nothing and would lose the money she paid for the DIBZ.
[footnote referencing "DA CURSE OF THE BILLY GOAT: THE CHICAGO CUBS, PENANT RACES, AND CURSES" omitted]

FirstDIBZ operates two types of marketplaces. In the "FirstDIBZ-supplied" marketplace, FirstDIBZ guarantees the authenticity of the listings. In the "consumer-supplied" marketplace, FirstDIBZ only "acts as an exchange."

Plaintiffs brought tickets to Super Bowl 2009 in the consumer-supplied marketplace and their DIBZ turned out to be bogus - i.e., the sellers did not actually have the ability to procure Super Bowl 2009 tickets.

Plaintiffs agreed to a website user agreement that contained a description of the consumer-supplied marketplace which said that sellers "assume responsibility for . . . their listings." The agreement also contained a broad release pursuant to which users released FirstDIBZ and its affiliates "from claims, demands and damages . . . of every kind and nature . . . arising out of or in any way connected with [any disputes with Sellers]." The agreement also contained standard "as-is" and disclaimer language and contained a limitation of liability.

Discussion:

The release language: The court looks to the release and concludes that it applies to any breach of contract claims against FirstDIBZ. Plaintiffs tried to argue that their claims were not related to a dispute between plaintiffs and sellers, but rather were based on the acts or omissions of FirstDIBZ. The court rejects this argument, finding that plaintiffs' claims are "undoubtedly connected" to the underlying dispute between plaintiffs and sellers. The court notes that the claims relating to FirstDIBZ's failure to release certain funds from plaintiffs' online wallet accounts may not fall under the release, but cautions that if this is all that there is left, this probably presents a jurisdictional problem for plaintiffs (who alleged federal jurisdiction under the Class Action Fairness Act).

Warranty disclaimers and limitation of liability: The court finds the warranty disclaimers and the limitation of liability enforceable because they met the test under Illinois law that they could be reasonably construed with the remainder of the agreement and were "sufficiently conspicuous." The court did some fancy footwork around terms in the FirstDIBZ user guide which stated that "One DIBZ guarantees one face-value ticket," and that users could "sell [their] DIBZ to other fans . . . at any point during the season." The court finds that this only applies to holders of genuine DIBZ and does not amount to a warranty that any DIBZ would, in fact, be genuine.

Fraud and Illinois Consumer Fraud Act: Plaintiffs argued that they were misled regarding the authenticity of the DIBZ in statements made by FirstDIBZ in its marketing materials and in the media (which were posted on FirstDIBZ's website). The court finds that these arguments are precluded by the broad release. The court also dismisses the claims under the Illinois Consumer Fraud Act, finding that these claims are just dressed up versions of plaintiffs' contract claims.

Unjust enrichment: Finally, the court dismisses the claims for unjust enrichment, finding that this claim is quasi-contractual in nature and a party cannot circumvent a losing contract claim by bringing a claim for unjust enrichment.

__

Section 230: When I first read the case, I thought: what about Section 230? Courts have granted entities like eBay robust immunity against claims from purchasers who bought items that turned out to be not as advertised. (See, e.g., Gentry v. eBay (sale of fake sports memorabilia); Stoner v. eBay (sale of bootleg recordings).) However, this case in some ways reminded me of Mazur v. eBay, where eBay lost a section 230 defense in a case that revolved around live-bidding on eBay, which eBay supposedly screened. Here is Professor Goldman's post on the case: "eBay Denied 230 Defense for Its Marketing Representations--Mazur v. eBay." (Mazur was settled after the court denied class certification.) As his post notes, Mazur seemed to open up a website to a claim that would otherwise be covered by Section 230, by a plaintiff's allegation that "a website made a marketing representation somewhere that says or implies the tort wouldn't occur." (See also Barnes v. Yahoo, discussed in this post: "Ninth Circuit Helpfully Amends Barnes v. Yahoo Opinion".)

User Agreement/Release: Ultimately, the court bypasses the Section 230 discussion and looks to the user agreement, finding that the broad release precludes plaintiffs' claims. FirstDIBZ dodged a bullet for sure, and a big takeaway (which is nothing new) is that websites should keep close watch on their marketing representations, whether those representations are contained in a press release, sales materials, or off-the-cuff statements made by people at the company. I could see a court going the other way on this and finding that the FirstDIBZ marketing materials contained affirmative representations which modified and limited the effectiveness of the online terms and the release. The court's decision to rely on the release (which appeared to be cut and pasted from the eBay user agreement) instead of 230 is reminiscent of the Grace v. eBay appellate court decision, which the CA Sup Ct ultimately depublished. (The Citizen Media page provides background: "Grace v. Neeley.")

[Eric's comment: I've always been a big fan of contractual releases as a belt-and-suspenders risk management backstop to a 230 immunity. This case, combined with the lessons from the Grace v. eBay detritus, is a good reminder of the value of savvy contract risk management provisions as a complement/backstop to the statutory immunity. If you're drafting user agreements, you should consider the possible role of contractual releases from the user as part of the package. All too often, I see contracts where the drafters hope the warranty disclaimer and limits of liability achieve that result indirectly instead of just including an explicit release.]

The Scalping Problem: The court notes that neither party addresses whether FirstDIBZ's exchange runs afoul of laws prohibiting scalping. FirstDIBZ's exchange brings to mind the the hotly contested "Hollywood Futures" market, which is currently the subject of a few legislative skirmishes. (LA Times: "Watching a big bet on box-office futures go sour.") The FirstDIBZ market is a way that people can bet on teams. This raises an unclean hands problem. Except that everyone's hands are a bit dirty, so I'm not sure which way unclean hands would cut, and I suspect the parties weren't either, so they wisely left that issue to the side. (The plaintiffs could have attacked the legality of the whole scheme since FirstDIBZ didn't pay out due to capitalization issues, but the plaintiffs did not focus on this.) The scalping issue also has the potential to affect the Section 230 analysis. In a dispute between the New England Patriots and StubHub (where the Patriots were trying to prevent ticket resales through StubHub) the court recently ruled at summary judgment that a finding that StubHub contributed to a violation of anti-scalping laws by its users could result in a loss of Section 230 immunity. ("Two 47 USC 230 Defense Losses--StubHub and Alvi Armani Medical".)

Were Plaintiff's Acting Reasonably?: I go back and forth on whether the plaintiffs deserve sympathy here. I would think the whole point of an options exchange is to facilitate transactions where people actually have the right to sell what they are purporting to sell. I'm not familiar with options marketplaces, and I don't advocate looking to what a "reasonable online consumer" would perceive, but I would think customers would look at an options marketplace and think that the marketplace had some mechanism in place to verify what was at the selling end of the transaction. You would think the contingency would be in the sports team making it to the Super Bowl, not whether the seller turned out to actually have tickets. In a sophisticated financial marketplace, maybe things vary, but in the context of Super Bowl 2009 tickets, I can see where customers are coming from complaining that their DIBZ turned out to be bogus. That said, the terms clearly spelled out the differences between the two marketplaces and if the plaintiffs are using FirstDIBZ as a way to skirt the rules, I'm not sure how much sympathy they deserve.

Either way, an interesting case.

Posted by Venkat at 10:28 AM | E-Commerce , Licensing/Contracts , Marketing

July 07, 2010

Q2 2010 Quick Links Part 2

By Eric Goldman

Marketing and Advertising

* Good talk from FTC Chair Leibowitz: “we have great hopes for self-regulation….So long as self-regulation is making forward progress, the FTC is not interested in regulating” behavioral targeting.

* NYT on teaching middle schoolers how to interpret ads. We're going to need to teach kids how to consume information if we have any chance to survive infoglut.

* The LA Times and Chicago Tribune are integrating paid text links into story content.

* Search Engine Land: Google: Now Recommending Brands For Searches.

* Keeller v. Groupon Inc., No. 10 CH 8666 (Ill. Cir. Ct. Cook Cty. March 2, 2010). Groupon settles lawsuit over expired and unused coupons.

* NYT: Online coupons may not be as anonymous as people assume.

* An inside look at the MPAA's self-regulatory effort to police movie ads.

* Avi Goldfarb & Catherine Tucker, Privacy Regulation and Online Advertising.

* Microsoft sues for click laundering. Coverage at Search Engine Land and WSJ

* The FTC shut down Pricewert/3FN.net.

Contracts

* News.com: Second Life sued by its users for changing the terms of land “ownership.” Evans v. Linden Research complaint.

* Shell v. AFRA: website venue selection clause not binding just because web visitors viewed it.

* Omri Ben-Shahar & Carl E. Schneider, The Failure of Mandated Disclosure. This paper shows why mandatory disclosures fail in part because regulators think in terms of what consumers SHOULD want to know rather than what information consumers ACTUALLY want to know.

* WaPo: Reality TV secrets are hard to keep in the age of social media. My 2003 analysis of using contract law to keep reality TV secrets.

* Want to be on the TV show Survivor? Check out its contract first.

* Anderson v. Bell, No. 20100237 (Utah June 22, 2010): “electronic signatures may satisfy the Election Code’s requirements under section 20A-9-502 regarding unaffiliated candidates wishing to run for statewide office.” Tom O’Toole’s writeup.

Trademarks/Copyrights

* Jim Jansen: “Only 4% of sponsored ads were triggered by competitors’ trademarked terms. When it does happen, the results are pretty much what consumers are use to seeing, so there doesn't appear to be many negative consequences….Thus, competitive use of trademarked terms to trigger online ads does not appear to be a widespread phenomenon and is similar to the query suggestion feature that many search engines employ.”

* Michael Geist on the first Canadian keyword advertising ruling (a nice defense win).

* 2010 Joint Strategic Plan on Intellectual Property Enforcement.

* Qassas v. Daylight Donut Flour Company LLC, No. 09-663 (N.D. Okla. June 10, 2010). A company and its entrepreneur are liable for their web developer's infringements when creating the company's own website.

Miscellaneous

* Stephen Wu on Estate Planning for Online Assets

* Declan at News.com lauds Justice Stevens' Internet jurisprudence. We owe Justice Stevens many thanks for helping the Internet bloom.

* Anthony v. Yahoo!, Inc., 2010 WL 1552819 (9th Cir. April 20, 2010). Upholding Yahoo's settlement in a class action lawsuit over its online dating site. My original blog post on the case.

* Tom O'Toole reports on various stupid state efforts to regulate technology, inadvertently making the case that they are a terrible laboratory of experimentation.

* Vacation Club Services Inc. v. Rodriguez (M.D. Fla. April 22, 2010). No CFAA action against the buyer of data from a database the seller allegedly acquired in violation of the CFAA.

* Lawyers behaving badly on the Internet.

* 23 state AGs have contacted Topix about its takedown procedures, including its fee for expedited takedown review.

Posted by Eric at 03:18 PM | Copyright , E-Commerce , Licensing/Contracts , Marketing , Privacy/Security , Search Engines , Trademark , Virtual Worlds | TrackBack

June 03, 2010

April-May 2010 Quick Links Part 1 (IP Edition)

By Eric Goldman

[Note: I just got back from the Netherlands, where I had extremely limited Internet connectivity, so sorry for my absence in the last week (although you were in good hands with Venkat). I will be posting more material from my Netherlands trip to my personal blog and Twitter. You might want to follow me at those places too. I have a long list of "quick links" to share with you as I get the opportunity. The first installment:]

Copyright

* NYT: Current TV defeats a claim that in-line linking is copyright infringement.

* Google won a copyright challenge against Image Search in Germany, apparently on implied license grounds.

* Smoking Gun reports that ESPN sportscaster Erin Andrews has acquired the copyrights to the peephole videos made of her, which should make it a little easier for her to go after online republishers.

* UMG v. Veoh has been appealed to the Ninth Circuit. Although Veoh declared bankruptcy, its law firm, Winston & Strawn, is still fighting it. Ben Sheffner has posted the amicus briefs on behalf of UMG.

* Ben Sheffner also reports that Scott v. Scribd did not get class certification. My initial blog post.

* Arista Records LLC v. Doe 3 (2d Cir. April 29, 2010). P2P file sharer can't claim anonymity to resist copyright owner's subpoena. This ruling also signals that the Second Circuit will take a dim view of fair use claims in P2P file sharing cases and might import the Napster standards for secondary infringement claims.

* Lyrics website hit with preliminary injunction, but not the shutdown requested by the plaintiffs. The court rejects a 17 USC 512 defense because the defendant did not file the required agent designation with the copyright office.

* The RIAA’s campaign to sue file sharers led to a bubble in copyright litigation activity. Ars Technica suggests the bubble may be coming back.

* International Swaps and Derivatives Ass'n, Inc. v. Socratek, L.L.C., 2010 WL 1780999
(S.D.N.Y. 2010). Socratek aggregates agreements from EDGAR and resells them on its website. The plaintiff is upset that Socratek aggregated and resold the plaintiff’s allegedly copyrighted order form for ordering derivatives. The plaintiff sells blank forms, but Socratek grabbed completed versions that had become material agreements for SEC filing purposes. The court denies Socratek’s dismissal motion but also denies a preliminary injunction.

* The Second Circuit upholds the dismissal of Bio-Safe v. Hawks. My initial blog post.

* Zusha Ellison of the Recorder catches up on three copyright First Sale cases pending before the Ninth Circuit. This is a good time to remind you about our November 5 conference on the First Sale doctrine.

* Cosmetic Ideas v IAC InteractiveCorp (9th Cir. May 25, 2010): "receipt by the Copyright Office of a complete application satisfies the registration requirement of § 411(a)."

Trademark

* Google has won the Rosetta Stone case, but we’re waiting to see the written opinion to figure out why (and how good the win is).

* Au-Tomotive Gold v. VW (9th Cir. May 6, 2010). Post-sale trademark confusion trumps the First Sale doctrine. We'll also be discussing trademark exhaustion at the November 5 conference!

* Boston Marathon sues CafePress and Zazzle for trademark infringement.

* Dan Burk, Cybermarks, Minnesota Law Review. The abstract:

The commercial development of the Internet has been punctuated with legal disputes over the use of trademarks as domain names, as metatags, as search terms, and as advertising keywords. As in previous disputes in copyright over the legal status of software, these Internet trademark disputes arise from the overlap of communicative and functional symbols in information technology. Such “cybermarks” are not merely indicators of product source, but function both as symbolic indicia for human recognition and as strings of computer code in the operation of automated search and indexing mechanisms. Application of trademark law’s functionality doctrine, perhaps with some modest amendment, could begin to resolve disputes over the use of cybermarks.

* Nature’s Footprint, Inc. v. Providnet Co Trust, 2010 WL 1903183 (W.D. Wash. May 11, 2010): “The Court is convinced that plaintiff sought to use its superior position vis-a-vis the trademark to, cause harm to a competitor. Given this Court’s strongly-held belief that a significant part of this litigation was motivated by plaintiff’s desire to quash competition, no fees will be awarded under the Lanham Act’s ‘exceptional case’ authority.”

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

May 19, 2010

How Much Does 1-800 Contacts Hate Competitive Keyword Advertising? $1.1M Worth!?

By Eric Goldman

Rader Fishman & Grauer PLLC v. 1-800 Contacts, Inc., 2:10-cv-00191-TS-DN (redacted complaint filed March 30, 2010; answer and counterclaim filed March 25, 2010; counterclaim answer filed April 19, 2010)

1-800 Contacts has been a repeated guest star on this blog, principally for their duplicitous attitudes towards keyword advertising. 1-800 Contacts has used competitive keyword advertising in the past and was part of a coalition that helped scuttle Utah's second attempt at regulating keyword advertising. On the other hand, 1-800 Contacts was a major player in Utah's third attempt to regulate keyword advertising, and it has been an aggressive plaintiff in numerous lawsuits against competitive keyword advertisers, including the infamous 1-800 Contacts v. WhenU case and numerous obscure lawsuits that no one is closely watching.

We get an inside look at 1-800 Contacts' litigation against competitive advertisers through the filings in Rader Fishman v. 1-800 Contacts. Rader Fishman was one of 1-800 Contacts' "go to" law firms until a key partner switched to a different law firm (Holland & Hart), and 1-800 Contacts made the switch with him. This left the small matter of 1-800 Contacts' outstanding bills, totaling over $650,000. An amount that size is enough to get a law firm to bring a collections action, even if malpractice counterclaims are inevitable.

What really catches my attention, however, is the fee agreement between Rader Fishman and 1-800 Contacts in the Lens.com enforcement action, one of numerous 1-800 Contacts' lawsuits against competitive keyword advertisers. Although the number is redacted in the complaint, 1-800 Contacts' answer (para. 33) reveals that the law firm agreed to cap fees in that litigation at $1.1M.

Wait a minute...what??? How much for a keyword advertising enforcement action? Either the contact lens business is extraordinarily lucrative, or 1-800 Contacts made a really bad business call. As I have repeatedly said, trademark owners should view competitive keyword advertising lawsuits as an investment and measure their ROI accordingly. I haven't seen the numbers, but I'm super-skeptical that the value of the consumers "diverted" (whatever that means) by Lens.com's competitive keyword advertising is more than $1.1M--especially after 1-800 Contacts avails itself of the search engine trademark policies. Of course some or all of this difference could be made up by a damages award from Lens.com--if it wins and can collect--but even then I'm skeptical that the total expected value of this litigation was, or is, cost-justified.

Meanwhile, 1-800 Contacts could have taken the same $1.1M and poured it into advertising for itself. It could have invested the money to improve its products/services, which would enhance its overall competitiveness. 1-800 Contacts could have reduced its prices by $1.1M and stimulated more consumer demand. Heck, 1-800 Contacts could have used the $1.1M to select and switch to a more defensible trademark than its current crummy one. Instead, they've spent more than enough money to buy their outside lawyers a very, very nice new boat (...if the outstanding bills ever get paid...). And with $1.1M on the line for just one of several enforcement actions, it makes more sense why 1-800 Contacts flip-flopped on the Utah legislature and advanced protectionist legislation that would make its life easier--and cheaper.

Posted by Eric at 10:01 AM | Marketing , Search Engines , Trademark | TrackBack

May 18, 2010

A Jury Verdict That Competitive Keyword Advertising Isn't Trademark Infringement--College Network v. Moore

By Eric Goldman

College Network, Inc. v. Moore Educational Publishers, Inc., 2010 WL 1923763 (5th Cir. May 12, 2010). The jury verdict form from January 2009. The district court's final judgment from June 2009.

In December, I blogged about the Fair Isaac v. Experian case, which I thought was the first jury verdict on trademarked keyword advertising. I now stand corrected on two fronts.

First, although the decision came after the jury trial, the judge made a bench ruling that Experian had not committed trademark infringement by buying competitive keyword advertising. Rebecca has some additional updates on the case.

Second, I've since discovered an earlier case, College Network v. Moore Educational Publishers, which had a January 2009 jury finding that competitive keyword advertising doesn't constitute trademark infringement (see the qualifications below). This jury verdict appears to have gone unnoticed, as I could not find any press coverage of the district court proceedings. In fact, I learned about it only because the case was appealed and the Fifth Circuit upheld the dismissal of the trademark claims.

Unfortunately, the three documents linked in my intro paragraph don't completely explain the alleged trademark infringement. The Fifth Circuit ruling summarizes the situation by saying that the advertiser "had purchased the phrase 'The College Network' from Google and Yahoo as a search-engine keyword to summon MEP’s sponsored-link advertising." The advertiser responded that the trademark owner had bought the advertiser's trademarks as well (which would be consistent with keyword advertising plaintiffs' frequently duplicitous behavior), but this allegation wasn't pursued and appears to be immaterial.

Now the provisos on the jury ruling: the jury verdict probably was skewed by the trial court's ruling (pre-Rescuecom) that the advertiser did not make a use in commerce. So where the jury verdict form indicated that the advertiser didn't infringe the trademark, it's unclear if this was based on the jury's finding of no likelihood of confusion or a lack of use in commerce.

On appeal, the Fifth Circuit sidesteps the use in commerce question and says that "the evidence does not compel a finding of likelihood of confusion"--a conclusion that the court weakly explains as it rejects many of the trademark owner's arguments on procedural technicalities. However, in a footnote, the Fifth Circuit partially explains:

In any event, sufficient evidence supported the jury’s finding of no likelihood of confusion under the Fifth Circuit test. MEP and Moore presented extensive documentary evidence on the issue. The jury was permitted to view the keywordsearch process and visually compare the companies’ websites. TCN’s own expert testified as to lack of actual confusion. The evidence does not point so “strongly and overwhelmingly in favor” of TCN that a reasonable jury could not arrive at a contrary verdict.

I haven't parsed through the lower court proceedings to see how the trademark owner's expert (Otto Wheeler, presumably this gentleman) undercut his client's case, but the Fifth Circuit's characterization sure doesn't sound good. Perhaps there should be a motto among litigation experts similar to a doctor's ethical tenet: First, Do No Harm.

[UPDATE: I received a letter from Otto Wheeler saying that the Fifth Circuit opinion mistakenly identified him as the expert providing the unsuccessful opinions. He says he only opined on damages. Instead, he suggests Howie Jacobson, PhD provided the expert opinion which failed to impress the court.]

The trademark owner's loss is doubly ironic because the Fifth Circuit mostly upheld the lower court's conclusions that it owes the advertiser (and its principal) approximately $700k on a defamation counterclaim. Perhaps the advertiser would have sued the trademark owner for defamation no matter what, but a counterclaim was apropos once the trademark owner decided to dance in court. So once again, a trademark owner kicks off a keyword advertising fight only to end up writing a check to the defense. Smart move, guys.

Posted by Eric at 10:35 AM | Marketing , Search Engines , Trademark | TrackBack

May 05, 2010

Troubling Ruling About 47 USC 230 and Moderators--Cornelius v. DeLuca

By Eric Goldman

Cornelius v. DeLuca, 2010 WL 1709928 (D. Idaho April 26, 2010)

I blogged about this case last year. In that post, I described the situation:

DeLuca runs bodybuilding.com, a fitness website and online retailer. The plaintiffs sell dietary supplements ("syntrax," whatever that is). The plaintiffs allege that their competitors posted shill reviews to bodybuilding.com designed to harm the plaintiffs' business. The plaintiffs sued both bodybuilding.com and the putative shillers.

In the previous ruling, a Missouri judge dismissed without prejudice a civil conspiracy claim against bodybuilding.com per 47 USC 230. Since then, the case has been transferred to Idaho, and the plaintiffs have launched another foray against bodybuilding.com, alleging that bodybuilding.com is derivatively liable for a Lanham Act false advertising claim. The court sidesteps a number of interesting questions, such as how 230 interacts with a Lanham Act false advertising claim, to what extent Lanham Act false advertising claims support derivative liability, and how a derivative claim interacts with the printer/publisher defenses in the Lanham Act. Instead, the court reaches two conclusions in response to bodybuilding.com's 12(b)(6) motion to dismiss:

1) Even though bodybuilding.com uses third party moderators, bodybuilding.com is not liable for every posting made on the site. This is a correct ruling and fully consistent with 230's immunization of the editorial function.

2) However, allegations that a moderator posted one of the offending messages survives a 12(b)(6) motion to dismiss based on the allegations that the moderator was a representative of the site and posted the message within the scope of the representation.

My hope is that the court will see the error of conclusion #2 on summary judgment. There are a number of cases that have rejected this agency-style argument as a workaround to 230, including the cases I cited in the last post:

* Joyner v. Lazzareschi: conspiracy argued but not alleged
* Higher Balance v. Quantum Future Group: no "alter ego" liability
* Cisneros v. Yahoo: no "aiding and abetting" liability. Accord: Goddard v. Google
* Best Western v. Furber: no liability for co-website operator activities

More recently, Novins v. Cannon says that there can be only 1 online defamation defendant per case. I also note the questionable Delfino v. Agilent case, where the court found the employer had a 230 defense for its employee's rogue actions.

Should conclusion #2 be followed by other courts (a doubtful proposition), it puts further legal pressure on websites relying on third party moderators. I have already raised this concern in my post on the uncited Columbia v. Fung case, which had some gratuitous language about site admins and moderators that is consistent with this case. I wrote:

The court also attributes the statements of site admins and moderators to the defendants, such as the admins’ technical support to people looking for or downloading copyrighted works. This part of the opinion was especially troublesome. Generally, UGC site moderators are unquestionably independent contractors, not agents, so the website isn't automatically liable for their statements and actions. Here, the court finds an "apparent agency" relationship between the admins and moderators because "Defendants assign this status and give these individuals authority to moderate the forums and user discussions. These individuals were under the control of Defendants and assigned duties related to the administration of the web forums." I believe this is a bad ruling, both normatively and doctrinally (see contrary discussion in, e.g., the Furber and Higher Balance cases in the 230 context). I could see UGC sites deciding to crack down or even eliminate non-employee moderators based on the agency exposure suggested by this opinion.

I am hoping these two rulings are outliers that other courts won't follow. I really can't imagine Web 2.0 succeeding without a robust cadre of site admins and moderators helping self-police an online community.

The rest of the opinion is filled with interesting nuggets too. For example, there is an interesting discussion about the (non-existent) statute of limitations in Lanham Act cases. Regarding the posters' direct liability for their allegedly shill posts, Rebecca recaps the discussion. The short story is that the court concluded many of the posts were non-actionable puffery. In her own unique way, she explains why the discussion about the commerciality of the allegedly shill posts may be "not just odd and marginal, it is bizarrely wrong."

My favorite part of the opinion was the court's straight-faced discussion about whether calling someone a "Cornholio" is defamatory. Believe it or not, this is not the first opinion in Westlaw to use the term "Cornholio"--that "honor" is reserved for State v. Lane, 2006 WL 687949 (Ohio App. Ct. March 17, 2006), which described a person as walking with his shirt over his head, "Cornholio style." This court says:

Calling Cornelius "Cornholio" is not a statement of fact. Cornholio is the alter-ego of a cartoon character, Beavis, from "Beavis and Butt-Head." See Beavis, in Wikipedia, the Free Encyclopedia, http://en.wikipedia.org/wiki/Beavis, last visited on April 8, 2010 FN6. While being compared to Cornholio is not flattering, it is not a "specific and measurable claim." Nor can it be reasonably interpreted as a statement of objective fact.

In FN6, the court admits to being embarrassed to having to cite the Wikipedia entry: "The Court does not encourage citations to Wikipedia. However, in rare circumstances, citation to a pop-culture encyclopedia is necessary in order to explain a pop-culture character." In fact, the Wikipedia cite looks significantly better than the Urban Dictionary, the only other marginally credible cite I could see in the first page of my Google results.

Posted by Eric at 10:04 AM | Content Regulation , Derivative Liability , Marketing | TrackBack

May 01, 2010

Facebook Gets Partial Win in Click Fraud Lawsuit

By Eric Goldman

In re Facebook PPC Advertising Litigation, C 09-3043 JF (HRL) (N.D. Cal. April 22, 2010). My blog post on the complaint filing.

This is an unexpectedly hard-to-parse ruling in a click fraud lawsuit against Facebook. Facebook sought a 12(b)(6) motion to dismiss on the basis of its Advertising Terms and Conditions, which included the following language:

I UNDERSTAND THAT THIRD PARTIES MAY GENERATE IMPRESSIONS, CLICKS OR OTHER ACTIONS AFFECTING THE COST OF THE ADVERTISING FOR FRAUDULENT OR IMPROPER PURPOSES, AND I ACCEPT THE RISK OF ANY SUCH IMPRESSIONS, CLICKS, OR OTHER ACTIONS. FACEBOOK SHALL HAVE NO RESPONSIBILITY OR LIABILITY TO ME IN CONNECTION WITH ANY THIRD PARTY CLICK FRAUD OR OTHER IMPROPER ACTIONS THAT MAY OCCUR

Judge Fogel says that the disclaimer clearly preempts any claims for third-party caused click fraud. However, he suggests that Facebook's contract does not preclude a claim based on Facebook's own malfeasance or error. For example, if Facebook's reporting system goes haywire and counts phantom clicks that never occurred, the disclaimer language doesn't help. Fair enough, but the boundary between first party and third party malfeasance is not completely clear. For example, if a user double-clicks, is that third party click fraud or an error in how Facebook counts clicks?

In any case, this ruling exposes a hole in Facebook's disclaimer language. Unfortunately, I'm not sure how fixable it is. Facebook could say that advertisers have to pay even if Facebook's reporting system is miscalibrated or goes rogue. See Go2Net, Inc. v. C.I. Host, Inc., 60 P.3d 1245 (Wash. Ct. App. 2003). However, many judges would not honor those statements at face value.

