Technology & Marketing Law Blog

January 31, 2012

Court Denies Kravitz’s Motion to Dismiss PhoneDog’s Amended Claims -- PhoneDog v. Kravitz

[Post by Venkat Balasubramani]

PhoneDog v. Kravitz, 2012 U.S. Dist. LEXIS 10561 (N.D. Cal.; Jan. 30, 2012)

PhoneDog and Kravitz are fighting over ownership of the Twitter account Kravitz used while he was working for PhoneDog. In an earlier order, the court allowed several of PhoneDog’s claims to continue, although it dismissed PhoneDog’s claims for economic interference due to Kravitz’s allegedly improper taking of the Twitter account.

The court's initial order allowed PhoneDog's claims for conversion and misappropriation of trade secrets to proceed, but dismissed PhoneDog's claims for negligent and intentional interference with economic relationships. I thought PhoneDog’s claims were weak at best, and the court could have whittled down the litigation and guided the parties to their ultimate destination—settlement—by culling some of the claims, but no such luck.

With respect to intentional interference with prospective economic advantage, the court accepts PhoneDog’s theory that:

[d]ue to Kravitz’s alleged conduct, there is decreased traffic to [the] website through the [Twitter] Account, which in turn decreases the number of website pageviews and discourage advertisers from paying for ad inventory on PhoneDog’s website.

This looks like a broad theory of economic interference that would sweep up a lot of otherwise innocent conduct, but the court says that at the pleading stage, this is sufficient. The judge’s decision on economic interference seems to view traffic as an asset that can be misappropriated (even if there is no trademark claim, the economic interference claim is like a claim for diversion of traffic). The court also says that PhoneDog’s negligent interference theories also have merit at the pleading stage because “Kravitz owed a duty of care to PhoneDog as an agent of PhoneDog.”

The net result is that all of PhoneDog’s claims move forward, and Kravitz (and PhoneDog) will have to slog through some additional discovery in order to resolve PhoneDog’s claims at the summary judgment stage.

I can't think of any new lessons to draw from this ruling, except that some sympathetic judges will let claims move forward. It would have been cheaper and quicker for everyone involved to have entered into a written agreement addressing the issue, or at least to have addressed this question up front (even if informally).

Previous posts:

An Update on PhoneDog v. Kravitz, the Employee Twitter Account Case
Courts Says Employer's Lawsuit Against Ex-Employee Over Retention and Use of Twitter Account can Proceed

Related posts:

Another Set of Parties Duel Over Social Media Contacts -- Eagle v. Sawabeh
Employee's Claims Against Employer for Unauthorized Use of Social Media Accounts Move Forward--Maremont v. SF Design Group
Ex-Employee Converted Social Media/Website Passwords by Keeping Them From Her Employer--Ardis Health v. Nankivell
Court Declines to Dismiss or Transfer Lawsuit Over @OMGFacts Twitter Account -- Deck v. Spartz, Inc.

Posted by Venkat at 08:25 AM | Marketing , Publicity/Privacy Rights , Trespass to Chattels

January 20, 2012

Google Gets Significant Win in AdWords/Parked Domains Case

By Eric Goldman

In re Google AdWords Litigation, 2012 WL 28068 (N.D. Cal. Jan. 5, 2012)

Google defeated class certification in an AdWords-related case over Google's placement of ads on parked domains. This almost certainly ends this case in practice, as few if any advertisers will find it worth continuing the case on their own. This ruling also takes us closer to the end of litigation wars over parked domains.

The advertisers sued Google for placing AdWords ads on parked domains and error pages and not adequately disclosing these facts.

The court finds standing under both California UCL/FAL and Article III based the named plaintiffs' allegations that they bought advertising they wouldn't have bought if they knew where Google was going to put it. This was also good enough to confer standing for the unnamed plaintiffs; the court says that "where one class representative in a UCL or FAL class action has already established Article III standing, the court need not analyze the standing of unnamed class members."

The court also finds numerosity, typicality, adequacy, and commonality (on the question of “whether Google’s alleged omissions were misleading to a reasonable AdWords customer”). However, the court rejects class certification on predominance grounds. Even though there are common legal questions among the advertisers, their idiosyncratic factual questions are more important than the common legal questions. Specifically, because only some advertisers were financially harmed by Google's placement of ads on parked domains and error pages, the court would have to investigate each advertiser's results to determine if restitution were appropriate. Further, because each click was auctioned off and sold for a constantly changing price, it would be hard to calculate the "but for" pricing that advertisers would have paid. Plus, not every advertiser is seeking click conversion; presumably (although not articulated in the court's opinion) some advertisers compute their bids on the branding value of ads. The court thus concludes this discussion by saying "any effort to determine what advertisers “would have paid” under a different set of circumstances requires a complex and highly individualized analysis of advertiser behavior for each particular ad that was placed."

To fix this problem, advertisers' counsel suggested a variety of restitution formulae that relied on blanket assumptions applicable to all advertisers. The court rejects these categorical approaches, saying "[s]ince the purpose of restitution is to return class members to status quo, the amount of restitution due must account for the benefits received from ads placed on parked domains and error pages." This too requires a per-advertiser assessment.

Google continues to make substantial progress cleaning up its AdWords litigation docket. Recently, it got rid of Woods v. Google over click fraud and improper pricing discounts; it defeated class certification in FPX v. Google over trademark triggering; and the Ninth Circuit upheld its settlement of the CLRB Hanson case. Even so, it's also clear that litigation forays by advertisers will be a perennial aspect of Google's life going forward; partially due to Google's occasional corner-cutting, but mostly due to advertisers' wish that they could get unlimited traffic at no cost. Then again, the plaintiffs' bar will be sharing some of that joy with Facebook too.

This lawsuit was just one of several lawsuits over the legitimacy of parked domains. I've criticized Google before for its AdSense for Domains program, which fosters an ecosystem that motivates questionable domain name registrant behavior while providing little if any real value to consumers. From my perspective, it's pathetically anachronistic that Google still offers its parked domain program--what is this, 2004? Time for Google to grow up a little more.

While I think it's sad Google can't wean itself from the questionable revenues it derives from its parked domains program, I think it's even sadder to see plaintiffs trying to attack the parked domains ecosystems using proxy defendants like intermediate service providers rather than just going after the domain name owners directly. See, e.g., Vulcan Golf v. Google; In re Yahoo; uBid v. GoDaddy; etc. Let's hope this ruling discourages plaintiffs from bringing future proxy battles over parked domains.

Posted by Eric at 09:24 AM | Domain Names , Licensing/Contracts , Marketing , Search Engines | TrackBack

January 19, 2012

Just How Egregiously Must a Trademark Plaintiff Act Before a Court Awards Attorneys' Fees to the Defendant?--1-800 Contacts v. Lens.com

By Eric Goldman

1-800 Contacts v. Lens.com, 2012 WL 113812 (D. Utah Jan. 13, 2012). Prior blog posts on the case dismissal in December 2010 and 1-800 Contacts' fee dispute with its attorneys.

The federal trademark statute says judges may award attorneys' fees to the winning party in "exceptional" cases. What does it take for a case to be "exceptional"? Apparently, it has to be pretty egregious conduct, as this long-running money pit of a case illustrates.

1-800 Contacts sued Lens.com for competitive keyword advertising. Through the course of the litigation, we learn the following facts:

* 1-800 Contacts accrued $650k in legal fees pursuing the case and capped its legal fees at $1.1M before it stiffed its law firm.
* the defendant Lens.com made less than $21 in profits from its competitive keyword ad buys. 1-800 Contacts also tried to attribute to Lens.com keyword ad buys made by Lens.com's affiliates, a legal argument the court ultimately rejected.
* 1-800 Contacts had done the same thing it was suing Lens.com for doing. 1-800 bought Lens.com's keywords and made about $220k in profit from those keyword ad buys, yet it had duplicitously tried to shut down Lens.com for making less than $21.

To me, this looks like an egregious misuse of the litigation process--exactly the kind of sanctionable behavior that should be considered "extraordinary" enough to make the plaintiff reimburse the defendant for its sizable legal fees. Indeed, the court has harsh words for 1-800 Contacts, including calling 1-800 Contacts' behavior "troubling" and specifically referencing its hypocrisy for suing over behavior it had itself engaged in. The court also says "1-800 Contacts’ actions raise questions about vexatious suits to defeat competition."

Nevertheless, the court decides not to award attorneys' fees. The court cites the following factors in denying the attorneys' fee request:

* the legitimacy of keyword advertising remains legally unsettled. Even when it was clear the direct infringement case was weak, 1-800 Contacts still had a non-frivolous claim for secondary infringement.
* Lens.com did engage in competitive keyword advertising, even if its purchases were "minuscule."
* Lens.com itself was sanctioned for discovery violations.
* even though 1-800 Contacts' expert reports were largely tossed, some of the reports were admitted.

It's clear the judge had distaste for both parties. Lens.com also has a parallel antitrust claim going against 1-800 Contacts in a different forum, and the judge seemed to be deferring to that case to remediate any abuses by 1-800 Contacts. Still, given 1-800 Contacts' condemnable conduct, it's curious the judge didn't stick them with a fee shift.

I think this ruling gives us some more insight into the trademark bullying phenomenon. The mockably ridiculous USPTO report on trademark bullying noted that trademark law's fee shift provision acts as a deterrent against abusive trademark litigation. (For example, it says "the potential for an award of attorneys’ fees is an existing deterrent to misuse of the litigation process in trademark disputes.") Given how hard it is to get a fee shift in light of a ruling like this, this was just another way in which the USPTO completely understated a very real problem in the field.

Posted by Eric at 03:34 PM | E-Commerce , Marketing , Search Engines , Trademark | TrackBack

January 11, 2012

An Update on PhoneDog v. Kravitz, the Employee Twitter Account Case

[Post by Venkat Balasubramani]

PhoneDog v. Kravitz, No. C 11-03474 MEJ (N.D. Cal.) (Amended Complaint) (Motion to Dismiss) (PhoneDog Opposition) (Kravitz's Reply)

In November, the court allowed PhoneDog’s claims against Kravitz for conversion and trade secrets to proceed. ("Courts Says Employer's Lawsuit Against Ex-Employee Over Retention and Use of Twitter Account can Proceed.") In its initial order, the court rejected PhoneDog's interference with economic advantage claim because it was muddled and didn't clearly specify what economic relationship PhoneDog alleged Kravitz allegedly interfered with.

PhoneDog filed an amended complaint, clarifying its economic interference arguments (or trying to at least). Kravitz moved to dismiss the amended claims. I've linked to the pleadings above. PhoneDog claims that it had an economic relationship with the followers of Kravitz’s Twitter account, so Kravitz taking the account disrupted this relationship. PhoneDog also claims this affected its relationship with “existing and prospective advertisers” on PhoneDog’s website. Finally, PhoneDog argues that Kravitz interfered with its economic relationship with CNBC and Fox News by continuing to contribute to programs on these channels after he left PhoneDog. Regardless of how the court rules on the economic interference claims, the conversion and trade secrets claims will continue (for now).

For what it’s worth, although I don't know the precise contours of economic interference claims under California law, PhoneDog’s claims look tenuous--especially the one about the disruption of economic relationship between PhoneDog and the followers of Kravitz’s Twitter account. In the usual scenario, there's no real economic relationship between an account and followers. People follow because they are interested in information. It's not like anyone is charging their followers--i.e., typically there's no money changing hands between an account and followers. (I assume some sort of direct economic relationship (or expectation) is required to bring a claim, but the court's order isn't overly specific on this point.) Another thing to consider is that the account/follower relationship is dynamic. If people don't like what they hear from an account or they don't like a change in voice, they can unfollow, instantly and at no cost. The core of the economic value, if any, is in the ongoing content and the voice. PhoneDog also argued Kravitz continuing to use the Twitter account was a disruption of its relationship with advertisers, but I'm skeptical that PhoneDog will be able to show that advertisers on its website cared about the Twitter follower numbers. It may be true that traffic to the website diminished and and as a result PhoneDog generated less revenues from advertising, but that shouldn't amount to Kravitz's interference with PhoneDog's relationship with its advertisers.

After the court initially ruled on Kravitz’s motion to dismiss, another court (in Pennsylvania) issued its order in the LinkedIn case (Eagle v. Morgan). That order didn't cleanly resolve the claims over ownership of the LinkedIn account, but it does take a pretty dim view of the economic interference claim based on Dr. Eagle’s continued use of her LinkedIn account. (“Edcomm failed to point to “one potential contract that would . . . have materialized” absent Eagle’s alleged interference.”) As WSJ’s Law Blog notes, Kravitz filed a copy of this ruling as supplemental authority and requested the court to take judicial notice of it. Interestingly, in Eagle, the court notes that a password can’t be a trade secret because it’s not something that a competitor can derive economic value from. This should be equally applicable to PhoneDog’s argument that Kravitz misappropriated trade secrets by continuing to use the Twitter account. A Twitter account shouldn’t be a trade secret. But the court already allowed the claim to go forward, and Kravitz is going to have to raise this in a summary judgment motion.

I previously expressed some skepticism about PhoneDog’s case, but I’m even more skeptical now. I also question whether it was really in PhoneDog's interest to sue Kravitz over this. Was it really worth PhoneDog's expenditure of energy and fees to try to get back the Twitter account? Also, public sympathies have mostly tilted towards Kravitz. Kravitz has experienced a media bonanza as a result of this lawsuit and has gotten (mostly favorable) press coverage in a variety of different outlets, including the New York Times. Kravitz continues to Tweet, and he has taken a few opportunities to poke PhoneDog over its claim that each follower was worth $2.50 per month. His Twitter bio even says “People are not property. Love over gold.” People overall seem sympathetic to Kravitz’s side of the story. Someone even set up a “Save Noah” website and Twitter account. The net result of PhoneDog's lawsuit so far is a personal branding bump for Kravitz.

I’m not seeing a clear parth to victory for PhoneDog here (and more likely I’m guessing the case settles), but in the unlikely event PhoneDog wins control over the Twitter account, it will be interesting to see if the followers unfollow the account en masse.

Other coverage:

Before Dispute over Twitter Account, a Fight Over LinkedIn (WSJ Law Blog)
A Dispute Over Who Owns a Twitter Account Goes to Court (NYT)

Previous posts:

Another Set of Parties Duel Over Social Media Contacts -- Eagle v. Sawabeh
Employee's Claims Against Employer for Unauthorized Use of Social Media Accounts Move Forward--Maremont v. SF Design Group
Courts Says Employer's Lawsuit Against Ex-Employee Over Retention and Use of Twitter Account can Proceed--PhoneDog v. Kravitz
Ex-Employee Converted Social Media/Website Passwords by Keeping Them From Her Employer--Ardis Health v. Nankivell
Court Declines to Dismiss or Transfer Lawsuit Over @OMGFacts Twitter Account -- Deck v. Spartz, Inc.

Posted by Venkat at 09:45 AM | Marketing , Trade Secrets

January 04, 2012

Nov.-Dec. 2011 Quick Links, Part 3

By Eric Goldman

Marketing and Advertising

* Facebook is putting Sponsored Stories in user newsfeeds. Naturally, they will make the ad label almost invisible. Yet another reason to hate Facebook, and what a desperate act of financial overreaching to goose their IPO. FWIW, I absolutely hate that Twitter does the same thing. It's terribly marked as an ad, and it takes me more time than it should to figure out why it's appearing in my stream. Boo for Twitter, and boo for Facebook.

* Then again, not all Twitter ads are objectionable. The most popular tweet of 2011? An ad from Wendy’s.

* Interesting NAD decision involving Coastal Contacts' offer of "free" glasses in exchange for Facebook likes. Compare the subsequent ruling in Fraley v. Facebook.

* Top 10 PR Blunders of 2011.

* FTC does another bust of health marketers who allegedly used affiliates to create fake news sites. Prior blog post.

* Rebecca reports on a lawsuit over marketing that chickens were “raised humanely.” Note to meat eaters: there's no such thing as mass-raising of animals "humanely" for our food consumption. Invariably, meat-eaters who actually take the effort to understand the process of manufacturing meat decide to reduce their meat consumption.

* NYT on caller ID spoofing. The FTC just announced another bust on this front.

* AdAge: FDA's Social-Media 'Guidelines' Befuddle Big Pharma.

* Yahoo Inc. v. XYZ Companies, 2011 WL 6072263 (S.D.N.Y. Dec 5, 2011). Yahoo gets a huge and uncollectable default judgment of $610M under CAN-SPAM against Nigerian spammers.

* Adware déjà vu: Facebook bitches about adware. Prior blog post.

* A table manufacturer tinkers with his AdWords account and discovers a correlation between AdWords and clicks on his organic links (1, 2). Prior blog post.

* Pom loses a jury trial against Ocean Spray over false advertising.

* Washington Post: An inside look at the world of TV news payola/“plugola.”

* Ad Naseum on reverse product placement, i.e., manufacturing virtual brands created for TVs and movies.

* NYT: In China, car brands have very different meanings to consumers than they do in the US (except for BMW, where the brand attributes are surprisingly the same).

* Cracked: 5 Black Friday Myths The Media Wants You to Believe.

Privacy

* In re Facebook Privacy Litigation, 2011 WL 6176208 (N.D. Cal. Nov. 22, 2011). Prior blog post. Judge Ware dismisses the Facebook/Zynga referrer ID case with prejudice. Wendy Davis' coverage. It appears the plaintiffs have appealed (sub nom Graf v. Zynga) to the Ninth Circuit.

* Facebook will make 45 privacy-related changes—almost none of them “important”—to appease the Irish Data Protection bureaucrats.

* Mark Zuckerberg has extensive experience apologizing to Facebook users for Facebook's privacy transgressions.

* USA Today on how Facebook tracks user activity at websites other than its own.

* Cohen v. Facebook appealed to the Ninth Circuit. I'm not sure how the Fraley v. Facebook ruling affects this. Prior blog post.

* Interesting visualization of Facebook’s creeping degradation of privacy for user-provided info.

* In the Matter of ScanScout, Inc., FTC File No. 1023185:

According to the FTC complaint, from at least April 2007 to December 2010, ScanScout’s website privacy policy discussed how it used cookies to track users’ behavior. The privacy policy stated, “You can opt out of receiving a cookie by changing your browser settings to prevent the receipt of cookies.” However, changing browser settings did not remove or block the Flash cookies used by ScanScout, the FTC charged. The claims by ScanScout were deceptive and violated the FTC Act, the complaint alleged.

* FTC bust of Skid-e-Kids for COPPA violations.

* Another cookie litigation settlement where the lawyers get almost all of the settlement value. PaidContent and MediaPost coverage.

* Weber v. Google, over Google toolbar snooping, was quietly dropped.

* Incorp Services, Inc. v. Does 1-10, 2011 WL 5444789 (N.D. Cal. Nov. 9, 2011). The court orders unmasking of alleged click fraudders:

By tracking the clicks over the course of several weeks and narrowing a substantial portion of the activity to only two IP addresses—both owned by the same ISP—Incorp has provided sufficient information to indicate that the responsible parties are “real person(s)” who may be sued in federal court. Incorp also has demonstrated that it took reasonable steps to identify Defendants. Because information pertaining to the assignee of an IP address is maintained by the third-party ISP, the only way in which Incorp is able to identify definitively the parties associated with the suspect IP addresses is by subpoena to the ISP.

* In re Application of the USA for an Order Pursuant to 2703(d), 1:11-dm-00003-TCB –LO (E.D. Va. Nov. 10, 2011). No Fourth Amendment privacy protection for IP addresses.

* NYT provides yet another update on some European regulators' efforts to kill Silicon Valley.

* Peter Fleischer: Harsher data protection sanctions are coming.

Contracts

* Stebbins v. Texas, 2011 WL 6130403 (N.D. Tex. October 24, 2011). Another court calls David Stebbins’ attempt to manufacture an arbitration award “frivolous,” saying “his factual assertions that the alleged contract was formed when Plaintiff sent an e-mail to Defendant with a blog link and a dollar bill describe fantastic or delusional scenarios that are clearly irrational and incredible.” Prior blog coverage (1, 2).

* Garon v. eBay, Inc., 2011 WL 6329089 (N.D.Cal. Nov. 30, 2011). No antitrust claims for vendors who eBay terminated for low ratings. I think eBay should have been able to use 47 USC 230(c)(2) (not discussed by the judge).

* Fadal Machining Centers, LLC v. Compumachine, Inc., 2011 WL 6254979 (9th Cir. Dec.15, 2011). In a B2B context, enforcing an arbitration clause posted to the web that was incorporated by reference in the vendor’s invoices.

* Spam Arrest v. Marketingesquire complaint: Spam Arrest sues an email marketer for violating its TOS by sending "spam."

* Wofford v. Apple Inc. (S.D. Cal. Nov. 9, 2011). Free software update to iPhone software did not constitute a "tangible good or service" for California CLRA purposes.

* How plaintiff firms are adapting to Concepcion.

* WSJ: Are We All Online Criminals?

Posted by Eric at 03:04 PM | Marketing , Privacy/Security , Spam | TrackBack

Keyword Advertiser Mostly Defeats Trademark Lawsuit--Scooter Store v. SpinLife

By Eric Goldman

Scooter Store, Inc. v. SpinLife.com, LLC, 2011 WL 6415516 (S.D. Ohio Dec. 21, 2011). The Justia page.

This is a spirited litigation between two retailers of wheelchairs, motorized scooters and related items. Maybe that retailing sector is so profitable that it warrants a litigation cat-fight, but my guess is these litigants are spending their retirement money beating up each other in court.

Today's ruling deals with SpinLife's AdWords advertising triggered on keywords such as “the scooter store,” “scooter store,” “my scooter store” and “your scooter store” as well as the inclusion of such terms in the spinlife.com's metatags. The plaintiff (let's call them TSS) has registered trademarks in "The Scooter Store" in certain classes but not for retail stores, because the PTO rejected that usage as generic. TSS asserted that SpinLife's keyword ads and metatags infringed its trademark rights.

The court ultimately concludes that "The Scooter Store" is generic for retail stores. This isn't surprising; the PTO had said the same thing to TSS. In fact, I've argued that all "[noun] store" marks (where the store sells the noun) are generic. Surprisingly, a different court ruled otherwise with respect to Apple's claims over "app store." I still think that court got it wrong.

Weirdly, having held the term generic, the court then spends several pages considering the question: "Can SpinLife's use of generic phrases cause consumer confusion?" What??? TSS tried to argue that it's enforcing its trademarks from other classes, not the generic term. The court wisely rejects that. If a term is generic in a class, then it's free for competitors to use in that class--FULL STOP, end of story.

The weirdness continues when the court doesn't dismiss the state anti-dilution claim based on TSS's purported rights in a generic term. WHAT??? Apparently the court is willing to consider TSS's trademark registrations in the other classes for dilution purposes, even though the court just said the registrations were irrelevant for infringement purposes. I understand that dilution claims cut across classes, so that part makes sense, but it's crazy to consider that a registered mark could control the term's use in a class where it's generic. The federal anti-dilution statute has a number of defenses that would clearly free the defendant, so the court's ambivalence may just be a quirk of Texas' anti-dilution statute. In any case, I imagine the judge will get to the right place eventually, but the fact it didn't get there instantly is puzzling.

Before the court declared TSS's marks generic, SpinLife argued that buying trademarked keywords is categorically permissible under trademark law per 1-800 Contacts v. Lens.com. The court rejects this strong proposition, saying "this Court will not rely on a single out-of-circuit case to conclude that the Adword purchases are not actionable under any circumstances." The court's decision isn't surprising given the diversity of rulings we've seen over trademarked keywords, although I think the world would be a better place if the court did adopt the strong proposition.

In the end, the court says SpinLife is free to use "scooter" and "store" in AdWords and its metatags without restriction. Furthermore, TSS ends up with weaker assets than it thought it had pre-litigation (see, e.g., American Blinds which exited its keyword advertising enforcement case similarly bereft) and a clear signal that it should stop spending money on its lawyers and start investing those dollars towards competing on the merits.

Other cases in the category of irrational enforcement actions against keyword advertisers:

- King v. ZymoGenetics. The defendant advertiser got 84 clicks.
- Storus v. Aroa. The defendant advertiser got 1,374 clicks over 11 months.
- 800-JR Cigar v. GoTo.com. The search engine defendant generated $345 in revenue from the litigated terms.
- Sellify v. Amazon. The defendant got 1,000 impressions and 61 clicks.
- 1-800 Contacts v. Lens.com. 1-800 Contacts spent no less than $650k (and was willing to spend $1.1M) to pursue Lens.com, which made $20 of profit from competitive keyword ads. It also tried to hold Lens.com responsible for affiliate ad buys which generated about 1,800 clicks, which under the most favorable computations were worth about $40k.
- InternetShopsInc.com v. Six C. The defendant got 1,319 impressions, 35 clicks and zero sales.

Posted by Eric at 09:00 AM | E-Commerce , Marketing , Search Engines , Trademark | TrackBack

December 20, 2011

Hyundai Gets a Pass from the FTC on Endorsement Issues, in Part Due to Its Social Media Policy

[Post by Venkat Balasubramani with updated comments from Eric]

In re Hyundai Motor America, FTC File No. 112-3110 (Nov. 16, 2011) [.pdf]

We've posted on the FTC endorsement guidelines, which broadly require disclosure of relationships, and incentives provided to those who endorse products or companies. ("FTC Dings PR Firm for Fake Reviews -- In re Reverb Communications"; "FTC Drops Investigation of Advertiser Who Gave Gifts to Bloggers"; "FTC Online Endorsement Guidelines Strike Again - FTC Dings Legacy Learning Over Allegedly Misleading Affiliate Reviews.") The FTC recently closed an investigation on Hyundai, whose marketing agency gave bloggers gift certificates as an incentive to "include links to Hyundai videos in their posts and/or to comment on . . . forthcoming Super Bowl ads." You can access a copy of the FTC's closing letter here [.pdf].

The FTC provided two reasons for why it closed the investigation into Hyundai's promotions:

- Hyundai did not know in advance about the incentives, which were offered by an employee of Hyundai's marketing agency.
- offering an incentive to post about or endorse a Hyundai product was contrary to the social media policies of both Hyundai and its marketing agency.

It was challenging to me to make sense of the FTC's decisions under its endorsement guidelines. Thus far, the FTC has taken action against entities who directly violate the rules (Reverb), or those who have an active role in encouraging reviews or endorsements which violate the endorsement guidelines (Legacy Learning). It seems that entities that haplessly dole out gifts with the unarticulated expectation of reciprocation in the form of an endorsement have yet to come under the FTC's knife (see this investigation and Ann Taylor). Meanwhile, the FTC seems to have given celebrities--who reportedly shill for products and companies on a regular basis without accompanying disclosures--a free pass.

The FTC's reliance on the social media policies of Hyundai and its marketing agency is interesting and yet another data point in favor of adopting a social media policy. Query as to whether the FTC's reliance on these policies is inconsistent? The FTC doesn't seem to accept affiliate agreements at face value for the proposition that companies are policing their affiliates. It's odd for the FTC to accept a social media policy for the same purpose.

Update: The FTC's Business Center blog has a nice explanation for the FTC's rationale in this matter. ("Using social media in your marketing? Staff closing letter is worth a read.") The FTC recommends following the M.M.M. approach:

1) Mandate a disclosure policy that complies with the law;
2) Make sure people who work for you or with you know what the rules are; and
3) Monitor what they're doing on your behalf.

Other coverage:

FTC Closes an Investigation Into a Blogging Promotion

Related posts:

"FTC Dings PR Firm for Fake Reviews -- In re Reverb Communications"
"FTC Drops Investigation of Advertiser Who Gave Gifts to Bloggers"
"FTC Online Endorsement Guidelines Strike Again - FTC Dings Legacy Learning Over Allegedly Misleading Affiliate Reviews"
____________

Eric's Updated Comments

1) The FTC Endorsement and Testimonial Guidelines are confusing to everyone, even the FTC. Recall the public discord they had over whether Ashton Kutcher broke the rules. I remain skeptical that the FTC understands what it said in its own rules.

2) Regardless of what they said, the FTC's goals are clear: they hate inauthentic content online, and that includes content that might be financially motivated without sufficient disclosure to the reader/viewer. If they could wave their magic wand and eliminate all that content from the Internet deus ex machina, they would.

3) Unfortunately for the FTC, they can't wave their magic wand, so they have to bring enforcement actions. But they have made it 100% clear that they really do not want to go after individual bloggers--even though the bloggers are the ones who the FTC thinks are actually violating the Endorsement and Testimonial Guidelines. It makes sense that the FTC doesn't want to chase individual bloggers, who are multitudinous and often legally unsophisticated, but it means the FTC refuses to go after the most responsible individuals.

4) Because the FTC won't go after the direct violators, they are casting a net for other folks to hold responsible. I've previously raised the concern that such trawling for secondary violators is impermissible under 47 USC 230, a statute the FTC wishes didn't exist. Because they are going after the secondary players with a weak theoretical justification for holding the secondary players responsible while not simultaneously enforcing the rules against the principal players, the FTC is effectively developing its rules on the fly. Not surprisingly, such an ad hoc development of rules can be hard to keep consistent.

5) Because the FTC doesn't want to unfairly impose liability on secondary players for actions they can't necessarily control, the FTC has made it quite clear that it expects advertisers playing in the financially-motivated online content space to do the following:

* tell bloggers not to break the law
* tell their agents not to break the law
* double-check after-the-fact to see if anyone has broken the law and undertake efforts to remediate those violations

This may seem a little silly and formalistic as a way of complying with the Endorsement and Testimonial Guidelines, but it appears like it's enough to satisfy the FTC.

6) As Venkat points out, the FTC's position here may be harder to reconcile with the FTC's position about other forms of liability based on affiliate actions, where the FTC may not be OK with simply including "comply with the law" provisions in the contracts and doing after-the-fact spot checking. If the FTC is going to hold advertisers liable for third party actions--a paradigm I think they should categorically abandon, especially in light of 47 USC 230--then it would be great if the FTC would publicly reconcile these different attitudes towards third party liability. Given the FTC's steadfast refusal to provide bright-line rules that might limit its future discretion, I wouldn't hold my breath waiting for such clarification.

Posted by Venkat at 07:44 PM | Derivative Liability , Marketing

December 19, 2011

Facebook "Sponsored Stories" Publicity Rights Lawsuit Survives Motion to Dismiss--Fraley v. Facebook

By Eric Goldman

Fraley v. Facebook, Inc., 2011 WL 6303898 (N.D. Cal. Dec. 16, 2012)

Because Facebook does so many things that aren't in users' interests, their "Sponsored Stories" program barely registers. Nevertheless, Sponsored Stories demonstrates why many people are burned out on Facebook. Facebook collects user preferences through its semantically ambiguous "like" button and then uses that data to show ads to the users' friends with a seeming endorsement. Using my preferences does little to advance my relationship with my friends, but the implicit endorsement is designed to get my friends to investigate the ads, increasing the advertiser's credibility and Facebook's profits. So Sponsored Stories creates a zero-sum game: I as a user probably don't get any value from the public presentation of my implicit endorsement (if anything, it might hurt my position with my friends), but Facebook and its advertisers benefit from it.

My response to Facebook's rollout of Sponsored Stories was swift and decisive: I don't "like" any businesses on Facebook or do any other activities on Facebook that I believe can trigger a Sponsored Story. (I would also categorically opt-out of being a part of Sponsored Stories if Facebook actually let me decide what I want to share with my friends, but Facebook doesn't). Instead, if I want to make a commercial recommendation to my friends--something I do occasionally--I just share it directly in my status report. That way, I control the message I deliver to my friends, instead of letting Facebook or advertisers control how they communicate my interest to my friends. And the zero-sum nature of Facebook's offering drives a deeper wedge into my relationship with Facebook, making me less willing to use Facebook generally and more receptive to alternatives.

To me, this marketplace response is adequate. To plaintiffs' lawyers, however, Sponsored Stories gives another reason for a litigation fiesta. Remarkably, unlike so many other "privacy" lawsuits against Internet companies, this lawsuit survives the motion to dismiss--dramatically increasing the odds that Facebook will be writing a check for this so-called "feature."

This is a rich and interesting opinion by Judge Koh that has something for everyone to "like" (or dislike). Some of the highlights:

Article III Standing

In a ruling that bucks a mini-trend, Judge Koh upholds the case from an Article III standing challenge. She says that violation of a statutory right (in this case, California's publicity rights statute) automatically satisfies the actual harm requirement of Article III standing. The plaintiffs also satisfied the "particularized" and "concrete" requirements of Article III by explaining how the Sponsored Stories feature used their information.

She explicitly distinguishes numerous defense-side Article III wins (including her own recent iPhone application litigation and Low v. LinkedIn decisions) by noting the particular nature of the plaintiffs' publicity rights claim. In this case, unlike the others, the plaintiffs are claiming that their endorsement had commercial value to help sell goods to others, compared to the situation in the prior cases where the commercial value of a user's data came from theoretically improved marketing to the user him/herself. She says:

Plaintiffs here do not allege that their personal browsing histories have economic value to advertisers wishing to target advertisements at Plaintiffs themselves, nor that their demographic information has economic value for general marketing and analytics purposes. Rather, they allege that their individual, personalized endorsement of products, services, and brands to their friends and acquaintances has concrete, provable value in the economy at large, which can be measured by the additional profit Facebook earns from selling Sponsored Stories compared to its sale of regular advertisements.

She says later:

Plaintiffs assert that they have a tangible property interest in their personal endorsement of Facebook advertisers’ products to their Facebook Friends, and that Facebook has been unlawfully profiting from the nonconsensual exploitation of Plaintiffs’ statutory right of publicity. Thus, in the same way that celebrities suffer economic harm when their likeness is misappropriated for another’s commercial gain without compensation, Plaintiffs allege that they have been injured by Facebook’s failure to compensate them for the use of their personal endorsements because “[i]n essence, Plaintiffs are celebrities—to their friends.”

Clearly, Judge Koh is making a tricky intellectual move, and I bet it's going to make some privacy advocates unhappy. There is unquestionably a street value to data about a person to improve the marketing to that person, just as there is unquestionably commercial value in gaining an endorsement from a consumer. It's awkward to recognize one value and not the other. (Of course, in many of the precedent cases, there was only the possibility of data leakage; there wasn't actually a showing that any marketer had bought the leaked data for commercial reuse).

However, Judge Koh's fancy footwork rips open only a very small hole in the Article III jurisprudence. Her exception only applies where there's a statutory publicity rights claim, and only when the defendant made a commercially-motivated endorsement. I'm sure we'll see plaintiffs advance claims to take advantage of this ruling, but few plaintiffs will be able to style their claims accordingly.

In another tricky intellectual move, Judge Koh distinguishes Cohen v. Facebook, which dismissed a publicity rights claim based on Facebook's "Friend Finder" service, because this case showed a more direct connection between the friend's endorsement and the commercial value derived by Facebook. She also implies the lawyers did a better job here than in Cohen. I didn't fully understand this distinction other than Judge Koh's desire to reach a different result without disturbing the Cohen precedent.

47 USC 230

Facebook's 230 defense is tricky. First, it seeks to invoke the defense against a publicity rights claim, which the 9th Circuit said was possible in Perfect 10 v. ccBill in a controversial statutory reading that has been rejected by every other court outside the Ninth Circuit. Judge Koh doesn't touch that issue.

Second, Facebook seeks 230 protection for the ad copy it created automatically. The ad is based on a user action, the "Like," plus various pieces of user content, but Facebook assembles it all into a package that the user never sees, blesses or necessarily even wants. We've had some other cases upholding 230 when a service provider is so intimately involved with creating the final content, such as the Carafano case, but Facebook is clearly playing at the edge of the statutory immunity.

Judge Koh rules that Facebook is over that line and doesn't get the immunity. Unfortunately, she does so by saying that Facebook is partially the information content provider of the ads in question. She references the dispositive allegations:

Plaintiffs allege that Facebook creates content by deceptively mistranslating members’ actions, such as clicking on a ‘Like’ button on a company’s page, into the words “Plaintiff likes [Brand],” and further combining that text with Plaintiff’s photograph, the company’s logo, and the label “Sponsored Story.” ... Plaintiffs allege that they themselves have no control over whether to post a particular company’s name or logo, and that Facebook maintains sole control over whether to display a Sponsored Story at all.

Personally, I'd be much more sympathetic to Facebook's position if users had the specific ability to "like" a business page without simultaneously authorizing the Sponsored Story. Because Facebook's controls are insufficiently granular, Facebook automatically interprets a "like" as both a statement of user attitudes and as a green light to create the Sponsored Story. In contrast, imagine that when a user "liked" a business page, Facebook prepared the ad copy for the Sponsored Story, presented it to the user, and asked the user if the user wanted to publish the ad copy to his/her friends. At this point, I would feel much more strongly that the ad copy really was the user's words. Naturally, Facebook doesn't give users this level of control over the words being put into their mouths.

On the other hand, consider an alternative example where a website both publishes UGC on its site and then syndicates the content to third party sites. It's my position that the website gets 230 for both acts of publication, even if the user never expressly green-lighted the syndication (so long as the user-to-website license permitted the syndication). See, e.g., Prickett v. infoUSA. Based on Judge Koh's explication, I'm not exactly sure why Facebook crossed the 230 line while some of these other situations probably don't.

Facebook responded that its activities didn't make it a content provider but just represented traditional editorial functions. The court rejects the argument, citing this allegation:

Plaintiffs allege not only that Facebook rearranged text and images provided by members, but moreover that by grouping such content in a particular way with third-party logos, Facebook transformed the character of Plaintiffs’ words, photographs, and actions into a commercial endorsement to which they did not consent.

In the context of this case, I see her point. Sadly, the opinion's wording will give false hope to a slew of plaintiffs who will argue that the website's presentation of third party content constituted some type of unauthorized endorsement. It will take a few cases to burst the plaintiffs' bubbles about a new exception to 230.

The Statutory Publicity Rights Claim (CA Civil Code 3344)

Facebook took a few cracks at the claim, all of which were unsuccessful:

Newsworthiness. The publicity rights statute does not restrict using someone's personality "in connection with any news." This is a backdoor First Amendment defense, as what constitutes news tracks First Amendment jurisprudence on "matters of public interest." This defense seemed like a hail-mary for Facebook--a user "liking" a page is clearly "new" information to the marketplace, but it's not "news" in either the traditional or First Amendment sense. The court seems unimpressed, saying that even if a user "liking" a commercial product is news to that user's social network, using that information commercially drops out of the exception. I wasn't persuaded by the judge's distinction here, but then again Facebook's argument about what constituted "news" was obviously tendentious.

I was a little disappointed that Judge Koh sidestepped some interesting lurking issues about what is "news" in the modern environment, where all of us are publishers to our local communities and we as publishers can have significant clout in a small community. Some academic literature in the 1990s discussed these issues in the Internet context, but it might be worth revisiting as a paper topic. Judge Koh also sidestepped the intellectually interesting issue of whether opinions about marketplace goods are "newsworthy," something that I strongly believe to be the case in the context of anti-SLAPP laws.

Consent. Facebook argued that users consented to Sponsored Stories as part of its terms of use. The plaintiffs retorted that Sponsored Stories didn't exist when they signed up, so they couldn't have consented to it. The court says there's a factual dispute which prevents a motion to dismiss.

