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Technology & Marketing Law Blog

May 20, 2013

Suing Over Keyword Advertising Is A Bad Business Decision For Trademark Owners--General Steel v. Chumley (Forbes Cross-Post)

By Eric Goldman

General Steel Domestic Sales, LLC v. Chumley, 2013 WL 1900562 (D. Colo. May 7, 2013)

Trademark owners rarely win keyword advertising lawsuits in court. Reinforcing this conclusion, another trademark owner lost a trial over competitive keyword advertising despite a number of key facts in its favor. Given how often trademark owners lose keyword advertising lawsuits, why do they keep wasting their time and money?

The Lawsuit

General Steel Corporation and Armstrong Steel Corporation compete in the "prefabricated steel building business." Chumley, a former employee of General Steel, launched Armstrong Steel and ran Google ($GOOG) AdWords ads on the keyword "General Steel" with ad copy such as:

General Steel Buildings www.ArmstrongSteelBuildings.com Price Your Building Online Or Let Us Do It. Guaranteed Lowest Prices!

and

General Steel Buildings Price an Armstrong Steel Building Online in Minutes Or Let Us Do It. www.ArmstrongSteelBuildings.com.

(As usual, the court doesn't discuss whether Armstrong Steel broad-matched the word "steel").

Eventually, Armstrong Steel made its ad campaign more clearly comparative, buying the keyword “General steel buildings” to display ad copy such as:

Don’t Buy General Steel Without Pricing Armstrong First. Price a Steel Building in Minutes! www.ArmstrongSteelBuildings.com

In addition to the keyword advertising campaign, Chumley (or an employee of his) issued press releases that contained false claims and were attributed to a fictitious employee, and the defendant's website made additional false claims. Chumley further falsely published Internet postings in the name of General Steel's CEO. Rebecca Tushnet discusses the false advertising angles of the case.

General Steel sued Armstrong Steel and Chumley for false advertising and trademark infringement. After a bench trial, the judge ruled for General Steel on the false advertising claims and for the defendants on the trademark claims.

Regarding keyword advertising, General Steel's trademark claims failed because it couldn't show actionable consumer confusion. The court says it "suspects" that some searchers clicked on Armstrong Steel's ads believing it would take them to General Steel's website. However, that wasn't enough to win the case (especially after a key Ninth Circuit 2011 ruling on keyword advertising) because "[o]ther than its suspicions, plaintiff offered no evidence at trial of actual confusion," and because steel buildings are complex purchases that buyers will research carefully. The court concludes:

While Armstrong was using the term to refer to plaintiff’s company, the Court does not find the record supports the finding that such use was likely to cause confusion among consumers in light of all of the surrounding information that identified Armstrong Steel as the source of the website and distinguished Armstrong Steel from General Steel.

The court also rejects a common argument by trademark owners that "potential customers entering the term 'general steel' into a search engine are searching exclusively for that company, as opposed to executing a broader search for all companies selling similar products." (See the uncited study by Franklyn and Hyman supporting this analysis). The court instead says "the connection between the search term entered and the appearance of an advertisement is too attenuated to suggest an actual affiliation between the two."

Implications

This is really a devastating loss for the plaintiff--and for trademark owners generally. On its face, this case looked like a sure win for the trademark owner. After all, the ad copy referenced the trademark in a non-comparative way--usually thought to be a "no-no"--plus the advertiser engaged in false advertising elsewhere. If a trademark owner can't win a case with those attributes, when can it win a competitive keyword advertising case?

As it turns out, the answer is "rarely." Though not a lot of cases have reached the final merits of trademark claims over keyword advertising, the rulings (summarized below) demonstrate why trademark owners should think carefully before suing over competitive keyword advertising:

* plaintiff got injunction: CJ Products v. Snuggly Plushez (2011); InternetShops v. Six C (2011) (note: defendant admitted trademark liability, so the opinion only deals with remedies).

* plaintiff won summary judgment: Storus v. Aroa (2008).

* plaintiff won at trial: Binder v. Disability Group (2011). This case was decided before the Ninth Circuit ruling in Network Automation, and I believe it’s no longer good law.

* defendant won summary judgment: J.G. Wentworth v. Settlement Funding (2007); Designer Skin v. S&L Vitamins (2008); 1-800 Contacts v. Lens.com (2010); Montana Camo v. Cabela’s (2011); Jurin v. Google (2012) (note: unlike the other cases, in Jurin the defendant was Google, not the advertiser); CollegeSource v. AcademyOne (2012).

* defendant won at trial: Fair Isaac v. Experian (2009) (technically, the final win came in a post-trial ruling after a jury trial); College Network v. Moore (jury ruling in 2009; affirmed on appeal in 2010); Consumerinfo v. One Techs. (2011) (jury trial); General Steel v. Chumley (bench trial).

For more on this topic, see my recent blog posts on trademark infringement and keyword advertising:

* Suing Over Keyword Advertising Is A Bad Business Decision For Trademark Owners
* Florida Proposes to Ban Competitive Keyword Advertising by Lawyers
* More Confirmation That Google Has Won the AdWords Trademark Battles Worldwide
* Google's Search Suggestions Don't Violate Wisconsin Publicity Rights Law
* Amazon's Merchandising of Its Search Results Doesn't Violate Trademark Law
* Buying Keyword Ads on People's Names Doesn't Violate Their Publicity Rights
* With Its Australian Court Victory, Google Moves Closer to Legitimizing Keyword Advertising Globally
* Yet Another Ruling That Competitive Keyword Ad Lawsuits Are Stupid--Louisiana Pacific v. James Hardie
* Another Google AdWords Advertiser Defeats Trademark Infringement Lawsuit
* With Rosetta Stone Settlement, Google Gets Closer to Legitimizing Billions of AdWords Revenue
* Google Defeats Trademark Challenge to Its AdWords Service
* Newly Released Consumer Survey Indicates that Legal Concerns About Competitive Keyword Advertising Are Overblown

[Photo Credit: Closed Road // ShutterStock]

Posted by Eric at 09:07 AM | Marketing , Trademark | TrackBack

April 29, 2013

Differences Between Consumer Surveys for Trademark Cases and False Advertising Cases

By Eric Goldman

In February, I spoke about the differences between consumer surveys in trademark cases compared with false advertising cases. My talk notes:

Overall, the similarities between consumer survey in the two types of cases outweigh the differences. So some of these differences are necessarily exaggerated.

Structural Differences. Lanham Act false advertising cases always involve competitors. Trademark litigation can involve a broader range of defendants, not just competitors. Two examples of consumer surveys in non-competitive trademark cases: dilution surveys; and establishing secondary meaning in non-competitive cases such as, say, parodies. I don't know that this structural difference translates into a lot of meaningful differences in the surveys, but it changes the cases' complexion and may affect how the litigants approach the surveys.

A second possible structural difference. Consumer surveys are effectively mandatory in implied falsity cases. In contrast, although surveys are important for establishing secondary meaning, many successful trademark cases never include a consumer survey.

Range of Inquiry. In both false advertising and trademark surveys, consumers are surveyed about what meaning they derive from the specified stimuli. However, false advertising has a broader range of possible meanings that a consumer could ascribe. In trademarks, consumers are often asked if they recognize a mark or if the mark is similar to or associated with another mark. These questions are basically binary yes/no questions.

False advertising doctrine is interested in what message(s) consumers received. A single claim could have a multiplicity of meanings to consumers--consumers bring heterogeneous perspectives to the claim, and words and images have numerous possible meanings.

The result is that false advertising survey questions tend to be more open-ended and require multiple iterative questions (progressively becoming more close-ended) to ferret out the consumer's interpretation of the claim.

Furthermore, a single product may appeal to multiple consumer segments, so more expensive tests may be required to distinguish each segment and determine what message(s) they received.

Testing Environment. A false advertising survey typically seeks to determine what decision consumers will make in the marketplace in response to the claims at issue. Thus, every little fact about the testing environment matters. This is true with trademarks as well, but false advertising claims evaluation typically draws on a wider range of potentially relevant facts. In false advertising, there may be multiple versions of ad copy or claims that need to be tested together. The tester wants to replicate the buying environment as closely as possible, though a testing environment typically is stylized. The tester also wants to present controls that differ only with respect to the claims at issue. This can be a challenge; it may be difficult to manufacture an appropriately controlled ad copy or control specimen.

[Photo Credit: brand awareness survey // ShutterStock]

Posted by Eric at 09:57 AM | Marketing , Trademark | TrackBack

April 11, 2013

Competitive Keyword Advertising Lawsuit Survives Motion to Dismiss--Elcometer v. TCQ-USA

By Eric Goldman

Elcometer, Inc. v. TQC-USA, Inc., 2013 WL 1433388 (E.D. Mich. April 9, 2013)

There are so many competitive keyword advertising lawsuits that I can't track them systematically, but I'll still blog them when I see them.

The parties compete in the "thickness gauge" industry. The defendants sell the brand "Paintmeter." Defendants allegedly bought the AdWord keyword on the rival brand "Elcometer" and ran the following ad:

Elcometer Meters & Rentals * Paintmeter.com
www.paintmeter.com/
Call 18009742492 We Sell PaintMeters & Rent Coating Inspection Equipment

The plaintiff alleges that potential customers who clicked on the link or called the 800 number were given more information that perpetuated possible confusion about the relationship between Elcometer and Paintmeter.

The court says that the plaintiff properly pled trademark infringement, Lanham Act false advertising and a violation of the Michigan Consumer Protection Act, and therefore it denied a motion to dismiss. The court also rejected the manufacturer's effort to avoid responsibility for its distributors' conduct.

This case reminded me a little of Promatek v. Equitrac and the Network Automation case. In Promatek v. Equitrac, the court dealt with a situation where the defendant both sold its own equipment and provided servicing for its rival's equipment. The court screwed up the ruling, but to me, it's perfectly legitimate to advertise the plaintiff's trademark if the defendant services its equipment. Similarly here, if the defendant vended both its own equipment and its rival's equipment, the ad copy could be fine.

In Network Automation, the case involved a situation where the customers may have fully understood the relationship between the defendant's and plaintiff's respective brands. It's possible that thickness-gauge customers are well-versed about these brands and their relationships. However, unlike Network Automation, the defendants used the trademark in the ad copy, and that may make this case harder to defend.

April 03, 2013

Product Review Website Defeats Trademark Claims--Boarding School Review v. Delta Career Education

By Eric Goldman

Boarding School Review, LLC v. Delta Career Education Corp., 1:11-cv-08921-DAB (SDNY March 29, 2013)

This case involves Community College Review, with the tagline "find the right community college for you." It publishes information about various community colleges and provides a navigation wizard. The community college pages include advertising and a lead generation form that allegedly forwards leads to competitive colleges. The trademark owners in this case operate private colleges offering associate degrees. The colleges sued CCR for trademark and copyright infringement.

The colleges objected to statements on CCR website saying “Get info / application from [name of trademarked college]” when those statements allegedly generated leads that were sent to competitors. This claim fails because the colleges merely alleged CCR forwarded the leads to competitors without any further factual support. This failed the Iqbal pleading standard.

The remaining trademark claims failed--on a motion to dismiss--for lack of consumer confusion. The court says the site headline (referencing "Community College Review"), domain names and "header and navigational menu clearly and quickly communicate to site visitors that BSR’s website is an omnibus review site profiling community colleges, not a website affiliated with or sponsored by the schools profiled." The court also notes the sophistication of prospective college students (accord the CollegeSource ruling) and the industry differences between college operator and a review website.

The federal trademark dilution claim fails because of a lack of fame (FWIW, I hadn't heard of the trademark owners or their colleges before) despite the allegations that:

Defendants own at least fourteen educational institutions, provide educational services to at least 16,000 people, have one subsidiary that has operated for more than 100 years, have invested “enormous” sums of money in marketing, provide services that are “highly sought after,” and have experienced “extraordinary and longstanding sales success”

The state trademark dilution claim fails because there wasn't a plausible allegation that the colleges "will lose their ability to serve as a unique identifier of Defendants’ educational institutions." The court doesn't use the term nominative use, but basically the court says that CCR's nominative use can't create blurring, and there wasn't any tarnishment because CCR didn't link the trademarks with shoddy products (I didn't fully understand the court here).

The colleges also alleged copyright infringement, but the allegedly infringing activity all occurred before the copyright registrations, so the court denies statutory damages and attorneys' fees. There might still be actual damages worth pursuing; if not, the lack of juicy damages might de facto end the copyright claim.

The court allows the colleges to amend the complaint with respect to the “Get info / application from" language. Otherwise, the trademark claims were dismissed with prejudice.

This case didn't involve consumer reviews, so 47 USC 230 wasn't implicated. Still, the colleges' tactics were similar to the efforts we've seen from other attempts to work around Section 230, such as the PissedConsumer line of cases. Basically, the colleges tried to use trademark law to shut down the review website from building product pages in an ad-supported website. These efforts to depopulate a product catalog's taxonomy pose a serious threat to the integrity of review websites, and it's great to see the court reject the effort. I also discuss this issue in my Online Word of Mouth and Regulating Reputational Information papers.

This case is the latest trademark case in the increasingly rough-and-tumble world of marketing educational services. Other cases in this line include CollegeSource v. AcademyOne and Private Career Training Institutions Agency v. Vancouver Career College (Burnaby) Inc. (from Canada).

[Photo Credit: Young woman having trouble studying // ShutterStock]

Posted by Eric at 09:02 AM | Copyright , Marketing , Trademark | TrackBack

March 29, 2013

FTC Warns Nordstrom Over Tweetup Freebies

[Post by Venkat Balasubramani]

The FTC conducted an investigation on Nordstrom's marketing and promotion in connection with a “tweetup” held in Boise. Apparently Nordstrom provided free gifts to “influencers”, including $50 gift cards to Nordstrom Rack. [Sadly, I did not receive an invitation to this event.]

The FTC says it was concerned that Nordstrom:

did not tell the social media influencers . . . that, when they posted or wrote about the event, they should disclose they had received gifts for attending.

Nevertheless, it declines to initiate an enforcement action based on a number of factors: (1) the event size; (2) the fact that influencers who posted about the event made appropriate disclosures; and (3) the fact that Nordstrom subsequently revised its social media policy.

Hard to draw much of a conclusion from this, except that the FTC’s watchful eye is always scanning the online landscape. Although the FTC has been active in tackling what it views as problematic endorsements, I’m not aware of an enforcement action involving social media and freebies. It's worth noting that the FTC has been perfectly clear about what it wants brands to do when they hold these types of events, but for some reason, big brands have been slow to grok this.

Other coverage (and h/t): "FTC Declines to “Rack” up Another Enforcement Action After Reviewing Nordstrom’s “TweetUp” Event"

Posted by Venkat at 08:59 AM | E-Commerce , Marketing

March 27, 2013

Why Google's Commitment Letter to the FTC Isn't Commercial Speech (Guest Blog Post)

By Guest Blogger Josh King

[Eric's introduction: Josh King is Vice President, Business Development & General Counsel at Avvo. Among other ways we work together, he's a fellow board member of Public Participation Project, which is advocating for a federal anti-SLAPP law. Here's a 2012 photo of Josh and me on top of Mt. Si. Josh didn't agree with my blog post over the weekend and submitted this provocative response:]

Google’s settlement of its FTC antitrust investigation was widely viewed as a resounding victory for the search giant. But Eric had a slightly different view, when wrapping up some of the reactions to the settlement: that the commitment letter submitted by Google to the FTC could be considered commercial speech, and thus expose Google to private party litigation based on allegations that it violated the letter’s terms.

As Eric points out, there is some precedent for materials that are not obviously advertising being treated as commercial speech, including Kasky v. Nike. In that case, the California Supreme Court determined that Nike – stung by a series of media reports about labor conditions in the shoemaker’s foreign factories – had engaged in commercial speech when it responded to the allegations by engaging in a public relations campaign.

Because commercial speech is subject to less constitutional protection than ordinary speech, the fact that Nike’s campaign was considered commercial speech left Nike exposed to liability under California’s unfair competition law. Were Google’s commitment letter likewise held to be commercial speech, it could suffer a similar fate.

But here’s the thing: Kasky is dead. Or, rather, undead; it’s going to live on in zombie-like fashion until it gets reversed.

Mixed Messages

The problem with Kasky – which was decided over a decade ago – stems from the court’s struggle to distinguish commercial from non-commercial speech, particularly where communication has multiple purposes. To make this determination in “mixed” cases, the Kasky court used a 3-element test that basically pre-ordained the outcome:

1) That the speaker be a commercial entity;
2) That the communication be intended for a commercial audience; and
3) That the communication contain representations of fact about the commercial entity’s products or services.

This is, to put it mildly, a ridiculous test. Under this formulation, almost anything a commercial entity says about itself in public would qualify as commercial speech. Take, for instance, the New York Times – Tesla kerfuffle from last month. Should Tesla Chairman Elon Musk’s blog post criticizing John Broder’s review of the fancy electric car be treated as commercial speech? After all, it’s Musk speaking for Tesla (a commercial entity), speaking to potential buyers of the car (a commercial audience) in a statement containing representations of fact about the car’s performance.

I’m pretty sure we’d all agree the answer is NO. [Eric's observation: actually, I'm 100% sure that Musk's blog post would be considered advertising if challenged by the FTC, competitors or consumers.]

Since Nike v. Kasky

It’s unfortunate that Kasky did not receive federal court review, as it likely would have been reversed. The U.S. Supreme Court initially granted cert, but then thought better of it; the case was settled shortly thereafter. In the decade since, there have been a number of federal decisions more tightly circumscribing the commercial speech doctrine (most recently 2011’s Sorrell v. IMS Health [blog coverage]). And late last year, the 9th Circuit finally got an opportunity to address the “mixed” issue directly, articulating a different, more limited test than that used in Kasky.

The test set forth by the 9th Circuit in Dex Media v. City of Seattle [blog coverage] takes a multi-step approach to determining “close cases” of commercial speech. The first step is a 3-element test similar to that used by Kasky, but with some significant differences. The factors include:

1) That the communication be in an advertising format;
2) That the communication reference a specific product; and
3) The underlying economic motivation of the speaker.

None of these factors are dispositive, but the combination of all three provides “strong support” for a finding of commercial speech. This represents a much narrower test than that used by the California Supreme Court in Kasky. [Eric's comment: I agree with Josh's analysis. I just don't believe the Dex ruling provides any reliable guidelines for how the next 9th Circuit case will come out.]

What’s more, there’s a second step that must be taken, one that was glossed over by Kasky: even if the threshold commercial speech classification is found, full first amendment protection will still apply if the commercial aspects of the speech are “inextricably intertwined” with otherwise fully-protected speech.

As Applied to Google . . .

Kasky is a reminder that bad facts make bad law. The California Supreme Court faced a massive public relations campaign, waged by a heavily-funded and brand-savvy corporation, that bore many hallmarks of brand advertising. It’s not terribly shocking that they “leaned in” to find that Nike’s speech was commercial. But Google’s commitment letter is a different beast. It’s a single communication, directed at a regulator, and delivered in settlement of an investigatory proceeding. That’s a far cry from the Nike campaign; even under the expansive test set forth in Kasky, it would likely not be considered commercial speech given its provenance and the fact that it was not written directly for a commercial audience.

And under the likelier test it would face, that of Dex Media? A case where the 9th Circuit determined that the Yellow Pages are not commercial speech? Not much chance. It fails both the first and third prongs of the test: the commitment letter is not an advertising format, and Google has no underlying economic motivation in writing it (at least not in the commercial sense; Google’s interest in avoiding a consent decree wouldn’t count). What’s more, even if the letter somehow met that bar, it would likely fail the “inextricably intertwined” test that would await it. The statements made by Google are part and parcel of its defense and commitments made to regulators in settlement of potential litigation. While one could try to parse out the terms of the commitment itself, it’s hard to imagine that it wouldn’t be treated as inextricably intertwined with Google’s protected speech in communicating with a regulator.

Ultimately, Google made a deal with the FTC. If it doesn’t abide by the terms of that deal, the FTC has remedies. However, that doesn’t mean that any competitor gets to turn Google’s commitment into an independent basis to pursue their own commercial claims. Kasky v. Nike is an outlier; beyond what would be unmistakable as advertising, commercial enterprises have first amendment rights, too.

[Photo Credit: Toy Ball // ShutterStock]

Posted by Eric at 11:44 AM | Content Regulation , Marketing , Search Engines | TrackBack

March 24, 2013

Linkwrap of Google's Antitrust Deal With the FTC

By Eric Goldman

It seems like forever since the FTC settled its antitrust investigation with Google, even though it's been less than 3 months. My recap post from the initial announcement. We're waiting for the European denouement, but in the interim, some of the more interesting links I've seen about the FTC settlement:

* Frank Pasquale and Siva Vaidhyanathan, Borking Antitrust: Google Secures Its Monopoly

* James Grimmelmann: Not with a Bang and Devils and Details.

* Politico: How Google Beat the Feds

* Tim Wu: Why Does Everyone Think Google Beat the FTC?. Perhaps it has something to do with the rumored 100 page staff memo advocating a Google bust just 3 months before the official resolution?

* TPM: FTC Chairman Defends Google Settlement: We Did What The Law Required.

* Commentary on Commissioner Leibowitz's resignation. FTC and NY Times.

As I've been thinking about the settlement over the past 3 months, I'm struck by one point raised by James Grimmelmann. Google submitted a commitment letter to the FTC promising to give websites the ability to opt-out of being indexed in certain Google services. It also promised that "Exercise of this option will not...be used as a signal in determining conventional search results on the google.com search results page." From my perspective, Google's letter should constitute advertising speech the same way Nike's letters to universities constituted advertising in Nike v. Kasky. If so, then competitors should be able to enforce Google's violation of this promise using any legal doctrine allowing competitor standing, such as the Lanham Act. This opportunity differs from the typical FTC settlement, where competitors and consumers have no standing to enforce a company's promises to the FTC.