The plaintiffs also attack the contract by alleging that its integration clause opens up the door to other documents. The clause reads:

[T]hese terms and conditions, the Advertising Guidelines and other applicable Facebook policies, and the terms of any applicable advertising order submitted through the site constitute the entire and exclusive agreement between the parties with respect to any advertising order I place[.] (emphasis in the court's opinion)

Why is that italicized language in the integration clause? It opens up a debate about the scope of other incorporatable documents--exactly what you DON'T want an integration clause to do. Facebook escapes adverse consequences from that loose language; the court concludes that whatever that language means, it does not include the documents that the plaintiffs want to incorporate. But I expect Facebook will want to reconsider that catch-all going forward.

Judge Fogel gives the plaintiffs a chance to amend their complaint, but they will need to be smart in how they approach the amendment. I've seen numerous Fogel rulings where he generously gives the plaintiffs some leeway on the first motion to dismiss but then slams the door on sloppy plaintiffs on the second go-around.

Wendy Davis' writeup of this ruling.

Posted by Eric at 08:58 AM | Licensing/Contracts , Marketing | TrackBack

April 26, 2010

Amazon Wins Keyword Advertising Suit--Video Professor v. Amazon

By Eric Goldman

Video Professor, Inc. v . Amazon.com, Inc., 1:09-cv-00636-REB-KLM (D. Colo. April 21, 2010)

Video Professor has been involved in a few interesting legal scrapes. For example, you may recall that in 2007 they launched a major crackdown against the publishers of negative product reviews. See this recap.

In this lawsuit, Video Professor sued Amazon for bidding on the keyword "video professor" and then displaying competitive options on the linked landing page. This type of fact pattern--online retailers advertising on third party trademarks to promote competitive alternatives--has created significant confusion for trademark law. See the irresolute rulings in BabyAge v. Leachco (involving the alleged misuse of product reviews to redirect a retailer's consumers to a house product) and Hearts on Fire v. Blue Nile (a retailer buying keywords for a manufacturer's product it didn't sell).

In Amazon's case, this should be a laughably easy case. So long as Amazon has any legitimate Video Professor products in inventory--even if it or third party vendors are reselling used Video Professor goods via the First Sale doctrine--it should have the right to accurately advertise that fact. See Tiffany v. eBay. The fact that consumers might redirect to other offerings once they get into the retailer's premise is completely irrelevant. As I explain in gory detail in my Brand Spillovers paper, using third party trademarks to generate consumer interest and redirect them to other products is an essential part of offline retailing and virtually unchallenged by anyone. Yet, when the same behavior happens online, people freak out. My paper concludes that these freakouts are due to cyberspace exceptionalism, not any rational or doctrine-based concerns.

Amazon doesn't win this case on First Sale grounds (although it should have). Instead, Video Professor was an Amazon vendor for a while, and Amazon makes vendors enter into a "Vendor Manual" that contains a perpetual trademark license. Therefore, Amazon successfully defended its keyword purchases as being authorized by this perpetual trademark license. Summary judgment for Amazon. This is a neat legal trick by Amazon and almost assuredly a boilerplate "gotcha" for most Amazon vendors, who probably didn't fully understand the implications of the boilerplate language. Then again, I just argued that Amazon should have this right as a matter of default trademark law, so I don't think vendors agreeing to Amazon's Vendor Manual are giving up any legal rights they actually had.

This case illustrates the increasing importance of contracts in governing keyword advertising purchases, a point I mention in my latest keyword advertising legal recap slides. Here, Amazon was able to slip in a perpetual right to buy its vendors' trademarks as keywords into its vendor contract. In theory, if Video Professor objected, it should have rejected the Vendor Manual clause AND promulgated its own more restrictive contractual restrictions on Amazon's keyword purchases.

For those of you who rely on buying third party trademarks as keywords, this case might spur you to redouble efforts to get contractual permission (one way or another) from the third parties. That contractual consent may be highly effective at fending off future cyberspace exceptionalist freakouts by trademark owners.

Posted by Eric at 11:52 AM | Licensing/Contracts , Marketing , Trademark | TrackBack

April 22, 2010

FTC Drops Investigation of Advertiser Who Gave Gifts to Bloggers

By Eric Goldman

Although the FTC's revised Endorsements and Testimonials Guidelines were inscrutable overall, a few things were, in fact, clear from the FTC's announcements:

1) The FTC believes shill blogging is out of control
2) They blame advertisers for showering bloggers with gifts
3) They intend to invest some resources in investigating advertisers doing the showering
4) Advertisers who want to avoid the FTC have to (A) require bloggers to make adequate disclosures, and (B) do ex post policing of bloggers.

Our first tangible evidence supporting these lessons comes from a letter issued by Mary Engle at the FTC to AnnTaylor a couple of days ago. The FTC opened an investigation into AnnTaylor based on a January 26 party thrown by its LOFT division to preview LOFT's Summer 2010 collection, which apparently included gifts for bloggers in attendance. This is consistent with the FTC's repeated assurances (most recently reiterated in this insightful interview with Engle's boss David Vladeck) that the FTC will be pursuing advertisers and not individual bloggers. The FTC dropped the investigation citing the following factors:

* there was only 1 party
* only a few bloggers posted, and some of those disclosed the gifts. In a footnote, the FTC notes that LOFT had a sign at the event reminding bloggers to disclose the gifts if they posted.
* LOFT had a written policy (adopted after the event) that it wouldn't give gifts to bloggers without requiring the bloggers to disclose. The FTC continues ominously:

The FTC staff expects that LOFT will both honor that written policy and take reasonable steps to monitor bloggers' compliance with the obligation to disclose gifts they receive from LOFT.

LOFT should have the feeling that it is being watched.

As I've previously blogged, I think the FTC is totally off-base with their scrutiny of blogs and not other media. Therefore, investigations like these are over-inclusive or under-inclusive--either the FTC should be going after print and broadcast reporters for undisclosed free gifts, or the FTC is wasting its time with chickenscratch events like the LOFT party that didn't inspire a lot of blogger enthusiasm. But the letter makes me wonder how many FTC blog-related investigations are pending. I would be shocked if this were the only one.

In my previous blog post, I made the following recommendations that still seem right even after the new information in Engle's letter:

* Advertisers need to (1) require disclosure from any bloggers they support, and (2) monitor all sponsored posts for accuracy and disclosure. I think it’s bad form to offer consideration and then hope/encourage the blogger not to disclose. But efficacy of sponsored posts may be lower with visible disclosure than without (consumers overdiscount content labeled as “ads”). For some types of consumer goods, good products go viral, in which case marketing dollars are better spent on making product improvements than creating shill reviews.

* Under no circumstances is it appropriate for marketers to create fake reviews (positive for you or negative about a competitor). See the Lifestyle Lift settlement with the NYAG. Fake reviews/astroturfing seems like the most logical area for increased FTC enforcement. And if you don’t think the long arm of the law will reach you, don’t forget that competitors love to publicly “out” each other.

* Bloggers need to disclose any conflicts in the post itself; general disclosures elsewhere on the site may not suffice. However, it’s unclear how to make the appropriate disclosures in Twitter or a Facebook status report. Some folks think CMP.ly may be an answer. I believe the FTC would take the position that if you can’t fit the necessary disclosures in Twitter, then don’t post to Twitter.

* Bloggers should think twice about joining pay-to-play services. There is a high legal ambiguity about the practice’s legitimacy.

More thoughts on the LOFT investigation from AdLaw by Request.

Posted by Eric at 11:14 AM | Marketing | TrackBack

April 19, 2010

Online Publishers, Advertising and Privacy Considerations

By Eric Goldman

I recently spoke at OMMA Global on a panel entitled "Can Publishers Take Ownership of Privacy?" This panel focused on the role of online publishers in the marketing-and-privacy discussions. Most of the privacy angst has focused on other intermediaries in the advertising ecosystem, such as ad networks. However, online publishers play a crucial but under-discussed role in privacy considerations as well.

I made the following three points in my brief introductory remarks:

1) Our privacy regulatory architecture of "notice and choice" requires that publishers actually give their consumers notice and choice, but I'm routinely flummoxed by publishers who balk at doing both. Publishers often rely on dense obfuscating language to mask their true behavior--eviscerating the notice part of "notice and choice"--and will broadly interpret user consent or opt-in beyond the consumer's clear consent. If publishers want to enjoy the benefits of a "notice and choice" regulatory regime, then they have to deliver accordingly. No excuses, no corner-cutting, no BS.

2) I am also amazed at how often publishers let third party vendors place web beacons on their pages or otherwise let third parties have access to their server logs. Routinely consumers are "informed" in obscure or vague privacy policy references that third party vendors might have access to logs (i.e., "we might use third party vendors, so trust us"). At best, the privacy policy links the consumer to the vendor's own privacy policy, at which point the publisher pats itself on the back and feels like it has checked off the "notice and choice" box. But this isn't notice or choice; 99% of consumers won't even look at the privacy policy, and exactly what choice do they have...to follow the daisy-chain of privacy policies to try to assemble the overall picture of what is happening to the consumer and his/her data?

More importantly, I think publishers underestimate the competitive risks of letting other vendors put web beacons on their pages. Every vendor who's listening in via the web beacon knows pretty much everything about the publisher's online business. The publisher can try to handcuff the vendor's enjoyment of that data in the contract; but as we know, too many contracts are not worth the piece of paper they're written on.

As a result, I think publishers need to think long and hard about letting vendors put beacons on their pages or otherwise granting vendor access to the publisher's server logs. Publishers need to evaluate it from a competitive standpoint, and publishers need to act as a proxy for their consumers' interests given that consumers don't have any meaningful notice or choice in the situation. After all, if something blows up, it's the publisher's trust relationship with its consumers that will suffer.

3) Personally, I don't have any problem with providing publishers with more information about me--even PII--so long as they actually provide enhanced value to me. However, in far too many situations, I don't see any extra value from the publisher despite the information I provide. I keep getting the same crappy ads I'd get if they knew nothing about me. So, publishers: if you want better info about me, deliver better value to me. On the flip side, when publishers keep doing a crummy job after asking me to personalize my experience, I will absolutely hold it against them.

Posted by Eric at 09:44 AM | Marketing , Privacy/Security | TrackBack

April 14, 2010

FTC Endorsement and Testimonials Guidelines Notes from SMX West

By Eric Goldman

Last month, I spoke at SMX West about the FTC Endorsement and Testimonial Guidelines. My talk notes:

Beatles fans routinely parsed the meaning of John Lennon’s lyrics, which irritated him. When Lennon released “I am the Walrus,” which was a compilation of three different song ideas each with nonsense lyrics, he reportedly said “Let the fuckers work that one out.” Every time I read the indecipherable FTC endorsement and testimonial guidelines, I imagine this is what the FTC staffers said to each other when the guidelines were issued. Every word in their guidelines is in English, but the collection of words is less than the sum of its parts.

Structural Problems

Let me identify five structural problems with the guidelines:

1) The FTC guidelines seek to effectuate a clearer division between advertising and editorial content, but this division has never made sense, and certainly makes no sense in the online context. For example, on the Internet, every “editorial” web page has significant SEO value as marketing. Indeed, the standard advice to marketers seeking to improve their search engine indexing is to create better content.

The subtext: the FTC has a misguided belief that the FTC can improve content authenticity in our ecosystem through the FTC’s regulatory oversight. That’s a losing battle.

2) The guidelines do not attempt to distinguish between the very different situations of paid celebrity endorsements in infomercials and online consumer reviews where the reviewer gets a free book. As a result, the guidelines actually undercut Point #1 by miscategorizing some editorial content (online consumer reviews) as advertising.

3) The guidelines make unsupported (unsupportable?) assumptions about consumer expectations. For example, the guidelines assume that consumers understand that offline product reviewers get free stuff but don’t understand that bloggers get free stuff:

In general, under usual circumstances, the Commission does not consider reviews published in traditional media (i.e., where a newspaper, magazine, or television or radio station with independent editorial responsibility assigns an employee to review various products or services as part of his or her official duties, and then publishes those reviews) to be sponsored advertising messages. Accordingly, such reviews are not “endorsements” within the meaning of the Guides. Under these circumstances, the Commission believes, knowing whether the media entity that published the review paid for the item in question would not affect the weight consumers give to the reviewer’s statements. Of course, this view could be different if the reviewer were receiving a benefit directly from the manufacturer (or its agent). In contrast, if a blogger’s statement on his personal blog or elsewhere (e.g., the site of an online retailer of electronic products) qualifies as an “endorsement” – i.e., as a sponsored message – due to the blogger’s relationship with the advertiser or the value of the merchandise he has received and has been asked to review by that advertiser, knowing these facts might affect the weight consumers give to his review.

Citations, please. Based on this undefended assumption, the guidelines conclude that “bloggers may be subject to different disclosure requirements than reviewers in traditional media.”

There are two subtexts here. First, the FTC is engaging in unabashed cyberspace exceptionalism, but it has not given any basis for the exceptionalism. When a regulator indulges in cyberspace exceptionalism without explaining why, chances are the offline/online distinctions are unsupportable.

Second, the FTC has repeatedly indicated that it is concerned about Internet lawlessness. This is another sign that the FTC believes it needs to clean up the Internet.

4) The FTC does not clarify what constitutes a disclosable conflict of interest. For example, if the post qualifies as an endorsement, “disclosure of the connection between the speaker and the advertiser will likely be warranted regardless of the monetary value of the free product provided by the advertiser.” The guidelines define an “endorsement” as “any advertising message…that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the sponsoring advertiser, even if the views expressed by that party are identical to those of the sponsoring advertiser.” This is a circular definition! Conflicts of interest become disclosable only when the content qualifies as an “advertising message,” but editorial content can become an advertising message based on the author's conflicts of interest. Stuff like this makes my brain hurt.

5) The FTC misapprehended 47 USC 230 and took an unsupportably expansive view of advertiser liability. I explain this concern in more detail in this blog post.

UPDATE: Some of these critiques are explored in Recent Regulation: INTERNET LAW -- ADVERTISING AND CONSUMER PROTECTION -- FTC EXTENDS ENDORSEMENT AND TESTIMONIAL GUIDES TO COVER BLOGGERS. -- 74 FED. REG. 53,124 (OCT. 15, 2009) (TO BECODIFIED AT 16 C.F.R. PT. 255), 123 Harvard Law Review 1540 (April 2010).

Practice Pointers

* Advertisers need to (1) require disclosure from any bloggers they support, and (2) monitor all sponsored posts for accuracy and disclosure. I think it’s bad form to offer consideration and then hope/encourage the blogger not to disclose. But efficacy of sponsored posts may be lower with visible disclosure than without (consumers overdiscount content labeled as “ads”). For some types of consumer goods, good products go viral, in which case marketing dollars are better spent on making product improvements than creating shill reviews.

* Under no circumstances is it appropriate for marketers to create fake reviews (positive for you or negative about a competitor). See the Lifestyle Lift settlement with the NYAG. Fake reviews/astroturfing seems like the most logical area for increased FTC enforcement. And if you don’t think the long arm of the law will reach you, don’t forget that competitors love to publicly “out” each other.

* Bloggers need to disclose any conflicts in the post itself; general disclosures elsewhere on the site may not suffice. However, it’s unclear how to make the appropriate disclosures in Twitter or a Facebook status report. Some folks think CMP.ly may be an answer. I believe the FTC would take the position that if you can’t fit the necessary disclosures in Twitter, then don’t post to Twitter.

* Bloggers should think twice about joining pay-to-play services. There is a high legal ambiguity about the practice’s legitimacy.

Posted by Eric at 07:56 AM | Marketing | TrackBack

April 01, 2010

eBay Mostly Beats Tiffany in the Second Circuit, but False Advertising Claims Remanded

By Eric Goldman

Tiffany (NJ) Inc. v. eBay Inc., 2010 WL 1236315 (2d Cir. April 1, 2010)

In a subtle opinion with potentially significant implications, eBay has preserved most of its big 2008 district court victory in the long-running Tiffany v. eBay case. However, as seems to be the norm with federal appellate opinions, the opinion intentionally sidesteps some key open doctrinal questions squarely raised by the case--such as if the Second Circuit recognizes the nominative use defense, or the Second Circuit's standards for contributory trademark infringement. As a result, we don't get the clean and decisive doctrinal standards that help make a case truly precedent-setting; if anything, some aspects of the case are pretty eBay-specific. And while the opinion is generally a win for defendants, there are at least two tangents (the willful blindness standards and the false advertising discussion) that future plaintiffs will unquestionably explore.

What is clear from the opinion is that Tiffany has lost the battle to force eBay to change its system to do more for Tiffany. (Unless Tiffany successfully appeals to the US Supreme Court, which it has said it is considering). What isn't clear to me is how much money is still on the table for the false advertising claim. If Tiffany can make this a backdoor way to get its alleged damages from counterfeits on the eBay site, then there's still potentially a lot of money left to fight over. But otherwise, it would make way more sense for the parties to settle up rather than pursue the remaining false advertising issue.

Overview of the Rulings

* eBay isn't directly liable for trademark infringement based on its advertising activities due to the nominative use doctrine (even though the panel did not adopt the doctrine)
* eBay isn't secondarily liable for counterfeit sales because generalized knowledge is not enough and eBay followed a notice-and-takedown procedure
* eBay isn't liable for direct trademark dilution based on the unadopted nominative use doctrine
* the appellate court rejected the lower court's reliance on a nominative use defense to the false advertising claim.

The ultimate disposition: “The case is therefore remanded…for further proceedings for the limited purpose of the district court's re-examination of the false advertising claim in accordance with this opinion.”

Direct Trademark Infringement

The Second Circuit has never expressly adopted the nominative use defense, one of the many reasons why I favor doctrinal gatekeepers like "use in commerce" rather than relying on the inconsistently interpreted defenses. This panel doesn't adopt a nominative use defense for the Second Circuit either, but it does say "a defendant may lawfully use a plaintiff's trademark where doing so is necessary to describe the plaintiff's product and does not imply a false affiliation or endorsement by the plaintiff of the defendant." This is pretty similar to the Ninth Circuit’s standard, though it omits the factor that the defendant took only as much of the trademark as was needed (in practice, that might be subsumed in the "necessary" requirement).

eBay qualified for the nominative use defense for both its website references to Tiffany and its use of Tiffany in sponsored links because "eBay used the mark to describe accurately the genuine Tiffany goods offered for sale on its website. And none of eBay's uses of the mark suggested that Tiffany affiliated itself with eBay or endorsed the sale of its products through eBay's website."

Other than the district court opinion in this case, I can't think of another case that has found a nominative use defense in a keyword advertising case. This ruling suggests that anyone who might qualify for a nominative use--certainly retailers and affiliates, but potentially even competitors--might have some additional traction to their defense. Potentially, this case will take some wind out of the sails of Rosetta Stone, which has partially complained about advertisements by folks in its channel. All of those people should be protected by the nominative use doctrine, and the Second Circuit may have just filleted those folks out of Rosetta Stone's case.

Note that at least one of eBay's ads was triggered by "tiffany" and included "tiffany" in the ad copy, so it appears that the nominative use defense extends to the trigger. The ruling does not address what happens if the trademark acts as a trigger but does not show in the ad copy. Before the 2nd Circuit's April 2009 Rescuecom v. Google ruling, the trial judge held that triggering by itself didn't qualify as a use in commerce. The appellate court doesn't cite Rescuecom or address use in commerce at all; but I believe this is the first Second Circuit keyword advertising case since Rescuecom, and it turns out fine for the defense.

The court rejected Tiffany's argument that eBay's general knowledge of counterfeiting activity was relevant to the direct infringement inquiry. The court also sensitive to Tiffany’s apparent motive of trying to suppress competition from legitimate resales.

Contributory Trademark Infringement

The flagship case articulating an online standard for contributory trademark infringement is the 1999 Ninth Circuit Lockheed v. NSI case. This court was squarely presented with the issue of the Second Circuit's standard, and the court punted. Instead, the court said that both eBay and Tiffany had agreed to use the Inwood standard (referencing a 1982 Supreme Court opinion, the leading offline case for contributory trademark infringement). The court recaps the standard: “there are two ways in which a defendant may become contributorially liable for the infringing conduct of another: first, if the service provider ‘intentionally induces another to infringe a trademark,’ and second, if the service provider ‘continues to supply its [service] to one whom it knows or has reason to know is engaging in trademark infringement.’” Inducement was not an issue here.

eBay followed a notice-and-takedown scheme, so actual knowledge was not at issue either. eBay's generalized knowledge of counterfeiting activities on the site was insufficient; the court required "[s]ome contemporary knowledge of which particular listings are infringing or will infringe in the future." Tiffany's demand letters weren't specific enough, and its specific requests were honored. Therefore, eBay lacked the requisite scienter.

Unfortunately, the court did not stop there. Instead, the court brought up the possibility of "willful blindness." The court articulated a new and troublesome legal standard: “When [a service provider] has reason to suspect that users of its service are infringing a protected mark, it may not shield itself from learning of the particular infringing transactions by looking the other way.”

What does this mean??? What lays the foundation for a service provider to have "reason to suspect" that users are infringing? Does a C&D letter do that? The answer seems to be no; Tiffany sent those. Does proactive filtering confer that foundation? Perhaps, because eBay did undertake some extra filtering efforts for Tiffany. In FN 14 the court says “contributory liability may arise where a defendant is (as was eBay here) made aware that there was infringement on its site but (unlike eBay here) ignored that fact.”

It’s great for eBay that it didn’t ignore the fact, but what exactly did eBay do right (other than win at trial court)? I'm not sure, and that's telling for the weaknesses in the court's language and logic. As a result, I expect plaintiffs to get frisky with this "willful blindness" toy and start asserting that defendants had "reason to suspect" user infringement and "ignored that fact."

Sadly for Tiffany, it won't get the benefit of this loose language. The court concludes its discussion on willful blindness by saying “eBay appears to concede that it knew as a general matter that counterfeit Tiffany products were listed and sold through its website….Without more, however, this knowledge is insufficient to trigger liability under Inwood. The district court found, after careful consideration, that eBay was not willfully blind to the counterfeit sales….That finding is not clearly erroneous. eBay did not ignore the information it was given about counterfeit sales on its website.”

Dilution

The court seems to say that there cannot be blurring or tarnishment when the defendant makes a nominative use. The court says simply “There is no second mark or product at issue here to blur with or to tarnish ‘Tiffany.’” This is interesting because the post-TDRA statute expressly provides a defense for nominative use, but the court doesn't rely on it. Instead, it seems to treat nominative use as a definitional requirement--if the defendant is making a nominative use, tarnishment and blurring should be categorically impossible and defendants should win on a 12(b)(6) motion to dismiss. But if that's the case, why have the statutory defense? (Don't get me started on the "commercial use" infinite loop in the dilution statute).

To the extent counterfeiting causes dilution, eBay didn't sell the goods itself, so it did not commit that dilution. The court mucks its words about contributory dilution; what it should have said is that there is no such thing.

False Advertising

The court describes eBay's advertising at issue:

eBay advertised the sale of Tiffany goods on its website in various ways. Among other things, eBay provided hyperlinks to "Tiffany," "Tiffany & Co. under $150," "Tiffany & Co.," "Tiffany Rings," and "Tiffany & Co. under $50."...eBay also purchased advertising space on search engines, in some instances providing a link to eBay's site and exhorting the reader to "Find tiffany items at low prices."

The court says that these statements are not literally false because genuine Tiffany merchandise was available on eBay, "[b]ut we are unable to affirm on the record before us the district court's further conclusion that eBay's advertisements were not ‘likely to mislead or confuse consumers.’” The court effectively rejected the district court's use of nominative use as a categorical defense to false advertising claims. I wasn’t too surprised to see this; in my post about the district court ruling, "I fear the court may have cut some corners here."

What about 47 USC 230? eBay has used the immunity to defend its ad copy from non-IP claims to the extent the ads are rendered untrue by third parties (see the uncited Mazur case). The court does not directly address 230, but it would not be a fan of such a defense: “eBay did affirmatively advertise the goods sold through its site as Tiffany merchandise. The law requires us to hold eBay accountable for the words that it chose insofar as they misled or confused consumers.”

Then, the court takes another weird detour. eBay appears to be free to advertise that it vends legitimate Tiffany goods, but it can't mislead consumers into thinking that all Tiffany goods on eBay are legitimate. How is eBay supposed to strike that balance? The court says: “An online advertiser such as eBay need not cease its advertisements for a kind of goods only because it knows that not all of those goods are authentic. A disclaimer might suffice. But the law prohibits an advertisement that implies that all of the goods offered on a defendant's website are genuine when in fact, as here, a sizeable proportion of them are not.”

Wait a minute. What kind of disclaimer is the court thinking of here? Maybe "Please come to eBay for Tiffany goods. Disclaimer: we have lots of fakes on our site." Putting aside the implications for eBay’s scienter, how is eBay supposed to fit such a disclaimer into the tight space constraints of an AdWords ad? This reminds me a little of the FDA's threats that it expected pharma companies to make side effects disclosures in AdWords copy...NOT POSSIBLE.

And what constitutes a "sizeable proportion"? The parties did not agree on the exact amount of counterfeiting taking place, and Tiffany's expert report was partially discredited by the trial judge. Does this mean we're back to taking snapshots of infringing activity and arbitrarily picking a percentage as too high? I thought we got past that with the Grokster Supreme Court opinion.

Rebecca has useful things to say about the false advertising discussion.

Implications of this Ruling

Between this ruling and the Akanoc ruling (and perhaps the Google ECJ opinion, if you look internationally), I think it's pretty clear now that trademarks are subject to a notice-and-takedown rule. We don't have a DMTA to complement the DMCA's notice-and-takedown procedure, and perhaps we would benefit from some statutory clarity about the precise mechanics/specifications of the notice and takedown. But even without a DMTA, I think we've arrived at the same basic place. From my perspective, this is not inherently good or bad. I guess I've always thought we'd get here eventually.

I continue to believe that courts reward service providers who do more than statutorily required for IP owners. For example, in FN 16, the court favorably notes that “eBay's efforts to combat counterfeiting far exceeded the efforts made by the defendants in” the flea market cases. I continue to encounter pockets of folks who believe that undertaking any voluntary efforts above the minimum makes the site a guarantor against bad activity. I think that's very outdated thinking. When I asked above what eBay did right to avoid being willfully blind, the answer is that they were proactive about working with IP owners. This case shows that those good faith efforts can be rewarded in court. UPDATE: Greg Lastowka explores this point more.

Having said that, I remain concerned that efforts to cater to IP owners' concerns can create a competitive barrier to entry. Not every site is sufficiently capitalized to undertake the same efforts as eBay. I hope courts will be circumspect about letting the law effectively reduce service provider competition from new entrants.

It remains to be seen what result this ruling will have on the keyword advertising cases. Through its broad reading of nominative use, it's possible the Second Circuit implicitly undercut some of the lawsuits against Google.

Finally, junky false advertising claims are so ubiquitous that we often don't give them much respect. However, here's a good example where the false advertising claim was more potent than the trademark claim. I believe false advertising will remain a hot area of legal practice.

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

March 31, 2010

March 2010 Quick Links

By Eric Goldman

Internet Exceptionalism

* Stern v. Sony Corp., CV 09-7710 PA (C.D. Cal. Feb. 8 2010) "to the extent Plaintiff is suing Sony as a manufacturer of video games, and the provider of online services, Sony is not a ‘place of public accommodation’ and is therefore not liable for violating Title III of the ADA" Nice complement to the Estavillo case. My prior post on Internet exceptionalism.

Online Competition

* Microsoft’s head algorithms guru says that Google's search engine beat Microsoft because Microsoft ignored the long tail of search queries. If Google and Microsoft made different product design choices and the marketplace liked Google's choices better, doesn’t this make it hard for Microsoft to complain about Google’s "anti-competitive" practices? I wonder if this talk was pre-cleared by Microsoft’s antitrust counsel.

* SJ Mercury News: Google's most recent 10-K lists some new self-identified competitors, including Yelp, Kayak & WebMD. By identifying some vertical players as competitors, such as Kayak and WebMD, does Google lend credence to the arguments by TradeComet and myTriggers that Google does compete with vertical search engines?

* In re eBay Seller Antitrust Litigation, 2010 WL 760433 (N.D. Cal. March 4, 2010). eBay wins summary judgment in an antitrust challenge: "Despite the voluminous briefing permitted in connection with both of the instant motions-which includes hundreds of pages of supporting documents-Plaintiffs have not drawn the Court's attention to any actual proof of antitrust injury caused by eBay's alleged anticompetive acts-on an individual or a classwide level."