Injury. Facebook argued that non-celebrities have to show economic injury as part of their 3344 prima facie case. The court rejects this distinction, saying "[i]n a society dominated by reality television shows, YouTube, Twitter, and online social networking sites, the distinction between a “celebrity” and a “non-celebrity” seems to be an increasingly arbitrary one." Furthermore, the plaintiffs did allege injury by showing that their endorsements were valuable to Facebook, which helps distinguish this case from the Cohen "Friend Finder" precedent. I liked this quote:

While traditionally, advertisers had little incentive to exploit a non-celebrity’s likeness because such endorsement would carry little weight in the economy at large, Plaintiffs’ allegations suggest that advertisers’ ability to conduct targeted marketing has now made friend endorsements “a valuable marketing tool,” just as celebrity endorsements have always been so considered.

For more on this point, see my Online Word of Mouth paper.

Unfair Competition Law (UCL)

Normally, we'd expect the UCL claim to be tossed because the plaintiffs can't make the required showing that they lost "money or property." Numerous Internet privacy cases have reached that conclusion. Judge Koh makes the same intellectual move she did with Article III standing, saying that publicity rights are different than other privacy torts. She says: "[t]o the extent Plaintiffs allege they can prove that their endorsement of commercial products to their Facebook Friends has concrete, quantifiable value for which they are entitled to compensation, the Court finds that Plaintiffs have properly alleged loss of money or property for purposes of establishing standing under the UCL." I wonder if plaintiffs can make that showing because there's no existing market for consumer-to-consumer endorsements, but it's enough to survive the motion to dismiss. In particular, she says California's statutory damages for publicity rights violations aren't enough to demonstrate the value of the endorsements.

Judge Koh also concludes that plaintiffs properly alleged that Facebook's activities were unlawful, unfair and fraudulent (in the latter case, because Facebook allegedly overclaimed users' abilities to opt-out of Sponsored Stories).

Unjust Enrichment

Recent caselaw makes it even clearer that there's no separate cause of action for unjust enrichment; instead, it's just a synonym for restitution. As a result, the court tosses this claim.

Conclusion

This is not a good ruling for Facebook, but I can't really feel too sorry for it. Facebook has been playing fast-and-loose with the law in many different contexts (see, e.g., its FTC bust), and Sponsored Stories is no different. Before rolling it out, Facebook surely knew that the Sponsored Stories offering was on murky legal ground. It can't be surprised that it didn't get an easy dismissal.

Even so, if it gets that far, Facebook may yet win this case. Judge Koh has made it clear that she's a tough customer, but Facebook has plenty of power to its remaining arguments. Nevertheless, I'm reasonably confident it won't get that far. Given the importance of maximizing ad revenues and its desire to clean up legal issues in advance of an IPO, it seems more likely that Facebook will cut a deal with plaintiffs' counsel. I imagine Facebook might try to do a settlement like the Facebook Beacon settlement that results in minimal restrictive covenants, a chunk of money into the lawyers' hands, and a chunk of money that doesn't get into users' hands but instead goes into something like Facebook's privacy foundation.

UPDATE: Facebook is blazing ahead with its Sponsored Stories offering, moving the Sponsored Stories module into the newsfeed instead of on the side. (And with almost-invisible disclosure that it's an ad). Surely this means Facebook plans to win this lawsuit or to settle up. I'm voting the latter.

Posted by Eric at 09:10 AM | Licensing/Contracts , Marketing , Publicity/Privacy Rights | TrackBack

November 09, 2011

Ohio Court of Appeals: Lawyer-Plaintiff Can't Sue for Misleading Email Ads Which he Knew Were Misleading -- Cicero v. American Satelitte

[Post by Venkat Balasubramani]

Cicero v. American Satellite, Inc., 2011-Ohio-4918 (Ohio Ct. App. Sept. 27, 2011) [pdf]

Cicero is a lawyer who lives and practices in the state of Ohio. He sued defendant based on 85 marketing emails sent on behalf of the Dish Network (47) and DirecTV (38). He alleged that the emails were misleading because they “failed to state on the face of the email all of the applicable terms and conditions” of the offers and because the emails used the word “FREE” in the emails and the services in fact were not free.

During his deposition, plaintiff testified that he knew when “looking at an email” that it violated Ohio’s consumer protection statute, and he knew this as far back as 2008, due to his experiences in a lawsuit with EchoStar. He also testified that he “began to eventually save [the emails] and collect them” for purposes of litigation. [The record does not detail Cicero's involvement in the EchoStar lawsuit, but we've blogged about Ferron v. EchoStar previously: "Lawyer-Spam Plaintiff Loses in the Sixth Circuit Over Allegedly Misleading DISH Network Emails;" "Email Ad Network Isn't Liable for Unsolicited Email."]

The court says the key issue is whether plaintiff can recover, despite evidence which “affirmatively show[ed] the plaintiff possessed particular knowledge of the facts that prevented him from being deceived by a supplier’s conduct.” The court looks to the Sixth Circuit’s decision in EchoStar, as well as several other cases which plaintiff was involved in and says that plaintiff cannot sue where he knew the emails were misleading when he received them. The court says:

because he had previously researched this issue and because he was involved in prior litigation involving the same subject matter a year before the instant case was filed, he was aware of what could potentially be a deceptive consumer sales practice prior to ever having received any of the emails that are the subject of this lawsuit. Additionally, [plaintiff] admitted at his deposition that because he believed the emails at issue here were in violation of the [Ohio Consumer Protection Statute], he began saving subsequent emails for litigation purposes.
...
the record affirmatively establishes that appellant, through prior litigation, had prior knowledge of the facts such that he was not and could not be deceived by [defendant's] acts because he was aware of the terms he alleges were excluded before he received the emails in question.

Defendant also argued that the alleged misstatements in the emails were not material and that it could not be held liable for the actions of third parties (presumably third party emailers) but the court did not reach either of these grounds.
__

Another court that's less than sympathetic towards a lawyer-plaintiff. Quel dommage. (Woods v. Google was the most recent example of this, but there are many others.) Courts are also not sympathetic to claims which they perceive as manufactured. (See, e.g., the spam cases.) This lawsuit combined both of these elements--a lawyer-plaintiff, who saved up allegedly misleading emails so he could file suit--so it's hardly surprising that the court gives him the boot.

This lawsuit reminds me a lot of the Reunion.com case, which grappled with the question of whether a plaintiff actually had to rely on misleading statements in emails or could claim that he or she had been damaged by merely opening an email. (See Ethan Ackerman's post from 2009 that speaks to this question: "Reunion.com Revisited.") Strangely, the court in this case does not even address the issue of whether the plaintiff spent any money in reliance of the misleading emails in question. Given the plaintiff's admission that he knew the emails were misleading and collected them for the purposes of litigating his claims, the court bypassed this issue. Nevertheless, I would think that since the plaintiff was suing based on a consumer protection statute, he would have to show that he actually incurred some damages based on the misstatements in question?

Post-script: After the court of appeals issued its opinion in this case, it issued an opinion in Ferron v. Dish Network, LLC, reversing the trial court's dismissal of Ferron's claims against the Dish Network based on alleged violations of Ohio's Telephone Solicitation Sales Act and Ohio's Consumer Protection Statute. (Here's a link to the opinion: [pdf].) The opinion is interesting, and given that we've posted on other Ferron cases, it probably warrants a separate blog post, which will be forthcoming.

Posted by Venkat at 09:37 AM | Marketing

November 08, 2011

Australian Court Says Google Isn’t Liable for Advertiser’s Misleading Ad--ACCC v. Trading Post (Guest Blog Post)

By Guest Blogger Mark Bender, with some comments by Eric

Australian Competition and Consumer Commission v Trading Post Australia Pty Ltd [2011] FCA 1086 (September 22, 2011, corrected October 10, 2011)

[Eric’s introduction: Mark Bender is a business law lecturer at Monash University in Australia and an expert in Australian online trademark law. When this opinion came out in September, I flagged it for possible blogging. However, I was put off by the opinion’s 357 paragraphs—not unusually long by foreign standards, but it proved too much for me to handle! Fortunately, Mark agreed to write this guest blog post about the opinion:]

History

The Australian Competition and Consumer Commission ('ACCC'), comparable to the US Federal Trade Commission (FTC), commenced proceedings in the Federal Court of Australia against Trading Post Australia Pty Ltd ('Trading Post') and Google Inc., Google Ireland Limited and Google Australia Pty Ltd (collectively, 'Google') for breaches of the Trade Practices Act 1974 (Cth) ('TPA') in July 2007. As a result of legislative changes, the provisions of this statute are now found in the Competition and Consumer Act.

The ACCC alleged breaches of Section 52 of the TPA, which provides that 'A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.' The ACCC also alleged breaches of Section 53(d), which provides that 'A corporation shall not, in trade or commerce, in connexion with the supply or possible supply of goods or services or in connection with the promotion by any means of the supply or use of goods or services; represent that the corporation has a sponsorship, approval or affiliation it does not have'.

Facts

Trading Post was formerly Australia's leading classified periodical, and it may be familiar to some from references in the Australian legal film, The Castle. It published weekly and contained advertising by both private sellers and traders. As with other traditional print businesses, it transitioned to the online environment and is entirely web-based. Traditionally, the Trading Post had been a primary method for the sale and purchase of used motor vehicles.

Trading Post used Google's AdWord service to display some advertisements on Google's search result pages. An example of the advertisement is:

Kloster Ford

www.tradingpost.com.au New/Used Fords – Search 90,000 + auto ads online. Great finds daily!

Kloster Ford is a Ford motor vehicle dealer. It had no association with Trading Post and did not consent to Trading Post’s use of the Kloster Ford name.

The appearance of 'Kloster Ford' in the headline of the advertisement distinguishes this case from the scenario where the use of another's name or trade mark is used merely as a keyword to trigger the display of an advertisement. The headline in the Kloster Ford advertisement was generated by Google's keyword insertion tool, based on Trading Post specifying 'Kloster Ford' as a keyword.

The Case

The ACCC's case was comprised of two parts.

Google’s Alleged Failure To Distinguish Adequately Between Organic Search Results and Paid Advertisements

The ACCC alleged that a number of factors contributed to their argument that Google engaged in misleading and deceptive conduct, included that Google failed adequately to distinguish between search results and advertisements and failed to identify advertisements as such, based on the allegedly similar appearance and nature of search results and advertisements.

The ACCC argued that this failure to distinguish was contributed to by:

* both advertisements and organic results being generated by the same search term and pertaining to the same general subject matter of the search term
* both advertisements and search results being listed below the heading and appearing together on the left side of the result page

The ACCC alleged the overall impressions created by these factors was that the contents of the search results page are generated by the Google Search Tool and displayed in order of relevance and are not advertisements.

The ACCC argued that Google's shading and labeling of the sponsored links were 'insufficient to counteract the overall impressions'. They further argued that the phrase 'sponsored links' is 'itself ambiguous'; and 'does not have, as its primary meaning, advertisement'.

In considering whether conduct is misleading and deceptive, the conduct as a whole is to be considered 'in light of the relevant surrounding facts and circumstances' (Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60).

The court observed that 'there was no evidence called to show that any person had been mislead into thinking that the Kloster Ford advertisement or the Charlestown Toyota advertisement (or any of the other advertisements about which the ACCC complained) was not an advertisement. Nor was there any survey or other evidence based upon observation or experiment adduced by the ACCC to show that users of the Google search engine were likely to be mislead into thinking that sponsored links are not advertisements or that they are no different to organic search results'.

In considering all of the circumstances, it was held that reasonable internet users would not be misled or deceived as to the nature of the sponsored links. It was considered unlikely that the 'sponsored links' label was likely to go unnoticed, though the judge indicates that advertisement might be a clearer term than 'sponsored link'. It was observed that there are not 'likely to be any ordinary and reasonable people within the relevant class who believed that Google was advertisement free'.

The Use of Competitors’ Names in the Headlines

The court considered that the publication of the Kloster Ford advertisement could give rise to eight different possible representations:

A: by clicking on the headline of the Kloster Ford advertisement, a person would be taken to a website associated with Kloster Ford;
B: there was an association between Trading Post and Kloster Ford;
C: there was an affiliation between Trading Post and Kloster Ford;
D: Kloster Ford approved of the link between its name and the Trading Post Site;
E: Kloster Ford had paid for the link between its name and the Trading Post Site;
F: Kloster Ford was a sponsor of the Trading Post Site;
G: information regarding Kloster Ford could be found at the Trading Post Site; and
H: information regarding Kloster Ford car sales could be found at the Trading Post Site.

The court found that representations B, C, G and H had been conveyed by Trading Post and were likely to mislead or deceive ordinary and reasonable members of the relevant class. Google was held not have conveyed these representations.

The court held that Google was not liable for the use of the Kloster Ford name as it was

satisfied that the keyword “kloster ford” was not selected or recommended by Google. Of course, Google made available to Trading Post and other advertisers the technical facility that enabled keywords to be uploaded which, if made the subject of a search by a user of the Google search engine, might then generate top left or right side sponsored links. And Google also made available to Trading Post and other advertisers the technical facility which allowed for keyword insertion to occur. However, it was Trading Post, not Google, that choose to use these facilities to produce headlines containing the name Kloster Ford in response to search queries including those words.

It was also held that 'Google merely communicated what Trading Post represented without adopting or endorsing any of it' and that

the technology employed in on-line advertising may be quite different to that associated with the publication of advertisements in newspapers or magazines or the broadcasting of television or radio advertisements, it is nevertheless clear that the publisher or broadcaster of such advertisements always provides at least some of the technical facilities that permit the relevant advertisement to be seen or heard. It does not follow that these publishers or broadcasters have thereby endorsed or adopted any information conveyed by the advertisement or that they have done anything more than pass it on for what it is worth.

The court considered previous decisions where a range of intermediaries, including real estate agents (Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60), television broadcasters (Universal Telecasters (Qld) Ltd v Guthrie [1978] FCA 9) and newspapers (Australian Ocean Line Pty Ltd v West Australian Newspapers Ltd [(1985) [1985] FCA 37), had not been liable for misleading and deceptive conduct for merely displaying advertising.

Outcome

Although the ruling was good news for Google, the news is mixed for advertisers. The court declared that using an unrelated businesses name in the headline of an advertisement can be misleading and deceptive and can represent an affiliation where none exists. I would have this said was fairly well-settled law.

Whilst there is some discussion of the unique nature of search, the issue of whether the use of another's business name or trade mark as a keyword can amount to misleading and deceptive conduct was not definitively stated (this was not at issue in the case). Even so, it does appear that any such liability would not be Google’s. The court says that 'Trading Post, not Google, that choose to use these facilities to produce headlines containing the name Kloster Ford in response to search queries including those words' .

The court ordered Trading Post to pay $28,000 to the ACCC 'by way of agreed contribution to the applicant’s costs'. Obviously, $28,000 is a minuscule fraction of the cost of the proceeding. Before the action, Trading Post was acquired by our largest telco (their first-half net profit was just under $1.2 billion), so the payment amount is trivial to them.

Meanwhile, the court ordered the ACCC to pay Google’s costs, making this a money-losing lawsuit for the Australian public.

Appeal

The ACCC have appealed the decision (see their press release), insofar as it related to Google's liability, and are expected to argue that 'Google would have been unable to show that it had no reason to suspect that publication of these advertisements was a breach of the Act'.

The ACCC 'considers that the Full Court may find that Google made the representations in question and find Google directly responsible for the publication.'

In their appeal, the ACCC also put the view that Google’s role, including the keyword insertion system, were fundamental to the representations being made.

The ACCC are also questioning the extent to which the previous Federal Court decisions considered by Justice Nicholas, which related to publishers of advertisements in traditional media (real estate agents, television broadcasters and newspapers), can be applied to search engine advertising.
___________

Eric’s Comments

I’m struck by how much the court’s analysis depends on empirical questions about consumer perceptions. In the Internet context, consumer perceptions, of course, are constantly changing. As time passes, consumers learn how to navigate and parse new user interfaces, plus Google keeps changing its interfaces (such as changing the ad labeling from “sponsored links” to “ad”). Trying to track these changes over the four years of litigation seems futile!

This case is a win for Google, but perhaps only superficially. Obviously, the court dismissed Google’s liability, and surely Google is pleased about that. However, like the Google ECJ opinion, the opinion throws Google’s advertisers under the bus—and what’s bad for Google’s advertisers could be bad for Google’s revenues. To the extent advertisers feel liability exposure from running ads on Google, they may reduce their advertising. Fortunately, it seems like the opinion could be read to apply only when an advertiser uses a third party trademark as the ad headline, which I suspect is a fairly rare occurrence.

As for Google's culpability when it suggests ad copy for advertisers to include in their ads, this case reminded me a little of the Roommates.com case and its predecessor, the Carafano case. In all of these cases, the website gave prompts to the "speaker" about what to say, but the speaker ultimately adopted the words as its own. I expect situations like this will continue to give courts some trouble, but it sounds like the court made a sensible ruling in this case.

Posted by Eric at 09:28 AM | Marketing , Search Engines , Trademark | TrackBack

October 26, 2011

Yelp Gets Complete Win in Advertiser "Extortion" Case--Levitt v. Yelp

By Eric Goldman

Levitt v. Yelp Inc., 2011 U.S. Dist. LEXIS 124082 (N.D Cal. Oct. 26, 2011)

A group of advertisers sued Yelp for allegedly extorting them to buy ads from Yelp with the implied/express threat that Yelp would degrade their ranking in Yelp's database if they didn't. In a previous ruling, Judge Patel dismissed the second amended complaint, but her opinion exhibited her characteristic quirkiness.

The case got reassigned to Judge Chen, who was presented with a motion to dismiss a third amended complaint. Deviating in part from Judge Patel's analysis, he reaches the same conclusionthat the complaint should be dismissed--but this time he does so with prejudice, sending the case to the Ninth Circuit (likely) or its grave.

The plaintiffs asserted that Yelp itself wrote negative reviews about the advertisers. In support of this assertion, the plaintiffs claimed that Yelp employees write some reviews, Yelp pays authors for reviews and some reviews don't match the advertisers' customer records. The court says those allegations aren't enough to survive a 12(b)(6) motion to dismiss because they do "not raise more than a mere possibility that Yelp has authored or manipulated content related to Plaintiffs in furtherance of an attempt to 'extort' advertising revenues." The plaintiffs' arguments were too inferential, and other stories plausibly fit the alleged facts.

The plaintiffs' claims that Yelp reorders reviews is preempted by 47 USC 230(c)(1):

Plaintiffs’ allegations of extortion based on Yelp’s alleged manipulation of their review pages – by removing certain reviews and publishing others or changing their order of appearance – falls within the conduct immunized by § 230(c)(1).

Once again, a defense win cites to Roommates.com.

To get around 230, the plaintiffs argued that Yelp assembled a star rating, and the star rating was its own expression, not its users. The court notes this argument was rejected a decade ago in Gentry v. eBay. To get around Gentry, the plaintiffs argued that Yelp improperly monkeyed with reviews to shape the star rating with bad intent (to "extort"/pull cash out of advertisers' pockets).

Judge Chen responds that "§ 230(c)(1) contains no explicit exception for impermissible editorial motive." He contrasts 230(c)(2)'s "good faith" requirement, saying that the absence of a parallel "good faith" requirement in 230(c)(2) means editorial intent is irrelevant to 230(c)(1). [For more on the "good faith" requirement in Section 230(c)(2), see my article on account termination and 230(c)(2).] On this point, he diverged from Judge Patel's analysis, but unlike her, he actually cites a Ripoff Report victory in support of his conclusion. (Still no cite to the Reit v. Yelp ruling).

Making the point that 230(c)(1) does not permit an inquiry into the defendant's motivation, Judge Chen continues:

traditional editorial functions often include subjective judgments informed by political and financial considerations....Determining what motives are permissible and what are not could prove problematic. Indeed, from a policy perspective, permitting litigation and scrutiny motive could result in the “death by ten thousand duck-bites” against which the Ninth Circuit cautioned in interpreting § 230(c)(1)....As illustrated by the case at bar, finding a bad faith exception to immunity under § 230(c)(1) could force Yelp to defend its editorial decisions in the future on a case by case basis and reveal how it decides what to publish and what not to publish. Such exposure could lead Yelp to resist filtering out false/unreliable reviews (as someone could claim an improper motive for its decision), or to immediately remove all negative reviews about which businesses complained (as failure to do so could expose Yelp to a business’s claim that Yelp was strong-arming the business for advertising money).

Yes! That's exactly right, and kudos for the judge for seeing the connection. The beauty of 230(c)(1) is its simplicity. It ends lawsuits cold on a 12(b)(6), and doesn't open the door for a myriad of messy, expensive and time-consuming factual considerations. Having that airtight immunity means websites can make tough editorial decisions without worrying what kind of story those decisions will ultimately tell in court. Contrast the litigation inquiries in 512(c) and contributory/vicarious copyright infringement, where every service provider choice is grist for the plaintiffs, and that pressure leads service providers to follow the rule "if in doubt, take it down."

The judge adds that a lawsuit based on Yelp's marketing representations might not be covered by 230(c)(1). I discuss this issue more in my 230(c)(2) paper. I disagree with the judge's statement. As I explain in my paper, 230(c)(1) can preempt marketing-based claims; plus see cases like Milo v. Martin. Fortunately, it's inconsequential to this lawsuit as the plaintiffs dropped their false advertising claims. Unfortunately, I expect plaintiffs to seize this language (along with similar statements in other rulings) and do lots of research to find shreds of marketing and support material published by a service provider that could be used to support a false advertising claim that's fundamentally based on user-generated content. (But cf. the Woods v. Google ruling, where Judge Fogel put his foot down on that nonsense).

This ruling makes clear that Yelp can manage its database of user reviews however it wants. This is as it should be. However, it doesn't mean that we as consumers will find Yelp trustworthy. Section 230(c)(1) simply means that Yelp has to earn and keep our trust as readers/consumers, which remains an important and ongoing challenge.

UPDATE: Rebecca's comments.

Posted by Eric at 02:08 PM | Derivative Liability , Marketing | TrackBack

October 18, 2011

Lawsuit Against Google Over Invalid Clicks and Special Partner Advertising Dismissed -- Woods v. Google

[Post by Venkat Balasubramani with comments from Eric]

Woods v. Google, 5:10-cv-1263-JF (N.D. Cal.; Aug 10, 2011)

This is an advertiser vs. Google lawsuit where the plaintiff argued on behalf of a putative class that (1) he was improperly charged by Google for "invalid clicks," (2) he did not receive a "smart pricing" discount that Google allegedly promised to all of its advertisers, and (3) Google entered into deals with "special partners" allowing the special partners "to place advertisements in ways that are prohibited to other . . . publishers." Here is Eric's recap of the complaint: "Another Advertiser Class Action Lawsuit Filed Against Google--Woods v. Google."

Invalid clicks: The crux of the "invalid clicks" claim was that generally applicable Google policies, FAQs, and explanations, state that invalid clicks are prohibited, and advertisers would not be charged for invalid clicks. Woods argued that these policy statements were incorporated into the contract. According to the court, there are several problems with this argument. First, the agreement in place states that the advertiser's sole remedy is to seek a refund, and in order to do so, the advertiser must raise the issue within 60 days. Woods did not allege that he did either of these.

Second, whether a click is "invalid" is (according to the documentation cited by plaintiff) something that Google will determine (those clicks "that [Google] suspects may constitute click fraud"). According to the court, this means that Google was vested with discretion in determining whether a click was invalid, and there was no allegation in the complaint that Google "acted beyond its discretion" in administering this policy.

The final overarching problem with Woods's claim with respect to invalid clicks is that Woods cited to documentation outside the agreement and argued that statements made in the documentation was incorporated (as contractual terms) into the agreement. The court walks through the placement of the various statements and concludes that Google's "policy statements" regarding invalid clicks is not incorporated into the AdWords agreement. The AdWords agreement contained a statement that the "program" was "subject to all applicable Google and Partner policies, including without limitation, the Editorial Guidelines, Google Privacy Policy, and Trademark Guidelines, and Google and Partner ad specification requirements." Notwithstanding this "clear and unequivocal" statement of intent to incorporate "all applicable Google policies," the court declines to find that the policies are incorporated into the agreement because the "invalid clicks policy" which plaintiff pointed to was not "known or easily available to the contracting parties."

Special Partner sweetheart deals: Woods alleged that Google allowed its special partners to generate clicks in a way that its regular customers were not allowed to, but the court does not give this argument much credence.

"Smart Pricing" discount: Woods made a similar argument with respect to the smart pricing discount, arguing that language in the "Adwords Help Center" indicated that Google "promised to apply its Smart Pricing discount to all advertisements generated from its Adsense publishers." He did not argue that the help center language was expressly incorporated. He pointed to sections in the agreement which stated that the program was subject to "all Google policies," and a statement in the agreement that payment was to be made by advertisers "in accordance with the payment terms in the . . . Program FAQ." The court accepts Google's argument that the reference to the "Program FAQ" in the agreement was intended to only incorporate terms relating to payment options and not any terms which relate to how Google calculates the charges. The court also holds that even if the Adwords Help Center language is deemed to be incorporated into the agreement, the complaint is value about what Google's obligations were exactly to apply the smart pricing discount to all advertisements.

Breach of the duty of good faith: The court acknowledges that Woods can bring an action for the breach of the duty of good faith "irrespective of whether [Google] breached its contractual obligations directly." Notwithstanding, the court notes that Woods failed to allege that "Google deprived Woods of a benefit to which he was entitled under the Agreement." The court says that Google is vested with "wide latitude" in administering its Adwords program, but at the same time, this discretion is not unlimited: Google must carry out its responsibilities in good faith. Woods's vague allegations of a conspiracy between Google and its Special Partners are insufficient in the court's view to suggest bad faith.

Unfair competition, false advertising, and fraudulent business practices claims: Finally, the court also pokes holes in the legal elements of Woods's unfair competition and false advertising claims. It states that unless Woods can show that he had a legal right to the smart pricing discounts and to not be charged for invalid clicks (so-called "Banned Ad Implementations") he can't show any cognizable injury. The fraud claims do not satisfy Rule 9(b)'s particularity requirement.

Finally, the court questions whether Woods has standing to bring misrepresentation claims. The Adwords Agreement expressly indicates that the contracting parties have not relied on any outside statements or promises in entering into the agreement. Woods argues that UCL liability may exist where a party to a contract makes "contradictory or misleading representations in order to obfuscate or obscure the actual terms of the contract." The court rejects this argument:

the issue is whether 'a reasonable jury could find' that Woods was reasonable in relying upon the extraneous statements notwithstanding an unambiguous disclaimer . . . [i]n light of Woods's sophistication as an attorney and the complaint's lack of particularity with respect to the statements that were alleged to have induced his reliance, the Court concludes that Woods has not alleged facts sufficient to support such a claim.

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It's disheartening to see lawyer-plaintiffs get no love in the courts!

Seriously, Google nicely dodged a bullet here. As online agreements have become "longer and more byzantine," and often cross reference other terms and policies, the possibilities of online agreement circuits getting crossed increases. (We recently saw GoDaddy be deprived of an easy contractual defense due to a cross-reference gaffe: "GoDaddy Mis-Manages Its User Agreements.") While the court rejects Woods's claims on the merits, it also made clear that the various policies and FAQs referenced in Google's agreement were not incorporated and made a part of the contract terms.

There is some tension inherent in Google saying that it is the sole arbiter of what constitutes a valid click. I sense an illusory contract term lurking in the background here. What is an "invalid click"? The court ends up saying that it's whatever Google says it is. The court does pay lip service to the fact that Google's discretion is not unbounded in this regard, but you don't get the sense that Woods will be able to allege any sort of bad faith sufficient to get the court's attention here.

Woods made a valiant effort to argue that whatever the metric was for determining an invalid click, Google did not apply it equally across the board, but the court gives this argument little or no credence. This was one of the more intriguing aspects of Woods' claims, but the court expresses serious reluctance to allow Woods' claims to move forward and allow Woods discovery into Google's business practices in this area. (This would have been a big hassle for Google and I'm sure it's breathing a sigh of relief for not having to respond to Woods' discovery.)

The court gives Woods leave to amend. Let's see if his amended complaint adds any clarity to the allegations.

[This case languished in the blogging queue. In the time between when it was added to the "to blog" list and I actually wrote this blog post, Woods already filed an amended complaint and Google filed a motion to dismiss. You can access those documents here (amended complaint) and here (motion to dismiss).]

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Eric's Comments:

I can't believe people are still suing Google for click fraud, especially after Google buttoned up its legal agreements to prevent further click fraud suits. Then again, Judge Fogel recently let a click fraud lawsuit against Facebook keep going when he probably shouldn't have. This one won't get that far. [However, Judge Fogel is giving up his docket for an administrative appointment in DC, so perhaps the successor judge who inherits this case will be more receptive.]

I think the best part of this opinion is when Judge Fogel rejects the plaintiffs' efforts to cut-and-paste various statements from Google's support materials to manufacture a purported contract breach. The plaintiffs worked really hard to find contrary statements from Google's website as an end-run around the contract's plain language (plain, in the sense that it says plaintiffs should lose). Judge Fogel has none of it:

The complaint refers to more than a dozen pages in both the AdWords Help Center and AdSense Help Center that allegedly identify Google’s obligations under the invalid clicks policy, including a video clip and an expert report from another lawsuit, both of which are linked to the AdWords Help Center.(See Compl. ¶¶ 77-93.) The fact that statements about invalid clicks are spread across a variety of pages in a variety of formats make it difficult to identify the terms of any actual and unambiguous contractual obligations. This stands in sharp contrast to other Google policies,which include clear terms.

I think it's become de rigeur in the plaintiff community to slice-and-dice every public statement a company has ever made through its entire history, looking for anything that could be construed as false. But when the contract makes it really, really clear that Google isn't on the hook for click fraud, it would take a really strong and prominent contrary statement to trump it. The plaintiffs apparently fell far short of finding such a smoking gun, and the slicing-and-dicing just made them look silly. Note to plaintiffs: if you have to work that hard to find snippets that purportedly trump the plain language of a contract, you're probably overthinking things. My recommendation is to let such complaints go, although I know you won't heed that advice.

I do agree with Venkat that websites should try to consolidate their sprawling expanse of legal T&Cs documents. As the number of these documents grows, the odds grow exponentially that at least one of the linkages will fail. I bet Google would benefit from putting its legal T&Cs on a strict diet and chopping the number of words in half (or more). This would streamline the documents and perhaps make it easier to consolidate documents.

Venkat also notes that the named plaintiff, Woods, is an attorney. I used to keep a running count of all of the lawyer-as-plaintiff lawsuits against Google. For reasons I've never understood, Google's run-ins with lawyers-as-plaintiffs seem disproportionately frequent. (Please email me if you have any hypotheses). And, even more embarrassing for the legal profession, the lawyer-as-plaintiff cases seems to fare especially poorly against Google, usually getting soundly thumped.

Posted by Venkat at 09:09 AM | Licensing/Contracts , Marketing , Search Engines

October 13, 2011

Q3 2011 Quick Links, Part 3

By Eric Goldman

Advertising

Search Marketing

* Search Engine Land: "In many cases, it is worth buying keywords even if you rank organically for them." Similarly, a Google study indicates that PPC advertising lifts clicks on organic results. Prior blog post.

* NJ Supreme Court Opinion 43 from the Committee on Attorney Advertising: "attorneys are not flatly prohibited from paying “perlead” Internet advertising charges provided the marketing scheme is advertising and not an impermissible referral service. Just as “pay-per-click” has become more prevalent in the Internet advertising community, “pay-per-lead” or “pay-per-contact” for Internet advertising is likely to become a more common model due to its inherent reward for effective advertising."

* Most Expensive Keywords in Google

* Confusing developments in SF Comprehensive Tours v Groupon. Reuters article. The opaque ruling. Prior blog post.

* Google quietly liberalizes its policy on buying keyword ads on people's names.

* Lawsuit over Paxfire's role in allegedly redirecting some IAPs' search traffic. In slightly related news, Nebuad settled its case.

* ClickZ: Why isn't Google letting display advertisers do retargeting using search data?

False Advertising

* AdAge on the Great Wiener Wars. The case settled.

* WSJ: Litigation battles over the use of “all natural.”

* Nabors v. Google, 2011 WL 3861893 (N.D. Cal. Aug. 30, 2011) and McKinney v. Google, 2011 WL 3862120 (N.D. Cal. Aug. 30, 2011). Court dismisses false advertising lawsuits over the Google Phone allegedly not running at 3G speed.

Endorsements and Testimonials

* WSJ: "Digital Technology and the Re-Birth of Product Placement": "Given the choice, the majority prefer placement to commercial breaks."

* Car company Scion is forming its own record label. Remind me again, where’s the line between ads and editorial content?

* The FTC did a bizarre flipflop on the legitimacy of disclosures by Ashton Kutcher. Like everyone else, the FTC doesn't understand its endorsement/testimonial guidelines.

* ConAgra invited bloggers to a free dinner where they surreptitiously served frozen food and videotaped their surprised reactions. This is great when it works; but if it doesn’t work, you’ve got a group of angry bloggers on your hands. It didn’t work.

* Brooke Burke’s contract gives a little insight into the insidious nature of an endorsement contract.

Other Topics

* AdAge on how Campbell Soups did eye-tracking studies and ethnographic research to improve the way its soups displayed on grocery store shelves.

* AdAge: Meredith, a large print publisher, is guaranteeing its largest advertisers that they will see a sales lift from their ads. It's unusual for a print publisher to make such a guarantee given how much of the sales process is out of their control. On the other hand, advertisers are almost always seeking sales lifts from advertising, but usually they have to rely on weaker proxies to guess whether or not they'll get it.

In related news, Time Inc. is going to try to measure its sales lift for advertisers. This is not quite as aggressive as Meredith’s guaranteed sales lift, but it’s a sign that traditional print publishers recognize that advertisers are buying results.

* Cracked: The 5 Biggest Disasters in the History of Marketing Ideas. Classic, especially the "bananas" one.

Search Engines

* Search Engine Land on a Searchmetrics study showing that: "YouTube is the number one video site that shows up for video results; Google Maps is the number one map site that shows up for map results; Google Product Search is the number one shopping site that shows up for shopping results; Google’s Blogger is the number one image site that shows up for image results."

* Ugh. From Wired: Entrepreneurs scrape mug shots from public sites, SEO them and then charge the depicted individual money to have the photos removed.

* Google bought Zagat. The $125M price tag is incredible. It makes sense only if Zagat becomes Google's foundation for its Places offering. This has to be a signal that Google will be more than happy to honor any de-indexing requests from Yelp. Expect plenty more howling about Google favoriting its own properties over third party sites.

On a related matter, I can’t imagine Orbitz/Travelocity/Expedia/Kayak are thrilled about the ITA implementation either.

* Google's +1 apparently is going to influence search rankings. The story started at Kash Hill's Forbes blog, but it appears Forbes spiked the story (at Google's request...?), so that story is down. Now you have to read both the story, and the possible coverup, at Wired.

* Google killed Sidewiki. I doubt anyone misses it (it was one of Google's many failed UGC/social efforts), but do you remember just how much angst was spilled when Sidewiki first launched?

* I'm sure you're shocked to learn that Bev Stayart is headed to the Seventh Circuit...again... Prior blog post.

* NYT on Europe's love affair with the "right to be forgotten."

* My hometown, Mountain View, is becoming a one-company town. While we love Google, naturally this evolution will create some tension. Then again, the Mercury News declares Mountain View a good city for start-ups.

* ShopCity (not surprisingly, working with Gary Reback) has entered the bitchfest about Google rankings. As John McClane would say, "Welcome to the party, pal."

* Findwhat Investor Group v. Findwhat.com, 2011 WL 4506180 (11th Cir. Sept. 30, 2011):

The Form 10-K contains affirmative statements of present fact—"[w]e employ an integrated system ... that continually monitor[s] traffic quality," and "[w]e enforce strict guidelines ...to ensure the quality of traffic," (Compl.75) (emphases added)—that unquestionably create the impression that MIVA maintains an active and sophisticated monitoring system for screening fraudulent traffic. Accepting the Plaintiffs' allegations as true, these statements are misleading because they could mislead a reasonable investor into believing that the Defendants had systems in place that would detect and remove distribution partners engaged in extensive fraudulent revenue-generating practices, when in truth and in fact they did not.

However, management lacked the requisite scienter for securities fraud liability for those statements. Nevertheless, the 11th Circuit held that management’s failure to disclose information about rogue affiliates after it learned the news could constitute securities fraud. Rebecca’s coverage.

Privacy

* The FTC has proposed revisions to COPPA's regulations. The two most important points:

1) The FTC rejected that websites could have constructive knowledge that they are dealing with kids under 13. As a result, so long as the site doesn’t know a user is under 13 or market to kids under 13, the site can ignore COPPA.

2) The FTC is including geolocation and IP address information as PII. Does this signal that the FTC is taking an expansive view of PII across-the-board, not just in the COPPA arena?

In partially related news, the FTC scored a rare COPPA bust, this time from a mobile app developer.

* FTC settlement with FrostWire: the FTC takes the position that a software default setting that enables too much data sharing is unfair to consumers. This is similar to the LimeWire settlement with the Maryland AG. However, it raises the Q: is the FTC going to take the position that any service that enables too much sharing by default is engaged in unfair practices? If so, it will be taking quite an active role in telling software developers how to code, and the FTC will face an overwhelmingly large list of potential targets!

* Facebook is tracking logged-out users. Mostly this is due to the distributed Facebook “like” button, which acts as a driftnet for collecting lots of information from third party websites. Some members of Congress are unhappy. In contrast, the privacy plaintiffs' bar is rejoicing! Named plaintiffs include Davis, Thompson, Graham, Singley, Howard, Seamon, Beatty, Parrish, Rutledge, Brkic and Hoffman.

* Pandora got sued for privacy breaches too. I'm surprised this took so long.

* OnStar had its own brush with privacy problems when it announced it would track non-customers, but it soon backed down.

* Specific Media settled its lawsuit. Prior blog post.

* Sams v. Yahoo appealed to the 9th Circuit. Prior blog post. Related blog post.

* The Lares Institute, Data Breaches and the Phantom Damage Allegation, July 2011: 97% of those surveyed had not “experience[d] any unreimbursed losses that you could trace to a security breach that occurred in the last 12 months.” [link may be down]

* WSJ on the growth of “corporate privacy” positions.

* Zynga gamified its privacy policy.

Posted by Eric at 11:43 AM | Marketing , Privacy/Security | TrackBack

September 28, 2011

In Facebook's Lawsuit Against Alleged Spammer, Court Denies MaxBounty's Motion to Dismiss

[Post by Venkat Balasubramani]

Facebook v. MaxBounty, 10-Cv-04712 (N.D. Cal. Sept 14, 2011)

Facebook is suing MaxBounty for allegedly running an affiliate network which dupes people into fanning Facebook pages, promoting the page to their friends, and signing up for third party offers, all based on the promise of free items. Facebook brought a variety of claims, including common law fraud, CAN-SPAM, and the Computer Fraud and Abuse Act. The court previously found that Facebook wall posts can be considered "electronic mail messages" and thus are subject to CAN-SPAM. (Here's my post on this ruling: "N.D. Cal.: Facebook Posts are Electronic Mail Messages, Subject to CAN-SPAM.") However, the court said that Facebook had to be more specific regarding some of its allegations. This time around, the court finds that Facebook's allegations are sufficiently specific, and denies MaxBounty's motion to dismiss.