How could such a lawsuit play out? Imagine this scenario: A vertical search engine opts-out of being indexed in Google's sub-services. At some point later, the vertical search engine shows up less favorably in search results. There are many explanations for why a site might rise or fall in the search rankings, but now the vertical search engine could assert a Lanham Act (or other legal doctrine) violation because, it believes, Google downranked it for opting-out, and doing so violated Google's commitment letter. The opt-out/downrank correlation may not be enough to survive Twombly/Iqbal--but if the lawsuit gets over the motion to dismiss, the vertical search engine should be able to take discovery on Google's rankings algorithm to determine if the downranking was payback for opting-out. This would be a bad outcome for Google, even if Google ultimately defeats the Lanham Act claim.

For those who've criticized the FTC for not locking down Google's promises in a consent decree, I feel like I'm missing something. By getting this commitment letter, the FTC may have handed a powerful litigation tool to many Google gripers, and any enforcement action (going to their core algorithmic questions) would be quite high-stakes for Google. Sure, the commitment letter resolution may be unorthodox, but my instincts are that this particular resolution worked to Google's detriment.

[Photo credit: white roadsign with a commitment concept // ShutterStock]

Posted by Eric at 09:14 AM | Marketing , Search Engines | TrackBack

March 20, 2013

Book Recommendation: "Trademark and Deceptive Advertising Surveys"

By Eric Goldman

I read only a couple of books per year. As very long-form scholarship, books usually require big blocks of time to read (and I rarely have such blocks), and I typically find the payoff isn't worth the time investment. As a result, it's rare that I read a book, rarer when I like a book, and exceptionally rare when I think a book is worth recommending to you.

Yet, I can hardly contain my enthusiasm for the 2012 book, "Trademark and Deceptive Advertising Surveys: Law, Science and Design," edited by Shari Seidman Diamond and Jerre B. Swann and published by the ABA's IP Section. It may be the best book I've read in years.

Why do I like this book so much? It's the *perfect* legal resource guide. The chapters are written by the leading experts in the field--names you most likely recognize, including William Barber, Jerre Swann, Bruce Keller, Shari Seidman Diamond, Itamar Simonson, Jacob Jacoby and many more. In each chapter, an expert explains how he/she handles an aspect of the consumer survey process and why he/she makes certain professional judgments. It's like having am initial consultation with, or some private coaching from, the leaders in the consumer survey field, except that they aren't billing you by the hour and they give you citations for your deeper investigation if you want. I know I'm a hardcore geek, so my experience may not be representative, but I found this book a page-turner that I couldn't put down. Every page was packed with a golden nugget or two of insight, page after page, chapter after chapter. I'm not exaggerating at all when I say that I found the book gripping.

Of course, you won't be able to do consumers surveys on your own just by reading the book (you'll still need to hire an expert), but you'll be able to have a more intelligent discussion with your expert and evaluate and supervise their professional choices better. After reading the book, you should be able to save thousands of dollars in the costs of a consumer survey and increase the likelihood that the $100k+ you invest in a consumer survey will yield useful results.

If you deal with consumer surveys in the trademark or advertising context--which means pretty much every trademark and advertising law professional--this book is a must-have. Unfortunately, the book is priced for professional purchases, not the consumer market. Right now Amazon [affiliate link] lists it for $280 (though that price fluctuates), but it's "only" $180 at the ABA website and even cheaper if you're an ABA IP Section member. The book will more than pay for itself after your first consumer survey using it.

Posted by Eric at 02:49 PM | Marketing , Trademark | TrackBack

February 28, 2013

Buying Keyword Ads on People's Names Doesn't Violate Their Publicity Rights--Habush v. Cannon (Forbes Cross-Post)

By Eric Goldman

Habush v. Cannon, 2013 WL 627251 (Wisc. App. Ct. Feb. 21, 2013)

Can you imagine someone buying Google ($GOOG) AdWords keyword advertising triggered by your name? Most of us wouldn't dream of it, usually because our names just aren’t valuable enough for anyone to bother. In contrast, some professional service providers, such as lawyers and doctors, tout their names in expensive advertising campaigns to consumers—and have competitors who would love to piggyback on that advertising to reach the same consumers. In a novel and persuasive ruling, a Wisconsin appellate court recent rejected a professional service provider’s attempt to use publicity rights to shut down a competitive keyword advertiser.

Case Background

The case involves two high-profile personal injury law firms in Wisconsin. The defendant, Cannon & Dunphy, bought keyword advertising on the words “Habush” and “Rottier,” presumably referring to the partners at its rival law firm Habush, Habush & Rottier. As a result, searchers looking for the law firm Habush Habush & Rottier or its eponymous partners might see ads for Cannon & Dunphy.

Normally, a lawsuit like this would be brought under trademark law. Lawyers can develop trademark rights in their name, and the firm name Habush Habush & Rottier should be a trademark. However, it’s less clear if the individual partner names have achieved trademark protection, or if any trademark protection would extend to the use of just their last names.

Either way, Habush and Rottier chose to sue under Wisconsin's publicity rights law instead of trademark law. Publicity rights law protect a person’s name, image and other attributes from commercial use. The most obvious example is a commercial endorsement. An advertiser can’t use a person’s name or face in their advertising without permission.

Habush and Rottier sued Cannon & Dunphy (and some of its individual partners) in late 2009. In June 2011, the trial court rejected the claim in a messy opinion where the judge appeared overwhelmed by the case's legal and technological complexity. Because two very successful and determined litigation firms were squaring off, the judge also knew that the losing side would appeal no matter what.

In June 2012, the Wisconsin appellate court first addressed the case. In an odd ruling, the panel certified the case to the Wisconsin Supreme Court--basically, punting the case upstairs. In September 2012, the Supreme Court denied certification, effectively telling the appeals court to try again. The Wisconsin appeals court has now issued a ruling that sets up the inevitable appeal to the Wisconsin Supreme Court.

The Ruling

Interpreting the Wisconsin publicity rights statute, the court said the keyword advertiser didn’t make an actionable “use” of the names Habush or Rottier by using the names as “invisible” ad triggers. The court analogized the defendants’ keyword advertising to buying a physical-space billboard physically adjacent to the plaintiff’s offices, saying that such proximity would not constitute a “use” of the plaintiff’s personality. While normally I am troubled by physical-space analogies to online activity, I thoroughly explored—and defended—this analogy in my Brand Spillovers paper, sadly (for me) not cited by the court. Thus, because the plaintiffs failed to establish the statutory violation, Cannon & Dunphy wins.

In contrast, if the ad copy had displayed the name, this court probably would treat that as a publicity rights “use” and the defendant would have to find other grounds to defeat the lawsuit. The court also indicates that invisible uses in contexts other than keyword advertising could constitute a publicity rights “use.”

The plaintiffs correctly argued that the court’s conclusion on publicity rights “use” diverges from trademark law’s treatment of the issue. Most courts have held that buying keyword ads on a trademark constitute trademark “use” even if the trademark doesn’t appear in the ad copy, with the Second Circuit’s 2009 Rescuecom decision basically cementing that legal conclusion. (In my Deregulating Relevancy and Online Word of Mouth papers, I argued why disposing of keyword advertising cases on trademark use grounds would be a better result, but those arguments haven't carried the day). The Wisconsin appeals court says simply that the Wisconsin publicity rights statute means something different by the word “use” than trademark law does, so Rescuecom and related trademark precedents aren’t binding.

[Note: unlike Google's detailed trademark policy, Google's policy towards personal names is murky. It says in total: "We do not monitor the use of proper names in AdWords ads or keywords. Users interested in removing an advertiser's use of proper names in ads should contact our Consumer Complaints team via our complaint form."]

Implications

This is an interesting case in part due to its novelty. We’ve seen other plaintiffs unsuccessfully attempt to use the Wisconsin publicity rights statute to control Internet advertising (most obviously, the repeat litigant Bev Stayart), but this case provides the cleanest opinion to squarely address a publicity rights challenge to keyword advertising.

Three implications of this ruling:

Keyword Advertising Lawsuits Aren’t Economically Rational. These lawyers are spending a lot of time and money fighting each other in court. I hate to repeat myself, but keyword advertising lawsuits aren’t economically justified, even if the plaintiff wins. See this recap post. Then again, given how well these firms—and lawyers—know each other and how fiercely they compete, I doubt the plaintiffs brought this lawsuit solely to maximize their profits.

Keyword Advertising and Competition. The trial court opinion in this case expressly acknowledged the competitive concerns associated with keyword advertising. It’s easy to see why. Imagine an injured victim needs a personal injury lawyer and has seen Habush Habush & Rottier’s advertising. During the consumer's keyword search to find the firm, Cannon & Dunphy presents itself to the victim as a competitive alternative. This encourages the victim to investigate multiple law firms, and those firms will work harder to meet the victim’s legal needs. This is a win for the consumer, and a win for competition. The appellate court expressly sidestepped these public policy issues, but its ruling nicely advances those interests.

Why a Plaintiff Win Could Be Disastrous. I read a lot of crackpot lawsuits, often pro se, basically complaining that someone published the plaintiff’s name online (one recent example). Can you imagine what would happen if those plaintiffs can claim that any keyword advertising triggered on their last names violated their publicity rights?

Take my last name for example, Goldman. There are plenty of other Goldmans in the world, most obviously the big investment bank Goldman Sachs. How would we determine if a keyword advertiser on the word “Goldman” was advertising to compete with Goldman Sachs or violating my publicity rights? We might impose some requirement of direct competition to distinguish the Habush situation from the Eric Goldman situation, but that competitive limitation isn’t in the Wisconsin publicity rights statute, and it won’t always be easy to decide who “competes” with me.

So even if you feel some mild sympathy towards Habush Habush & Rottier because its rival is engaging in ambush marketing, recognize that subsequent publicity rights plaintiffs won’t look so sympathetic.

[Photo credit: Portrait of an invisible Man with sunglasses in business suit // ShutterStock]

Posted by Eric at 08:52 AM | Marketing , Publicity/Privacy Rights , Search Engines , Trademark | TrackBack

February 26, 2013

Lindsay Lohan Loses Publicity Rights Claim Against Pitbull Over Song Lyrics--Lohan v. Perez

By Jake McGowan [writings][LinkedIn]

Lohan v. Perez, No. 11-CV-5413 (E.D.N.Y. 2013)

Lindsay Lohan just can’t catch a break.

In 2007, after a string of unsuccessful movies and a long battle with substance abuse, Lohan found herself on probation for two drunk driving incidents. Since then she has had multiple stints in rehab, probation violations, and other legal trouble stemming from a necklace theft. Unfortunately for Ms. Lohan, it now seems she is equally unsuccessful as a plaintiff.

The former child star recently brought a publicity rights lawsuit under New York law against Miami rapper Pitbull and R&B singer Ne-Yo, along with others responsible for mentioning her name in the hit song “Give Me Everything.”

On February 21, a district court in New York dismissed the complaint and even sanctioned Lohan's attorney.

Background

The song in controversy is Pitbull’s "Give Me Everything," featuring Ne-Yo, Afrojack, and Nayer. The lyrics referencing Ms. Lohan appear about a minute into the song:

“So I'm tiptoein’ to keep blowin’/ I got it locked up, like Lindsay Lohan.”

(note: if you ever struggle in deciphering certain rap lyrics, check out the helpful and hilarious site RapGenius.com)

According to Lohan’s complaint, this subtle jab damaged her because at all relevant times, she was “a professional actor of good repute and standing in the Screen Actors Guild” (sarcastic emphasis added). She alleged that the defendants violated Sections 50 and 51 of the New York Civil Rights Law, and she also brought claims for unjust enrichment and intentional infliction of emotional distress (IIED).

Lohan’s Claim Fails to Satisfy the New York Civil Rights Law Requirements

New York does not have a common-law right of privacy, so Lohan’s only option was to try for the limited statutory protection under Sections 50 and 51 of the New York Civil Rights Law. Under Section 50, it is a misdemeanor for a person to “use[ ] for advertising purposes, or for the purposes of trade, the name, portrait or picture of any living person without having first obtained the written consent of such person."

In this case, the court found a few glaring problems with Lohan’s complaint:

(1) the First Amendment protects the song as a work of artistic expression; and
(2) Lohan’s name was not used in the song “for advertising purposes, or for the purposes of trade.”

The court referenced the 2002 New York case Hoepker v. Kruger, agreeing that the First Amendment presents a complete defense:

"'pure First Amendment speech in the form of artistic expression . . . deserves full protection, even against [another individual’s] statutorily-protected privacy interests.’”

Because music is considered artistic expression, Pitbull’s use of Lohan’s name is protected as part of “Give Me Everything,” the veritable work of art. Also, the name-dropping is so simple and isolated that the court refuses to believe that it was meant for purposes of advertisement or trade.

Lohan’s Unjust Enrichment and IIED Claims Also Fail

The court dispatched Lohan’s unjust enrichment claim quickly, suggesting that she was trying to invent a non-existent common law claim by merely recasting the statutory claim under the New York Civil Rights Law.

The IIED claim shared a similar fate:

Accepting plaintiff’s allegations as true . . . even if defendants used plaintiff’s name in one line of the Song without her consent, such conduct is insufficient to meet the threshold for extreme and outrageous conduct necessary to sustain a claim for [IIED].

______________

This is not the first time Lohan has used the legal system to vindicate her publicity rights. In 2010, she brought a similar claim against E-Trade Bank for its Super Bowl ad referencing "that milkaholic Lindsay." In that case, she asked for $100 million. It's rumored she made some money when it settled out of court.

With that in mind, it seems pretty clear that Lohan and her attorneys thought they could go back to the well with a weak lawsuit. This time, however, the meritless claims actually came back to bite Lohan's attorney.

In a strange turn of events, the court fined Lohan’s attorney Stephanie Ovadia $750--not for filing frivolous claims, but because she plagiarized “a vast majority of the Opposition . . . from other sources without any acknowledgment or identification[.]"

On the other hand, the court also took issue with defendants' counsel sitting on this information:

The Court also notes, parenthetically, that it is underwhelmed by the nature of defendants’ counsel’s conduct upon learning of plaintiff’s counsel’s plagiarism. Defendants’ counsel recognized the existence and extent of the plagiarism as early as March 9, 2012 . . . Defendants’ counsel certainly had the option of raising the issue with plaintiff’s counsel, thereby affording plaintiff’s counsel the opportunity to withdraw the Opposition and request leave from the Court to amend the opposition papers. Instead, the first time defendants’ counsel raised the issue was when they filed the fully-briefed motion to dismiss and highlighted the plagiarism as part of the reply papers.

As Marty Schwimmer points out on his blog, this raises the interesting question of whether the defendants' counsel has a duty to warn its opponent, or whether they can let their adversary shoot themselves in the foot.

Either way, it looks like the drafting was as weak as the purported basis for the complaint. These claims never stood much of a chance.

[Photo Credit: Anthony Mooney / Shutterstock.com]

Posted by JakeMcGowan at 08:30 AM | Marketing , Publicity/Privacy Rights | TrackBack

February 20, 2013

Telephone Consumer Protection Act Case Update – February 2013 Edition

[Post by Venkat Balasubramani]

Birchmeier v. Econ. Strategy Group, 12 C 4069 (N.D. Ill. Dec. 28, 2012): This was a putative class action filed against Economic Strategy Group and Caribbean Cruise Line. Plaintiff alleges that defendants made calls to their cell phones under the auspices of conducting political polls, but in reality wanted to sell cruises. The court denies defendants’ motion to dismiss on Rule 8 grounds, saying that plaintiff does not need to specify which defendants engaged in what activity. More importantly, the court rejects the argument that only the person who placed the call is liable under the TCPA. Finally, the court rejects as a “non starter” defendants’ argument that the fact that the call allegedly involved a political survey fits it within the FCC exemption for political surveys. In any event, the court says that the FCC exemption covers calls made with artificial or pre-recorded voices but does not involve calls made with autodialers.

Gragg v. Orange Cab Co., C12-0576RS (W.D. Wash. Jan. 17, 2013): This was another putative class action where plaintiff alleged that defendants sent a text message offering a free taxi booking app. The text attached to the complaint read as follows:

Taxi #850 dispatched @ 05:20. Smart phone? Book our cabs with Taxi Magic - #1 FREE taxi booking app http://cabs.io/29e1b7d

In order to trigger liability, the call must be placed with equipment that “has the capacity to store or produce numbers using a random or sequential number generator.” The court says that the message appears personal in question and does not appear to be sent “by means of an ATDS.” The court dismisses the claim but grants leave to amend. The court says that plaintiff can allege supporting facts that the message was not a personalized message but was a mass marketing text.

The court also looks at whether the message violates Washington’s email statute. While another judge in the same district had recently held (Hickey v. Voxernet) that a message that offers a free download was not “commercial” for purposes of the Washington statute, since the date of this decision, the Ninth Circuit issued its opinion in Chesbro v. BestBuy. Chesbro took an expansive view of what is a “commercial” message for the TCPA (and the Washington statute dealing with autodialers). The court follows suit and finds that the message in question was commercial for purposes of Washington’s email law. While the app was free, “the only purpose of the offer was to promote or encourage the use of defendants’ taxi services.”

Lee v. Stonebridge Life Insurance Co., C 11-0043 RS (N.D. Cal. Feb. 13, 2013) [pdf]: This was another putative class action—the court finds grants the motion for class certification. Plaintiff received the following text that she alleges violated the TCPA and was a lead generation mechanism for Trifecta, the marketing company defendant:

Thanks 4 visiting our website please call 877-711-5429 to claim your $100 walmart gift card voucher! Reply stop 2 unsub.

As alleged by plaintiffs, Stonebridge and Trifecta had a marketing arrangement. Trifecta’s job under this arrangement was to generate leads for Stonebridge, but it contracted the job of actually sending out text messages to third parties. Consumers who received the messages and responded were connected to a Trifecta call center and pitched products from either Stonebridge or third parties. If they expressed interest in a Stonebridge product, their number was then passed on to Stonebridge.

The court says that the dispute is amenable to class-wide resolution. The fact that Stonebridge didn’t actually send the messages is not a defense that requires an individualized determination (in the process,the court says this is unlikely to be a viable defense for either). The court passes on a related argument that the messages may not have been sent “on behalf” of Stonebridge exclusively.

None of these cases alone are blockbusters, but it’s interesting to see the text spam litigation juggernaut continue on. Three points from the cases:

- making a call with an autodialer is a low standard (the Orange Cab case, notwithstanding, Satterfield set an incredibly low bar for pleading standards);

- outsourcing text marketing is a recipe for disaster (the fact that the particular defendant did not send the messages in question is not likely to be a viable defense);

- fitting within an exception is not easy, and courts have taken a broad view of what is commercial.

Overall, it probably bears repeating that text-based marketing is a high risk endeavor.

[image credit: Shutterstock/Anton Novik "Glossy Winged Mail Envelope"]

Posted by Venkat at 12:43 PM | Content Regulation , Marketing , Spam

February 19, 2013

With Its Australian Court Victory, Google Moves Closer to Legitimizing Keyword Advertising Globally (Forbes Cross-Post)

By Eric Goldman

Google's ($GOOG) keyword advertising program, AdWords, has been subject to constant legal challenges for the past decade. After an initial period of legal uncertainty, AdWords' legal fortunes recently have brightened in the United States and Europe. Earlier this month, AdWords notched another strong win in court, this time in Australia. Considering these developments as a whole, Google has effectively gotten a clean legal bill of health for its AdWords service around the globe. Google's impressive accomplishment also provides a useful cautionary tale about overregulating technological innovations.

Google's Australia Win

Six years ago, the Australian Competition & Consumer Commission (ACCC) sued Google for false advertising. The ACCC complained that AdWords advertisers bought keyword advertising on competitors' trademarks and displayed those trademarks in their ad copy, which alleged confused consumers. The ACCC sought to hold Google responsible for publishing these allegedly deceptive ads.

The High Court of Australia rejected the ACCC's arguments and ruled in favor of Google. The court says:

The technology which lies behind the display of a sponsored link merely assembles information provided by others for the purpose of displaying advertisements directed to users of the Google search engine in their capacity as consumers of products and services. In this sense, Google is not relevantly different from other intermediaries, such as newspaper publishers (whether in print or online) or broadcasters (whether radio, television or online), who publish, display or broadcast the advertisements of others....To the extent that it displays sponsored links, the Google search engine is only a means of communication between advertisers and consumers.

There are two non-standard aspects of this ruling. First, the plaintiff was a government agency suing for false advertising, not the more typical situation of an unhappy trademark owner suing for trademark infringement. Second, the High Court interpreted a specific Australian statute regarding secondary liability. Still, despite these quirks, I think the ruling has broader implications. In the allocation of legal responsibility between Google and its advertisers, the High Court treats the advertisers as the legally significant decision-makers and treats Google as a tool for advertisers, i.e., a technology platform that advertisers use to publish their own ads. Once a court embraces that division of responsibility, the case resolution is obvious.

Global Acceptance of AdWords

Google's emphatic Australian complements recent developments in Europe and the United States. In the European Union, Google won a strategic victory at the European Court of Justice in 2010 based on the same paradigm adopted by the Australian High Court, i.e., AdWords is a tool, and the advertisers bear responsibility for how they use it. Although the ECJ opinion didn't completely resolve all of the open issues, the ruling has effectively ended European AdWords-related trademark litigation against Google.

In the United States, trademark owners have sued Google for AdWords many times (over 2 dozen times by my count). While Google has occasionally gotten dismissals in court, Google hasn't yet set broad precedent like the ECJ ruling. At the same time, despite Google's occasional preliminary losses against trademark owners, no trademark owner has won a final court judgment against Google. Google recently settled the Rosetta Stone lawsuit, which ended the last major legal challenge against AdWords in the United States. Only a couple of minor pending lawsuits are remaining to mop up. In other words, after the Rosetta Stone settlement, Google tacitly secured the legality of AdWords under U.S. trademark law.

The Development of Cyberlaw

"Cyberspace exceptionalism" is the approach of regulating the Internet differently than other media. In some cases, the Internet actually has bona fide technological differences that support different regulatory treatment; but more often, the differences between the Internet and other media are exaggerated or imagined.

With respect to keyword advertising, in 2009 I wrote:

Keyword triggering seems especially susceptible to cyberspace exceptionalism. After all, the triggering process is unfamiliar and poorly understood, which naturally leads to suspicion. Over time, consumers and judges will better understand keyword triggering technologies...

I think we've arrived at this destination. After a decade of legal battles, Google's campaign to legitimize AdWords--now nearly complete--has been a complete success.