Online Pornography

* U.S. v. Beckett, 2010 WL 776049 (11th Cir. March 9, 2010). A man posed as a 17 year old girl on MySpace and AOL, engaged boys in discussions, induced them to send nude photos, and then coerced them to have sex with him to prevent his dissemination of the photos.

* Miller v. Mitchell, No. 09-2144 (3rd Cir. March 17, 2010). This is the case where the government prosecutor threatened to bring felony charges against girls for "sexting." The court upholds a preliminary injunction against requiring the girls to go through an education program in lieu of felony prosecution.

* U.S. v. Durdley, 2010 WL 916107 (N.D. Fla. March 11, 2010). No privacy expectations in a flash drive left in a public computer.

Online Security

* Cormac Herley of Microsoft Research, "So Long, And No Thanks for the Externalities: The Rational Rejection of Security Advice by Users." In my observations, users are actually intensely rational when it comes to privacy and security issues, and privacy and security advocates who don't fully account for this user behavior do so at their peril.

* Reuters takes a deep look at Innovation Marketing, a Russian scareware operation.

User-Generated Content

* Who does what on Wikipedia.

* Josh King explains why Avvo supports the proposed federal anti-SLAPP law.

* T.V. ex rel. B.V. v. Smith-Green Community School Corp., 2010 WL 935574 (N.D. Ind. March 11, 2010). Denying class formation for a lawsuit in response to a ridiculously harsh school suspension for a MySpace photo of ribald off-campus activity.

* Melton v. Boustred, 2010 WL 881919 (Cal. App. Ct. Mar 12, 2010). Boustred throws a ragin' party and advertises it via a MySpace open invitation. The plaintiffs show up and were beaten and stabbed at the party by unknown assailants. The court concludes that Boustred isn't liable for the physical injuries. Note to self: stay away from parties advertised via MySpace.

* Yelp Litigation Mania!
- Cats & Dogs Animal Hospital v. Yelp first amended complaint
- LaPausky v. Yelp complaint. A write-up.
- Levitt v. Yelp complaint.
- ClickZ: Ex-Yelper Helps Law Firms Go After Yelp

Anonymity

* Park West Galleries, Inc. v. Global Fine Art Registry, LLC, 2010 WL 742580 (E.D. Mich. Feb. 26, 2010). Using an online pseudonym can lengthen the defamation statute of limitations.

* White v. Baker, 2010 WL 1009758 (N.D. Ga. March 3, 2010). Mandatory reporting of Internet usernames by registered sex offenders violates the First Amendment.

Advertising and Marketing

* ClickZ: New Facebook Policies Clamp Down on 'Loose' Ad Copy.

* Coyote Pub., Inc. v. Miller, 2010 WL 816936 (9th Cir. March 11, 2010). Upholding the constitutionality of Nevada's restrictions on advertising prostitution.

Trademark

* WSJ: It's a crowded namespace for bands.

* 1-800Contacts, Inc. v. Memorial Eye, P.A., 2010 WL 988524 (D. Utah March 15, 2010). It was not objectively baseless for 1-800 Contacts to bring a trademark enforcement action over competitive keyword advertising.

* Rhea Drysdale tells how she busted the trademark application for "SEO."

* The Utah governor has signed SB 26, which (among other things) creates a bastardized version of ACPA. My initial comments on the proposed bill.

Copyright

* James Grimmelmann on Reed Elsevier v. Muchnick.

* Ben Sheffner has some updates in the Scribd lawsuits. My initial post on Scott v. Scribd.

* Ars Technica on an experiment to block users who are using ad blocking software from accessing its site.

General

* Hudson v. University of Puerto Rico, 2010 WL 1131462 (D. Minn. March 23, 2010). Passive blog does not confer general jurisdiction.

* Doe 1 v. AOL LLC (N.D. Cal. Feb. 1, 2010). "Plaintiffs' claims for violation of the ECPA (Count I), unjust enrichment (Count VI) and for public disclosure of private facts (Count VII) are subject to the forum selection clause because none are California consumer law claims." Prior blog post.

* Commonwealth v. Interactive Media Ent’mt and Gaming Ass’n, Inc., No. 2009-SC-000043-MR (Ky. Mar. 18, 2010). Challenge to Kentucky's seizure of 141 gambling-related domain names tossed on standing grounds. Prior blog post.

Posted by Eric at 08:42 AM | Content Regulation , Copyright , Domain Names , E-Commerce , Internet History , Licensing/Contracts , Marketing , Privacy/Security , Search Engines , Trademark , Virtual Worlds | TrackBack

March 23, 2010

Google Gets Favorable ECJ Opinion, But Will It Prove to Be a Hollow Victory?

By Eric Goldman

The European Court of Justice issued its long-anticipated decision in the three Google AdWords cases (C-236/08, C-237-08 and C-238/08) referred to it by the French Cour de Cassation. The ruling only answers the questions posed to it by the Cour de Cassation, so in that sense it does not provide a blanket resolution of keyword advertising legitimacy in Europe. Nevertheless, all three answers by the ECJ are favorable to Google and other keyword advertising vendors—although, as I explore below, litigatable questions remain.

In broad strokes, the ECJ adopted Google’s position that it merely provides technology services to advertisers who make legally significant judgments using the technology. For example, the ECJ says that advertisers, not Google, make the requisite trademark “use,” and Google can qualify as a web host of its advertisers’ content—and thus is eligible for the associated safe harbor—if it remains sufficiently passive.

While these rulings improve Google’s legal position against trademark owners, the news isn’t uniformly good for the keyword advertising industry. The opinion identifies a number of potential legal pitfalls for keyword advertisers. We may learn more about these pitfalls from the other trademark owner-v.-advertiser cases pending before the ECJ. My understanding is that 5 such cases are pending, with one ruling coming on Thursday. Based on the language in this opinion, I think it’s probable that the subsequent ECJ rulings will show that keyword advertisers face significant legal exposure when buying competitive keyword advertising.

As a result, Google’s legal victory may prove to be a little hollow. Even if Google eventually earns a clean bill of health for itself, it could still see revenue contraction if advertisers are dissuaded by their legal exposure.

The ECJ Rulings

As typical with European legal opinions, this ruling (although briefer than many, including the Advocate General’s advisory opinion in the case) was unnecessarily long and written in inscrutable language. For example, the opinion refers to search engines selling keyword advertising as “referencing service providers” and keywords as “signs.” Huh? Further, like most European opinions, the opinion starts out with a lengthy but largely unenlightening recitation of facts and law. If you are looking to save a little time, skip ahead to paragraph 42.

Or, better yet, just start reading the opinion at the end. There, the court helpfully lays out its conclusions in three standalone paragraphs:

1. Article 5(1)(a) of First Council Directive 89/104/EEC of 21 December 1988 to approximate the laws of the Member States relating to trade marks and Article 9(1)(a) of Council Regulation (EC) No 40/94 of 20 December 1993 on the Community trade mark must be interpreted as meaning that the proprietor of a trade mark is entitled to prohibit an advertiser from advertising, on the basis of a keyword identical with that trade mark which that advertiser has, without the consent of the proprietor, selected in connection with an internet referencing service, goods or services identical with those for which that mark is registered, in the case where that advertisement does not enable an average internet user, or enables that user only with difficulty, to ascertain whether the goods or services referred to therein originate from the proprietor of the trade mark or an undertaking economically connected to it or, on the contrary, originate from a third party.

2. An internet referencing service provider which stores, as a keyword, a sign identical with a trade mark and organises the display of advertisements on the basis of that keyword does not use that sign within the meaning of Article 5(1) and (2) of Directive 89/104 or of Article 9(1) of Regulation No 40/94.

3. Article 14 of Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market (‘Directive on electronic commerce’) must be interpreted as meaning that the rule laid down therein applies to an internet referencing service provider in the case where that service provider has not played an active role of such a kind as to give it knowledge of, or control over, the data stored. If it has not played such a role, that service provider cannot be held liable for the data which it has stored at the request of an advertiser, unless, having obtained knowledge of the unlawful nature of those data or of that advertiser’s activities, it failed to act expeditiously to remove or to disable access to the data concerned.

A closer look at each of the three holdings.

Holding #1: Keyword Ad Copy Must Sufficiently Distinguish the Trademark Owner

This holding does not directly address Google’s liability; it only references the advertiser’s liability. The EU generally lacks a well-developed doctrine of secondary trademark liability. Therefore, even if an advertiser’s ad is problematic, that may not be imputable to the keyword vendor. (I discuss advertiser liability below).

In several places, the court’s language reinforces that keyword advertising systems do not create independent liability for their vendors. For example, in paras. 56-57, the court says that a “referencing service provider allows its clients to use signs which are identical with, or similar to, trade marks, without itself using those signs….The fact of creating the technical conditions necessary for the use of a sign and being paid for that service does not mean that the party offering the service itself uses the sign.”

Further, in paras. 94-95, the fact that other advertisers’ bids may increase the trademark owner’s price to display ads triggered by its own trademark (and Google’s consideration of ad quality) does not “constitute an adverse effect on the advertising function of the trade mark.” The court goes on to say (paras. 97-98):

when internet users enter the name of a trade mark as a search term, the home and advertising page of the proprietor of that mark will appear in the list of the natural results, usually in one of the highest positions on that list. That display, which is, moreover, free of charge, means that the visibility to internet users of the goods or services of the proprietor of the trade mark is guaranteed, irrespective of whether or not that proprietor is successful in also securing the display, in one of the highest positions, of an ad under the heading ‘sponsored links’. Having regard to those facts, it must be concluded that use of a sign identical with another person’s trade mark in a referencing service such as that at issue in the cases in the main proceedings is not liable to have an adverse effect on the advertising function of the trade mark.

As every SEO knows, nothing is “guaranteed” when it comes to search engine placement. Trademark owners usually show up well in organic search results for their trademark, but Google may have de-indexed or downgraded the trademark owner’s website. Further, personalized search results and universal search results can cause unexpected orderings. What happens to the court’s reasoning when the trademark owner doesn’t show up prominently in the organic results?

Holding #2: Search Engines Don’t Make a Legally Recognized “Use” of the Trademarks

In the Second Circuit ruling in Rescuecom v. Google, which held that Google made a “use in commerce” by selling trademarked keywords for keyword advertising. After that ruling, it was pretty clear that both buying and selling trademarked keywords constituted a “use in commerce” under US trademark law, shifting the litigation battle to likelihood of consumer confusion and the defenses.

Here, the court reaches the superficially opposite result, saying that advertisers, not Google, make the legally actionable “use in the course of trade.” These divergent results may just reflect differences in the statutory wording. Nevertheless, for enthusiasts of the “use in commerce” doctrine, its spirit apparently lives on in Europe!

Holding #3: Keyword Vending Can Qualify for E-commerce Directive

This was a doctrinally interesting conclusion. The E-commerce Directive was inspired by the Digital Millennium Copyright Act online safe harbors (17 USC 512), so it was oriented towards online copyright issues. For example, it has a safe harbor for caching that really only makes sense in the copyright context.

Here, the ECJ applies the E-commerce Directive to a trademark dispute, effectively treating Google as the web host of the advertiser’s ad content. While this is a promising interpretation, it leaves open some ambiguity about what will constitute disqualifying activity. The opinion makes it fairly clear that Google would have an “active role”—and therefore become disqualified for the safe harbor—if it helps the advertiser prepare the ad copy. However, Google can participate in its advertising campaigns in a variety of ways, such as suggesting bid amounts and keywords to purchase (through its keyword suggestion tool). Will these other participatory activities constitute a disqualifying “active role”?

Liability of Keyword Advertisers

The opinion highlights several potential liability risks for keyword advertisers. First, the opinion says that keyword advertisers can’t avoid liability by indicating that their products are “imitations” or “copies” in the ad copy. (Paragraph 102).

Second, regarding Holding #1, the opinion (paras. 83-85) raises concerns about ads triggered by keywords identical to a trademark where “normally informed and reasonably attentive internet users” cannot easily determine if the advertised goods originate with the trademark owner.

The precise wording of Holding #1 limits its applicability to a keyword that is identical to the trademark and to goods that are identical to the trademark owner’s goods. By inference, the language does not govern keywords that are similar to the trademark (does it exclude typographical error versions?) or goods such as complementary goods or replacement components. In addition, the standard seems to limit trademark coverage by class of goods—something that can be ambiguous when a single keyword is the trademark of multiple trademark owners in different classes. However, given the wording of the answer, I do not assume that these unaddressed circumstances will be found permissible when tested in future cases.

In the situations described in the holding, “the use by the third party of the sign identical with the mark as a keyword triggering the display of that ad is liable to create the impression that there is a material link in the course of trade between the goods or services in question and the proprietor of the trade mark.” The court says that national courts have the power to adjudicate whether that source confusion actually occurred (para. 88), but the following ads appear to be presumptively problematic:

* “where a third party’s ad suggests that there is an economic link between that third party and the proprietor of the trade mark” (para. 89).

* “where the ad, while not suggesting the existence of an economic link, is vague to such an extent on the origin of the goods or services at issue that normally informed and reasonably attentive internet users are unable to determine, on the basis of the advertising link and the commercial message attached thereto, whether the advertiser is a third party vis-à-vis the proprietor of the trade mark or, on the contrary, economically linked to that proprietor” (para. 90).

If this language is intended to cover ad copy that constitutes bait-and-switch or passing off, this language isn’t a big deal. However, this language appears to be broader, and I’m not entirely clear what advertisers can do to avoid these risks. A typical text ad has very limited space for subtle legal explanations, and Google’s trademark policies allow the trademark owner to prohibit the advertiser from referencing the trademark in the ad copy even for clarification purposes. For example, an advertiser purchasing the “smith” trademark as a keyword can be blocked from saying “compare our products to smith’s” in the ad copy. If the ad copy says “switch to us” or “we’re better than other brands,” will those types of implicit comparisons be enough to eliminate the ambiguity feared by the court? At minimum, the court’s language leaves plenty of room for trademark owner-vs.-advertiser lawsuits asserting ambiguous ad copy. Perhaps the pending ECJ AdWords cases will provide some further clarity.

What’s Next

I find EU governance structures generally baffling, so it’s impossible to anticipate all of the possible implications of this ruling. However, trademark owners steamed about this ruling have a wide range of options, including the following:

* they could seek a new directive, or seek to modify an existing directive, to expand keyword advertising vendor liability.
* to the extent possible (something I can’t easily evaluate), they can seek legislative changes at the national level to get back some of the ground lost in this ruling.
* they can continue to litigate the interstices of this ruling. For example, they can try to disqualify Google from the E-commerce Directive’s safe harbor by arguing that Google plays an active role in its advertisers’ decisions.
* they can seek to expand advertiser liability through any of these methods.
* they can litigate against advertisers one-by-one.
* as always, they can continue to send takedown notices or avail themselves of the search engine trademark policies.

Other good options may exist.

From Google’s perspective, I wonder if this opinion gives it enough comfort to liberalize its European trademark policy to match the rest of the world (i.e., allow trademark owners to block only certain ad copy references and not keyword purchases). For example, to retain its eligibility for the E-commerce Directive, Google still needs to follow a notice-and-takedown regime, although I wasn’t clear if Google’s takedown can just be the ad copy or has to be the keyword as well. Google did liberalized its UK and Ireland trademark policy after the Mr. Spicy ruling, which also concluded that Google did not make a legally actionable “use,” so perhaps Google will feel emboldened by Holding #2.

What Google SHOULD do is take a more proactive stance on the legality of the keyword advertising industry. It should propose legislation that protects both itself and its advertisers. It should also intervene in some of the trademark owner-vs.-advertiser cases that have the potential to establish disadvantageous legal rules for its advertisers. Google has been remarkably passive in terms of legal developments, playing defense only when threatened. I believe this is not a long-term winning strategy. Cf. the Battle of Hastings and how a determined and powerful opponent can eventually breach a shield wall. Google currently has to defend a wide array of battlegrounds, and a loss in any one of those venues could materially diminish its earning potential. To ensure the long-term viability of the keyword advertising industry, Google may need to go on the offense.

I don’t expect that this opinion will affect any US legal developments. For the most part, the opinion interprets governing EU directives and regulations. Because the words in those statutes are not the same as the words we use in the US, the opinion is not readily exportable to US law.

Nevertheless, this opinion could be the vanguard of an emerging legal trend to put the trademark compliance legal burden on keyword advertisers and not keyword vendors. We have not yet reached that conclusion in the United States, but it’s entirely sensible to me that the keyword vendors should not be trademark arbiters, and my hope is that US judges will get there eventually. For more on why I believe we should deregulate keyword ad sales, see this article.

Posted by Eric at 10:25 AM | Derivative Liability , Marketing , Search Engines , Trademark | TrackBack

March 22, 2010

Plaintiff Wins $7,000 Following Bench Trial on Claims Under California Anti-Spam Statute -- Balsam v. Trancos

[Post by Venkat]

Balsam v. Trancos, Inc., Cal Sup. Ct. Case No. (Civ.) 471791; March 10, 2010 [scribd]

Although spam lawsuits have not gone particularly well for individual (non-ISP) plaintiffs, Dan Balsam recently took a case to trial in San Mateo Superior Court and was awarded $7,000 in damages.

Balsam sued under the California Legal Remedies Act (1750) and California's anti-spam statute (section 17529). The court held that Balsam could not maintain an action under section 1750 because he was not a "consumer" and did not sustain any damages, and dismissed the 1750 claim. His claim under section 17529 was tried to the bench and he was awarded $1,000 in statutory damages per email.

Background: Defendant Trancos registered numerous domain names through DomainsByProxy. Through Defendant's "Meridian" division, Defendant entered into a deal with Hi-Speed Media/ValueClick under which Defendant "managed" several email lists and sent out emails. Trancos and Hi-Speed Media shared revenues generated from transmission of the emails. Trancos discontinued this conduct in 2007 and according to the court had "stopped the allegedly wrongful conduct of which [Balsam complained]."

The Emails: The trial was over eight email messages. The emails were sent through various domain names (privately) registered to Trancos: misstepoutcome.com, modalworship.com, moussetogether.com, mucousmarquise.com, minuteprovenance.com, minecyclic.com, mythicaldumbwaiter.com, and nationalukulele.com. (How on earth did Trancos come up with these domain names!) The subject lines of the emails were typical unsolicited email fare, and ranged from inviting people to take surveys and get paid ("Get paid 5 dollars for 1 survey") to dating-related invitations ("It's a Great Time to Say Hello to Someone New!"; "Date Single Christians"). The emails did not purport to be from anyone particular. The "from" email addresses were from accounts such as "franchisegater@modalworship.com," and "dating@mythicaldumbwaiter.com". The emails contained varying opt-out text and (in some cases) links.

The Court's Ruling: The court held that Balsam's claim under section 17529 was not preempted under federal law. Defendant pointed to Virtumundo and argued that CAN-SPAM preempts state email statutes which reach immaterial errors in emails. The court rejected this argument noting that in Virtumundo, the plaintiff did not put forth any evidence that the emails at issue rose to the level of "falsity and deception" excluded from CAN-SPAM's preemption clause, and on the basis that the Washington statute was different from the California statute (nothing in the Washington statute required any misrepresentations to be "material").

The court looked to the "from" addresses in the emails and held that the "'senders' identified in the headers of the . . . emails do not exist or are otherwise misrepresented . . . [i]n those same headers reflecting the 'from' line of the email, the referenced sender email is a non-existence [sic] entity using a nonsensical domain name reflecting no actual company . . . ." The court also relied on the fact that the address at the end of the email messages (a PO Box in Santa Monica) was registered in the name of a non-existent entity.

Although the plaintiff "was not tricked into believing that [the] emails were anything other than commercial advertisements . . . and was not tricked into seeking to purchase any goods or services," the court held that seven of the emails violated 17529.5(a)(2) because the emails had "falsified, misrepresented, or forged header information." The emails came from Trancos, "but none of the emails disclose[d] this in the header."

Observations: The two significant preemption CAN-SPAM cases (Mummagraphics and Virtumundo) both held that state laws which prohibit immaterial misstatements in emails are preempted. There's another district court case which went beyond this and held that a plaintiff had to satisfy the "actual fraud" standard in order to successfully assert a spam claim under state law (Reunion). The cases in this context often look to whether the plaintiff could have easily ascertained where the email came from. In Mummagraphics the court relied on the fact that the plaintiff could have easily determined where the email originated from in finding the error immaterial (and the claim preempted). In Kilbride, a criminal case, the court imposed liability, finding that the sender's use of GoDaddy's privacy protection services was evidence of the sender's intent to mislead the recipient. In this case, there were similar facts. None of the emails at issue in this case stated where they originated from (or on whose behalf they were sent). Defendant used a lot of names of companies that did not exist, and got a PO Box for the company in the name of another non-existent company. That said, the violations didn't fit nicely within the statute.

17529.2: The court quoted section 17529.2, which is a blanket prohibition on the transmission of unsolicited email to or from a California email address. This section of the statute is obviously dead on preemption grounds and can't support liability.

17529.5: The court also looked to section 17529.5 which is similar to the anti-spam statutes of many states, including Washington. This section prohibits the transmission of email that (1) "contains or is accompanied by" a third party's domain name without permission; (2) "contains or is accompanied by falsified, misrepresented, or forged header information;" or (3) has a misleading subject line. The court found that the subject lines were not likely to mislead and in fact Balsam was not misled by the subject lines. The court didn't expressly find that the emails contained or were accompanied by a third party's domain name without permission. There was no violation of this provision since there was no dispute that Trancos owned the domain names at issue.

The court found that Trancos violated the header information prong, because there was no such person or entity referenced in the "from" line. It's tough to see how this is the case, since the header information was not forged. If you own or control a domain name, you are free to create any number of email addresses that can send emails through the domain name, and no one sees anti-spam statutes as requiring the reference in the from line to refer to an actual living person. I have received numerous emails from "customer support" or "orders" at Amazon.com and I'm fairly confident that there's no such person at Amazon.

What this section of the statute actually gets at is the transmission of emails that appear to come from someone when they actually don't, or the obfuscation of header information. There was no evidence of either in this case. The plaintiff in Virtumundo raised somewhat similar arguments, which were rejected by the trial court. On appeal, the court found that the claims were similar to the ones raised by the plaintiff in Mummagraphics (arguably because accurate WHOIS information could have readily identified the sender of the emails) and held that the claims were preempted under Washington's email statute. There's a colorable argument to be made that nothing in Virtumundo precludes a claim under 17529.5(2), but the differences in the statutory language cut against Balsam's claims. The California statute prohibits "falsified, misrepresented, or forged header information," while the Washington statute prohibits emails where the sender "misrepresents or obscures any information in identifying the point of origin or the transmission path." The Washington statute incorporates a "point of origin" concept that makes it easier to argue that a violation occurs if you include an email address in the from line that's related to a non-existent company.

The final point to consider is that Balsam admitted that he didn't suffer any "adverse effects" of the sort that the court held were required to support a claim under CAN-SPAM. Balsam didn't expend any funds on bandwidth, filtering, infrastructure, etc. His sole injury was the fact that he mistakenly opened the message, and presumably, expended sums litigating his claims.
___

As the court notes, the California Supreme Court is currently considering Kleffman v. Vonage, a case that deals with the scope of California's anti-spam statute. Also, the Reunion case, dealing with the scope of CAN-SPAM preemption, is still stuck in the district court (in the Northern District of California). It's likely to be appealed to the Ninth Circuit.

It will be interesting to see how this plays out. In the meantime, kudos are due to Balsam and his counsel, who unlike James Gordon, Asis Internet, and other spam plaintiffs, are at least generating positive cash flow (if Trancos ever pays up).

Added: "Save the Mail Blog" asks whether it was worth it ("Lawyer Awarded $7k in Spam Suit: We do the Math"). SFGate also covers the ruling ("S.F. lawyer awarded $7,000 from e-mail spammer").

Posted by Venkat at 12:08 PM | Marketing , Spam

March 16, 2010

Stratton Faxon v. Google Dismissed

By Eric Goldman

Stratton Faxon v. Google, Inc., NNH-CV-09-5031219S (Conn. Superior Ct. dismissed March 8, 2010)

Stratton Faxon v. Google was always an oddball case in the constellation of trademark owner challenges to Google AdWords. First, the plaintiff--a law firm that woke up one day in 2009 and discovered competitive keyword advertising--didn't allege trademark infringement but instead took an unusual and questionable legal path. Second, the case was filed in state court, not federal court, which made the case much more difficult to track than cases in federal court.

These oddities are now irrelevant. The court issued a "motion for judgment" on March 8 granting a motion brought by Google to dismiss the case. I haven't seen any of the underlying motions, but the net effect is that the case is closed.

However, the case may not be over. In my prior email exchanges with Stratton Faxon, they indicated that they may refile in federal court. So we'll see if this case resurrects itself.

Combined with Rescuecom giving up, Google has now whittled its pending AdWords challenges down to 8 pending cases. Furthermore, the Utah legislature has adjourned for the year without banning Google's cash cow again. In the world of Google's legal affairs, these two developments qualify as good news! Next stop: the ECJ's opinion addressing Google's trademark liability in the EU, expected one week from today.

The roster of pending AdWords cases (I most recently thoroughly double-checked the status of these cases on February 20, 2010):

* Ezzo v. Google
* Rescuecom v. Google
* FPX v. Google
* John Beck Amazing Profits v. Google and the companion Google v. John Beck Amazing Profits
* Stratton Faxon v. Google
* Soaring Helmet v. Bill Me
* Ascentive v. Google
* Jurin v. Google 1.0 (voluntarily dismissed), succeeded by Jurin v. Google 2.0
* Rosetta Stone v. Google
* Flowbee v. Google
* Parts Geek v. US Auto Parts
* Dazzlesmile v. Epic

Posted by Eric at 05:33 PM | Derivative Liability , Marketing , Search Engines , Trademark | TrackBack

March 08, 2010

Crowdsourced Ads May Not Be Protected by 47 USC 230--Subway v. Quiznos

By Eric Goldman

Doctor's Associates, Inc. v. QIP Holders LLC, 2010 WL 669870 (D. Conn. Feb. 19, 2010). My prior post on this case.

As a long-time vegetarian (over a quarter-century), I find America's obsession with "more meat" competitions simultaneously amusing and repulsive. On my personal blog, I have routinely chronicled the "burger wars" between heartland restaurants trying to outdo each other by offering bigger and bigger burgers. As far as I know, the current high-water mark is the Beer Barrel Main Event Charity Burger, a 123 pound burger that includes 80 pounds of meat. See the photo. If you're one of those people who thinks a burger can never have too much meat, good luck working on that bad boy.

Today's post involves subway sandwiches instead of burgers, but it turns out that subway sandwich restaurants’ competition over claims of having more meat is no less stiff. Quiznos kicked off the war in 2006 by launching a "double meat" line of sandwiches. Quiznos ran two TV ads comparing the meat in its sandwiches to Subway's and set up a website soliciting individuals to make and submit their own comparative digital video ads. Subway was not amused and ultimately filed a seventh amended complaint (!) over Quiznos' ad campaigns. (What a patient judge).

The parties hotly contested every aspect of the litigation, and Rebecca does a thorough recap of the lengthy ruling. I'm going to focus on the court’s discussion of the crowdsourced video ads published on Quiznos' ad campaign website, which Quiznos defended on 47 USC 230 grounds.

Citing the MCW v. Badbusinessbureau case from 2004, the court says "the critical inquiry with respect to CDA immunity in this case is whether the Defendants merely published information provided by third parties or instead were actively responsible for the creation and development of disparaging representations about Subway contained in the contestant videos."

The MCW decision was questionable even at its time, but it's bizarre to see the court reach into history for this obscure, archaic, unpublished and geographically distant (it was a TX precedent being cited in a CT court) district court precedent. To do this, the court bypasses dozens of more recent—and more thoughtful—cases, including the multiple Ripoff Report cases that have expressly and implicitly rejected the MCW case. A more natural citation would have been the Roommates.com case, which also referenced legal distinctions between active/passive websites similar to the legal standard quoted above. However, if the court had followed Roommates.com, it almost certainly would have ruled for the defense, as Quiznos didn't require illegality or even channel users towards illegality. (Rebecca makes the same point). Therefore, I'm baffled how the court got to this legal standard citing this legal precedent.