Fraud claims: Facebook alleged that MaxBounty's affiliate manager knew of and encouraged an affiliate that offered a free IKEA gift card. The affiliate manager allegedly provided technical assistance, assured the affiliate that the affiliate's actions were kosher and, when the affiliate expressed hesitation, offered the affiliate $30,000 to continue. Interestingly, the court doesn't quite specify what the fraudulent statements were and who was deceived by them. In some ways, this case is somewhat reminiscent of the Reunion.com case involving an alleged "spam a friend" scheme, while that case addressed the issue of whether claims under California's spam statute were preempted by CAN-SPAM. One other difference is that in this case, Facebook is the one bringing the fraud claims and it's unclear how Facebook has been duped. The court allows the fraud claim to go forward and also allows claims for aiding and abetting the fraud and for conspiracy.

CAN-SPAM claims: MaxBounty argued that Facebook's allegations fail to make out a claim that MaxBounty "procured or induced" the transmission of messages at issue. MaxBounty also argued that Facebook failed to specify how the messages at issue contained materially false header information. The court rejects these arguments, noting that the messages sent as part of the campaign do not identify MaxBounty as "the initiator" despite the fact that MaxBounty "initiated the messages by inducing Facebook users to execute malicious computer code that cause[d] messages to be sent automatically to all of their Facebook 'friends'."

Computer Fraud and Abuse Act claims: The court refuses to dismiss the CFAA claim, finding that access in violation of the stated restrictions (with a predicate act) can violate the Computer Fraud and Abuse Act. MaxBounty argued that because Facebook granted MaxBounty permission to access the site, MaxBounty did not engage in any "unauthorized access," but the court says no (citing to U.S. v. Nosal).
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There are some interesting issues raised in the three claims discussed in the court's order, but since this lawsuit involves a large network trying to police against alleged spam, the court doesn't give MaxBounty's arguments a detailed treatment they may have otherwise deserved. As in many other cases where networks try to shut down interlopers, the causes of action end up being stretched pretty thin.

In the prior post, I mentioned that treating Facebook messages as email messages that are subject to CAN-SPAM does not necessarily jibe with the statute or its requirements. The court says that "none of the messages in question [identified] MaxBounty as the initiator." The court is not specific about what types of Facebook messages were involved, but it's possible to see the practical limitations of including this type of a notification on a Facebook message. This is one of the potential problems with calling messages on social networks "electronic mail messages" that are subject to CAN-SPAM.

The CFAA claims similarly push the envelope. Terms of use-based CFAA claims are widely recognized as being overly broad and encapsulating innocent conduct. (Facebook users better watch out!) Senators Franklin and Grassley recently proposed an amendment that would, among other things, remove access in excess of terms of use from the definition of "exceeding authorization." The court also does not get into the issue of whether MaxBounty can be held liable for the CFAA violations of third parties, a proposition that does not have clear support in the text of the statute or the case law.

Another thing to consider is that Facebook is a platform, and will be subject to attacks from third parties that seek to hold Facebook liable for the actions of third parties in its ecosystem. Could Facebook's overly broad legal arguments come back to haunt it? Mike Masnick makes a similar point about Craiglist's enforcement efforts here: "Craigslist Trying To Destroy The Life Of Someone Who Made Posting To Craigslist Easier." Facebook has ample legal hooks to go after rogues on its network, and it may want to think twice about going in with guns blazing and creating bad precedent in the process.

Posted by Venkat at 07:59 AM | Marketing , Spam , Trespass to Chattels

September 08, 2011

Lawyer Hit With $4.2 Million Judgment in Junk Fax Class Action -- Holtzman v. Turza

[Post by Venkat Balasubramani]

Holtzman v. Turza, 08 C 2014 (N.D. Ill. Aug. 29, 2011)

Apparently reports of the fax machine's death are greatly exaggerated. People still use fax machines.

Holtzman sued Turza for receiving unsolicited faxes. The court certified the lawsuit as a class action, and granted Holtzman's motion for summary judgment as to two issues: (1) the faxes in question were "advertisements" under the TCPA, and (2) the defendant would be liable for all faxes received on a "target list."

After conducting some discovery, Holtzman files a motion for summary judgment, largely directed at damages. Holtzman takes the deposition of Michael Richard, the CFO of VillageEDocs, which is a parent company to MessageVision, the service used by Turza to send out the faxes. Richard testifies as to the approximate number of faxes he sent out on behalf of Turza, what portion of faxes sent to the "target list" were reliably transmitted, and how much he billed Turza. It turns out MessageVision sent out 8,430 faxes. At $500 in statutory damages per fax, this amounts to a damage award of $4,215,000.

Turza raised a few arguments in opposition to Holtzman's motion, but the court isn't very impressed by any of them. Turza argued that because Richard is a CFO and not a technical expert, his testimony as to fax transmission rates was not reliable. The court finds this objection curious, since Turza himself relied on the "until-now unquestioned integrity of MessageVision's system to compute the number of successful fax receipts that resulted in the charges paid by [Turza]." Turza relied on new testimony from his expert but the court finds this evidence untimely and insufficient to create a factual dispute as to Richard's testimony. Turza also argued that there was no evidence that the class members did not consent to the faxes, but this was contradicted by Turza's own testimony that he did not procure consent from any of the recipients. Turza also raises the issue of whether class members owned the fax machines to which the faxes were sent. The court says that this does not preclude summary judgment, although it's something that may bear on the individual damage award to class members.

Finally, Turza also sought to decertify the class and argued that the imposition of a $4 million award violates Due Process. As to the certification issue, Turza argues that there are other methods to adjudicate the dispute, namely that the individual class members could pursue their own claims in small claims. The court says that even if a chunk of class members have sizeable claims (e.g., those amounting to $10,000 or more) this would not mean that a class action "would be less fair or efficient than individual litigation." Since statutory damages are at issue, TCPA claims are "arguably best suited" to class resolution.

With respect to Turza's due process argument, the court notes that the class award is not excessive because of the risk of Turza having to declare bankruptcy. Turza had insurance policies in place, and these policies should cover the awards at issue. The bulk of the bill will be borne by the insurance company and not by Turza at all!

This would be a pretty unremarkable case, except for the fact that the faxes were actually newsletters that were written on behalf of a lawyer. Here is Eric's previous post on the case: "Ghostwritten Attorney Newsletter is an "Ad" for TCPA Junk Fax Law Purposes." Professional courtesy aside, it's pretty scary that sending out a bunch of faxes which contained editorial but ghostwritten content can put you at risk of an award for four million dollars. Fortunately for Turza, his insurance company may end up footing the bill.

A big takeaway from this case is that it's risky behavior to send out marketing communications to lists that you have bought. I guess it also illustrates one of the many perils of using ghostwritten content.

Posted by Venkat at 02:51 PM | Marketing , Spam

September 07, 2011

Reflections on the DOJ-Google Half-Billion Deal over Illegal Pharma Ads (July-August 2011 Quick Links, Part 2)

By Eric Goldman

I haven't previously written on the DOJ's bust of Google over illegal pharmaceutical ads, partially because I couldn't reconcile my views about this enforcement action. From my vantage point, this action equally fits into two dichotomous stories, and these stories may not be mutually exclusive.

Story #1: Google's massive revenues and profits are significantly inflated by illegitimate ads. Here, we learn that Google was raking in millions of dollars from ads for illegal pharmaceuticals. We also know Google has struggled with gambling ads (1, 2), ads for bogus ringtones, ads that trademark owners consider infringing, and other problematic ads.

The sources of Google's revenues may be like the log that no one wants to turn over to see what's under it. I bet that if we could get a detailed line-item breakdown of where Google's revenues come from, more than a few folks would be queasy about some key revenue categories.

Over the years, Google has taken some baby steps to screen out bogus advertisers from its network, but I wonder if Google's "Must. Be. Scalable!" mantra--and the concomitant profits that come from willful blindness--has inhibited Google from undertaking some needed, but necessarily manual, steps to police its ad network more aggressively.

Story #2: The incumbent DC regulators view Google's emerging power as unwanted competition to their regulatory power, and like typical incumbents, the DC regulators are closing ranks on the start-up--meaning they have become hellbent on busting Google, legitimately or not. To me, the Google Buzz settlement is a clear example of how DC regulators are unnecessarily flexing their muscles against Google.

Some details made me wonder if the DOJ misused its power in this enforcement action:

* the Rhode Island's US Attorney's post-announcement attack on Larry Page, declaring that he knew of the illegal ad sales. Given the DOJ's subsequent rhetoric, it makes me wonder if the DOJ threatened Page with criminal prosecution. If nothing else, the personal prosecution threat would have a powerful in terroram effect to goad Google to take a deal, warranted or not.

To be clear, the non-prosecution agreement doesn't explicitly protect Larry Page, but I think a personal prosecution is super-unlikely at this point. The agreement might insulate his acts on the company's behalf, and I can't imagine the DOJ will want to spend further prosecution resources after getting such a big score already. So the net effect is that this deal should end the matter.

* the deal was structured as a civil forfeiture. Note the DOJ (or any other federal agency) would have encountered significant problems bringing a civil action against Google over the third party ads. 47 USC 230 would have preempted the action, and with a half-billion dollars at issue, Google surely would have litigated any statutory ambiguities rather than roll over. Therefore, as Peter Henning explains, the government avoided pursuing a doctrinally questionable criminal prosecution and simultaneously bypassed a likely 47 USC 230 immunity of any civil action. Pretty tricky navigation by the DOJ.

* finally, Google disgorged both its revenues AND ITS ADVERTISERS' REVENUES from the illegal ads. I can't think of any comparably sweeping remedy in any other advertising lawsuit (am I forgetting something?). I simply can't believe the DOJ could have gotten a judge to order a similarly expansive disgorgement. Thus, it appears the DOJ asked for way more cash than the law actually allows--and yet a pliable target forked it over.

If Story #2 is true, the deal could be an unholy pact: Google bought the freedom of its CEO for a check that is a pinprick compared to its cash on hand; and the DOJ got a huge taste of Silicon Valley's wealth and publicly blare that justice was served--even if the DOJ vastly exceeded current law to get there.

One more reason that story #2 could be plausible. The DOJ portrays this as a case about illegal pharmaceuticals, but it imprecisely lumps together a variety of factually different situations into that category, including:

* pharmaceuticals that are never legal in the United States
* fraudulent pharmaceuticals, i.e., sugar pills sold as brand X
* counterfeit pharmaceuticals, i.e., bioequivalent pharmaceuticals sold as brand X but made by someone else
* prescription pharmaceuticals that aren't fraudulent or counterfeit but are being sold without a prescription
* prescription pharmaceuticals that aren't fraudulent or counterfeit that being sold with a prescription, just not one recognized by US law

Note that the consumer harm in the last 3 circumstances is unclear. It's possible that some consumers win in each of those cases by getting the desired pharmaceutical at a cheaper cost than US drugs. Such consumer wins don't make the pharmaceutical sales legal; but it raises the question of whether the US government was pursuing the best interests of its citizens

One final point: the DOJ press release describes the illegal pharmaceutical advertisers as "rogue" websites. That's an interesting characterization. It seems to tie into the DHS ICE's domain name seizures and the proposed PROTECT IP Act. At minimum, the DOJ enforcement action reinforces how desperately DC regulators want Internet companies to do more of their policing work. Also, perhaps the deal's template shows how the DOJ thinks it can achieve PROTECT IP irrespective of whether Congress enacts the law.

More links to check out:

* the non-prosecution agreement
* the DOJ's announcement
* the general NY Times article announcing the deal
* Also in the NY Times, Peter Henning parses some of the deal's legal oddities
* Techdirt's skeptical coverage
* Plaintiffs' lawyers will be partying with the non-prosecution agreement. The first wave: stockholders' lawsuits.

Posted by Eric at 02:10 PM | Content Regulation , E-Commerce , Marketing | TrackBack

September 06, 2011

Court Invalidates Agreement Governing Toyota's Online Prank Contest -- Duick v. Toyota

[Post by Venkat Balasubramani]

Duick v. Toyota, B224839 (Ca Ct. App.; Aug. 31, 2011)

Toyota and Saatchi & Saatchi ran a marketing campaign where a visitor to the Toyota Matrix website could designate a separate person who would receive prank emails and messages. Here is how the court describes the campaign and Duick's (the plaintiff) experience:

During the campaign, any visitor to the Toyota Matrix website ("player 1") could designate another person ("player 2") for participation in the Your Other You "interactive experience." Player 2 would then receive an email purportedly from player 1, inviting player 2 to click a hyperlink that was in some manner "identified with Toyota." The link would direct player 2 to a web page entitled "Personality Evaluation."

....

[Duick played the role of player 2, and] later began to receive emails from an individual identifying himself as "Sebastian Bowler." The text of the first email reads, "Amber mate! Coming 2 Los Angeles Gonna lay low at your place for a bit. Till it all blows over. Bringing Trigger." Duick received another email from Bowler the following day, accurately stating her previous home address, describing it as a "Nice place to hide out," and advising her that "Trigger don't throw up much anymore, but put some newspaper down in case." . . . . Additional emails from Bowler to Duick over the next few days purported to describe his cross-country journey by car to visit her, including photos and videos of his travels and references to his efforts to evade law enforcement . . . . The final email included a link to a video revealing that Bowler was a fictional character and that the entire sequence of emails was an elaborate prank, all part of an advertising campaign for the Toyota Matrix.

The whole thing sounds clever in a Blair Witch Project sort of way, but I'm guessing neither Toyota or Saatchi & Saatchi spent much energy having their legal departments review the contest. Even a fairly risk-tolerant legal department would have flagged this as a marketing campaign that has the potential to go south, regardless of the technical legality of it.

Anyway, Duick asserted claims for emotional distress, negligence, and false advertising. She sought the respectable sum of $10,000,000 in damages. [I can just picture Duick's lawyer mimicking Dr. Evil from Austin Powers when he or she is talking with Duick about what damages figure to include in the complaint.] Defendants moved to compel arbitration. The court rejects their request. Not only does the court reject defendants' request to compel arbitration, the court nukes the entire set of contest terms.

The court says that Duick was duped as to the nature of the agreement:

A person in the role of player 2, such as Duick, could not access the terms and conditions without first clicking "Begin" on a webpage entitled "Personality Evaluation," created by defendants. The terms and conditions themselves were entitled 'Personality Evaluation Terms and Conditions.' Defendants thereby led Duick to believe that she was going to participate in a personality evaluation and nothing more. In particular, a reasonable reader in Duick's position would not have known that she was signing up to be the target of a prank.

Here is what the online terms said:

You have been invited by someone who has indicated that he/she knows you to participate in Your Other You. Your Other You is a website provided by [Toyota] that offers you . . . an interactive experience. . . . If you review and agree to the Terms and Conditions detailed below . . . you may participate in a 5 day digital experience through Your Other You. . . . You may receive email messages, phone calls and/or text messages during the 5-day experience. . . .You understand that by agreeing to these Terms, you are agreeing to receive emails, phone calls and text messages from Toyota during the 5-day experience of Your Other You.

The online terms contained language that alerted Duick to future email messages "from Toyota," but she would reasonably expect these to be mundane messages about a purported 'Personality Evaluation'--i.e., the fact that she agreed to receive emails, phone calls and texts does not amount to consent for receiving "frightening or disturbing messages" from some unidentified third party. The court notes that there was probably a way for the terms to be drafted to avoid the issue, but then again that would probably defeat the contest's purpose.

Michael Anderson's post provides some detail about the campaign and asks some good questions ("Prank Marketing and the Toyota Matrix: How Far Is Too Far?"):

When you employ a viral mechanism to promote the game, how overtly should it indicate the game’s fictionality? How much information do you disclose about the nature of the campaign? Finally, how do you allow for players to opt-out if they no longer wish to continue the experience?

Where one person can sign another person up to participate in the game, you would be well-advised to indicate the game's fictionality as overtly as possible. The terms provided to the so-called 'player 2' should be clear and accurate. Don't count on the court to add additional terms to the terms of use based on context. Providing a robust and simple-to-use opt-out also sounds like an excellent idea, although I'm not sure it would save this type of a contest. Duick did not assert claims under the TCPA for unsolicited text messages, but she and other participants of the contest who received text messages could assert those claims.

Duick still faces the Herculean challenge of proving up her damages, but she has to feel good about avoiding arbitration.

Other coverage:

Deceptive terms and conditions void contract in entirety

Posted by Venkat at 04:29 PM | Licensing/Contracts , Marketing

September 01, 2011

Google Gets a Good Win in the MyTriggers Lawsuit

By Eric Goldman

BFS Finance v. My Triggers Co., 09CV-14836 (Franklin County Court of Common Pleas, Aug. 31, 2011)

This lawsuit started all so innocently. It was just a routine collections matter against MyTriggers, an AdWords advertiser, for a few hundred thousand dollars. Unexpectedly, Google found itself pinned down in a dangerous venue (Ohio state court) against lawyers with impressive resumes and apparently bottomless legal budgets raising issues that are central to Google's business. My original blog post on MyTriggers' counterclaims.

For the moment, Google is having the last laugh. Although it cost them lots of money in discovery and managerial focus, yesterday Google got a thoroughly satisfying win on its motion to dismiss MyTriggers' counterclaims. I'm confident the plaintiff won't let this ruling stand as the final word, but it's clear MyTriggers has gotten zero traction in court. Combined with the ignominious dismissal of TradeComet's similar lawsuit against Google on jurisdictional grounds (being handled by some of the same plaintiff's lawyers), I'm even more confident now that both the TradeComet and MyTriggers lawsuits lack any merit. Unfortunately, these lawsuits' likely demise probably will only encourage the anti-Google forces to redirect their energy and resources into the multitudinous other efforts to bust Google.

Some specifics about this ruling:

* the state antitrust claim (the Valentine Act) fails because MyTriggers only alleged that Google harmed MyTriggers as a competitor, not that it harmed competition. In particular, MyTriggers alleged that Google favored some vertical search engines over others, so this allegation undercut MyTriggers' claim. MyTriggers' allegation of a boycott were too general, and its allegation of unilateral conduct weren't supported by any allegation of antitrust injury.

* MyTriggers' contract breach claim fails because MyTriggers never properly identified the allegedly breached contract or Google's breach.

* MyTriggers' promissory estoppel claim fails because MyTriggers couldn't allege a sufficiently unambiguous promise or any detrimental reliance on those promises.

* MyTriggers' rescission claim (based on fraud) failed for many of the same reasons: no identification of the contract and weak promises by Google.

Stepping back from the details, this is quite a stinging--and thorough--rejection of MyTriggers' pleadings, even though they were aided by many months of discovery. These are not the kinds of dismissal grounds one normally expects to see from a complaint drafted by lawyers with national reputations.

The only sour note is the judge's rejection of Google's 47 USC 230(c)(2) defense to the antitrust claims. Google's basic position is that it rejected MyTriggers' ads because it objected to them, and therefore it gets the statutory immunity for blocking "otherwise objectionable" content. The court rejects the contention, applying the ejusdem generis doctrine to interpret "otherwise objectionable" more narrowly. Citing the National Numismatics case, the court rejected the Langdon v. Google ruling and said that objectionable content must relate to porn, violence, obscenity or harassment. It distinguished other Google citations (such as the e360 case) as involving spam, which the court characterized as a subset of harassment, or 230(c)(1).

I don't agree with this reading of 47 USC 230(c)(2), and there are many cases applying the "otherwise objectionable" language more broadly than this court did. See my overall recap of 47 USC 230(c)(2). On the other hand, I think it's a tough sell for courts to apply 230(c)(2) to antitrust claims (see, e.g., the concurrence in Zango v. Kaspersky), and this ruling shows the natural reluctance of judges to go that direction.

Posted by Eric at 02:05 PM | Derivative Liability , Marketing , Search Engines | TrackBack

August 31, 2011

Pillow Pets Knockoff Enjoined from Keyword Advertising--CJ Products v Snuggly Plushez

By Eric Goldman

CJ Products LLC v. Snuggly Plushez LLC, 2011 WL 3667750 (E.D.N.Y. Aug. 22, 2011)

Pillow Pets are cuddly and soft, but if you make knockoff versions of them, be prepared to meet the sharp end of their sword in court--a fate that befell the defendants in this case. However, before we condemn the defendants too much, recognize that (a) the term "pillow pets" is very descriptive ("It's a pillow...it's a pet"), and (b) the idea of making stuffed animals that turn into pillows goes back at least decades.

Nevertheless, the court concludes that the defendants mimicry was too close. It violated Pillow Pets' copyright registration in sculptural works, and the marketing campaign constituted false advertising (for, among other things, saying "As Seen on TV" and claiming to be "original" and "authentic") and trademark infringement. To reach the latter conclusion, the court concluded that "pillow pets" was a descriptive term that had achieved secondary meaning.

Unusually, this ruling broke out its discussion of the trademark implications of the defendants' keyword ad campaign (rather than incorporating the discussion into the other trademark infringement analysis). The defendants ran ads like:

Official PillowPets.CO- Soft Chenille Plush Pillow Pets
Low Prices, New Styles Now in stock
www.pillowpets.co

and

PillowPets.Co™
Official Site. SuperSoft chenille plush pillow pets Now in Stock!
www.pillowpets.co

I could see how this ad copy for a knockoff might confuse some consumers, and the plaintiffs introduced some evidence that consumers had mistakenly transacted with the defendants. This case reminded me a little of the Edriver case in terms of the defendants' online efforts to look "official."

The court, like many others, says the ads make a trademark use in commerce. Fortunately, inspired by the Network Automation case, the court refused to apply an Internet exceptionalist likelihood of consumer confusion analysis for keyword advertising. The court expressly rejected the Hearts on Fire keyword-specific bonus multi-factor test.

Instead, the court cited evidence of actual confusion, the defendants' efforts to mimic the plaintiff's home page, and the resulting traffic bump as reasons to grant "plaintiffs’ motion to enjoin defendants’ use of the terms “Pillow Pets” and “My Pillow Pets” in the Google AdWords program to trigger sponsored links." Given the court's view that the defendants were impermissible knockoffs that had used overly aggressive marketing tactics, an injunction was the logical denouement.

Personally, I'm surprised the pillow pet fad has lasted as long as it has. Then again, my kids still sleep with their pillow pets every night. Check out Dina's excitement when she first got her unicorn pillow pet.

Rebecca also blogged this ruling.

Posted by Eric at 08:35 AM | Marketing , Search Engines , Trademark | TrackBack

August 26, 2011

New Advertising & Marketing Law Casebook Available for Review

By Eric Goldman

For the past 2+ years, Rebecca Tushnet and I have been writing a brand-new casebook on Advertising & Marketing Law. Although some advertising/marketing law textbooks cater to undergraduate classes (such as those in journalism schools, marketing departments and communications departments), no casebooks currently support the law school market. As a result, we think this casebook will become a vital resource for law school instructors offering the course. When I offered the course in Spring 2011, I was overwhelmed by student demand for the course--over 90 students tried to enroll! I anticipate that the course will be popular at many other schools.

I taught from an early draft of the materials this Spring, and I was happy with the course and the materials. Rebecca and I have now put together a fairly complete beta version of the casebook, and we are making it available for adoptions this academic year. In addition to the casebook itself, Rebecca and I are sharing our PPT slide decks and lecture notes as supplementary teaching resources. If you are teaching--or considering teaching--a course in Advertising Law and would like to review the materials for potential adoption, please email Rebecca or me and we will send you a private URL where you can download the materials. Or, if you are an academic who is teaching or writing on related topics and are just curious about our approach, contact us as well. In either case, we'll ask you to share your feedback on the materials so that we can improve them and produce a "final" version of the first edition.

If you aren't one of those two types of folks, please be patient with us while we gather and incorporate all of this feedback and prepare a more polished version. We plan to make the materials more widely available then.
______

The table of contents:

Chapter 0: Preface
Chapter 1: Overview
Chapter 2: What is an Advertisement?
Chapter 3: False Advertising Overview
Chapter 4: Deception
Chapter 5: Other Business Torts
Chapter 6: False Advertising Practice
Chapter 7: False Advertising Remedies
Chapter 8: Copyrights
Chapter 9: Brand Protection and Usage
Chapter 10: Competitive Restrictions
Chapter 11: Featuring People in Ads
Chapter 12: Privacy
Chapter 13: Promotions
Chapter 14: The Advertising Industry Ecosystem
Chapter 15: Case Studies
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If you're interested, I've posted my Spring 2011 exam and sample answer.

Posted by Eric at 09:22 AM | Marketing | TrackBack

August 25, 2011

Claims Against Mylife.com for Allegedly Luring Users to Sign up Using "Your Friend is Looking for you" Emails Proceed -- Clerkin v. Mylife

[Post by Venkat Balasubramani]

Clerkin v. Mylife.com, C 11-00527 CW (N.D. Cal. Aug 15, 2011)

I do not understand the lure of the "your friend is looking for you . . . sign up to our network to find out more" advertisements or emails. Then again, I don't understand why companies continue to engage in this practice. Hapless internet users who sign up to use your service in the hopes of finding that person who was searching for them may not find their long lost friend, but they will find a way to assert claims against you.

Several plaintiffs received emails from Mylife stating that people "were searching for them" on the Mylife website. The named plaintiffs paid trial subscription fees and signed up for Mylife. They alleged that they did not find what they were looking for (the people who were searching for them). Despite their requests, Mylife declined to fully refund them their fees. Plaintiffs asserted various state law claims for unfair competition, unjust enrichment, fraud, and under California's Consumer Legal Remedies Act.

The court first addresses plaintiffs' CLRA claims, which were premised on Mylife's allegedly misleading emails and also on Mylife's billing practices. Plaintiffs alleged that they tried out Mylife with an obviously fake name ("sfsf sdgfsdgs") and still received a message that someone was searching for them. They also alleged that Mylife provided a list of fake names of people who were ostensibly searching for those who signed up. In addition to arguing that the emails were not false or deceptive, Mylife also argued that plaintiffs suffered no damage based on the alleged misrepresentations. The court rejects Mylife's arguments, finding that plaintiffs' allegations that the persons who were purportedly looking for them were fictitious sufficiently alleged that the emails were misleading. As to Mylife's argument that plaintiffs had no suffered damages, the court notes that plaintiffs are paying customers and had not been refunded the full amount of their subscription fees from Mylife. The court also finds that plaintiffs adequately alleged a CLRA claim based on Mylife's billing practices--the plaintiffs alleged that they "signed up for a particular subscription, but that Mylife billed for another."

Having allowed the CLRA claim to proceed, the court also declines to dismiss plaintiffs' claims for unjust enrichment, "money had and received," and their claims under California's unfair competition statute.

Although the court allows the claims against Mylife to proceed, the court dismisses (with leave to amend) the claims against the individual defendants and against Oak Investment Partners, because plaintiffs failed to allege sufficient personal involvement in Mylife's allegedly misleading marketing practices. Separately, the court also grants one of the individual defendant's motion to dismiss on the basis of lack of personal jurisdiction.

Networks, including Classmates.com, Match.com, Reunion.com, Yahoo have been sued over the alleged use of fictitious profiles. The Reunion and Classmates cases both involved allegations similar to those raised by plaintiffs here (e.g., emails that say "your friend is looking for you, join our network to learn more"). The plaintiffs in the Reunion case struggled with the fact that they were not easily able to show damages--it did not look like they had paid money out of pocket in reliance on the alleged misstatements. Classmates, which settled, and this case, both look like they do not have that problem, although it wasn't totally clear from the court's order in this case that the plaintiffs signed up and paid fees in reliance on the allegedly misleading statements.

I'm no marketing expert, but at the end of the day, it's probably easy to conclude that these types of marketing practices are not worth the hassle and are not that effective anyway. If you are considering deploying a marketing initiative similar to those allegedly employed by Reunion and Classmates, ask yourself whether it's really worth it.

As a sidenote, Oak Investment Partners can't be happy about a chunk of its $25m investment being used for this type of a marketing practice. Mylife may or may not be vindicated at the end of the day, but these emails were all but guaranteed to ensnare Mylife in litigation.

Posted by Venkat at 12:23 PM | Marketing

August 08, 2011

Google Gets Default Injunction Against AdWord Gamers--Google v. Jackman

By Eric Goldman

Google v. Jackman, 2011 WL 3267907 (N.D. Cal. July 28, 2011)

This is a default ruling, so the facts are based on Google's allegations. The defendants ran AdWords campaigns for online pharmacies that sold anabolic steroids. This broke Google's rules in two ways: first, Google didn't permit the advertising of anabolic steroids; and second, the advertised pharmacies weren't certified by Google's mandatory certification program (VIPPS, "the National Association of Boards of Pharmacy’s Verified Internet Pharmacy Practice Sites"). The defendants further evaded Google's crackdown efforts by misspelling terms and opening up new bogus accounts. Google eventually cleaned out the defendants' ads through its manual "sweeps."

Without the defendants around to defend themselves, Google easily won its case. The court upheld the venue selection clause in Google's TOS and that the defendants' ads breached the TOS. As for remedies, Google dropped its claim for money damages, and the court grants the following injunction:

Defendants Gina Wyant, Gregory Gavin and Amanda Odell, and their agents, representatives, successors, assigns, and any persons in active concert or participation with them are immediately and permanently enjoined from advertising or attempting to advertise through Google’s AdWords advertising network, without regard to contact name, address, or email address and without regard to what URL or website is advertised.

From time to time, Google goes on the offensive against folks it thinks are trying to game it. You may recall Google v. Auction Experts International, 1-04-CV-030560 (Cal. Superior Ct. 2005) in which Google sued an alleged click fraudster and won a $75k default judgment; and United States v. Michael Anthony Bradley, CR 04 20108 (N.D. Cal. indicted June 23, 2004), a prosecution over alleged threats to help spammers defraud Google if the defendant didn't get $100k (that case ultimately fizzled out). Google's efforts to get tough against its spammers have typically struck me as publicity stunts. Default injunctions and dropped prosecutions don't do anything to scare the bad guys, but they intended to persuade third parties that Google will fight for its site's integrity.

In this case, no doubt Google wanted to show the DOJ that it really hates illegal pharma ads enough to "bust" the bad guys. This enforcement effort may have some value in working out a deal to reduce its half-billion dollar exposure. As a result, we won't really know if Google won this case until we see the terms of its DOJ deal.

Posted by Eric at 03:50 PM | Licensing/Contracts , Marketing , Search Engines | TrackBack

August 03, 2011

Newspaper's Discussion About Trademark Owner Protected as Nominative Use--1 800 GET THIN v. Hiltzik

By Eric Goldman

1 800 GET THIN v. Hiltzik, 2:11-cv-00505-ODW -E (C.D. Cal. July 25, 2011)

I'm sure any trademark experts reading this post are scratching their heads at the blog post title. Newspapers discussing a trademarked product qualify for the nominative use defense. Well, duh. Why is that even a question that needs to be answered?

Well, because sometimes trademark owners bring asinine lawsuits. In particular, this case may be part of an emerging trend in the surgical procedure industry to misuse trademark law as a weapon against unwanted criticism. See, e.g., the Lifestyle Lift cases (1, 2).

This case involves the Lap Band surgical procedure. 1 800 GET THIN is a marketing agent for the procedure. The LA Times has repeatedly criticized the Lap Band. In one passage, it arguably implied that 1 800 GET THIN provided the procedure rather than just marketed it. Even against a pushover defendant, this is a weak point to gripe about. But against a well-regarded journalistic institution like the LA Times, there's simply no point in tangling in court.

Yet, 1 800 GET THIN still cranked up the machinery of justice. Predictably, the court expends few words in tossing the false designation of origin claim on nominative use grounds. The court also tosses the Lanham Act false advertising claim because the news article was editorial content, not advertising. Rebecca digs into the doctrinal details.

This outcome was so predictable that most trademark litigators probably would have advised 1 800 GET THIN that it had no chance of winning and it should not even try. In fact, the LA Times may very well extract some cash out of 1 800 GET THIN for bringing such a weak case. The case doesn't mention an anti-SLAPP motion, but this case seems tailor-made for anti-SLAPP protection. Otherwise, it's a strong candidate for a Lanham Act fee shift and perhaps Rule 11 sanctions.

Despite the "sun rising in the East" nature of this case's legal outcome, I still wanted to highlight it because it reminds us that trademark law's overexpansive sweep creates several problem. (I discuss these concerns in more detail in my paper, Online Word of Mouth and its Implications for Trademark Law). First, to the extent such a thing exists, this was an example of trademark bullying. The LA Times isn't an easy target for bullying, but smaller defendants will just capitulate in the face of 1 800 GET THIN's trademark threats.

Second, the LA Times didn't make a trademark "use" at all. We should have never reached the nominative use defense because there was no trademark use in the first place. The fact that courts aren't gatekeeping at that level lets weak trademark cases get further than they should. In this situation, relying on the nominative use defense works fine in the Ninth Circuit but is dicey in other circuits that don't cleanly recognize a nominative use defense.

Third, if the LA Times doesn't get 100% compensation from 1 800 GET THIN, then a travesty still occurred even though the LA Times prevailed in court.

A final thought. Having seen so many such lawsuits, I must admit that I become more suspicious of any trademark owner who resorts to completely meritless trademark litigation. It makes me wonder what they are trying to hide. In this case, the fact that the Lap Band and 1 800 GET THIN desperately grasped at legal straws makes me more skeptical of the legitimacy of their offerings.

Posted by Eric at 09:37 AM | Content Regulation , Marketing , Trademark | TrackBack

August 02, 2011

Ninth Circuit Reconsiders SEO-Destroying Injunction Against DMV.Org--TrafficSchool v. EDriver (Joint Blog Post)

By Rebecca Tushnet and Eric Goldman

TrafficSchool.com, Inc. v. Edriver Inc., 2011 WL 3198226 (9th Cir. July 28, 2011)

[Over the years, Rebecca and I have blogged dozens of the same cases. However, we've never done a joint blog post until today. Rebecca and I had both blogged on the district court ruling in this case, so it made sense that both of us were going to blog on the Ninth Circuit ruling. It made even more sense for us to do it together! Rebecca's post. Warning: both Rebecca and I write long blog posts, so our combined effort is a beefy 3,800+ words.]
______________

Rebecca's comments:

District court opinion discussed here. Judge Kozinski has long been a proponent of political-speech-level protection for commercial speech, and that position has its influence on this opinion, which is written in his usual highly readable style. You can also see here the growing lawsuit-limiting effect of standing doctrine, though here at least there was an actual factfinding before the judges decided whether the plaintiff had been harmed.

As Judge Kozinski explains, “Consumers visit DMV.org for help renewing driver's licenses, buying car insurance, viewing driving records, beating traffic tickets, registering vehicles, even finding DUI/DWI attorneys. The more eyeballs DMV.org attracts, the more money defendants earn from selling sponsored links and collecting fees for referring site visitors to vendors of traffic school courses, driver's ed lessons and other driver-related services. This seems like a legitimate and useful business, except that some visitors mistakenly believe the site is run by their state's department of motor vehicles (DMV).”

After trial, the district court found a violation of the Lanham Act but not of California’s UCL. Its injunction required every site visitor to go through a splash screen with a disclaimer. (The Electronic Commerce & Law Reporter blurb described it as a pop-up. It’s not.)

The district court found that plaintiffs “failed to prove ... that they have suffered an injury in fact and lost money or property as a result of Defendants' actions,” and that they “provided no evidence showing a causal connection between Defendants' actions and any harm Plaintiffs incurred.” Edriver argued that this finding proved that TrafficSchool also lacked Lanham Act standing. This was wrong because California’s UCL defines standing more narrowly (pecuniary injury and “immediate” causation) than the Lanham Act, which only requires a plaintiff to believe that it’s likely to be injured.

What about Article III standing? The UCL also defines injury in fact more narrowly than Article III does, so the loss doesn’t necessarily preclude Article III standing. The district court didn’t independently analyze Article III standing, but the court of appeals did, looking for injury in fact, causation, and redressability. The key here was injury in fact.

Article III injury exists in a false advertising case if some consumers who bought defendant’s product under a mistaken belief fostered by the defendant would otherwise have bought plaintiff’s product. This can be proven by actual market experience and probable market behavior. Probability is fine “because proving a counterfactual is never easy, and is especially difficult when the injury consists of lost sales that are predicated on the independent decisions of third parties; i.e., customers. A plaintiff who can't produce lost sales data may therefore establish an injury by creating a chain of inferences showing how defendant's false advertising could harm plaintiff's business.”

TrafficSchool produced ample evidence that it competes with DMV.org for referral revenue, sometimes with the same course providers. “Sales gained by one are thus likely to come at the other's expense. Evidence of direct competition is strong proof that plaintiffs have a stake in the outcome of the suit, so their injury isn't ‘conjectural’ or ‘hypothetical.’ Plaintiffs also presented testimonial and survey evidence that a ‘recommended by DMV’ endorsement is an important factor in consumers' choice of traffic schools and driver's ed classes. It stands to reason that defendants will capture a larger share of the referral market—to plaintiffs' detriment—if they mislead consumers into believing that DMV.org's referrals are recommended by their state's DMV. Plaintiffs have therefore established sufficient injury for Article III standing.”

Lanham Act standing requires (1) a commercial injury based upon a misrepresentation about a product; and (2) a competitive injury. (Footnote: a plaintiff can show both these things and still lack standing if the purpose of its false advertising suit is to enforce someone else’s statutory rights—plaintiffs here couldn’t sue on the California DMV’s trademark rights. But they sued to enforce their own right to be free of unfair competition.) Defendants argued that DMV.org was a publisher, while plaintiffs’ sites are self-promotional tools, but plaintiffs introduced evidence that they compete in the referral market.

Defendants argued that the only injury here was to the public. Though plaintiffs didn’t prove “identifiable” injury to themselves, the standard for “commercial injury” was different. Likely injury is all that’s required, not actual injury. “[W]hen plaintiff competes directly with defendant, a misrepresentation will give rise to a presumed commercial injury that is sufficient to establish standing.” Kozinski defended this presumption; advertising is about competing for consumer dollars, and misleading ads can upset competitive positions. “Moreover, the Lanham Act is at heart a consumer protection statute. Requiring proof that defendant's ads caused plaintiff to lose sales as a prerequisite to bringing suit would frustrate its ability to act as the fabled vicarious avenger of the consuming public.” The court didn’t need to decide whether the presumption was conclusive or rebuttable because defendants didn’t provide any evidence to rebut it.

The remaining question was whether the ads were misleading. They were.

When plaintiffs sued, Californians who googled (Judge Kozinski fears no neologism, especially when it is useful) “dmv” or “drivers ed” would see DMV.org’s sponsored listings for “ca.dmv.org” or “california.dmv.org.” respectively. “While there's nothing inherently misleading about sponsored search results, they can mislead if they are named so as to give a false impression as to the likely sponsorship of the website to which they refer.” The ca. and california. prefixes were obviously designed to suggest official affiliation. The website design also mimicked an actual DMV site, copying slogans and state symbols, and linking to DMV-related pages like applying for a license, registering a car and signing up for traffic school. The disclaimer was easy to miss because it was displayed in small font at the bottom of each page, where many consumers would never scroll.

There was also plenty of evidence of actual confusion, including two declarations from confused individuals and hundreds of emails from obviously confused consumers. “Some of these emails contained sensitive personal information that the typical consumer wouldn't share with a commercial website”:

My boyfriend George [redacted] ... got a ticket in South Carolina in 2006.... Mr. [redacted] driver's license number is [redacted]. His date of birth is [redacted]. I have his social security number if needed, but I don't want to put all of his personal information on this e-mail if possible.... I was told by Central Court for Lexington County in South Carolina that if we contacted the Arkansas DMV that y'all would be able to tell us what court this is in and where to pay the ticket.