How did Google triumph over the initial impulses to regulate keyword advertising? I'll point to three factors:

1) Efficacy. Keyword advertising has numerous advantages over other advertising options. It provides good ad targeting to advertisers, consumers often find keyword ads relevant to their interests, and (as I explain here) cost-per-click (CPC) keyword advertising nicely shares the risks of ad performance between advertisers and publishers. So one reason for the eventual acceptance of keyword advertising is that it is a better option than the advertising alternatives.

2) Venerability. Over the course of years, consumers--and judges--increasingly have had first-hand positive experiences with keyword advertising. Keyword advertising has evolved from an Internet novelty into an integral part of our daily lives.

3) Money. AdWords achieved venerability only because Google had the financial resources and fortitude to fight--and defeat--numerous and expensive legal battles across the globe.

To me, AdWords' evolution provides a good cautionary tale for regulators and judges dealing with emerging technologies. We should not overrespond to any initial negative emotional reactions to new technology. Instead, we should regulate emerging technologies (if at all) anticipating that consumer perceptions--and the technology itself--will evolve and improve over time.

In particular, regulators and judges should recognize that AdWords' venerability is an exceptional story, not the norm. Many other innovators and entrepreneurs won't have Google's financial staying power, meaning those innovations are vulnerable to being permanently damaged or killed by unchecked regulatory impulses before the innovation takes root.

Case Citation: Google Inc v. Australian Competition and Consumer Commission, [2013] HCA 1, S175/2012 (High Court of Australia Feb. 6, 2013). The case appeal page. Blog post on the intermediate court ruling.

[Photo credit: The Australian High Court building // ShutterStock]

Posted by Eric at 09:32 AM | Derivative Liability , Internet History , Marketing , Search Engines , Trademark | TrackBack

February 18, 2013

Another Google AdWords Advertiser Avoids Trademark Liability--Whipple v. Brigman

By Eric Goldman

Whipple v. Brigman, 2013 WL 566817 (W.D. N.C. Feb. 13, 2013)

I've repeatedly said that trademark lawsuits over Google AdWords advertising rarely make financial sense. This case would clearly support that proposition, except both parties proceeded pro se. Instead, the lawsuit was just a big waste of time and judicial resources.

The plaintiff runs a tour service in Charlotte, NC called "Queen City Tours of Charlotte," and it has a registered trademark in "Queen City Tours" (registration #3536057). In researching this post, I learned that "Queen City" is Charlotte's nickname. I'd be curious to see the plaintiff's evidence of secondary meaning for such a highly descriptive name. It's the equivalent of "Big Apple Tour" for Manhattan.

The defendant runs a tour service called "C-Charlotte Tours." The defendant bought AdWords on, and used the metatags, “queen city,” “tours of charlotte nc,” “Charlotte NC tour,” “tour of charlotte,” “Charlotte NC sightseeing,” “Queen Charlotte Tours,” and “nascar shuttle.” The plaintiff took the position that the defendant's combination of the following phrases collectively added up to trademark infringement: “tour,” “queen city,” “nascar shuttle,” and “Charlotte NC tour.”

The court responds poorly to the plaintiff's arguments, saying that the plaintiff overclaims its trademark ownership (1) by asserting rights in the NASCAR mark and (2) because the plaintiff doesn't have any trademark rights in the words "tour" and "queen city." Indeed, the phrases "tour" and "Charlotte NC tours" are generic. Because the plaintiff was pro se, the court rejected Rule 11 sanctions, but the court admonishes the plaintiff "to refrain from filing any further pleadings claiming ownership over generic terms or terms held by third parties."

No big insights here; or at least, nothing we haven't seen before: The owner of a weak trademark overreached. A pro-competitive AdWords campaign survived another legal challenge. Lawsuits over keyword advertising are, at best ill-advised and are often a financial waste.

One last twist: we've seen other aggressive trademark lawsuits in the tour industry. See, e.g., San Francisco Comprehensive Tours, LLC v. Groupon and Boston Duck Tours LP v. Super Duck Tours LLC. Tough business.

Some related posts:

* With Its Australian Court Victory, Google Moves Closer to Legitimizing Keyword Advertising Globally
* Yet Another Ruling That Competitive Keyword Ad Lawsuits Are Stupid–Louisiana Pacific v. James Hardie
* Another Google AdWords Advertiser Defeats Trademark Infringement Lawsuit
* With Rosetta Stone Settlement, Google Gets Closer to Legitimizing Billions of AdWords Revenue
* Google Defeats Trademark Challenge to Its AdWords Service
* Newly Released Consumer Survey Indicates that Legal Concerns About Competitive Keyword Advertising Are Overblown

[Photo credit: Downtown Charlotte, North Carolina, USA skyline // ShutterStock]

Posted by Eric at 07:24 AM | Marketing , Search Engines , Trademark | TrackBack

February 12, 2013

Yelp Defeats Legal Challenge to Its User Review Filter (Forbes Cross-Post)

By Eric Goldman

Demetriades v. Yelp, Case No.: BC484055 (Cal. Superior Ct. Jan. 25, 2013). Some supporting documents:

* Yelp's anti-SLAPP motion to strike
* Demetriades's opposition
* Yelp's reply

Yelp ($YELP) uses an automated review filter to suppress some user reviews of businesses. The review filter's criteria aren't publicly disclosed, and some businesses feel that legitimate positive reviews from happy customers are unfairly hidden. One business owner, an operator of three restaurants in Mammoth Lakes, California and a Yelp advertiser, got so frustrated with the review filter that he challenged Yelp's review filter in court. Recently, the court ruled decisively in favor of Yelp, confirming that Yelp isn't legally liable for filtering users' reviews as it sees fit.

The restaurant owner didn't attack the review filter directly. Instead, he complained about Yelp's marketing descriptions of its review filter, claiming that Yelp falsely advertises its trustworthiness when it uses characterizations such as "remarkable filtering process" and "most trustworthy." Yelp responded that the lawsuit was a "SLAPP"--a lawsuit designed to suppress socially beneficial speech--and therefore should be dismissed per California's anti-SLAPP law. (See this post for more discussion about anti-SLAPP laws). The court agreed with Yelp, finding that "statements regarding the filtering of reviews on a social media site such as yelp.com are matters of public interest." The court also concluded that Yelp's laudatory statements about its review filter were "puffery," not factual representations. Cf. Seaton v. TripAdvisor. As a result, if the anti-SLAPP dismissal survives a likely appeal, the restaurant owner will have to pay Yelp's legal defense costs.

This ruling complements a similar case, Levitt v. Yelp, which also led to a decisive Yelp win. In Levitt, the plaintiffs alleged (among other things) that Yelp should be liable for reordering users' reviews. In 2011, the court dismissed the complaint based on 47 USC 230, the federal law that says websites aren't liable for third party content. As I wrote then, the Levitt "ruling makes clear that Yelp can manage its database of user reviews however it wants." The newest ruling supports that conclusion.

In general, this case demonstrates that websites face limited legal exposure for automated content filtering decisions. As the Levitt case illustrated, content filtering decisions are generally protected by 47 USC 230. However, courts have been split about whether 47 USC 230 protects the website's marketing statements about its filter (I think Section 230 applies in those situations for reasons I explain in this article). Here, the restaurant owner didn't challenge the review filter directly--that lawsuit would have almost certainly failed on Section 230 grounds--but his attempted workaround of suing over Yelp's marketing language proved no more availing. The court's rejection of a lawsuit over marketing language as a "bypass" to Section 230's immunity should be good news to other websites that rely heavily on automated content filtering, including Facebook ($FB) (such as its newsfeed filters and its emerging Graph Search), Google's ($GOOG) search engine (see, e.g., this discussion), and Amazon's ($AMZN) recommendation engine.

Yelp sent me the following statement about the opinion:

Yelp has spent considerable time and effort to develop its review filter––a sophisticated tool intended to show the most reliable user reviews. The court rightly confirmed that Yelp’s discussion of the filter and our industry-leading efforts to combat unreliable reviews are protected speech about a matter of public concern, and noted that this action was spurred in part by negative reviews. There will always be businesses that think it may be easier to blame the messenger rather than respond directly to customer criticism, but this case reinforces our belief that the better option is constructive dialogue between consumers and businesses. We are happy to be a key part of that conversation.

[Photo Credit: Car filters // ShutterStock]

Posted by Eric at 08:30 AM | Content Regulation , Derivative Liability , Marketing | TrackBack

January 23, 2013

Why You Should Consider Teaching Advertising Law (Including Comments from Felix Wu of Cardozo)

By Eric Goldman

This semester I'm teaching Advertising & Marketing Law again. My syllabus. I've written before about the course and my casebook reader with Rebecca Tushnet.

In this post, I'd like to recap some remarks I made in a talk last year to Consumer Law professors about why they should consider teaching the course. I'm also including remarks from Felix Wu of Cardozo Law, who taught the course last year.

Why Teach the Advertising Law Course?

1) Complement to the Business Law Curriculum. There are many ways to teach the Advertising Law course, but I favor teaching it as a business law course. Companies want to sell stuff, and they have to comply with a variety of rules to do so. This is similar to other business law courses, but advertising is a more accessible and familiar subject to students than some other topics (e.g., public company filings under the Securities Act of 1934?), so it's a great entry point to learning about business law.

2) Good Platform for Skills Training. Law schools are making renewed pushes for skills training, and Advertising Law is a great platform for skills-oriented exercises. My skills objective is relatively modest: I want students to be able to review ad copy and advise clients about potential problems and solutions. We'll practice that skill repeatedly in class:

a) During classtime, we'll repeatedly deconstruct ads as a group (and perhaps I'll arrange some small group deconstructions too).
b) We'll do a midterm exercise where students deconstruct claims and think about required substantiation
c) Students will critique each others' midterm exercise so they can see how different people approach the same problem
d) I'll then ask students to deconstruct another ad on the final exercise.

I'm sure more can be done to add a skills component to the course. Still, adding the exercises to my course wasn't particularly hard for me to do, and it fits organically with the doctrinal material.

3) Getting Students "Practice-Ready." Another buzzword in legal academia is that employers want law graduates who are "practice-ready." Advertising law questions are meat-and-potatoes questions for junior lawyers working in a business context (whether transactional or litigation). Every business client wants to advertise or thwart someone else's advertising, and given clients' cost-sensitivity, those questions frequently flow down to junior attorneys. Even without the skills component, after taking this course, students will be prepared for the kinds of legal questions that will actually hit their desk in their first year or two of practice.

4) High Student Demand. Students love this course. Felix's experience below is extreme, but not unprecedented. I had over 90 students try to enroll in Spring 2011 and I had over 60 students try to enroll this year (I think the number was low due to scheduling conflicts; but it's still quite high for a specialty boutique course).

As always, if you're interested in teaching an Advertising Law course, contact Rebecca or me. We can provide you with an evaluation copy of our casebook and many more resources, including a nascent teaching manual, our PowerPoint slide decks and more.

Now, as promised, here's Felix Wu's recap of his experiences teaching the course last year:

Teaching Advertising Law at Cardozo Law School

By Felix Wu

[In Spring 2012] I taught an Advertising Law course at Cardozo Law School, as far as I know, the first time such a class has been offered here. Overall, it was an excellent experience for all involved.

Student interest in the course turned out to be quite high. When I first proposed the class, I had pictured an enrollment of around 60 students, on par with my Internet Law class, but in the end, I graded 102 final exams. The course seems to have appealed both to those particularly interested in the advertising industry, and to those primarily interested in broader issues. (One student commented, “I’ve always been interested in IP and advertising law, but Professor Wu’s class made me sure that this is a field I want to go into after graduation,” while another said, “The lessons I learned in this class were practical and touched on subjects that I believe affect me every day (privacy, the Internet, advertising).”)

From my own perspective, I’ll admit that I came to advertising law more from particular doctrinal interests than a deep background in advertising per se. None of my work in private practice was about advertising. For that matter, I barely watch any television, except on an airplane. But I am interested in commercial speech regulation, false advertising law, and publicity rights, all areas related to other courses I teach (Trademark Law, Internet Law, Privacy Law), but which I never have an opportunity to cover there.

In putting my syllabus together, while I initially thought of each of the doctrinal areas separately, some interesting threads emerged, which I tried to highlight throughout the semester. Foremost among them is the love-hate relationship that the law seems to have with advertising, and a corresponding uncertainty about how much legal leeway to give to advertisements that push various boundaries. Consider on the one hand modern commercial speech doctrine, and the increasing First Amendment value given to advertisements and marketing speech. (Sorrell v. IMS Health, particularly in dicta, is perhaps an example of this.) On the other hand, advertisements seem to get no slack whatsoever when it comes to intellectual property rights, with courts seemingly adopting the mantra, “When in doubt, leave it out.” (Consider the recent district court opinion in the Louis Vuitton v. Hyundai case.)

I used Rebecca and Eric’s then-latest draft casebook, which framed the course nicely, supplementing it with a few additional cases based on my own take on the course. In particular, I added even more materials on the line between commercial and noncommercial speech, as well as on the corresponding treatment of noncommercial speech under various doctrines, in order to further emphasize the relative place of advertising in the legal universe.

In all, I highly recommend others to consider offering an advertising law course. It is no substitute for core courses on IP or the First Amendment, but among subject-specific courses, I think it is both especially relevant and interesting to students, and doctrinally rich to teach. I certainly intend to continue teaching the course in the future.

[Photo Credit: judges gavel on a business law book // ShutterStock]

Posted by Eric at 12:04 PM | Marketing | TrackBack

January 11, 2013

Top Ten Internet Law Developments of 2012 (Forbes Cross-Post)

By Eric Goldman

I'm pleased to share my list of top 10 developments of 2012:

#10: The Push Towards Anti-Class Action Arbitration Clauses. In 2011, the U.S. Supreme Court ruled in AT&T Mobility v. Concepcion that businesses may be able to adopt mandatory arbitration clauses that ban customer class-action lawsuits. The ruling was hardly crystal-clear, but in its wake, many websites adopted such clauses. Nevertheless, as the Zappos decision points out, these clauses must be adopted according to the laws governing contract formation and amendment, or they will fail in court.

#9: General Patraeus/Paula Broadwell Imbroglio. On the surface, it's just your typical Washington DC sex scandal. However, it had several interesting cyberlaw angles, including the attempts to hide digital conversations and Ms. Broadwell's alleged cyberharassment of Jill Kelley. My biggest takeaway: If the CIA Director can't keep the FBI from reading his email, what chance do you or I have?

#8: Do-Not-Track Meltdown. Everyone hoped that industry would come up with a do-not-track (DNT) standard rather than kicking the issue to Congress or the FTC. Then, it all went to heck. Microsoft announced it would turn on DNT by default in its browser, which prompted Internet publishers to threaten to ignore Microsoft's DNT signal. Meanwhile, Internet publishers and others adopted a narrow definition of "do-not-track," arguing it meant no-tracking for advertising purposes, but tracking for other purposes was still OK. The effort then devolved into acrimonious recriminations and left open the possibility that government regulators will fill the gap--to everyone's detriment. (For what it's worth, I take a very dim view of technological do-not-track efforts for reasons I explain here).

#7: Social Media Exceptionalism. In 2012, regulators eagerly sought to "fix" social media through regulation, but their efforts will fail because no one can precisely define social media as a subset of Internet activity. For example, California's recent attempt to curb employers' attempts to obtain employees' social media passwords led to the astounding definition that "social media" means all digital data, whether online or off.

#6: Megaupload. The US government proudly touted its takedown of Megaupload as a victory for Internet copyright enforcement. Unfortunately, it appears that takedown involved an enforcement action where it appears the US government repeatedly ignored or broke the law.

#5: Software Patents/Smartphone Wars. The smartphone industry has ushered in a glorious era of innovation, but it's also highlighted how patents can hinder, not spur, innovation. Smartphone players have spent (wasted?) billions of dollars on patents with the hope that they can operate without restriction from other players' patents, and many tens of millions of dollars have been spent (wasted?) on legal fees as the players sue each other for patent infringement and defend against interlopers with weak/bogus patents hoping for a little taste of the action. See my essay on software patents:

#4: Europe Hates Silicon Valley. I'm surprised whenever I read about a new European ruling that's adverse to a Silicon Valley company, because at this point I assume that everything Silicon Valley companies do in Europe is already illegal. Google, Facebook and other Silicon Valley players are under constant legal attack in Europe on countless fronts. Everyone might be happier if the Silicon Valley players just got out of Europe altogether.

#3: Google and Antitrust. The FTC largely dropped its antitrust investigation against Google, and dropped it completely with respect to Google's search engine practices. (Technically the denouement rolled out on January 3, 2013, but I'm still counting it as a 2012 development). This is an important development for several reasons. First, the FTC--which makes its living by bringing enforcement actions--admitted it had no reason to complain about Google's search engine practices. Second, the scuttlebutt all throughout the investigated suggested that the FTC was committed to busting Google, and Google turned that situation around 180 degrees. Third, not intervening into the operation of Google's search algorithm is a logical decision, but one still worth celebrating. This was a great resolution for Google, a complete rejection of the concerns raised by Microsoft and other Google-haters, and due to the FTC's non-involvement, ultimately a big win for Google's users.

#2: ITU/WCIT's Attempted Internet Takeover. I really didn't understand what happened in Dubai at the ITU/WCIT meeting. All I know is that nothing good could have happened there, so preserving the status quo is a win, as ironic as that sounds.

However, there has been some teeth-gnashing that the meeting exposed looming fault lines between pro-censorship and anti-censorship governments. I don't understand that angst for at least two reasons. First, all governments are pro-censorship, and that certainly includes the United States. Indeed, the US has exhibited some awkward duality as it rails against foreign attempts to censor the Internet even as both Congress and the Obama Administration exhibit a never-ending pursuit of controlling the Internet themselves.

Second, the Internet has already fractured into multiple "Internets." The Internet in the United States increasingly bears little resemblance to the Internet in foreign countries, both because local regulators simply block certain websites and because websites localize their services to accommodate local regulation. Plus, it's been proven that countries can simply "unplug" from the Internet. Thus, we don't have a single unified Internet; we have many partially-overlapping Internets. I will say more about this in a future post.

#1: SOPA's Failure. The failure of SOPA/PIPA is not the watershed event for our republican democracy that we wished it would be. Citizen-driven rejection of special-interest Internet legislation will not happen very often. But as a David-and-Goliath story--the uncoordinated and oft-ignored Internet user community rising up against a well-oiled and undefeated copyright lobby--it doesn't get any bigger than SOPA. Also, we learned something really important: American voters will acquiesce to a lot of bad and self-interested decisions by their elected officials, but voters will grab the torches and pitchforks if they think the Internet is threatened.

Honorable Mentions

Some other developments of note:

* despite the Fourth Circuit's rekindling of the Rosetta Stone case before it settled, the decade-long keyword advertising litigation battles against Google are basically over with a big win for Google and other keyword advertising vendors. I also think we'll see trademark owner-vs-advertiser lawsuits tapering off too.

* app cloning is a big business, and we're seeing increasing lawsuits in the area, including the EA v. Zynga and TripleTown cases.

* the application of the Computer Fraud & Abuse Act is being dialed back in the employment context (see the Nosal and WEC cases).

* Oracle v. Google gave us one of the cleanest rulings to date that software APIs are not copyrightable. The case was also interesting for the judge's investigation into the paid advocacy efforts of both Oracle and Google.

* the images of Marilyn Monroe and Albert Einstein are moving closer to the public domain.

* the IB v. Facebook ruling could be a watershed decision in spurring class action lawyers to make a buck in the name of "protecting the kids" in court.

* Web publishers can improve their defamation defenses by hyperlinking to original sources.

Most Interesting Cases

I read a lot of cases in 2012, and some of the most interesting cases I saw this year:

* Erickson v. Blake. Music composers can create copyrightable compositions by equating the digits of the number "pi" (π) to musical notes, but they can't stop others from creating their own musical compositions based on pi's digits.

* Bland v. Roberts. Two government employees "liked" their boss' opponent in an upcoming election; after the boss won reelection, the employees allegedly got fired for their divided loyalties. The court (mistakenly, in my opinion) said that "liking" an item on Facebook isn't constitutionally protected speech.

* Scott v. WorldStarHipHop. A classmate posted a video of Scott fighting with an ex-girlfriend. Scott obtained the copyright to the video from his classmate and, as the new copyright owner, sent copyright takedown notices in an effort to scrub the video from the Internet. This copyright acquisition scheme basically converts copyright law into a "right to forget." In 2013, expect to see even more plaintiffs acquire copyright ownership as a way to suppress/control unflattering content about them.

* In re Heartland Payment Systems. This is a settlement of a data security breach class action lawsuit with 130M class members. The parties spent $1.5M to encourage class members to tender damage claims and another $270k to process the tendered claims. A total of 290 claims were tendered, of which 11 were valid, with a maximum payout per valid claim of $175. So the parties incurred $1.75M in transaction costs to award about $2k in damages. Interesting.

* Augstein v. Leslie. If you post a YouTube video promising $1M for the return of your laptop, you could actually owe $1M if someone returns your laptop.

* Olson v. LaBrie. Facebook should bring families closer together, but in one family, photo tagging plus a snarky comment prompted a lawsuit for a restraining order.

Lists from Previous Years

Previous top 10 lists from 2011, 2010, 2009, 2008, 2007 and 2006. Before that, John Ottaviani and I put together a list of top Internet IP cases for 2005, 2004 and 2003.

[Photo Credit: Top Ten Key // ShutterStock]

Posted by Eric at 07:25 AM | Content Regulation , Copyright , Derivative Liability , E-Commerce , Internet History , Licensing/Contracts , Marketing , Patents , Privacy/Security , Publicity/Privacy Rights , Search Engines , Trademark , Trespass to Chattels | TrackBack

January 09, 2013

Q4 2012 Quick Links, Part 2 (Privacy, Advertising, Content)

By Eric Goldman

Privacy/Security

* Knowing how the FTC is cracking down on privacy violations and deceptive persuasion techniques, it's a little jarring to see how aggressive Obama's campaign was on both fronts. NY Times (1, 2), WSJ and Time. Even if the tactics were completely legal, is it the kind of ethical behavior that the Obama administration expects to see from businesses? Kate Kaye nails it at AdAge: Obama's Approach to Big Data: Do As I Say, Not As I Do.