Using this odd legal standard, the court says it's up to the jury to decide if Quiznos just exercised traditional editorial control or impermissibly "actively participated in creating or developing the third-party content submitted to the Contest website."

Unquestionably, sending this case to a jury is a 230 loss, but how bad is unclear. We'll never find out what the jury would do with the case because the parties promptly settled the case after this ruling. However, a plaintiff's ability to hold a case open through trial, rather than having it disposed of earlier in the proceedings, would itself represent a significant win for plaintiffs--it would mean plaintiffs can get discovery to fish for embarrassing facts, force the defense to incur lots of litigation costs, and get a chance to tell their sob story before a jury. (FWIW, I am not aware of any 230 case that has ever reached a jury—am I forgetting something?) Nevertheless, I think very few courts will follow this precedent given the plethora of more persuasive precedents and the fact that Quiznos' crowdsourced ads were just one part of Quiznos' larger allegedly false ad campaign. Therefore, I don't expect this 230 loss to spread to many other cases.

I also don't think this case shines much light on the legitimacy of crowdsourcing ads. There's no reason to believe that crowdsourced ads are per se problematic. At the same time, if the advertiser uses the ads offline, clearly the advertiser "adopts" the ad and takes full responsibility for its contents. If the advertiser only publishes the ad online, 230 might be available but the advertiser still might tread cautiously due to the FTC Endorsement and Testimonial Guidelines, which basically ignores 230 and holds advertisers liable for certain types of third party advertisements anyway. I think 230 may nullify this part of the FTC guidelines, but most advertisers would rather not tangle with the FTC to establish the deficiencies in the FTC's thinking. As a result, I expect most advertisers will vet most crowdsourced ads, even if they only publish them only, as if the advertiser is legally responsible for the ads and not protected by 230.

BTW, the Subway v. Quiznos lawsuit isn't the only litigation over subway restaurants' claims of double meat. In an apparently unrelated lawsuit, last month a class action suit was filed over Blimpie's "Super Stacked" sandwich for overclaiming that it had double meat.

I confess some schadenfreude when I see lawsuits against meat pushers for overhyping meat quantities. I would not shed a tear if the meat pushers lock up each other in litigation death struggles and sue each other to oblivion. Of course, consumers can facilitate that outcome by refusing to patronize vendors who "compete" with each other by encouraging us to overconsume the Earth's resources.

Posted by Eric at 07:16 AM | Derivative Liability , Marketing | TrackBack

March 05, 2010

Eighth Circuit: No Derivative Liability Under Iowa Spam Statute -- Kramer v. Bartok

[Post by Venkat]

Kramer v. Bartok, Case No. 08-3841 (8th Cir. Feb. 19, 2010) (scribd link).

The Eighth Circuit recently reversed an award of $236 million in damages against a spam defendant based on a theory of secondary liability. The court found that the clear language of the Iowa statute only allowed for the imposition of liability against the sender.

Background: Kramer sued defendants Bartok, Perez, and Brown after allegedly receiving millions of spam emails advertising mortgage refinancing services. Kramer asserted claims, including claims under the Iowa's spam statute (then Iowa Chapter Code 714E, which while the suit was pending was replaced with Iowa Chapter Code 716A (which looks fairly different, and does not contain the term "initiate")), the Computer Fraud and Abuse Act, and trespass. According the Eighth Circuit, Kramer (who ran an ISP) actually only received twenty three offending emails, as the remaining millions of emails were blocked by Kramer's spam filter. Defendants produced no evidence at trial, and the lower court found that one of the defendants "dissembled" and sold the computers used by the enterprise. Kramer did not produce evidence that defendant Bartok actually sent the messages in question. The only evidence of Bartok's involvement was that she was "half owner of a business whose sole source of income was predicated on spamming," she signed an agreement for the procurement of mortgage leads, and she assisted Perez in destroying some of the relevant records in question.

The lower court found that Kramer produced no evidence of "actual damages," and rejected all of the claims except for the claims under Iowa's spam statute. With respect to this claim the court awarded $236 million in statutory damages ($10 per spam email).

The Eighth Circuit's ruling: The Eighth Circuit looked to the plain language of the statute and found that the statute only imposed liability on those who "use an interactive computer service to initiate the sending of bulk electronic mail." In other words, the statute was clear that it only imposed liability on someone who actually hit the send button.

Kramer argued that he had produced sufficient evidence of a civil conspiracy between Bartok and the other defendants to sustain a finding of derivative liability, but the court rejected this theory. In the court's view, if the statute didn't authorize the imposition of liability on those who conspired with the person(s) who initiated transmission of the messages (through the use of an interactive computer service), the court was not free to imply a cause of action based on this theory. While Kramer argued a common law conspiracy claim, the court found that Kramer's failure to produce evidence of actual damages precluded the imposition of derivative liability on Bartok. To allow Kramer to assert liability against Bartok based on a conspiracy theory absent evidence of actual damages would be an end-run around the statute's limited focus on those who actually sent the offending messages.

My thoughts: Derivative liability regarding spam and other types of advertising is a favorite topic of Professor Goldman's. I agree that absent clear standards, liability can move up the chain to advertisers and service providers, and this can cause obvious problems.

Here, the court interpreted a statute which by its terms only imposed liability on the person who initiated the transmission of the messages, so the court's conclusion isn't particularly surprising. The fact that the plaintiff in this case only produced 23 emails and was awarded a whopping $236 million in damages (despite having failed to put forth evidence of actual damages) was probably not lost on the court either.

How does this relate to CAN-SPAM: In the context of CAN-SPAM, the standards are slightly different. CAN-SPAM imposes liability on those who "initiate" or "procure" the initiation of noncompliant messages. "Initiate" is defined as "to originate or transmit [messages] or to procure the origination or transmission of [messages] . . . ." "Procure" is defined as "intentionally, to pay or provide other consideration to, or induce, another person to initiate [messages] on one's behalf." Where a civil claim is brought by an ISP, the term procure contains an actual knowledge or a conscious avoidance limitation. (section 7706(g)(2)) CAN-SPAM thus allows for the imposition of derivative liability, but makes it more difficult when the ISP is the one enforcing.

How have CAN-SPAM plaintiffs fared when they sought to impose this type of liability? Not very well. I haven’t done an exhaustive tally, but on the civil side there have been several defense wins (Hypertouch v. Kennedy Western, Asis Internet v. Optin Global, Fenn v. Redmond Venture). On the affiliate liability issue, these cases are typically resolved in favor of defendants on the basis that defendants were not (and had no reason to be) aware of the underlying violations. With respect to enforcement efforts by the FTC, the FTC lost a jury trial (Impulse Media), settled one case after the court found that affiliate liability is a question of fact (Cyberheat), and obtained a conviction (US v. Kilbride). (Oddly, after losing the jury trial in the Impulse Media case, the FTC sought to obtain injunctive relief against Impulse Media. The court denied this request.) Overall, the case law is largely defense favorable. Although CAN-SPAM allows for derivative liability, courts and juries have not been quick to impose it.

Related posts: "Affiliate Liability Talk Notes From SMX West"

Posted by Venkat at 09:15 AM | Derivative Liability , Marketing , Spam

March 02, 2010

February 2010 Quick Links

By Eric Goldman

Copyright

* Mavericks Recording Co. v. Harper (5th Cir. Feb. 25, 2010). 17 USC 402(d) precludes an innocent infringement defense in P2P downloading case when the record companies place proper copyright notices on their works. This is consistent with language from BMG v. Gonzalez in the Seventh Circuit.

* Perfect 10 and Amazon settle on confidential terms; Perfect 10 v. Google will keep going. Previous blog coverage of this case (1, 2, 3, 4, 5).

* Veoh won in court (1, 2, 3) but still got knocked out of the marketplace.

* Project DoD, Inc. v. Federici, 2010 WL 559115 (D. Me. Feb. 11, 2010). In a 512(f) lawsuit I blogged about in December, the judge upheld the magistrate report dismissing for lack of personal jurisdiction because the plaintiff had moved and no longer had ties to Maine.

* MCS Music America, Inc. v. YAHOO Inc., 2010 WL 500430 (M.D. Tenn. Feb. 5, 2010). MCS sued Yahoo over infringement of its songs, and the court says that it can only get statutory damages for each song infringed. This means that if Yahoo performed 8 different covers of the song, MCS is only entitled to statutory damages for one infringed work.

Trademark

* Monex Deposit Co. v. Gilliam, 2010 WL 325570 (C.D. Cal. Jan, 25, 2010). The courts says a gripe site called "MonexFraud.com" may cause initial interest confusion of the Monex trademark. Are you kidding me?

* Typographically erroneous phone numbers always struck me as a much greater problem than "typosquatters."

Contracts

* Jacobsen v. Katzer settles.

* Asch Webhosting, Inc. v. Adelphia Business Solutions Investment, LLC (3rd Cir. Jan. 25, 2010). 3rd Circuit upholds consequential damages waiver in B2B Internet connectivity contract. Prior blog discussion.

Blogging/Social Networking Sites

* Cats & Dogs Animal Hospital v. Yelp (C.D. Cal. complaint filed Feb. 24, 2010). The plaintiffs allege that Yelp violates California B&P 17200 by using a pay-for-play scheme.

* Rick Frenkel speaks about his Troll Tracker blogging days.

* In re Perry, 2010 WL 374770 (Bankr. S.D. Tex. Feb. 3, 2010). Emailing links to a third party's defamatory blog constituted "publication" of the blog for defamation purposes. The court doesn't discuss 47 USC 230 at all!

* Cunningham v. West Virginia, 2010 WL 415257 (S.D. W.Va. Jan. 26, 2010). MySpace does not impermissibly discriminate against sex offenders.

* Evans v. Bayer, 2010 WL 521119(S.D. Fla. Feb 12, 2010). A student's off-campus creation of a Facebook Group called "Ms. Sarah Phelps is the worst teacher I've ever met" may not be an appropriate grounds for school discipline.

* Snowball fight leads to a rampage at Macy's? Blame Facebook!

* Marshall v. City of Savannah, 2010 WL 537852 (11th Cir. Feb. 17, 2010). A probationary firefighter posted an official fire department photo on her MySpace page. After a reprimand, the employment relationship deteriorated and she was fired. The 11th Circuit affirms the dismissal of her discrimination and retaliation claims.

* BoingBoing gets an anti-SLAPP win--including its attorneys' fees--in a defamation lawsuit over one of its blog posts. The anti-SLAPP ruling.

* Berkery v. Estate of Stuart, 2010 WL 610631 (N.J. Super. A.D. Feb. 23, 2010). "The investigative function an author performs is not substantively different from an investigative journalist. The dispositive element is not the form of the investigative process. In an era marked by a diminution of the classic newsmedia and the print investigative journalist and the proliferation of investigative reporting in media such as cable television, documentary journalism-both televisions and movies-internet reporting and blogging, the need for protection remains the same. Whether Hornblum was writing a book, news article, a screenplay or a blog, the substance of his body of work remains the same."

Search Engines

* After some innuendo about Microsoft’s role in harassing Google on antitrust/competition issues, Microsoft effectively admits as much. Also see this Wall Street Journal article on the Microsoft-Google tussles.

* Search Engine Land: Google AdSense Using Search History In Contextual Matching

* Munger v. State, 2010 WL 537641(N.C. App. Feb. 16, 2010). Rejecting a taxpayer challenge against a NC law designed to provide financial incentives for Google to build a facility there.

* Lengthy Wired article on Google's algorithm.

* Nature: Chinese researchers don’t want to lose access to Google. My blog post on this topic.

* Business Insider: In Case You Had Any Doubts About Where Google's Revenue Comes From

Advertising

* Thomas O'Toole: Does "No Contract" Really Mean No Contract?

* MediaPost: Start-Up Links 65 Million IP Addresses To Users, Readies Targeting Platform. This is not going to end well.

* More troubling words for online advertisers from FTC BCP Director David Vladeck.

* Zelotes v. Rousseau (Conn. Grievance Committee). Attorneys participating in an Internet lead generation system that allocated leads geographically didn't violate the attorney Rules of Professional Conduct.

Online Crimes

* F.T.C. v. Pricewert LLC, 2010 WL 329913 (N.D. Cal. Jan. 20, 2010). FTC gets a default injunction against an Internet access provider that allegedly provided connectivity for activities such as child pornography, botnets, spyware, and viruses.

* US v. Little. The Eleventh Circuit disagrees with the Ninth Circuit regarding the appropriate geographic scope to measure the obscenity of Internet material.

* 3 Google executives were convicted in Italy of criminal privacy violations for a user-uploaded video to Google Video. NYT article. Google's response. A refresher on the Felix Somm conviction from 1998.

* Online ticket sellers are getting the smackdown. Criminal prosecutions of online ticket brokers who allegedly played dirty in jumping the queue. The FTC cracks down on Ticketmaster and warns other online ticket sellers.

Posted by Eric at 05:04 PM | Content Regulation , Copyright , Derivative Liability , Domain Names , E-Commerce , Internet History , Licensing/Contracts , Marketing , Search Engines , Trademark | TrackBack

February 22, 2010

Google AdWords Contract Upheld Again, Causing a Venue Transfer in Flowbee v. Google

By Eric Goldman

Flowbee International, Inc. v. Google, Inc., 4:10-cv-00668-LB (S.D. Tex. Feb. 8, 2010). My post on Flowbee’s initial complaint.

Google has successfully transferred Flowbee v. Google from Texas to California by invoking the venue selection clause in its AdWords contract. The result is noteworthy for three reasons.

First, it’s yet another case upholding Google’s AdWords contract. Similar precedents include the CLRB Hanson, Feldman and Person cases.

Second, the court said the scope of the venue selection clause covered Flowbee’s tort claim for trademark infringement. This was not a guaranteed conclusion. Clearly, the clause governs Flowbee’s AdWords purchases, but it does not automatically govern Flowbee’s beefs with other advertisers’ AdWords purchases under their independent contracts with Google. Compare Miller v. Facebook with Yahoo v. American Airlines. This court, bound by the Fifth Circuit ruling in the Yahoo case, nevertheless distinguished it because the Yahoo clause specified that business partners “submit” to exclusive jurisdiction, while the Google clause used the words “litigated exclusively.”

Third, Google surely is happy to have this case out of a lousy venue (Southern District of Texas) and into its home court. If only it could transfer the other AdWords cases too!

Having successfully transferred the case, Google then filed its answer and a counterclaim that Flowbee breached the mandatory venue clause by suing Google in Southern District of Texas. This is at least the second time Google has tried this type of contract breach claim (I blogged on the same tactic in the John Beck Amazing Profits case), so Google’s turn-the-tables move isn’t really news even though it prompted a TechCrunch post.

However, Google’s contract breach counterclaim highlights how Google got caught in flagrante delicto in its collections suit against myTriggers by bringing that suit in Ohio state court. In Flowbee, Google takes the position that bringing a suit in the wrong venue is an actionable contract breach. I’m not exactly sure how Google would respond if myTriggers countersued Google for breaching its AdWords contract by suing myTriggers in Ohio rather than California. I don’t think myTriggers could claim any damages from Google’s breach, nor do I expect myTriggers would complain about the breach because it’s probably thrilled to have trapped Google in an undesirable forum. However, Google is walking an arguably duplicitous line.

As TechCrunch post points out, Google’s answer contains some “whoops” references to Rosetta Stone instead of Flowbee. By inference, Google probably cloned-and-revised its Rosetta Stone answer for the Flowbee litigation. My tip for clean living: Whenever I clone-and-revise a document to use for a different party, the very first thing I do is a global search-and-replace to change party names.

The roster of pending AdWords cases (I most recently double-checked the status of these cases on February 20, 2010):

* Ezzo v. Google
* Rescuecom v. Google
* FPX v. Google
* John Beck Amazing Profits v. Google and the companion Google v. John Beck Amazing Profits
* Stratton Faxon v. Google (not initially a trademark case). Check the status.
* Soaring Helmet v. Bill Me
* Ascentive v. Google
* Jurin v. Google 1.0 (voluntarily dismissed), succeeded by Jurin v. Google 2.0
* Rosetta Stone v. Google
* Flowbee v. Google
* Parts Geek v. US Auto Parts
* Dazzlesmile v. Epic

Posted by Eric at 09:26 AM | Licensing/Contracts , Marketing , Search Engines , Trademark | TrackBack

February 18, 2010

Google Hit With Another Antitrust Lawsuit. Does It Have Microsoft Ties? Google v. myTriggers

By Eric Goldman

Google, Inc v. myTriggers.com, Inc., 09 CV 14836 (Franklin County Ct. of Common Pleas, Ohio). Google filed its first amended complaint on January 20, 2010. myTriggers filed an answer with counterclaims on February 2, 2010. See both pleadings here.

About a year ago, Google was sued by an obscure company called TradeComet for various antitrust violations. TradeComet’s lawsuit wasn’t the first private antitrust claim against Google; other scrappy claims had arisen over the years. However, none of them were serious challenges or went anywhere.

The TradeComet complaint looked equally low-merit, so I would have probably ignored it except that TradeComet’s counsel was the NYC-based Cadwalader Wickersham & Taft—which also does antitrust work for Microsoft. Those two facts could be completely unrelated, but it’s possible that they aren’t. First, I can’t imagine Cadwalader would jeopardize a lucrative relationship with a Fortune 50 company to take on a low-merit lawsuit for a no-name company. Therefore, either Cadwalader viewed the various antitrust issues as so unrelated that no legal or business conflicts were created—a risky judgment given Microsoft’s sensitivity about both Google and antitrust—or Microsoft approved/acquiesced to Cadwalader’s representation of TradeComet. Second, Microsoft has been engaged in a multi-year, multi-front effort to harass Google on antitrust issues, and Cadwalader’s involvement would be consistent with that campaign.

I checked PACER today, and the TradeComet lawsuit is going nowhere fast. Google filed a motion to dismiss in March 2009, prompting an exchange of memos in April, and the last (non-substantive) PACER entry was in August. It appears that everyone is waiting for the judge to rule on Google’s motion to dismiss from almost a year ago.

Meanwhile, an intriguing and unexpected new antitrust battlefront has opened up. myTriggers is run by NexTag alums and, IMO, has an even worse brand name than TradeComet. Do a search for “mytriggers” and see if you can avoid juvenile giggles. myTriggers’ properties include three shopbots/shopping comparison websites: mytriggers.com, comparisonsearches.com and shopbig.com. A quick review of these websites revealed no obvious reason why I would choose them over better-known shopbots.

As a result, I could see why these sites might have trouble generating organic traffic. Therefore, I wasn’t surprised to learn that myTriggers was a heavy AdWords advertiser. myTriggers said that Google had extended it a $250,000 line of credit, and it incurred $200k in AdWords charges for December 2007. Meanwhile, myTriggers clearly enjoyed its acquired traffic. It did three multi-million rounds of financing (the 2005 initial capitalization and rounds in 2006 and 2007) and leased a big datacenter in March 2008. But just as it was finalizing the lease, the bottom dropped out on myTriggers. Google implemented a change to myTriggers’ quality score, which (according to myTriggers) boosted its minimum bids 10-100X. It’s never good for margins when the price on a key input goes up 10X or more, and myTriggers subsequently fired almost all of its employees and effectively exited the market.

This left the pesky matter of Google’s unpaid bill—to the tune of about $335k, according to Google. I’m not sure how many of myTriggers’ millions haven’t been spent, but clearly Google thought it was worth chasing this money. It hired a (presumably cheap) local Ohio counsel and filed one of the shortest complaints I can recall seeing (2 sentences!) in myTriggers’ local state courthouse—even though the AdWords contract appears to say that contract-related litigation *must* be adjudicated in Google’s home court. Other than the risk that myTriggers didn’t have the money, Google appears to have treated this as a routine and unexciting collections matter.

This is where the story gets weird. Rather than plead poverty to Google or mount a generic but low-cost contract defense, myTriggers retained THREE law firms and also brought a counterclaim under Ohio’s state antitrust law, the Valentine Act. The three law firms are: (1) local Columbus counsel, presumably initially retained to handle the collections matter, (2) a Cincinnati firm that includes Stanley Chesley, Ohio bar #852 (!), a litigator of some renown who has enough gravitas to impress most judges; and (3) the same four-person DC-based antitrust team from Cadwalader that also represents TradeComet.

I am struggling to make sense of myTriggers’ litigation choices. Assuming myTriggers even has the money, writing a $335k check to Google (and I bet Google would have taken less!) is almost assuredly cheaper than paying three law firms to mount an antitrust assault on a $20B/year behemoth. Assuming that myTriggers wants to maximize profits, then either (1) myTriggers thinks its odds are good enough that it will win AND make enough money to pay the 7 lawyers on the counterclaim's signature page plus their teams, or (2) the law firms struck an unbelievably sweet deal on fees.

Either way, how did Columbus-based myTriggers connect with the DC-based Cadwalader team? Did myTriggers independently call up Cadwalader? The TradeComet lawsuit got some press, but that was a year ago. If myTriggers really thought it had a case, it might have preemptively sued Google rather than waiting for Google to sue it. Did myTriggers get connected to Chesley for some reason, who then recommended bringing in Cadwalader? Did Cadwalader reach out to myTriggers? If so, I would like to know more how this happened and how this matter pertains to Cadwalader’s relationship to Microsoft. I’m also confused about the relative roles of Chesley and Cadwalader. It’s not immediately obvious why myTriggers would need both Chesley and Cadwalader or be willing to fund both.

Whatever the case, I suspect the antitrust claims caught Google flat-footed. A simple and low-stakes collections matter has blown up into a potentially significant lawsuit in an undesirable forum. Google chose Ohio state court for the collections matter despite its AdWords contract, so now it will have a tough time extricating itself from that court. But I suspect it would rather have an antitrust case in federal court, not state court—often (but not always) federal judges are more sophisticated than state judges and less susceptible to hometown bias. And I’m sure Google would rather fight antitrust claims on one of the coasts than in the Rust Belt, especially if myTriggers argues that Google’s evilness cost Ohioans jobs. Google probably didn’t mean to offer battle in this venue, but someone did a really good job of seizing the opportunity and forcing Google to fight the battle in a suboptimal setting.

Although myTriggers’ counterclaim is noticeably less well-drafted than the TradeComet complaint, the substance of myTriggers’ antitrust counterclaim is similar to the TradeComet allegations. The basic argument is the same: myTriggers argues that it’s a competitor to Google and that Google raised ad prices on a competitor to squelch it. As a result, I think this counterclaim is about as meritorious as TradeComet’s—in other words, not so much.

That said, the counterclaim had a couple of interesting factual allegations. First, in paragraph 12 of the counterclaim, myTriggers alleges that Google cuts special deals with selected shopbots so that their ads are not subject to the same quality scores as other advertisers. (Compare paragraph 101 of the TradeComet complaint, which wasn’t as clear that Google made these adjustments by agreement). I would love to see one of the Google-shopbot agreements containing such a clause. Could this just reflect some aspect of Google’s standard algorithm that automatically preferences shopbots without any agreement? Or could the NexTag alums know something we don't?

Second, Paragraphs 14-16 allege that Google manually maintains a “whitelist” that means that “neither Google nor its ‘search partners’ will eliminate the company from the market,” and a shopbot not placed on the whitelist “is forever blacklisted by Google and its ‘search partners.’” The TradeComet complaint doesn’t have a directly analogous allegation, and I have no idea what this means. If you have any thoughts or theories, I would welcome them. These allegations should be subject to the Ohio equivalent to Rule 11, so myTriggers should have some evidence in its possession to back this up. I would love to see that evidence.

Posted by Eric at 01:23 PM | Licensing/Contracts , Marketing , Search Engines | TrackBack

January 31, 2010

January 2010 Quick Links

By Eric Goldman

Copyright

* An English translation of Google's December loss in France on a Google Book Search lawsuit.

* Ed Felten reports on a survey of files available via BitTorrent. Acknowledging some methodological limits, he estimates ~99% were likely copyright infringing.

* Elsevier B.V. v. UnitedHealth Group, Inc., 2010 WL 150167 (S.D.N.Y. Jan 14, 2010). Denying copyright statutory damages and attorneys' fees to unregistered foreign works is constitutional because the Berne Convention (which Elsevier argued prohibits the statutory formalities) is not self-executing.

* Techdirt: Singapore Court Rules That Online DVR Is Infringing...While Noting How Copyright Law Isn't Really Set Up For This

* Techdirt: If Banning The Internet For Sex Offenders Is Unfair, Is Banning The Internet For Copyright Infringers Fair?

* The Copyright Office issued new regulations on the deposit of online-only works: “The regulation establishes that online–only works are exempt from mandatory deposit until a demand for deposit of copies or phonorecords of such works is issued by the Copyright Office.”

Trademark/Publicity Rights

* American Airlines v. Yahoo settled. Previous coverage:
- Yahoo Subpoenas Expedia in American Airlines Lawsuit
- Fifth Circuit Denies Yahoo's Jurisdictional Appeal in American Airlines Case
- American Airlines v. Yahoo Venue Transfer Denied
- Yahoo Countersues American Airlines for Declaratory Judgment
- American Airlines Sues Yahoo for Selling Keyword Advertising

* Duplicity alert! Rescuecom is in court defending its keyword ads triggered by competitor Best Buy's TMs.

* Bev Stayart sues Yahoo again over publicity rights. My September 2009 blog post on her prior loss against Yahoo.

Pornography

* Clark v. Commonwealth, 2009 WL 5125009 (Ky. App. Ct. Dec. 30, 2009). Upholding a conviction when "Clark knowingly used a computer for the purpose of getting a minor, or a peace officer whom Clark believed was a minor, to take a sexually explicit photograph of herself."

* Am. Booksellers Found. for Free Expression v. Cordray, Slip Opinion No. 2010-Ohio-149 (Jan. 27, 2010). Ohio's Supreme Court partially upholds its state law restricting Internet distribution of harmful to juveniles material to juveniles when the communications are to recipients known or believed to be juveniles.

Spam

* United States v. Zein (E.D. Mich. 2009). Posting an ad on Craigslist constituted a "mass marketing" activity sufficient to trigger a 2 level sentencing enhancement.

* Comcast and e360 settled their lawsuit. Previous blog coverage.

Blogs/Social Networking Sites

* Sieber v. Brownstone Publishing Company, 2007 CA 002549 B (D.C. Superior Ct. Dec. 23, 2009). A building contractor sued Angie's List and other people over consumer reviews. My prior mention of the case. After 2 years of litigation, a DC trial judge dismissed all defendants on summary judgment and awarded one defendant-counterclaimant $18k+. The entire text of the memo opinion:

MEMORANDUM OPINION AND ORDER GRANTING MOTIONS FOR SUMMARY JUDGMENT OF ALL DEFENDANTS, DENYING PLAINTIFFS' MOTIONS FOR SUMMARY JUDGMENT, and GRANTING POOLE'S MOTION FOR SUMMARY JUDGMENT ON HIS COUNTERCLAIM signed by Judge Long, efiled, eserved, and docketed in chambers on December 23, 2009. It is ORDERED that the Motions for Summary Judgment of Brownstone Publishing Co., the Washington Post Company, John Kelly, and John W. Poole are granted; and it is FURTHER ORDERED that the Motions for Summary Judgment filed on behalf of the plaintiffs are denied; and it is FURTHER ORDERED that judgment shall be entered in favor of all defendants against the plaintiffs as to all claims in the Second Amended Complaint; and it is FURTHER ORDERED that judgment shall be entered in favor of defendant Poole and against plaintiff SCS Contracting Group LP as to Poole's Counterclaim against plaintiff SCS Contracting Group for $18,300 plus 6% (six percent) per annum interest, and a separate money judgment for this sum shall be docketed. Court Jacket not in chambers.

* FINRA Regulatory Notice 10-06: Guidance on Blogs and Social Networking Web Sites.

* Duer v. Henderson, 2009-Ohio-6815 (Ohio App. Ct. Dec. 23, 2009). A web publication telling a ghost story and describing the location of purportedly paranormal phenomenon on private property is not liable for any resulting trespass to real property.

* The “moldy tweet” lawsuit was dismissed.

* Two lawsuits holding that bloggers aren't subject to jurisdiction in the plaintiff's home court:
- Silver v. Brown, 2009 WL 5220297 (D. N.M. Nov. 30, 2009).
- Workman Sec. Corp. v. Phillip Roy Financial Services, LLC, 2010 WL 155525 (D. Minn. Jan 11, 2010)

* BBC: France ponders a right-to-forget law.