Law enforcement officials and state DMV employees were also confused, seeking help with, among other things, DUI cases (again a situation where the subject undoubtedly wouldn’t like that information out in the open). Two California cities, a private law firm in Texas and a number of newspapers mistakenly linked their websites to DMV.org instead of a state DMV website.

Plaintiffs didn’t stop there, but also provided an internet survey showing that “a majority of California residents searching online for traffic schools believed that (1) DMV.org's website was actually the California DMV's and (2) a search engine listing for DMV.org was endorsed or sponsored by the California DMV.” There were significant flaws, including failure to use a control, but the district court found it more credible than defendants’ survey and gave it “some” weight, which was not reversible error.

Overall, there were “volumes” of evidence of competition and misleadingness. This established that the DMV.org site deceived a substantial segment of the audience, and plaintiffs also showed that a “recommended by DMV” endorsement will affect purchase decisions, causing likely injury to plaintiffs.

Remedy: the district court ordered DMV.org to present every site visitor with a splash screen stating, “YOU ARE ABOUT TO ENTER A PRIVATELY OWNED WEBSITE THAT IS NOT OWNED OR OPERATED BY ANY STATE GOVERNMENT AGENCY.” Visitors have to click to continue. Defendants argued that this was overbroad and restrained conduct not at issue in the complaint, and violated the First Amendment.

The district court reasoned that the splash screen was necessary to: (1) “remedy any confusion that consumers have already developed before visiting DMV.ORG for the first time,” (2) “remedy the public interest concerns associated with [confused visitors'] transfer of sensitive information to Defendants,” and (3) “prevent confusion among DMV.ORG's consumers.” Defendants argued that the splash screen doesn’t do these things (I’ll have a bit to say about this shortly). Their only evidence was a declaration from DMV.org’s CEO stating that they tested several alternative disclaimers and “found them to be more effective than the splash screen in preventing consumers from emailing DMV.org with sensitive personal information.” Even crediting this self-serving declaration, defendants didn’t prove that the splash screen was ineffective, and said nothing about whether the alternative disclaimers served the other interests identified by the district court. Citing Home Box Office, Inc. v. Showtime/The Movie Channel Inc., 832 F.2d 1311 (2d Cir.1987), the court of appeals ruled that defendants hadn’t carried their “heavy burden” of showing that alternative disclaimers reduced likely confusion. The district court didn’t abuse its discretion when it concluded that the splash screen was the best way to correct the false advertising.

“Courts routinely grant permanent injunctions prohibiting deceptive advertising. Because false or misleading commercial statements aren't constitutionally protected, such injunctions rarely raise First Amendment concerns.” However, the permanent injunction here did because it erected a barrier to all content on the website, not merely that which is deceptive. “Some of the website's content is informational and thus fully protected, such as guides to applying for a driver's license, buying insurance and beating traffic tickets. The informational content is commingled with truthful commercial speech, which is entitled to significant First Amendment protection. The district court was required to tailor the injunction so as to burden no more protected speech than necessary.”

The injunction was a permanent and unnecessary burden to accessing DMV.org’s First Amendment-protected content. “The splash screen forces potential visitors to take an additional navigational step, deterring some consumers from entering the website altogether,” and defendants submitted evidence that splash screens typically drive away up to a quarter of potential visitors, prevent them from tailoring the landing page, and interfere with search engine indexing and ranking.

The district court premised the injunction on its findings that defendants’ search engine marketing and natural listings, including the DMV.org domain name, caused confusion prior to viewing any content, and then identified specific misleading statements. “The splash screen is justified to remedy the harm caused by such practices so long as they continue,” and so long as it helps remedy lingering confusion, but not forever. On remand, the district court had to reconsider the duration of the splash screen “in light of any intervening changes in the website's content and marketing practices, as well as the dissipation of the deception resulting from past practices.” If the district court continued the requirement, it needed to explain the continuing justification (comment: which would be the deceptive domain name) and what conditions defendants must satisfy in order to remove the splash screen in the future. The district court could also simply ban deceptive marketing or placing misleading statements on DMV.org.

My comment: I really don’t get this. It’s the domain name that’s at the core of the deception, something the district court pointed out—if the splash screen is justified “so long as [the deceptive practices]” continue, they will continue until there is a new domain name. Maybe if defendants only advertise the new domain name and simply redirect anyone who goes to dmv.org to the new domain, they should be allowed to remove the splash screen eventually. But for now, I don’t see why this isn’t a dilemma of defendants’ own deceptive making.

There is a potential bright spot, I suppose: the current splash screen is pretty bad (I would infer deliberately so). Take a look: Defendants have removed “Unofficial Guide to the DMV” from their license plate logo. The disclaimer runs at the very top, a couple of pixels away from the top of the browser window, in grey rather than black text (a nearly transparent tactic, pun intended!), not near the action invitation to click to continue, and not near the dmv.org logo, both of which are far more prominent to the eye. This placement clearly flunks the FTC’s guidelines for online disclosures, and defendants who already managed to mis-implement disclosures (of which more below) should not get the benefit of the doubt in this area. On remand, I sincerely hope that the revised remedy, whether splash page or not, forces the disclaimer into a prominent position.

The district court denied plaintiffs’ request for an award of profits because they provided no evidence of causation, nor did they quantify the harm they suffered. “Nothing in the Lanham Act conditions an award of profits on plaintiff's proof of harm, and we've held that profits may be awarded in the absence of such proof,” though it’s an uncommon remedy without proof of harm. Profits are appropriate in false comparative advertising cases, “where it's reasonable to presume that every dollar defendant makes has come directly out of plaintiff's pocket.” Likewise “where ordinary damages won't deter unlawful conduct: for example, when defendant associates its product with plaintiff's noncompetitive product to appropriate good will or brand value.”

But neither line of cases were relevant here. Profits may be awarded only as compensation and not as a penalty, but without comparative advertising plaintiff’s injury may be a small fraction of defendants’ profits. There was no error in denying damages.

The potential attorneys’ fee award did require some rethinking, though. The district court denied fees because, while plaintiffs received an injunction, they didn’t get damages, and they had unclean hands. This was reviewed for abuse of discretion.

An exceptional Lanham Act case justifying fees usually involves conduct that was “fraudulent, deliberate, or willful.” “By examining only the relief awarded to plaintiffs, and failing to consider defendants' conduct, the district court applied the wrong legal standard.” The district court may take failure to recover damages into account, but it should also consider that plaintiffs obtained a judgment and an injunction to ameliorate serious public harm caused by defendants’ unlawful conduct. “It would be inequitable to force plaintiffs to bear the entire cost of enjoining defendants' willful deception when the injunction confers substantial benefits on the public.” Plaintiffs stopped the confusion (maybe) and stopped consumers from mistakenly transferring sensitive personal information to a commercial website. “The district court abused its discretion by failing to consider these substantial benefits or defendants' bad acts in determining whether to award attorney's fees.”

Defendants challenged the finding that their deception was willful. But there was plenty of evidence to support that, including evidence that one defendant had a pattern of registering misleading domain names. “Defendants associated their website with URLs and search terms that falsely implied DMV.org was a government site. They had in their possession hundreds of emails sent by consumers who contacted DMV.org thinking it was a state agency. And DMV.org's director of customer service testified that he voiced concerns about these emails to senior management.”

Defendants responded that they added disclaimers, but they knew the disclaimers were ineffective, because that didn’t change the stream of emails from confused consumers. Given this knowing inaction, the district court could reasonably infer willfulness.

Moreover, the district court’s finding of unclean hands was clearly erroneous. This rested on two findings: (1) plaintiffs registered similar domain names, such as Online-DMV.org, Internet-DMV.org and cadmvtrafficschool.com; and (2) they attempted to advertise their products on DMV.org despite being aware that the site deceived the public. Neither was clear and convincing evidence of inequitable misconduct related to the subject matter of the false advertising claims. (In a footnote, Judge Kozinski commented that it wasn’t clear that the fee award was subject to equitable doctrines such as unclean hands, since the relevant statutory provision doesn’t use the term “equity.”)

Merely registering a domain name wasn’t proof of unclean hands, since registration couldn’t cause confusion unless the domain name was associated with a website visible to consumers, and plaintiffs’ ads on DMV.org ran for just six hours. There was no evidence of actual deception caused by plaintiffs' advertising. There was an email from plaintiffs’ co-founder recommending taking an “[i]f you can't join ‘em, shut ‘em down approach” to DMV.org. “But the doctrine is unclean hands, not impure thoughts. … And the email here actually undermines the rationale for finding unclean hands. Plaintiffs acquired information showing that defendants confused the public; using litigation to shut down a competitor who uses unfair trade practices is precisely what the Lanham Act seeks to encourage.” (I’m not sure that’s undermining, precisely.)

Remand for further proceedings.
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Eric's comments:

This lawsuit is just the latest courtroom fracas involving privately operated websites that seem designed to create the appearance of official government sponsorship. Other sites in this genre include ConsumerAffairs.com and FreeCreditReport.com. As I indicated in my prior blog post on this case, the operators of DMV.org were probably too zealous about trumping up their officialness, thus destroying a promising domain name when a lighter touch would have left some short-term profits on the table but generated more profits over the long-run.

Rebecca highlights how this opinion has some important things to say about false advertising standing, consumer confusion in false advertising and attorneys' fees in Lanham Act cases. I'm going to focus on more of the technical issues:

First, DMV.org bought keyword ads that displayed the URL "ca.dmv.org" and "california.dmv.org." The opinion says "Defendants' use of the "ca." and "california." prefixes obviously was designed to suggest an affiliation with the State of California." As far as I can recall, this is the first time a court has explicitly treated the URL displayed in keyword ad copy as contributing to consumer confusion. I know some SEMs like to play games with the domain line in keyword ad copy. Even if Google won't police the URL line, courts will.

Second, the opinion shreds DMV.org's argument that consumers didn't think it was affiliated with a government agency; it concludes that DMV.org "willfully" and "egregiously" deceived consumers because

Defendants associated their website with URLs and search terms that falsely implied DMV.org was a government site. They had in their possession hundreds of emails sent by consumers who contacted DMV.org thinking it was a state agency. And DMV.org's director of customer service testified that he voiced concerns about these emails to senior management.

This deceptive conduct wasn't curable with a website disclaimer: "defendants knew that the disclaimers were ineffective, because adding them didn't end the stream of emails sent by consumers who thought they'd contacted their state DMV." Marketing people love to "fix" any legal problems with disclaimers, but they often simultaneously resist making the disclaimers prominent enough to actually fix the problem, leaving the website no better off.

As usual, Judge Kozinski adopts a realpolitik perspective that we all know what's going on here, and he isn't going to countenance it. This discussion doesn't directly link to or cite the scienter battles in online copyright and trademark cases, but it could be a little uncomfortable for defendants like Fung who rely on form-over-substance arguments.

Third, the district court ordered DMV.org to display a splash screen to incoming visitors containing a disclaimer of government affiliation. I believe the remedy of a mandatory splash screen was also unprecedented. Among other problems with the splash screen, it can hurt or destroy search engine indexing, effectively rendering the domain name worthless. Therefore, even though the district court didn't award any damages (a ruling affirmed on appeal), the mandatory splash screen was potentially far more detrimental.

On appeal, the court partially reverses the mandatory splash screen, noting that it applied equally to deceptive and non-deceptive content that DMV.org is publishing. The court also notes the disadvantages of interfering with search engine indexing:

[The injunction] also precludes defendants from tailoring DMV.org's landing page to make it welcoming to visitors, and interferes with the operation of search engines, making it more difficult for consumers to find the website and its protected content.

In a footnote, the court explains:

Defendants introduced unrebutted evidence that splash screens commonly interfere with the automated "spiders" that search engines deploy to "crawl" the Internet and compile the indexes of web pages they use to determine every page's search ranking. And splash screens themselves don't have high search rankings: Search engines commonly base these rankings on the web page's content and the number of other pages linking to it, and splash screens lack both content and links.

This is a pretty savvy explanation of why a splash screen destroys SEO, and it's heartening to see the court recognize the First Amendment value of SEO (at least, nondeceptive SEO).

The court gives DMV.org some very good news by giving it a chance to work its way out of the splash screen:

On remand, the district court shall reconsider the duration of the splash screen in light of any intervening changes in the website's content and marketing practices, as well as the dissipation of the deception resulting from past practices. If the district court continues to require the splash screen, it shall explain the continuing justification for burdening the website's protected content and what conditions defendants must satisfy in order to remove the splash screen in the future. In the alternative, or in addition, the court may permanently enjoin defendants from engaging in deceptive marketing or placing misleading statements on DMV.org.

On the other hand, as Rebecca points out, the DMV.org domain name is, itself, designed to prey on consumer interest in official DMV services. Perhaps there will be no way for DMV.org to fix this, no matter what disclaimers it uses.

One final note: this opinion was authored by Judge Kozinski, the third domain name opinion he has written in the last 13 months. (The other two are the Tabari and eVisa cases). I went back and counted a total of 9 Ninth Circuit domain name cases in that time--the others being Advertise.com, Christensen (a 2 paragraph opinion), DSPT, Balsam, Office Depot (a non-substantive affirmance) and Vericheck. Kozinski was not on the other panels, so he wrote the opinion in each of the 3 domain name cases he heard. Is all of this just random luck?

UPDATE: Something about this opinion is spurring blog posts focusing on its arcania. Tom O'Toole notes this is the second opinion using the term "googler." Shaun Martin focuses on Kozinski's self-citations.

Posted by Eric at 09:42 AM | Domain Names , Marketing , Search Engines | TrackBack

July 20, 2011

Social Media Marketing Is Relevant to Trademark Confusion Analysis--Quia v. Mattel

By Eric Goldman

Quia Corp. v. Mattel, Inc., 2011 WL 2749576 (N.D.Cal. July 14, 2011)

Both parties offer educational games under the brand "IXL" (presumably a homophone for "I excel"). The parties dispute who came first.

Mattel sought a determination that Mattel's product's presence in search results was legally irrelevant. Judge Fogel tosses Mattel a bone, saying "The mere fact that an internet search engine intermingles links to two products is not evidence of consumer confusion."

Quia responded that it wasn't kvetching about search at all (at least, not after Mattel boxed it in). Instead, Quia says the fact both parties are engaged in social media marketing increases the likelihood of consumer confusion. Quia offers the following evidence:

Defendants have taken steps such as reserving “tags” to improve search results on Google and Bing; monitoring “Google Blogs Alert for: ixl,” sending email “blasts,” creating Facebook applications, developing You-tube “channels,” and fostering tie-ins with “mommy bloggers.”

What are they talking about? What does it mean to "reserve tags" to improve Google search results? And why does it matter that Mattel has a Google Blog alerts on its purported trademark? And surely it's not a surprise that an educational game has mommy-blogger tie-ins?

Exploring the Network Automation case and its implications for a Sleekcraft analysis in the online context, Judge Fogel responds:

While purchasing search engine keywords or selling product on Amazon.com are now “ubiquitous marketing channels,” social media marketing, such as tie-ins with “mommy bloggers,” may be more akin to niche marketplaces such as the specialty retail outlets and trade magazines at issue in Sleekcraft. At this stage of the proceedings, the Court cannot conclude that Plaintiff's theories with respect to Defendants' marketing strategies are irrelevant to the issue of consumer confusion.

That's clearly the correct reading of Network Automation. Even so, given the things it's alleged so far, I'm not clear what information Quia can introduce regarding marketing channels that will matter to the analysis.

Posted by Eric at 02:00 PM | Marketing , Search Engines , Trademark | TrackBack

July 06, 2011

Supreme Court Strikes Down Statute Restricting Sale and Use of "Prescriber" Data on First Amendment Grounds -- Sorrell v. IMS

[Post by Venkat Balasubramani with comments by Eric]

Sorrell v. IMS Health Inc., 10-779 (June 23, 2011) [pdf]

The Supreme Court struck down a Vermont statute restricting the dissemination of "prescriber-identifiable" information for marketing purposes. While this case was viewed as one that could potentially have far-reaching effects on data-mining and privacy, the majority and dissenting opinions ended disagreeing on the level of protection accorded to commercial speech. 

The Vermont statute was aimed at data-mining companies which gather information regarding what drugs doctors prescribed. Drug companies obtained and used this information to better target their marketing efforts to doctors. The statute restricted the sale or transfer this information to make it harder for the drug companies to target. The statute also restricted pharmaceutical manufacturers from using this information for "marketing or promoting a prescription drug" without the prescriber's consent. The statute included an exception which allowed this information for education and research purposes. Finally, the statute set aside funds for a "prescription drug education program," which would inform prescribers as to when generic alternatives became available for drugs which they prescribed. (The statute was not aimed at the dissemination of patient information, which the data-mining companies did not disseminate or sell--as Professor Goldman notes, this case was only nominally about privacy.)

Majority: Justice Kennedy wrote that "speech in aid of pharmaceutical marketing ... is a form of expression protected by the First Amendment." In his view, the statute restricted certain speakers from disseminating certain types of content to particular recipients. Because the statute was discriminatory in this respect, it was subject to a heightened level of scrutiny. Applying this scrutiny, he finds a poor fit between the State's goals and the statute. 

The first justification asserted by the State was prescriber privacy. However, the existence of numerous exceptions to the statute, including an exception for educational and research uses, undermined this objective. Wile the State pointed to the fact that the statute contained an exception for prescriber consent, the Court finds that this merely offers a "contrived choice." Either the prescriber withholds consent which allows prescriber-information to be used in support of the State's message, or grants consent and allows for the wide dissemination of the information.

The second justification offered by the State was that the statute would lower the cost of medical care. The Court finds that which this is a laudable and important goal, the State may not accomplish this goal by "restraining certain speech by certain speakers." If the State wants to tip the balance in favor of generic drugs, this is an acceptable goal, but it cannot accomplish this goal by hamstringing the marketing efforts of the drug companies who manufacture brand-name drugs.

Dissent: Justice Breyer wrote in dissent that since commercial speech was at issue the Court should employ a lower standard, and not require a perfect fit between the State's asserted goals and the means. In fact, he even seemed skeptical that speech was at issue at all, since the statute regulated the transfer of data, and not necessarily a particular message. In his view, this was just one aspect of the State's overall regulatory program which the government should have room to pursue.

---

The big question was whether this decision will have broader effect for data mining or behavioral targeting. I'm guessing it will probably have less effect than what people envisioned. More than anything this case represents a victory for commercial speech, which has steadily inched up the scale in the amount of protection it is accorded. 

The fact that the sale of data is characterized as speech deserving of a high degree of protection may make it tougher for legislators to enact laws which regulate the transfer of consumer information, but what bothered the majority here is that the purported privacy interest was ill-served by the statute and the fact that the state sought to favor one set of products by suppressing the flow of data to its marketers (while allowing the competition to use the information). To use an analogy, the State went beyond restricting the transfer of information to car manufacturers for marketing purposes. It authorized the use of this information only by manufacturers of electric cars.

Will this opinion affect more general laws aimed at the collection, use, or transfer of information for marketing purposes? Some of these already exist in specific contexts (e.g., COPPA for information collection from children under 13; CAN-SPAM includes provisions restricting the transfer of email address in certain contexts; the Video Privacy Protection Act deals with video tape rental records; and there's of course HIPPA, which deals with patient records). Provided that the regulation is not discriminatory, this case should not present an impediment to enacting this type of legislation.

The Court's treatment of the consent issue was interesting. Are doctors really powerless from a bargaining standpoint that they can't take steps in the market to somehow fix the supposed forced consent issue? The majority opinion had a paternalistic tone to it, which may make sense if the statute was dealing with patient records and patient choices, but I found it odd, given that the statutory scheme was about sales pitches to doctors!

Other coverage:

CDT Statement on Supreme Court Decision in Sorrell v. IMS Health (CDT)
Information is not Beef Jerky (info/law)
Supreme Court Rx Records Case: Not So Bad (info/law)
Court’s data-mining ruling: big change on commercial speech? (First Amendment Center)

_________

Eric's comments:

I agree with Venkat's comments but I wanted to add a few more:

Let's start with two basic premises: (1) healthcare costs have spiraled out of control, and (2) doctors' medical decisions are a big part of that. For example, it turned out that Wisconsin healthcare costs were unusually high because Wisconsin doctors are more likely to require various tests/diagnostics than doctors in other areas. It was unclear if this was because local doctors had a heightened fear of malpractice liability, different regional norms, different assessments of medical best practices or something else. However we get there, the cumulative effect of Wisconsin doctors' choices was dramatic: enormous healthcare insurance premiums (and heaven help you if you didn't have medical insurance).

Therefore, it's quite logical for a state to look more closely at doctors' drug prescribing choices both as a matter of public health and fiscal responsibility. If a state could identify systematic drug prescribing judgment-calls that unnecessarily jack up medical costs, it would be in the public interest to curb those.

The theory behind Vermont's statute (and other states in the Northeast that adopted similar laws) is that doctors are overprescribing branded pharmaceuticals when they could be prescribing generic drugs instead; and that doctors are overweighting branded drugs because drug reps are bending their ears to persuade them to prescribe the branded drug in preference to the generics; and that the drug reps are successfully persuading doctors to make this choice because the drug reps are armed with the doctor's past prescribing practices and therefore can make a more effective but socially unwanted sales pitch that is overriding the doctor's own medical judgment that would otherwise lead the doctor to prescribe the generic drug.

Stated this way, we see that the statute is targeting a problem (high medical costs) through a very indirect means (suppress a doctor's past prescribing practices from drug sales reps). Should any inference in this logic chain be wrong, then the statute is, at best, ineffectual. However, there are a broad range of other ways the state could try to remediate the problems with branded drugs jacking up medical costs, including monkeying with the states' reimbursement policies for branded vs. generic drugs; counter-educating doctors about the merits of generic drugs; educating patients about the bioequivalence of branded and generic drugs so they could make their own substitutions or push their doctors to prescribe generics when available; etc. The state was trying some of these as well.

There are two other aspects of the unique situation of doctors that I feel get lost in the top-line headlines. First, the whole concern here is face-to-face meetings between doctors and drug sales reps. Given how hard it is for us as patients to see our doctors face-to-face, it is a little shocking that doctors are voluntarily choosing to spend discretionary time with the drug reps for meetings that the doctors know are sales pitches. Why are the doctors allocating their time this way?

Putting aside the odds that the drug sales rep is very attractive and charming (have you ever noticed that on the Survivor TV show, the former beauty queens all list their job title as "pharmaceutical sales"?), it's presumably because doctors find the meetings valuable to them. Indeed, even Justice Breyer in dissent acknowledges that the drug sales reps impart valuable information in those meetings. The state statute very explicitly tried to make those meetings less useful to doctors by making the drug sales rep less well-prepared. If the drug sales reps wanted to provide tailored information to the doctor's practice, the drug reps would have to take time out of these meetings to interrogate doctors about their prescribing practices; and if the doctors concluded that the meetings weren't productive because they took too much time on irrelevant or uninteresting chatter, the doctors would simply skip the meetings entirely and perhaps lose the other valuable information being exchanged in the meetings. So before we get too worked up about the evilness of the drug reps working against the consumer interest, we should not forget that very busy doctors are voluntarily choosing to take these meetings, and doctors can and will choose otherwise when it doesn't make sense for them.

Second, the opinions talk a lot about "privacy," and this baffled me. Everyone agrees we're not talking about patient privacy. Instead, there is some back-and-forth on DOCTOR privacy in their prescribing patterns. What??? In this situation, doctors are business operators making business decisions. Tracking their prescribing decisions is similar to tracking how other businesses interact with third party vendors. We might have concerns about how tracking these decisions exposes trade secrets or competitive intelligence, but we wouldn't talk about business decision-making as being covered by "privacy" concerns. So the notion that this case teaches us anything about "privacy" law confuses me greatly.

In the end, what we really want to know is whether this case will enable more First Amendment challenges to behavioral advertising or other privacy statutes. I personally don't feel any more knowledgeable about that question after reading the majority and dissenting opinions. Part of this reflects my cynicism about the Supreme Court's First Amendment's jurisprudence, which still seems to me that it's developed case-by-case instead of forming a coherent body of jurisprudence. Part of this reflects the quirks of Vermont's statute, which suffered from two easily targeted defects. First, it sought to regulate the doctor-drug rep conversation, setting up the possibility of content-based and perhaps even viewpoint-based review. Second, Vermont changed its position about who could get access to the database of prescribing information, and this flip-flopping gave the majority extra reasons to suspect the state's policy rationales. So I suspect that Vermont or other states could find a way to draft around this opinion if they chose to; and I'm skeptical that other behavioral advertising or privacy laws would set off the justices' First Amendment hackles like this statute did.

Posted by Venkat at 12:19 PM | Marketing , Privacy/Security

July 03, 2011

Job Posting to LinkedIn Group Doesn't Violate Non-Solicitation Clause -- Enhanced Network Solutions v. Hypersonic Technologies

[Post by Venkat Balasubramani]

Enhanced Network Solutions Group v. Hypersonic Technologies Corp., 2011 WL 2582870 (Ind. Ct. App. June 30, 2011)

Enhanced developed software, and had a relationship with Hypersonic, which modified existing software. The two companies often jointly bid on projects together. They were parties to an agreement which contained the following non-solicitation clause:

Employee Protection. During the term of this Agreement and for a period of twelve (12) months from the date of effective date of its termination, unless mutually agreed to in writing otherwise the Parties . . . shall refrain from soliciting or inducing, or attempting to solicit or induce, any employee of the other Party in any manner that may reasonably be expected to bring about the termination of said employee toward that end . . . .

Some time after Enhanced and Hypersonic unsuccessfully bid on a project, Hypersonic posted an open position for an outside sales representative to "its LinkedIn webportal" (which the court describes as "a social internet site that connects businesses and people"). As the court describes it:

The LinkedIn job posting was available for viewing by the people who belonged to a certain public group within LinkedIn.

An Enhanced employee saw the posting and informed the President of Hypersonic that he was interested. After this, the employee met with Hypersonic's owner and hammered out a deal. Hypersonic then filed a complaint for declaratory relief regarding the enforceability of the agreement between Hypersonic and Enhanced. (There must have been some sabre-rattling obviously that prompted the filing of the complaint by Hypersonic.) The trial court concludes that Hypersonic did not violate the non-solicitation clause by posting the opening on LinkedIn. The appeals court affirms.

The court looks to the dictionary definitions of the relevant terms ("solicit" and "induce") and concludes that Hypersonic did not solicit or induce the Enhanced employee to terminate his relationship with Enhanced:

[t]he record clearly supports that [the employee] made the initial contact with Hypersonic after reading the job posting on a publicly available portal of LinkedIn. In other words, [the employee] solicited Hypersonic.

The court notes that the agreement precludes Hypersonic from soliciting applications, but nothing prevents Hypersonic from talking to Enhanced employees if they reach out to Hypersonic. The court concluded that this is what occurred here. In a footnote, the court also notes that the agreement could have been drafted more broadly to prevent Hypersonic from considering applications regardless of who initially solicited the contact.

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This case raises the interesting question of when an online communication is one-to-one communication as opposed to a posting that is directed to the world at-large. It reminds me of the lawyer ethics question of whether a keyword targeted advertisement (in response to a catastrophic occurrence) can be a "solicitation" to a prospective client. (See Erik Turkewitz's post which discusses this issue in the context of New York's anti-solicitation rule: "New York’s Anti-Solicitation Rule Allows For Ethics Laundering and Must Be Modified.") Posts to social networking sites can fall into either category, but with increasing personalization, it's become more difficult to slot them in the appropriate box.

The court doesn't dig deep into the issue of whether the post was made in a way that it would be restricted to a small group or whether the sender would know in advance who the post was initially sent to. The court sates that the post was made to a "publicly available portal of LinkedIn," but also mentions that the post was for viewing by people "who belonged to a certain public group." My understanding is that LinkedIn group owners have to approve membership in the group. If the court determined that Hypersonic approved membership in the group, and knew in advance that Enhanced employees were a part of this group, I wonder if this would have changed the court's thinking. The court also doesn't discuss whether the post was made in a manner that Hypersonic would have "reasonably . . . expected" to bring about the termination of the employee's relationship with Enhanced.

I'm sure we will see many more courts address this type of a non-solicitation question over time. As far as I know, this is the first ruling that deals with this question. A previous case addressing the question of whether recruiters violated their non-compete clause by "connecting" (on LinkedIn) with candidates who were in discussions with their previous employer settled quietly. Here's Evan Brown's initial post on the case: "Nefarious LinkedIn use finally makes it to the courts." Here is a copy of the stipulated permanent injunction, which imposes broad restrictions on the defendants' solicitation of certain customers, but interestingly does not mention LinkedIn.

UPDATE: Ken Adams' thoughts on the case.

Posted by Venkat at 02:44 PM | Licensing/Contracts , Marketing

June 29, 2011

Court Dismisses Misappropriation Claims Against Facebook Over Its Friend Finder Service -- Cohen v. Facebook

[Post by Venkat Balasubramani]

Cohen v. Facebook, C 10-5282 RS (N.D. Cal. June 28, 2011)

There are a slew of publicity rights lawsuits pending against Facebook. This one alleged that Facebook misappropriated the names and likenesses of Facebook users by suggesting to Facebook users that their friends had utilized the "Friend Finder" service. (Ironically, Facebook's friend finder service looks similar to the service Power.com offered and which Facebook is trying to shut down.) Plaintiff brought a putative class action, alleging state law misappropriation, Lanham Act, and unfair competition claims.

Facebook's user agreement: Facebook argued that the consent contained in Facebook's terms of use barred plaintiff's claims. Facebook argued that its terms contained a broad license that was limited only by privacy settings for particular types of content:

For content that is covered by intellectual property rights, like photos and videos ('IP content'), you specifically give us the following permission, subject to your privacy and application settings: you grant us a non-exclusive, transferable, sub-licensable, royalty-free license to use any IP content that you post on or in connection with Facebook ("IP License").

According to Facebook, an end user's name and profile picture have no privacy settings and therefore there were no limitations on the clause quoted above (i.e., no limitations on Facebook's right to use end user photos and user names). Judge Seeborg, disagreed, noting that:

a more natural reading of the provision is that it gives Facebook a worldwide license to reproduce any pictures or text posted by a user, subject to any privacy settings, that would insulate it from any copyright claims by the user, whether or not the reproduction was made on 'Facebook'.

Facebook also argued that its users had no expectation of privacy in their name or profile picture, but the court notes that this does not bar a user claim for publicity rights. It's one thing to disclose a person's name and it's another to use it for endorsement purposes. Although the discussion is slightly confusing, the court's conclusion was that it's not totally clear that Facebook's terms freely allow Facebook to exploit a user's publicity or personality rights in this manner. The court also noted that there was nothing in the terms which ostensibly allowed Facebook to disclose to other users what services a particular user utilized. [Ouch! I think the conclusion is debatable, and despite Facebook's clunky user agreements, the quoted language is broad. To be on the safe side, if I were Facebook, I would expressly reference publicity and personality rights.]

Plaintiff did not sufficiently allege injury: In order to make out a claim for misappropriation of publicity rights, the plaintiff has to allege injury. Although plaintiff included a conclusory allegation in the complaint that she "suffered injury-in-fact," plaintiff did not allege any harm whatsoever. Injury to feelings is sufficient to assert a publicity rights claim, but plaintiff failed to allege this. Plaintiff argued that she was entitled to statutory damages even absent a showing of harm, but the court disagreed. Under the case law, a plaintiff who suffers no economic loss but suffers emotional harm may be entitled to the minimum damages amount, but plaintiff failed to allege that she suffered any "mental anguish" as a result of Facebook's alleged misappropriation.

Plaintiff's lack of commercial interest in her name undermines Lanham Claim: With respect to the Lanham Act claim, the court held that plaintiff had to allege some "commercial interest" in his or her name in order to assert a Lanham Act Claim. While the plaintiff need not be in "actual competition" with Facebook, the plaintiff had to have some "economic interest" in her name "akin to that of a trademark holder." Plaintiff argued that she had a commercial interest (at least within the group of her Facebook friends) but the court rejects this argument.

Unfair competition: Plaintiff's unfair competition claims was derivative of her publicity rights claims and therefore were dismissed. The court also adds that apart from the injury issue, plaintiff is not likely to be able to show that she has lost "money or other property." The remedies available via a section 17200 action have been sharply limited in recent years, and if a plaintiff cannot show that Facebook wrongly took money or property belonging to plaintiff, he or she will be out of luck. The fact that Facebook offers a free service to end users makes section 17200 claims useless for anything other than prospective injunctive relief. (One or two cases have recognized that personal information can constitute "property," but the court does not discuss that possibility here. See "Judge Recognizes Loss of Value to PII as Basis of Standing for Data Breach Plaintiff".)
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I'd characterize this as a partial win for both sides. Judge Seeborg's view that the Facebook end user agreement did not bar the misappropriation claims has to make Facebook nervous. On the other hand, if plaintiffs are going to have to show that they suffered "mental anguish" as a result of Facebook's use of their names and profile photos and they have an economic interest in their names, these present obvious barriers. [I can just imagine Facebook's investigators trolling the internet for examples of use by plaintiffs of their own photos and names on other sites or on Facebook, to show that plaintiffs did not really exert any control over use of their names and photos by third party websites.]

Facebook may also have an opportunity to argue that the claims are not amenable to resolution on a class-wide basis, given that individual facts may affect the determination of whether a particular user suffered "mental anguish" as a result of Facebook's use of plaintiffs' photos and user names.

Of course, the reality is that this is a cobbled together class action based on allegations of harm that are tenuous at best. The result may be different if plaintiff alleged that Facebook used plaintiff's name and likeness to advertise third party products or services or even promote something outside the Facebook ecosystem, but telling someone's Facebook's friends that they used the "friend finder" services sounds like a weak publicity rights claim at best.

Plaintiff may be able to amend and get past another motion to dismiss, but this lawsuit will probably be shuttled to the dustbin of internet privacy lawsuits in short order.

Posted by Venkat at 03:14 PM | Licensing/Contracts , Marketing , Publicity/Privacy Rights

June 14, 2011

Advertiser Fails in Suit Against Trademark Owner over Google Trademark Complaint--Pandora Jewelers v. Pandora Jewelry

By Eric Goldman

Pandora Jewelers 1995, Inc. v. Pandora Jewelry LLC, 2011 WL 2174012 (S.D. Fla. June 2, 2011)

The plaintiff is a long-time single-storefront jewelry retailer in Florida (in a strip mall, naturally) with an e-commerce website. Pandora Jewelry, one of the main defendants, is an international jewelry manufacturer and retailer. To make things more complicated, the Florida Pandora retailer was an authorized distributor of the Pandora manufacturer's goods for several years in the last decade. The parties terminated that relationship, the international Pandora moved more aggressively into opening retail outlets in Florida, and the Florida Pandora sued.

The lawsuit has lots of interesting angles, but I'm interested in Google's role in the battle. The international Pandora submitted a trademark complaint to Google for "Pandora," which affected about 67 advertisers, including the Florida Pandora. This meant that Florida Pandora couldn't advertise on "Pandora Jewelry," "Pandora bracelets," "Pandora charms," and "Pandora beads." The opinion is ambiguous about the nature of international Pandora's complaint, but given that it was placed by a Danish subsidiary, it appears that it was in Europe under Google's old rules and thus prevented the Florida Pandora's ads altogether on the blocked phrases. In the US, at most, the international Pandora should have only been able to block the Florida Pandora's reference to "Pandora" in the ad copy.

Florida Pandora claimed the trademark block was a tortious interference. That claim fails because Florida Pandora couldn't show the requisite malice in making the complaint. I believe the court is trying to say that because international Pandora was just attempting to enforce its trademark rights, the takedown lacked malice. The court also rejected several related claims by Florida Pandora.

Compare this discussion with yesterday's post on the Twilight-themed song, where the court said that the takedown might constitute a violation of 17 USC 512(f), a tortious interference and a defamation. Today's ruling is more comforting for rightsowners, but they shouldn't get too comfortable. There are increasing signs that an overzealous takedown campaign entails significant legal risk.

Posted by Eric at 07:43 AM | Marketing , Search Engines , Trademark | TrackBack

June 09, 2011

Buying Personal Names for Keyword Ads Isn't a Publicity Rights Violation--Habush v. Cannon

By Eric Goldman

Habush v. Cannon, 09-CV-18149 (Wis. Cir. Ct. June 8, 2011). The June 2010 denial of the motion to dismiss. A good overview article from when the complaint was filed.

Introduction

A Wisconsin court has said that a keyword advertiser didn't violate publicity rights by buying a person’s name for keyword advertising. Although the propriety of keyword advertising on a third party trademark has been hotly contested since at least 2004, I believe this is the first ruling addressing the publicity rights issue.

The legal novelty of the ruling makes it an important early precedent, but the opinion is not especially persuasive. To me, the judge seemed overwhelmed by both the challenging legal doctrines and technology at issue in this case. In response, the judge issued one of the most citation-free opinions of its length that I have ever seen. This is not a scholarly opinion, and that makes less likely to influence other courts. It also means that an appellate court will likely give this opinion relatively low deference.

The fact that the court dismissed the lawsuit is, on its face, good news for both search engines and advertisers. However, I thought the judge's arguments were questionable and, at least at one crucial juncture, internally inconsistent. The ruling turned on a specific word in the Wisconsin publicity rights statute, and courts applying other statutes can easily distinguish this opinion if they want to rule for the plaintiffs. Therefore, this ruling could morph from a defense win into a plaintiff's friend depending on how future courts rely on and interpret it.

Facts

The case involves two of the highest profile and most successful personal injury law firms in Wisconsin. The defendants bought two of their competitors' last names ("Habush" and "Rottier") for keyword ads at Google, Bing and Yahoo, in some cases bidding enough to ensure the first ad position. The ad copy didn't display those last names.

The plaintiffs sought an injunction. However, in that sense, the plaintiffs may have gotten a de facto extrajudicial win. It appears the defendants have stopped the ad campaign. Neither the court nor I could replicate the ads any more.

The Prima Facie Case

The court holds that the keyword ad buys satisfied the prima facie elements of a publicity rights claim but one. Among other arguments, the defendants argued it didn’t "use" the name "for advertising purposes or purposes of trade." This argument recalls the old and loquacious trademark battles over what constitutes a "use in commerce." The non-"use" defense doesn't get any more traction here than it did in the trademark cases. The court thinks it’s irrelevant that the "use" is invisible to consumers: "the simple, plain English meaning of the word ‘use’ certainly includes the purchase of a name to trigger results from a computer algorithm." Thus, the court concludes:

the defendants used plaintiffs‘ names for advertising and trade purposes without the plaintiffs‘ consent. Thus, plaintiffs have established that, under Wis. Stat. § 995.50, defendants invaded their privacy.

"Unreasonably"

It looks like the plaintiffs are home free. But then, the court says that the plaintiffs must also show that the defendant's use was "unreasonable." This appears to have been a contentious battle over the prima facie requirements; see lengthy FN9 and this transcript from March 2010.

The court then explains why a "privacy invasion" by buying keywords ads was reasonable in this case, including:

* positioning keyword ads by organic results is analogous to competitive adjacencies, such as competitors locating their stores next to each other and advertisers bidding against each other for prime positions in Yellow Pages. In the trademark context, I thoroughly examined these arguments in my uncited Brand Spillovers article. The judge sees the defendant lawyers' ad buys as "energetic business competition." Kudos to the judge for recognizing that keyword ads are usurping lawyers' Yellow Pages ads.