* Google's privacy audit disclosure mandated by its settlement of the FTC Google Buzz case. Does this look like it's a helpful document to anyone? To me, the document looks very...expensive.

* Danny Sullivan, Microsoft To Make Same Privacy Change Google Was Attacked For; No One Seems To Care. NY Times coverage.

* U.S. v. Google Inc., 2012 WL 5833994 (N.D. Cal. November 16, 2012). Court approves the FTC-Google settlement over Safari cookie tracking.

* Using sophistry, Microsoft navigates FERPA to provide cloud services to universities.

* EU Data Privacy regulators want Google to fix its integrated privacy policy.

* Google Video executives' Italian privacy conviction overturned

* In HR 6671, Congress gives Netflix the right to get users to provide advance consent to frictionless sharing. Forget the fiscal cliff; this is maximally important work for Congress to prioritize. Of course, the ECPA update—part of a quid pro quo with NetFlix’s request—somehow got lost along the way.

* Murdock v. L.A. Fitness Intern., LLC, 2012 WL 5331224 (D. Minn. Oct. 29, 2012). A Facebook posting about an employee's termination isn't a privacy invasion.

* In re Platt, 2012 WL 5337197 (Bkrtcy. W.D. Tex. Oct. 29, 2012). After a physical altercation, the court made negative inferences against one of the participants for that person making their Facebook page private shortly thereafter.

* Del Vecchio v Amazon settles. Prior blog post.

* KISSMetrics settles supercookies lawsuit.

* Twitter's t.co shortened link--which Twitter automatically overlays on other shortened links--got briefly suspended, possibly because it was misclassified as a phishing threat.

Advertising

* Facebook's pay-to-promote and Sponsored Stories advertising units may create a conflict of interest with its algorithmic filtering of friends' posts: Ars Technica and George Takei. Facebook's sorta response.

* NY Times reports that advertisers are increasingly moving away from buying ads at publishers with attractive audiences and instead delivering ads via ad networks that find the targeted audiences wherever they are on the web. The result is that publishers can't charge a premium for aggregating high-value audiences because, through targeting, advertisers can reach that audience at cheaper venues. More NYT coverage of this issue.

* Wired: Facebook Is Quietly Making a Killing With Ads That Pursue You

* AdWeek interviews Google's "ad cop," David Baker.

* Internet Retailer: How Zappos balances privacy and targeted ads

* If most brands in movies are paid product placement, the logical inverse is that brands want to veto free placement they don't like.

* False advertising lawsuit against New York Law School rejected.

Content Industry

* 90% of Brazilian newspapers opt out of Google News. Meanwhile, Google threatens to cut off French publishers if France passes a law taxing Google for including them in Google News. NY Times recap of the issue.

* Blodget digs into the economics of the New York Times' newsroom.

* How cable bundling is leading to inflated cable subscription prices, mostly because sports broadcasters are overpaying sports leagues for broadcasting rights. Another reason why we don’t have cable at home.

Posted by Eric at 08:50 AM | Marketing , Privacy/Security | TrackBack

December 31, 2012

Google's Privacy Policy Integration Initially Defeats Legal Challenge -- In re Google Privacy Policy Litigation

[Post by Venkat Balasubramani with comments from Eric]

In re Google, Inc. Privacy Policy Litigation, C 12-01382 PSG (N.D. Cal.; Dec. 28, 2012)

In a decision that should be closely watched by the Instagram plaintiffs who are complaining about Instagram’s terms of use changes, Magistrate Judge Grewal initially rebuffed plaintiffs’ efforts to challenge Google’s privacy policy changes.

Plaintiffs are unhappy about Google combining its 70 odd privacy policies into a single policy, which Google explains has the following effects:

The main change is for consumers with Google Accounts . . . Our new Privacy Policy makes clear that, if you’re signed in, we may combine information that you've provided from one service with information from other services. In short, we’ll treat you as a single user across all our products, which will mean simpler, more intuitive Google experience.

The complaint alleges “violations of the Wiretap Act, 18 U.S.C. 2511 et seq., California’s Right of Publicity Statute, Cal. Civ. Code 3344, California’s Unfair Competition Law, Cal. Bus. & Prof. Code 17200 et seq., California’s Consumer Legal Remedies Act, Cal. Civ. Code 1750 et seq., common law breach of contract, common law intrusion upon seclusion, common law commercial misappropriation, and violation of consumer protection laws of the various states.”

The court does not get to the merits, and instead rebuffs plaintiffs on the basis that they do not satisfy the requisite (Article III) standards for standing.

The first argument for standing was that the privacy policy changes would force plaintiffs to replace their Android-powered devices. However, no plaintiff actually alleged that he or she actually was “forced” to replace their phone on the basis of the privacy policy changes.

Second, the court also takes issue that the combining of personal information by Google causes any (compensable) harm at all. Citing to Specific Media, a cookie case, the court says that vague ideas of “opportunity costs,” “value-for-value exchanges,” “consumer choice,” and “diminished performance,” are not enough for standing.

Finally, the court grapples with the issue of whether an alleged statutory violation is enough for standing. Although the court’s resolution of this issue is not entirely clear, the court expresses doubt regarding plaintiffs’ ability to get past a Rule 12b6 motion on at least two causes of action: the Wiretap Act and California’s right of publicity statute. The Wiretap Act claim probably fails because the definition of “device” excludes any equipment used by Google in the ordinary course of its business (and the statute contains a carve-out for interceptions by providers). The publicity rights claim fails because the plaintiffs simply do not allege any use of their “name, voice, signature, photograph, or likeness . . . .”

As I mentioned initially, Instagram plaintiffs take note! I think they will have an even harder time than the plaintiffs in this case, but they are sure to face an initial standing hurdle (regardless of how they fare on the merits).

Here is a big question that's left unaddressed, at least in the order: are Google's changes prospective only or do they apply to previously collected data. I'm guessing the answer has to be the latter, because it seems foolish to challenge a prospective-only change. A follow-up question would be whether Google gives people the ability to wipe their old data. I don't have a ton of confidence for the FTC to resolve these issues (although the confidence level is slightly higher than in the class action system), but this all makes you wonder whether these changes have to go through the FTC hoop. My understanding was that any material changes of privacy policies have to be submitted to the FTC (or something like this)?

It's interesting to see courts continue to grapple with the question of whether a statutory violation is enough to create standing.

Also interesting to see the continuing viability of the Specific Media opinion, which did a nice job of breaking down plaintiff's abstract contentions around the loss of value to personal information arguments. I wonder if other arguments will take their place (e.g., price discrimination based on tracking) but in any event, we've seen enough cases reject this argument to know its viability is seriously in doubt.
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Eric's Comments

What a fitting way to end 2012, much like it began: with yet another bogus privacy lawsuit against an Internet company being tossed from court early. I don't know whether I'm heartened by the way the judicial system has handled the onslaught of privacy lawsuits in 2012, or saddened by the fact that privacy plaintiffs lawyers don't seem to be getting the message. Maybe that horse has left the barn; perhaps for the rest of our careers, we're destined to see a never-ending flow of bottom-feeding lawsuits every time an Internet company sneezes. Oh joy.

Even though Judge Grewal properly flushes this P.O.S. down the toilet, it's not all hugs and kisses to Google, especially when he says:

The court observes that Plaintiffs have raised serious questions regarding Google’s respect for consumers’ privacy.

He's right, and we should have an intelligent and cogent discussion about that. I sometimes wonder about Google's practices myself. Still, no matter how angry you are with Google's privacy practices, you should be even angrier about junk privacy lawsuits that aren't intended to, and won't, advance our interests as consumers.

Posted by Venkat at 09:51 AM | E-Commerce , Marketing , Privacy/Security , Publicity/Privacy Rights

December 28, 2012

Sale of "Damn You Auto Correct!" Website Leads to Fights Over Its Google Analytics Numbers -- Studio 159 v. PopHang, LLC, et al.

[Post by Venkat Balasubramani with comments by Eric]

Studio 159 v. PopHang, LLC & NextPoint, Inc., 2012 WL 6675790 (C.D. Cal.; Dec. 21, 2012) (Copy of Purchase and Sale Agreement)

Studio 159 sold to PopHang and Nextpoint (Break Media) 22 websites, including the popular “Damn You Autocorrect" (DYAC) Website for $2.5 million. $1.5 million was to be paid up front and the remaining $1 million was deferred, payable in six monthly payments after the closing date. Defendants could set off, against the deferred payments, any amounts Plaintiff owed Defendants under the indemnity clause.

Following the sale, traffic predictably declined, and Defendants withheld the $1 million deferred payment. Defendants initially said that Plaintiff breached its representations regarding paid traffic purchase agreements and the state of the traffic to DYAC. Plaintiff sued for breach of contract and asserted that Defendants’ offset was improper (an improper offset allowed Plaintiff to tack on 10% of any improperly withheld amount along with fees and costs – in total, Plaintiff sought $1,070,170.23). In resolving Plaintiff’s motion for a writ of attachment, the court largely expresses skepticism over Defendants’ arguments.

Claim Of Traffic Manipulation: Plaintiff represented in the Agreement that it accurately disclosed the number of page views for the preceding 6 months (as reported by Google Analytics). Plaintiff further represented that:

[it] properly installed [Google Analytics] on the Sites in accordance with industry standard installation instructions and . . . properly maintained the installation of [Google Analytics] on the Sites. Seller is not aware that [Google Analytics] materially overstates the traffic for the Sites for such 6-month period.

Defendants conceded that the Google Analytics numbers were as represented, but contended that Plaintiff artificially boosted the site traffic.

There were two problems with Defendants’ argument. First, the agreement listed all of the “traffic agreements,” and there were no agreements or arrangements that were not listed. Second, Plaintiffs offered a perfectly reasonable explanation for the decline in traffic—a change in management! Finally, there were changes in the site layout following the close. Plaintiff raised the issue in emails with Defendants and “offered to help,” but the offer was not accepted. Defendants also acknowledged in response to the emails that "it did take [them] a while to find what resonated with [them] and the audience for DYAC" and that "the editor [they] put in charge of most of the tumblrs had gone far off the rails, posting images that were neither fun nor funny." [emphasis added]

Issues Relating to Google Accounts: Defendants also raised issues relating to certain Google accounts, including the Google Analytics account and the webmaster tools account. With respect to the Google Analytics account, Plaintiff’s representative stated under oath that she provided Defendants’ representatives access to the account and this access allowed Defendants to download historical data. The court says that Plaintiff’s “alleged refusal to provide access to her [Google Analytics] account is a red herring that goes nowhere and proves nothing.” Defendants also alleged they requested server log data and were told that the logs were allegedly deleted. This claim similarly gets no traction. The court says that the Agreement is silent on server logs, so Plaintiff didn't owe them to Defendants. Additionally, the former CEO of DYAC says that the server logs were overwritten as part of an ordinary business process after the closing. The court also makes the same observation regarding the Google Webmaster account, which was deleted post-closing.

Overstatement of Submissions: Defendants also alleged that Plaintiff misrepresented the number of weekly user submissions. This argument also gets no traction. Interestingly, the Agreement contained a representation that the DYAC site received an average of 150 submissions per day (following closing, this declined to 100 per day). Plaintiff submitted to Defendants before the Closing Date the exact submissions as sent in by readers (including all headers and personally identifiable information) to allow Defendants to verify their authenticity. This effectively rebutted Defendants' claim that there were some improprieties regarding the number of average submissions.

Breach of Obligation to Cooperate: The Agreement contained a provision saying that Plaintiff would “reasonably cooperate” in maintaining the site. She did everything she was asked. She also provided unsolicited advice.

Most likely Break Media is now second guessing its business decision to purchase the site(s) at the price it paid, or is unhappy with its failure to achieve editorial/audience traction as quickly as it thought it would.

Lessons abound in this dispute. For starters, the purchase and sale agreement is worth taking a look at: Purchase and Sale Agreement re DYAC Website (see p. 36 of the .pdf for a breakdown of the traffic figures).

It's not unique to this dispute, but after management changes, revenues (or traffic) often decline. When this happens, any withheld amount is sure to be subject to a claimed offset and become the subject of a dispute. Earnouts based on revenues are a guaranteed recipe for litigation, but withheld payments are equally so. Seller allowed amounts to be withheld but smartly included additional payments based on any amounts that were wrongfully withheld (interest and, more importantly, fees). Also, it was interesting that the agreement permitted buyers to withhold amounts based on a breach of representations, and not just based on indemnification that was triggered by third party claims.

Third party metrics are contractually convenient for a seller. Saying that you've installed Google Analytics and "as far as you know," there are no inaccuracies with the Google Analytics reports (and providing access to the account to the seller prior to the sale) is a great way to insulate yourself against claims of traffic inflation. On the buyer's side, if the traffic does not turn out as planned and you've been disclosed the metrics as part of the sale, you are likely to be out of luck. One option may be to adjust the withheld amount to account for any precipitous decline in traffic.

The seller is always interested in keeping the post-closing obligations soft. The language here worked well for this purpose. On the buyer's side, if you're interested in help from the seller, you should make your expectations clear in the agreement. A vague obligation that seller will cooperate is unlikely to hold up in court, particularly where the seller comes across as reasonable (as it did in this case).

Finally, any peripheral accounts should be dealt with clearly. This includes things like social media (Facebook/Twitter) accounts and accounts dealing with metrics (Google Analytics).

A total guesstimate, but I'm guessing Defendants have expended in the neighborhood of $50K in attorney's fees. A few more (likely necessary) rounds of motion practice and Defendants will have expended an amount equal to a reduction in a purchase price that they would legitimately be entitled to, assuming any misrepresentations are true. When you add to this the fact that someone may be on the hook for the other side's attorneys' fees, this dispute is a great candidate for settlement.
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Eric's Comments

So much to learn from this case!

1) As Venkat mentions, earnouts are a prime source of post-transaction disputes. If the earnout money doesn't leave the buyer's bank account at the time of closing, it's not coming out without a court battle. It would have been much better for the seller to use a third party escrow service who took possession of the $1M on day 1. Even though the escrow service would have held onto the money when the buyer squawked about the traffic, the buyer would have had to make the affirmative representations about seller malfeasance to the escrow company rather than just not paying. By leaving the money in the buyer's account, it was too easy for the buyer to just not pay.

2) I wonder exactly what the buyer thought it was buying. The asset purchase agreement spells out a list of assets, but those are largely worthless except as pure legacy traffic plays (i.e., they will keep getting some traffic from existing links and search engine indexing). Otherwise, humor-style sites have finicky traffic that depends on a particular editor's voice and constant feeding-the-beast. As a result, this is not a situation where you can just plug-and-play a new editor and expect the same results.

3) It's smart to contractually specify a third party traffic measurement service like Google Analytics rather than debate whose numbers should count. Even if the Google Analytics count is wrong (and that assumes there is a platonic "correct" count), it should be predictably wrong.

4) The buyer seems to insinuate that the sellers were goosing the traffic, either by creating fake impressions or buying undisclosed paid traffic. Those are good concerns for a buyer to investigate, and it makes sense to address those issues in the purchase contract. But there's no substitute for really diligencing the traffic sources before acquisition. So where the buyer complains that the server logs are gone, the buyer maybe wanted to get possession of those and review them before closing.

5) I must confess that the $2.5M purchase price for DYAC seemed a little low. There aren't many properties that had its visibility and market awareness. I hadn't previously known it had sold, though, but now I understand why my wife doesn't send me DYAC posts as often. That, and as the seller hints at in explaining the traffic drop, maybe people are getting to be better typists, or Apple is fixing its bizarre word substitution algorithms? One thing I didn't see in the opinion was any reference to the frequent rumors that some of the DYAC submissions are fake.

Posted by Venkat at 09:21 AM | Licensing/Contracts , Marketing

December 10, 2012

Facebook Doesn't Violate Antitrust Law When It Controls Its Users' Experience--Sambreel v. Facebook (Forbes Cross-Post)

By Eric Goldman

Sambreel Holdings LLC v. Facebook, Inc., 2012 WL 5995240 (S.D. Cal. Nov. 29, 2012)

As successful Internet companies evolve from shoestring start-ups into marketplace incumbents, inevitably their reward will include antitrust challenges to their conduct. The flagship example is the FTC's investigation of Google's ($GOOG) practices, which has been dragging on for nearly two years--mostly because the FTC didn't have (and probably still doesn't have) any smoking gun evidence of Google's bad behavior.

While the FTC investigation might get the headlines, there has been a steady stream of lower-profile antitrust challenges against Google as well (KinderStart, Person and myTriggers are three cases that come immediately to mind). These civil challenges rarely go anywhere because they have zero merit. It's easy to plead an antitrust violation, but it's much, much harder to prove.

Now that Facebook ($FB) has developed into an Internet incumbent, antitrust claims are beginning to follow it too. Just like Google's experiences, most claims against Facebook are probably spurious, as evidenced by a recent ruling.

PageRage's Lawsuit

PageRage is a user-installed browser plug-in that customizes the display of Facebook's pages. Facebook denigrates PageRage as adware, but PageRage claims that Facebook didn't initially object to PageRage's operation as a plug-in. PageRage says it grew to 4 million users/day and over $1M in monthly ad revenue before Facebook changed its mind and dropped the hammer on it. PageRage claims that Facebook became concerned that advertisers were using PageRage as a cheaper way to reach Facebook users, so Facebook thwarted use of its plug-in in two ways: (1) Facebook organized an advertiser boycott, and (2) Facebook required its users to remove all plug-ins from PageRage's parent company if users wanted to access Facebook. PageRage then says Facebook's technological block cost it a million users/day, and Facebook reenabled PageRage use only when PageRage agreed not to display its own advertising, leading PageRage to cut "more than half its workforce, cease developing new products, and suffer significant financial losses."

PageRage objected to several of Facebook's practices, such as Facebook's requirement that app developers display only Facebook-approved advertisers in their apps. The court responded that Facebook may have legitimate business reasons for restricting the ads its users see (the court cited "Facebook's ability to maintain the quality of its product"), and the court noted Facebook didn't restrict PageRage's activities outside of the Facebook network (cites to LiveUniverse v. MySpace and Facebook v. Power Ventures). As a result, the court dismissed PageRage's complaint, although it did give PageRage a chance to try again. I expect PageRage will file an amended complaint, but I doubt it will fare any better in court given the over low merit of their arguments.

Implications

Although this was an easy case, the judge had some strong and interesting views about how antitrust law cannot interfere with Facebook's rights to manage its user experience. For example, the court says:

Facebook has a right to control its own product, and to establish the terms with which its users, application developers, and advertisers must comply in order to utilize this product....Facebook has a right to protect the infrastructure it has developed, and the manner in which its website will be viewed.

Elsewhere, the court says:

There is no fundamental right to use Facebook; users may only obtain a Facebook account upon agreement that they will comply with Facebook's terms, which is unquestionably permissible under the antitrust laws. It follows, therefore, that Facebook is within its rights to require that its users disable certain products before using its website.

These statements are quite helpful for both Facebook and other online services. In effect, antitrust law often involves aggrieved businesses trying to second-guess the business decisions of other profit-seeking enterprises, and we ought to support the efforts of online services to support their customers' needs. For more on this, see my discussion of 47 U.S.C. 230(c)(2) as an enabler of service provider discretion.

Facebook sent me this terse comment about the ruling, attributed to Craig Clark, Lead Counsel, Facebook: “We are pleased with the decision." As well they should be, in light of the judge's powerful endorsement of their discretionary managerial powers!

Despite this favorable ruling, Facebook will be encountering antitrust challenges with increasing frequency for at least four reasons. For more on this, see Robert Hof's post, Facebook's Looming Post-IPO Challenge: Antitrust.

First, Facebook is big, and as the FTC-Google investigation illustrates, big increasingly triggers antitrust scrutiny even without any evidence of bad conduct. Second, Facebook benefits substantially from network effects that effectively lock-in its users--even if they no longer love the site. This lock-in effect gives Facebook some leverage to control ancillary economic activities both on and off Facebook, as well as make poor anti-user product choices and avoid punishment in the marketplace. Third, as more entrepreneurs invest in Facebook-specific applications whose value can be instantly reduced or destroyed by Facebook's self-interested business decisions, we can expect these entrepreneurs will reach for any tool to preserve their investments. Fourth, I've seen a small uptick in the discussions of Facebook as "infrastructure" or "a utility," and either characterization leads towards further regulatory control over Facebook's product decisions. Thus, Facebook may have won this easy court challenge, but the looming battles will become increasingly dangerous to Facebook's autonomy--and profits.

[Photo credit: "Website access denied" // ShutterStock]

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

November 29, 2012

Yet Another Ruling That Competitive Keyword Ad Lawsuits Are Stupid--Louisiana Pacific v. James Hardie (Forbes Cross-Post)

By Eric Goldman

Louisiana Pacific Corp. v. James Hardie Building Products, Inc., 2012 U.S. Dist. LEXIS 162980 (N.D. Cal. Nov. 14, 2012). The initial complaint. The amended complaint filed after this ruling.

It's been surreal watching plaintiff-side trademark lawyers lament that the Rosetta Stone v. Google settlement means we won't get clearer legal precedent from the case. See, e.g., this paywalled BNA article, Attorneys Lament Lost Chance for Clarity On Lawfulness of Marks' Sale as Keywords. Those lawyers and I are living in parallel universes. The Rosetta Stone case's unenlightening denouement simply supplemented the overwhelming evidence that most keyword advertising lawsuits are stupid--and that fact hasn't changed one bit in the past decade. Plaintiffs' lawyers might enjoy chowing down on the litigation gravy train, but clients might as well flush wads of cash down the toilet.

The dumbest keyword advertising lawsuits assume that trademark owners "own" potential customers who conduct keyword searches using their trademarks. This fallacy needs to be permanently retired ASAP. As I mentioned in this post, consumer surveys suggest that consumers conduct do those keyword search for a variety of reasons that may have nothing to do with finding the trademark owner (a point I also stressed in my 2005 Deregulating Relevancy article). Treating these searchers as the trademark owner's property is in no one's interest--except, of course, the trademark owner hoping to avoid competition.