E-commerce

* Appliance Zone, LLC v. NexTag Inc., No:4-09-cv-0089-SEB-WGH (S.D. Indiana Dec. 22, 2009). Upholding NextTag's clickthrough-formed advertiser agreement. Mehmet Munur’s comments.

* Edward A. Zelinsky, “New York’s 'Amazon Law': Constitutional But Unwise.”

* Largo Cargo v. Google, a new complaint over allegedly mismanaged AdWord bids. This is the latest incarnation of the Almeida case. I think Largo Cargo’s complaint is still a no go.

* The NYT catalogs an impressive roster of futility for US dot coms trying to compete in China.

Miscellaneous

* Gmail will consult the user's prior emails to pick an ad if a particular email doesn't lend itself to a good ad.

* Illustrating the divergence between the open source community and the Wikipedia community, APC reports that 75% of Linux code is now written by paid developers.

* Oddee: 15 Funny Facebook Fails.

* I expect to be in the Netherlands May 23-30. Let me know if you would like to meet up there.

Posted by Eric at 01:19 PM | Content Regulation , Copyright , Derivative Liability , E-Commerce , Licensing/Contracts , Marketing , Publicity/Privacy Rights , Search Engines , Spam , Trademark | TrackBack

January 21, 2010

Keyword Ad and Product Shots Case Survives Motion to Dismiss--FragranceNet v. FragranceX

By Eric Goldman

FragranceNet.com, Inc. v. FragranceX.com, Inc., 2010 WL 174159 (E.D.N.Y. Jan. 14, 2010)

I previously blogged about this case in 2007. That ruling was one of several in New York that, following the Rescuecom v. Google district court ruling, held that buying a competitor's trademarks as keywords did not constitute a trademark use in commerce. As a result, the court granted a motion to dismiss.

Looking back even further, the case has been hanging around for almost 4 years. The first complaint was filed May 2006 and the plaintiff is now on its third amended complaint. This longevity is remarkable in its own right--just how much is this case worth to either litigant to justify four years of litigation costs and yet still be wrassling over motions to dismiss? The defendant tries to dismiss the complaint yet again, but this time the motion to dismiss fails, and the court directed the defendant to answer the complaint.

Copyright in Product Shots

FragranceNet claims that FragranceX copied 900+ product shots from FragranceNet's website and republished them verbatim on the FragranceX website. FragranceX responded that product shots aren't copyrightable. For more on the copyrightability of product shots, see my post on Designer Skin v. S&L Vitamins and the several other times I've addressed the topic.

I am not a fan of copyright protection for product shots. At best, I see them as subject to a very thin copyright that protects against only verbatim republication (although FragranceNet alleges FragranceX did just that). Even then, fair use should provide a wide range of permissible secondary uses. However, I also don't see how the defense thought it could win a motion to dismiss that product shots are not copyrightable at all. The defense had to overcome the presumption that photos generally are copyrightable--a presumption which was significantly reinforced in this case because FragranceNet made a successful and timely registration of the photos with the Copyright Office. FragranceNet further alleged in the complaint that the product shots were taken with creativity. Busting the product shot copyrights may be possible with an evidentiary record, but not beforehand.

Trademark Claims over Metatags and Keyword Ads

FragranceNet also claims that FragranceX put its trademarks in the metatags (good grief, another plaintiff who needs to internalize that Google ignores keyword metatags) and bought them as AdWords keywords. FragranceX responds by alleging problems with FragranceNet's acquisition of trademark interests from a third party, but these attacks fail on a motion to dismiss. (For true legal geeks, there is a brief and uncommon discussion of anti-champerty laws).

Although not discussed/cited in this case, I note that last month FragranceNet defeated a motion to dismiss in a different lawsuit attacking the FragranceNet mark as generic. Especially in light of the Hotels.com and Mattress.com Federal Circuit opinions, I expect both that defendant and this one will pursue genericness in future proceedings.

Posted by Eric at 12:11 PM | Copyright , Marketing , Search Engines , Trademark | TrackBack

January 11, 2010

Top Cyberlaw Developments of 2009 (Eric's List)

By Eric Goldman

Guest blogger John Ottaviani recently dropped by to offer his perspectives on 2009’s top Cyberlaw developments. While I like his list a lot, I independently developed my own top 10 list that has a different emphasis. You might enjoy the contrasts. My list:

#10: Louis Vuitton v. Akanoc. After the judge ordered a web host to stand trial, a jury awarded the trademark owner $32 million due to the web host’s contributions to trademark infringement by its customers. This case stands out for the big damages award and as a rare example where an online provider was held liable under a contributory trademark liability theory. Many trademark practitioners are scratching their heads trying to figure out the import of this case, however. Does this case represent a dangerous new frontier of online liability? Was this a bad jury verdict fueled by poor defense lawyering? Or was this an appropriate outcome because the web host actually engaged in bad behavior that distinguishes it from most “legitimate” web hosts? 2010 may help us understand if this case is part of a new trend or an aberration.

#9: Gordon v. Virtumundo. We’ve seen a lot of silly anti-spam litigation, including the emergence of an entirely new group of entrepreneurs called “spam litigation entrepreneurs” who try to make a living on anti-spam lawsuits. These folks have a true love-hate relationship with spam; they hate it so much that they devote their lives to fighting it, but they love getting spam because each one is a potential revenue source. In general, judges hate spam a lot too, so over the years we have seen a number of doctrinally unsupportable results where judges bent the law to make sure spammers lost.

However, the judicial pendulum has swung in the opposite direction, and in Gordon v. Virtumundo, the Ninth Circuit destroyed a serial anti-spam plaintiff’s entrepreneurial business in a doctrinally questionable but strongly worded opinion. In short order, a number of other spam litigation entrepreneurs have seen their lawsuits shut down with emphasis. Due to this ruling, the era of anti-spammers partying in courts may be on the wane.

#8: Zango v. Kaspersky. The question raised in this issue is simple to state but hard to answer: who should decide what constitutes spam, spyware or a virus? Vendors of software designed to curb these threats would like unfettered discretion to make their classifications; businesses who are classified as a threat would like judges to overturn adverse decisions. As it turns out, in a relatively obscure provision (47 USC 230(c)(2)), in 1996 Congress said that software vendors get to make classifications decisions and unhappy businesses can’t complain about them. In June, the Ninth Circuit upheld Kaspersky’s decision to classify Zango’s software as a threat and rejected Zango’s efforts to take the classification decision out of Kaspersky’s hands. This ruling gives enormous freedom to vendors of anti-spam/anti-spyware/anti-virus software to do their best to keep us safe.

#7: Columbia Pictures v. Fung. This case came out just before the Christmas holiday, so it got lost in the holiday hoopla a bit, but it’s a case of potentially significant import. First, it held that the specific torrent sites at issue induced copyright infringement. Second, the court denied the torrent sites’ eligibility for the DMCA online safe harbors. In part, the court said that an inducing website was categorically disqualified from the DMCA online safe harbors. Like the Akanoc case, it’s not entirely clear if this result was a legal aberration or an appropriate reaction to the defendants’ poor choices. Either way, it is possible that more “legitimate” websites may change their behavior to minimize their exposure based on the legal precedents in this case. If they do, this case could have a major impact on UGC websites.

#6: Lori Drew’s acquittal. Megan Maier’s suicide remains a heartbreaking tragedy, but unfortunately, overzealous prosecutors compounded the tragedy by prosecuting Lori Drew using bogus legal doctrines. The tragic facts got a jury to convict Drew of some misdemeanor crimes. Fortunately, the judge recognized the legal errors of the prosecution’s theory and the jury’s conclusions and granted Drew an acquittal despite the jury findings. The judge finally got to the right result as a matter of Cyberlaw, but the case remains a chilling testament to prosecutorial power.

#5: Harris v. Blockbuster. The rule is really clear. Service providers can't amend online user agreements in the provider’s sole discretion without notice. As the Ninth Circuit informed us in 2007, those contracts don’t fare well in court. So although these provisions are in just about every online user agreement, they don’t work--as Blockbuster found out the hard way.

As part of the litigation detritus from the Facebook Beacon experiment, users sued Blockbuster for sharing their rental transactions with Facebook and all of their friends, allegedly in violation of the Video Privacy Protection Act. Blockbuster tried to bust the class action by invoking the contract’s arbitration clause. Instead, because Blockbuster had the impermissible amendment provision in its user agreement, the court said the contract was illusory and refused to send the case to arbitration.

This case should signal the end of the ridiculous amendment clauses. We’ll see how long it takes the lawyers to give the provisions up.

#4: Battles Over the First Sale Doctrine. We have seen numerous legal battles this year over the First Sale defenses in both copyright and trademark law.

Copyright owners try to engage in price discrimination by carving up the world into geographic territories with different prices for the same product. If they can use copyright law to keep the cheap products from entering the other geographic market, this keeps the product from effectively price-competing with itself.

This year, two cases involved European textbooks which were functionally equivalent to the textbooks being sold in the United States at higher prices. Entrepreneurs were buying the cheap European texts, shipping them to the US and then selling them online. The entrepreneurs invoked the First Sale doctrine, which says that copyright law can’t prohibit the legitimate purchaser of a tangible copyrighted item from reselling the item to whomever they want at whatever price they want.

However, copyright law has another provision that allows copyright owners to block the importation of copyrighted works into the United States. In the 1998 Quality King case, the US Supreme Court said that the First Sale doctrine trumped the importation right when the goods were manufactured in the US, sold overseas, and then imported back to the US. However, in Pearson v. Liu and John Wiley & Sons v. Kirtsaeng, the judges said that the importation right trumps the First Sale doctrine when the goods were initially manufactured overseas. This issue is ripe for further adjudication, though. A similar importation case, Costco v. Omega, is pending before the US Supreme Court, which is deciding whether or not it wants to hear the case. If it does, we may get clearer instructions about the interplay between the First Sale doctrine and the copyright importation right.

Copyright’s First Sale doctrine was also at issue in Vernor v. Autodesk, where the purchaser of a software disk wanted to resell the disk on eBay despite restrictions in the software licensing agreement barring such resales. The court held that the First Sale doctrine applied and allowed the resale. There are other cases percolating through the court system involving the resale of tangible media contained copyrighted material despite contractual restrictions on resale, so this issue remains a hot one.

Trademark owners also try to prevent competition with their products that leak out of their official channels of distribution. eBay has been the site of a couple battles over the First Sale doctrine in trademark law. In Mary Kay v. Weber, the court held that the trademark First Sale doctrine may not permit the eBay resale of expired cosmetics by a Mary Kay independent beauty consultant. In Beltronics v. Midwest, a trademark owner shut down the eBay resale of radar detectors that had leaked out of the manufacturer’s channel and were being sold (at a cheaper price) without the manufacturer’s warranty.

Clearly, the First Sale doctrine matters a lot to eBay and other consumer-to-consumer e-commerce websites. With a possible pending Supreme Court case and lots of IP owners looking to stifle competition from goods they have already profited from, expect the First Sale doctrines to get lots of attention in 2010.

#3: 47 USC 230. In my opinion, 47 USC 230 is the most important Cyberlaw statute, so new 230 developments will make my top 10 list for the foreseeable future. This year, there were three federal appellate court rulings interpreting 47 USC 230(c)(1):

* in Barnes v. Yahoo, the Ninth Circuit held that 230 protected a website’s negligent delay in removing user content. However, if the website had promised removal to the user, the user could have a viable claim for promissory estoppel that would not be preempted by 230.
* in FTC v. Accusearch, the Tenth Circuit held that a website’s resale of pretexted phone records—even if those records were supplied by third party suppliers—did not qualify for 47 USC 230 protection because of their illegality.
* in Nemet Chevrolet v. ConsumerAffairs.com, the Fourth Circuit held that a consumer review website was not liable for user-supplied reviews, even when the website worked with the user to submit the review, and despite the plaintiff’s unsubstantiated claims that the website had fabricated the reviews itself.

Really, the big 47 USC 230 news in 2009 is the absence of big news. Specifically, 2009 reinforced that the Ninth Circuit’s 2008 Roommates.com decision—one of the most significant defense losses under 47 USC 230—did not rip open a major hole in the statutory protection of websites. Of the 13 cases that I have seen that have cited the Roommates.com en banc opinion, eleven have cited the case in favor of the defense. (See the list here). The two exceptions are the Accusearch case, mentioned above, and the New England Patriots’ lawsuit against StubHub over season ticket resales, an odd opinion that may not have much influence. Therefore, despite our fears about Roommates.com, the 47 USC 230 immunity remained healthy and vibrant in 2009. For more on this topic, see my special recap of 47 USC 230's year-in-review for 2009.

#2: Keyword Advertising Battles. Keyword advertising battles are another perennial topic on these year-in-review lists. A multi-billion dollar a year industry has sprung up around the sale of keyword-triggered advertising, including some keywords that may be third party trademarks, and trademark owners don’t like it at all. This has led to a multi-front battle between trademark owners, keyword advertising sellers (such as Google), and keyword advertising buyers.

One of the biggest Cyberlaw cases of the year was the Second Circuit’s ruling in Rescuecom v. Google. In the district court in 2006, Google won an easy victory against a trademark owner because the court said that Google did not make the requisite “use in commerce” of the trademark. The Second Circuit reversed the district court, sending the case back for further proceedings. The reversal does not ensure Google’s defeat; Google will now litigate other legal doctrines and might very well win on one of those. However, the Second Circuit’s opinion largely spells the end of any “use in commerce” defense by either keyword advertising sellers or buyers.

Because of the “use in commerce” defense’s demise, keyword advertising cases will now likely turn on whether the advertisements create a likelihood of consumer confusion. One case, Hearts on Fire v. Blue Nile, offered up a new and complicated test for gauging consumer confusion. If other courts adopt this test, keyword advertising cases will get even more expensive and complicated—highlighting how important it was that the Rescuecom case eliminated an easy way to end these lawsuits early.

Meanwhile, despite the fact that keyword advertising battles have been taking place for at least a decade, we have not heard what a jury thinks about the practice—until the November jury ruling in Fair Isaac v. Experian. In that case, the jury found for the defense that the keyword-triggered ads did not create the requisite likelihood of consumer confusion. It remains to be seen if other juries reach the same conclusion. If they do, keyword advertising lawsuits should slowly fade away over time because the trademark owners can’t win in the end.

As for now, keyword litigation is going strong and hardly fading away. In Spring, Google made two changes to its trademark policies where it voluntarily agrees to take down certain types of ads at the trademark owner’s request. In May, Google extended its more liberal US-based policy to nearly 200 other countries, replacing the more restrictive policies it had in place there. Shortly thereafter, Google modified its US policy to do less for trademark owners in situations involving product resales, review websites and sales of complementary/replacement parts. Trademark owners were none too pleased with these changes. In response to these changes and the door opened by the Second Circuit Rescuecom decision, Google got hit with about a dozen new lawsuits, including some class action lawsuits, of which I believe 10 are currently still active.

Finally, all of the wrangling in court and over voluntary trademark policies could be mooted by legislative action, and for the third time, the Utah state legislature considered resolving the keyword advertising issue itself. A law regulating keyword advertising passed the Utah house but died in the Utah senate. Expect the pro-regulatory forces to round up the troops for a fourth try in 2010.

#1: FTC Endorsement Guidelines for Bloggers. The Obama administration has breathed new life into a pro-regulatory FTC, and the FTC sure is interested in all things Internet. The FTC has been nosing around Internet privacy and Internet marketing practices pretty carefully, and I expect 2010 to bring more FTC pronouncements designed to tackle the Internet.

But nothing stirred up a hornet’s nest of confusion and anger in 2009 like the FTC’s Endorsement and Testimonials Guidelines. I think it’s fair to say that the FTC’s guidelines rollout was a complete failure. As usual, the FTC’s guidelines were mealy-mouthed and filled with conditional statements (the FTC hates to lay out bright line rules that might constrain their future discretion). However, the FTC’s general gist was clear: bloggers should disclose when they receive financial or other consideration for their blog posts.

Unfortunately, this general principle leaves open some fairly fundamental questions, like when is disclosure required in situations less clear than straight cash-for-posting, and where should disclosure be made, especially in space-constrained media like Twitter. Needless to say, unhappy bloggers can be very noisy, so blogger response to the FTC’s announcement was loud and vituperative. The FTC tried to backpedal a little by saying that it did not intend to pursue individual bloggers, but this announcement only reinforced that bloggers do not understand what the FTC wants from them.

Meanwhile, the FTC’s proposed guidelines also took an interesting position about an advertiser’s liability for rogue blogger’s posts. This position is generally consistent with government enforcement agencies’ views that commercial players can be legally responsible for content they endorse or link to (see, e.g., my comments on the SEC’s liability-for-linking policy), but this position runs directly contrary to 47 USC 230’s provisions that say A isn’t liable for B’s online content. As a result, I believe that part of the FTC’s proposed guidelines violate 47 USC 230 and would not survive a court challenge.

Overall, the firestorm over the FTC’s Endorsement and Testimonials guidelines is a small part of a larger effort to regulatorily separate advertising from content. The Internet has collapsed those distinctions, perhaps irreparably, so regulators may be trying to accomplish the impossible. Nevertheless, the FTC seems determined to prop up the distinction, and I expect 2010 will bring more FTC efforts on this front.

* * * * *

While that concludes my top 10 list, there were a number of other interesting developments in 2009 that are worth a brief note:

* Moreno v. Hanford Sentinel. A woman trashed her hometown in an obscure but public MySpace posting and learned there is no “do-over” for Internet content publication. My vote for the most factually interesting Cyberlaw case of 2009.

* Google’s keyword metatag announcement. Courts generally treat the inclusion of third party trademarks in keyword metatags as per se trademark infringement. But Google has confirmed that it ignores keyword metatags. Will courts get the message?

* Google Book Search settlement. If the Google Book Search settlement ever gets approved, it may reshape the book industry, redefine libraries, and make all kinds of other socially significant changes. But the list of opponents to the settlement is long and growing. Professor James Grimmelmann of New York Law School is our community’s maven for all things “GBS.”

* Kindle book deletion. The Kindle store sold e-books it didn’t have the right to sell, so it took them back. Users learned of a key factual difference between physical books and e-books—the vendor can remotely make e-books go poof.

* States’ efforts to impose sales tax efforts based on marketing affiliates. For years, states have been looking for ways to make online retailers collect sales tax for them. They are generally stopped by Supreme Court precedent, but in 2008 New York finally figured out a workaround. The New York statute said that marketing affiliates were like traveling salespeople and thus created the physical nexus required for a state to impose sales tax collection obligations. The New York statute survived its first legal challenge, which opened the floodgates of other states passing similar laws hoping to get their piece of the action. Meanwhile, online retailers aren’t just rolling over; instead, they are threatening to cut off (or actually cutting off) marketing affiliates in states that enact these laws—thus potentially costing the states income tax from the marketing affiliates’ revenue, and creating the potential for the entire affiliate industry to be torn apart.

* Maine kids privacy law. Maine thought it could pass a law banning marketing to kids. It was wrong. The state had to withdraw the law and go back to the drawing board.

* UMG v. Veoh. Veoh won another nice DMCA online safe harbor victory.

* US v. Kilbride. The Ninth Circuit says that online obscenity prosecutions need to evaluate national attitudes towards obscene content, not local community standards.

* Kentucky domain name seizure. Kentucky tried to grab 141 domain names that enabled Kentucky residents to engage in illegal gambling. But those domain names also serviced customers for whom the gambling was completely legal, so the Kentucky courts are rethinking the grab.

* FTC v. Sears. As another example of the new pro-regulatory winds blowing through the FTC, the FTC cracked down on Sears for installing spyware on users’ computers that looked at the users’ hard drives, even though Sears paid the users for the installation and disclosed the spyware’s snooping in the user agreement (though in an inconspicuous manner). This case has made a lot of lawyers concerned that adverse disclosures in user agreements won’t satisfy the FTC.

* Facebook the Drama Queen. Ah, Facebook. Love it. Hate it. Facebook is a pretty nifty site and part of my daily routine, but boy, they sure do have a knack for stirring up trouble.

- In February, they made a relatively modest change to their user agreement that caused people to freak out.
- In response to this, Facebook took the provocative step towards user self-governance. Facebook let users vote on some choices and promised to be bound by the results, but with an asterisk: Facebook decided what options users could vote on, and Facebook would honor those choices only if a prohibitively large number of users exercised their franchise. Still, it was a nice gesture towards cyberspace community self-governance.
- In summer, they tried to settle their Beacon litigation, but that also reminded folks of how much Beacon irritated them in the first place.
- Summer also brought allegations of click fraud on Facebook, and lawsuits followed.
- Finally, in Thanksgiving, Facebook rolled out some changes to its privacy options that it pitched as giving users more choices, but it also took away some choices and defaulted users into some options that surprised them.

Given this track record, is it unrealistic to expect more Facebook drama in 2010?

* Estavillo v. Sony. Speaking of self-governance, virtual world enthusiasts would love to establish the legal proposition that virtual worlds are legally equivalent to governments and therefore obligated to restrain their actions just like governments are. One virtual world enthusiast sued Sony for kicking him off the network, claiming that Sony was legally governed as a “company town” and therefore lacked the discretion to kick him off. WRONG (and it wasn’t even close).

* Wikipedia's policy change. In August, the English-language Wikipedia announced that it was going to tighten up its editorial policies, and people Freaked Out. (In fact, I have predicted that Wikipedia cannot avoid increased editorial restrictions over time, so this change should not have been surprising). However, it turns out that everyone got it wrong, and Wikipedia’s editorial changes are far less dramatic (and consequential) than initially reported. I will post a separate recap on Wikipedia shortly.

If you would like a stroll down memory lane, you can see my previous top 10 lists from 2008, 2007 and 2006. Before that, John Ottaviani and I put together a list of top Internet IP cases for 2005, 2004 and 2003.

Posted by Eric at 10:46 AM | Content Regulation , Copyright , Derivative Liability , Domain Names , E-Commerce , Internet History , Licensing/Contracts , Marketing , Publicity/Privacy Rights , Search Engines , Spam , Trademark , Virtual Worlds | TrackBack

December 28, 2009

Pharma Company Avoids Injunction By Dropping Competitive Keyword Ads--King v. ZymoGenetics

By Eric Goldman

King Pharmaceuticals, Inc., v ZymoGenetics, Inc., 2009 WL 4931238 (E.D. Tenn. Dec. 10, 2009). Seattle Trademark Lawyer has some background.

This case involves the cutthroat (sorry) world of blood clotting drugs. King Pharmaceuticals sells bovine (cow) thrombin, a clotting agent. ZymoGenetics sells thrombin made from hamster ovaries and snake venom. ZymoGenetics' version has been making inroads on the thrombin market, and King isn't too pleased about that. King claims that its dropping market share is due to several bad acts on ZymoGenetics's part, including ZymoGenetics' AdWords campaign that included the King trademark "Thrombin-JM" as a keyword.

Blaming illegitimate AdWords for King's dropping market share seemed particularly implausible for two reasons. First, the product is purely B2B and has no consumer-facing side. It's used for post-surgery recuperation, so doctors/hospitals are the target customers--and for professional and liability reasons, they are pretty careful about what they prescribe to patients. So if the AdWords ads have helped facilitate doctor switching, it's more likely due to doctors learning of a new drug that doesn't have some of cow thrombin's negative side effects than any marketplace mistake over brands or other "unfair" diversion.

Second, the AdWords ads produced a trivial number of clicks. ZymoGenetics reports that it got 84 clicks on "Thrombin-JM" (and only 803 on the generic term "thrombin"). The court doesn't expressly guffaw at King for fighting over 84 clicks, but I can hear a snicker or two in the opinion. Not surprisingly given the minuscule volume of clicks, ZymoGenetics voluntarily dropped the competitive keyword purchase when it learned of King's lawsuit (it wasn't giving up much), and it agreed not to buy the keyword again. King pressed for a preliminary injunction to forcibly hold ZymoGenetics to its word, which many courts will issue in these situations, but this court decides that ZymoGenetics' promise is good enough and denied the preliminary injunction.

Now, King was going to court to redress ZymoGenetics' perceived transgressions no matter what, so it would be a little unfair to beat up on them for litigating over 84 clicks. However, this case is yet another example of how competitive AdWord lawsuits often are ridiculous overkill given the economic value at issue. (Related examples are 1-800 JR Cigar, which involved $345 of revenue, and Storus, which involved 1,374 clicks over an 11 month period). It's a good reminder to trademark owners to be smart with their litigation dollars!

Posted by Eric at 05:29 PM | Marketing , Trademark | TrackBack

December 26, 2009

November-December 2009 Quick Links, Part 1

By Eric Goldman

Trademarks/Domain Names

* Yahoo and Mary Kay settled Mary Kay's trademark lawsuit over Yahoo's email shortcuts.

* uBID Inc. v. The GoDaddy Group Inc., No. 09-cv-2123 (N.D. Ill. Nov. 5, 2009). uBid’s anti-domain name parking lawsuit failed on jurisdictional grounds. Tom O'Toole explains why this is an unusual jurisdictional ruling.

* Trademark Blog: “Sellify, operator of ONEQUALITY.COM, sues Amazon over Amazon affiliates' alleged misuse of ONEQUALITY.COM as Google keywords.”

* In an unenlightening memo opinion, Second Circuit affirms the Cintas v. Unite Here opinion involving union activists’ web activities using a target company’s trademark. My initial blog post on the case.

* Bloomberg: Buyers of counterfeit luxury goods understand they are getting counterfeits, and many of them upgrade to the real thing eventually.

* Transamerica v. Moniker Online Services, 2009 WL 4715853 (S.D. Fla. Dec. 4, 2009). Domain name registrar does not qualify for ACPA's registrar safe harbor when: "Transamerica alleges that Oversee and the Moniker Defendants, together with the ostensible registrants-the John Doe Defendants-are the de facto registrants of the domain names in question. Transamerica claims that Moniker was not merely acting as a registrant in providing registration services to the John Doe Defendants for the infringing domain names, but instead was part of a scheme to profit from the use of the infringing names. As Transamerica points out, Moniker receives a fee each time an internet user clicks on one of the links attached to the infringing domain sites; such payment establishes at least partial ownership in the domain name." Troubling ruling.

* SafeWorks, LLC v. Spydercrane.com, LLC (W.D. Wash. Dec. 7, 2009). A trademark owner's preemptive registration of domain names containing typographical errors of the registrant's trademarks does not infringe a third party trademarks.

Marketing and Advertising

* In re Gemtronics (FTC ALJ decision Sept 16, 2009). A dietary supplement seller wasn't liable for comments on a website that it didn't own or control but (among other things) it had linked to. While this is great, I still believe the FTC needs to rethink its entire liability scheme of online content endorsement or adoption due to 47 USC 230. See 1, 2.

* Avvo settles Florida bar lawsuit and gets Florida to admit that client testimonials on Avvo aren't lawyer advertising. Rebecca explains why an analogous South Carolina regulation violates 47 USC 230.

* After the FDA spooked pharmaceutical companies to stop engaging in search advertising, the FDA held hearings on Internet pharmaceutical marketing. The Arnold & Porter recap. Ironically, BusinessWeek ran a story wondering if pharmaceutical ads reduce consumer demand.

* The FTC cracks down on online negative option/"continuity plan" offerings.

* In re Miva Inc. Securities Litigation, 2009 WL 3821146 (M.D. Fla. Nov. 16, 2009). The court dismissed a securities class action lawsuit over Miva's/FindWhat's investor disclosures relating to click fraud and spyware. My initial blog post on the case.

* NYT: False advertising litigation is a growth industry.

Search Engines

* A Milwaukee lawyer has alleged that another lawyer buying keyword advertising triggered by his name violates his publicity rights. I’ve posted the complaint to Scribd.

* Google is now personalizing search results for everyone, not just logged-in users. In 2006, I wrote about how universal personalization would affect SEO and concerns about search engine bias. Danny Sullivan believes Google’s change deserves "extraordinary attention."

* Google took out an ad from itself to explain why its image search results for Michelle Obama contained an offensive result. This is after it first tried to remove the image on the pretext that the website was hosting malware.

* Danny Sullivan asks some good questions about Google's integration of Twitter into its search database.

* BusinessWeek: Matt Cutts, Google’s search engine anti-spam superstar, talks about his job. He doesn't sound like the most fun person to travel with

* Rose Hagan, Google's chief trademark counsel, is retiring after 7 years at Google. She leaves behind big shoes to fill.