* the specific names here (Habush and Rottier) are part of their law firm's name, and the court says their publicity rights effectively merge with the firm's trademark. In other words, a person searching for "Habush" might be looking for the firm, not the lawyer, and it's impossible to separate those searcher motivations.

* users aren't confused by keyword ads (nor did the plaintiffs show any confused consumers), consumers scan the results page to find what they are looking for, and any confusion they experience will be brief (no acknowledgement of the abominable initial interest confusion doctrine). Further, "Internet users, and consumers in general, have learned to be skeptical about the first impression they may receive from a web page or commercial advertisement." If only that were unequivocally true!

* search engines are evolving, and the court can't figure out what an injunction would look like given how search engine user interfaces might change.

* no attorney ethics rules have banned these keyword advertising practice.

All of these are interesting and meritorious public policy considerations. None of them got any meaningful empirical or legal precedent support for the judge's arguments. An appeals court will feel free to substitute their own considerations for the judge’s proffered rationales.

Also, notice the problem with this court's solution. Other publicity rights statutes may not have the word "unreasonable" in their statutory language, and common law publicity rights doctrines may not require "unreasonableness" either. As a result, where the publicity rights doctrine doesn’t require defendants to engage in “unreasonable” usage, this ruling says pretty clearly that competitively buying a person's name is a publicity rights violation—in other words, what could be a clean win for the plaintiffs. I don't think this judge intends that result, but it’s the implications of the judge’s doctrinal solution.

Defenses

The court rejected the unclean hands defense. It appears that the plaintiffs' firm had bought category ads in some Yellow Pages sites, which caused their ads to show up on the defendants' firm listings in those categories. The court logically distinguishes category ads from keyword ads, though the 9th Circuit's Playboy v. Netscape panel treated them as equivalent.

The court also rejected a First Amendment defense because buying keyword ads is conduct, not speech: "This lawsuit involves the hidden process which causes the link to appear at all. That process is content neutral. It is not information; nor is it a message of any sort. It is not speech, commercial or otherwise."

What??? First, the court ahistorically ignores the 1990s-era rulings about encryption software and the First Amendment. Second, I believe this is internally inconsistent with the court's conclusion that the publicity rights statute applies to invisible activity (i.e., a use of a person’s name that a consumer never sees). The court seems to be saying that conduct without speech can constitute a publicity rights violation, and I don't see how that's possible. My position is that publicity rights violations necessarily require the defendant to engage in speech; so conduct without speech can never satisfy the statutory requirements.

Implications

This opinion got to the right result, but its reasoning is shaky and the opinion was poorly constructed and inadequately cited. The plaintiffs have already vowed to appeal—a fact the judge anticipated as you can see in the March 10, 2010 transcript. (After all, litigators litigate—and good litigators savor the challenge). Given the opinion’s weakness, I would be surprised if the appellate court relied very heavily on this opinion's analysis. However, I hope the appellate court recognizes that the judge's policy concerns were spot-on and finds a way to respect those concerns.

I can't take the lead on an amicus brief in the appeal, but I would be interested in actively supporting the effort. Contact me if you would be interested in working together on one.

Irrespective of what happens on appeal, I can't imagine this opinion will be the last word on publicity rights and keyword advertising. If you are looking for a paper topic, I think that issue offers a few promising angles to explore.

Finally, this opinion complements the uncited Stayart v. Google, which also involved alleged violations of Wisconsin's publicity rights statute and ended in favor of the defense. The Stayart v. Yahoo 7th Circuit opinion turned on the Lanham Act, but it too is relevant. I don’t have a good explanation why Wisconsans are trail-blazing litigation over search engine use of their names.

Posted by Eric at 07:04 AM | Marketing , Publicity/Privacy Rights , Search Engines | TrackBack

June 07, 2011

Site Moderators Weren't Agents of the Site--Cornelius v. BodyBuilding.com

By Eric Goldman

Cornelius v. BodyBuilding.com, LLC, 2011 WL 2160358 (D. Idaho June 1, 2011)

This case involves a nutritional supplement called Syntrax, which is available for sale on an e-commerce site BodyBuilding.com. The site supports users comments and message boards and deploys user-moderators to oversee the conversations. Moderators "may, among other things, edit and delete posts, move threads, and ban forum users for violations of the forum’s terms and conditions." Moderators self-nominate but are elected by the community. Moderators don't get paid, but they get a discount for onsite purchases and a free trip to Boise.

This ruling involves three posts made by user "deserusan" and one by "INGENIUM" that made critical remarks about Syntrax. A Syntrax competitor, Gaspari, later hired deserusan as a part-time CSR, and deserusan disclosed that employment status in his onsite signature block. However, perhaps unexpectedly, when deserusan updated his signature block, the update automatically propagated to all of deserusan's old posts, thus making it appear that deserusan was bashing Syntrax as an official employee of a competitor. Meanwhile, INGENIUM subsequently became an onsite moderator, so his legacy posts (including the one at issue) got the elevated visibility given to posts by moderators, even though it was written when INGENIUM wasn't a moderator.

Syntrax initially sued more than 15 defendants over these posts. The case has generated a number of interesting and confused rulings along the way, and we've blogged it three times before:

* "Website Privacy Policy Supports Pseudonymous Poster's Expectation of Privacy -- Cornelius v. Deluca"
* "Troubling Ruling About 47 USC 230 and Moderators--Cornelius v. DeLuca" (which included the classic analysis of whether calling someone a "Cornholio" is defamatory)
* "Online Retailer Isn't Liable for User Comments--Cornelius v. DeLuca"

Gaspari and BodyBuilding.com are the only defendants remaining, and in this ruling, the court grants both summary judgment.

Regarding Gaspari's liability, deserusan had made the offending posts before becoming an employee, but the court had previously ruled that it could be liable if "Plaintiffs could prove that Gaspari intentionally and unreasonably failed to remove the allegedly defamatory posts after notice and opportunity to do so." The court concludes that Gaspari lacked adequate knowledge. It didn't know about the posts when hiring deserusan, it didn't know he changed his signature block or that doing so would affect old posts, and it didn't control the posts. Also, similar to Ripoff Report, BodyBuilding.com restricted its authors' ability to delete their old posts.

[In our exchange about this post in draft mode, Venkat wondered about the legal test the court used here. This is the standard legal test for, say, a business that leaves a defamatory comment posted on the bathroom wall. I don't know if the test makes sense in the context of an employer reviewing a new employee's old online activities, but the court gets to the right place either way.]

Regarding BodyBuilding.com's liability for the remaining claim of Lanham Act unfair competition, the plaintiff contends that "Bodybuilding.com endorsed or “adopted” INGENIUM’s statement – and therefore became responsible for it – when it failed to remove the post after INGENIUM became a moderator." This should have been an easy 47 USC 230 dismissal--even if the post was by a moderator, the website is never liable for it--but the court had previously ruled otherwise. This led to an inquiry whether the moderator was the website's agent.

The court concludes that moderators weren't acting within any agency scope when posting online, and nothing created apparent authority for those posts. Separately, the court says there may not be any damages because it's unclear if anyone saw the post during INGENIUM's time as a moderator.

With all of the facts on the table, it's easy to see why this case took so many rulings to resolve. Users changed their status to employees/moderators, which in turn changed how their posts were presented. It takes a little while to unpeel these layers. On the other hand, this shows why 47 USC 230 is so helpful. If the court had taken the position all along that a moderator's post was third party content, the case would have been tossed a long time ago, and the parties would have saved a lot of time and money.

The court reached a good place in declining to hold that agency law made the site responsible for its moderator's post. However, even if 47 USC 230 didn't apply, the entire inquiry was flawed because independent user-moderators should almost never be considered agents of the site, and therefore courts should screen out agency arguments much earlier in the process. We don't get too many agency arguments as bypasses to 47 USC 230, but this case leaves plaintiffs with some reason to explore those doctrinal interstices.

Rebecca is also covering this suit.

Posted by Eric at 09:28 AM | Derivative Liability , E-Commerce , Marketing | TrackBack

May 30, 2011

April-May 2011 Quick Links, Part 1 (Trademarks and Advertising Edition)

By Eric Goldman

Trademark

* Facebook has quite an active trademark docket.

- Facebook, Inc. v. Teachbook.com, LLC, 2011 WL 1672464 (N.D.Cal. May 3, 2011). Facebook’s trademark suit against Teachbook was dismissed for lack of personal jurisdiction. Facebook promptly refiled in Illinois.

- Facebook sues Various over a "Face Book of Sex" site.

- Facebook v. Bearbook. Facebook forced a name change at a site for "bears."

* What are people bringing trademark lawsuits over? Sears is suing over DieHard sex spray, whiskey manufacturers are suing over “Give ‘Em the Bird,” and the Huey P. Newton Foundation is suing CafePress over "All Power to the People" (one of the rare times when "Power to the People" and trademark enforcement will be in the same sentence). And don't forget the laughable claim that the NYSE has trademark protection in its trading floor.

* Newport News Holding Co v. Virtual City Vision (4th Cir. April 18, 2011). Newportnews.com is the subject of an ACPA loss 10 years after it survived a UDRP. What went wrong? "[I]n making changes to its website in 2007, VCV shifted its focus away from the legitimate service of providing information related to the city of Newport News and became instead a website devoted primarily to women’s fashion....VCV cannot escape the consequences of its deliberate metamorphosis....newportnews.com went from being a website about a city that happened to have some apparel advertisements to a website about women’s apparel that happened to include minimal references to the city of Newport News." Result of the ACPA loss: $80k in damages, $10k in sanctions and attorneys' fees.

* It was a bad two months for plaintiffs suing keyword advertising defendants:

- Starsurgical, Inc. v. Aperta, LLC, 2011 WL 2037554 (E.D. Wis. May 24, 2011): “Star also claims that defendants infringe its mark by using it as a “keyword” on internet search engine advertising such that whenever a customer performs a search for the phrase “Wittmann Patch” defendants' website appears as a sponsored search result. Star, however, makes no effort to explain how this activity confuses consumers. Cent. States, SE & SW Areas Pension Fund v. Midwest Motor Express, 181 F.3d 799, 808 (7th Cir.1999) (arguments not developed in any meaningful way are waived); see also Network Automation, Inc. v. Advanced Sys. Concepts, No. 10–55840, 2011 U.S.App. LEXIS 4488, at *37–39 (9th Cir. Mar. 8, 2011) (using a trademark in keyword advertising does not violate Lanham Act absent showing of likelihood of confusion).”

- World Entertainment, Inc. v. Brown, 2011 WL 2036686 (E.D. Pa. May 20, 2011): “Plaintiffs showed Brown's use of their protected trademarks in advertising and diverting internet traffic to Grand Entertainment's website through search engine phrase matching using Google Adwords and meta tags, but they did not offer any evidence suggesting the percentage of their business downturn caused by such infringement.” Accord InternetShopsInc.com v. Six C Consulting, Inc.

- The Scooter Store v. SpinLife.com, 2011 WL 1460438 (S.D. Ohio amended opinion April 18, 2011). The Scooter Store sued SpinLife for buying its trademarks in Google AdWords. This ruling preserves SpinLife’s antitrust counterclaims.

- Traveler's Joy, Inc. v. Haycco LLC, 2011 WL 1587132 (S.D. Ind. April 26, 2011): "In an attempt to stave off dismissal, Joy points to numerous screenshots of Google's search results and pages generally discussing how Google's “AdWords” keyword-based advertising program operates. Based on this “evidence,” Joy jumps to the conclusion that Haycco's advertisements are specifically targeted to users in Indianapolis. However, this evidence is in no way sufficient to establish that Haycco engaged in any such intentional targeting of Indiana. Instead, the credible evidence establishes that Haycco only engages in general web advertising."

* Architectural Mailboxes, LLC v. Epoch Design, LLC, 2011 WL 1630809 (S.D. Cal. April 28, 2011). In a case involving critical comparative advertising, the court grants the advertiser’s nominative use defense on a motion to dismiss. Rebecca’s coverage.

* Koch v. Does. A hoax press release survives a trademark challenge. Coverage from EFF and Bill McGeveran.

* Eva Bridal Ltd. v. Halanick Enterprises Inc. (7th Cir. May 10, 2011). A botched franchising attempt leads to a finding that the purported franchisor abandoned the mark.

* be2 LLC v. Ivanov, 2011 WL 1565490 (7th Cir. April 27, 2011). An alleged knockoff website didn't have jurisdiction when it had only 20 registered users in the plaintiff's home court.

Advertising

* The plaintiffs voluntarily dropped the Taco Bell beef lawsuit. But Taco Bell may not be done with the plaintiffs.

* NYT: A study suggests that 3 credit card merchant account providers support the vast majority of spammers. The paper. Unfortunately, this will almost certainly encourage politicians to deputize credit card providers as the Internet police.

* In a crackdown on fake "news" sites promoting acai berries, the FTC takes another broad view about affiliate liability (1, 2).

* Similarly, “The FTC has consistently maintained that sellers are responsible for their marketers’ telephone calls to solicit purchases of the seller’s goods or services.”

* NYT: angst about advergames oriented towards kids. Evidence that kids don't understand ad labeling.

* The vegan-oriented magazine VegNews used stock photos of items containing meat to accompany the vegan recipes it publishes (and didn't disclose this fact). The vegan community erupted in anger. VegNews initially stood its ground but finally relented and apologized.

* NYT on functional foods.

* Patton Boggs: "FTC Enforcement Against Individuals: Legal Standards Impacting Individual Liability for Alleged Violations Enforced by the FTC’s Bureau of Consumer Protection."

Posted by Eric at 08:24 AM | Derivative Liability , Marketing , Trademark | TrackBack

May 23, 2011

College Course Description Aggregator Loses First Round in Fight Against Competitor in Scraping Case -- CollegeSource v. AcademyOne

[Post by Venkat Balasubramani with comments by Eric]

CollegeSource, Inc. v. AcademyOne, Inc., 10-3542 (E.D. Pa.; Apr. 22, 2011)

This is a scraping case between CollegeSource and its competitor AcademyOne. It looks like it's part of a long running dispute between the parties. AcademyOne previously brought cybersquatting and false advertising claims against CollegeSource and lost. CollegeSource separately sued AcademyOne for a violation of its terms of use in California. The court dismissed on the basis of lack of personal jurisdiction and CollegeSource appealed the dismissal to the Ninth Circuit. CollegeSource then re-filed the same lawsuit in Pennsylvania, and a ruling from that court is the subject of this blog post. That's a lot of litigation over pdf copies of college course catalogs!

Background: CollegeSource digitizes course catalogs and descriptions and makes them available online in pdf form. It also slaps a splash page, logo, and its terms of service on the pdfs which it creates. AcademyOne is also in the business of providing information regarding college course descriptions. The parties also both offer services which "evaluate the transferability" of college courses, but those particular services were not directly at issue in this dispute.

AcademyOne tried to license the pdf versions of CollegeSource's catalogs, and CollegeSource refused. AcademyOne then crawled the web to obtain this information from other sources, including the colleges directly, but in the process, ended up copying and posting on its own site course catalogs which bore CollegeSource's logos and terms of use. CollegeSource in turn sent AcademyOne a cease and desist letter, which AcademyOne largely complied with. AcademyOne received the letter in 2007 and removed the CollegeSource catalogs by mid-2007. AcademyOne also put in place safeguards to make sure CollegeSource's pdfs did not end up on AcademyOne's site again.

Despite these safeguards, two of the CollegeSource course catalog pdfs ended up on AcademyOne's site. In response, in July 2010, CollegeSource sued. It moved for a TRO which was denied. Around the time the lawsuit was filed, AcademyOne's CEO sent Freedom of Information Act (FOIA) requests to various colleges, seeking the details of agreements between the colleges and CollegeSource, to the extent those agreements existed. The letter said that the information was sought in the context of a pending copyright dispute.

In December 2010, CollegeSource moved for a preliminary injunction. It asserted that it was entitled to an injunction based on its breach of contract and unjust enrichment claims, and based on false advertising premised on statements in the letters sent to colleges by AcademyOne.

Breach of contract and unjust enrichment: Although CollegeSource asserted copyright claims in its cease and desist letter, in the lawsuit, it relies on AcademyOne's alleged breaches of its terms of use. It would not have been able to claim copyrights in the course descriptions since these are likely factual in nature, and it did not create the course descriptions in the first place. With respect to CollegeSource's breach of contract claims, the court finds that CollegeSource is not likely to be able to show irreparable harm for breaches of its terms of use and thus isn't entitled to an injunction. The court notes that AcademyOne took steps to comply with any takedown requests and instituted safeguards to make sure no CollegeSource course catalogs ended up on AcademyOne's website again.

False advertising: The crux of CollegeSource's false advertising claim at this stage was centered around a letter sent by Academysource to various colleges. The letter sought copies of any agreements in place between the college and CollegeSource:

[that would] grant [] CollegeSource . . . the authorization to create and claim a derivative copyright of [the academic institution's] printed or digital catalog for [2006-2010]; limit the rights of distribution of the electronic version located on their website; archive the file; add their logo and Terms of Use to the front of each catalog and charge for access to the catalog.

CollegeSource claimed that the letter is false because it stated that it was sent in connection with copyright claims asserted in the lawsuit. The court says that there is nothing literally false about referencing copyright claims since that's the subtext of CollegeSource's claims. Ultimately CollegeSource sought control of the catalogs. The court also addressed CollegeSource's argument that the letter had the tendency to deceive and resulted in at least one institution requesting that CollegeSource remove its catalogs from CollegeSource's website. The court notes that there's no evidence as to the precise reason for the college's request.

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This is a dangerous dispute for CollegeSource. The idea that it should be able to somehow claim exclusive rights in college course descriptions is crazy. Once the institutions realize that this is what CollegeSource is doing with the course catalogs and descriptions they provide to CollegeSource, there is a high likelihood that many of them will tell CollegeSource to stop this practice. There's not much room to claim copyright in course descriptions, and in any event, CollegeSource's attempt to slap its logo and terms of use on the pdf copies of the descriptions looks like a naked rights grab which the colleges are not going to be happy with. This is almost similar to a city claiming copyright in its ordinance. It's worse. It's as if a public citizen or a corporation does this after slapping a logo and terms of use on a pdf version of it. Using a breach of contract claim to get around an ineffectual copyright claim can work in some circumstances, but courts will rightly be skeptical. (The court does not address the copyright preemption argument but I think there's one lurking in the background, since the conduct CollegeSource is complaining of is the copying its materials by AcademyOne.)

The false advertising claim was extremely tenuous. It was sent in the context of a public records request in the middle of a dispute. I'm surprised there's not a claim of privilege (or a SLAPP exception) that would have protected AcademyOne's statements. Maybe it's a jurisdictional quirk but I imagine in some jurisdictions, CollegeSource's false advertising claims would have been slapped out of court.

More on this case from Rebecca.
__________

Eric's comments

I've hinted at the issue before, but let me put my philosophy on the table explicitly: it is extremely dangerous for aggregators to bring IP enforcement actions. The enforcement lawsuits can directly backfire (see, e.g., the Barclay's v. theflyonthewall lawsuit) because the plaintiff ends up talking out of both sides of its mouth: it says X isn't permissible when we're the rightsholders, but X is permissible when we're the aggregator. At best, that kind of duplicity never impresses judges. Further, even if the enforcement lawsuit doesn't lead to a direct form of collateral estoppel, it has the potential to create adverse legal precedent. For these reasons, plus the risk Venkat identified about educational institutions cutting off CollegeSource, it seems like an unnecessarily high-risk move for CollegeSource to bring this iteration of the lawsuits.

Having said that, AcademyOne's experience reiterates the potential problems with scraping. Inevitably, scraping will gather up legally risky content; and as this case shows, that's true even if the scraper institutes procedures designed to screen out that content. This particular ruling is good news for AcademyOne, but scraping remains a legally ambiguous proposition.

Posted by Venkat at 09:10 AM | Copyright , Licensing/Contracts , Marketing

May 12, 2011

Judge Refuses to Block Seattle's Yellow Pages Opt-out Law -- Dex Media v. Seattle

[Post by Venkat Balasubramani]

Dex Media West, Inc. v. City of Seattle, C10-1857JLR (W.D. Wash.; May 8, 2011)

I blogged a ways back about Seattle's yellow pages opt-out law and a First Amendment challenge brought by yellow pages companies. I thought the law violated the First Amendment in several respects. ("Yellow Pages Companies Challenge Seattle Opt-out Ordinance on First Amendment Grounds.") As of the first round at least, I'll have to eat crow. Judge Robart rejected plaintiffs' First Amendment arguments and denied a request brought by several yellow pages companies to enjoin application of the statute.

First, the court concludes that yellow pages are commercial speech, which is not entitled to "the highest level of First Amendment protection." Plaintiffs argued that even if the directories constitute commercial speech, they are still deserving of a high degree of protection because the commercial and non-commercial speech in the yellow pages are 'intextricably intertwined'. The court rejects this argument.

Using an intermediate level of scrutiny applicable to commercial speech, the court finds that plaintiffs are unlikely to succeed on the merits of their First Amendment claims. The court credits the city's significant interests in reducing waste, protecting the privacy of its residents, and cost recovery. The court notes that the opt-in nature of the system means that the residents (and not the city) make their privacy choices vis-a-vis the yellow pages.

The court finds that the means chosen by the city to regulate the evils in question bear a "reasonable fit" to the ends. The opt-out registry provides "more than ineffective or remote support" for the city's stated interests. [You know when the court holds the government to a "more than ineffective" standard, the First Amendment plaintiff will be out of luck.] The court also rejects plaintiffs' argument that inclusion of the city's required message is compelled speech because it's more of a labeling requirement, which requires disclosure of "purely factual and uncontroversial information."

The court didn't discuss in detail what I thought were the two most problematic aspects of the statute: the fact that the statutory scheme singles out yellow pages and creates exceptions to satisfy local business interests and creates a licensing scheme for yellow pages.

I'm not a fan of yellow pages and promptly recycle any yellow pages that are delivered to me. I suspect many people are in the same boat. But our distaste for particular pieces of content shouldn't necessarily result in tolerance for ill-structured attempts at regulation. Interestingly, the court finds that the city had a valid basis for singling out yellow pages, because it did so "in response to concerns raised by Seattle residents regarding the unwanted delivery of yellow pages directories." If all that is required to single out particular categories of speech is complaints from a few citizens - as opposed to legislative findings - the government will end up having leeway to block all sorts of unpopular speech.

We'll see what the Ninth Circuit says if the yellow pages plaintiffs appeal (no word yet if they plan to do so). Of course, at a certain point, given the travails of the paper phone book industry, this will become a moot issue.

Other coverage:

"Judge's ruling lets Seattle residents opt out of receiving yellow pages" (Seattle Times)

Posted by Venkat at 08:59 AM | Content Regulation , Marketing

April 25, 2011

Google Wins Lawsuit Over Unhappy Google Search Appliance Installation--Market America v. Google

By Eric Goldman

Market America, Inc. v. Google, Inc., 2011 WL 1485616 (D. Del. April 19, 2011)

I blogged about this case last year. Market America retained Google and its system integrator LTech to install a Google Search Appliance to support Market America's network. This installation did not go as planned, and eventually it led to this lawsuit. In the prior ruling from August, Google and LTech knocked out a big chunk of the case.

This ruling addresses some remaining consumer protection law claims. It turns out that the claims aren't tenable under the contract's governing law of Delaware, while Market America believed the claims were extra-contractual and should be governed by North Carolina law (Market America's home state). The court concludes that the contract's governing law clause applies to these additional claims, so it grants Google and LTech judgment on the pleadings.

Google's success in this lawsuit is a good outcome legally, but its failure to achieve a successful install for Market America is a less happy result.

Posted by Eric at 08:17 PM | Licensing/Contracts , Marketing | TrackBack

April 19, 2011

Bulk Emailers (Mostly) Lose Three 47 USC 230(c)(2) Rulings--Holomaxx v. Microsoft/Yahoo & Smith v. TRUSTe

By Eric Goldman

I've been so behind that it's taken me until now to blog these cases from last month. All three opinions involve the same basic fact pattern: a bulk emailer gets blocked by an email service provider (relying in part on third party filtering/blocking services) and sues to undo the block. These claims are largely preempted by 47 USC 230(c)(2), and the courts mostly get to the right place with the immunity (although not without small points of drama). The aggressive plaintiffs also assert claims not covered by 47 USC 230(c)(2), but these mostly don't go anywhere either. The lesson is pretty clear: if an email service provider blocks your email, the courts aren't going to help you out.

Holomaxx Technologies v. Microsoft Corp., 2011 WL 865278 (N.D. Cal. March 11, 2011), and
Holomaxx Technologies v. Yahoo, Inc., CV-10-4926-JF (N.D. Cal. March 11, 2011). Venkat's excellent prior blog post on the complaints. These rulings are substantially identical, so I'll discuss them together except where they diverge.

Holomaxx is a bulk email sender upset because Yahoo and Microsoft are blocking its emails based both on IP address blocks and reputation scores (including those provided by third parties). We've heard this refrain before in many cases over the years, and the law is pretty clear about this. Email service providers can't be obligated to carry emails they don't want to carry. There are a number of legal doctrines that help reach this conclusion, but the most salient one is 47 USC 230(c)(2), the immunity for filtering decisions.

In response to Holomaxx's lawsuit over the block, Microsoft and Yahoo interposed the 230(c)(2) defense on a 12(b)(6) motion to dismiss. Holomaxx objected that 230(c)(2) is an affirmative defense and not appropriate response for a 12(b)(6) dismissal motion. This is the issue that vexed the Ninth Circuit in the Barnes v. Yahoo case until they fixed the opinion. In this case, Judge Fogel properly concludes that 230(c)(2) can support a 12(b)(6) motion to dismiss. (He reached the same conclusion in Goddard v. Google).

Holomaxx then argued that 230(c)(2) does not prevent blocking of legitimate email because such a block doesn't fit within 230(c)(2)'s "otherwise objectionable" language. The judge says:

No court has articulated specific, objective criteria to be used in assessing whether a provider’s subjective determination of what is “objectionable” is protected by § 230(c)(2).

And Judge Fogel isn't going to be the first. Instead, he sidesteps the issue, holding that the service providers could deem the emails "harassing" because, even if Holomaxx had a 0.1% error rate, as it claimed in the Yahoo case, that still netted 2M bad emails/year. Therefore, the filtering decisions fit within the other statutory language in 230(c)(2). This is a cute intellectual move which potentially expands the scope of 230(c)(2) by reading "harassing" broadly.

Holomaxx also attacks the "good faith" requirement of 230(c)(2), but does so in a generalized way. The judge rejects the argument, saying (in the Yahoo case):

Holomaxx alleges no facts in support of its conclusory claim that Yahoo!’s filtering program is faulty, nor does it identify an objective industry standard that Yahoo! fails to meet. While it suggests that Yahoo! is “using cheap and ineffective technologies to avoid the expense of appropriately tracking and eliminating only spam email,” it offers no factual support for these allegations. Nor does Holomaxx cite any legal authority for its claim that Yahoo! has a duty to discuss in detail the particular reasons for blocking Holomaxx’s communications or to provide a remedy for such blocking. Indeed, imposing such a duty would be inconsistent with the intent of Congress to “remove disincentives for the development and utilization of blocking and filtering technologies.”

The Microsoft opinion's text is similar. Holomaxx gets another chance to marshal better allegations, but I'm guessing they won't be able to do so.

The court rejects the ECPA claim (which 230(c)(2) doesn’t immunize) because Holomaxx didn't explain clearly enough how the email service provider "intercepted," "used" or "disclosed" Holomaxx's email or how the ESP improperly accessed stored communications. The 17200 claim (which I think should be preempted by 230(c)(2), although that issue isn't discussed) also fails for lack of Holomaxx's specificity. A Microsoft-only defamation claim doesn't survive either:

Holomaxx alleges, on information and belief, that Microsoft "informed Dragon Networks in writing" that it had blocked all IP addresses originating from Dragon Networks because "certain of Holomaxx's .78 addresses had been rejected 'for policy reasons,' and were blocked manually 'or for spamming.'" Holomaxx does not explain how the alleged statement was defamatory or produce a copy of the alleged defamatory correspondence between Microsoft and Dragon Networks. Nor does it explain how the alleged communication amounts to "a statement of fact that is false."

As a result, the judge dismisses the lawsuit but with leave to amend.

Smith v. Trusted Universal Standards in Electronic Transactions, Inc. (d/b/a TRUSTe, Inc.), 2011 U.S. Dist. LEXIS 26757 (D. N.J. March 15, 2011).

Like Holomaxx, Smith sends a lot of email through Comcast. Comcast blocked his outgoing email twice. The first time, Comcast pointed to Microsoft's Frontbridge/Exchange Hosted Services (EHS) quarantine system. The second time, Comcast pointed to Cisco's IronPort/Senderbase blocklist. Smith sued all three entities (and others). Last year, the court rejected a 12(b)(6) motion to dismiss based on 47 USC 230(c)(2).

Ten months later, after presumably lots of wasted effort, the court converts Cisco's and Microsoft's 12(b)(6) motions into a summary judgment motion and grants the dismissal on 230(c)(2) grounds. I'm sure the defendants appreciate the dismissal, but I'm sure they would have been even more appreciative if the court had reached the result on the last go-around. The court still can't let the case go with respect to Comcast, however.

Cisco/SenderBase gets the 230(c)(2) defense as a blocklist provider. This may sound easy, but the statutory drafting makes the court’s analysis more arduous than it ought to be.

Cisco's senderbase.com website constitutes an ICS. This makes Cisco a "user" of an ICS because it uses its website to publish the blocklist. It is also a provider of an ICS because it runs the website. This is the issue that tripped up the court in the last ruling, and although it got to the right result, I don't think the court has fully wrapped its head around the statutory language. I read the court's discussion at least 6 times, and I couldn't make it make sense. Just know that a blocklist provider probably is both a provider and user of an ICS, so this element is met.

The blocklist easily satisfies the requirements of 230(c)(2)(B). As the court notes (citing Zango v. Kaspersky), whether material is "objectionable" is measured subjectively. Thus, the court dismisses Cisco, noting:

The Court notes that Plaintiff's breach of contract and defamation claims are dismissed because they specifically relate to Cisco's SenderBase service. Plaintiff defamation claim is based upon the fact that Cisco publishes IP scores. Plaintiff's breach of contract claim is based on the fact that Cisco refused to provide Plaintiff with the information that it used to calculate the reputation score for the IP address assigned to Plaintiff by Comcast.

Microsoft's EHS quarantine operates in the cloud by routing all email through its servers, which screen out emails based on its blocklist (as modified by customers' parameters). This should be even easier to qualify as a provider/user of an ICS. The court's discussion on this point doesn't make any sense either, but it reached the right result. As with Cisco, the court says the blocklist qualifies for 230(c)(2)(B) and the contract breach claim fails for the same reason.

Comcast doesn't get so lucky. The court once again finds that Comcast could have acted in "bad faith" which could disqualify it from 230(c)(2) coverage:

the Court finds that a reasonable jury could conclude that Comcast acted in bad faith when it failed to respond to Plaintiff's repeated requests for an explanation why it continually blocked Plaintiff's outgoing email...the Court is not convinced that an internet service provider acts in good faith when it simply ignores a subscriber's request for information concerning an allegedly improper email blockage...there is no reason why Comcast could not articulate its immunity (or provide another rationale for the blockage) when asked to do so by a paying customer.

Whoa. Hold on a sec. The court is saying that online providers have to provide explanations to their customers for their back-end choices. First, that's not in the statute. Second, Judge Fogel expressly rejected this argument in his Holomaxx rulings. Third, the court’s position is ridiculous. Being legally obligated to explain business decisions to affected customers would add an extra layer of expense/hassle to everyday business decisions, and the explanations will just become additional grist for the plaintiff's mill (see, e.g., Barnes v. Yahoo and the resulting incentives to tell customers less, not more). I'm 99%+ confident that an appellate court would reverse this judge on this point. I think he went off the rails. As a result, I don't plan to advise clients that they have to provide explanations for their blocking decisions, and I don't recommend you advise otherwise.

Although Comcast doesn't get the 230(c)(2) immunity, the court still ends up granting it summary judgment on all of the claims. There's some interesting discussion there too.

The court rejects Smith's ECPA claims and the substantively identical state claims. Cisco doesn't actually intercept emails, and Microsoft quarantines emails with its customers' consent.

Smith's contract breach and promissory estoppel claims against Comcast fail because Comcast didn't make any promises it failed to keep and because Smith was using a personal account for unpermitted commercial activities. (To me, this is facially inconsistent with any argument that Comcast had bad faith for 230(c)(2) purposes, but the court ignores that implicit contradiction).

Smith's NJ Consumer Fraud Act claim against Comcast also fails because he can't show fraud or ascertainable loss (because he only alleged that he lost time). The court dismisses a couple other claims, too.

Posted by Eric at 11:04 AM | Derivative Liability , Licensing/Contracts , Marketing , Privacy/Security , Spam | TrackBack

April 18, 2011

Judge Recognizes Loss of Value to PII as Basis of Standing for Data Breach Plaintiff -- Claridge v. RockYou

[Post by Venkat Balasubramani with comments from Eric]

Claridge v. RockYou, 2011 WL 1361588 (N.D. Cal.; Apr. 11, 2011)

RockYou is a developer and publisher of applications for use with Facebook, MySpace, hi5, and Bebo. RockYou's applications allow users to share photos, write text on a friend's page, or play games with other users. In order to sign up, users are asked to provide an email address and create a password. Users may also be required to provide their social network user name and passwords. RockYou displays advertisements on the apps. RockYou claims to have "more than 130 million unique customers using its application on a monthly basis."

RockYou was alerted to an alleged security problem with its SQL database in late December 2009 by an online security firm. Plaintiff claims that RockYou failed to act quickly enough to address this problem, and as a result

at least one confirmed hacker known as 'igigi' accessed RockYou's database, and in the process accessed and copied the email and social networking login credentials of at least 32 million registered RockYou users.

Plaintiff sued RockYou in a putative class action, alleging a slew of claims: breach of contract, the Stored Communications Act, negligence, California's anti-hacking statute, and California's unfair competition and consumer protection statutes.

Standing: RockYou argued that plaintiff lacked standing - i.e., that the unauthorized access of plaintiff's login credentials did not cause plaintiff any "concrete, tangible, non-speculative harm." In response, plaintiff argued that:

[RockYou's] customers, including plaintiff, 'pay' for the products and services they 'buy' from [RockYou] by providing their PII, and that the PII constitutes valuable property that is exchanged not only for [RockYou's] products and services, but also in exchange for [RockYou's] promise to employ commercially reasonable methods to safeguard the PII.

The court agreed with plaintiff and found that plaintiff alleged an injury in fact sufficient to confer standing. The court noted that the case law is mixed on the question of whether data breach plaintiffs have standing to sue. The court recognized the novel context in which the claims arose:

the unauthorized disclosure of personal information via the Internet - is itself relatively new, and therefore more likely to raise issues of law not yet settled in the courts.

Although the court expressed "doubts about the plaintiff's ultimate ability to prove [plaintiff's] damages theory," the court declines to dismiss on the basis of standing.

Contract Claims: The court initially rejects RockYou's request to dismiss the contract claims (based on a breach of RockYou's privacy policy) on the basis that plaintiff did not lose anything of value. For pleading purposes,

plaintiff . . . sufficiently alleged a general basis for harm by alleging that the breach of his PII has caused him to lose some ascertainable but unidentified 'value' and/or property right inherent in the PII.

RockYou argued that the privacy policy terms expressly provided that it could not be held liable for any unauthorized third party access to users' personal information, but the court disagrees, citing to RockYou's privacy policy. The policy disclaims liability where a third party accesses user information contained in RockYou's "secure servers," but the court notes that RockYou's servers were not in fact secure. The court also cites to flowery language in RockYou's privacy policy to the effect that RockYou takes "commercially reasonable . . . safeguards" to protect user information.

Consumer Protection Claims: Plaintiff loses on his California consumer protection act claims. With respect to his claim under California's unfair competition law, one of the two requirements is that the plaintiff has to have lost "money or other property" in order to bring a claim. The court holds that the UCL's standing requirements are stricter than Article III standing requirements, and require the plaintiff to have paid money or "parted with some particular item of property he formerly possessed." The court does not buy plaintiff's novel theory that plaintiff's "PII constitutes 'currency'" under the statute. No luck for plaintiff under the UCL.

Similarly, the court rejects plaintiff's claim under the California Consumer Legal Remedies Act, because the statute only applies to plaintiffs who "purchase or lease" goods or services for "personal, family, or household purposes." Here, plaintiff has not purchased or leased any goods or services.
__

Plaintiff's other claims received mixed results. The court dismissed the Computer Fraud and Abuse Act claim with leave to amend (plaintiff admitted that it cited the wrong statutory provision), found that RockYou was not liable under California's anti-hacking statute (section 502), and found that plaintiff adequately stated a negligence claim.

Data breach cases have uniformly rejected the claims of plaintiffs who have not actually lost any money out of pocket. Some cases have done so on the merits, and other cases have done so on the basis of standing (some cases, such as Krottner v. Starbucks, have rejected the claims on the merits but have expressly found standing). The big question is whether this ruling moves the needle in any way. I'm inclined to say no, but the way in which the plaintiff cast his claim and the court characterized it is interesting.

The privacy policy / breach of contract analysis was also interesting. There is case law expressing skepticism as to whether a privacy policy is even a contract that can support a breach of contract action ("When Does a Privacy Policy Breach Support a Breach of Contract Claim?"), but courts lately don't think twice about analyzing privacy policy claims under the breach of contract framework. Companies (for whatever reason) continue to include flowery language in their privacy policies that courts latch on to when putting them on the hook for privacy foibles.

Related posts:

9th Circuit Affirms Rejection of Data Breach Claims Against Gap -- Ruiz v. Gap
Acxiom Not Liable for Security Breach--Bell v. Acxiom
The [Non]enforceability of Privacy Promises--Pinero v. Jackson Hewitt
Claims Brought by Express Scripts Data Breach Plaintiffs Rejected on Standing Grounds -- Amburgy v. Express Scripts, Inc.
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Eric's comments

There is a lot to dislike about this opinion.

First, RockYou's privacy policy promised "RockYou! uses commercially reasonable physical, managerial, and technical safeguards to preserve the integrity and security of your personal information..." This is industry-standard fluff language in a privacy policy. I bet we could find tens of thousands of privacy policies with similar language. I believe the prevailing view among lawyers is that this language couldn't be actionable. It doesn't promise security or integrity; it just promises the company will deploy *some* safeguards. Further, the efforts are only supposed to be "commercially reasonable"--language which many lawyers believe is equivalent to "we'll try."

Here, the plaintiff attacks the language by arguing that RockYou didn't encrypt its data. Now, I recommend to clients that they encrypt their databases of user data in all circumstances, but is it commercially unreasonable to do so? The defendant doesn't get the decisive win it expected on that point. (The plaintiff also asserts that the defendant was derelict in patching a security flaw that allowed the bad guys to do an SQL injection attack, so the two arguments may have reinforced each other enough to convince the judge there may be something to this case). As Venkat suggests, it's time to cut the fluffy language from privacy policies. Courts and plaintiffs are overresponding to it.

Second, the court's decision not to use Article III standing to kick out the case was unfortunate. Although I am sympathetic that Article III standing dismissals are harsh on plaintiffs--they never get a chance to say anything--the doctrine has been very useful at squelching unmeritorious privacy cases early. This case is effectively indistinguishable from the other cases where Article III standing has been used; it's a garden-variety security breach with no known tangible consequences (other than lawyers looking for a little gravy). Based on the precedent, an Article III standing dismissal would have been a logical outcome.