Fortunately, judges are recognizing that trademark owners don't own searchers. In today's case, the trademark owner alleged that the competitive keyword advertiser committed the tort of interference with economic advantage by disrupting their ownership of searchers. The court pithily trashes the claim:

Plaintiff's argument lacks merit as it is premised on the unfounded assumption that a person forms a business relationship with Plaintiff when he or she enters particular terms in Google's search engine. There is a possibility that consumers who search for Plaintiff through Google will choose to purchase Plaintiff's goods or services at some point in the future; however, such consumers do not have an existing business relationship with Plaintiff merely because they perform an internet search.

Hey trademark owners, want to "own" those consumers? Tough, you can't. However, you can nevertheless win their fickle dollars by consistently delivering good value to consumers. Pouring shovelfuls of cash into meritless litigation doesn't really advance that goal. Meanwhile, ten years from now, we're going to look back at the keyword advertising lawsuits being brought today--knowing all that we already know RIGHT NOW--and scoff at the futility and waste.

[Photo credit: Flushing one hundred dollars down the toilet // ShutterStock]

Posted by Eric at 07:28 AM | Marketing , Search Engines , Trademark | TrackBack

November 28, 2012

Lawsuit Over "Google Tags" Dismissed--Frezza v. Google

By Eric Goldman

Frezza v. Google, 2012 WL 5877587 (N.D. Cal. Nov. 20, 2012)

In Feb. 2010, Google introduced Google Tags, an advertising option in Google Places. Google Tags is now dead, but Google's still dealing with the aftermath. To spur adoption, Google offered free tags to Google Places merchants. There is a dispute about the offering terms. The plaintiffs thought they could get one month of unlimited tags for free; Google says the offer was for $25 off (the amount of one tag for a month). The plaintiffs are also grousy that Google allegedly didn't delete their credit card numbers after they terminated their Tags accounts.

The court dismisses all of the plaintiffs' claims, but gives them a second chance at more futility. I assume the plaintiffs will try again. The court's specific discussions:

Breach of Contract. This claim fails because the plaintiffs didn't quote the written contract terms they think bind Google.

Unjust enrichment. This claim is dependent upon, and therefore merges into, the contract breach claim.

CLRA. This is one of California's consumer protection statutes, and the plaintiffs don't qualify because they are businesses, not consumers.

Breach of Implied Contract. Plaintiffs claim they had an implied contract with Google to flush their credit card numbers. But what contract? The plaintiffs say industry standard is the Data Security Standards ("DSS") promulgated by the Payment Card Industry Security Standards Council, but the plaintiffs don't assert that Google agreed to comply with the DSS.

The court addresses a second argument:

If, as plaintiffs argue in their opposition, Google simply agreed to "handle its customers' credit card information responsibly," Dkt. No. 13, the claim still fails. Plaintiffs contend that Google breached the implied contract because it has retained the credit card information of plaintiffs after they have cancelled their subscription to Google Tags. See Compl. P 60. However, retaining information does not amount to handling it irresponsibly. Without more, plaintiffs have not sufficiently alleged that Google breached a general obligation to reasonably safeguard customer information.

Customer Records Act. Finally, the plaintiffs asserted that Google breached a California statute saying a "business shall take all reasonable steps to dispose, or arrange for the disposal, of customer records within its custody or control containing personal information when the records are no longer to be retained by the business." The court says this statute doesn't require the disposal of customer records at any specific time; it simply applies once a business has decided to make the disposal.

[Photo credit: "Crisis" // ShutterStock]

Posted by Eric at 04:22 PM | E-Commerce , Licensing/Contracts , Marketing , Privacy/Security , Search Engines | TrackBack

November 15, 2012

Court: Customer Consents to Receive Texts by Providing Phone Number to Pharmacy – Pinkard v. Wal-Mart Stores, Inc.

[Post by Venkat Balasubramani]

Pinkard v. Wal-Mart Stores, Inc., 12-cv-02902 (N.D. Ala. Nov. 9, 2012)

Text messaging lawsuits are out of control.* That said, a district judge granted a motion to dismiss brought by Wal-Mart in a text spam case that even by the most conservative standards was a harsh result. (Two other courts have also recently given text spam lawsuits the boot: Ibey v. Taco Bell and Ryabyshchuck v. Citibank.)

Pinkard visited a Wal-Mart in-store pharmacy, and at the request of Wal-Mart employees, provided her mobile phone number. She alleges that the employees did not expressly seek her permission to send text messages but rather said the number was necessary “in case . . . any questions . . . came up.” She started receiving text messages from Wal-Mart (the frequency and contents were not alleged). When she inquired with Wal-Mart staff as to why she received text messages, a Wal-Mart employee told her that it was Wal-Mart’s policy to automatically enroll pharmacy customers into a program that sends Wal-Mart-related texts to those customers.

Wal-Mart argued that by providing her number, plaintiff consented. The key question is what consent under the TCPA should look like. The court notes that the FCC has a rule that requires written consent, but this rule will not go into effect until October 2013. Therefore, written consent is not required. The court says that a party consents to receiving calls when the party “voluntarily provides her telephone number to another.” Pinkard argued that this rule only applied to telephone calls in the colloquial sense and not text messages (that the FCC and courts also treat as “calls” under the TCPA). The court is not persuaded, and says that text messages and voice calls are treated the same for other purposes of the TCPA, so there’s no reason to distinguish when it comes to consent:

no statutory, regulatory, or caselaw rationale to distinguish [between calls and text messages] presently exists. Consequently, under sec. 227(b)(1), a person ‘who knowingly releases her phone number has in effect given her invitation of permission’ to be contacted at that number, including via text message.

Plaintiffs pointed to the Ninth Circuit’s statement in Satterfield that consent needs to be “clear[] and unmistakable,” but the court says that giving someone (even an employee at Wal-Mart) your mobile number is clear and unmistakable consent. To hold otherwise, the court says would “contradict the overwhelming weight of social practice.”

Finally, plaintiff moved to amend her complaint, and she submitted a proposed amended complaint that added a bunch of factual detail, including that she did not consent to receive texts (whatever the scope of consent may be inferred from providing her number). The court says that plaintiff’s proposed amended pleading inverts the burden of proof. It’s initially Wal-Mart’s burden to prove consent. Once it satisfies this burden, it’s then plaintiff’s burden to “explicitly state the limited scope of her consent.” [emphasis in original] Either way, the court denies the proposed amendment on the basis that it would be futile.

Oy. It can’t be the right answer that if you provide a pharmacy your mobile number at the pharmacy's request, you automatically consent to receiving a stream of commercial text messages. I’m not sure in what universe this would be in accordance with the “overwhelming weight of social practice,” but probably not ours. It will be interesting to see if plaintiff appeals. I would assume she has a reasonably good chance of success, at least to proceed past the pleading stages.

The ruling touches on a favorite theme: unintended consequences from application of a law or regulation to a medium it was not necessarily originally intended to address. (See also Facebook v. Max Bounty.) Here, although virtually every court has since come to this conclusion, it was far from obvious that the TCPA’s definition of "call" encompassed text messages. (See Joffe v. Acacia Mortgage for early discussion of this issue, as well as Abbas v. Selling Source.) One of the problems with this approach is that consent for texts plays out differently than consent from calls, and the operative FCC regulations don’t provide sufficient guidance on how to distinguish between the consent that should be implied to receive a call when you give someone your telephone number and consent to receive texts. (Either way, the fact that the customer provided the number at the employee’s request should affect the analysis.)

* - If a class action suing a sports team for sending more than the allotted amount of 5 texts per week isn’t over the top, I’m not sure what is. See the recently filed complaint in Wojcik v. Buffalo Bills, Inc., 12 cv 2414-SDM-TBM (M.D. Fla. Oct. 25, 2012).

[image credit: Shutterstock/Anton Novik "Glossy Winged Mail Envelope"]

Posted by Venkat at 12:52 PM | E-Commerce , Marketing , Spam

November 13, 2012

Another Google AdWords Advertiser Defeats Trademark Infringement Lawsuit--CollegeSource v. AcademyOne (Forbes Cross-Post)

By Eric Goldman

CollegeSource, Inc. v. AcademyOne, Inc., 2012 WL 5269213 (E.D. Pa. October 25, 2012)

Over the last dozen years, there have been countless trademark lawsuits over competitive keyword advertising (i.e., when a company buys its competitor's trademark to display keyword-triggered advertising). However, only a few of those cases--about a dozen, by my count--have reached a final outcome in a United States court, as opposed to out-of-court resolutions like a settlement. Of those, trademark owners rarely win, as demonstrated by a recent ruling.

The Recent Ruling

The lawsuit involves two competing web services that help college students research options for transferring to other colleges. CollegeSource sued AcademyOne for a long laundry list of perceived wrongs, including competitive keyword advertising.

CollegeSource owns the trademarks “CollegeSource” and “Career Guidance Foundation.” AcademyOne purchased the keywords “college,” “college source,” “career guidance,” and “career guidance foundation” in Google AdWords. Its ad copy displayed the titles “College Transfer Help” or “Find Transfer Information” and the domain name “collegetransfer.net,” but didn't include CollegeSource's trademarks. The court granted AcademyOne's summary judgment motion because, among other reasons:

* CollegeSource presented "sparse" evidence of actual consumer confusion given that AcademyOne got only 65 clicks on its ads in one month.
* AcademyOne's ads were clearly presented to consumers in light of "the entire context of the advertisement’s appearance, especially the clearly differentiated [Sponsored Link] text boxes and the fact that CollegeSource’s name does not appear within the language of the advertisement."
* Internet users are becoming more careful searchers generally, and the complexity and expense of college transfer decisions means that students will be especially careful.

Implications

Trademark Owners Rarely Win AdWords Cases When Challenged. I've put together this census of final U.S. court resolutions in trademark lawsuits over competitive keyword advertising, excluding false advertising cases such as Tiffany v. eBay:

* plaintiff got injunction: CJ Products v. Snuggly Plushez (2011); InternetShops v. Six C (2011) (note: defendant admitted trademark liability, so the opinion only deals with remedies).

* plaintiff won summary judgment: Storus v. Aroa (2008).

* plaintiff won at trial: Binder v. Disability Group (2011). This case was decided before the Ninth Circuit ruling in Network Automation, and I believe it's no longer good law.

* defendant won summary judgment: J.G. Wentworth v. Settlement Funding (2007); Designer Skin v. S&L Vitamins (2008); 1-800 Contacts v. Lens.com (2010); Montana Camo v. Cabela's (2011); Jurin v. Google (2012) (note: unlike the other cases, in Jurin the defendant was Google, not the advertiser). Now add CollegeSource v. AcademyOne to this list.

* defendant won at trial (all jury trials): Fair Isaac v. Experian (2009) (technically, the final win came in a post-trial ruling); College Network v. Moore (jury ruling in 2009; affirmed on appeal in 2010); Consumerinfo v. One Techs. (2011). Note the College Network case also involved rival publishers of education-related materials.

This census is surely incomplete, so please pass along additions or corrections. I excluded the GEICO v. Google case because the trial didn't fully resolve the case. I also excluded the Rosetta Stone v. Google district court ruling for Google because it was reversed on appeal.

I haven't tried to catalog the multitudinous foreign lawsuits over competitive keyword advertising. However, one case of special interest is Private Career Training Institutions Agency v. Vancouver Career College (Burnaby) Inc., a British Columbia case from 2011, where the court ruled at trial for the defendant. That case also involved marketing to college students. What a rough-and-tumble market that must be to spur so many competitive keyword advertising lawsuits.

Although the census dataset is small and each case has its own quirks, it's hard not to notice that the trademark owners' batting average (4 wins out of 13 final court resolutions) isn't great. Furthermore, I am aware of only three U.S. cases where a jury opined on competitive keyword advertising, and all three juries favored the defense. This is consistent with a recent empirical study that consumers aren't confused by competitive keyword advertising.

The Economic Irrationality of Suing Over Competitive Keyword Advertising.

Irrespective of their legal merits, competitive keyword advertising lawsuits often involve trivial amounts of clicks and revenues. For example, in the CollegeSource case, the advertiser got a whopping total of 65 clicks in one month. With such de minimis activity, the incremental expenses CollegeSource expended litigating the trademark issue could not possibly be justified by the economic impact of AcademyOne's keyword ads.

Other examples where the trademark owner surely was wasting its money by suing over competitive keyword ads (previously noted in this post):

* Storus v. Aroa: the defendant advertiser got 1,374 clicks over 11 months. Based on the low cost of the goods at issue, I estimate each click was worth about $1--making the lawsuit's value less than $1,400.

* King v. ZymoGenetics: the defendant advertiser got 84 clicks.

* Sellify v. Amazon: the defendant got 1,000 impressions and 61 clicks.

* 800-JR Cigar v. GoTo.com: the search engine defendant generated $345 in revenue (not profit, just revenue) from the litigated terms.

* 1-800 Contacts v. Lens.com: Lens.com made $20 of profit from competitive keyword ads. 1-800 Contacts unsuccessfully 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 $40,000. 1-800 Contacts spent no less than $650k (and was willing to spend $1.1M) on its lawyers in this case.

* InternetShopsInc.com v. Six C, the defendant got 1,319 impressions, 35 clicks and zero sales.

Between the long odds in court, the low/trivial financial stakes at issue and the improbability that consumers are being misled, there are several good reasons for trademark owners not to bring lawsuits over competitive keyword advertising.

Posted by Eric at 08:58 AM | Marketing , Search Engines , Trademark | TrackBack

November 05, 2012

Confirmatory Opt-out Text Message Not Actionable Under the TCPA -- Ryabyshchuck v. Citibank

[Post by Venkat Balasubramani]

Ryabyshchuck v. Citibank, 11-CV-1236 – IEG (WVG) (S.D. Ca. Oct. 30, 2012)

Ryabyshchuck filled out an online credit card application. A pop-up message displayed when he entered his information alerted him to the fact that by providing his number, he:

agree[d] to receive calls and messages, such as text messages, to service [his] account.

A couple of days later, he received a text from Citibank to the number he provided:

Free Text Msg.: Citi Cards needs to talk with you regarding your recent application. Please call 866 365-8692. To Opt-Out reply STOP.

He replied “STOP,” and promptly received confirmation that Citi opted him out from receiving additional messages:

Free Text Msg.: Per your request you will no longer receive text messages from Citi Cards Credit Dept. If you have any questions call 866 365 8962.

He sued, alleging that the text messages violated the Telephone Consumer Protection Act. The court initially denied Citibank’s motion to dismiss. (Here’s our previous blog post on this ruling: “Text Spam Lawsuit Against Citibank Moves Forward Despite Vague Allegations of Consent -- Ryabyshchuk v. Citibank.“) However, the court recently granted Citibank's motion for summary judgment.

Plaintiff abandoned his argument as to the initial message so the only message at issue was the confirmatory opt-out message. At least one court has held that a confirmatory opt-out message does not violate the TCPA (Ibey v. Taco Bell), and this court follows suit as well. Agreeing with the conclusion that imposing liability for a single confirmatory text message would “contravene public policy and the spirit of the statute,” the court grants Citibank’s motion for summary judgment.

Nice to have that cleared up.

[NB: Ryabyshchuck has a name that even I found difficult to spell (and that’s saying something). I thought I misspelled his name in the previous blog post about the case, but it turns out I followed the court’s spelling—that ended up changing from the previous order to this order.]

Group Text Services Grapple with TCPA Class Actions
Ninth Circuit Revives TCPA Claim--Satterfield v. Simon & Schuster
Cellphone Spam Violates TCPA--Joffe v. Acacia Mortgage
Text Spam Lawsuit Against Citibank Moves Forward Despite Vague Allegations of Consent -- Ryabyshchuk v. Citibank
Court Rejects Constitutional Challenge to TCPA Based on Vagueness in "Prior Express Consent" Exception -- Kramer v. Autobytel, Inc.
Another Court Finds that TCPA Applies to Text Messages -- Lozano v. Twentieth Century Fox Film Corp.
Court Finds that SMS Spam Messages are Subject to the TCPA and Rejects First Amendment Defense -- Abbas v. Selling Source, LLC
Confirmatory Opt-Out Text Message Doesn't Violate TCPA – Ibey v. Taco Bell
Franchisor Isn't Liable Under the TCPA for Franchisees' Text Message Campaign – Thomas v. Taco Bell

[image credit: "old fashioned phone over white" earshot/shutterstock]

Posted by Venkat at 03:24 PM | Content Regulation , Marketing , Privacy/Security , Spam

October 22, 2012

Ninth Circuit Says Yellow Pages are Entitled to Full First Amendment Protection--Dex v. Seattle

[Post by Venkat Balasubramani, with comments from Eric]

Dex Media West v. Seattle, Nos. 11-35399 & 35787 (9th Cir. Oct. 15, 2012) [pdf]

The City of Seattle thought that Yellow Pages were not particularly useful and created unnecessary waste, so it required Yellow Pages distributors obtain a license, publish a notice regarding a new City-created opt-out registry, and pay fees for each book distributed. The ordinance exempted certain publications, including “membership organization” directories and residential telephone directories that did not contain any “yellow pages” advertising.

Some Yellow Pages publishers challenged the ordinance on First Amendment, commerce clause, and state law grounds. The trial court denied their request for an injunction, and later granted summary judgment to the City. (Here’s our blog post on the injunctive relief ruling: “Judge Refuses to Block Seattle's Yellow Pages Opt-out Law -- Dex Media v. Seattle.”)

The Ninth Circuit reversed, in a ruling that focuses almost exclusively on the level of protection accorded to Yellow Pages directories. The trial court said that the Yellow Pages were commercial speech. The Ninth Circuit disagrees and says that Yellow Pages are entitled to full First Amendment protection. The fact that phone book companies depend on advertising revenue isn’t dispositive:

Ultimately, we do not see a principled reason to treat telephone directories differently from newspapers, magazines, television programs, radio shows, and similar media that does not turn on an evaluation of their contents. A profit motive and the inclusion or creation of noncommercial content in order to reach a broader audience and attract more advertising is present across all of them.

The court goes on to say that the district court's attempt to distinguish Yellow Pages from media such as newspapers based on the role the latter plays in our democracy does not work: "[t]he First Amendment does not make protection contingent on the perceived value of certain speech."

A good and obviously First Amendment-friendly ruling that has the effect of undermining a well-intentioned but poorly crafted piece of legislation. I didn't think this statute had a very good chance of surviving, but I thought the court would focus more on the fit, the licensing, and the exceptions. Eric--in his typically entertaining and on-point way--tees off on the distinction between advertising content and editorial content and the test used for determine the level of protection for expression that contains both (instant classic: "[t]he Ninth Circuit's opinion was fine . . . but it still made me want to cry . . . ."). I wonder what types of other mixed editorial/advertising content could benefit from this rule?

Unsolicited advice to the City of Seattle: how would I tackle this issue? I would regulate the delivery of any unsolicited pamphlets or books that are over a certain weight. This would be a content neutral basis for regulation and would put the kibosh on phone books (and anything else that fit the bill). (But see WAC 480-120-251 that mandates the publication and distribution of business and residential listings. This regulation should be revised to require the publication of listings online.)

___

Eric's Comments

Who cares about printed Yellow Pages any more? In a Google era of keyword searches for local businesses, Yellow Pages are an anachronism. They are not as current as search databases (i.e., many Yellow Pages publish only once a year); their keyword indexes are often not helpful; many businesses aren't listed in the Yellow Pages; and Yellow Pages lack easy ways to evaluate an advertiser's integrity (in contrast to online consumer reviews that show up in a keyword search for the business), meaning that consumers instead decide who to contact based on unreliable intrinsic ad factors like the ad's size and the hype of the claims. If you don't have access to a search engine, the Yellow Pages are way better than nothing; but if you could use a search engine, Yellow Pages are clearly inferior for almost all local business searches. [UPDATE: This photo makes the point concisely.]

Still, the Yellow Pages industry generates billions of dollars a year--as recently as 2008, nearly $14B/year. See this article by Chris Silver Smith. So I guess some folks, like Seattle, still feel like they are worth worrying about. Personally, I would let the marketplace drive Yellow Pages into the ground without any regulatory intervention.

The Ninth Circuit's opinion was fine (especially by Ninth Circuit standards), but it still made me want to cry. The entire artifice of trying to classify content into "ads" and "editorial content" is completely, irretrievably, 100% doomed. The distinction never worked, and it sure doesn't work now. There are simply too many border cases. As a result, I would favor giving up the distinctions altogether. If that means we treat all commercial content as equally Constitutionally protected as editorial content, I would be fine with that.

Parsing advertising and editorial content in phonebooks breaks down into three familiar categories:

* phonebooks that have no content other than advertising (i.e., pure Yellow Pages). The Ninth Circuit opinion says those would be subject to lower First Amendment protection because they are commercial speech.
* phonebooks that have no advertising at all. Seattle excluded those, and only those, from its onerous obligations. The Ninth Circuit says that exclusion is insufficient protection for the First Amendment.
* phonebooks that are a mixture of advertising and editorial content. The court treats these phonebooks (which it incorrectly refers to only as "Yellow Pages," when I think it meant phonebooks generically) as fully protected under the First Amendment because it couldn't distinguish them from other editorial media.

I'm fine with this conclusion, but does anyone really care about the editorial content in the phonebooks? Nowadays with people not publishing their phone numbers and cellphones storing the phone numbers of loved ones (and the ability to send emails instead of calling strangers), the white pages information is useless for most folks; and I'm sure most folks have no idea that phonebooks may contain other editorial content. The marketplace's low value placed on phonebooks' non-advertising content brought to mind the seminal (and surprisingly uncited) case Valentine v. Chrestensen, 316 U.S. 52 (1942), which also involved an advertisement where the disseminator grafted some editorial content onto an advertising leaflet to avoid an advertising regulation. 70 years after that case, we're still wrestling with the same classification problems and not really handling them any smarter--or with any more predictability. Sigh.

Other coverage:

Techdirt: "Court Rules Yellow Pages are Protected Speech"
SF Examiner: "Yellow Pages victory in Seattle might threaten San Francisco’s ban"
Seattle PI: "Court: Seattle Yellow Pages restrictions violate Constitution"
Seattle Times: "Appeals court rules against Seattle's curbs on yellow pages"

[image credit: Tarczas / Shutterstock]

Posted by Venkat at 07:35 AM | Content Regulation , Marketing

October 21, 2012

Q3 2012 Quick Links, Part 3 (Advertising, Privacy, Consumer Protection)

By Eric Goldman and Jake McGowan

Advertising

* Marketing Land: Google Results Position: How Much is First Place Really Worth?