Posted by Eric at 02:59 PM | Adware/Spyware , Derivative Liability , Domain Names , Licensing/Contracts , Marketing , Publicity/Privacy Rights , Search Engines , Trademark | TrackBack

December 11, 2009

Court Rejects Computer Fraud & Abuse Act Claim Based on Unsolicited Text Messages--Czech v. Wall Street on Demand

[Post by Venkat]

Czech v. Wall Street on Demand, Inc., No. 09-180 (DWF/RLE) (Dec. 8, 2009).

A Minnesota district judge rejected claims brought under the Computer Fraud and Abuse Act based on the receipt of unsolicited text messages. There's not much to the facts, except that plaintiff received unwanted text messages from Wall Street on Demand, Inc. She did not have a prior business relationship with WSOD. She (vaguely) alleged that she incurred fees and charges related to her receipt of these messages. Based on her receipt of unwanted text messages, she filed a claim against WSOD alleging violations of the Computer Fraud and Abuse Act and state statutes.

The Court's Ruling: The court dismisses plaintiff's amended complaint in an order that helpfully provides a summary of the Computer Fraud and Abuse Act (and recent 2008 tweaks) as it's used in the civil context. Plaintiff brings three possible claims: (1) a claim for obtaining information from her phone; (2) a claim for transmitting information or code through her phone; and (3) a claim for "accessing" her phone.

Information Claim: The court rejects the information-based claim because there's no information that WSOD allegedly obtained through accessing the plaintiff's phone. Plaintiff analogizes to websites and argues that any time someone sends a message to a mobile phone, information is "obtained" in the same way that information is obtained any time someone accesses a website. The court rejects this analogy, finding that "there is a fundamental difference between viewing websites and communicating with wireless devices such as cell phones by sending text messages." Even if the transmission of an unwanted text message somehow resulted in the "obtaining of information," the court concludes that there's no loss as a result of defendant having obtained the information.

Transmission Claim: The transmission claim requires plaintiff to allege that WSOD caused the transmission of code or information and as a result "intentionally caused damage without authorization" to plaintiff's device. The complaint fails on both counts. There wasn't a credible allegation of damage (there was no allegation of impairment to the machine) or of WSOD's intent to cause the damage.

Access Claim: The court rejects the access claim since plaintiff does not adequately allege that the unauthorized access was intentional.

My Take: The Computer Fraud and Abuse Act is an often abused statute, and this seemed like another example of a situation where the statute is being stretched to fit the conduct/harm that was not intended to be covered by the statute. I was surprised that plaintiffs cited to the Lori Drew case [link], which many people view as a classic example of stretching the statute to its breaking point. In some ways this case is reminiscent of ISPs using the Computer Fraud and Abuse Act to attack spam. Some courts were open to this; other courts expressed reservations to the applicability of the Computer Fraud and Abuse Act to spam. See, e.g., America Online, Inc. v. National Health Care Discount, Inc., 121 F. Supp. 2d 1255, 1275 (N.D. Iowa 2000) ("A disturbing issue is whether subsection (a)(5)(c) is intended to address UBE at all.").

The case is also somewhat reminiscent of Abrams v. Facebook, a lawsuit based on the fact that Facebook sent SMS messages to cellphone numbers provided by its users and would keep sending those messages even if the cellphone number changed owners. In a lengthy article, Prof. Goldman discussed the weaknesses of using phone numbers as identity authenticators.

Advice to plaintiffs. If the court dismisses your complaint, come back with additional facts. Do not merely add what the court here calls "background discussion" about the issue you are complaining about. In five or six separate instances, the court mentions the fact that the amended complaint is just a bulkier, more "dressed up version" of the old complaint . . . with no new facts. At a broader level, the court's understandable skepticism towards the damage claims in this case illustrates how difficult it is to bring claims based on unsolicited marketing communications (whether received via your phone or your computer).

Advice to defendants. Transmitting unsolicited text messages is not free of risk. The Telephone Consumer Protection Act is one possible avenue for plaintiffs, and courts are not always deferential to broadly (and poorly) worded opt-ins. (See Eric's post on Satterfield v. Simon & Schuster here.)

Posted by Venkat at 12:27 PM | Marketing , Privacy/Security , Spam

December 10, 2009

Keyword Advertising Lawsuit Survives Motion to Dismiss on Genericness Grounds--FragranceNet v. Les Parfums

By Eric Goldman

FragranceNet.com, Inc. v. Les Parfums, Inc., 2009 WL 4609268 (E.D.N.Y. Dec. 8, 2009)

In 2007, FragranceNet suffered a stinging loss when it sued a competitor, FragranceX.com, for buying its trademarks as advertising keywords. Interpreting the 1-800 Contacts precedent before that was gutted by the Second Circuit's 2009 Rescuecom decision, the district court judge decisively concluded that buying trademarked keywords did not constitute a use in commerce, ending FragranceNet's lawsuit on a 12(b)(6) motion to dismiss.

Perhaps emboldened by Rescuecom's holding that selling trademarked keywords is a trademark use in commerce. FragranceNet is back in court trying to stop another competitor from advertising on its trademarks. This time the competitors tried for an early dismissal by arguing that the term "FragranceNet" is generic and therefore not eligible for trademark protection. The court says (correctly, IMO) that genericness determinations usually aren't appropriate grounds for 12(b)(6) motions to dismiss (where the court must accept the plaintiff's assertions as true), so the case survives the motion to dismiss. The defendants could try the genericness argument again via summary judgment or possibly trial.

I'm intrigued by the genericness argument because the standards for descriptive marks are pretty lax, and trademark law normally would legally distinguish the single word "FragranceNet" from the clearly generic term "Fragrance." However, two recent Federal Circuit cases, the Hotels.com and Mattress.com cases, have held that the terms "hotels.com" for a hotel retailing website and "mattress.com" for a mattress retailing website were generic because the ".com" portion is ignored and the remainder is the generic word for the retailed items. I assume the same would be true for "fragrance.net" for an online perfume retailer, but would the same analysis apply to "fragrancenet" without the dot? I'm not sure, but it seems like a question worth asking in light of the Hotels.com and Mattress.com opinions.

Even if fragrancenet isn't generic, IMO it is at best descriptive and thus requires secondary meaning to be an enforceable trademark. FragranceNet has registered trademarks, which provide some evidence that it has achieved secondary meaning, but I suspect the defendants will attack the trademarks on secondary meaning grounds as well.

The defendants' counterattack reinforces one of the risks that putative trademark owners face when bringing enforcement actions. Defendants can always attack the validity of their opponent's trademarks, creating the possibility that a court will declare the trademarks invalid and leave the plaintiff with fewer assets than it thought it had when it initiated the legal fracas. We've already seen this outcome in a few online trademark cases that I've covered (e.g., American Blinds and Philbrick), and it's a non-trivial risk in this case as well despite the court's refusal to grant the 12(b)(6).

Posted by Eric at 04:19 AM | Marketing , Trademark | TrackBack

December 04, 2009

Ninth Circuit Rebuffs Another CAN-SPAM Plaintiff -- Asis Internet Services v. Azoogle.com, Inc.

[Post by Venkat]

The Ninth Circuit recently rejected [pdf] two appeals brought by CAN-SPAM plaintiff Asis Internet Services. The trial court granted summary judgment in favor of Azoogle and awarded costs. See Eric's earlier blog post on that ruling. Asis has brought numerous lawsuits against different defendants. While this ruling won't necessarily be used preclusively against Asis it will definitely be cited by the defendants in those cases.

Citing Gordon v. Virtumundo, the court finds that:

the mere costs of carrying SPAM emails over Plaintiff's facilities does not constitute a harm as required by the statute. While Plaintiff argues that employee time was spent on spam-related issues, Plaintiff concedes that it has no records detailing employee time. Plaintiff also spent money on email filtering, though the cost of email filtering did not increase due to the emails at issue. Such ordinary filtering costs do not constitute a harm. [cite omitted] Thus, Plaintiff has not suffered a harm within the meaning of the statute and lacks standing.

The entire memo opinion is about two pages, and the court spends a sentence noting that Asis is not entitled to relief under the California statute (17529.5) because Azoogle "neither sent nor procured the emails at issue, and therefore did not 'advertise' within the meaning of the statute."

The big take away is that courts seem to be able to sniff out people who they view as pursuing litigation for the wrong reasons. It's unlikely that Asis was truly damaged to the extent of even a fraction of fees and resources it spent on this case.

Plaintiffs who aren't large ISPs or social networking websites haven't found a very sympathetic audience, particularly at the appellate level. We're probably left with a regime where only larger ISPs, social networking websites, and state actors are able to effectively bring anti-spam lawsuits. The scope of preemption of California's anti-spam statute is still unclear (Kleffman v. Vonage was certified to the California Supreme Court) so this is one possible option for plaintiffs, but I can't imagine they'll be spending much energy on this.

Posted by Venkat at 07:31 AM | Derivative Liability , Marketing , Spam

December 03, 2009

Competitive Keyword Advertiser Wins at Trial--Fair Isaac v. Experian

By Eric Goldman

Fair Isaac Corp. v. Experian Information Solutions Inc., 2009 WL 4263699 (D. Minn. Nov. 25, 2009)

This is an interesting and complicated lawsuit that hasn't gotten the attention it deserves. Fair Isaac produces the ubiquitous "FICO" credit score, which is heavily used in the financial industry to assess borrower creditworthiness. Fair Isaac launched a litigation campaign to suppress competition by rival producers of credit scores. In July, Fair Isaac mostly lost a bunch of its arguments in a complex ruling. Read Rebecca's excellent recap of that ruling. The July ruling left a few issues open for trial, which ended late last month with Fair Isaac's jury loss. See the (uninsightful) jury verdict form and this article from the St. Paul Business Journal.

Normally with a jury verdict, we don't get a lot of legal insight. However, the jury verdict led to a short post-trial ruling by the judge.

First, Fair Isaac tried to claim that its score range from "300-850" was a protectable trademark as a way of trying to thwart its competitors' range of 501-990. I've always wondered why credit scores start at 300 instead of 0, just like the SATs start at 200 or LSAT scores now start at 120. This case finally gave me a new hypothesis: maybe these services think they can claim a trademark in their score ranges...? (As Rebecca also observed, I suspect not wanting to tell people they are a "zero" is also a relevant consideration).

In any case, Fair Isaac's bid to trademark the score range "300-850" failed. As the judge recaps, "the jury returned a verdict finding that the alleged '300-850' mark was not a valid, protectable trademark because the term '300-850”'has not acquired secondary meaning." Once again, a putative trademark owner goes to court only to find out that it has fewer trademarked assets than it thought.

Second, the court rejected Fair Isaac's trademark claim over competitive keyword advertising based on insufficient proof of consumer confusion. The court recaps:

To the extent that Fair Isaac bases its keyword advertising claims on the alleged “300-850” mark, such a claim fails in light the jury's finding that “300-850” is not a valid mark. To the extent that the keyword advertising claims are based on the “Fair Isaac” and “FICO” marks, the Court finds that the weight of the evidence adduced at trial does not support a credible inference that Experian's and Trans Union's purchases of Fair Isaac's trademarks as keyword search terms was likely to confuse consumers. The only evidence adduced at trial in support of the assertion that the keyword advertising was likely to cause confusion-the opinion testimony of Fair Isaac's expert James Berger-lacks credibility. [emphasis added]

(Bummer for Fair Isaac to see the court toss aside its expert like a rag doll. I'm guessing the expert wasn't cheap).

This is one of only a few cases reaching a definitive "final" ruling about the legitimacy of competitive keyword advertising. Most cases settle or end on some other basis (like the plaintiff's lack of a protectable trademark, as the court ruled here for the "300-850" keyword purchases). The only other similar trial outcome was the old 2004/05 GEICO v. Google case, which concluded in a poorly reasoned and difficult-to-follow opinion after trial that Google was not liable for keyword triggered ads that didn't contain the trademark in the ad copy and potentially liable for the triggered ads that did. Other than the GEICO mess, we have only a few summary judgment rulings on consumer confusion due to competitive keyword advertising:

* Finding that referencing the trademarks in the ad copy creates a likelihood of consumer confusion: Storus

* Finding that merely using the trademark to trigger keyword advertising does not create a likelihood of consumer confusion: J.G. Wentworth and Designer Skin

In light of these limited precedents reaching a final outcome on keyword triggering, this ruling is significant because it's the strongest evidence yet that keyword advertising defendants do not create actionable consumer confusion and therefore will win at trial. This is one of the reasons why I favor finding doctrinal ways for defendants to end cases earlier in the process (and well before trial) if the defendants are going to win at trial anyway.

According to the St. Paul Business Journal article, Fair Isaac plans to appeal this ruling as well as their July loss. Better to fight in court than fight in the marketplace, I guess.

Posted by Eric at 01:20 PM | Marketing , Trademark | TrackBack

November 24, 2009

Teeth Whitening System Brings "Sue the World" Lawsuit Against Ad Agency, Competitor and Search Engines--Dazzlesmile v. Azoogle

By Eric Goldman

Dazzlesmile, LLC v. Epic Advertising, Inc., 2:09-cv-01043-PMW (D. Utah complaint filed Nov. 23, 2009)

Dazzlesmile sells a teeth whitening system. Presumably these systems generate fat profits, because Dazzlesmile has brought an expensive "sue-the-world" lawsuit against its ad agency, its competitor and the search engines.

Azoogle/Epic

The lawsuit against Azoogle/Epic is partially based on a miscalibrated cost-per-acquisition (CPA) deal. Azoogle sold Dazzlesmile on a CPA deal which pays Azoogle $43 for making a $4 sale with negative-option continuing revenue streams, i.e., the consumer has to cancel after the free trial period or he/she automatically gets shipped and charged for more whitening stuff. If the ongoing revenue stream is great enough, it can make sense to pay out big upfront commissions to get the sale. However, this payment structure creates lots of mischief possibilities.

In this case, Dazzlesmile alleges that its competitor engaged in "CPA fraud" by placing thousands of orders, coincidentally generating over $100k of commissions to Azoogle in one week. Dazzlesmile also complains that its products were being promoted by spam, fake blogs and other problematic ads in contravention to Azoogle's promises. Finally, Dazzlesmile complains that a rogue affiliate packaged two different systems into the same ad, causing consumers to order both products and then renege when they realized Dazzlesmile's terms.

The odd thing about this complaint is that Dazzlesmile tries to portray itself as the white-knight advertiser that wants to do right by consumers, while the evil Azoogle kept tempting Dazzlesmile to cut corners and take undeserved money from consumers. I understand the value of this positioning, but I find it a little hard to believe. You kind of know what to expect when you're dealing with Azoogle, and I'd be surprised if Dazzlesmile is a fully innocent naïf.

Competitor Lawsuits

Dazzlesmile also claims that its competitor slapped counterfeit "Dazzlesmile" labels on a different teeth whitening system. It further claims that Azoogle and the competitor conspired to use Dazzlesmile's advertising copy in Azoogle's network to direct teeth whitening customers to the competitor. It also claims these defendants used the Dazzlesmile trademark in a host of inappropriate ways, including in spam, as keyword ad triggers, in domain names, and in astroturfed content. Dazzlesmile claims it has received 10,000 misdirected customer support inquiries from duped customers.

Lawsuits Against the Search Engines

Dazzlesmile drags Google, Yahoo and Microsoft into the lawsuit for selling keyword advertisements despite Dazzlesmile's cease & desist letter to stop doing so. Oddly, the complaint pleads the search engine's liability as "vicarious liability," which should be DOA. Vicarious trademark infringement requires an agency relationship between the search engines and the advertisers, which the complaint doesn't (and can't) plead. If it's a non-IP form of vicarious liability, then it's preempted by 47 USC 230. So I predict Dazzlesmile will have to amend its complaint against the search engines to allege some other legal theory, or the search engines will exit this particular matter quickly.

Interestingly, the complaint alleges ripoffs of both its copyrightable ad copy and its trade secret protectable marketing plans, but the complaint does not allege either copyright infringement or trade secret misappropriation.

Conclusion

Dazzlesmile's complaint, if completely accurate, tells a story filled with legal wrongs, but I'm not sure I found it all that convincing. I will have to see the defendants' responses before I can begin to form any conclusions about its overall merit.

It does point out one troublesome spot as a good practice pointer. I know a lot of advertisers think they prefer CPA pricing over CPC or CPM pricing because they are more clearly paying for results, but this case provides a good illustration that a miscalibrated CPA price is no better at reducing unwanted spending than a miscalibrated CPC or CPM. At minimum, I’m surprised that Dazzlesmile apparently didn't include some provision in the CPA formula allowing it to avoid payment for chargebacks or immediately returned products. If you're an advertiser doing CPA deals, make sure you have robust enough exclusions to the CPA obligations so that you are truly paying for bona fide results.

AdWords Lawsuit Roster

The updated roster of pending AdWords cases:

* Ezzo v. Google
* Rescuecom v. Google
* FPX v. Google
* John Beck Amazing Profits v. Google and the companion Google v. John Beck Amazing Profits
* Stratton Faxon v. Google (not initially a trademark case)
* Soaring Helmet v. Bill Me
* Ascentive v. Google
* Jurin v. Google 1.0 (voluntarily dismissed), succeeded by Jurin v. Google 2.0
* Rosetta Stone v. Google
* Flowbee v. Google
* Parts Geek v. US Auto Parts
* Dazzlesmile v. Epic

Posted by Eric at 06:05 PM | Derivative Liability , Marketing , Search Engines , Trademark | TrackBack

November 22, 2009

Keyword Advertising Lawsuit Survives Motion to Dismiss--Morningware v. Hearthware

By Eric Goldman

Morningware, Inc. v. Hearthware Home Products, Inc., 2009 WL 3878251 (N.D. Ill. Nov. 16, 2009)

I keep getting calls from reporters operating under the misimpression that trademark owner-vs.-search engine keyword advertising lawsuits are more common than trademark owner-vs.-keyword advertiser lawsuits. While the lawsuits against search engines certainly get way more press coverage, in reality they are relatively rare. I don't have an exact count of pending lawsuits, but only 10 immediately come to my mind (9 against Google and the AA v. Yahoo case). In contrast, trademark owner-vs.-advertiser lawsuits are so numerous that I don't blog on every complaint I see, and most trademark owners are wise enough to leave the search engines out of their litigation.

This is a fairly run-of-the-mill trademark owner-vs.-advertiser case. The parties compete in the "counter-top electric oven" market. The advertiser purchased the plaintiff's "Morningware" trademark as a keyword and displayed the following ad copy: "The Real NuWave ® Oven Pro Why Buy an Imitation? 90 Day Gty." NuWave is the advertiser's brand name.

The "why buy an imitation?" language (plus, perhaps the "real" earlier in the copy) creates the real friction because Morningware argues that the ad copy implies that Morningware's products are an imitation of (presumably) NuWave. Notice that the defendant didn't reference the plaintiff's brand in the ad copy, but IMO that contributes to the overall crypticness of the ad copy. Without both trademarks being referenced in the ad copy, searchers who are not already familiar with the various brands in the countertop electric oven space (like me) may not immediately figure out the relative (lack of) relationship between NuWave and Morningware. Because I don't know any of the electric oven brands, the ad presentation did not immediately communicate to me that NuWave competed with Morningware. However, because the advertiser didn't reference the plaintiff's trademark in the ad copy, Google will not do anything more for the trademark owner, meaning that the trademark owner must go to court to attack this ad.

(Note to plaintiff's counsel: please don't subpoena me to testify to my impressions of the ad copy. I have never shopped for countertop electric ovens and I don't expect I ever will, so I know nothing about the knowledge or expectations of a reasonable purchaser. If you think I'm being a Nervous Nellie with this note, see this post).

Moving onto the opinion, the court reached an irresolute outcome on the "use in commerce" prong of plaintiff's claim, correctly noting that (1) the Seventh Circuit has not ruled on "use in commerce" in keyword advertising, (2) the Second Circuit Rescuecom case did not involve a trademark owner-vs.-advertiser claim, and (3) "a review of case law outside of the Seventh Circuit reveals that a majority of courts have found that actions such as those taken by Hearthware in purchasing Morningware's trademark as a search term constitute a Lanham Act 'use.'" Noting the parallels to the Vulcan Golf case (also an N.D. Ill. case), collectively this was enough to reject the 12(b)(6) motion to dismiss.

The advertiser also argued for a 12(b)(6) motion to dismiss on lack of consumer confusion grounds. While I understand the advertiser's hope, I think it's hard to convince a judge that the trademark owner failed to allege sufficient confusion in the complaint. This is especially true when plaintiffs invoke the stupid "initial interest confusion" doctrine, which has no doctrinal contours and therefore is simply impossible for defendants to refute at the motion-to-dismiss stage (obligatory cite to my anti-initial interest confusion rant from 2005). Citing to the abysmal 2002 Promatek case, the court says the plaintiff alleged enough initial interest confusion to survive the 12(b)(6).

There is a little more interesting discussion in the opinion about the trademark owner's disparagement claims. In the end, the court completely rejects the advertiser's motion to dismiss. This doesn't ensure the trademark owner's ultimate litigation success, but chances are we won't reach a definitive and final court ruling either. As almost all trademark owner-vs.-advertiser lawsuits do, this case will probably settle because both parties are probably incurring litigation costs vastly in excess of any profits gained/lost from "diverted" customers.

Meanwhile, advertisers buying competitive keyword advertising should take note of the risks of implicitly calling your competitor an "imitation" without explaining the relative product positioning--which isn't possible due to the limited character count of a Google AdWords ad. Because the character limits prevent fully clarifying disclosures, advertisers should consider striking the phrase "why buy an imitation?" from their keyword advertising copy toolkit.

Posted by Eric at 07:36 AM | Marketing , Trademark | TrackBack

November 18, 2009

Citysearch Click Fraud Class Certified--Menagerie v. Citysearch

By Eric Goldman

Menagerie Productions v. Citysearch, 2009 WL 3770668 (C.D. Cal. Nov. 9, 2009)

While we don't hear much about click fraud litigation any more, there are still some click fraud lawsuits percolating through the courts, including this one against Citysearch. I initially blogged on the case under a different name, Lambotte v. IAC/InterActiveCorp.. Lambotte is out as a named plaintiff and Menagerie Productions now gets the honor.

The big news is that earlier this month, the judge certified claims for breach of contract and fraud under California’s unfair competition law for the following class:

All persons or entities in the United States who entered into form contracts for pay-per-click advertising through Citysearch.com, paid money for this advertising service, and experienced click fraud by reason of double clicks or Citysearch's failure to apply automatic filters to traffic from its syndication partners up through March 23, 2007

In light of the Vulcan Golf court's refusal to certify a class against Google's AdSense for Domains program, the class certification here is a mild surprise. However, that case involved trademarks, which are inherently more amorphous than even click-counting. Certainly, the plaintiffs' lawyers have to be happy about this development. Although Citysearch still has some powerful defenses, I'd be surprised if the plaintiffs walk away from this case empty-handed.

Posted by Eric at 07:04 AM | Licensing/Contracts , Marketing | TrackBack

October 21, 2009

Craigslist Isn't Liable for Erotic Services Ads--Dart v. Craigslist

By Eric Goldman

Dart v. Craigslist, Inc., 09 C 1385 (N.D. Ill. Oct. 20, 2009)

Yesterday, Judge John F. Grady of the Northern District of Illinois federal court dismissed Cook County Sheriff Dart's lawsuit against Craigslist for user-posted advertisements in Craigslist's erotic services/adult services category on 47 USC 230 grounds. This is hardly surprising, as I wrote in March that "this lawsuit is almost certainly preempted by 47 USC 230." However, it was nice to see such a clean and decisive opinion--and a little ironic, as our law enforcement officials, who are supposed to enforce the laws rather than bypass them, got schooled in the limits of their legal authority.

With respect to the 230 analysis, the court characterizes Sheriff Dart's claims as alleging that Craigslist negligently published the user-supplied ads. The court says that the Seventh Circuit implicitly said that 230 preempted such claims in the 2008 CLC v. Craigslist case. To get around this, Sheriff Dart tried a Roommates.com styled attack, arguing that Craigslist induced the users' advertisements by creating an erotic/adult services category and letting users do keyword searches. These arguments go nowhere (making this yet another case where Roommates.com is cited for the defense). An adult services category can legitimately contain postings for legal services, and the keyword search functionality was agnostic about the illegality of the search and therefore a "neutral tool" (whatever that meant from Roommates.com).

Two other interesting doctrinal notes from the opinion:

* In FN 6, the court reiterates that 230 preempts a civil action to enforce a federal criminal statute. See Doe v. Bates.

* the court rejects arguments that Craigslist "arranges" meetings for prostitution, "directs" people to prostitution or "provides" contact info for prostitutes because, in all three cases, the user-supplied ad (if anything) satisfies those verbs. Similarly, Craigslist's role in "facilitating," "assisting" or "aiding and abetting" these user activities is governed by 230. I believe this is consistent with my view that 230 should preempt any claim that one party "endorses" third party online content.

Given some ambiguous language floating in Seventh Circuit 230 jurisprudence from the CLC v. Craigslist case and the old Doe v. GTE case, it wouldn't surprise me if Sheriff Dart tried an appeal. However, this opinion was solidly reasoned and completely consistent with that jurisprudence, so I wouldn't expect a different result on appeal.

Posted by Eric at 01:13 PM | Content Regulation , Derivative Liability , Marketing | TrackBack

October 17, 2009

Q3 2009 Quick Links, Part 3

By Eric Goldman

Copyright

* AP v. All Headline News settles. My initial blog post. The settlement order.

* The Turnitin case has settled. My blog post on the district court ruling.

* Corbis Corp. v. Starr, No. 3:07CV3741 (N.D. Ohio Sept. 2, 2009).. Company that retained web developer could be liable for copyright infringing photos included in the developed website. David Johnson's coverage.

* Creative Commons commissioned a study of what people think qualifies as “commercial” or “non-commercial” activity. While this is relevant to how CC drafts its various license flavors, these words also have significant import to many facets of the law, including copyright (such as the fair use test) and trademark (such as the definition of “use in commerce”). The executive summary:

Both creators and users generally consider uses that earn users money or involve online advertising to be commercial, while uses by organizations, by individuals, or for charitable purposes are less commercial but not decidedly noncommercial. Similarly, uses by for-profit companies are typically considered more commercial. Perceptions of the many use cases studied suggest that with the exception of uses that earn users money or involve advertising – at least until specific case scenarios are presented that disrupt those generalized views of commerciality – there is more uncertainty than clarity around whether specific uses of online content are commercial or noncommercial.

eBooks

* Advocates for the blind sue Arizona State University for distributing electronic textbooks via the Kindle.

* Rebecca on the relationship between the Kindle 1984 debacle and the Google Book Search settlement. See also this Slate article.

Search Engines

* Train2Game v. Google, [2009] EWHC 1765 (QB): UK opinion that Google isn't liable for its search results snippets.

* CEO Bartz said Yahoo was never a search company. What??? Danny Sullivan calls her out for her "revisionist history."

* Greg Linden: Google AdWords Now Personalized.

* ThirdVoice redux: Google launches SideWiki. Let the legal games begin! (See, e.g., this BusinessWeek article). I’d be more worked up if Google had a more successful track record with non-search offerings, especially user-generated content projects. Lively, anyone?

Marketing

* Some craziness in Maine, when the legislature tried to restrict marketing to kids. PUBLIC Law, Chapter 230 LD 1183, item 1, 124th Maine State Legislature. The Maine AG said she won't enforce it, and subsequently the law was given a timeout so the Maine legislature can rethink the error of its ways.

* eBay is changing to a per-click model for paying affiliates, where the per-click amount is reset daily based on actual value delivered by the affiliate.

* Ethical Quandary: Faxed attorney newsletter doesn’t violate TCPA.

Posted by Eric at 04:47 PM | Copyright , Derivative Liability , Internet History , Marketing , Search Engines | TrackBack

October 15, 2009

Q3 2009 Quick Links, Part 2

By Eric Goldman

Trademark

* Venkat: Twitter makes the dictionary.

* Federal Circuit says Hotels.com is generic.

* Steve Madden sues eBay for trademark infringement. Marty's coverage. Justia page. I found the fifth cause of action, "trademark delusion," a surprisingly apt malapropism.

* Yahoo! Inc. v. Ashantiplc Limited. Yahoo is suing over Flicker.com.

* Lots of action involving Mary Kay.

- Mary Kay sued Yahoo for its shortcuts being triggered by the Mary Kay trademark. The Justia page.

- Mary Kay brought another lawsuit to shut down aftermarket resales.