The court's acquiescence to the plaintiff's argument ("defendant’s customers, including plaintiff, “pay” for the products and services they “buy”from defendant by providing their PII, and that the PII constitutes valuable property") smacks of the old academic debates in the late 1990s/early 2000s about whether personal data should be propertized. It was a weird debate because many of the academics who oppose copyright doctrinal expansion were simultaneously advocating for increased propertization of personal data as a privacy/anti-advertising technique. Personally, I had hoped all of those theories had been lost in the dustbins of history. Instead, this court moves in that direction. Privacy advocates might rejoice, but be careful what you wish for.

The court's embrace of a "novel" theory is especially frustrating because the court goes on to say that it has doubts about the plaintiffs' ability to prove damages in the end. So instead of doing the socially optimal thing--killing a meritless lawsuit early--the court embraces a theory likely to fuel privacy advocates to bring other meritless cases; while keeping this case open may very well cause both parties to spend a lot of money only to kill a meritless case later. This may be a situation where the judge is being just a bit too careful.

Third, assuming that personal data is "property," this isn't a situation where the vendor sold the data or misused it for advertising. Instead, there was no impairment to the users' "property right"; it was a security breach. So this is a particularly poor case for the personal-data-as-property meme.

One small piece of good news from this opinion: the court interprets California Penal Code Sec. 502 narrowly and effectively prevents the plaintiffs from converting it into a sword to be used against companies that get hacked. We don't have many Penal Code 502 rulings, but most of the extant rulings read the statute pretty broadly. I'm glad to see the court was more circumspect on that point.

Posted by Venkat at 09:19 AM | Internet History , Licensing/Contracts , Marketing , Privacy/Security , Trespass to Chattels | TrackBack

April 01, 2011

Trademark Owner Gets Injunction Against Keyword Ad Campaign That Generated No Sales for the Advertiser

By Eric Goldman

InternetShopsInc.com v. Six C Consulting, Inc., 2011 WL 1113445 (N.D. Ga. March 24, 2011)

[I know the headline sounds like an April Fools joke, but no April Fools here...although, as I will show, this case definitely involved some foolishness.]

I hate sounding like a broken record, but I'll say it again. Most keyword ad lawsuits are not economically justified, so trademark owners are almost invariably making a bad business decision bringing them. Check out this beautiful case study of that principle.

The plaintiff has a trademark in "Dura Pro" for practice golf mats. Six C is a competitor who outsourced its PPC campaign to Channel Advisor. Channel Advisor placed competitive keyword ads triggered by "Dura Pro." In January 2009, the trademark owner complained to Six C, who promptly told Channel Advisor to drop the keyword. Channel Advisor didn't follow this instruction completely, meaning that some ads continued despite Six C's instructions. The plaintiff sued March 2009, and the court indicates that Channel Advisor fully dropped the term by April 2009 (although elsewhere it says the rogue ads persisted for 14 months).

For reasons not explained in this opinion, Six C admitted that its keyword ad buys constituted trademark infringement, narrowing the issues in this case to remedies for the admitted infringement.

The court rejects the plaintiff's claims for lost sales. The plaintiff submitted a spreadsheet showing a decrease in sales, but the court says the spreadsheet showed monthly fluctuations in sales, and the plaintiff only showed correlation, not causation, with the post-advertising decrease.

The plaintiff also sought the defendant's profits from the keyword advertising, and this is where the lawsuit gets farcical. It turns out that the defendant only got 1,319 impressions on its Dura Pro ads, 35 clicks from those impressions (2.6% clickthrough rate) and NO SALES from those clicks. Are you kidding me? The plaintiff sued over a keyword ad campaign that generated ZERO SALES for the defendant? It seems like the plaintiff should have been thrilled that its competitor was wasting money on an ineffective campaign. Instead, foolishly, the trademark owner spent its own money to pay its lawyers to get the defendant to stop wasting its advertising dollars. Great business decision, guys.

The court also denies attorneys' fees, citing Six C's responsiveness to the trademark owner's initial C&D (even if Channel Advisor didn't properly execute Six C's instructions). The court does award the trademark owner the court costs of the action, but these should be relatively small.

Finally, the court grants the trademark owner's request for an injunction (with the exact restrictions to be hashed out), but big whoop. Six C dropped the keyword a long time ago, and given the keyword's conversion rate, that wasn't really a sacrifice. The court says that the trademark owner was suffering irreparable injury "regardless of the fact that defendant's unauthorized use appears to have been unintentional, and that it did not result in any readily quantifiable harm to plaintiff." I think the judge could have more aggressively scrutinized the trademark owner's arguments on this point, but an injunction is a logical outcome for an admitted trademark infringement, even if it's mostly inconsequential in this case.

Notice that the defendant gets a decent outcome here in large part because it chose to quickly drop the keyword at the trademark owner's request. Not all advertisers would be so risk-adverse. Then again, I would expect most advertisers to fight the trademark infringement claim rather than admitting to it.

I'm adding this outcome to the list of irrational keyword ad lawsuits. Other precedents in that genre:

- King v. ZymoGenetics. The defendant advertiser got 84 clicks.
- Storus v. Aroa. The defendant advertiser got 1,374 clicks over 11 months.
- 800-JR Cigar v. GoTo.com. The search engine defendant generated $345 in revenue from the litigated terms.
- Sellify v. Amazon. The defendant got 1,000 impressions and 61 clicks.
- 1-800 Contacts v. Lens.com. 1-800 Contacts spent no less than $650k (and was willing to spend $1.1M) to pursue Lens.com, which made $20 of profit from competitive keyword ads. It also tried to hold Lens.com responsible for affiliate ad buys which generated about 1,800 clicks, which under the most favorable computations were worth about $40k.
- and now InternetShopsInc.com v. Six C. The defendant got 1,319 impressions, 35 clicks and zero sales.

Posted by Eric at 11:56 AM | E-Commerce , Marketing , Search Engines , Trademark | TrackBack

March 28, 2011

Groupon Hit With Two Lanham Act Lawsuits, and One Takes Google Along for the Ride

By Eric Goldman

Groupion, LLC v. Groupon, Inc., 3:11-cv-00870-EMC (N.D. Cal. complaint filed Feb. 24, 2011)

San Francisco Comprehensive Tours, LLC v. Groupon, Inc., CV-1300 (N.D. Cal. complaint filed March 17, 2011)
__________

A company doesn't reach a purported $6B valuation without generating some angst. Groupon's marketing litigators will be earning their keep.

The Groupion Suit

Groupion is CRM software vendor. It's a pretty young company itself. having registered its domain name in 2007. It's unhappy with big spotlight on its friend without the "i," including being irked when Google suggests "Groupon" for searches on "Groupion."

It seems like the world should be big enough for Groupion and Groupon to coexist given their different spellings and market niches. I'm more interested in the fact that Groupion also named Google as a defendant. Apparently Groupon is buying "Groupion" as a keyword, so Groupion sues both Groupon and Google for these ads.

Side note: why is Groupon buying the keyword Groupion? Is it because consumers often make that misspelling? I also noticed that LivingSocial showed up as a keyword advertiser when I searched "Groupion" today. Will LivingSocial be the next defendant in Groupion's quest?

The complaint itself is minimalist drafting in a bad way. The actual claims appear to be cut-and-paste from a form book; the complaint simply recites the claim elements without applying any of the legal standards to the alleged facts. So it's a little hard to tell exactly why Groupion is beefing with Google. I imagine Groupion will have to do a better job explaining what Google did wrong if it wants to survive a motion to dismiss.

Groupion's pursuit of Google in an otherwise garden-variety trademark case reminded me a little of the Parts Geek v. US Auto Parts lawsuit, where a competitor-vs.-competitor suit similarly ensnared Google as a collateral victim. Parts Geek ended up voluntarily dropping Google, which is what I imagine Groupion will do eventually. Why tangle with a $30B/year company if you don't really need to???

San Francisco Comprehensive Tours suit

The plaintiff offers San Francisco area tours. It has successfully bid on keywords such as "San Francisco Tours," "Alcatraz Tours" and "Napa Wine Tours" for years. Then, starting in September, Groupon started bidding on these terms as well--and ranking very well, driving up the plaintiff's costs. The plaintiff is unhappy that Groupon uses those phrases in its resulting ad copy, although it asserts Groupon rarely offers "tours" as such. This made me wonder if Groupon was broad-matching to the place name and then automatically filling the ad copy with the search term as a variable. The complaint never addresses this possibility.

Even if Groupon is broad-matching, the plaintiff's beef could be legitimate if Groupon's ad copy constitutes false advertising. The complaint (para. 17) gives the example where, in response to the keyword "Alcatraz Tickets," Groupon's ad copy read "Alcatraz Tickets - 1 ridiculously huge coupon a day / Do Alcatraz CA at 50-90% Off." Yet, the ad that day was for acting lessons. The complaint further gripes about the resulting landing page, which it says are essentially content-free.

In this sense, the complaint tells a pretty good story that Groupon is using an algorithmic-driven ad campaign that has gone awry, much like eBay's algorithmic AdWords campaign used to reach farcical results. Even if Groupon wins this lawsuit, I hope they take a closer look at their AdWords campaign to make sure it's not generating nonsensical ads. What's less clear to me is why Google's ad relevancy scores aren't adequately punishing Groupon if this is the case. The complaint offers some hypotheses for Groupon's high rankings, none of which seemed very convincing to me. If Google drops the boom on Groupon for AdWords spamming, Groupon could end up being very unhappy itself.

The plaintiff alleges violations of the Lanham Act, California's false advertising law (B&P 17500) and other claims. Wisely, the plaintiff doesn't try to drag Google into this lawsuit.

The Pending Google AdWords Cases

One update of note: in the FPX and John Beck Amazing Profits cases, the court held a consolidated hearing regarding class certification. The court does not appear to have issued its ruling yet.

The roster of pending AdWords cases (I most recently double-checked the status of pending cases on March 27, 2011):

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

Posted by Eric at 08:55 AM | Derivative Liability , Marketing , Search Engines , Trademark | TrackBack

March 27, 2011

Another Advertiser Class Action Lawsuit Filed Against Google--Woods v. Google

By Eric Goldman

Woods v. Google Inc., 5:11-cv-01263-HRL (N.D. Cal. complaint filed March 15, 2011)

Since Google settled its click fraud lawsuits in 2006 and the CLRB Hanson case in 2009, it's been a little quiet on the advertiser-vs.-Google class action lawsuit front. This lawsuit breaks that calm. It's a 300 paragraph broadside against many of Google's advertising practices that lead to alleged overcharges, which the complaint characterizes as click fraud.

A quick note about the named plaintiff: he describes himself in the complaint (para. 16) as "an Arkansas attorney advertising his legal services." (Is this him?) What is it with lawyers who sue Google as plaintiffs? I previously noted how lawyers suing for their own account were unusually common plaintiffs against Google.

Beneath the bloated and mind-numbing prose in the complaint, there could be some potentially juicy allegations here. Unfortunately, weak drafting prevents me from fully understanding the plaintiffs' beefs. It appears to have something to do with Google's AdSense terms restricting certain publisher behavior, which the complaint appears to treat as promises to advertisers that they would not be charged for such behavior. If I'm reading this correctly, the plaintiffs' complaints are predicated on the unfortunately all-too-common but nevertheless obviously flawed logic that Z's negative behavioral covenants with party X are Z's affirmative promises to party Y that such behavior won't occur. See, e.g., para. 70, which tries to convert the AdSense terms into affirmative promises to advertisers. More typically, Y tries to take advantage of X's negative behavioral covenants by claiming to be a third party beneficiary of the Z-X contract, but those arguments rarely work, and the plaintiffs don't try them here.

As a specific application of the flawed logic about advertisers as beneficiaries of the Google AdSense terms, the plaintiffs appear to be unhappy that Google cut special deals with big advertising distribution partners (such as IAC and Infospace) who were governed by different (and less advertiser-friendly) ad display rules than rank-and-file AdSense publishers. I believe this gripe is predicated an implicit assumption among advertisers that the published AdSense contract is the only rules that govern AdWords distribution. The cloak-and-dagger stuff about special partners having favorable hidden deals can be pretty interesting, but the complaint's assumption that advertisers didn't know that some AdSense publishers had customized terms seemed dubious to me.

The complaint also goes into some detail about Google's "Smart Pricing" mechanism and argues that it didn't work properly. The complaint gives some examples where the advertiser's bids allegedly were inflated because Smart Pricing wasn't turned on as it expected. I must confess that I find Google's explanation of this mechanism pretty opaque (the explanations talk about "business results," whatever that means), so I had a tough time evaluating the significance of the complaint's gripes.

Based solely on the complaint, it's virtually impossible to gauge the likelihood of the plaintiffs getting a payoff here. There are the usual challenges to class certification, including commonality/predominance of class issues. In this case, there's the additional variables of how the prior class action settlements might limit this complaint, plus the overlay of any statute of limitations (a number of citations were to 2007 publications). And, as usual, so much depends on discovery (if the plaintiffs survive the inevitable motion to dismiss)--can they find smoking guns, or will their arguments remain mostly conjecture and assumptions? Despite all of these potential impediments, I can't imagine Google is thrilled to be wrangling with a lawsuit like this.

Posted by Eric at 10:12 AM | Licensing/Contracts , Marketing , Search Engines | TrackBack

March 25, 2011

Yelp Beats "Implied Extortion"/"Pay-to-Play" Lawsuit in Round #1--Levitt v. Yelp

By Eric Goldman

Levitt v. Yelp, 3:10-cv-01321-MHP (N.D. Cal. Mar. 22, 2011). See the motion to dismiss, the opposition and the reply. This ruling deals with the Second Amended Complaint. Levitt's initial complaint. Cats & Dogs Animal Hospital's first amended complaint.

This lawsuit rolls up several "pay-to-play" lawsuits against Yelp, all alleging that Yelp manipulated star ratings and user reviews based on whether or not businesses bought advertising from Yelp. Judge Patel reinterpreted the plaintiffs' allegations as claims of "implied extortion." (It wasn't express extortion because Yelp never explicitly threatened to harm their businesses if they failed to advertise). In this ruling, Judge Patel grants Yelp's 12(b)(6) motion to dismiss. However, she gives the plaintiffs leave to amend, so the case isn't over yet.

Judge Patel taxonomizes the plaintiffs' allegations into four groups:

"1) Yelp removed positive reviews, thereby changing the overall star rating, immediately after plaintiffs declined to purchase advertising or terminated their advertising contracts

2) Yelp maintained negative reviews even though the reviews violated Yelp’s Review Terms

3) Yelp manufactured its own negative reviews of plaintiffs’ businesses

4) Yelp stated that paying for advertising would help Plaintiff’s overall star rating because Yelp “tweaks” the ratings, “manually adds and removes reviews in its own discretion” and its employees have the ability to remove reviews"

None of these survive the 12(b)(6) motion, but for different reasons.

The court says #2 (continuing to publish negative reviews) is preempted by 47 USC 230(c)(1). Stitching together various statements from Roommates.com and Barnes, she says "Yelp cannot be held liable on a theory that it extorted plaintiffs by refusing to de-publish negative business reviews."

In contrast, 47 USC 230 doesn't preempt #3 (Yelp manufacturing fake reviews). Citing her own Mazur opinion from 2008, she also says #4 isn't preempted.

47 USC 230's preemption of #1 (removing positive reviews for failing to buy ads) is a "closer question." The judge concludes it isn't preempted for two reasons. First, "Choosing not to publish content for the purposes of harming a particular business or to coerce that business into purchasing advertising seems quite distinct from the traditional editorial functions of a publisher." Second, 230(c)(2) only applies when the filtering decision is exercised "in good faith," and the alleged conduct wouldn't qualify (citing Smith v. TRUSTe, which was just reversed by the district court in an opinion I need to blog, and the National Numismatics case).

So allegations #1, #3 and #4 survive the 47 USC 230 preemption challenge. Nevertheless, they still fail.

First, the plaintiffs' factual assertions are "entirely speculative": "The SAC provides no basis from which to infer that Yelp authored or manipulated the content of the negative reviews complained of by plaintiffs."

Second, the plaintiffs haven't adequately alleged that Yelp communicated an extortionate threat. The plaintiffs show correlation between Yelp's offers and good/bad consequences but do not show causation, and the mere fact of a correlation doesn't communicate a threat. The judge noted alternative hypotheses to explain the plaintiffs' experiences: "These fluctuations could just as easily be the result of planted ads by plaintiffs, the functioning of Yelp’s automated filter, or negative attacks from competitors or former employees." The various statements allegedly made by Yelp's salespeople don't change the analysis--Levitt was just promised more pageviews if it advertised, Paver Pro didn't talk to the salespeople at all, and with respect to Chan/Cats & Dogs Animal Hospital, "offers of favorable treatment in exchange for ad purchases are not the equivalent of an extortionate threat of harm."

Although this ruling is a little less 47 USC 230 favorable than I would have liked, overall this ruling is a fairly sensible assessment of the situation. However, as usual for consumer-oriented litigation like this, the opinion does set up a squeeze for the plaintiffs. Judge Patel wants the plaintiffs to provide a better causation story, but much of the evidence that might support the causation story is likely to be obtained only through discovery--which the plaintiffs won't get if they can't get past the 12(b)(6) motion to dismiss.

A final thought: given the discussion about implied extortion, I was surprised that the court didn't explore Reit v. Yelp (which also advanced the implied extortion claim as a 230 workaround) or the multitudinous Ripoff Report cases, many of which have addressed the 230/extortion interface.

[I have several other 47 USC 230 cases to blog, including Hill v. StubHub, the Holomaxx cases and Smith v. TRUSTe. I'll blog them as soon as I can!]

Posted by Eric at 01:57 PM | Derivative Liability , Marketing | TrackBack

March 17, 2011

Employee's Twitter and Facebook Impersonation Claims Against Employer Move Forward -- Maremont v. Fredman Design Group

[Post by Venkat Balasubramani]

Maremont v. Susan Fredman Design Group, 2011 U.S. Dist. LEXIS 26441 (N.D. Ill.; March 15, 2011)

As alleged in the complaint, Fredman is a prominent interior designer who runs the Susan Fredman Design Group (SFDG). SFDG also has an internet presence. Maremont is an interior designer that started working at SFDG in October 2005 (as SFDG's Director of Marketing, Public Relations, and e-commerce).

Maremont was active in the online community and created "a popular personal following" on Twitter and Facebook. Maremont also created a SFDG blog entitled "Designer Diaries: Tales from the Interior" ("Designer Diaries") that is hosted on SFDG's blog." Maremont's likeness was tied to her online activities:

she authored frequent Posts and Tweets to her personal Facebook and Twitter accounts, along with the material for the Defendants' "Designer Diaries" blog. Maremont's image appeared on each personal Post and Tweet, which unmistakably distinguished her likeness.

In September 2009, Maremont was injured in an accident and was in the hospital for an extended period of time. While Maremont was at the hospital, Fredman and another SFDG employee visited Maremont and asked Maremont about various work projects. Meanwhile, one of Maremont's visitors at the hospital advised that Fredman and SFDG was impersonating Maremont by:

impersonating her by authoring Posts and Tweets to her personal Facebook and Twitter followers promoting SFDG . . . each Post and Tweet displayed Maremont's name and image giving followers the appearance that [Maremont] was the author.

Maremont then asked Fredman and SFDG to stop this practice. Apparently, the practice continued, but in December 2009, Maremont's husband read some of the posts which Fredmand and SFDG authored and published via Maremont's account and this caused Maremont to suffer distress. Maremont and her husband changed the passwords to her personal Facebook and Twitter accounts.

Maremont ultimately returned to work at SFDG on a part-time basis in February 2010 but found that she got a chilly reception at work. In May, Fredman expressed misgivings about Maremont's part-time schedule and that SFDG was having cash flow problems. In response to the perceived hostility towards her, Maremont quit, and brought claims against SFDG and Fredman.

Lanham Act Claim: Maremont brought a Lanham Act claim for "false endorsement". In order to bring a claim, she should show that she has commercialized her name or likeness. (See Stayart v. Yahoo, discussed by Eric here: "Seventh Circuit Tosses Beverly Stayart's False Endorsement Claims.") The court says that she has commercialized her name:

Maremont has . . . alleged that - as a professional interior designer - she became well-known in the Chicago design community allowing her to create a popular following on Facebook and Twitter. Maremont also alleges that her Tweets and Posts relate to her work in a commercial context, namely, as a professional interior designer and employee of SFDG.

The court did not discuss whether Maremont's online activity inured to the defendants' benefit since Maremont was posting and built up her following while she was an employee of SFDG. It's unclear whether defendants made this argument, but even if they did, given how egregious the facts were alleged to be, it would not be a surprise for it to have fallen on deaf ears. That said, given that Maremont was an employee and clearly posted on behalf of SFDG, SFDG had a possible argument that any copyright or trademark rights accrued to SFDG's benefit and not to Maremont. Also, given that some of Maremont's followers were following because of her official employment status, and assume that some of the posts related to her job. Shouldn't SFDG have an argument here that it should be able to keep up with its audience via the accounts in question?

Right of Publicity: The right of publicity claim requires Maremont to show that her identity was used for "commercial purposes . . . without [her] . . . written consent." Defendants did not argue that Maremont failed to satisfy this claim. Instead, defendants argued that the claim was barred by the statute of limitations since it first accrued in September 2009, "the approximate date of defendants' first Tweet impersonating Maremont." The court rejects this argument, citing to the "continuing violation rule." Defendants allegedly continued to exploit Maremont's publicity rights, despite Maremont's instructions to the contrary. No luck for defendants here.

Privacy Claim: Maremont also brought a common law privacy claim based on misappropriation of her likeness. Defendants argued that the Illinois publicity statute replaced the common law tort of misappropriation of likeness. In response, Maremont argued that she could also state claims for intrusion into seclusion and false light. With respect to her false light claim the court says she failed to allege actual malice. With respect to her claim that defendants "intruded into her personal 'digital life'" the court finds that she failed to develop this argument fully. The court dismisses these claims without prejudice and gives her a chance to replead.
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I'm not sure what SFDG was thinking, but its head was not on straight when it accessed and continued to post from its hospitalized employee's Twitter and Facebook accounts. This pretty much fails every common sense test there is out there. But employers seem to want to access employee accounts (see, e.g., "Pure Power Boot Camp v. Warrior Fitness Boot Camp - Ex-Employees Awarded $4,000 for Email Snooping by Employer"). Maybe employers think that they own the accounts since they are employee accounts, but this is not the case. For some reason, employers seem slow to realize this.

In accessing the accounts, SFDG potentially incurred liability under the Stored Communications Act as well. Illinois does not seem to have an online impersonation statute, but if Maremont was in California, she could have thrown in this argument as well.

The case highlights the importance of having a social media policy, which should at a minimum designate "official" employer accounts and specify when an employee's Twitter/Facebook posts are their own vs. the employers. The case also brings up the question of who owns a company's Facebook fans and Twitter followers. Given the value companies are placing on their Facebook and Twitter presences, litigation over this issue is likely to increase. Professor Goldman recently posted about a case where two companies were fighting over their Facebook fan page: "Business Sues Facebook to Restore Its Fan Page--Complexions v. Complexions Day Spa." We can expect to see more of this litigation activity in the future.

Posted by Venkat at 10:11 AM | Marketing , Publicity/Privacy Rights

March 16, 2011

FTC Online Endorsement Guidelines Strike Again - FTC Dings Legacy Learning Over Allegedly Misleading Affiliate Reviews

[Post by Venkat Balasubramani with some comments by Eric]

In re Legacy Learning Systems, Inc., FTC File No. 102 3055 [FTC Release] [Complaint (pdf)]

An FTC press release notes that the FTC settled with Legacy Learning over allegations that Legacy improperly utilized affiliates to "promote its courses through endorsements in articles, blog posts, and other online editorial material." Specifically, the FTC complaint alleges:

[Legacy] recruited "Review Ad" affiliates for [Legacy's affiliate program], who promote Legacy’s instructional courses through positive endorsements in articles, blog posts, or other online editorial copy that contain hyperlinks to Legacy’s website in close proximity to the endorsements. [Legacy's] Review Ad affiliates often post such endorsements using statements that give readers the impression the endorsements have been submitted by ordinary consumers.

As noted in the release, the guidelines - which govern endorsements or testimonials - require disclosure of a material connection between a reviewer and a company. Under these guidelines, a positive review from a person connected with the seller or product ("someone who receives cash or in-kind payment to review a product or service" or who gets a cut of the sales) should come with a disclosure. The complaint alleges that twenty-five of Legacy’s "review ad" affiliates were responsible for at least $5 million in sales of Legacy's products.

What did the reviewers do wrong?: Reviewers did not disclose that they were affiliates of Legacy - i.e., received a cut of the sales, and in some cases were paid to review Legacy products . These were not "the independent reviews reflecting the opinions of ordinary consumers." (Examples of the reviews can be found in Exhibit A to the Complaint [pdf].) In some cases, the reviewer websites had disclosures, but the disclosures were anemic at best and were not contained in the posts themselves (e.g., "we are paid by some of the companies who's [sic] products we review" - not exactly a robust disclaimer). [Italics added.]

Where did Legacy go astray: For one thing, Legacy called these affiliates "review ad" affiliates. I would probably avoid this terminology. The complaint did not include a copy of the affiliate terms, so we don't know whether Legacy contractually required the affiliates to comply with the FTC's guidelines or explained how to comply. The complaint also does not specify whether Legacy paid the reviewers for their reviews (it alleges that the affiliates received a cut of the sales), but judging from some of the reviews and the websites of the reviewers, and from Legacy's suggestions to its affiliates, this seems to be the case (at least with some reviewers). Legacy offered suggested disclaimers (to affiliates) on its website but even these were ambiguous ("Affiliate Disclosure Requirements and Examples Legacy Learning Systems"):

[Suggested] Disclosure: We are a professional review site that receives compensation from the companies whose products we review. We test each product thoroughly and give high marks to only the very best. We are independently owned and the opinions expressed here are our own. [emphasis added]

Regardless of what Legacy may have suggested or required of its affiliates, Legacy also did not have any sort of compliance program to make sure that its affiliates made the necessary disclosures.

As part of the (proposed) settlement, Legacy will:

- pay $250,000;
- monitor and submit monthly reports about their top 50 revenue-generating affiliate marketers;
- make sure that affiliates disclose they earn commissions for sales and are not misrepresenting themselves as independent users or ordinary consumers.

Professor Goldman has posted a bunch about possible section 230 issues with the FTC's guidelines ("Do the FTC's New Endorsement/Testimonial Rules Violate 47 USC 230?"; "A Fuller Explanation of Why the FTC Endorsement/Testimonial Guidelines Violate 47 USC 230"). The facts are somewhat similar to those alluded to in his example. Here, Legacy set up an online affiliate program (on its site, using ShareASale). Legacy is the provider of an interactive computer service. Its affiliates are third parties, and Legacy is being sued for content generated by third parties (its affiliates). This looks like Blumenthal v Drudge, where AOL was sued for allegedly defamatory content provided by Drudge and AOL had paid Drudge for the content. The only difference is that here, Legacy was subject to potential liability for content that was placed on the affiliates' websites, whereas AOL was sued for content which Drudge submitted to AOL's website. I don't have a good answer on the Section 230 issue (here's a response to Paul Levy to Professor Goldman's posts on the FTC guidelines and Section 230: "Do the FTC's New Advertising Guidelines Run Afoul of Section 230?"), but it looks like the FTC isn't too worried about Section 230 acting as a bar to enforcing their guidelines against companies whose products are promoted without proper disclosures.

Previously, the FTC went after a company which posted fake reviews on behalf of its client. ("FTC Dings PR Firm for Fake Reviews -- In re Reverb Communications.") The FTC also issued a warning shot to AnnTaylor over gifts to bloggers. ("FTC Drops Investigation of Advertiser Who Gave Gifts to Bloggers.") This time, rather than merely firing the warning shot, the FTC went after Legacy, and extracted a settlement.

_________________

Eric's Comments: I agree with Venkat's post, especially the questions about 47 USC 230's applicability to this situation. I should note that my view on 47 USC 230's applicability is idiosyncratic. In addition to Paul's post, Rebecca Tushnet has also voted that my arguments are bunk. Rebecca Tushnet, Attention Must Be Paid: Commercial Speech, User-Generated Ads, and the Challenge of Regulation, 58 Buff. L. Rev. 721 (2010). Nevertheless, I would love to see someone test the FTC's theory here. I don't see it as a slam dunk that a judge would accept the FTC's theories.

For this post, I'll raise a different issue. I wonder if this case is another step in an ongoing winddown of the online affiliate industry. We're already seeing a big contraction of online affiliate programs due to states' adoptions of the "Amazon tax." As we've seen repeatedly, Amazon and others toss their affiliates overboard when states adopt these laws. (Which ironically makes these laws a type of fool's gold for state legislatures: the laws have failed to generate new sales tax revenues but have reduced income tax bases for the states that have adopted them).

Now, the FTC is taking the position that an affiliate program operator is legally responsible for consumer reviews written by its affiliates that failed to make appropriate disclosures. Furthermore, the program operator's main crime is that it failed to check out these affiliates and find out what they were writing and whether they had made adequate disclosures. The FTC's fix is to require the program operator to monitor 100 affiliates (the top 50 plus another randomly selected 50) each month to see if they are up to no good. What a hassle. The FTC settlement also requires than any non-complying affiliates are supposed to get the axe immediately, without notice or a cure period--a one-strike rule. Nice. At the peril of an FTC investigation, who needs crap like this? For most affiliate program operators, the profit-maximizing response is to just cut loose the long-tail affiliates or shut down the program entirely. Combining this effect with the Amazon tax sweeping the nation, the affiliate industry is on the run.

Another ironic note: I bet many of the program operator's affiliates are, in fact, experts in that market niche and therefore are better positioned than many other consumers to evaluate the product offerings in the niche. So the FTC crackdown may counterproductively reduce the flow of USEFUL consumer reviews about products.

A final irony: courts are less willing to extend liability to affiliate program operators than regulators are. As the most recent example, see the 1-800 Contacts v. Lens.com ruling. We didn't see an affiliate program operator-friendly ruling in the Amazon tax litigation in New York, but I keep hoping that gets reversed on appeal. If it does, and if anyone actually stands up to the FTC juggernaut, perhaps we'll see the courts revitalize the affiliate industry. If not, I say we're at the beginning of the end for affiliate programs as we've known them for the past 15 years.

Posted by Venkat at 02:54 PM | Content Regulation , Derivative Liability , E-Commerce , Marketing

March 09, 2011

Important Ninth Circuit Ruling on Keyword Advertising, Plus Recaps of the Past 4 Months of Keyword Ad Decisions

By Eric Goldman

Network Automation, Inc. v. Advanced System Concepts, Inc., 2011 WL 815806 (9th Cir. March 8, 2011)

[warning: this blog post is nearly 5,000 words]

Introduction

We've had surprisingly few appellate decisions involving keyword advertising generally, and almost none involving trademark owners’ lawsuits against keyword advertisers (as opposed to suing keyword sellers like search engines). On that basis alone, this ruling is important. The case is also remarkable because the opinion, written by highly regarded Judge Wardlaw, gets so many things right. Perhaps that sounds like damning with faint praise, but the reality is that the Ninth Circuit's Internet trademark law has become horribly tortured due to deeply flawed opinions like the 1999 Brookfield case. This opinion deftly cuts through the accumulated doctrinal cruft and lays a nice foundation for future Internet trademark jurisprudence.

The only sour note is that the opinion makes some unnecessary and empirically shaky "presumptions"--exactly the kind of unfortunate appellate court fact-finding that got the Ninth Circuit into trouble into the first place. Still, given how this opinion could have turned out, I still give this opinion very high marks.

Background

The litigants both make software for job scheduling and management. This is reasonably expensive ($1k-$10k) software targeted at businesses. The advertiser (Network Automation) purchased the trademark owner's trademark as keywords (at both Google AdWords and Bing) for comparative advertising. Thus, this case deals with a nice, clean example of comparative competitive keyword advertising.

The ad copy read:

The text of Network’s advertisements begin with phrases such as “Job Scheduler,” “Intuitive Job Scheduler,” or “Batch Job Scheduling,” and end with the company’s web site address, www.NetworkAutomation.com. The middle line reads: “Windows Job Scheduling + Much More. Easy to Deploy, Scalable. D/L Trial.”

The ad copy doesn't reference the trademark, presumably because the trademark owner blocked it via the search engines' trademark policies.

The lower court proceedings appear to be fairly typical (other than the fact the advertiser initiated the litigation with a declaratory judgment; hence why its name is first). The trademark owner argued that the comparative competitive ads created initial interest confusion; the court used a bastardized form of the Sleekcraft multi-factor likelihood of consumer confusion test to slam the advertiser; and the court issued a preliminary injunction.

Use in Commerce

The court actually addresses this factor explicitly, a vast improvement over the garbled words in Playboy v. Netscape. Unsurprisingly, the court says that buying keyword ads constitutes a use in commerce. I say unsurprisingly only because no court outside the Second Circuit has ruled otherwise, and the Second Circuit said that selling keyword ads was a use in commerce in the Rescuecom case.

The court doesn't explore the potential differences between selling keywords (a la Rescuecom) and buying keywords (this case). Even so, it continues to be clear that courts aren't going to adopt the use in commerce defense to either buying or selling keyword advertising. Oh well.

A Side Note About Metatags

In recounting the history of the Brookfield case and its discussion of metatags, the court drops FN3: "Modern search engines such as Google no longer use metatags. Instead they rely on their own algorithms to find websites. See McCarthy at § 25:69." Metatag plaintiffs, take note. I don't think this footnote puts the nail in the coffin of judicial overreactions to metatags, but it's a nice incremental step retreating from Brookfield.

Likelihood of Consumer Confusion

As a procedural matter, the court addressed the "Internet trinity/Internet troika" variation of the standard Sleekcraft test. In Brookfield, and then again in the 2000 GoTo case, the Ninth Circuit said that 3 of the 8 Sleekcraft factors were more important in Internet trademark cases and thus should get priority. This expedited version of Sleekcraft tended to work in plaintiffs' favor. Here, the court tries to kill the Internet trinity variation, saying:

we did not intend Brookfield to be read so expansively as to forever enshrine these three factors — now often referred to as the “Internet trinity” or “Internet troika” — as the test for trademark infringement on the Internet. Brookfield was the first to present a claim of initial interest confusion on the Internet; we recognized at the time it would not be the last, and so emphasized flexibility over rigidity....Given the multifaceted nature of the Internet and the ever-expanding ways in which we all use the technology, however, it makes no sense to prioritize the same three factors for every type of potential online commercial activity. The “troika” is a particularly poor fit for the question presented here.

The court also does not expressly kill off initial interest confusion. Instead, it sidesteps that issue altogether. For example, it doesn't define initial interest confusion or explain when it may or may not be present. Nevertheless, it subtly tries to merge initial interest confusion into the standard Sleekcraft test:

when we examine initial interest confusion, the owner of the mark must demonstrate likely confusion, not mere diversion.

Well, if you're going to have to use the Sleekcraft test to evaluate likely confusion, exactly what work does the initial interest confusion doctrine do? It would have been great if the court had just gone ahead and said that initial interest confusion is worthless, but I'll take this. I especially like that the court say diversion isn't enough. Although that is not an express repudiation of the initial interest confusion standard in Brookfield, the Brookfield case was all about diversion, and here the court implicitly undercuts it.

The court then proceeds to work through a standard Sleekcraft test:

Mark Strength. This is the first place (of several) where the court makes unnecessary and unfounded factual assumptions. The court says "a user searching for a distinctive term is more likely to be looking for a particular product, and therefore could be more susceptible to confusion when sponsored links appear that advertise a similar product from a different source. The court continues "Because the mark is both Systems’ product name and a suggestive federally registered trademark, consumers searching for the term are presumably looking for its specific product, and not a category of goods."

Uh, no. As I explained in lengthy detail here, we can't accurately infer a searcher's objectives when they use a trademark as a search term. In fact, I give examples of circumstances where searchers may use a trademark as the search query for a class of goods. The court’s presumption here, an empirical question that the court doesn’t defend, is off-base.

The court partially redeems itself when it says "if the ordinary consumers of this particular product are particularly sophisticated and knowledgeable, they might also be aware that Systems is the source of ActiveBatch software and not be confused at all." True, but I don't think a high degree of sophistication is required to make this type of source distinction. Even poorly educated consumers can distinguish Coke and Pepsi in the marketplace and will not be confused if a Pepsi ad appears in response to a keyword search for Coke. It’s not the consumer sophistication that matters; it’s whether or not the consumer already has a mental map of the various existing brands in the market niche. Ironically, because Google and Microsoft don’t allow a comparative competitive ad to explain the relationship between the brands, it may be harder for comparative advertisers to teach consumers in the ad copy about the relationship between competitive brands.

Proximity of Goods. The court adds a new twist: "the proximity of the goods would become less important if advertisements are clearly labeled or consumers exercise a high degree of care."

Mark Similarity. The court says this factor also depends on ad labeling and consumer sophistication.

Evidence of Actual Confusion. No evidence was introduced for the preliminary injunction, so the court weighs this as a non-factor. This is actually good news, because many courts have counted this factor against defendants by hypothesizing the existence of initial interest confusion as a substitute for any evidence of actual confusion.

Marketing Channels. Given that most companies have an Internet presence now, the court said the district court erred by counting this factor against the defendant.

Purchaser Care. The district court said that Internet consumers categorically exercise low care. Given the rich information on the Internet and the ability of consumers to do more research than ever, this has always been a dumb standard (see, e.g., Ann Bartow's Likelihood of Confusion article).

This court rightly shreds that assumption. The court says we should not rely on "a conclusion reached by our court more than a decade ago in Brookfield and GoTo.com that Internet users on the whole exercise a low degree of care."

Intent. The court says the lower court improperly assumed deceptive intent by the advertiser without considering the advertiser's desire for comparative advertising.

Product Line Expansion. Unimportant when the litigants are already in direct competition, such as in this case.

Other Factors. In a footnote, the court rejects the bonus 7 factor test from the Hearts on Fire case. However, going back to language from Playboy v. Netscape, the court says the "appearance of the advertisements and their surrounding context on the user’s screen" are important, and the search engines' presentation of ads--separated and labeled--should also be considered.

Instead of the Internet trinity or the Hearts on Fire supplemental test, the court possibly offers up a Internet quadrangle of Sleekcraft factors:

the most relevant factors to the analysis of the likelihood of confusion are: (1) the strength of the mark; (2) the evidence of actual confusion; (3) the type of goods and degree of care likely to be exercised by the purchaser; and (4) the labeling and appearance of the advertisements and the surrounding context on the screen displaying the results page.

I'm not sure a new expedited form of Sleekcraft avoids the problems we saw with the Internet trinity. But these factors are a step forward.

Holding

After dissolving the preliminary injunction, the court remands the case to the district court. It's not clear to me what will happen there. On the one hand, the district court judge showed that it was moved by the plaintiff's story, so it still may be sympathetic to the trademark owner. On the other hand, the Ninth Circuit opinion has a lot of language favoring the advertiser, and the district court judge might interpret that language as an imperative to rule for the advertiser lest it get reversed again. I think this is a close call.