* Tom O'Toole recaps the ubiquity of text messaging marketing by NHL teams...and their need to clean up their privacy compliance.

* AdAge: Web Ads Target Based on What You Watched on TV

* CLRB Hanson v. Google settlement checks went out, and they are mockably small. Prior blog post.

* National big-brand advertisers may be skeptical of Facebook's results, but some mom-and-pop businesses are loving "F-commerce." Just remember, as the article says, "business owners should be aware that they do not own their Facebook pages — Facebook does, and it can change the appearance and rules whenever it wants." See, e.g., Complexions v. Complexions Day Spa (N.D.N.Y. 2011); Lown v. Piggy Paint (W.D. Mich. 2012).

* NAD: “weight-loss success stories “pinned” to [Pinterest] represent consumer testimonials and require the complete disclosure of material information. NAD further noted its appreciation that Nutrisystem took immediate steps to provide such disclosures."

* Cases against laws school for false advertising are making little progress:
- Phillips v. DePaul University: Another case over law school’s employment statistics tossed.
- Macdonald v. Cooley. Rebecca’s coverage.
- Compare the California cases. Rebecca's coverage.

* Oracle America, Inc. v. Google Inc., 2012 WL 3854012 (N.D. Cal. Sept. 4, 2012):

"The Court takes this opportunity to state that it will take no further action regarding the subject of payments by the litigants to commentators and journalists and reassures both sides that no commentary has in any way influenced the Court's orders and ruling herein save and except for any treatise or article expressly cited in an order or ruling."

Prior blog post.

- San Jose Mercury News: Microsoft and Google battle for influence in the policy shadows
- Google vs. Microsoft: See who’s clashing behind the scenes.
- Paul Levy: Judge Alsup’s ”Identify Your Shills” Order.
- Spiegel: "Search engine giant Google officially opens its hip new Berlin office this week. But the company has long been active in the German capital in its bid to influence government Internet policy. Its subtle approach to lobbying involves building an opaque network of PR professionals, activists and academics -- and its efforts are paying off. "

* Australia expects advertisers to clean up their users’ Facebook comments at least once a day.

* Swatch, S.A. v. Beehive Wholesale, L.L.C., 2012 WL 3578942 (E.D. Va. August 16, 2012):

“The sole overlap in the Parties' advertising is their use of the internet, in particular their internet stores. But that is no overlap at all. Though Swatch maintains a page on Facebook and a Twitter account, there is no evidence it purchases advertisements on any website. Neither does Beehive. The parties simply maintain stores on their corporate websites where individuals can purchase their products. When taken alone, however, internet stores are no more of an advertisement than a brick and mortar store front."

* More allegations of “pay for play” against Yelp.

* WSJ on how movie studios are getting smarter about social media marketing and dealing with online word of mouth.

Privacy

* TechCrunch: 5 Design Tricks Facebook Uses to Affect Your Privacy Decisions.

* Wired: Your Website Comes From 1,000 Places. Here’s How to Map Them.

* Incorp Services Inc. v. IncSmart.Biz Inc., No. 11-CV-4660-EJD-PSG, 2012 WL 3685994 (N.D. Cal. Aug. 24, 2012). Competitive click fraudding doesn't violate the Computer Fraud & Abuse Act.

* Attorney General Kamala D. Harris Announces Privacy Enforcement and Protection Unit. I can imagine this department has only one raison d'etre: to crack skulls in Silicon Valley. Something to look forward to.

* Neeley v. NameMedia, Inc., 2012 WL 3135717 (W.D. Ark. August 1, 2012): Another loss in this ongoing saga, this time on grounds of res judicata and failure to state a claim.

* FTC Backs $22.5M Google Settlement Over Safari: Reuters. FTC. Recap of FTC’s Twitter chat on the Google settlement

* FTC Seeks Comments on Additional Proposed Revisions to Children’s Online Privacy Protection Rule

* Illinois Bill 3782: Another states restricts employers' access to employees' social media login credentials. Prior blog post on California's similar law.

* Denouement of IMS v. Sorrell: Vermont is writing a $2.2M check to the statute challengers for attorneys’ fees. Vermont taxpayers got an expensive lesson in how their legislators can waste a lot of their money trying to suppress targeted advertising.

* FTC approves the Facebook settlement.

* FTC Finalizes Privacy Settlement with MySpace.

* The Deal Pipeline: "[Joshua] Wright is the first member of the social media generation nominated to the FTC and it will be interesting to see how the Democratic-controlled Senate reacts to his online prolificacy."

Consumer Protection

* Drew v. Equifax (9th Cir. Aug. 7, 2012): identity theft victim's lawsuit against credit reporting agencies revived.

* The ALI is starting up a project on a Restatements of Consumer Contracts.

* NY Times: Does price discrimination make consumers victims . . . or winners?

* Consumer Financial Protection Bureau makes $165M bust of Capital One. New cop on the beat.

* NY Times: After the big antitrust settlement by Visa and Mastercard, will there be any real changes for either merchants or consumers?

Posted by JakeMcGowan at 08:24 AM | Marketing , Privacy/Security | TrackBack

October 20, 2012

9th Circuit Zings Best Buy Over Robocalls – Chesbro v. Best Buy

[Post by Venkat Balasubramani, with a comment from Eric]

Chesbro v. Best Buy Stores, L.P., No. 11-35784 (9th Cir. Oct. 17, 2012) [pdf]

The Ninth Circuit has issued a few consumer-favorable rulings in the unsolicited text and phone call realm. Here is a another one.

Chesbro bought a computer at Best Buy and provided his telephone number. Best Buy says that he also signed up for Best Buy's “Rewards Zone Program.” Chesbro says he knows nothing about the program, and if he signed up to enroll, he did so unwittingly.

Then, the robocalls started. Chesbro says he received “more than five, less than a dozen” calls from Best Buy following his computer purchase. Chesbro complained to the Washington AG’s office after receiving one particular call. He also called Best Buy and told them to put him on their internal “do not call” list. (He was also signed up on the national “do not call” registry, but that doesn’t seem to have been very effective.) Finally, the straw that broke the proverbial camel’s back:

This is a very important message regarding the Best Buy Reward Zone program. We’re making some changes to increase the security of the program and be more environmentally friendly. Please listen to the entire message and then go to MyReward-Zone.com for details and to update your membership.

The following changes take effect October 31st, 2009 …

For full details and to make sure you’re ready for these changes, go to MyRewardZone.com.

If you would like to hear this message again, press 9
Thank you for your time — and for being a valued Reward Zone program member.

Chesbro sued, asserting claims under the TCPA and Washington’s do not call statute. The TCPA allows the FCC to exempt certain commercial calls that do not adversely affect the privacy interests protected by the TCPA and do not contain unsolicited advertisements. The FCC promulgated rules but said that “dual purpose” calls—calls where a company may inquire about the customer’s satisfaction or otherwise provide customer-service information but also offer to sell additional goods or services--are advertisements and subject to the prohibitions of the TCPA.

Best Buy says that the calls were purely courtesy calls or informational calls. The court disagrees:

The robot-calls urged the listener to “redeem” his Reward Zone points, directed him to a website where he could further engage with the RZP, and thanked him for “shopping at Best Buy.” Redeeming Reward Zone points required going to a Best Buy store and making further purchases of Best Buy’s goods. There was no other use for the Reward Zone points.

The court says that the absence of any reference to products or services is not determinative. The court also allows Chesbro’s claims under the Washington version of the TCPA to move forward.

Ouch. The court’s conclusion that the calls are advertisements only leaves room for Best Buy to argue consent, and that doesn’t seem like a particularly easy argument to make. (See Citibank; Thrasher-Lyon v. CCS Commercial.)

As a consumer, I applaud the court’s privacy-friendly approach. I (like everyone) can’t stand robocalls. But the court's interpretation doesn't leave much room for "informational calls" that are not advertisements. Maybe this is the right approach, as a "purely informational" or customer service call from a corporation is about as real as a unicorn. Perhaps what ultimately swayed the court is Best Buy’s mule-like refusal to honor Chesbro’s numerous opt-out requests. It’s a given in today’s day that the right hand of the corporation will never talk to the left, but that is very likely what could have tipped the scales here.

I've long advocated leaving text message-based marketing out of the marketing toolbox (due to the risk of liability). Perhaps it's time to add robocalls to the list.

Added: I thought it was worth mentioning Stern v. Bluestone, a 2009 decision from New York's highest court tackling this issue in the context of unsolicited faxes sent by attorneys: "N.Y. High Court Finds Attorney's Unsolicited Faxes Did Not Violate Communications Act."

Of interest: “The Federal Trade Commission (FTC) is challenging innovators to create solutions that will block illegal robocalls.” $50,000 bounty!
___

Eric's Comment: Following the Dex v. Seattle case we'll be blogging about soon, this is a second Ninth Circuit case this week attempting to make legal distinctions between editorial content and advertising. As I indicate in the upcoming Dex post, there are simply too many border cases for that distinction to remain coherent. Consider this: this week, the Ninth Circuit held that Yellow Pages are editorial content and a reminder about expiring loyalty points is advertising. Good luck rationalizing those conclusions!

[image credit: John T. Takai / Shutterstock]

Posted by Venkat at 09:38 AM | Content Regulation , E-Commerce , Marketing , Privacy/Security , Spam

October 12, 2012

Wikipedia's "Pay-for-Play" Scandal Highlights Wikipedia's Vulnerabilities (Forbes Cross-Post)

By Eric Goldman

Recently, two high-level Wikipedia UK insiders, Roger Bamkin and Maximillian Klein, were caught with apparent conflicts-of-interest. Bamkin, a Wikipedia UK trustee and "Wikipedian in Residence," allegedly maintained a paid consultancy for the country of Gibraltar while editing and seeking additional exposure for Gibraltar's wiki entries--a benefit he appeared to claim was worth millions and sold for about $80,000. Klein, also a Wikipedian in Residence, allegedly advertised that he would make Wikipedia edits to people who paid him. In response to pushback from the Wikipedia community, Bamkin resigned his trusteeship and Klein scrubbed his website.

Photo credit: Sergiy Kuzmin/Shutterstock

On the plus side, the incident reinforces the power of Wikipedia's community to monitor itself and self-discipline violations of its norms. Yet, the incident also prompts us to consider why people invest the time and energy to become Wikipedia insiders in the first place. Should it be surprising that some Wikipedia insiders are trying to cash in on their insider status? For reasons, I'll explain this post, my answer is emphatically "no."

In my 2010 article, Wikipedia’s Labor Squeeze and its Consequences, I explained how Wikipedia's popularity and growth put increasing stress on Wikipedia's labor model. (The article itself builds on my blog posts over the years predicting Wikipedia's demise; see links below). Its combination of its high traffic and free editability creates an irresistible target to spammers and vandals. Wikipedia has coped with the resulting stress by: (1) increasing the amount of work done by its paid employees, which have grown substantially in number over the past few years, (2) reducing the ease of editability (i.e., raising the entry barriers to making contributions to the website), and (3) developing a xenophobic culture that has stifled the pipeline of new power users (see also this article making the same point about xenophobia). The result is that editing power is being consolidated in a shrinking number of key insiders.

Understanding why folks become Wikipedian insiders is critical to Wikipedia's long-term prognosis, but the explanations aren't fully clear. Some insiders do it purely for the altruism. Others do it because, somehow, they became integrated into the social network of other insiders. But most people will make the heavy commitments required to become a Wikipedian insider only if they can convert that effort into a tangible payoff--cash in their pocket or external recognition that burnishes their reputation ("credit"). Wikipedia contributors have very limited ways to generate cash or credit from their participation, leaving Wikipedia with the challenge of finding enough folks sufficiently motivated by other payoffs to replace the constantly shrinking supply of insiders.

From Bamkin's situation, we learn that being a Wikipedia insider could be financially lucrative if insiders decide to cash in. Bamkin allegedly offered to arrange for premium placement in Wikipedia's navigation--an outcome he says is worth about $3.25M--in exchange for an approximately $80,000 consultancy fee. It doesn't take many clients paying $80k a pop to create a pretty sweet consulting business. With millions of dollars of potential marketing value at issue, it's hardly shocking to see an informal marketplace develop to capture that value; if anything, I'm more surprised that other insiders haven't grabbed for the cash (or perhaps just haven't been caught yet).

In the end, I think the incident exposes Wikipedia's long-term fragility. It can't expect to recruit an adequate supply of talented insiders without providing them enough cash or credit to make the endeavor worth their while; but it can't maintain a publication with editorial integrity if insiders sell placement for big bucks. The Wikipedia community can drum out Bamkin and Klein from its ranks, but that's a short-term solution at best. Until it comes up with a viable model that provides insiders with appropriate alternative ways of receiving cash or credit for their efforts, it will keep experiencing "scandals" or keep seeing its insider base atrophy. My 2010 article offers some possible solutions to this dilemma, but it also cautions that the insider community's xenophobia and resistance to change may kibosh the most promising alternatives--meaning that a dystopian outcome for Wikipedia remains a lingering and worrisome possibility.

I've blogged frequently about Wikipedia's labor challenges over the years:

* My 2005 Prediction of Wikipedia's Failure By 2010 Was Wrong (Jan. 2011)
* Catching Up With Wikipedia (Feb. 2010)
* Offering Students a Graded Wiki Option—My Experiences, and Some Lessons (Feb. 2010)
* Why More Wikipedia Editing Restrictions Are Inevitable, and Some Comments on Flagged Revisions for Living People's Biographies (Aug. 2009)
* Wikipedia and Rules Proliferation (Aug. 2009)
* Decay Rates of Committed Online Community Members--an Epinions Case Study (Jan. 2009)
* Wikipedia Revisited: the Wikipedia Community's Xenophobia (Jan. 2008)
* Wikipedia and Search Engine Marketing (SEM) / Search Engine Optimization (SEO) (May 2007)
* Wikipedia Will Fail in Four Years (Dec. 2006)
* Wikipedia Will Fail Within 5 Years (Dec. 2005)

Posted by Eric at 10:10 AM | Internet History , Marketing | TrackBack

September 30, 2012

Lovelorn Plaintiffs Strike Out Against Match.com – Robinson v. Match.com

[Post by Venkat Balasubramani]

Robinson v. Match.com, 10-CV-2651-L (N.D. Tex. Aug. 10, 2012) [pdf]

This is another suit brought by users of a dating site who claim that a dating site deceptively leaves inactive users in its system, thus reducing the users’ chances of finding their soulmate. The court dismisses their claims and sends them packing.

Breach of contract: Plaintiffs claimed, among other things, that Match.com failed to vet profiles, failed to purge inactive profiles, falsely labeled inactive profiles as “active”, failed to police the site against scammers, and failed to verify its users' identities. Plaintiffs pointed to various provisions in Match.com's user agreement that required users to assume responsibility for their own profiles and warned users against doing nefarious acts via their profiles. The court easily says that these provisions set forth Match.com’s obligations vis a vis users, and do not require Match.com to undertake any corrective action Match.com said it could take when users engaged in shady dealings with their profiles. The court also relies on Match.com’s disclaimer of warranty, which pretty clearly said that Match.com does not vet its users and is not responsible for any incorrect or inaccurate content.

Duty of good faith: Plaintiffs also argued that Match.com had a duty of good faith, and its failure to adequately police its profiles was a breach of this duty. The court says that such a duty only exists where there is a “special relationship” between the parties. While plaintiffs may have been searching for that “special relationship” using Match.com, it’s just another website that provides services to various customers, and the law does not impose a duty of good faith on Match.com. Plaintiffs also argued that there was a special relationship by virtue of the unequal bargaining power, but this argument fails as well. Similarly, plaintiffs’ argument that their provision of confidential or personal information to Match.com creates a special relationship goes nowhere. The court says that if all that is required to create a special relationship is for one party to furnish the other party with personal information, “virtually every online transaction for the purchase of goods or services . . . would give rise to a special relationship.”

Texas Deceptive Trade Practices Act: Plaintiffs also brought a claim under the Texas Deceptive Trade Practices Act. The court issues a show cause order saying it’s going to strike this claim because under Texas law a claim under the DTPA can’t be based on a mere breach of contract. The court directs the parties to file briefs as to why a claim is (or isn’t) viable under this statute. (This claims looks like it's short-lived as well.)

Oy, another set of dating site plaintiffs get the smackdown. Two other cases in this vein are Anthony v. Yahoo! and Badella v. Dinero Marketing (linked below). Yahoo! settled Anthony for $4mm. The Online Cupid case (Deniro Marketing) wasn't certified as a class and promptly settled on an individual basis.

Plaintiffs pointed to contractual obligations allegedly promised by Match.com to get around the obvious Section 230 issue. The Section 230 rules allow a provider such as Match.com broad immunity for its decisions in deleting, purging, or otherwise dealing with accounts. (See Young v. Facebook and Eric's essay on this topic.) This is also a good example of a case where the service provider’s alleged promises were undercut by disclaimers in its terms of services. For better or worse, a robust disclaimer will undermine even seemingly express assurances made in a website's marketing copy. Finally, we've seen the third party beneficiary argument raised again and again but it never goes anywhere. A website terms exist for the benefit of the site and sets forth obligations vis a vis the site and an individual user. A user is never a third party beneficiary of the site's negative contract restrictions. (See Godard v. Google; Balsam v. Tucows; Noah v. AOL.)

At the end of the day, maybe there's some skepticism--around whether the judicial system should be used as a tool to remedy the broken hearts of online daters--that influences the results in these cases, but the court’s reliance on Match.com's terms was in line with other cases.

Posted by Venkat at 12:12 PM | E-Commerce , Licensing/Contracts , Marketing

August 13, 2012

Court Declines to Dismiss Video Privacy Protection Act Claims against Hulu

[Post by Venkat Balasubramani]

In re Hulu Privacy Litigation, C 11-03764 LB (N.D. Cal.; Aug. 10, 2012)

Hulu is facing a putative class action alleging that Hulu improperly disclosed the video viewing choices of its users without obtaining consent. Hulu initially argued that plaintiffs lacked standing. Relying on the Ninth Circuit’s decision in First American Fin’l Corp. v. Edwards, the court said that alleging a violation of a federal statute was sufficient to satisfy Article III standing. Now the court looks at whether the allegations state a claim for 12(b)(6) purposes.

Is Hulu a “video tape service provider”? The VPPA only covers the rental, sale, or delivery of “prerecorded video cassette tapes or similar audiovisual materials.” Hulu argued that this language does not cover online providers. The court disagrees. The court looks to the language of the statute and finds that the phrase “similar audiovisual materials” focuses on the content, not the means of content delivery. While the dictionary definition of the word “material” is inconclusive, and everyone agrees that online delivery wasn’t around when the VPPA was enacted, the court looks to the legislative intent:

Congress was concerned with protecting the confidentiality of private information about viewing preferences regardless of the business model or media format involved. The question is whether the mechanism of delivery here – streaming versus bricks-and-mortar delivery – ends this case at the pleading stage. . . . Given Congress’s concern with protecting consumers’ privacy in an evolving technological world, the court rejects [Hulu’s] argument [that it’s not covered by the statute because the statute does not cover digital distribution].

Other defenses: Hulu raised two other defenses, neither of which the court buys, at least at the 12(b)(6) stage. First, Hulu says that its disclosures fall within the VPPA’s “ordinary course of business” exception. The statute defines ordinary course of business to include “debt collection activities, order fulfillment, request processing, and the transfer of ownership.” Hulu’s disclosures (to Facebook, Doubleclick, QuantCast, Google Analytics, and ScoreCard) do not clearly fall under this definition. No dismissal at the pleading stage based on this defense.

Second, Hulu argued that plaintiffs were not “consumers” as defined by the VPPA. The statute defines consumers as “any renter, purchaser, or subscriber,” and since the proposed class did not involve paying Hulu customers, Hulu argued that they were not consumers. The court disagrees with Hulu, saying that “[i]f Congress wanted to limit the word ‘subscriber’ to ‘paid subscriber,’ it would have said so.”

The VPPA has spawned a lot of litigation recently! Facebook’s ill-fated beacon initiative was the first target, but since then, Netflix, Redbox, and Hulu have all been ensnared in VPPA class actions. Interestingly, someone mentioned that books were initially proposed to be part of the VPPA, but at the FBI’s request, were carved out. [Eric's note: books are now covered in California under the Reader Privacy Act.]

To my knowledge, two of the three issues decided in this ruling have not been previously dealt with: (1) does the VPPA apply to purely online service providers, and (2) does it cover non-paying customers. The court could have probably gone either way on this, and the court's conclusion takes the privacy-friendly approach. As interpreted in this manner, the VPPA applies to a wide range of sites, from YouTube to Vimeo. The scope of the proposed class also shows the reach of the VPPA as construed in this manner. The proposed class encompasses people who visited Hulu.com between March 4, 2011 and July 28, 2011 and who viewed video content. Hulu didn’t actually provide a list to third parties of what videos these individuals viewed. It used certain cookies that respawned and were difficult to delete, and disclosed unique identifiers (e.g., Facebook IDs & Hulu profile identifiers). It’s tough to argue based on the allegations in the complaint that Hulu was guilty of some sort of knowing malfeasance. It used a third party ad network that allegedly engaged in aggressive tracking practices and as a result Hulu is potentially on hook for damages under the VPPA.

I’m somewhat surprised to not see any discussion of the Hulu terms of use. I would expect that, if I register on a free website to view videos, my viewing habits would at a minimum be used for ad targeting. As to why this and more was not disclosed and assented to in the terms of service is a mystery to me. I guess some interpret the VPPA to require consent on a movie-by-movie basis and something other than a term of use-based consent. See this post by Wendy Davis that mentions possible amendments to the VPPA that would tweak these to make sharing easier.