- The Mary Kay v. Weber case has reached a conclusion. See my initial blog post on the case. In March, Mary Kay won a jury verdict against Weber. In August, the district court judge denied Weber post-trial relief. Mary Kay v. Weber, 2009 WL 2569070 (N.D. Tex. Aug. 14, 2009). On Sept. 29, the judge awarded Mary Kay $1.1M, computed as “the defendants' pre-tax net profit for the years 2005 through 2008.”

* I hate greeting card IP cases...especially when they involve Paris Hilton. See the Ninth Circuit opinion.

* Rebecca on a complicated trademark and false advertising case involving cell phone reflashing.

* Third Educ. Group, Inc. v. Phelps, 2009 WL 2029758 (E.D. Wis. July 10, 2009). An oblique nod to a co-blogging situation:

It is possible to have a situation in which a voluntary association develops out of a preexisting creation of an individual (take, for example, a blog created, named, and operated entirely by a single individual that then expands into a voluntary association as it includes more collaborative members but continues to utilize the original name). Under such circumstances, the founding individual might register the name of the voluntary association as a trademark solely in his own name and then license it to the voluntary association because he has used the trademark separate from the voluntary association. However, that did not occur here.

* CollegeSource, Inc. v. AcademyOne, Inc., 2009 WL 2705426 (S.D. Cal. Aug. 24, 2009): "Plaintiff argues for personal jurisdiction on the grounds that Defendant purchased two of Plaintiff's trademarks from internet search engines, so that those engines would display Defendant's advertisements when Plaintiff's word marks were searched….Defendant's uncontroverted affidavit avers that its Adwords were selected by the search engines and were purchased before Defendant knew Plaintiff was located in California.…Accordingly, even if Defendant intentionally infringed Plaintiff's marks, there is no showing that act was “expressly aimed at the forum state” or that it caused “harm that the defendant knows is likely to be suffered in the forum state.”"

* GMA Accessories, Inc. v. BOP, 2009 WL 2634771 (S.D.N.Y. Aug. 25, 2009). A really interesting and confusing lawsuit that says (I think) that electronic usage of third party trademarks does not qualify as a use in commerce and may not constitute contributory trademark infringement, with obvious implications for the search engine keyword advertising cases:

Electric Wonderland's second alleged meritorious defense is that it did not use the CHARLOTTE or CHARLOTTE SOLNICKI marks....Electric Wonderland's President described its business as follows:

Electric Wonderland brokers and/or processes orders from wholesale purchasers for fulfillment by clients of Electric Wonderland. Electric Wonderland does not directly sell its clients [sic] products, does not fulfill orders, does not acquire or maintain any inventory for sale, and does not purchase products from its clients for resale. Electric Wonderland does receive commissions on sales it brokers....

According to the Flack Declaration, these were the services Electric Wonderland provided to Charlotte Solnicki. (Flack Decl. P 3.) "Electric Wonderland did not directly sell Charlotte Solnicki products, did not fulfill orders, did not acquire or maintain any inventory of such products for sale, and did not purchase such products from Charlotte Solnicki for resale." (Flack Decl. P 3.) If this were the extent of Electric Wonderland's role, a fact-finder could find that Electric Wonderland did not "use" the CHARLOTTE or CHARLOTTE SOLNICKI marks, because it did not place the marks on any goods. Likewise, a reasonable fact-finder could determine that Electric Wonderland never used the marks to sell or advertise any of the services Electric Wonderland rendered. Thus, Electric Wonderland would not be liable for direct trademark infringement.

...Electric Wonderland's president claims that "[a]t no time while Charlotte Solnicki was a client of Electric Wonderland was Electric Wonderland aware of GMA's 'Charlotte' products nor of any possibility that the Charlotte Solnicki products were potentially infringing any third party's trademark rights." (Flack Decl. P 5.) If true, a reasonable fact-finder could find that Electric Wonderland neither knew, nor had reason to know of the alleged infringement during the period in question.

In addition, the Second Circuit has not decided whether contributory infringement applies to entities like Electric Wonderland, which provide services instead of products....Thus, Electric Wonderland, as a matter of law, may have a complete defense to contributory infringement liability, a matter which this Court need not decide at this juncture.

* Dan Burk and Brett McDonnell, Trademarks and the Boundaries of the Firm. Interesting discussion (among other things) on how an entrepreneur's/employee's personal reputation and corporate reputation can be interlinked.

Domain Names

* The Eleventh Circuit affirmed the defense win in the domain name case of Southern Grouts & Mortars v. 3M, 2009 WL 2182605 (11th Cir. July 23, 2009). See my initial blog post on the case.

* John Levine: What are TLDs Good For? Bringing to mind the famous Edwin Starr song (I think the answer is the same!).

* ICANN claims it has killed domain name tasting.

Posted by Eric at 09:53 AM | Derivative Liability , Domain Names , E-Commerce , Marketing , Publicity/Privacy Rights , Search Engines , Trademark | TrackBack

October 12, 2009

A Fuller Explanation of Why the FTC Endorsement/Testimonial Guidelines Violate 47 USC 230

By Eric Goldman

Last week’s release of the FTC's new Endorsement and Testimonial Guidelines has generated a significant amount of angst online. The resulting commentary has been strongly and almost uniformly negative. Frankly, none of the sources I read have praised the guidelines, but perhaps I'm locked in an echo chamber. Declan has a useful recap/linkwrap.

In this environment of heightened negativity, people have been searching for angles to prove the FTC can't do what it's doing. This has led folks to my post from last week arguing that certain facets of the guidelines violate 47 USC 230.

Despite the general popularity of the post, privately it has attracted some skepticism. Several smart law professors/lawyers disagreed with my post in Facebook profile page comments, and I've gotten some private emails to the same effect. What’s caught my attention is that these disagreements are coming from folks who normally agree with my expansive 230 interpretations. This clearly indicated to me that 230’s application to the FTC’s scenario was not nearly as self-evident as I thought it was.

As a result, in this post, I'm going to describe my analysis in more detail than my previous post. I'm not sure I'll convince the doubters, but they deserve more detail than I initially provided.

The FTC's Example

There are many facets to the new guidelines, but I am focusing solely on Example #5 to §255.1, which reads:

Example 5: A skin care products advertiser participates in a blog advertising service. The service matches up advertisers with bloggers who will promote the advertiser’s products on their personal blogs. The advertiser requests that a blogger try a new body lotion and write a review of the product on her blog. Although the advertiser does not make any specific claims about the lotion’s ability to cure skin conditions and the blogger does not ask the advertiser whether there is substantiation for the claim, in her review the blogger writes that the lotion cures eczema and recommends the product to her blog readers who suffer from this condition. The advertiser is subject to liability for misleading or unsubstantiated representations made through the blogger’s endorsement. [my emphasis]

The blogger also is subject to liability for misleading or unsubstantiated representations made in the course of her endorsement. The blogger is also liable if she fails to disclose clearly and conspicuously that she is being paid for her services. [See § 255.5.]

In order to limit its potential liability, the advertiser should ensure that the advertising service provides guidance and training to its bloggers concerning the need to ensure that statements they make are truthful and substantiated. The advertiser should also monitor bloggers who are being paid to promote its products and take steps necessary to halt the continued publication of deceptive representations when they are discovered.

The FTC doesn't define what qualifies as a "blog advertising service," but it's fairly clear the FTC is targeting PayPerPost/Izea and its competition. So the example could be restated as:

* advertiser contracts with PayPerPost to get bloggers to write about its product
* PayPerPost makes a match with a blogger. There is no employment or agency relationship between the advertiser or the blogger; this is an ordinary customer-vendor relationship, mediated by PayPerPost
* without any pre-review or kibitzing by the advertiser, the blogger makes a truthful statement about the blogger's experience about the product, but the statement would be impermissible marketing if made by the advertiser
* the FTC treats the advertiser as having made the blogger's statement

Prima Facie Elements of a 47 USC 230 Defense

47 USC 230(c)(1) reads:

No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.

A successful 230(c)(1) defense breaks down into three prima facie elements:

1) the defendant must be a "provider or user of an interactive computer service"
2) the content generating the alleged liability must be "information provided by another information content provider"
3) the legal claim has to treat the defendant as the "publisher or speaker" of the third party content

230 has a number of statutory exclusions, but I don't think any of them are relevant to Example 5.

Application of 47 USC 230 to Example #5

With this in mind, the FTC's Example #5 satisfies the prima facie elements of a successful 230 defense as follows: the advertiser is the user of an interactive computer service, the blog post is content provided by another information content provider, and the FTC's theory that the advertiser adopts or endorses the blog post treats the advertiser as the publisher or speaker of the third party blogger's blog post.

I received significant skepticism about my characterization of the advertiser as the "user" of an interactive computer service. I can reach this conclusion in two ways. First, PayPerPost provides an interactive computer service, and the advertiser uses PayPerPost. Second, the advertiser is a "user" of some Internet connectivity provider just by getting online.

Admittedly, explanation #2 is expansive, perhaps disconcertingly so. By this reasoning, anyone online automatically qualifies as a "user" of an interactive computer service by definition, thus seemingly expanding the 230 immunization eligibility to everyone without restriction. While this may sound wrong, it’s entirely consistent with how courts have interpreted the term “user.” The leading case on the topic, the California Supreme Court opinion in Barrett v. Rosenthal, never provides a single crisp definition of "user" but seemed to contemplate that merely being online qualified. Some minor cases possibly read "user" more narrowly, but I think the dominant line of cases gives “user” an expansive definition.

From a doctrinal standpoint, I think the broad reading of 230's application makes a lot of sense. The cases over the past 13+ years have taught us that 230(c)(1) can be distilled into a simple syllogism: unless the plaintiff’s claim fits into one of the statutory exclusions (IP, federal crimes, ECPA), A isn't liable for third party B's online content or actions. Period.

In the FTC’s Example #5, A is the advertiser and B is the blogger. Applying the same syllogism as above, the advertiser can’t liable for the blogger's online content or actions. Period.

The fact that the advertiser paid the blogger to write the content doesn't change my analysis one bit. For example, in the 1998 Blumenthal v. Drudge case, AOL got a 230 defense for Matthew Drudge's allegedly defamatory content, even though AOL paid $3,000 a month for Drudge's columns and retained editorial control over the content. I'm pretty sure 230 has applied in other cases where the defendant paid for the content. If you can think of others, I’d appreciate the reminder.

Further, the payment doesn't create a respondeat superior relationship between the advertiser and blogger. There is no credible argument that the blogger is the advertiser’s employee. I don’t think the example indicates an agency relationship because the advertiser lacks the requisite control over the blogger. PayPerPost’s mediation of the advertiser-blogger relationship further reinforces the lack of agency; indeed, the advertiser may not even be communicating directly with the blogger. And even if the blogger were the advertiser’s employee or agent, 230 still might apply for the blogger’s statements that exceed the advertiser’s authorization. See Delfino v. Agilent and the Higher Balance case.

If you don't like the broad reading of "users" (even though I think it is defensible under the case law), then go back to my first explanation that both the advertiser and blogger are "users" of the interactive computer service provided by the blog advertising service provider (e.g., PayPerPost). This argument works just fine too.

Applicable 230 Precedent

Unfortunately, I can’t point to many 230 cases applying the immunization to circumstances where the defendant did not host or republish the allegedly tortious content. Most 230 cases involve a provider's liability for its user's content or actions (the “paradigmatic” 230 case).

In contrast, we don't see many cases interpreting the user defense, but then again, those lawsuits may be so tenuous anyway that they are rarely brought. For example, I could not find any specific cases applying 230 to the linking situation I critiqued in my SEC comments.

Even without any obvious precedent, I think the statute on its face leads easily to the conclusion that advertisers can't be liable for bloggers' independent posts. As I indicated in my initial post, I don't even see that as a close case under 230.

One reasonably close precedent, the Subway v. Quiznos case, hasn’t reached a solid 230 ruling yet. In that case, Quiznos reposted some user-created advertising videos, and Subway contended that the videos constituted false advertising. The court rejected Quiznos' 230 defense solely on the grounds that it was raised in a 12(b)(6) motion to dismiss, which the court said was too early. (This same issue arose in Barnes v. Yahoo, where the Ninth Circuit initially agreed with this court and then withdrew that portion of its opinion). Although 230 didn’t apply at the 12(b)(6) stage, could Quiznos claim 230 for the videos at a later stage of the proceeding? I think it can, even if it "adopted" the user-generated videos by republishing them, unless it actually authored the statements that are deemed false advertising. For examples where a republisher can claim 230 for content is putatively “endorses” through its republication, see, e.g., the Barrett case, the Batzel case, the Tefft case (one of the minor cases narrowly interpreting “user”), the D’Alonzo case and the Furber case. I’m sure I could find others.

I think the FTC's Example #5 is an even easier 230 case than Quiznos’ situation. Unlike Quiznos, the advertiser in Example #5 never republished the blog post or even signaled any adoption of or agreement with the post. With such a tenuous relationship between the advertiser and the blogger, the FTC’s overreaching—and the role 230 plays in preventing that overreaching—is even clearer.

Conclusion

As the old expression goes, when you’re a hammer, everything looks like a nail. So perhaps I’m just such a 230 enthusiast that I’m finding it in places it doesn’t belong.

However, having read many dozen 230 cases over the past 13 years, I’ve formed the strong opinion that courts treat 230 as saying A isn’t liable for third party B’s online content. If you accept that proposition (and resist the temptation to manufacture provisos and qualifications that don’t actually exist in the cases), then it should be clear why 230 preempts Example #5—because that’s exactly what the FTC is trying to do.

UPDATE: Paul Levy disagrees with my analysis in this post.

Posted by Eric at 11:55 AM | Derivative Liability , Marketing | TrackBack

October 06, 2009

Do the FTC's New Endorsement/Testimonial Rules Violate 47 USC 230?

By Eric Goldman

In reading the FTC's new rules on endorsements and testimonials in advertisements, I was struck by the FTC's expansive vision of advertiser liability for third party-caused violations. In particular, the FTC apparently has made the same analytical error that the SEC recently made in the SEC's proposal to hold securities issuers liable for third party content they link to. In my comments to the SEC, I explained that trying to hold a linker liable for content at the terminus of a link violates 47 USC 230.

In this case, in commentary to §255.1, the FTC provided example #5 (starting on page 63 of the PDF) clearly targeting PayPerPost/Izea and its competitors:

Example 5: A skin care products advertiser participates in a blog advertising service. The service matches up advertisers with bloggers who will promote the advertiser’s products on their personal blogs. The advertiser requests that a blogger try a new body lotion and write a review of the product on her blog. Although the advertiser does not make any specific claims about the lotion’s ability to cure skin conditions and the blogger does not ask the advertiser whether there is substantiation for the claim, in her review the blogger writes that the lotion cures eczema and recommends the product to her blog readers who suffer from this condition. The advertiser is subject to liability for misleading or unsubstantiated representations made through the blogger’s endorsement. [my emphasis]

The blogger also is subject to liability for misleading or unsubstantiated representations made in the course of her endorsement. The blogger is also liable if she fails to disclose clearly and conspicuously that she is being paid for her services. [See § 255.5.]

In order to limit its potential liability, the advertiser should ensure that the advertising service provides guidance and training to its bloggers concerning the need to ensure that statements they make are truthful and substantiated. The advertiser should also monitor bloggers who are being paid to promote its products and take steps necessary to halt the continued publication of deceptive representations when they are discovered.

Per this example, the FTC appears to think advertisers can be liable for a blogger's rogue content merely because there is an underlying sponsorship relationship. This situation is prima facie preempted by 47 USC 230. Frankly, this doesn't even look like a close case.

I'm kicking myself because I should have raised the 47 USC 230 concern with the FTC during the comment period. My weak excuse: too many misguided regulatory proposals, not enough Eric. The FTC's discussion prefacing its guidelines doesn't mention 47 USC 230 at all, which now makes me wonder if anyone raised the statutory concern to the FTC. Instead, the FTC breezily brushed off concerns about over-expansive advertiser liability by treating this as a situation where the advertiser assumes the risk that bloggers might write rogue content:

Imposing liability in these circumstances hinges on the determination that the advertiser chose to sponsor the consumer-generated content such that it has established an endorser-sponsor relationship. It is foreseeable that an endorser may exaggerate the benefits of a free product or fail to disclose a material relationship where one exists. In employing this means of marketing, the advertiser has assumed the risk that an endorser may fail to disclose a material connection or misrepresent a product, and the potential liability that accompanies that risk. The Commission, however, in the exercise of its prosecutorial discretion, would consider the advertiser’s efforts to advise these endorsers of their responsibilities and to monitor their online behavior in determining what action, if any, would be warranted. [emphasis added]

Uh, no. As I tried to explain at the ABA Consumer Protection Conference this summer (which many FTC staffers attended), 47 USC 230 requires the FTC and other consumer protection agencies to fundamentally rethink their basic endorsement liability paradigms. If you're looking for a paper topic, I think the interplay because 47 USC 230 and government agencies' theories about liability for endorsing online content is ripe for smart analysis.

While an FTC enforcement action pursuant to its misguided advertiser liability theory should be an easy defense win, I don't expect we'll ever see that result. As we know, the FTC is fairly careful in selecting enforcement actions, and most defendants choose quickly settle rather than fight. Those that don't settle usually don't present the best facts to the court, and sometimes their lawyers don't even know about 47 USC 230.

If the issue ever does get to court, I'd expect the FTC to marshal up every plaintiff win under 230 to show how it can pin third party content on the advertiser. However, at the moment, I don't think any of the scrappy plaintiff wins bolster its theory. For example, I don't think the Roommates.com case helps because this isn't a situation where the advertiser has encouraged illegal content. I also don't think the Mazur case helps the FTC because the advertiser never chose the words communicated by the blogger.

Because it appears fundamentally inconsistent with 47 USC 230, I hope the FTC will reconsider its basic liability approach here.

UPDATE: In response to comments I've received on this post, I have provided a fuller explanation of my thinking about 47 USC 230 and the new guidelines.

Posted by Eric at 10:04 AM | Derivative Liability , Marketing | TrackBack

August 26, 2009

Yahoo Subpoenas Expedia in American Airlines Lawsuit

By Eric Goldman

Yahoo and American Airlines are still tussling over Yahoo's sale of American Airlines' trademarks as keyword triggers (see background at 1, 2, 3). According to Yahoo, American Airlines is arguing that online travel agencies such as Expedia are directly infringing American Airlines' trademarks by buying keywords from Yahoo, which would make Yahoo a secondary infringer by facilitating Expedia's direct infringement.

From my perspective, American Airlines' direct infringement argument looks questionable because Expedia and others should be fully protected by the First Sale/trademark exhaustion doctrine for advertising that it sells American Airlines' branded services--just like any other retailer is free to advertise the trademarks of the manufacturers it vends. However, perhaps American Airlines restricts Expedia's advertising by contract and is taking the position that Expedia exceeded the contract and such a contract breach constitutes trademark infringement. American Airlines is also arguing that Yahoo is tortiously interfering with the American Airlines-Expedia contract, so that seems possible. Even then, it's not clear to me that if Expedia exceeds the contract by buying trademarked keywords, the contract breach would qualify as trademark infringement. The analysis should go back to default trademark law, which should excuse Expedia's purchases under the trademark exhaustion doctrine.

ASIDE AND REQUEST FOR HELP: I have done a fair amount of digging trying to find cases that apply the trademark exhaustion doctrine to the legitimate resale of third party services. I have only been able to find the trademark exhaustion doctrine applied to the resale of physical goods/chattels, not the resale of services, but it seems like the doctrine should apply to both. The travel business is a great example. Travel agents routinely advertise to consumers that they resell travel packages that include a flight on, say, American Airlines. I have been struggling to find any cases or other supportive sources indicating that such advertisements by travel agents are protected by trademark exhaustion. Presumably, in some cases, the advertising and resale is expressly permitted by a contract with the upstream service provider (such as in a consolidation contract between the travel agent consolidator and the airline), but I'm sure there are plenty of cases where there is no contract at all. Any tips/referrals/suggestions on cases applying trademark exhaustion to the legitimate resale of services would be very much appreciated. END OF ASIDE

So, American Airlines is pointing the finger at Expedia as the direct infringer. [Even though, conspicuously, American Airlines isn't suing Expedia, for reasons I explore in my Brand Spillovers paper]. Naturally, Yahoo wants to know more about Expedia's possible exposure as a direct infringer so that Yahoo's defense can include disproving the direct infringement. Therefore, Yahoo sent a subpoena to Expedia requesting all kinds of goodies, such as the American Airlines-Expedia contract, consumer conversion rates from sponsored link ads, and other information about consumer behavior on Expedia.

Not surprisingly, Expedia responded "no thanks" to Yahoo's request. I can think of at least three reasons why. First, Expedia would rather not spend any time and money on someone else's lawsuit. Second, some of the information Yahoo is asking for could have significant competitive advantage to Yahoo. Yahoo partially competes with Expedia via its Yahoo Travel service, plus Yahoo's knowledge of the profitability of its referred customers could affect Yahoo's management of the travel category auctions. Third, some evidence could prompt American Airlines to close the litigation circle by suing Expedia directly.

In response to Expedia's nyet, Yahoo is seeking a motion to compel Expedia's response to its subpoena. Typically, these discovery disputes result in a split-the-baby outcome (either via a settlement or ordered by a judge) where Yahoo gets less than it asked but Expedia also forks over some info. We'll see. Meanwhile, Yahoo's effort is consistent with a trend I first spotted in connection with the Rhino Sports case--advertiser behavior regarding keywords has significant value in litigation discovery and for competitive purposes, so I expect to see more subpoenas like this over time.

Posted by Eric at 09:37 AM | Derivative Liability , E-Commerce , Marketing , Search Engines , Trademark | TrackBack

August 25, 2009

Why More Wikipedia Editing Restrictions Are Inevitable, and Some Comments on Flagged Revisions for Living People's Biographies

By Eric Goldman

I have posted my latest article, "Wikipedia’s Labor Squeeze and its Consequences," to SSRN. The article will be published in the Journal of Telecommunications and High Technology Law in the relatively near future. The article is still in draft form, and I gratefully welcome your comments. Please take a look.

The article traces its roots to my Dec. 2005 prediction that Wikipedia will fail in 5 years. I have continued to blog informally about Wikipedia since then, but I only decided to write a more formal academic defense of my prediction late last year. This article is that defense, but you'll notice that I don't refer to "failure" in the article. In my presentations and earlier drafts of this article, I found that predicting Wikipedia's "failure" produced very emotional responses that overwhelmed consideration of my argument's merits. I still think my 2005 predictions look pretty good (using my self-selected definition of "failure"), but I deliberately directed the article towards the "why" rather than the "when."

As a result, the article explains why evolutionary changes in Wikipedia's labor supply is forcing Wikipedia to change its basic architectural design of permissive user editability. Flagged revisions is a prime example of the ongoing architectural shift. With flagged revisions, every user has the technical capacity to edit a Wikipedia entry, but submitted revisions remain hidden from public view until a trusted editor approves them for publication. Accordingly, flagged revisions significantly changes the Wikipedia experience. It delays publication of most contributions, it buries some contributions without ever being published at all, and it creates a significant workload for editors. For example, the German Wikipedia deploys flagged revisions site-wide and publication delays are up to three weeks.

Yesterday, Wikipedia announced that it is deploying Flagged Revisions for biographies of living people. Wikipedia has been on red alert with biographies since the John Seigenthaler incident in September 2005, so it's not surprising that Wikipedia will tighten the reins there first.

However, I think this change is just one more intermediate step in Wikipedia's ongoing process of restricting user editability, and it is not the final restrictive step Wikipedia will take. For reasons I outline in the article, I expect Wikipedia eventually will deploy Flagged Revisions, or some other stringent form of editorial lock-down, across the entire site, not just for living people's biographies. I explore some other possible alternatives in the paper, but I conclude that substantial restrictions to user editability are Wikipedia's only viable long-term solution to preserve site credibility.

People who have reviewed the article have asked about the article's relationship to Benkler's Wealth of Networks and its related commentary. Those works have explored the phenomenon and implications of large-scale online volunteerism, including a convincing proof that people will contribute their labor to online collaborative enterprises without any direct financial compensation. However, I've seen less attention paid to the exact reasons why people volunteer for these projects. My article focuses on the "why" in some detail, but even then, I make some assumptions and guesses. Despite extensive academic research into the Wikipedia community, we still lack a complete and clear empirical picture of why people join the community and, perhaps just as important, why people leave. I offer up my theoretical considerations, but more empirical work remains to be done.

If you want more discussion on this topic, during the paper's development, I gave a talk at University of Colorado Boulder that sparked some online responses:

* the talk itself (in the middle of the video)
* Ars Technica coverage
* ZDNet's paraphrase of the Ars Technica post
* p2pnet
* Blorge
* Thinking Spaces
* Futureismic

The presentation led to an NPR Interview with more comments and a response from What Jeff Learned Today.

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

August 07, 2009

An End to Spam Litigation Factories?--Gordon v. Virtumundo

By Eric Goldman

Gordon v. Virtumundo, Inc., No. 07-35487 (9th Cir. Aug. 6, 2009)

When CAN-SPAM was passed in 2003, it was fairly clear that Congress wasn’t trying to enable broad private enforcement. Everyone knew that rabid anti-spammers would seize any new statutory right for a litigation frenzy. As this court says, "lawmakers were wary of the possibility, if not the likelihood, that the siren song of substantial statutory damages would entice opportunistic plaintiffs to join the fray, which would lead to undesirable results." Although I personally think Congress would better served all of us by omitting all private enforcement rights in CAN-SPAM, unquestionably the private rights in CAN-SPAM are drafted narrowly to prevent their abuses.

That hasn't stopped some zealous anti-spammers from testing the limits of CAN-SPAM's private enforcement remedies anyway. James Gordon has been one of the most active. He is a "professional plaintiff" who has operated a spam "litigation factory" by configuring his technology to try to trap spammers. In effect, he goes out of his way to look for spam. As the court says, “the burdens Gordon complains of are almost exclusively self-imposed and purposefully undertaken."

As it turns out, this business model does not fare well in court. He lost this case in the district court and subsequently was ordered to pay over $100k in legal fees to the defendant under CAN-SPAM's fee-switching provision. On appeal, the Ninth Circuit has even less kind words for him, saying that CAN-SPAM “was enacted to protect individuals and legitimate businesses—not to support a litigation mill for entrepreneurs like Gordon." As a result, the court issues a broad but muddy opinion that shuts down Gordon’s litigation factory and presumably others like his, but has a less clear effect on other CAN-SPAM defendants.

"Internet Access Service"

CAN-SPAM's private enforcement rights only accrue to "Internet access services." This phrase is troublesome in part because it differs from other possible statutory synonyms for online actors like "interactive computer service" (47 USC 230), "online service provider" (DMCA), "electronic communication service" and "remote computer service" (ECPA), etc. This verbiage proliferation raises questions about the scope of governed entities (who’s covered and who isn’t) and why different online actors are being treated differently (if they are). I hope future legislative drafters will recognize the costs of using different terms for online actors.

In CAN-SPAM, Congress defined an “Internet access service” as "a service that enables users to access content, information, electronic mail, or other services offered over the Internet, and may also include access to proprietary content, information, and other services as part of a package of services offered to consumers. Such term does not include telecommunications services." Check out Ethan’s lengthy but irresolute deconstruction of this definition from last year.

Read literally, this definition seemingly covers all Internet services because they allow users to access their "other" services. However, the Ninth Circuit doesn’t think that's what Congress meant, although it’s not sure about the boundaries either. Instead, the Ninth Circuit "decline[s] this opportunity to set forth a general test or define the outer bounds of what it means to be a provider of ‘Internet access service.’" Gee, thanks.

Nevertheless, the Ninth Circuit had no problem saying that Gordon wasn't an Internet access service. I can’t pin down a specific reason why Gordon wasn’t covered while, according to the court, his service providers (Verizon and GoDaddy) might be. Ultimately, I think the court rejects Gordon's transparent efforts to manufacture a claim.

"Adversely Affected"

A CAN-SPAM private litigant also needs to show that it was “adversely affected” by the spam. The court doesn’t offer a single definition of adverse effect, but it does try to draw some boundaries that leave Gordon out.

In general, the court tries to narrow the scope of cognizable harms in two ways. First, the court segregates consumer-related harms from service provider-related harms. I was heartened to see this because better harm delineation was a central point of my (uncited) 2004 article "Where's the Beef? Dissecting Spam's Purported Harms." Back in the earlier part of this decade, anti-spam advocates would routinely lump together a laundry list of gripes about spam in ways that would degrade policy-makers’ ability to target policy responses to the harm. For example, CAN-SPAM suffers heavily from this schizophrenia about the targeted harm. This court makes it clear that consumer-related harms aren’t part of the CAN-SPAM private litigation calculus.