Implications

I am often asked by other Internet Law professors for a single keyword advertising case they should consider teaching. Until now, I haven't had a good answer. I've taught several keyword ad cases over the years. The last two years I've taught the Hearts on Fire case, which has been pretty good. Other folks have taught the Second Circuit's Rescuecom case, a theoretically interesting case but a lousy teaching case. In my opinion, this ruling is clearly the best keyword advertising teaching case now available. Unless something better comes along, I'll be substituting this case for the Hearts on Fire case in my Internet Law reader. Assuming many of my colleagues make the same choice, I expect this opinion will be an instant classic.

For more on the opinion, see Paul Levy's take.

UPDATE: Rebecca's cogent critique of the case.
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I have accrued a bunch of other keyword advertising cases over the past 4 months that I simply haven't had time to blog. In the remainder of this post, I'll catch up with recaps of those cases as well. However, for the most part, this nicely written Ninth Circuit opinion trumps the remaining precedential import of these other cases.

Defense Wins

Montana Camo, Inc. v. Cabela's Inc., 2011 WL 744771 (D. Mont. Feb. 23, 2011). Cabela's buys fabric from Montana Camo and manufactures clothes using the fabric. In a hangtag, Cabela's indicates that the fabric is from Montana Camo. Cabela's buys "Montana Camo" as keywords.

The court rejects Montana Camo's 1125(a)(1)(B) false statement of fact claim because "the purchasing of a sponsored link is not a statement of fact. Further, considering that Montana Camo products were sold on Cabela's website, it was not a false statement of fact." The court rejects the 1125(a)(1)(A) unfair competition claim because Montana Camo didn't marshal enough evidence of confusion.

Thus, this case indicates that a manufacturer may be able to bid on the trademarks of its component suppliers without running afoul of Lanham Act false advertising rules.

Consumerinfo.com, Inc., v. One Techs., LP, CV-09-3783-VBF (MANx) (C.D. Cal. jury verdict Jan. 12, 2011).

The TM owner asserted its purported TM rights in "freecreditreport.com," a problematic domain name designed to take advantage of misdirected consumers who were really seeking annualcreditreport.com, the government-mandated website that lets consumers get free access to their credit reports. Consumers at freecreditreport.com get coopted into credit monitoring services that they may not want and probably don't need.

Given the marginal legitimacy of freecreditreport.com, you'd think it would lay low legally. Instead, like other owners of crappy trademarks (see, e.g., 1-800 Contacts, discussed below), they tend to be more bare-knuckled litigious than typical trademark owners. In this case, they sued businesses that registered typosquatting domain name variations of freecreditreport.com. I trust you see the irony--freecreditreport.com plays on consumer misrecollections of annualcreditreport.com, yet they don't like anyone doing the same to their purported trademark. Nice. The jury awarded a big cybersquatting judgment under the ACPA to the tune of $1.9M; however, the jury found that the defendants' keyword bidding did not create a likelihood of consumer confusion.

We don't have many jury verdicts about keyword advertising. The two I can think of are College Network v. Moore and Fair Isaac v. Experian. This would make the third time a jury has found in favor of the keyword advertiser over the trademark owner when the jury finally gets the question asked to them. This reinforces that juries may be more tolerant of keyword advertising than judges (and are certainly more tolerant than trademark owners!). This particular jury ruling is especially noteworthy because the jury thought the defendants were bad guys (hence the very large ACPA judgment), yet the jury still approved the keyword advertising.

1-800 Contacts, Inc. v. Lens.com, Inc., 2010 U.S. Dist. LEXIS 132389 (D. Utah Dec. 14, 2010).

This case, another suit over competitive keyword bidding, got stuck in my blogging queue. It's a tremendously important ruling and a terribly embarrassing one for 1-800 Contacts, so I planned to devote a lengthy blog post exploring its interstices. Unfortunately, the time never materialized in my schedule. Why was this case so high on my list? Three highlights:

1) It was a resounding loss for 1-800 Contacts, a company that has earned my ire over the years for their duplicity and pugnaciousness about trademarks and keywords. (For my blog coverage of them, see here). Some lowlights in 1-800 Contacts' track record:
* they are hyper-aggressive about protecting a marginal trademark. In my mind, it's not a trademark at all, it's a phone number. Frankly, I think we should categorically declare phone numbers as ineligible for trademark protection, just like we no longer recognize trademarks in [noun].[tld].
* they buy third party competitors' trademarks as keyword triggers, yet they sue competitors for buying their name (I can't really call it a trademark) as keyword triggers. Indeed, the court recounts that 1-800 Contacts bought "1 800 lens; 1 800 lense; 1 800 lenses; 1 800 the lens; 1 800 Lens; 1-800 lens; 1800lenses; 1800lens; 1800lenses; 1-800-lenses; 800 lens; 800 lenses; 800lens. These keywords generated 91,768 impressions, 8,477 clicks, and about $219,314 in profits for Plaintiff." HYPOCRITE ALERT. (BTW, their $26 of profits per click is mind-bogglingly impressive).
* they flip-flopped on the Utah legislature's efforts to ban keyword advertising, helping to kibosh the first law and then trying to sneak in a second law that favored their interests--aided by the fact that their in-house lobbyist is also a legislator and voted in favor of the bill her employer advocated. Yet, on its site, 1-800 Contacts claims "1-800 CONTACTS engages on public policy issues related to ocular health and the right of contact lens wearers to choose where they fill their prescriptions. We have not and will not get involved in public policy outside of the scope of this interest." Sorry, I'm going to have to call BS on that.

2) The case rejects 1-800 Contacts' attempt to hold the defendant Lens.com liable for keyword ad buys made by Lens.com's affiliates. Trademark owners have been angling to establish a legal doctrine that online retailers are automatically liable for keyword ad buys by affiliates, but this case gives some additional reason to believe that trademark owners have been overreaching.

3) The case gets into details about how much money Lens.com made and, in theory, 1-800 Contacts lost due to Lens.com's keyword ad buys. The court says Lens.com bought the following keywords:

1 800 contact lenses; 1800 contact lenses; 800 contact lenses; 800comtacts.com; 800contacta.com; 800contavts.com;800contaxts.com; 800contzcts.com; and 800conyacts.com. These nine keywords generated about 1,626 impressions, 25 clicks, and $20.51 in profits

Wait, what? The parties are fighting over Lens.com’s $20 of profits??? Hey, 1-800 Contacts, if you'll stop bringing pitiful lawsuits, I'll send you an Andrew Jackson out of my own pocket. Clearly, the real thrust of this lawsuit were the affiliates' keyword ad buys, but even those weren't voluminous: one affiliate bought 65,000 allegedly infringing impressions generating 352 clicks, and another affiliate allegedly bought 240,000 impressions generating 1,445 clicks.

Are ~1,800 allegedly misdirected clicks worth making a federal case out of? Even at 1-800 Contacts’ impressive (and probably overstated) $26 of profit per click, we’re talking about less than $40k of value that 1-800 Contacts purportedly lost. Yet, 1-800 Contacts was prepared to spend $1.1 MILLION on this lawsuit (and actually spent at least $650k). Great business decision there, guys. WHAT A WASTE. As I wrote in that earlier blog post, "I'm super-skeptical that the value of the consumers "diverted" (whatever that means) by Lens.com's competitive keyword advertising is more than $1.1M." The financial details in the case reinforce that I was 100% right about that.

Substantively, the court says keyword ad buys are a use in commerce. The court correctly explores the effect of broad matching on searches like "1-800 Contacts"--due to broad matching, competitive ads keyed to "contacts" may show up. The court grants summary judgment to Lens.com for its ads.

It suggests that some of Lens.com affiliates' ads may have infringed because they mention 1-800 Contacts in the ad copy. (The court later clarifies that it wasn't the ad buy that infringed; it was the ad copy). However, those actions aren't imputed to Lens.com because Lens.com got its affiliates through Commission Junction, and therefore Lens.com didn't know their identity and had little direct contact with them. The court also rejects 1-800 Contacts' takedown notice to Lens.com because 1-800 Contacts didn't give enough information to find the affiliate who ran the ad.

Finally, 1-800 Contacts tried to argue that Lens.com contractually agreed not to buy its trademarks as keywords during their various correspondences in response to 1-800 Contacts' legal threats. This is similar to Barnes v. Yahoo and Scott P. v. Craigslist in that the plaintiff is arguing that the defendant promised to remediate and thus its failure to do so is a contract breach. The court rejects this bypass.

You can see why I love this opinion. It's a long but rewarding read. Check it out.

(For people interested in Ben Edelman's work, you might be interested in the court's discussion about Ben's expert report on pages 20-23. A sample: "parts of Edelman’s declaration are improper in that he presents evidence not within his personal knowledge by reciting what another said in deposition and stating that testimony as fact, he opines on facts for which no expert testimony is needed, and he draws legal conclusions that are outside his role as an expert").

Plaintiff Wins

FTC v. Cantkier, 2011 WL 742647 (D.D.C. March 3, 2011). The court's recap of the complaint:

The FTC has alleged that Lady and certain other defendants were running deceptive online advertisements featuring the names, phone numbers, and website addresses of federal homeowner relief and financial stability programs. The advertisements allegedly appeared on popular web search engines, such as Google and MSN, and were targeted to users using as search terms keywords related to the federal assistance programs. The Second Amended Complaint alleges that the advertisements represented that they were sponsored by federal homeowner relief and financial stability programs by featuring text and titles associated with those programs, including "makinghomeaffordable.gov" and "financialstability.gov." When web users clicked these ads, they were not directed to the websites for the federal programs, but rather to private Internet websites ("lead collection websites") that collected marketing leads for mortgage loan modification or foreclosure relief services. These lead collection websites had no actual connection with government programs; they solicited consumers to enter personal identifying and confidential financial information, and then the operators of the websites sold the consumers' confidential information as marketing leads to persons who sell mortgage loan modification or foreclosure relief services....

Plaintiff alleges that Lady purchased advertisements on www.google.com ("Google"). On Google, Lady bid on keywords "financial stability.gov," "fha.com," "financialsecurity.gov," "hope now alliance," "hope for homeowners," "www.makinghomeaffordable.gov," and "makinghomeaffordable.gov." On Google, his advertisements displayed titles "Makinghomeaffordable.gov," "Financial Stability.gov," "Fha Gov," "wwwhud.gov," "www.995hope.org," and "www.hopenow.com/." The FTC alleges that consumers who clicked on Lady's advertisements were not directed to the government websites, but rather to his own websites that collected marketing leads for mortgage loan modification or foreclosure relief services. Lady's websites prompted consumers to enter personal identifying and confidential financial information, which Lady then allegedly sold as marketing leads to persons who sell mortgage loan modification or foreclosure relief services. (cites omitted)

On this basis, the FTC alleged deceptive acts under the FTC Act. The court rejects the defendant's motion to dismiss.

There are a number of interesting points in the discussion. Some highlights:

* the defendant argued that consumers understood they were clicking on ads. The court acknowledges this but says the FTC's complaint is that the ad copy was deceptive.

* the defendant argued that his advertised websites didn't look like official government websites. The court responds: "Internet users may not know what the real federal program website looks like until they successfully navigate to it. If they are diverted by advertisements bearing the name and web address of the federal program before ever reaching the program's actual website, reasonable consumers could assume they have reached their intended destination, when, in fact, they have reached a commercial service."

This is a little like the old Promatek v. Equitrac discussion of diversion, to which the "back button" is a solid retort. However, it feels qualitatively different to me that we're dealing with allegedly false ad copy trying to mimic official government services. Contrast the rulings in the Consumerinfo case above, where the jury found no consumer confusion from keyword advertising for a website replicating a government-mandated website, and the recent Canadian decision in Private Career Training Institutions Agency v. Vancouver Career College (Burnaby) Inc., where the defendants’ websites mimicked community colleges. In the latter case, the court said that prospective students would figure out any confusion before enrolling in college. That case clearly expected consumers to be more sophisticated than the FTC did in this case. Also along this lines (but not a keyword ad case) is the lawsuit over dmv.org.

Rebecca's post on the case.

Binder v. Disability Group, 2011 WL 284469 (C.D. Cal. Jan. 25, 2011). This is another lawyer-as-plaintiff suit, so you know we’re in trouble. The advertiser, a direct competitor, purchased the law firm's name as keywords. The court breezily says that keyword purchases are a use in commerce. The district court found a likelihood of confusion by focusing on the Internet trinity of factors; the opinion also made a number of other statements inconsistent with the Network Automation case. Unlike Network Automation, in this case there was some evidence presented of actual confusion, including after users clicked on the ad (so the confusion was not solely attributable to the keyword ad). That might suggest the ruling would withstand further scrutiny, especially given that we're talking about law firms competing with each other and clients could get into trouble by connecting with the wrong law firm.

In underdeveloped parts of the opinion, the court also finds Lanham Act false advertising and California unfair competition violations, saying "Plaintiffs have proven by a preponderance of the evidence that Defendants used Plaintiffs' mark in their advertising campaign through Google to market their business in a manner that was likely to confuse potential clients and that deceived potential clients into thinking they were being led to Plaintiffs' website" and "Plaintiffs have proven by a preponderance of the evidence that Defendants used Plaintiffs' marks in their online campaign and in doing so attempted to pass off their website as Plaintiffs', and/or infringed on Plaintiffs' trademarks." This deserved way more words than the court gave it. The court also has some garbled discussion that the TM owner did not need to mitigate harm by complaining to Google.

Using some questionable methodologies about conversion rates (18%!), revenue per case and costs of serviced cases (95% revenue margin!), the court calculated damages and then doubled them for willfulness to nearly $300k. Regarding willfulness, the court says:

Plaintiffs have established willfulness in this case. As described above, Defendants chose Plaintiffs' marks based on the market. In doing so, Defendants intentionally misled potential clients and directed business away from Plaintiffs and to their own websites. Defendants had the deliberate intent to direct clients to their sites with the false impression that they were Binder and Binder. Defendants also intentionally chose Plaintiffs' marks with knowledge that they were registered trademarks and in an attempt to profit from them.

Equating willfulness with exceptional, the court also awards attorneys' fees and costs. The court also extended liability to the defendant's principal personally. However, the court refused a request for corrective advertising and punitive damages (which were available for the CA unfair competition claim).

On the surface, this looks like a problematic case. Partially in response to this case, a Search Engine Land contributor asked if "Is It Time To Rethink Bidding On Trademarks?". However, there are three mitigating factors that undercut its import:
1) the suggestion that the advertisers engaged in misleading activity after the keyword ad.
2) the court clearly disbelieved the defendant's principal, never a good indicator of a successful defense.
3) I wonder how much of this case survives the Network Automation ruling. It appears potentially vulnerable to an appeal or rehearing request.

1-800 Contacts, Inc. v. Memorial Eye, PA, 2010 WL 5149269 (D. Utah Dec. 13, 2010).

In one of 1-800 Contacts' multitudinous trademark lawsuits against competitors over competitive keyword ad bidding, the advertiser asserted an unclean hands defense (on the basis that 1-800 Contacts buys competitors' trademarks for competitive keyword advertising itself) and a trademark misuse counterclaim. The court rejects both. In general, this ruling is trumped in importance by the Lens.com ruling. However, it is interesting that the court thought 1-800 Contacts engaging in identical behavior as the behavior it was suing over wasn't good enough for an unclean hands defense. In the court of popular opinion, 1-800 Contacts is unacceptably duplicitous.

Posted by Eric at 04:21 PM | Marketing , Search Engines , Trademark | TrackBack

February 27, 2011

Jan.-Feb. 2011 Quick Links, Part 2

By Eric Goldman

Search Engines

Google’s search algorithm has been very much in the news the past 2 months!

* Google’s announcements:
- “Google search and search engine spam”
- Matt Cutts explains Google penalties in a video.
- “Microsoft’s Bing uses Google search results—and denies it.” Comments from Search Engine Land and Greg Linden (on privacy)
- Interview with Amit Singhal on content farming

* Google publicly penalized numerous targets, including
- JC Penney, punished for black hat SEO (the 4th time Google had penalized them).
- Overstock, punished for coopting too many .edu domains
- Forbes, punished for passing PageRank to paid links
- Then, Google dropped the hammer on content farms

The running question with all of these changes: should we praise—or regulate—Google for fighting back against the algorithm gamers? My 2006 article on search engine bias answers that question. I recently wrote a short essay updating the 2006 article—more on that soon.

* Speaking of regulators, they are hardly standing on the sidelines:
- EU regulators hate Google. They really hate Google.
- The Italian antitrust authority dropped its investigation into Google News after Google agreed to make it easier for publishers to opt-out.
- More details emerged on the Texas AG’s investigation into Google. WSJ and AllThingsD (including the actual letter). My prior blog post.
- Interestingly, FWIW, it’s not clear consumers are sold on the need for regulatory intervention. 77% of Americans say "there is no need for government regulation of the way that search engines select the recommendations they provide in response to search inquiries." Then again, survey wording is key. I could see an equal percentage say that we should prevent search engine bias.

* Questions about Google’s algorithms:
- Techdirt: "Will Google's New Hamfisted Censorship On Autocomplete Raise Questions Of Human Meddling?"
- News.com: Google's double standard on user-generated content

Privacy

* H.R. 654, "Do Not Track Me Online Act of 2011." The law would require the FTC to promulgate regulations that “establish standards for the required use of an online opt-out mechanism to allow a consumer to effectively and easily prohibit the collection or use of any covered information and to require a covered entity to respect the choice of such consumer to opt-out of such collection or use.”

* Information Law Group's 2010 privacy law recap.

* Jeff Jarvis: "the emergence of Privacy, Inc., as a industry built on scaring people is beginning to scare me."

Remember, every regulation creates winners and losers, and we should always ask what’s in it for the winners. On that score, see James D. Campbell et al, Privacy Regulation and Market Structure, reaching the conclusion: “privacy regulation can benefit incumbents and reduce innovation.”

* Lyall v. City of Los Angeles, Not Reported in F.Supp.2d, 2011 WL 61626 (C.D. Cal. Jan. 6, 2011). Publicizing an event on MySpace made the event space into a public place for purposes of a police search.

* After Pineda v. Williams-Sonoma treating zip codes as private information, a flood of lawsuits. In response to the Supreme Court's ruling, Sacramento urgently needs to make a statutory fix to Song-Beverly to avoid business-sapping and socially wasteful litigation.

* FTC: Data Resellers Liable for Downstream Security Failures

Social Media/Web 2.0

* Reuters: "Companies warily eye new consumer complaint sites"

* Mountain View Voice: Contractor files big claim for bad Yelp review.

* Teacher is suspended for blogging about her "whiny" students. Compare Yoder v. Univ. of Louisville.

* Reuters recaps e-discovery of social networking site content.

* NYT: Is blogging passé?

* Facebook ads have really low clickthrough rates, but the clickthrough rate improves if another user "likes" the ad.

* Unintended consequences of CA's E-personation law are beginning to manifest themselves. Apple goes after the @ceostevejobs parody Twitter account.

* NYT surveys some esoteric niche online dating websites.

* U.S. v. Forde, 2011 WL 63831 (4th Cir. Jan 10, 2011):

In a post-trial motion, Forde informed the district court that while the trial was proceeding, a friend of the husband of the jury foreperson posted on Twitter an explanation of the difference between “assume” and “presume.” Ford contended that, since the posting occurred during trial, it was possible that the jury foreperson had talked to her husband about the case, her husband then talked to his friend about the case, the friend then posted the statement on Twitter, and the foreperson saw the Twitter posting. Forde thus requested that the district court hold a hearing to investigate the potential misconduct. The district court denied the request.

...Forde's string of possibilities about the origin of the Twitter posting—that the foreperson possibly talked to her husband, who possibly talked to his friend, who possibly took to Twitter in response to what the husband possibly told him—is nothing but speculation and thus falls far short of establishing reasonable grounds for investigation. The district court therefore did not err by denying Forde's request for an evidentiary hearing to investigate his claim.

Posted by Eric at 04:22 PM | Content Regulation , Evidence/Discovery , Marketing , Privacy/Security , Search Engines | TrackBack

February 24, 2011

Savvy Louisiana Ruling on Metatags--Southern Snow v. Snowizard

By Eric Goldman

Southern Snow Mfg. Inc. v. Sno Wizards Holdings, Inc., 2011 WL 601639 (E.D. La. Feb. 16, 2011)

Have I ever mentioned how much I hate metatags cases? They have led to some godawful rulings. But surprisingly, today's opinion was quite refreshing. It's just the iceberg tip of a litigation battle royale taking place among Louisiana manufacturers of shaved ice equipment and flavorings. Sno Wizards manufactures the trademarked "SnoWizard" shaved ice machine. The defendant in this ruling, Parasol, makes syrup for shaved ice and put the term "snow wizard" in its metatags. (I checked a few pages on Parasol's website and couldn't find the reference any more). Presumably, Parasol wants to tell shaved ice retailers to consider their syrup for shaved ice manufactured using Sno Wizards' machine. Given that Sno Wizard also sells its own flavorings, it's easy to speculate why Sno Wizard might object to Parasol's efforts.

Sno Wizard argued the trademark owner's standard party line that use of its trademarks in someone else's metatags is per se infringement; no further proof required. The court recaps the argument: "SnoWizard retorts that the cases applying Brookfield Communications recognize that the defendant's use of the plaintiff's mark in website metatags creates initial interest confusion and therefore constitutes trademark infringement and unfair competition as a matter of law." From Sno Wizard's standpoint, res ipsa loquitur.

Fortunately, this judge digs deeper. Although the opinion is light on citations, it's rich with wisdom. The court starts out with this winner:

It would be odd indeed for the law to require a plaintiff in an ordinary trademark infringement case to prove likelihood of confusion to the jury, yet to create a lighter burden where metatags are involved, given that with metatags the consumer never actually sees the trademark or knows that it is in use. Thus, the Court is persuaded that SnoWizard cannot passively assume that likelihood of confusion is established as a matter of law in this case.

Why, YES! I enthusiastically agree that the typical pro-trademark owner metatag rulings get the burdens completely backwards.

The court continues by asking the key metatags-related technological question that has eluded most judges: just what do they do? (Google has given its answer). The court says:

SnoWizard cannot prevail on its metatag claim without evidence of what actually takes place as a result of the phrase "snow wizard" being hidden in Parasol's website. Is every consumer diverted to Parasol's website, or is Parasol listed at the top of many search results, or somewhere in the middle of a result list, or twenty names down the list? Does the consumer have to type in just "snow wizard" or is the metatag triggered by other variations of the phrase too?

This inquiry is in stark contrast to most judges' assumption that metatags are the most effective SEO tool ever and therefore guarantee top placement and masses of unwittingly diverted consumers. See, e.g., Art Attacks v. MGA and Venture Tapes v. McGills; but see Standard Process v. Banks, which would have been a helpful cite here.

The court concludes by noting the potential difference between "snowizard" (the trademark) and "snow wizard" (the metatag) to keyword searches:

the jury would be left to guess that "snow wizard" and SNOWIZARD are synonymous to a computer search engine but the Court is not even persuaded that such an assumption is factually correct.

Amazingly, the fact that an extra space might affect keyword searches baffled the Ninth Circuit in the Brookfield case, which similarly involved references that differed by a space ("moviebuff" and "movie buff"). The possible difference also escaped the Seventh Circuit in the Promatek v. Equitrac case, where the trademark ("Copitrak") differed from the metatag ("Copitrack") and actually did produce different search results in Google (see the screen shots yourself, thanks to when Google posted an unmodified copy of its 2001 index).

And in a final display of savviness, the judge doesn't simply roll the issue to trial to examine these factual issues. Instead, saying the trademark owner didn't present enough evidence to earn its way to a trial, the judge dismisses the metatag claim on the spot. This case appears to be a much better context for Judge Kozinski's famous admonishment in Mattel v. MGA (the Barbie Girl case): "The parties are advised to chill."

The author of this gem is Judge Jay Christopher Zainey. Great work, your honor.

Posted by Eric at 01:49 PM | Marketing , Search Engines , Trademark | TrackBack

February 11, 2011

California Supreme Court Rules That a ZIP Code is Personal Identification Information -- Pineda v. Williams-Sonoma

[Post by Venkat Balasubramani]

Pineda v. Williams-Sonoma, S178241 (Cal. Supreme Court; Feb. 10, 2011)

Plaintiff made a purchase at Williams-Sonoma and when she went to pay, the cashier asked for plaintiff's ZIP code. Thinking she was required to provide it in order to complete the transaction, plaintiff provided it.

Plaintiff sued under the Song-Beverly Credit Card Act (the Credit Card Act) which prohibits a store that accepts credit cards from:

request[ing], or requir[ing] as a condition to accepting the credit card as payment...the cardholder to provide personal identification information, which the [store] records upon the credit card transaction form or otherwise.

The statutes defines personal identification information as:

information concerning the cardholder, other than information set forth on the credit card, and including, but not limited to, the cardholder's address and telephone number.

The trial court dismissed the claims, finding that a ZIP code does not fall under the definition of personal identification information, and the court of appeals affirmed. (Interestingly, plaintiff brought an invasion of privacy claim. The court did not accept review over the invasion of privacy claim, which the court of appeals dismissed on the basis that the plaintiff did not have a privacy interest in her address, which was contained in a database.) In reversing the decision of the court of appeals, the court points out that Williams-Sonoma had a particular motivation when it asked for plaintiff's ZIP code:

[Williams-Sonoma] subsequently used customized computer software to perform reverse searches from databases that contain millions of names, e-mail addresses, telephone numbers, and street addresses, and that are indexed in a manner resembling a reverse telephone book. The software matched plaintiff's name and ZIP code with plaintiff's previously undisclosed address, giving defendant the information, which [Williams-Sonoma] now maintains in its database. Defendant uses its database to market products to customers and also sell the information it has compiled to other businesses.

The court looked to the statutory language which includes the cardholder's address and telephone number as illustrative examples. Although the court of appeals took these examples to mean that more general information which can't by itself be used to locate a person was not included in the statute, this court disagreed. The court rejects the argument that the ZIP code shouldn't be included because it is only a component of an address, reasoning that under this approach a retailer could ask for portions of an address but not the entire thing (thus achieving its purpose of being able to market to the individual without asking for the entire address). The appeals court also reasoned that an address and telephone number is specific to an individual while a ZIP code refers to a group of people. (As the court notes, ZIP stands for "Zone Improvement Plan.") The court rejects this as well, noting that both residential and work telephone numbers could refer to more than one person but these are nevertheless encompassed by the statute.

Ultimately, the court looks to the intent behind the statute and finds that the legislature intended the statute to encompass:

information unnecessary to the sales transaction that, alone or together with other data such as a cardholder's name or credit card number, can be used for the retailer's business purposes.

In the court's view, any other interpretation of the statute would allow retailers to "end-run" the statute's purpose. The court also cites extensively to the statute's legislative history, which was concerned with retailers' extraction (at the point of credit card transaction) of information that would be used for marketing purposes. In addition to the statutory construction arguments, Williams-Sonoma made due process and vagueness arguments, but the court doesn't give these much credit.
__

This is an interesting one that brings to mind the debate over whether an IP address is personal information (an issue Microsoft hashed out, but which I'm guessing we'll see again). (See "Court: IP Addresses Are Not 'Personally Identifiable' Information.") There's been a dispute over whether the collection of email addresses violates the California statute, but apart from a ruling on a CAN-SPAM preemption defense, I don't recall seeing a conclusive ruling on whether an email address fits the statute's definition of personal identification information. ("California Privacy Law Not Preempted by CAN-SPAM Act.") In light of this ruling, I would say that an email address will be treated as personal identification information for purposes of the statute. On the other hand, a federal trial court held that the statute does not apply to online transactions, so email addresses collected in this context may not necessarily pose a problem. (See Saulic v. Symantec Corp., 596 F. Supp. 2d 1323 (C.D. Cal. 2009). In light of Pineda, I'm guessing plaintiffs and advocacy groups are going to try to revisit this issue.)

It's hard to muster much sympathy for Williams-Sonoma here, since they obviously used the information to market to plaintiff (this may be my bias at work - like most people, I think that catalog marketing is a truly odious practice, although Professor Goldman mentioned by email that he disagrees). On the other hand, Williams-Sonoma made a pretty reasonable argument that the statute looks like it applies to pieces of information which can be used to identify the purchaser. A cardholder's ZIP code "without more" doesn't seem like it should constitute personal identification information. You can use a person's address or telephone number to market to someone, but you can't use a ZIP code. Also, I wondered about the fact that gas stations (for example) sometimes require credit card users to input their ZIP codes as an anti-fraud measure (I'm guessing they argue that they don't violate the statute because they don't archive the information - at a quick glance I don't see a fraud exception in the statute, although there is a "positive identification" provision).

However, what sways me (and the court alludes to this in referencing a change in the statute to address retailer "requests" for information) is that stores ask customers for their ZIP codes in the context of these transactions and customers often provide it because they think it's some sort of fraud protection measure. If the retailer is going to turn around and just run this information through the database for marketing purposes, this feels duplicitous.

It looks like the statute was last amended in 1991, but since then (given the proliferation of databases), tracking someone down with bits of information has gotten much easier, and will become even easier over time. Given this, I wonder if the legislature considered prohibiting retailers from using information obtained via a credit card transaction to identify and market to customers unless the customer opts in. It's increasingly tricky to think of data as personally identifiable information versus non-personally identifiable information. Eric has posted about Professor Ohm's reidentification work, which shows how the distinction between PII and non-PII is becoming less useful: "Data Anonymization and Re-identification Lecture Featuring Paul Ohm, SCU, April 7." This looks like a good example of this.

A final note: this case highlights how online and off-line retailers live in different worlds. Off-line retailers go to great lengths to identify and stay in touch with their customers. Online retailers can just use cookies, ask consumers to check a box on their website, or get consumers to like their Facebook page.

Other coverage:
"My zip code is none of your business!" (Chris Hoofnagle)
"A Ridiculous California Court Ruling: Zip Codes are Private" (Kashmir Hill)

Posted by Venkat at 06:45 AM | Marketing , Privacy/Security

February 03, 2011

Yellow Pages Companies Challenge Seattle Opt-out Ordinance on First Amendment Grounds

[Post by Venkat Balasubramani]

Dex Media West, Inc., et al. v. City of Seattle, et al., Case No. 10-cv-01857 (W.D. Wash. complaint filed Nov. 15, 2010)

In what many will probably characterize as a dinosaur's last gasp litigation strike, two yellow pages companies sued to invalidate the City of Seattle's scheme to allow its residents to opt-out from yellow pages distribution. They are likely to be successful this time around. In fact, after reviewing plaintiffs' summary judgment motion, I'm surprised the City of Seattle just doesn't go back to the drawing board and rewrite the statute.

Seattle Ordinance 123427 sets up an opt-out scheme for yellow pages which are distributed in the City of Seattle. The ordinance contains a licensing provision, requiring distributors to obtain licenses and pay an annual fee of $100. Yellow pages distributors are required to submit annual reports "describing the quantity of yellow pages phone books . . . distributed within the City during the previous calendar year." The ordinance further empowers the Director of Seattle Public Utilities to set up an Opt-Out Registry which will "serve as a clearinghouse for residents and businesses to register" and opt-out. The opt-out registry will be made available to distributors, who have to provide their contact information and will also forward any opt-out requests received from residents. The scheme also imposes a "recovery fee" designed to recoup recycling costs ($0.14 per book and $148.00 per ton of yellow pages). Finally, the scheme allows the Director to suspend or revoke a license and fine those who do not comply.

Conceptually, yellow pages fall within the category of materials that citizens should be able to opt-out from. Yellow pages are not political speech. They are heavy and cost money to dispose of, and they are delivered somewhat intrusively to your doorstep. Should the government be allowed to restrict delivery of this material to citizens who opt-out?

The answer is likely yes, and the classic case cited in support of the constitutionality of an opt-out is Rowan v. United States Post Office, 39 U.S. 728 (1970). Rowan involved a statute which allowed people to opt-out from mailings which the recipients deemed obscene and which were sent through the postal service. Although not perfectly analogous, it certainly lends some support to the general idea that an opt-out from unwanted intrusive communications should be constitutionally acceptable.

Generally speaking, challenges to government schemes allowing people to opt-out of other unsolicited communications have not been successful. For example, courts have rejected challenges to the junk-fax statute, on the basis that the government has an adequate interest in preventing the intrusion in privacy and increased costs resulting from an unwanted fax. (See, e.g., State of Mo. v. American Blast Fax, Inc., 323 F.3d 649 (8th Cir. 2003).) The do-not-call list has similarly been upheld against a court challenge. (See FTC v. Mainstream Marketing Services, 345 F. 3d 850 (10th Cir. 2003).) Of course, challenges to anti-spam statutes have not fared particularly well either (a few exceptions notwithstanding).

However, the cases resolving challenges to opt-out schemes make clear that the restrictions have to satisfy two First Amendment principles: the restrictions must be narrowly tailored and not be content based (unless the entire category of content is not entitled to First Amendment protection). And this is where the Seattle ordinance runs into trouble. As pointed out in plaintiffs' summary judgment motion, the statute suffers from a number of classic flaws - among other things:

- the statute singles out yellow pages from all other types of unsolicited pamphlets, without reference to the harms sought to be remedied;
- the City made exceptions to satisfy local business interests, such as business associations;
- the ordinance also contains a licensing scheme which is at best highly suspect;
- the statute compels the yellow pages publishers to publish an unwanted message (in the form of opt-out notices and messaging on the cover)
- the statute charges the yellow pages companies to dispose of the books even though the unwanted or discarded books are recycled or disposed of by the recipients;
- yellow pages companies already employ opt-out mechanisms and have no interest in delivering yellow pages to recipients who do not want them (there's no indication that the opt-out system set up by the City will be more effective).

I can see the City being able to penalize distributors who do not comply with constitutionally permissible restrictions, but to think you have to be licensed to distribute yellow pages in the City of Seattle? That just doesn't sound like it will ever fly.

The City of Seattle argued in its filings that yellow pages are categorically harmful and unwanted, and thus the City should be allowed to ban them altogether, but that's a tough argument to make. The City also argues that yellow pages are commercial speech which is entitled to a lesser degree of protection. You can access the City's opposition to plaintiffs' motion here, but I was not persuaded after reading it.

A possible solution is to set some sort of weight limit or page limit, and say that unsolicited pamphlets (of any type) are fine so long as they do not exceed a certain number of pages or a certain weight. This is one way to tackle the problem without reference to the content in question. Another option is to require the distributors to include an opt-out card which recipients can mail in to opt-out, or to referenced a website where recipients can opt-out, and to penalize any distributors or publishers who fail to honor opt-outs.

Plaintiffs' motion for summary judgment contains a few interesting facts around advertising. For example, in one yellow pages book, advertising comprises approximately 35% of the directory, and in another it comprises 15-35%. In comparison, as noted in the motion, advertising makes up 58% of Vogue magazine, 52% of Forbes magazine, and 74% of Bride's magazine.

Underlying this lawsuit is the fact that paper-based yellow pages operations are seeing their end days. Look up services have migrated online, and local advertising is not the greatest source of revenue. (Even Google is struggling to ramp up its local advertising operation, hiring sales people to engage in direct sales.)

In the meantime, we'll see what the court does with the statute, but I'm highly skeptical of its viability.

Related:
"At Last, You Can Send the Yellow Pages to Hell" (Gizmodo, noting the launch of the "National Yellow Pages Consumer Choice & Opt-Out Site") (Feb. 1, 2011)
"Verizon seeking permission to stop delivering white pages in Maryland, Virginia" (Washington Post) (Nov. 16, 2010)
"Banned Books in Seattle: Yellow Pages Cries Foul Over ‘Opt-Out’ Law" (WSJ Law Blog) (Nov. 16, 2010)

Posted by Venkat at 10:50 AM | Content Regulation , Marketing

February 01, 2011

Free-to-Consumers Ad-Supported Website Isn't Illegally Priced--Cammarata v. Bright Imperial

By Eric Goldman

Cammarata v. Bright Imperial Ltd., 2011 WL 227943 (Cal. App. Ct. Jan. 26, 2011). The complaint. The trial court ruling.

If you can't compete with free, can you litigate it away?

Kevin Cammarata ran subscription-based porn sites until he sold his business at an allegedly depressed sales price. The defendant runs an ad-supported porn site, RedTube.com, one of many porn websites with the suffix -tube.com as an homage to YouTube. Nothing about any of the websites implicated by this lawsuit is office-safe. The court, apparently with a straight face, sets the context by saying "the formerly profitable subscription-based websites 'have been brought to their knees' by the tube-based sites." (Once again reinforcing that the Internet is really just a series of tubes...?)

Unhappy with competing with free, Cammarata sued RedTube and some of its advertisers for unfair business practices. Cammarata's attorney, Jay Spillane, was quoted as saying "Tube sites have done injury to the business. We feel RedTube and other sites like them are crowding out competition when it comes to the online adult business.”

Crowding out competition? Is that another way of saying that new entrepreneurs are winning market share from incumbents?

The court summarizes the allegations against RedTube:

Cammarata contends that Bright's unlawful activities consist of (1) allowing customers to view adult entertainment videos on its website below cost for the purpose of injuring Cammarata's business and destroying his competition in violation of Business and Professions Code section 17043; (2) unlawfully using its videos as "loss leaders" in violation of Business and Professions Code section 17044; and (3) engaging in "unlawful, unfair, or fraudulent business practices or acts" in violation of Business and Professions Code section 17200. The advertising defendants are allegedly aiding and abetting Bright in accomplishing the conduct described above.

The trial court granted the defendants' anti-SLAPP motion. The appellate court upholds that ruling. Unless something changes, Cammarata should be writing a check to the defendants for their troubles.

Frankly, I'm not sure about the application of anti-SLAPP laws here. The court's treatment of the "public interest" is pretty lax--basically, the statutory "public interest" here is that lots of people are generally interested in porn ("Cammarata and Bright agree that there is a substantial public interest in the kind of sexually explicit videos shown on tube-sites such as Redtube"--news flash of the day!). Nevertheless, I'm glad it results in a fee shift given the sheer craziness and anti-consumer sentiments of the lawsuit.

Cammarata argued that he was suing over RedTube's pricing decisions, not its publication of videos. The court rejects this argument:

We reject Cammarata's argument that his causes of action arise from Bright's predatory pricing, not its speech, because here the product being priced is speech, not dog food. All of Cammarata's causes of action arise from Bright's conduct of placing speech on the Internet where it can be viewed for free by the public. This is the "predatory pricing" that Cammarata complains of.

The court then turns to the merits of Cammarata's complaint about pricing. At its core, his argument is that giving away content for free, supported by advertisers, is illegal under California law. Obviously, no court was going to agree. Could you imagine? Sirius could sue all of the broadcast radio stations. HBO could sue broadcast TV stations. Subscription newspapers could sue free newspapers. That would be quite a result. The court politely mocks Cammarata's arguments:

If Bright's business model sounds familiar it's because it's the business model typical of broadcast radio and television stations in the United States not to mention thousands of local newspapers and, more recently, tens of thousands of Internet websites including Youtube, CNN and Video.Yahoo.

The court rejects the arguments, saying that it's not below-cost pricing to run an ad-supported business, and Cammarata can't show that RedTube was trying to destroy his business. The court concludes with a snarky "don't let the door hit you on the way out":

If Cammarata's subscription-based website lost revenue after Redtube and other tube-based websites came on the scene it was because the tube-based business model is more efficient, not because of alleged predatory pricing by Bright.

It's true that subscription services often can't compete with free services. But as this case shows, if your competition is giving content away for free when you hope to charge users to enjoy comparable content, you better come up with a new business model pronto because the courts won't bail you out.