Other coverage:

ReadWriteWeb (Nancy Scola): The Hulu Dilemma: How Private is Your Video Playlist?
Forbes (Kash Hill): Court Case Spells Trouble for Frictionless Sharing of Videos on Facebook

Posted by Venkat at 08:43 AM | E-Commerce , Licensing/Contracts , Marketing , Privacy/Security

August 09, 2012

Judge Alsup Tries to Out the Shills in Oracle v. Google

[Post by Venkat Balasubramani, with comments from Eric]

Oracle v. Google, Case No. C 10-03561 WHA (N.D. Cal.; Aug. 7, 2012)

Judge Alsup recently issued an order in Oracle v. Google, voicing concerns that the parties or counsel may have retained or paid “authors, journalists, commentators or bloggers who have and/or may publish comments on the issues in [the] case.” Accordingly, he ordered each side and its counsel to:

[f]ile a statement . . . identifying all authors, journalists, commentators or bloggers who have reported or commented on any issues in the case and who have received money (other than normal subscription fees) from the party or its counsel during the pendency of [the] action.

The order sparked a reaction online and generated a flurry of commentary. (See articles from Ars; BuzzFeed, and posts by Paul Levy and Scott Michelman, to name a few.)

As Eric noted in his comments to Ars and BuzzFeed, as phrased, the order is overly broad and would potentially capture bloggers who have commented on the case and participate in Google's AdSense. This could also sweep up journalists whose publications have published Google or Oracle ads. It’s also curious that Judge Alsup issued the order near the conclusion of the case, where it will have little if any prophylactic value to prevent taint of the proceedings. Although it’s not in his interest to create appealable issues, the order almost creates another issue for the parties to bicker about at the appellate level.

There was speculation about what spurred the order and whether it was directed at one or more writers in particular, including as Eric commented to BuzzFeed, perhaps the writer of a legal treatise (Patry, Nimmer, Goldstein?). But assuming it was narrowly written and issued at the outset of the case, what to make of an order such as this one?

This isn’t like an FTC endorsement-style rule which requires spokespersons to disclose material relationships about products or services that they endorse—the only thing being endorsed here is the idea that one side or the other should win in the litigation. This also isn’t like the Apple v. Samsung scenario where Samsung’s lawyers were accused of releasing evidence to the press that the court ruled wasn't admissible. This is more directed at writing that influences the public consciousness about the issues in the trial. In that way, there’s some peripheral relationship to the case overall, but from the face of the order, there’s nothing to indicate that it does any more than that. One could make an argument that in this day and age, people involved in the judicial process (e.g., jurors) will have a hard time obeying the court’s rules to stay away from the internet during the pendency of the trial, and this is aimed at remedying any taint that may result from shilling, but it doesn’t even directly address this problem. People are free to write and get paid to write, it’s just that they have to disclose this to the court. (It’s possible that the order is directed more to the appellate court who may read media accounts or even consult “internet sources” and therefore would be better served to know who is impartial and who is influenced by the payment of money, but that seems like an odd problem for Judge Alsup to tackle.)

There’s also the issue that people don’t lose the right to advocate publicly on behalf of their position just because they are involved in litigation. If there’s no effect on the integrity of the process—and it’s tough to make an argument at this stage in the litigation—why should companies and their law firms have to disclose who they paid to get their message out? (Journalists seem to laud this order, and I have to admit that as a blogger I shared a sort of morbid curiosity to see what was behind all of this and who would end up on the lists.)

Unfortunately, neither party is going to challenge the order, although as Eric notes, they will likely make some assumptions regarding the order that may slim down their lists.

A final thought is that maybe Judge Alsup got wind of the shilling, and issued this order as a shot across the bow, to shills in this case, and in future cases as well.
______

Eric's Comments

I don't see how the parties can properly comply with the order in such a short time-frame. They must have thousands or even tens of thousands of vendors (that's not including Google AdSense, which would boost the number for Google even more). There's no quick way to cross-check which of these folks have written about the lawsuit. So I expect both parties are going to make some "assumptions" to reduce their workload.

Even so, it will be quite exciting on Friday, August 17, when we get to pore over the lists provided by Oracle and Google. I imagine many of us will engage in the parlor game of trying to spot previously unknown shills for the parties.

Unfortunately, if the parties properly comply with the order, the lists will be riddled with "false positives," i.e., people who met the literal criteria (cash from litigant + coverage of case) but didn't meet the spirit of the order (covered case BECAUSE OF cash from litigant). As Venkat indicates, we should be on the list, but I'm skeptical that my pathetic AdSense earnings have affected my analysis. Thus, in theory, we as consumers of the lists won't rush to judgment, improperly assuming that everyone disclosed on the lists is a shill. But in practice we just don't have that kind of self-restraint, so there should quite a "J'accuse!" frenzy once the lists are public.

As Venkat indicates, because Judge Alsup's order was so cryptic, there remains some confusion over the legitimacy of Judge Alsup's order. I can think of two circumstances where the order is completely appropriate:

1) A litigant cited a source in its advocacy whose author was on the litigant's team and not disclosed. So, for example, imagine that a litigant cited a treatise without disclosing the author is on the payroll of the ligiant. A cynic might think that the treatise author wouldn't write anything in his treatise that conflicted with its benefactor's interests. Before a judge relied on a putatively credible treatise in rendering a decision, it seems logical that the judge would want to know if the author might have surreptitiously updated the treatise to advance the litigant's position. I can't imagine that happened in this case, plus I think the judge's effort would be most appropriate only if he had actually relied on the tainted source in making a decision.

2) The media din about the case, spurred by shills, somehow tainted the jury's deliberation. I haven't heard any evidence that occurred in this case, but it would be a problem if it occurred.

Instinctively, I applaud Judge Alsup's efforts because the phenomenon of shill public relations is out-of-control. See Chris O'Brien's recent articles on the Google/Microsoft proxy wars for more evidence of that (Microsoft and Google battle for influence in the policy shadows and Google vs. Microsoft: See who's clashing behind the scenes). However, if nothing has yet undermined the integrity of the judicial process in the Oracle-Google case, then I think he has overreached--especially at this late date in the proceedings. Shill public relations is bad, and could even violate the FTC's Endorsements/Testimonials Guidelines, but that doesn't give a federal judge the power to engage in fishing expeditions about the litigants' conduct. We'll know more when we see the lists and get more insight into what prompted Judge Alsup's move. I've blocked off some time on August 17 for further analysis!

UPDATE: Scott Graham of the Recorder analyzes some of the possible individuals who might have prompted Judge Alsup to issue the order.

Posted by Venkat at 04:03 PM | Evidence/Discovery , Marketing

Craigslist’s Latest Moves Show It Cares More About Its Market Position Than Delivering Value to Its Users (Forbes Cross-Post)

By Eric Goldman

Craigslist is resorting to increasingly desperate measures to control its users' classified ad listings. Last month, Craigslist sued 3Taps and Padmapper for scraping and repackaging its classified ads. Since then, it has extracted greater IP rights from its advertisers and reportedly may de-index the listings from Google.

Why is Craigslist making these moves? Because third parties are threatening to interpose themselves between Craigslist and its users--in effect, to disintermediate Craigslist. If a third party can interpose itself between an intermediary and its users, the new intermediary can draw the users away from the incumbent, thereby undermining or even eliminating the incumbent's franchise. Not surprisingly, the incumbent will try anything--even desperate anti-user measures--to negate this threat.

The archetypal example of an online intermediary striking back against distintermediation came, ironically, from Craigslist's arch-enemy eBay ($eBay). About a dozen years ago, a start-up, Bidder's Edge, sought to create a super-set of auction listings from multiple Internet auction sites. At the time, there were serious rivals to eBay, including Yahoo Auctions and Amazon Auctions, but eBay still had the bulk of online auction listings.

From eBay's perspective, having its listings in Bidder's Edge database threatened eBay's franchise. While Bidder's Edge might have brought some new buyers to eBay's auctions, one of eBay's competitive advantages was that it already had the largest pool of prospective buyers. From a prospective buyer's standpoint, it would be more advantageous to browse the super-set of all listings on the Internet than to browse only eBay's listings; more auction vendors means more choices and more competition for the buyer. If Bidder's Edge interposed itself between eBay and its buyers, sellers could go to the other auction sites (Yahoo or Amazon) and get exposed to the same pool of buyers that they could have gotten on eBay. In effect, then, by siphoning off eBay's buyers, Bidder's Edge would allow eBay's competitors to siphon off eBay's sellers too.

We know how the story turned out. eBay technologically blocked Bidder's Edge from scraping its website for auction listings. When Bidder's Edge routed around eBay's blocks, eBay sued Bidder's Edge and won a landmark injunction based on the ancient legal doctrine of trespass to chattels. Bidder's Edge kept going for a while by aggregating the auction listings from other auction sites, but without eBay's listings, Bidder's Edge's offering wasn't very compelling to buyers, and it faded away. Meanwhile, without the exposure to eBay's buyers that Bidder's Edge would have provided, the other auction sites also eventually faded away. eBay effectively rolled up the online auction industry, creating billions of dollars of wealth for its stockholders.

Craigslist is fighting the same fight against online aggregators that eBay fought--and won--a dozen years ago, for exactly the same reasons. If Craigslist succeeds with its lawsuit, we can expect that Craigslist will retain its market leader position for at least a little while longer. But if Craigslist can't control its listings, they can help seed a competitive aggregator's database. This, in turn, would give a big boost to existing and new competitors to Craigslist.

This situation is forcing Craigslist to assert more control over its users' advertisements. But this devolves into a zero-sum game between Craigslist and its advertisers, i.e., Craigslist improves its competitive position only by delivering less value to users. For example, taking exclusive copyright licenses to advertisements would prevent Craigslist advertisers from pursuing other advertising venues that could help them reach more potential buyers. (If Craigslist is asking for less copyrights than that, its move is legally ineffectual). Similarly, de-indexing from Google would severely cut off advertisers' exposure to potential buyers. Less potential buyers = less money for advertisers = less reason to use Craigslist.

This could start a downward spiral for Craigslist. Either Craigslist lets third party competitors aggregate its users' advertising into their databases, or Craigslist reduces the value of its services to advertisers and drives them to competitors. Thus, even though it might look like Craigslist is making bizarre moves, I think its moves are quite rational. They're exactly the kind of moves you'd expect from a panicked company realizing its uncomfortably precarious marketplace position.

Posted by Eric at 09:30 AM | Copyright , Marketing , Trespass to Chattels | TrackBack

August 06, 2012

Online Marketplace Isn't Liable for Bad Conduct by Merchants It Certifies--Englert v. Alibaba

[Post by Venkat Balasubramani]

Englert v. Alibaba, 11CV1560 RWS (E.D. Miss.; Apr. 27, 2012)

Englert and other plaintiffs purchased products found on alibaba.com. The products included “ExtenZe male enhancement, Vimax,VigRX Plus, Energy Wristband (Power Balance), and Razor Blades Fusion Power." Plaintiffs alleged that the products were counterfeit, or tampered with (some were seized by customs officials prior to delivery). The products were sold by third parties but displayed in a location on alibaba.com that allows third party merchants to display their products or services. Sounds like an easy Section 230 case for Alibaba, so where does it fit in? Alibaba, for a fee, allowed third party suppliers to list themselves as “Gold Suppliers”. As explained by its website:

A Gold Supplier is a paid membership for suppliers on the Alibaba website who have a serious interest in doing business with buyers worldwide . . . Gold Suppliers must complete an authentication and verification process by a third-party security service provider.

Alibaba’s website, however, stated that Alibaba:

disclaimed any warranty, express or implied, and liability whatsoever for any loss howsoever arising from or in reliance upon any information, action, or omission of any of its members on its websites.

Alibaba also had (an apparently leakproof) terms of service which explained that Alibaba is an intermediary, that it’s not responsible for the quality of any products or services, or any information provided by sellers.

The court dismisses plaintiffs’ claims for fraud, negligent misrepresentation, and breach of contract (plaintiffs didn’t contest Alibaba’s request to dismiss the breach of contract claims). The court says that plaintiffs’ claims do not allege any false statements on the part of Alibaba based on conferral of “Gold Supplier” status. The statements only refer to the sellers themselves (e.g., that they have a serious interest in doing business). Plaintiffs argued that this amounted to an implied representation that the products or services offered by “Gold Supplier” sellers are authentic, but the court doesn’t buy this argument. Moreover, the court looks to the terms of service and says that any understanding on the plaintiffs’ part that “Gold Supplier” status means that the underlying products or services would be of a particular quality is undermined by the unequivocal disclaimer of warranties and release of liability in the terms. Plaintiffs thus cannot allege that they relied on any statements from Alibaba, even to the extent the statements are false.

Alibaba kept its endorsement of third party sellers relatively narrow, and included robust disclaimers or warranties in its terms of use, thus nullifying the legal effect of its endorsement. It's a case worth noting from this standpoint, particularly for anyone who operates a marketplace or another ecosystem where an endorsement or rating system becomes important. Not particularly the best result for customers, who may or may not have thought that there was something special about "Gold Suppliers" vs. ordinary suppliers, but the court says in any event that a disclaimer in a leakproof terms of service trumps.

eBay Gets 47 USC 230 Dismissal of Products Liability Claim--Inman v. Technicolor
eBay Denied 230(c)(2) Defense Over Counterfeit Coin Policing
eBay Denied 230 Defense for Its Marketing Representations--Mazur v. eBay

Related:

Jeff Dotty, Choose Your Words Wisely: Affirmative Representations as a Limit on Section 230 Immunity, 6 Wash J.L. Tech. & Arts 259 (2011)

Posted by Venkat at 03:51 PM | Derivative Liability , E-Commerce , Licensing/Contracts , Marketing

July 31, 2012

Backpage Gets Important 47 USC 230 Win Against Washington Law Trying to Combat Online Prostitution Ads (Forbes Cross-Post & More)

By Eric Goldman

[I've added some bonus content to the end of this Forbes cross-post]

In 1996, Congress enacted a powerful statutory immunity for user-generated content, located at 47 U.S.C. 230 ("Section 230"). Section 230 says that websites aren't liable for third party content except in three specific situations: intellectual property, communications privacy and federal criminal prosecutions. Over the past 16 years, courts have interpreted Section 230's immunity broadly, giving online providers a robust and predictable way to avoid liability for what their users say and do. As a result, Section 230 has become the foundation for the entire user-generated content industry--and all of the social welfare that goes along with it.

Despite these enormous social benefits, not everyone loves Section 230. With unfortunate frequency, state legislators consider enacting laws that conflict with Section 230's immunity.

Recently, the Washington state legislature enacted one such law in an overzealous effort to shut down online child prostitution. Even worse, the statute indirectly provided a roadmap for other legislatures to enact other laws that could eviscerate Section 230. Last week, in Backpage and Internet Archive v. McKenna, 2012 WL 3064543 (W.D. Wash. July 27, 2012), a federal judge rejected the Washington legislature's efforts, turning the case into a major victory for Section 230 and user-generated content.

Background

As part of a nationwide effort to combat "sex trafficking" and online prostitution, various regulators have tried to shut down online classified ads for "escorts" and other adult services. For many years, Craigslist was the leader for that kind of advertising, and in 2009 the Cook County (Illinois) Sheriff sued Craigslist for facilitating prostitution. A federal judge quickly rejected that lawsuit based on Section 230 because the sheriff was trying to hold Craigslist liable for third party advertisements. (Section 230 jurisprudence is clear that third party advertisements are just as protected by the immunity as other types of editorial content from third parties).

Despite that decisive ruling and the strong likelihood that Craigslist's activities were completely legal, attorneys generals from dozens of states kept hounding Craigslist for offering an "adult services" category. Eventually, despite having won in court, Craigslist gave up and shut down its adult services category.

While that gave the various anti-prostitution regulators a seeming victory, Craigslist's exit from the industry didn't change the underlying marketplace demand or supply for prostitution. As a result, the "escort" ads simply migrated elsewhere--largely to Backpage.com, affiliated with the Village Voice. As the ads migrated, so did the regulators' attention, and Backpage soon experienced the same regulatory fire that had been directed at Craigslist.

In 2011, Backpage won a lawsuit brought by a child prostitution victim on Section 230 grounds. Combined with Craigslist's Section 230, it was clear that any regulator seeking to shut down prostitution ads on Backpage--or any other web publication--would have to overcome Section 230 somehow.

The Washington state legislature thought it found such a workaround. Instead of holding Backpage liable for third party advertisements, SB 6251 imposes an age verification obligation on anyone that publishes online prostitution ads. Websites are criminally liable if they "know" they are publishing prostitution ads that depict underage models, but the statute says the websites have a criminal level of "knowledge" unless they can provide documentary proof that the depicted model is an adult. Thus, simply reviewing the ad and making a visual judgment of the model's age wouldn't satisfy the statute. This way, the statute criminalizes the website's failure to do its verification and record-keeping obligations instead of holding the website liable for the third party advertisements.

The Court's Ruling

In a thorough and thoughtful 39-page ruling, the judge preliminarily enjoins Washington from enforcing the law. (Previously, the judge had issued a temporary restraining order).

The judge said SB 6251 conflicts with Section 230 because (1) it imposes liability based on third party content, and (2) it gives websites a disincentive to monitor their website (in an effort to avoid the requisite "knowledge" that leads to criminal liability), something Congress was trying to encourage websites to do. Thus, by basing liability on a website's "knowledge" regarding third party content, the statute easily sets up the conflict with Section 230.

Washington tried to argue that Section 230 doesn't preempt state criminal prosecutions. While Section 230 expressly excludes federal prosecutions, the judge says it clearly immunizes websites from state criminal prosecutions based on third party content. See also the uncited Voicenet v. Corbett.

The judge enjoined the law on two other grounds as well. First, the judge says that the law probably violates the First Amendment, suggesting (among other reasons) that imposing a content pre-screening obligation on online publishers may cause too much self-censorship. The judge also questions why the legislature couldn't pursue a less restrictive statutory option of holding the advertisers, rather than third party publishers, liable for the advertisements.

Second, the judge says the law probably violates the Dormant Commerce Clause, a Constitutional doctrine that says only Congress, and not the states, can regulate interstate commerce. Personally, I think every state law purporting to regulate the Internet violates the Dormant Commerce Clause, but courts haven't reached that definitive conclusion yet. Nevertheless, this judge comes close, saying "the Internet is likely a unique aspect of commerce that demands national treatment." Thus, he correctly concludes that Washington's attempt to control Internet behavior in Washington would nevertheless cause Internet companies and users interacting wholly outside of Washington to change their behavior, something the Dormant Clause doesn't permit.

Implications

Perhaps we might consider age verification for prostitution ads an acceptable obligation in the abstract, but consider the implications. Other state legislatures could try to impose other types of verification and record-keeping obligations on user-generated content websites. For example, statutes could obligate websites to verify users' identities or geographic locations before allowing the users to publish content, or a statute could require websites to undertake specific obligations (or impose a general obligation) to verify factual assertions in content submitted by users. The statutes could then further impute bad knowledge to the website if they don't satisfy their verification and record-keeping obligations.

Following this basic regulatory structure, statutes like these could undo Section 230's basic immunity structure. They could make websites undertake costly and unwanted verification and record-keeping efforts, which could make it cost-prohibitive for user-generated content websites--especially new entrants to the market. The statutes could slow down and chill user contributions to the discourse. As I was quoted elsewhere in discussing this case, "imagine Twitter without real-time posting." Finally, the statutes could allow government prosecutors and private plaintiffs to hold websites liable for user content for erroneous verifications, resulting in crippling liability exposure. This ruling shuts down all of these potential statutory workarounds.

Unfortunately, a single federal district court ruling is hardly the last word on the topic (indeed, the Washington attorney general office's press release makes it clear they aren't finished with the matter). First, Washington might choose to appeal the ruling, although the opinion is solidly constructed and should fare well in the Ninth Circuit.

Second, state legislators will keep passing laws that conflict with Section 230. After all, state legislatures routinely and knowingly enact laws that obviously violate U.S. Supreme Court precedent, rationalizing that it's the legislators' job to pass laws and it's the judicial system's job to decide if those laws are constitutional. However, I don't see an easy way for state legislatures to work around the First Amendment and Dormant Commerce Clause deficiencies identified in this opinion, even if they could somehow work around the Section 230 conflict.

Third, the anti-online prostitution forces could rally to try to amend Section 230. Over the years, many special interest groups have talked about amending Section 230, but those efforts have rarely gone anywhere. I'd be surprised if this issue could lead to succeed where the other issues haven't. Amending Section 230 to address online prostitution would be a spectacularly bad idea for reasons I explained here.

For now, this opinion helps preserve the vitality of Section 230. That's something to celebrate.

Bonus: In a separate move, three Washington teenagers recently sued Backpage for facilitating child sex trafficking. See the News Tribune story. I'm still looking for a copy of the complaint, but on the surface it sounds just like the M.A. suit against Backpage, and I don't see it being any more successful at getting around the 47 USC 230 immunity.

UPDATE: Here is the complaint. J.S. v. Village Voice Media Holdings, LLC (Wash. Superior Ct. complaint filed July 27, 2012).

Bonus #2: The case library:

* Backpage Reply Supporting Preliminary Injunction
* Internet Archive's Reply Supporting Preliminary Injunction
* Washington's Opposition to Preliminary Injunction
* Attorney General's Opposition to Preliminary Injunction
* Motion granting Internet Archive's intervention
* TRO ruling. Blog post.
* Backpage's TRO motion
* Complaint
* Washington SB 6251 bill page and bill text

Posted by Eric at 09:08 AM | Content Regulation , Derivative Liability , Marketing | TrackBack

July 25, 2012

Franchisor Isn't Liable Under the TCPA for Franchisees' Text Message Campaign – Thomas v. Taco Bell

[Post by Venkat Balasubramani with comments from Eric]

Thomas v. Taco Bell Corp., SACV 09-01097-CJC(ANx) (C.D. Cal.; June 25, 2012)

Thomas allegedly received unauthorized text messages as part of an advertising campaign for Taco Bell's Nachos BellGrande ("[a] large platter of crisp, freshly prepared tortilla chips covered with hearty beans, seasoned ground beef, warm nacho cheese sauce, diced ripe tomatoes, and reduced fat sour cream"--I'm sure they taste as glorious as they sound).

The text messages in question were organized by the “Taco Bell Local Owners Advertising” association, an Illinois entity comprised of 12 owners of Taco Bell stores in the Chicago area. The Association retained ESW Partners, an advertising agency, who then contracted with ipsh!net, who actually sent the messages. Taco Bell Corp., the national franchisor, had some influence over the Association’s activities through a seat on the Association’s Board of Directors, and control of the pursestrings (the funds that were used by the Association for advertising were controlled by a division of the national franchisor). While the Association was free to conduct its own separate advertising, where funds from Taco Bell (the franchisor) were used to pay for a campaign, approval from Taco Bell was required. In this case, a division of Taco Bell ended up paying for the advertising campaign.