Second, the court tries to distinguish between the fixed and variable costs of spam fighting and implies that the fixed costs should be ignored when calculating adverse effect. The court’s handling of this distinction is hardly deft. It says repeatedly that we have to assume that IAS providers are absorbing some spam costs as part of their normal costs of operation. For example, the court says:

the harm must be of significance to a bona fide IAS provider—something beyond the mere annoyance of spam and greater than the negligible burdens typically borne by an IAS provider in the ordinary course of business. In most cases, evidence of some combination of operational or technical impairments and related financial costs attributable to unwanted commercial e-mail would suffice

And the court says:

We expect a legitimate service provider to secure adequate bandwidth and storage capacity and take reasonable precautions, such as implementing spam filters, as part of its normal operations….network slowdowns, server crashes, increased bandwidth usage, and hardware and software upgrades bear no inherent relationship to spam or spamming practices. On the contrary, we expect these issues to arise as a matter of course and for legitimate reasons as technology, online media, and Internet services continue to advance and develop. Therefore, evidence of what could be routine business concerns and operating costs is not alone sufficient to unlock the treasure trove of the CAN-SPAM Act’s statutory damages.

Reading these quotes, it seems like the court is trying to zero out the fixed costs borne by anyone connected to the Internet, which would then focus the analysis on only those marginal/variable consequences attributable to a specific spam campaign. However, the court does not want to raise the bar that high, at least not for “legitimate” service providers (which the court thinks clearly excludes Gordon). As the court says:

the threshold of standing should not pose a high bar for the legitimate service operations contemplated by Congress. In some civil actions—where, for example, well-recognized ISPs or plainly legitimate Internet access service providers file suit—adequate harm might be presumed because any reasonable person would agree that such entities dedicate considerable resources to and incur significant financial costs in dealing with spam.

So I’m not quite sure what to make of this language. On the one hand, the court’s acknowledgement that complex societies impose some unwanted but unavoidable costs seems to raise the harm bar pretty high for CAN-SPAM plaintiffs. On the other hand, the court is willing to presume harm for “good” plaintiffs. So why won’t the court make such presumptions for Gordon? Mostly because he “came to the nuisance” (my words, not the court). As the court says:

Gordon purposefully refuses to implement spam filters in a typical manner or otherwise make any attempt to block allegedly unwanted spam or exclude such messages from users’ email inboxes...Gordon made no real effort to avoid, block, or delete commercial e-mail, but instead has voluntarily assumed the role of a spam sleuth. He expends time and resources seeking out and capturing massive volumes of spam, which he collects and then organizes for use in his prolific lawsuits. He admits setting up domains as “spam traps” with the sole purpose of snagging as many e-mail marketing messages as possible.

So my reading of this discussion is that the court sets up a bifurcated “adverse effect” analysis. If you’re a commercial email service provider, you presumptively get access to CAN-SPAM’s “treasure trove.” If you’re a spam troll, nuts to you.

Preemption of State Laws

One of CAN-SPAM's main raisons d'etre was to preempt the rapid proliferation of state anti-spam laws in the early part of this decade (especially California's opt-in anti-spam law). I naively assumed that CAN-SPAM's preemption clause would drive states out of the anti-spam regulation business altogether (a separate rant, but I'm not a fan of any state attempts to regulate Internet activity). No such luck. Following CAN-SPAM’s enactment, nearly every state enacted NEW anti-spam laws designed to fit within the preemption exceptions. This renewed activity at the state level has contributed to the anti-spam litigation frenzy, because the plaintiffs can use both state and federal claims to extract settlements and concessions from defendants.

In 2006, in Omega Travel v. Mummagraphics, the Fourth Circuit took a lot of the wind out of plaintiffs' sails by holding that state anti-spam laws survived CAN-SPAM preemption only as applied to fraud or material misrepresentations, not garden-variety errors or immaterial deception. Here, the Ninth Circuit adopts the Mummagraphics standard, which presumably eviscerates several state laws in Ninth Circuit-governed jurisdictions.

Applying the Mummagraphics’ standard to Gordon’s case wipes out his Washington state anti-spam claim. Gordon argued that, although he was not misled or deceived, Virtumundo’s “from line” violated Washington law because it does not clearly identify Virtumundo as the sender. He also argued that to avoid being deceptive, Virtumundo’s email subject lines must have either Virtumundo’s or its client’s name. The court rejects these arguments because "Gordon offers no proof that any headers have been altered to impair a recipient’s ability to identify, locate, or respond to the person who initiated the email. Nor does he present evidence that Virtumundo’s practice is aimed at misleading recipients as to the identity of the sender."

Expect to see more state laws bite the dust in the face of this preemption analysis.

Implications

This case is exceedingly interesting and important because it destroys the arguments of anti-spam plaintiffs trying to manufacture technical violations of CAN-SPAM for their profit. Not only does the opinion send an unmistakable message to the lower courts to toss these plaintiffs out on their keister, but it sends the harsh message that these plaintiffs ought to rethink their legal hubris. As the court says, “As should be apparent here, ‘the law’ that Gordon purportedly enforces relates more to his subjective view of what the law ought to be, and differs substantially from the law itself.” Ouch. The court has apparently just invalidated the fantastic laws that some anti-spam plaintiffs dream up in their heads.

This case is also important because it puts state anti-spam laws even more clearly on the ropes. It has been an impressive but pathetic display of futility watching the states trip over themselves trying to show that they are tough on spam when their efforts are all irrelevant in light of the Fourth Circuit's and now Ninth Circuit's interpretations of CAN-SPAM. Fortunately (?), most of the states have moved on to being tough on cyberbullying instead of beating up on spammers.

It is less clear to me if the court’s discussion about “Internet access services” and “adverse effect” will have broader import on private CAN-SPAM litigation. The court deliberately sidestepped definitive interpretations of both terms, so I expect the interpretive slate is mostly clean outside of the spam litigation factories.

One final point. Spam remains actively litigated in the courts and the subject of some policy discussion, but do you still fret about the spam you receive personally? I get the sense that this panel was not that impressed with Gordon’s efforts in part because spam isn’t as big a deal for the judges as it used to be. Certainly that’s true in my case. I get about 100 spams a day, 90+% of which Gmail appropriately filters into my spam folder (with very few misclassifications of legit email as spam). As a result, it takes me just a minute or two a day to burn through the spam accruals. Not surprisingly, at least for me, good spam filters have solved the problem much better than any legislative intervention.

I understand that spam is a bigger issue for email service providers, especially now that more than 100% of all emails are spam (according to the ridiculously overhyped stats put out by vendors of anti-spam solutions). CAN-SPAM partially offers a solution to these individuals, along with other doctrines like the Computer Fraud & Abuse Act and possibly the common law trespass to chattels doctrine. However, at this point, so much of the anti-spam battle has to be fought technologically, not in the courts, due to the sheer volume and dispersed nature of the putative defendants. As a result, it doesn’t really seem to matter to the overall quantum of spam in our society if courts read CAN-SPAM broadly or narrowly.

Other comments on this case:
* Venkat
* Jeff Neuburger

UPDATE: Ken Magill reports on how Gordon has lost his house belongings due to his persistence.

Posted by Eric at 12:40 PM | Internet History , Marketing , Spam | TrackBack

August 06, 2009

State of the Net West Recap

By Eric Goldman

Yesterday, the High Tech Law Institute and the Advisory Committee to the Congressional Internet Caucus co-sponsored the Third Annual State of the Net West event at Santa Clara University. The featured participants were 3 members of Congress (Boucher, Goodlatte and Lofgren) and the White House CTO Aneesh Chopra, supplemented by 8 distinguished discussants. In a jam-packed morning, we covered a lot of interesting and important ground on broadband, privacy, antitrust, immigration and open government. This blog post recaps some highlights from the discussion.

Boucher on Broadband

Rep. Boucher emphasized the importance of broadband availability to economic activity and expressed concern that the US wasn't keeping up with broadband deployment (he said, "we can do better"). He offered three policy proposals for ways the federal government could help:

* revise the Universal Service Fund to allow dollars to be spent on broadband deployment; and require USF fund recipients 5 years from now to be offering broadband or be cut off from USF
* federally preempt state laws prohibiting municipal broadband offerings (which about 25 states have)
* get the FCC to develop a broadband deployment plan

He expressed disappointment with the guidelines that NTIA and the Department of Agriculture have adopted to give away the $7.2B broadband fund that was part of the stimulus package. It appears he will be encouraging both entities to rethink their guidelines.

My colleague Al Hammond was the broadband discussant. Al made a number of good points, including noting that broadband deployment is both a rural and low-income issue (Boucher appeared to be focusing more on the former) and raising concerns about municipalities not playing fair and the FCC overcounting actual broadband availability.

Boucher on Privacy

Rep. Boucher also gave a preview of the privacy bill he is planning to introduce next month. He started off by saying he likes ad targeting, especially first party targeting (he said he buys items based on customized recommendations). So he wants to encourage "appropriate" ad targeting, not eliminate it. His bill is expected to contain the following elements:

* websites collecting data will be required to post a prominent privacy policy
* users can opt-out of first party targeted ads. This also includes data sharing necessary to enable first party ads
* websites that want to share data with unaffiliated third parties will need opt-in. However, behavioral ad networks can proceed on an opt-out basis if they allow users to see and edit their behavioral profile, except for sensitive information categories that would always be opt-in
* both the FTC and state AGs would have enforcement authority

To the extent that the mandatory privacy policy and opt-out options codifies existing industry practices, this proposal generally seems benign but not worth the effort--the costs of the inevitably poor statutory drafting outweighs any benefit we might get from regulatory codification. Requiring opt-in would likely eliminate third party behavioral ad networks, which (as I've discussed before) is more likely to be a detriment than a win.

I was especially intrigued by the proposal that behavioral networks can flip from opt-in to opt-out by letting users access a user profile. I need to see more details about Boucher's thinking, but doesn't this superficially sound crazy? The most obvious problem is authentication of the user before seeing his or her profile. How would this be done? The networks usually don't know the identity of the specific individuals they are profiling, so they can't authenticate identity. And just tying profile access privileges to a cookie or machine sounds like a recipe for disaster for all shared computers. Plus, a web interface seems to increase the security risks that the bad guys can see profiles they shouldn't be able to see. On first blush, it sounds like this part of Boucher's proposal may need a complete rewrite, with unknown consequences for the entire structure of his proposal.

Mike Hintze of Microsoft was the privacy discussant. He espoused Microsoft's standard line that there should be a comprehensive privacy law.

In the Q&A, Boucher appeared willing to consider concurrent privacy enforcement authority by self-regulatory organizations, so long as they enforced the law's minimum requirements. But any self-regulatory effort wasn't a substitute for other aspects of his bill.

Lofgren on Antitrust

Rep. Lofgren said that if the Bush administration did too little on antitrust enforcement, the Judiciary committee is now concerned that Obama and Varney will do too much. Lofgren is particularly focused on the chilling effects of the mere threat of antitrust scrutiny, not just the actual successful prosecution in court of cases. Thus, an "informal" DOJ expression of interest can deter innovative activity by high tech companies.

She also expressed skepticism that antitrust laws remain effective at protecting technology markets, which are marked by fast innovation and low barriers to entry. (I believe her exact words were "traditional antitrust measures of marketplace behavior might no longer work.") At minimum, any technology-related antitrust enforcement actions should be focused on improving innovation rather than trying to manage current marketplace prices.

Finally, she said that copyright restrictions should be considered in antitrust inquiries. Mike Masnick has more to say on this.

Michael Katz of UC Berkeley was the most colorful respondent. He shared Lofgren's concern that antitrust law may be counterproductively squelching innovation, especially when companies try to capture antitrust enforcers to hassle competitors. He had especially harsh words for the FCC, calling it much less disciplined than the DOJ and observing how the FCC can blackmail companies using its leverage. He also complained that the FCC's review of mergers takes too long, and as an example of their lack of discipline, the FCC will impose merger conditions that have nothing to do with the merger.

Tim Bresnahan of Stanford and my colleague Cathy Sandoval were the other respondents.

At the end of her talk, Lofgren praised the Google Book Search settlement, saying that in some ways it lowers barriers to entry. She also said she was grateful that Google appears to have found a back-door way to liberate orphan works given that she wasn't able to pass an orphan works bill. I'm all in favor of orphan works reform, but a class action settlement seems like a weird way to get there.

Chopra on Open Government

Aneesh Chopra is the new White House CTO, a role that never existed before, which puts Chopra at Obama's elbow on all technology issues. This was Chopra's first Silicon Valley trip since he undertook his new role. His first talk was on Tuesday night at a Churchill Club event; we were his second. Lots of people were very interested in learning more about him. He was the big draw for the press, and we got an unprecedented number of walks-in based in part (we think) on his talk. He was also mobbed before and after his talk--everyone seemed to want a piece of his attention (then again, I'd love to have a chance to kick some stuff around with him one-on-one myself!).

It's easy to see why Chopra sparks such curiosity. My impressions were that he was genuinely affable, smooth without being slick, substantive without being bookish, a big fan of crowdsourcing and an even bigger fan of assessment and measurement of outcomes.

He started off by discussing the importance of technology and how the US's rate of technological performance is lagging against other countries. He then identified three ways to "turn the ship around":

1. invest in innovation building blocks, such as a smart/secure infrastructure, more R&D and improved workforce expertise
2. healthcare reform, especially improvements to the information technology side of healthcare delivery
3. an improved education system, including distance learning and more emphasis on lifelong learning

He then discussed open government issues and gave examples of ways technology can facilitate participatory governance.

Goodlatte and Discussants on Immigration

Rep. Goodlatte laid out the Republican's high tech agenda, which includes:
* skilled workforce, including immigration reform
* patent reform
* trade issues
* taxation, including efforts to define when activity in a state triggers tax obligations
* net neutrality (don't regulate but improve antitrust enforcement)
* privacy (opt-out except for sensitive information)

The panel then drilled down on immigration reform. I was really excited to have this panel because workforce issues are so central to the Silicon Valley's "secret sauce" and yet I couldn't recall a time that the HTLI had sponsored a discussion about them. Obviously immigration issues are age-old and are well-trodden, but I nevertheless found the discussion helpful--with the one caveat that everyone on the panel agreed with everyone else, so there was a lot of preaching to the choir. I learned an interesting factoid that both Reps. Goodlatte and Lofgren were formerly immigration attorneys, so they have some front-line domain expertise in this area.

First discussant was AnnaLee Saxenian of UC Berkeley. She talked about how skilled immigrants have fueled innovation in this country. She gave a number of stats in support of this, including that a majority of Silicon Valley engineers are foreign-born, and a high percentage of technology entrepreneurs and patent applicants are foreign-born individuals. She also noted that foreign-born skilled works create net new jobs and also help build better ties to their home country.

We benefit from the best and the brightest from around the world, who come to the US because of our higher education system and historically have chosen to stay. However, she is concerned about this retention because of bureaucratic barriers. She is also concerned that companies, frustrated by their lack of access to development talent, will offshore their R&D.

Finally, she pointed out that immigration discussions kludge together the issues of skilled and low-skilled workers, even though their issues are very different.

Keith Wolfe of Google reinforced many of AnnaLee's points from Google's specific experiences.

My colleague Deep Gulasekaram was the last discussant. He pointed out that free marketplaces may require free movement of labor, which isn't consistent with our current immigration policy. He raised concerns about state and local anti-immigration policies and the negative consequences of tying foreign workers to specific jobs (by linking their visa to the job).

Rep. Lofgren added a few remarks:
* Obama told her that it's time for comprehensive immigration reform. [This led to a polite back-and-forth between Lofgren, who favors comprehensive reform, and Goodlatte, who would settle for piecemeal immigration reform]
* Immigration reform is not a substitute for educating the US workforce
* We should give permanence to people we want to keep (i.e., not keep them on some treadmill with the possibility of a forced exit, which prevents their long-term life planning)
* We need to address the family of skilled immigrants, not just the immigrants themselves

More Coverage of the Event

* ABC 7 News
* KCBS radio
* Zusha Ellison of the Recorder
* Joyce Cutler of BNA (BNA subscription required)
* Mike Masnick
* Joel West
* Colette Vogele
* Warren's Washington Internet Daily also ran a story (not web-linkable) "Boucher Promises Online Privacy Bill Draft Soon"
* The extensive Twitter discussion at hashtag #sotnw. Twitterers included @ipolicy, @caminick, @persistance, @miss_eli, @techpolicygirl, @cathygellis, @mmasnick, @nextgenweb, @marianmerritt, @larrymagid, @christinela, @mblatkin, @seangarrettnow, @vogelelaw (who didn't always use the hashtag--we will try to publish a standardized hashtag at future events). Whew! Apologies if I missed anyone. I can't recall seeing more Twitterers in an audience--everyone seemed to have their Twitter page up constantly. As usual, I didn't turn on my computer at the conference (I take notes by hand and blog them later), so my comments seem woefully out-of-date already!

We plan to post the event audio soon so you can listen for yourself. I'll announce the audio posting at my Twitter account when it's live.

UPDATE: Audio now available: Download (item 27) or Stream

Posted by Eric at 10:54 AM | Adware/Spyware , Copyright , E-Commerce , General , Internet History , Marketing , Patents , Privacy/Security | TrackBack

July 31, 2009

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

By Eric Goldman

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

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

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

The Roommates.com Attack

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

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

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

The Barnes Attack

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

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

Dismissal on 12(b)(6) Motion

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

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

July 15, 2009

Lifestyle Lift Settles NYAG Claim Over Fake Consumer Reviews

By Eric Goldman

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

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

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

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

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

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

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

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

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

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

July 13, 2009

Facebook Sued for Click Fraud--RootZoo v. Facebook

By Eric Goldman

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

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

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

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

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

July 07, 2009

June 2009 Quick Links, Part 2

By Eric Goldman

State Regulation of the Internet

* iAWFUL, the Internet Advocates Watchlist for Ugly Laws

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

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

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

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

Blogs/Social Networking Sites

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

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

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

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

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

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

Security

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

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

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

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

Miscellaneous

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

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

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

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

* Oddee: 15 geekiest license plates:

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

ABA Antitrust Section Consumer Protection Conference Recap

By Eric Goldman

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

A few overarching themes:

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

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

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

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

David Vladek’s Opening Remarks

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

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

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

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

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

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

Former Chairmen’s Panel

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

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

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

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

Rebecca’s recap of this panel.

Privacy/Behavioral Advertising Panel

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

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

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

Perkins Coie’s recap of Eileen’s remarks.

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

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

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

Rebecca’s recap of this panel.

Research on Consumer Decision-Making

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

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

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

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

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

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

Michael Mazis of American University. Lessons:

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

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

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

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

Rebecca’s recap of this panel.

Role of Consumer Surveys in Enforcement/Litigation

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

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

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

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

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

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

Rebecca’s recap of this panel.

More on the Conference

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

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

July 06, 2009

June 2009 Quick Links, Part 1

By Eric Goldman

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

Search Engines

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

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

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

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

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

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

Trademark

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

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

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

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

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

* Oddee: 10 of the Worst Restaurant Names ever.

Copyright

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

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

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

User Agreements

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

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

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

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

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

Seventh Lawsuit Over Google AdWords--Jurin v. Google

By Eric Goldman

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

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

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

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

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

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

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

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

July 03, 2009

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

By Eric Goldman

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

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

When is a Text Message a Telephone Call?

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

Poor Consent Language

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

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

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

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

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

Complex Chain of Distribution

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

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

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

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

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

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

July 01, 2009

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

By Eric Goldman

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

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

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

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

June 24, 2009

47 USC 230 and Consumer Protection Talk Notes

By Eric Goldman

Last week I made a very short presentation on 47 USC 230 and consumer protection at the ABA Antitrust Section’s Consumer Protection Conference. (I was scheduled for 6 minutes, but I think I took about 8). My talk notes:

47 USC 230 tries to divide online content into first party content and third party content. In its simplest form, 230 says that online actors can’t be liable for third party content unless (1) ECPA, (2) federal criminal enforcement, or (3) IP claims.

230 is the flagship example of cyberspace exceptionalism. As a result, its outcomes can challenge our traditional notions of tort law. This befuddles bright lawyers.

Despite 230, websites always remain liable for first party content.
* Ex 1: if they post their own content, they are liable
* Ex 2: if they make marketing representations, they are liable under standard doctrines like contract and false advertising law. Even so, some courts have been giving websites a pass for marketing representations which are rendered untrue by third party actions.
* Ex 3: Barnes v. Yahoo: website can by liable under promissory estoppel theory if it promises to remove third party content

Plaintiffs often try to argue that third party content becomes first party content.
* Ex 1: website contract may take ownership of user-supplied content
* Ex 2: SEC says that issuers endorse/adopt content that they link to
However, these arguments generally fail under 230. If content starts out as third party content, there is almost nothing the website can do that will convert the content into first party content. As a result, agency civil enforcement actions can unexpectedly run afoul of 230 when they collapse the distinctions between first party and third party content.

However, there is a possible workaround. In the Roommates.com case, the Ninth Circuit said that websites can lose their 230 protection in civil cases if they “encourage illegal content” or “require users to input illegal content.” The FTC is relying on this language in its recent Pricewert/3FN enforcement action against an Internet access provider who facilitated customers allegedly engaged in illegal activities. From my perspective, the Pricewert enforcement action could make sense in the following postures:
* if the FTC is bringing a criminal enforcement action, 230 is irrelevant
* if the FTC’s civil enforcement action is premised on Pricewert’s actual illegal behavior, 230 is irrelevant
* otherwise, if the civil enforcement action is premised on the illegal behavior of Pricewert’s customers, then this might fit into the Roommates.com exception if such an exception exists. However, I am troubled by such an exception, especially given that the enforcement action might also adversely affect Pricewert’s customers who only engaged in completely legal activity.

Two concluding observations:

1) 230’s basic division between first party content and third party content sounds great in theory but is tough to apply in practice.

2) In light of 230, enforcement agencies should rethink their expansive liability theories that basically assume that everyone should be responsible for a common set of online behavior (unless the agency is pursuing a criminal enforcement action).

Posted by Eric at 10:08 AM | Derivative Liability , Marketing | TrackBack

June 17, 2009

Twitter, Email and Brand Engagement

By Eric Goldman

Last week, in an interview with a reporter, I extolled the virtues of Twitter as a tool for brands to keep in touch with and engage their customers. The reporter responded by asking why brands would choose Twitter to engage customers instead of email, which companies have been using successfully for many years. I thought this question raised important issues about online marketing, so I thought it would be worth exploring the differences here.

Let's start with some basics. I am a big fan of email marketing. Like many of you, I have voluntarily signed up for numerous commercial email newsletters/announcement. I also get unrequested email from companies I've dealt with; I look at some of these, I ignore others, and occasionally I get so fed up that I blacklist the sender or report it as spam. I also get spam, LOTS of spam, but it doesn't bother me too much. Gmail has a good spam filter and it only takes a minute or two a day to sort, review and delete the spam.

However, as a recipient, email has some downsides. Most obviously, it is not always easy to unsubscribe. I remain amazed in this post-CAN-SPAM era by how often email unsubscriptions don't work. The link may be down, or my opt-out simply doesn't stick technologically, or the sender just ignores me. This is true even for senders who are involved in the legal industry and are spamming lawyers who love to bring lawsuits (never a wise move). If I were a litigious plaintiff, I would have no problem finding plenty of defendants.

Email also has the downside that the sender has my email address and may share it with others who are going to clutter up my in-box. With a good spam filter, this extra unwanted email isn't a huge problem, but the mere threat of subsequent email deluges can give me pause about whether or not I trust a website enough to give them my email address. (As you can appreciate, the website's privacy policy is a complete non-factor in my trust determination).

From the sender's standpoint, email is a huge pain. It is more heavily regulated than other marketing media, and complying with the regulations (such as providing a reliable opt-out mechanism) is costly and filled with litigation risks. Perhaps more importantly, email can be reported or killed as spam at several steps along the way, and the sender can be tagged as a spammer as well for all future messages. So, for example, a big website's email distribution of an announcement about a new user agreement or privacy policy--a completely legitimate communication between a site and its users--is almost certain to prompt a flurry of unsubscribes, emails from users who insist to their IAPs and email service providers that they are being spammed (even though they often just forgot about the relationship), and lots of bouncebacks from dead email addresses that may cause some IAPs/email service providers to blacklist the sender as a spammer. Plus, a bunch of users will never see the message at all because it goes into their spam folder. (Recall, for example, that AT&T spam-foldered its own contract amendment announcement). These are not exactly the hallmarks of an effective communication technology.

Contrast the user experience with Twitter. More than anything, Twitter is a no-risk opt-in communication tool for consumers to listen to marketers. I can follow a brand at Twitter any time, and more importantly, I can unfollow at any time too. Plus, there isn't any risk that the brand I'm following will ignore my unsubscribes or pass along my Twitter username to spammers. When I unfollow, the relationship is completely over on my terms.

From the brand's standpoint, Twitter has none of the baggage of email marketing. No spam folders to fear, no unsubscribes to manage, no CAN-SPAM. Sure, Twitter's tight character restriction mostly limits marketers to headlines, but frankly this isn't all that different from maximizing email subject lines to get email recipients to open the email.

Twitter has one other really important benefit for brands. Folks are often willing to retweet a message--even a commercial message--thereby sharing it to their entire follower base in ways that these same folks would never forward a commercial email to hundreds of their friends. And this type of word-of-mouth marketing is the holy grail of marketing because of the extra imprimatur of having the message validated by someone in the reader's social network. The retweeting phenomenon is a powerful traffic driver (I've been watching how it boosts my bit.ly stats), and marketers who aren't on Twitter are missing some upside. (Please, marketers, don't even consider shilling or astroturfing or any of those other silly stunts to generate faux word-of-mouth marketing; if you have a good offering, you really don't need to disrespect people that way).

I don't follow many commercial brands in Twitter, but I do want to mention three brands that have impressed me:

@LivingHarvest. I tried hempmilk for the first time recently, and I was fascinated to learn about the extensive anti-industrial hemp regulations that have hampered hempmilk from coming to market. LivingHarvest, a hempmilk manufacturer, is Twittering the status of various legislative efforts to enable industrial hemp farming. It's a fascinating political drama.

@UnitedAirlines. I am a frequent flyer on United Airlines, so I'm already on their email list. But they have totally gotten the point of Twitter. Not only have they been offering valuable freebies to their Twitter follower to boost their subscriber count (they are giving away discount certificates if you sign up before they hit 50,000 followers), but they also offer "Twares," blowout deals on remnant inventory. LOVE IT!

@AmazonMP3. Amazon offers one highly discounted MP3 download a day, and this Twitter account notifies me of the deal of the day. Great stuff. I've lost track of the number of times I've purchased albums this way.

Twitter practices like these build my trust as a loyal customer and pull cash out of my wallet in ways email marketing never did.

One final point: RSS offers many of the same benefits as Twitter in terms of reader empowerment, although it does not have the same retweeting upside. In particular, RSS is a true opt-in like Twitter. The website doesn't get my email address, and whenever I unsubscribe from the RSS feed in my RSS reader, it's over.

For example, as I recently mentioned, RSS is a great option for websites to allow users to learn about changes to user agreements and privacy policies on a true opt-in basis. In this respect, RSS is so much better than email. Consider, for example, DoubleClick's privacy policy, which offers users the opportunity to learn about privacy policy amendments by signing up to an email list. (DoubleClick will rarely have the email address already because it doesn't have direct privity with users). DoubleClick's option is a more enlightened practice than most similar web services, but still, no thanks. If I don't trust DoubleClick's privacy practices to begin with, I'm not going to give them my email address with the risk that they will spam the crap out of it and pass it along to others who will spam the crap out of it too. Of course DoubleClick promises not to do this, but the whole point is that those promises mean nothing to the people who don't trust DoubleClick to begin with. On the other hand, if DoubleClick offered an RSS feed to announce modifications to its privacy policy, then I could subscribe to its notifications with no spam risk at all.

I'm so enamored with RSS as a superior notification tool for announcing privacy policy and user agreement amendments that I will be recommending it to all of my clients as a supplement to other notification options. I hope you'll consider doing the same.

Posted by Eric at 07:03 AM | Marketing , Spam , Trademark | 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 overcharge