A historical perspective: If you never saw it, I wrote on Internet content price setting back in 1997 under my old name: Eric Schlachter, The Intellectual Property Renaissance in Cyberspace: Why Copyright Law Could Be Unimportant on the Internet, Berkeley Technology Law Journal, 1997. In the paper, I talk about price setting when marginal costs of content reproduction and distribution are zero; I then explore some 1990s-era ways of cross-subsidizing content production and publication. As any economist will tell you, the market price will be MR = MC, which if MC = 0 means P = 0. It's interesting to see folks still trying to fight that basic law of economics.

Posted by Eric at 09:54 AM | Copyright , Internet History , Marketing | TrackBack

January 29, 2011

Class Action Brought by "Lonely and Vulnerable" Men Against Online Cupid Site Moves Forward -- Badella v. Deniro Mktg.

[Post by Venkat Balasubramani with some comments by Eric]

Badella v. Deniro Marketing LLC, 10-03908 CRB (N.D. Cal.; Jan 24, 2011)

This is a good one.

A group of plaintiffs brought a putative class action against an online dating website that they alleged contained predominately fake profiles. As Judge Breyer describes it in more colorful language:

This is a putative class action purportedly a vast, fraudulent scheme centered around an internet dating website that lures 'often lonely and vulnerable men' into joining . . . with the false promise that they are communicating with real women in their area who are interested in dating and/or intimate relationships.

Plaintiffs brought claims for fraud, RICO and California's anti-spam statute against multiple defendants. They alleged that they were "drawn" to the website fraudulently (e.g., via "spam, internet pop-up ads, or social networking scams"), induced to sign up for free, and then induced to upgrade to paid memberships.

Fraud: With respect to the fraud claim, defendants argued that the website terms of use undermined plaintiffs' reliance on any purported misstatements. The website terms stated:

This Service is for Amusement Purposes only.
You understand and accept that our site, while built in the form of a personals service, is an entertainment service. . . You are not guaranteed that you will find a date, a companion, or an activity partner, or that you will meet any of our members in person.
Online CupidTM Communications: You understand, acknowledge and agree that some of the user profiles posted on this site may be fictitious, and are associated with . . . our "Online CupidsTM", ("OC"). Our OC's work for the Site in an effort to stimulate conversation with users, in order to encourage further and broader participation in all of our Site's services, including the posting of additional information a.or pictures to the users' profiles.

Judge Breyer found that the terms did not undercut reliance for three reasons: (1) plaintiffs alleged that nearly all (as opposed to some) of the profiles are fictitious; (2) the fake profiles were not always labeled "OC," as promised; and (3) the plaintiffs alleged a "widespread and pervasive effort on Defendants' part to make the website appear to be a legitimate dating service." The disclaimer did not defeat reliance because defendants allegedly used a "wealth of information" to create a false impression, and the disclaimer was not as prominent as the information which created the false impression. In rejecting the claims, the court suggested what an appropriate disclaimer would look like, and contrasted this with the one from the website terms:

THIS WEBSITE USES FICTITIOUS PROFILES - READ THIS DISCLAIMER [or] THE MAJORITY OF PROFILES YOU SEE WILL NOT CORRESPOND TO ACTUAL WOMEN - READ THIS DISCLAIMER.

Disclaimers have achieved mixed results against claims of misleading website practices. (See, e.g., Vistaprint; Easysaver Rewards; Duffy v. The Ticketreserve, Inc.) I found the court's conclusion plausible, although a part of me said that an average person reading this disclaimer would conclude that they weren't visiting a typical dating website. Maybe the court figured - as many people do - that people rarely read or digest website terms?

Defendants also argued that the fraud claims were not pled with particularity. The court held that with respect to initially being drawn to the site, the plaintiffs failed to allege the particulars of how they were fraudulently drawn to the site. With respect to being persuaded to register and upgrade to paid memberships, the court held that these allegations were pled with particularity, since plaintiffs' allegations referenced specific messages sent by fake profiles which were not so labeled. Interestingly, plaintiffs alleged that in order to make the fake profile messages more compelling, defendants did not rely on "canned or automatic messages . . . [they employed] actual individuals who control hundreds of fictitious profiles." [Reasonable minds can disagree about the quality of the copy, but my feeling was that anyone who has ever moderated blog comments or been exposed to blog spam would be able to spot this as the same type of copy from a mile away.]

RICO: For the RICO claim, plaintiffs argued that defendants engaged in a conspiracy to commit wire fraud and access device fraud. The underlying fraud plaintiffs alleged was that defendants set up numerous entities to fraudulently obtain merchant accounts and then used these merchant accounts to process credit card payment for the websites in question.

The court does not give defendants' argument much credit here and declines to dismiss the RICO claims. I didn't check to see whether RICO claims have been successfully brought in the online context, but this seems like a way to attack a bunch of people in the chain of a transaction and drastically expand the scope of liability. A charge of conspiracy was successfully brought by the government in Kilbride, a criminal CAN-SPAM case. "Defendants Convicted in 1st Criminal CAN-SPAM Trial." There, among other things the government alleged that defendants used fictitious entities to register domain names. The court in Kilbride also relied on the use of privacy protection services to register the domain names. The RICO claims will have to be fleshed out and no one knows how they will fare, but plaintiffs' theory sounds pretty expansive.

Spam claims: Plaintiffs brought claims under California's spam statute. The court concludes that these claims are barred by the one year statute of limitations, thus avoiding the preemption question that has been plaguing California courts for some time, including in Reunion.com, another case where plaintiffs alleged they were induced to sign up (and upgrade) using unsolicited messages and allegedly bogus "friend messages." ("Reunion.com Revisited Again: Claims Under CA Spam Law Not Preempted by CAN-SPAM -- Hoang v. Reunion.com.") Interestingly, an appeals court in California recently held that under the California statute claims for actual damages must be brought within three years of the receipt of the emails, while claims for statutory damages can only be brought one year within the receipt of the emails. The court's opinion here does not contain a discussion of whether plaintiffs sought actual or statutory damages, but if they sought actual damages, the dismissal does not jibe with the recent appeals court ruling in Hypertouch. ("CA Appeals Court: Claims Under State Spam Statute Not Preempted by CAN-SPAM - Hypertouch v. Valueclick.")
___

It's hard to not be judgmental about this suit. People - specifically "lonely and vulnerable men" - sign up for these random "dating" websites and then complain because a greater than anticipated number of the profiles are fake (??). I can just picture one of the plaintiffs saying: "I'm playing the odds by going on this site. I don't know what the odds are (no one does), but they were different from what you promised!" It's also hard to fault the court for deferring the underlying issue of whether the users were misled to the factfinder, but unless the plaintiffs are chosen carefully, they are not going to have an easy time credibly explaining how they were misled. In the meantime, we can take comfort that the interests of lonely and vulnerable men trolling internet dating sites for dates can be protected.
___

Comments by Eric: It's interesting how Venkat concludes his post, because in fact I have zero sympathy for the website (treating the allegations as true, as the court was required to do on this motion to dismiss). I'm trying to imagine a world where customers would pay substantial fees to a "dating" site where much/most of the interaction was with automated scripts. (I also couldn't get Austin Power's "fembots" out of my mind reading this case). The silly disclaimers--that the site was for "amusement" and that paying customers should expect automated interactions--clearly weren't likely to be read by anyone who actually paid money to the site. So it seems axiomatic to me that the only people who paid should have been the people who didn't get the message.

Thus, this seems like one of those cases where the fine print ("we're just going to send you canned messages if you pay us a lot of money") is designed to completely contradict the big print ("we're a dating site"). You can't do that.

This case brought to mind the old Anthony v. Yahoo case, where Yahoo allegedly retained profiles of expired/terminated members so that it looked like it had a bigger dating pool. (Yahoo ultimately settled for up to $4M). We talk about how it can be a jungle out there for single people, but oh man, at least their dating services shouldn't be lying to them. Clearly, before you starting "dating" your dating site, you need to diligence it too.
___

Related (coverage of a recently filed class action against Match.com over an alleged excessive number of inactive or fake profiles):

"Lawsuit Claims More Than Half Of Match.com Profiles Are Inactive Or Fake" (Joe Mullin)
"Love’s Labour’s Lost in Cyberspace" (Danielle Citron/Concurring Opinions)

Posted by Venkat at 08:30 AM | Content Regulation , E-Commerce , Marketing , Spam

January 20, 2011

CA Appeals Court: Claims Under State Spam Statute Not Preempted by CAN-SPAM - Hypertouch v. Valueclick

[Post by Venkat Balasubramani with some comments from Eric]

Hypertouch, Inc. v. Valueclick, Inc., et al., B218603 (Cal. Ct. App.; Jan. 18, 2011)

A California appeals court weighed in on a long-running debate: whether CAN-SPAM preempts California's spam statute. This is a significant decision that covers a lot of ground (I think it mentions just about every major spam case), and it is sure to be appealed.

Background: Two of the seminal anti-anti-spam cases were Mummagraphics and Virtumundo. Mummagraphics said that CAN-SPAM is intended to cover material misstatements in emails and preempted contrary state laws (to the extent they imposed liability for immaterial misstatements). Virtumundo said that only legitimate ISPs that have suffered actual harm can sue under CAN-SPAM. In Virtumundo, the Ninth Circuit also rejected the plaintiff's claims under Washington's email statute. The plaintiff in Virtumundo was pushing the envelope, and it was unclear as to whether the Ninth Circuit's rejection of his state law claims was restricted to the plaintiff's fanciful claims which clearly stretched the scope of Washington's spam statute to the breaking point. Mummagraphics and Virtumundo were from the Fourth and Ninth Circuit respectively, and they left open the question of how other state spam statutes would fare, including California's, which is one of the most expansive (and important). Lower federal courts courts struggled with applying Virtumundo and Mummagraphics to the preemption question in California, and decisions were all over the place. Some courts held that CAN-SPAM's savings clause only saves state statutes that sound in traditional fraud, and since California's spam statute didn't require proof of reliance and damages, it did not fall into this category and was preempted. (Here's my April 2010 post on Hoang v. Reunion.com, a case that struggled with the preemption question: "Reunion.com Revisited Again: Claims Under CA Spam Law Not Preempted by CAN-SPAM -- Hoang v. Reunion.com.")

Factual Background: Hypertouch brought claims against Valueclick, various Valueclick subsidiaries, and PrimaryAds for violating section 17529.5 (California's spam statute). As the court describes it, Hypertouch is a small provider of email service to about 100 customers. Valueclick provides online marketing services to:

third-party advertisers who promote retail products. . . . Valueclick contracts with these third-party advertisers to place promotional offers on websites that are owned and operated by various Valueclick entities. Consumers, in turn, can visit Valueclick's websites and earn rewards in exchange for participating in the advertised promotional offers.

Valueclick contracts affiliates who "drive traffic" through methods chosen by the affiliates in their discretion. Valueclick provides the affiliates the creatives for a promotion, and the affiliates promote as they see fit (in many cases hiring sub-affiliates to effect the promotions). Valueclick alleged that it had no "knowledge of, or control over, the email delivery methods or header information used by [affiliates] or their sub-affiliates." [This is a risky admission!] PrimaryAds looks like it's similar to Valueclick - PrimaryAds operates a website which contains third party offers. PrimaryAds contracts with affiliates who download materials from PrimaryAds' website, engage in promotions (which are tracked by PrimaryAds). PrimaryAds requires its affiliates to sign agreements stating that the affiliates will comply with all laws, including anti-spam laws, in carrying out their promotion activities. PrimaryAds also alleged that it had "no control over the email delivery methods used by affiliates."

Hypertouch argued that Valueclick and PrimaryAds were advertised via emails that violated California spam statute in three ways: (1) the emails contained deceptive header information (because the from and to fields did not accurately reflect the sender or recipient); (2) the subject lines were likely to mislead recipients into thinking they would receive free stuff; and (3) the emails used third party domain names without the third party's permission. The trial court granted defendants' motion for summary judgment. The trial court held that defendants could only be held liable for emails they sent or caused to be sent (which cut out a chunk of the emails in question). The trial court also found that CAN-SPAM preempted state spam statutes which regulated misleading emails, unless the statutes covered "common law fraud or deceit." Since the claims did not cover the elements of common law fraud, they were preempted. Significantly, the court awarded defendants $100,000 in costs.

The appeals court's decision: The court reversed and ruled for Hypertouch, with an order that dramatically expands the reach of potential liability for products or companies that are advertised via email (regardless of whether they send the email). It's a blockbuster ruling for the anti-spam community.

Preemption: CAN-SPAM's preemption provision states that it preempts state statutes that regulate the use of commercial email "except to the extent that any such statute prohibits falsity or deception in any portion of a commercial email." The court acknowledges that CAN-SPAM's preemption was intended to accomplish a uniform standard for email regulation (to avoid requiring compliance with a "patchwork" of laws). The court also cites to a Senate Report that says that states laws prohibiting things like "fraudulent or deceptive headers, subject lines, or content" should not be preempted "because they target behavior that a legitimate business trying to comply with relevant laws would not be engaging in anyway."

The court disagrees with the trial court's conclusion on preemption and provides two main reasons, along with a lengthy discussion (and canvassing of the case law): (1) the language of the preemption clause does not support a finding of preemption; (2) allowing state law claims that reach misleading but not fraudulent emails would not undermine a national standard.

Hypertouch's claims survive summary judgment: Defendants argued that Hypertouch failed to put forth evidence that defendants either sent the emails or "knew" they were being sent by an affiliate in a misleading manner. The court responds that:

the plain text of 17529.5 indicates that its application is not limited to entities that 'send' the offending emails nor does it require plaintiff to establish that defendant had knowledge of such emails. Rather, the statute imposes liability on any 'person or entity' that 'advertises' in an email containing any of the forms of deceptive content described in section 17529.5 [(a)(1)-(3)].

Do the emails Violate the Statute?: Although plaintiffs asserted that the emails at issue violated three different prongs of section 17529.5, the court doesn't discuss the other two prongs, and merely focuses on the subject line prong. Section (a)(3) is the no misleading subject line prong, and the court finds that the following representative subject lines potentially violate the statute:

Get a FREE Golf Retreat to 1 of 10 destinations;

Let us know your opinion and win a free gift card;

Do you think Hillary will win? Participate now for a Visa card

In support of its summary judgment burden, Hypertouch put forth the testimony of its president (?) who says that he clicked on links in these emails and found out that in order to receive anything for free, you had to purchase something. As the court phrases it, the statute requires the subject line to mislead a recipient about a "material fact," and

if a subject line "creates the impression that the content of the email will allow the recipient to obtain a free gift by doing one act (such as opening the email or participating in a simple survey) and the content of the email reveal [sic] that the 'gift' can only be obtained by undertaking more onerous tasks . . . the subject line is misleading about the contents of the email.

1 year statute of limitations on liquidated damages claims: The California statute allows for statutory damages or actual damages. If the statutory damages are considered a penalty, then they are subject to a one year statute of limitations under California law. Hypertouch argued that statutory damages should not be subject to the one year time-bar because they are discretionary, but the court disagrees, holding that although the court has discretion with respect to the amount of damages it awards, it must award some amount of damages. Therefore, the court concludes that Hypertouch may seek actual damages for emails within three years of their receipt, but may only seek statutory damages for emails within one year of their receipt.

___

This is a big ruling on several levels.

The big practical effect is that it provides an avenue for California spam plaintiffs to seek relief under the California statute. Previous spam cases have backfired on spam plaintiffs due to over-reaching, but I wonder if the preemption argument backfired on defendants due to their over-reaching. Arguing that the preemption clause only saved claims which sounded in actual fraud was a stretch, and both Ethan and I expressed discomfort with rulings that embraced this standard. The court almost has an easy argument to knock down, and it happened to be an aggressive interpretation of the preemption clause that defendants were responsible for pushing.

The even bigger effect of this ruling is the fact that persons or entities who do not themselves send email but who are advertised in non-compliant email can now be held liable, without a showing that they knew or should have known that they were being promoted via non-compliant spam. This is going to throw a big monkey wrench in affiliate programs. Previous cases dealing with affiliate liability in the CAN-SPAM context required plaintiffs to show some sort of knowledge or facts sufficient to impute knowledge. ("Affiliate Spam Liability is Fact Question--US v. Cyberheat"; "Affiliate Liability Extravaganza".) .

In fact, the court expressly embraces a strict liability standard for affiliate liability. This is going to lead to some wacky results - for example, think of the case where a company located outside California is being promoted via email but does not know that its affiliates are emailing to California residents (the affiliates themselves may not know). All of a sudden, they find themselves subject to liability in California for violations of the California spam statute? (Does this present a section 230 issue, since neither of the defendants created the copy which allegedly violated the statute?)

The court's assessment of the substantive violations of the statute is cursory. The court tackles the subject line violations but where's the court's assessment of the violations of subsections (a)(1) (the domain name prong) and (a)(2) (misleading or forged header information prong). Setting aside the fact that the court's interpretation of the subject line prong is charitable (and aimed at protecting people who take on face value a claim via email that the recipient is getting something for free), there's no discussion from the court on how the emails violate the prong which prohibits the use of third party domain names without permission. The court similarly doesn't deal with the misleading header information prong, but Hypertouch's claims sound similar to the claims the Ninth Circuit rejected in virtumundo ("there is . . . nothing inherently deceptive in Virtumundo's use of fanciful domain names").

Interestingly, the California Supreme Court weighed on its spam statute just once. In a ruling last year in (Kleffman v. Vonage) the court held that use of random and multiple domain names even if they were intended to bypass spam filters does not violate California spam statute. ("Use of Multiple (Even Random or Garbled) Domain Names to Bypass Spam Filter Does not Violate Cal. Spam Statute -- Kleffman v. Vonage.")

Additional coverage: "C.A. Revives Action Charging Advertiser Under Anti-Spam Law" (Metropolitan News-Enterprise)
______

Comments by Eric:

This is an incredibly noteworthy opinion for several reasons.

First, published opinions on Internet law from California appeals courts are becoming rarer than a hen's tooth, so this is likely to be one of the few citable opinions by a California state court on spam issues for the foreseeable future (unless the Supreme Court takes it on appeal). As a practical matter, then, this opinion not only sets California law, but all federal courts interpreting federal law will also have to acknowledge this opinion. I anticipate this will be a heavily cited opinion in the future.

Second, the court's imposition of strict liability for advertisers promoted by spam is breathtaking. The court says "imposing strict liability on the advertisers who benefit from (and are the ultimate cause of) deceptive e-mails, forces those entities to take a more active role in supervising the complex web of affiliates who are promoting their products." Well, that's true in theory, but it's completely divorced from reality. Because of strict liability, even advertisers who undertake substantial efforts to police their affiliate network ARE STILL LIABLE FOR ANY PROBLEMS CREATED BY AFFILIATES. Maybe the court got confused about what it meant to impose STRICT LIABILITY. In reality, many advertisers won't rely on affiliates at all if they are strictly liable for what they do. I bet this court would view that as a perfectly fine outcome, but the it's disingenuous to say that strict liability will ratchet up the policing effort. A negligence standard might have done that; strict liability squashes the endeavor altogether.

For that reason, the strict liability standard for advertisers is the #1 thing (of a pretty long list) that needs to get fixed on appeal.

Venkat raised the issue of 47 USC 230's role here. I haven't had a chance to see if the issue was raised by the litigants, but my initial instinct is that an advertiser's 230 defense for ad copy written by a third party sounds pretty meritorious.

Overall, rulings like this reinforce to me how desperately we need to get states out of the business of trying to regulate the Internet. First, Congress built a structure to hold advertisers should be liable for spam violations in CAN-SPAM (a narrow liability scope, although I question the wisdom of even that). If California can impose a supplemental and much more expansive advertiser liability doctrine, Congress clearly did a crummy job with its preemption clause (so what else is new?). Second, this liability rule, if it sticks, is terrible policy destined to generate lots more of wasteful profit-seeking litigation. Third, it's unclear how California's policy would affect interstate advertising campaigns--a question we shouldn't even have to ask when dealing with Internet activities. We really, desperately, need to rethink our governance scheme that puts states in the business of regulating the Internet. IT DOESN'T WORK, and we lose a lot in the process.

Finally, a gossipy note. This is an unusual spam opinion in that it had big firm lawyers on both sides (Steptoe on the plaintiff side; Gibson Dunn on Valueclick's defense). I wonder if the court's decision to write a lengthy, detailed, footnoted and published opinion is the result of that.

Posted by Venkat at 05:22 PM | Derivative Liability , E-Commerce , Marketing , Spam

January 13, 2011

Keyword Advertiser Headed to Trial--Soaring Helmet v. Nanal

By Eric Goldman

Soaring Helmet Corp. v. Nanal, Inc., 2011 WL 39058 (W.D. Wash. Jan. 3, 2011)

I previously blogged on this case in 2009 when Soaring Helmet sued Google for selling keyword advertising triggered on its trademark. Soaring Helmet quickly dropped Google from the suit but continued against the keyword advertiser.

Soaring Helmet makes...(wait for it)...motorcycle helmets and related motorcycle riding gear. The registered trademarks at issue here involve "VEGA" for motorcycle helmets and protective clothing. The case goes on and on about how Soaring Helmet doesn't deal with Internet-only retailers because its brick-and-mortar retailers hate the price competition (reinforced by Soaring Helmet's resale price maintenance). The implicit anti-consumer/anti-competitive nature of Soaring Helmet's distribution system should have been a huge strike against it, but the opinion seems rather unconcerned with it.

The defendant runs Leatherup.com, an Internet-only retailer of motorcycle gear. The court recaps the allegations about the defendant's activity:

On or about September 1, 2008, Nanal bought the keywords "vega helmets" through Google AdWords. Albert Bootesaz, president of Nanal, testified that the keywords were suggested by Google after he entered "helmets" as a search term. At the time that he bought the keywords "vega helmets" he thought that it referred to a solar system or a star. Nanal ceased using the keywords "vega helmets" in April 2009 after receiving a cease and desist letter from Soaring Helmet's counsel. Nanal also took the additional step of incorporating a negative instruction to Nanal's Google AdWords campaign so that LeatherUp.com's advertisements do not appear when the word "Vega" is searched. Mr. Bootesaz also testified that the word "Vega" has never been used on the LeatherUp.com website and he has never directed that the word be incorporated into the website in any manner.

Contrary to Mr. Bootesaz representation, Ms. Demund provides evidence showing that the LeatherUp.com website advertised the "XElement Vega Leather Jacket," which was neither manufactured nor licensed by Soaring Helmet. As of November 22, 2010, Ms. Demund testified that the XElement Vega Leather Jacket was still being offered for sale on eBay.com and Cobragear.com. [citations omitted]

Because of the latter allegations, the court handles the discussion glibly. For example, on the trademark infringement claim, the court's discussion is unclear whether the defendant referenced "Vega" in the ad copy or only as a keyword trigger. If the defendant only used Vega as an ad trigger, then perhaps the court could have resolved this on summary judgment (in the defendant's favor, natch).

The false advertising discussion is more troubling. The court says "Nanal's president admitted both that he used "vega helmets" as an Adword through Google and that his company was not authorized to, nor did it, sell vega helmets....The falsity of Nanal's advertisement creates a presumption of deception and reliance." Wait a minute, did I miss something there? How is having an ad triggered by the Vega keyword make a false statement? Depending on the ad copy, for example, there could be an express comparative advertisement; but even if the defendant's ad just merely referenced its own goods, there's no reason to assume that the "Vega" keyword is incorporated into the advertiser's statement. At minimum, the court did a lousy job articulating how it derived a false statement here. Compare Jurin v. Google and Heartbrand Beef v. Lobel's discussing the search engines' (lack of) liability for false designation of origin.

As a result, the court sends this case to trial on the trademark infringement, false advertising and other claims.

[Note: I still have to blog the 1-800 Contacts v. Lens.com decision from last month]

Posted by Eric at 07:20 AM | Marketing , Search Engines , Trademark | TrackBack

January 10, 2011

Iconic TV Commercials

By Eric Goldman

I'm teaching Advertising & Marketing Law this semester, and I thought it might be helpful to start the semester by showing some TV ads. Remember that many of my students were born after the golden age of TV ads (i.e., a 23 year old 2L was born in, gulp, 1988), so they may have never seen some of the iconic ads of the 1970s and 80s.

Making a relatively short list of iconic ads, however, isn't easy. First, there are big generational gaps in what people consider iconic. My list tends to emphasize ads mid-1970s to 1990, but that reflects my Gen X bias. Second, there are so many good and funny ads, but I was looking for ads that somehow transcended into pop culture.

My Choice for Iconic Ads

With that in mind, I came up with this short list of individual ads that I'll show in class to illustrate iconic ads:

* Life Cereal, Mikey. Iconic dialogue. What ever happened to Mikey? Wikipedia has some clues.
* Oscar Mayer, Boy Fishing on a Pier. My iconic TV ad has a first name, it's "C-U-T-E," my iconic TV ad has a second name, it's "K-I-D."
* Wendy's, Where's the Beef? So iconic, Mondale invoked the phrase in the Democratic primaries against his rival, Gary Hart.
* Coca-Cola, Mean Joe Greene. After Mean Joe polishes off an entire bottle of Coke in one long drink without belching, he gives a kid his used sweaty uniform. Gee, thanks. Wikipedia has interesting factoids on how "Mean Joe" got his nickname as well as the burps that ended up on the cutting room floor.
* Coca-Cola, Beautiful Young Adults Singing on a Hilltop. My personal choice for the most iconic TV ad of all time. This ad is permanently seared into my brain.

Other iconic ads that just missed my cut:

* "This is your brain on drugs." One of the most effective 10 second commercials ever.
* FedEx, Fast Talker. This ad was so effective at defining FedEx's brand.
* Maxwell, The Usual? It's hard to watch this commercial now and not think of Apocalypse Now.
* Hebrew National, Higher Authority. Does the FTC have to answer to a higher authority?
* Grey Poupon, Pardon Me? Could it be any more blatant than when the two Rolls-Royces pull up next to each other?
* Budweiser, Wassup? This one still works really well, even today.

The recent Old Spice campaign is a modern classic. I was riveted to the computer during the few days The Old Spice Man dynamically interacted with the world via YouTube and Twitter. Don't forget the funny Sesame Street parody.

Although it's not iconic, I'll show an Epinions TV ad as a first-hand example of a legal task I encountered as in-house counsel in my first week on the job. As in, "so glad you've joined the company, we're doing a multi-million dollar ad campaign that raises novel legal issues...can you bless these ASAP please?" I think I'll do the minute-long "Alta" commercial, although the "IMac" commercial is pretty good too.

Iconic Campaigns

Examples of the many iconic ad campaigns:

* The Nestea Plunge.
* California Milk has two that make my list: Got Milk? and Happy Cows Come from California
* Budweiser Clydesdales
* Life Alert, "I've fallen and I can't get up!" In the same genre: the Clapper ("Clap On! Clap Off! The Clapper!!")
* Joe Isuzu. I wonder if you could make these obviously lying commercials today. Modern plaintiffs tend to be very literal.
* Energizer Bunny. I always liked that little furry dude! He keeps going and going...
* Bartles & Jaymes. A true measurement of the ad campaign's effectiveness: wine coolers were considered a drink of choice in the 1980s. It makes my stomach churn just thinking about it.
* California Raisins, Heard It Through the Grapevine
* Nike, Bo Knows
* Miller Lite, Tastes Great/Less Filling
* Mr. Whipple/Don't Squeeze the Charmin
* The Maytag Repairman
* Madge, the Palmolive lady
* Reese's Peanut Butter Cups: "You got your chocolate in my peanut butter....You got your peanut butter in my chocolate." "Two great tastes that taste great together...Reese's Peanut Butter Cups." This semester I used the example of Reese's Peanut Butter Cups when discussing non-obviousness in my IP course, i.e., after eating a cup, it's obvious that peanuts and chocolate are a great combination, but the combination may not be obvious beforehand. I learned many of my International students had never heard of Reese's Peanut Butter Cups, so I brought in a few bags for the class. I bet my International students will remember Reese's Peanut Butter Cups much longer than they will remember any doctrinal material I covered in class.

I'd be remiss if I didn't mention the Slinky commercials (e.g., this one).

Other Ads That Were Fun to Revisit

* Pepsi, Britney Spears. After everything that's transpired in the last decade, it's hard to imagine Britney Spears was once a hugely popular but barely-legal sexpot who could sell a lot of soda. Plus, Bob Dole shows his funny side, and Pepsi takes a gratuitous dig at Coke.
* Budweiser Frogs. The commercial consists of only three words, presented very effectively: Bud. Weis. Er.
* McDonald's, Nothing But Net. Basketball superstars Jordan v. Bird in a fantasy game of horse, with the prize being fast food that no serious athlete should ever eat.
* Pets.com. Two of my favorites: Deliveries and Dog Park ("I love stuffed things!"). Too bad the company was doomed from the start. My wife and I both loved the sock puppet dog--we even purchased a stuffed version.
* American Tourister, Ape in the Zoo. They don't make 'em like this any more--either commercials or luggage (or zoos, for that matter).
* Keep America Beautiful, Crying Native American. I don't think you can make an ad like this any more.

Not on my iconic list: Apple's "1984" Mac Super Bowl commercial. I admit the commercial is legendary for its production expense, its director (Ridley Scott), its airing only once and its featured product (which really did revolutionize computing--a rare time when the product delivered on its advertising hype). However, the commercial makes zero sense, and I don't think it has aged well.

Student-Referred Ads

A student sent me this really nice campaign (that I'd not seen before) by Jamba Juice for its "Cheeseburger Chill Smoothie" spoof. See the YouTube ad and then the website. It turns out that my IP final exam from last semester unintentionally bore a resemblance to this ad.

Another student sent me this Dylan-themed ad for Google Instant that I hadn't seen before. Good ad. Imagine the rights clearances involved with that ad!

UPDATE: Advertising Age's list of the Top 10 ad icons of the 20th century and Top 100 Advertising Campaigns

Posted by Eric at 09:52 AM | Marketing | TrackBack

January 02, 2011

Nov.-Dec. 2010 Quick Links, Part 5

By Eric Goldman

Taxes

* Amazon.com, LLC v New York State Dept. of Taxation & Fin., 2010 NY Slip Op 07823 (N.Y. App. Div. Nov. 4, 2010). A NY appellate court rejected Overstock's/Amazon's facial challenges to "affiliates tax" but revived the as-applied challenge. The court distinguishes between "solicitation" of business for Amazon (collection obligation imposed) and passive advertising for Amazon (no collection obligation), but doesn't clearly explain why Amazon affiliates are engaged in solicitation and not passive advertising. Among other things, the court says [I reordered quotes]:

An advertisement in a newspaper is clearly not solicitation, as it is geared to the public at large. Likewise, the maintenance of a Web site which the visitor must reach on his or her own initiative is not, under the statute, or the advisory opinions, a solicitation. On the other hand, the targeting of a potential customer by the transmission of an e-mail is no different from a direct telephone call or a mailing to a customer. Both constitute active initiatives by a party seeking to generate business by pursuing a sale...When a representative can only receive compensation for an actual sale, it is much more likely that the representative will actually solicit, rather than passively maintain a Web site.....Nevertheless, we remand for further discovery so that plaintiffs can make their record that all their in-state representatives do is advertise on New York-based Web sites.

Although I think the court's analysis is wrong, it is not fatal to affiliate programs. For example, it seems like Amazon could fix its program by (1) prohibiting email marketing by affiliates, or (2) moving to a CPC model for affiliates.

* Colorado FYI Sales 79:

"If such retailers have total annual gross sales in Colorado of $100,000 or more, such retailers must: Provide notice with each purchase (the “transactional notice”). The transactional notice must:
• State that the retailer does not collect Colorado sales or use tax.
• State that the purchase is not exempt from Colorado sales or use tax merely because it is made over the Internet
or by other remote means.
• State that State of Colorado requires Colorado purchasers to file a sales or use tax return at the end of the year
for all taxable Colorado purchases that were not taxed, and pay tax on those purchases
• The notice must be easily seen and located near the total price.”

Miscellaneous

* Ars Technica on the Comcast/Level 3 spat. Is it a Net Neutrality red flag or a garden-variety peering disputes?

* Putting an end to one of the most over-hyped stories of the year, Craigslist shut down its adult services category globally.

In an unrelated development, Craigslist got a $6M+ judgment against ezadsuite.com, which "developed, advertised, and sold software programs to automate posting ads on Craigslist’s website and utilized other automated devices and related services meant to circumvent Craigslist’s security measures." This is one of those doctrinally troubling rulings that I choose to ignore because it's a default judgment. See the magistrate report and the judge's adoption.

* Latest NYT article hand-wringing about cyberbullying. WaPo has a myth-busting article on bullying.

* Specht v. Google, 2010 WL 5288154 (N.D. Ill. Dec. 17, 2010). Google wins a trademark battle over the term "Android." Some interesting parts:
- "on its own, the use of a domain name or e-mail address to identify an Internet host computer does not constitute a bona fide use in commerce. The use of a website address containing a trademark is not the same as use of the mark."
- "The androiddata.com website served as a remnant of a closed business. A "ghost site" such as this is not a bona fide use in commerce that can prevent the abandonment of a mark. The cost is small to maintain a domain name registration and host a several-page promotional website without e-commerce functionality, such as that which Plaintiffs contend existed at androiddata.com....Allowing a mark owner to preserve trademark rights by posting the mark on a functional yet almost purposeless website, at such a nominal expense, is the type of token and residual use of a mark that the Lanham Act does not consider a bona fide use in commerce."

* Oklahoma HB 2800: Executors can take over web accounts of the deceased.

* In theory ending another one of the year's most overhyped stories, the Borings got $1 for their trespass claim against Google. Previous blog coverage (1, 2, 3).

* Reuters: “A Reuters Legal analysis found that jurors' forays on the Internet have resulted in dozens of mistrials, appeals and overturned verdicts in the last two years.” Previous blog coverage.

* The Starwood v. Hilton Hotels corporate espionage lawsuit has settled. I tested this dispute on my IP course last year (see the exam and sample answer).

* California State Bar Standing Committee on Professional Responsibility and Conduct Opinion No. 2010-179:

Whether an attorney violates his or her duties of confidentiality and competence when using technology to transmit or store confidential client information will depend on the particular technology being used and the circumstances surrounding such use. Before using a particular technology in the course of representing a client, an attorney must take appropriate steps to evaluate: 1) the level of security attendant to the use of that technology, including whether reasonable precautions may be taken when using the technology to increase the level of security; 2) the legal ramifications to a third party who intercepts, accesses or exceeds authorized use of the electronic information; 3) the degree of sensitivity of the information; 4) the possible impact on the client of an inadvertent disclosure of privileged or confidential information or work product; 5) the urgency of the situation; and 6) the client’s instructions and circumstances, such as access by others to the client’s devices and communications.

* Another ill-conceived California law: large companies have to disclose on their websites their efforts to reduce slavery and human trafficking in their supply chains. Are you kidding me???

* Fun with Google Books Ngram viewer: cyberlaw vs. other terms; but different results when the terms are capitalized.

* Inside Higher Ed: "professors ‘caught on tape’ is a growing genre, and some think it could have a chilling effect on academe."

* HuffPost: You're Out: 20 Things That Became Obsolete This Decade.

* Tell your favorite male bloggers (besides Venkat and me, of course) how you really feel about their strengths.

Posted by Eric at 07:54 AM | E-Commerce , Marketing , Privacy/Security , Trade Secrets | TrackBack

December 30, 2010

Google Files Unredacted Brief in Rosetta Stone v. Google Appeal

By Eric Goldman

After some prodding by Paul Levy of Public Citizen, Google has filed an unredacted version of its response brief in the Rosetta Stone v. Google appeal. As Paul explains in his blog post, the newly disclosed information is nowhere close to confidential. Some of the new information:

* page 9: Google advertising performs well for Rosetta Stone. Between 2007-10, it made $27M from Google referrals (organic and paid) and got 330k+ orders from Google ads.
* page 10: Google helped Rosetta Stone catch fraudsters
* page 33: Rosetta Stone customers take 2-4 weeks to make a purchasing decision
* page 56: in 2005, Rosetta Stone's unaided consumer recognition was 2% and aided recognition was 13%

Some of these facts may be mildly embarrassing to Rosetta Stone, but way more embarrassing is that anyone thought this information was actually confidential.

In a partially related development, Marty Schwimmer and I are working with Public Citizen to request unsealing of the entire joint appendix in this appeal. Paul Levy blogged an explanation.

UPDATE: Oral arguments in the case are scheduled for the week of March 22.

The case library:

* Public Citizen's motion (with Marty Schwimmer and me) to intervene and request to unseal the joint appendix.
* Rosetta Stone reply brief.
* Public Citizen amicus brief in support of Google.
* Public Knowledge/EFF amicus brief in support of Google.
* eBay/Yahoo amicus brief in support of Google.
* Google's opening response brief: redacted and unredacted (warning: 60MB file).
* UK Intellectual Property Law Society amicus brief in support of neither party.
* Rosetta Stone's opening appellate brief: redacted and unredacted.
* INTA's amicus brief in support of Rosetta Stone.
* Carfax et al amicus brief in support of Rosetta Stone.
* Association for Competitive Technology et al amicus brief in support of Rosetta Stone.
* ConvaTec et al amicus brief in support of Rosetta Stone.
* Volunteers of America amicus brief in support of Rosetta Stone.
* District court's main opinion granting SJ. My blog post.
* District court's opinion granting a motion to dismiss on the unjust enrichment claim.
* Rosetta Stone's initial complaint. My blog post.

Posted by Eric at 07:49 AM | Derivative Liability , Marketing , Search Engines , Trademark | TrackBack

December 27, 2010

Nov.-Dec. 2010 Quick Links, Part 1 (Trademarks and Advertising Edition)

By Eric Goldman

I have a big backlog of Quick Links from the last 2 months. I'll post them over the next few days. I also have a backlog of other blog posts I need to write, especially my reassessment of my prediction of Wikipedia's demise. I'll get to those posts after I finish grading final exams.

An administrative note: This blog was named to the ABA Blawg 100 for the second year in a row, although oddly in the Legal Tech category. Many thanks for your continued readership. Feel free to vote in the popularity contest if you’d like. I voted for Techdirt and Not-So-Private Parts in their respective categories.

Trademark

* Tiffany (NJ) Inc. v. eBay Inc, 2010 WL 3416635 (U.S. Nov 29, 2010). The Supreme Court denied cert in this long-running case. My prior blog post.

* FreecycleSunnyvale v. The Freecycle Network (9th Cir. Nov. 24, 2010). A rare ruling saying that a trademark owner (The Freecycle Network) abandoned its TMs due to naked licensing. If you have a logo license program, this is a good reminder to make sure you have both quality control provisions in the license agreement and actually exercise quality control. For more on naked licensing, see this article by my former colleague Irene Calboli.

* NYT on an auction of 170 “retro” trademarks revived just for auction purposes. About 2 dozen trademarks were sold for a total gross of $132k. Marty keeps it real about the auction’s validity.

* A fight over the name "Ernie's Liquor" in Palo Alto.

* K.S.R. X-Ray Supplies, Inc. v. Southeastern X-Ray, Inc., 2010 WL 4317026 (S.D. Fla. Oct. 25, 2010). ACPA violation and $10k award when a competitor registers a slight variation of its competitor's trademark as a domain name.

* Rebecca on a bizarre trademark battle over vehicle license plate designs.