She sued several different entities in the chain alleging violations of the TCPA, but amended the complaint to name only two defendants: Taco Bell (the national franchisor) and the Association. The Association was dismissed on jurisdictional grounds. Another defendant was dismissed earlier on jurisdictional grounds as well. The key question was whether Taco Bell (the franchisor) could be on the hook for any alleged TCPA violations.

The court says that the TCPA imposes liability on someone who actually “makes” a call that violates the statute. While Thomas argued that the TCPA also imposes liability on someone on whose behalf the call was made (i.e., any party that “receives benefit from the text message”) but the court says that the language and intent of the TCPA does not envision derivative liability on such a broad standard. In the absence of a specific basis of vicarious liability, traditional (agency) standards govern. A principal-agent relationship, the court says, “means more than passive permission; it involves request, instruction, or command.”

The court says that Thomas’s evidence falls short in this regard. Thomas did not present any evidence that Taco Bell (the franchisor)

directed or supervised the manner and means of the text message campaign conducted by the Association, and its two agents, ESW and ipsh!. She presented no evidence . . . that Taco Bell created or developed the text message. Nor did she present any evidence . . . that Taco Bell played any role in the decision to distribute the message by way of a blast text.

Thomas argued that the existence of a policy under which Taco Bell would pay for the Association’s advertising demonstrated that Taco Bell controlled the advertising, but the court says that approval of the campaign is different from control over “the manner of marketing”. Thomas also argued that the presence of a Taco Bell employee on the Association’s Board of Directors and the fact that the employee cast a vote to approve this campaign also reflected the requisite control. The court says this is insufficient to create the type of agency relationship required for derivative liability under the TCPA. Thomas tried to marshal some other evidence in support of agency liability, but the court says this is all anecdotal and doesn’t reflect Taco Bell’s control over the means of marketing.

This could be somewhat of a blockbuster ruling under the TCPA. The big TCPA case out of the Ninth Circuit didn’t rule on derivative liability but made it painfully easy to sue anyone who sent an unsolicited text. (See Satterfield v. Simon & Schuster.) Incidentally, ipsh!, the entity that sent the messages in this case, was also involved in Satterfield and was actually a defendant in that case, but the Ninth Circuit did not delve into the relationship between ipsh! and Simon & Schuster from the standpoint of legal liability.

In the context of unsolicited text messages, Satterfield has been a boon for plaintiffs, and they have taken full advantage of the resulting litigation bonanza. We've blogged a bunch about TCPA cases, but this post from Tom O'Toole talks about a hockey team being sued for sending text messages ... to its fans!

The big question this case raises is whether this is just an instance of a plaintiff not having the right defendant available on the other side of the v., or whether it somehow changes things as far as plaintiffs’ attempts to hold advertisers—rather than their marketing agencies—liable. I would think it’s more of the former. Here, the plaintiffs sued multiple entities and at one point amended the complaint to name only the parent entity and the association. I'm not 100% clear as to why the plaintiff did not name ipsh. (It's possible plaintiffs settled with ipsh or there's some other explanation, other than the obvious issue of personal jurisdiction, for why the franchisor and association ended up being the only defendants.)

Interestingly, plaintiffs have been stymied consistently in trying to smack defendants with affiliate liability in lawsuits under CAN-SPAM. (See the cases mentioned in this post.) Might we see a similar dynamic play out in future TCPA lawsuits? (See also Anderson v. Domino's Pizza, Inc., et al., for a similar result under state law in a text spam case brought in Washington.)

FWIW, I predict this one will be appealed.
_________

Eric's Comments

Even though Ipsh wasn't in the courtroom, the ruling throws Ipsh under the bus, saying that Ipsh pushed the button on the campaign and therefore would be the prime mover behind any TCPA violation. If the campaign violated the TCPA, Ipsh would have been legally liable--perhaps along with other defendants, but possibly as the only defendant left holding the bag. Ipsh can try to put into place an airtight indemnity agreement with its customers (though those are rarer than unicorns), but this ruling can't be a confidence-booster about the vitality of its text-messaging business line. I further wonder if this ruling will spook the marketing services companies providing email campaign outsourcing? They are governed by a different statute, but they too are the ones who "push the button."

Meanwhile, assuming the facts are true, I don't understand how this text-messaging campaign got greenlighted given the obvious legal risks. Sure, it would be great to reach texting young adults who have the munchies via their most precious device, but text-messaging campaigns are always fraught with legal peril. When you add in the Grande legal costs of defending the resulting lawsuits--and the plaintiff lawyers love these kinds of lawsuits--the per-text-message costs of reaching 17,000 consumers never had a chance of being profitable no matter what the conversion rate of such ads. Plus, this isn't Taco Bell's first ride at the text-messaging litigation rodeo.

To me, the message is clear: text-messaging ad campaigns are lawsuit bait. Until the law becomes clearer and more favorable, marketers should permanently retire text-messages from their marketing campaign toolkits.

Related posts:

Posted by Venkat at 09:45 AM | Content Regulation , Derivative Liability , Marketing , Privacy/Security , Spam

July 21, 2012

Offering P2P File-Sharing Software for Downloading May Be Copyright Inducement--David v. CBS Interactive

By Eric Goldman

David v. CBS Interactive Inc., CV 11-9437 DSF (C.D. Cal. July 13, 2012). The complaint.

When the Grokster Supreme Court opinion came out in 2005, there was a lot of confusion about the relationship between copyright "inducement" and contributory/vicarious infringement. Did the Supreme Court announce a new basis of derivative liability, or was inducement just a subset of contributory infringement? We haven't gotten a crystal-clear answer over the years, but this case provides a resounding one: the court says the defendants in this case may be liable for inducing infringement even though they aren't liable for contributory or vicarious infringement. Because this case demonstrates that inducement can completely bypass the existing derivative liability scheme, it's troubling.

The entire lawsuit is crazy. CBS now owns Download.com, a CNET property. Download.com distributed P2P file-sharing software along with a lot of other software. Users who downloaded P2P file-sharing software then used it in unknown ways, but presumably some of them used it to infringe. This sets up a "tertiary liability" claim against Download.com, where the software users are (in theory) the infringers, the P2P software manufacturers are the secondary infringers, and Download.com is a tertiary infringer by supporting the secondary infringer who supports the direct infringer. In case you were wondering, as far as I can tell, Section 512 doesn't apply because Download.com wasn't hosting the software at a user's direction (their editors chose which software to host) and Download.com wasn't linking to third party websites to complete the downloads (the software was delivered off Download.com's servers).

The court understood the problems with tertiary liability. Relying heavily on Perfect 10 v. Amazon, the court grants the motion to dismiss the contributory and vicarious copyright infringement claims.

On contributory infringement, the court says that Download.com lacked specific knowledge of users' infringing acts. Download.com's general knowledge that users could infringe with P2P file-sharing software wasn't enough; and the fact that Download.com gave examples of software use to download copyright-protected files didn't change this element (more on this in a bit). The court further rejects that Download.com made a material contribution to the infringements because Download.com didn't offer any infringing files from its website, "Defendants could not take simple steps to stop the infringement" because stopping further software downloads wouldn't cut off infringement by the software already downloaded, and "courts have yet to find contributory liability based on a tertiary actor’s conduct."

On vicarious infringement, the court says:

Defendants control whether infringing third parties can access the P2P software through their site, but do not have the right to stop users from using the software to download copyrighted material illegally. Similar to the search engine in Perfect-10 Amazon, Defendants exercise control over their index and search results, curating the programs available through their services. This does not equate to control over direct infringement.

This result is consistent with courts' rejection of other tertiary liability claims. See, e.g., Elsevier v. Chitika and UMG v. Veoh (the ruling involving Veoh's investors).

OK, so far so good--no tertiary contributory or vicarious infringement. But then the court held that the plaintiffs nevertheless properly alleged an inducement claim based on the following allegations:

Plaintiffs allege that Defendants distributed several P2P programs, and reviewed the programs in relation to other P2P programs known for copyright infringement, such as Napster and Limewire....Plaintiffs also allege that Defendants posted videos to their websites demonstrating how to use specific P2P programs by searching for songs by copyrighted artists, and posted articles and how-to guides that included references to Napster, Limewire, and downloading copyrighted material.

Notice the inference here: Napster and LimeWire were "known for copyright infringement," so merely comparing a software program to those "bad" actors is verboten? Seriously? The defendants point out the possible free speech implications, but the court doesn't care:

Defendants here are alleged to have distributed specific P2P software, while simultaneously providing explicit commentary on that software’s effectiveness in infringing copyright. Such behavior moves beyond opinion into the realm of conduct and does not directly implicate any First Amendment issues.

The court then sends a strong--and harsh--message to Download.com that it may want to settle:

This is not a particularly close or challenging case for inducement based on the facts alleged. Here, Defendants are alleged to have taken the unusual and ill-advised steps of distributing software programs that are capable of widespread copyright infringement while simultaneously demonstrating how to infringe copyrights using that software and evaluating the various programs as to their effectiveness in copying copyrighted material....It would not be difficult to avoid liability by either (1) only providing editorial content without distributing the software or (2) distributing the software without demonstrating or advocating its use for violating copyrights. The Court is confident that most reasonable parties could find their way to accomplish their general goals without running afoul of inducement liability.

As far as I can recall, this is the first time an inducement claim has survived when the contributory and vicarious infringement claims were expressly rejected. Am I'm forgetting any case? I believe Arista v. LimeWire and Columbia v. Fung, two flagship inducement defense losses, never completely rejected the contributory or vicarious infringement claims even though their outcomes also turned on inducement.

This case illustrates an ongoing lesson that a defendant's advertising/marketing can affect the copyright analysis. Inducement allegations often focus on marketing copy, so it's essential that any player dealing with sensitive copyright issues run all marketing copy by competent counsel. This case further extends inducement to "editorial" content. As the court says, the principle is easy enough to comply with; indeed, I thought by now everyone knows that you should never provide examples demonstrating how to download files under copyright protection--just use public domain examples instead. If Download.com didn't run a tight enough ship, this judge appears to be eager to throw Download.com under the bus.

I would be more troubled by this ruling if I thought it had any applicability outside the P2P file-sharing context, but I doubt it. Instead, I see this case as yet another P2P exceptionalism case, where copyright law goes into a weird distortion field any time it gets near P2P file-sharing. Basically, P2P file-sharing software has developed such a toxic brand that judges treat anyone who touches it as evil. That's wrong as a matter of the facts--P2P file-sharing software can be used for both social beneficial and infringing activities--and should be wrong as a matter of law.

Still, any time inducement succeeds on a standalone basis, it just encourages more tertiary liability-style lawsuits both in and outside the P2P file-sharing software context. Just what we need.

Posted by Eric at 11:20 AM | Copyright , Derivative Liability , Marketing | TrackBack

July 19, 2012

Judge Koh Puts the Kibosh on LinkedIn Referral ID Class Action -- Low v. LinkedIn

[Post by Venkat Balasubramani]

Low v. LinkedIn, 11-CV-01468-LHK (N.D. Cal.; July 12, 2012)

This case involves the fact that LinkedIn put users' unique identifiers into its URLs, allowing advertisers (and others) to associate that unique identifier with users--and, potentially, access the info on their profile pages--when they clicked on a link on LinkedIn. Judge Koh had previously dismissed the case with leave to amend. Low amended his complaint, and the second time around Judge Koh dismisses it with prejudice. Here’s our blog post on the initial dismissal of the lawsuit: LinkedIn Beats Referrer URL Privacy Class Action on Article III Standing Grounds--Low v. LinkedIn.

Standing: citing to Edwards v. First American Corp. and Jewel v. NSA, the court says that plaintiffs have alleged violations of statutory rights as well as (state) constitutional rights and get over the standing hurdle.

Stored Communications Act: Plaintiffs’ claims under the Stored Communications Act claims require the plaintiffs to show that LinkedIn provides either “remote computing services” or “electronic communication services.” The court also says that the analysis looks to whether LinkedIn was acting in this capacity with respect to the particular information that was allegedly wrongfully disclosed. In this case, the court concludes that the LinkedIn was not functioning as a remote computing service with respect to the LinkedIn user ID and URL of the profile pages that the user used to view third party profiles. The unique IDs are created by LinkedIn for its own purposes and are not sent to LinkedIn for storage or processing by plaintiffs.

Invasion of Privacy: The court says that invasion of privacy claims must meet “high standards” for the types of invasion that are actionable—“there must be an egregious breach of the social norms underlying the privacy right.” The court says that disclosure of the LinkedIn ID and the profile page is not the type of information that amounts to a serious invasion. Additionally, although plaintiffs claimed that the information could be used to glean plaintiffs’ browsing history and used to identify plaintiffs, there was no allegation that this actually occurred.

False advertising law: Plaintiffs failed to allege reliance on any purported misrepresentations by LinkedIn. Although one of the named plaintiffs had paid for a premium LinkedIn subscription and satisfied the monetary loss elements, the court still finds that there was no allegation that plaintiffs viewed any representations within LinkedIn’s privacy policy and made a purchasing decision based on these representations.

Breach of contract: Plaintiffs’ breach of contract claims fails because they have not alleged sufficient damages. The sole basis for damages is the loss in value to plaintiffs’ information. The court again reiterates skepticism that this has value in plaintiffs’ hands to begin with, but she says that even if it does, any sort of diminution in value would not be a cognizable form of contract damages.

Other claims: The court also dismisses the claims for conversion (browsing history and personally identifiable information is not property); unjust enrichment (no standalone claim); and negligence (no damages).
__

In his comments to the original post about this case, Eric noted that this was a “low-merit” privacy lawsuit that had little chance of success the second time around. Sure enough, Judge Koh dismantles plaintiffs’ claims and sends them packing.

It’s worth noting that the FTC’s enforcement action against MySpace involved allegations against MySpace that were somewhat similar to the plaintiffs’ allegations against LinkedIn in this case: in both situations, the companies involved allowed third parties to tie the user’s unique identifiers with their public profiles. (See Ed Felten’s blog post on the MySpace settlement--"Syncing and the FTC's MySpace Settlement"):

What made the possible syncing problematic in the case of Myspace was that (1) Myspace enabled ad networks to use Myspace’s Friend ID pseudonym to get personal information about the associated user, and (2) Myspace promised its users that it would not share that personal information with third parties.

The FTC has been increasingly aggressive in its enforcement actions around the privacy practices of online entities. While the court ruled that LinkedIn could not be held liable in a civil lawsuit brought by plaintiffs, it’s an open question as to whether these practices could land it in the crosshairs of the FTC.

Other coverage:

InsidePrivacy: Low Case Against LinkedIn Dismissed In Its Entirety
FourthAmendment.com: N.D.Cal.: LinkedIn not a remote computing service and does not provide electronic communication services, so it can't be sued under SCA

Posted by Venkat at 08:57 AM | Licensing/Contracts , Marketing , Privacy/Security , Publicity/Privacy Rights

July 18, 2012

Why Defensive Domain Name Registrations Aren’t a Good Deal for Small Businesses (Forbes Cross-Post)

By Eric Goldman

[Introductory note: every article has a backstory, but some backstories are more complicated than others. Earlier this year, I was commissioned by a well-known publication to participate in a point/counterpoint regarding registering domain names in new TLDs. The publication wanted me to argue against small businesses registering domain names in new TLDs, and my piece was to be companioned with a counterpoint piece arguing in favor of registering in new TLDs. After several drafts by me, the publication felt my article (presented below) wasn't extreme enough; they wanted me to argue that small businesses NEVER should register in a new TLD under any circumstance. Because I couldn't argue that in good conscience, the publication paid me a nominal "kill fee" and cut me loose. I'll be interested to see if you think my position wasn't extreme enough--or perhaps too extreme already! (Feel free to comment at the Forbes cross-post). In any case, I wished the publication good luck finding a credible non-shill who would espouse such a hard line and put this draft into the blog queue for the requisite embargo period. That's now over, so I'm delighted to share with you what they paid me to write:]

Conventional wisdom says businesses should preemptively buy domain names to keep them out of the hands of competitors, griping customers, pornographers or other malefactors. This process is sometimes called “defensive” domain name registration.

In theory, defensive registrations save money. For a relatively low upfront cost (a single .com domain name costs about $10 a year), a business avoids spending thousands or even hundreds of thousands of dollars trying to get the name back from a malefactor—if it’s possible to get the name back at all.

This conventional wisdom plays on the worst fears of small businesses: If you don’t buy lots of domain names right now, you will forever lose control of your brand, and then you will lose your customers. Your business will be destroyed because you were too cheap to spend a few extra bucks buying just one more low-cost domain name.

Don’t fall for these scare tactics. They are part of a cynical sales pitch from domain name vendors hoping to get your hard-earned money by manufacturing new opportunities for mischievous domain name registrations—and then making you pay to prevent that possibility.

It’s easy for businesses, especially small businesses, to overspend on domain names. [For an example, see the story of Nuts.com.] A small business' domain name portfolio should consist of one, or at most a handful, of domain names for each brand it uses. A well-chosen domain name, tied to each brand you have, will reinforce your customers’ brand perceptions of you and make it easy for your customers to find you. If you have that, you’ve got what you need. For most small businesses, other domain names are a waste of money.

Think about how your customers will find you. Most customers will find you via search engines or through social media. Some will type in your domain name into their browsers; of those, some folks will mistype your domain name, but often their browser will prompt them to correct the error. No one guesses domain names any more.

So if you control a domain name where your customers can find you, congratulations…and mission accomplished! Does it really matter what other people do at other domain names? These domain name registrations out of your control might be frustrating, but they are typically inconsequential to your goal of maximizing your profits. You’ll only really want to respond when domain names use your trademarks to confuse your customers, and only then when enforcing your trademarks is cost-benefit justified.

Indeed, no matter what you do, malefactors will be able to register variations of your brand as domain names if they want. There are simply too many domain name registration possibilities for you to preempt them all. There are hundreds of top-level domains; plus obvious variations of the brand name (i.e., “brandsucks.TLD” or variations with dashes or hyphens); plus typographical errors of the brand. All of that adds up to hundreds or thousands of possible domain name purchases for each brand you have. And as new top-level domain names keep rolling out, each time you'll be cajoled to buy more.

Most businesses, especially small businesses, do not get good value from a big portfolio of stockpiled domain names being held “just in case.” You’re spending money to procure and maintain assets that you aren’t using and may never use. For most small businesses, these unused assets produce a poor return-on-investment (ROI).

So what should small businesses do as top-level domains keep expanding? You should treat domain name purchases as another marketing expense and, as usual, invest your marketing dollars to yield the highest ROI.

You’ll usually get better investment returns from ensuring existing and new customers can find you than in investing in unused domain name assets. Take the dollars you might spend on domain names and invest in improving your website’s search engine rankings (i.e., search engine optimization), buying search engine advertising to reach new customers (i.e., search engine marketing) and running social media promotions. After all, search engines and social media are where most of your customers will find you.

You should also invest your marketing dollars into improving your goods or services. In the end, the single best way to compete is to deliver more value to your customers than your competitors deliver. In the Internet age, if you have something unique to offer, your customers will evangelize you. Give them more reasons to sing your praises.

With the launch of each new top-level domain, the marketers will tempt—or scare—small businesses into wasting their money on new domains. Resist that urge. Instead, develop a sound plan for spending your marketing dollars, stick with it, and have no regrets.

Posted by Eric at 09:32 AM | Domain Names , Marketing , Trademark | TrackBack

July 16, 2012

Announcing a New Casebook: “Advertising & Marketing Law: Cases & Materials” by Tushnet & Goldman

By Eric Goldman

I’m thrilled to announce the public release of a new casebook, Advertising & Marketing Law: Cases and Materials by Rebecca Tushnet and me. We are publishing the book as a DRM-free PDF download at Scribd for only $10. [UPDATE: We are also selling the book via Gumroad with less hassle for buyers--give it a try.] The book is 870 pages and nearly 400,000 words of advertising and marketing law nirvana—a massive 40MB file chock full of photos (often showing the ad copy at issue), edited cases, explanatory narrative, tables/charts, diagrams and more. You’ll laugh, you’ll cry, and you may even want to do a jig. You can see the detailed table of contents at Scribd. The chapter titles:

Chapter 0: Preface
Chapter 1: Overview
Chapter 2: What is an Advertisement?
Chapter 3: False Advertising Overview
Chapter 4: Deception
Chapter 5: Omissions and Disclosures
Chapter 6: Special Topics in Competitor Lawsuits
Chapter 7: Other Business Torts
Chapter 8: False Advertising Practice and Remedies
Chapter 9: Copyrights
Chapter 10: Brand Protection and Usage
Chapter 11: Competitive Restrictions
Chapter 12: Featuring People in Ads
Chapter 13: Privacy
Chapter 14: Promotions
Chapter 15: The Advertising Industry Ecosystem—Intermediaries and Their Regulation
Chapter 16: Case Studies

If you want to get a sense of the entire book, we’ve posted a free sample chapter (Chapter 12 about publicity rights and endorsements) to SSRN.

Although the book is targeted at law students, I think many other folks—students in other disciplines, lawyers, marketing and other businesspeople, policy-makers, etc.—will find the book a cost-effective and rewarding way to better understand a complicated and multi-faceted topic.

About Scribd: Scribd is a horribly limited platform for eBook publishing (and for doing just about everything else). [Among other limitations, I believe it only completes sales with US residents, and (for no good reason at all) it requires buyers to log in via Facebook to complete the purchase. If you can't complete a purchase via Scribd due to these limitations, email me and we'll set up a PayPal transaction.] [Update: I got an email from Scribd informing me that they just opened up international sales, and you must be logged into Scribd to make the purchase and you can (if you navigate around) find a way to log into Scribd without connecting with Facebook.] We are working on moving away from Scribd to a better eBook publishing platform...once we figure out what that is. If you have any recommendations, please email me.

Some of the many reasons why I’m so excited about the public release:

1) The Price. Compared to 99 cent or free eBooks, a $10 downloadable book may sound expensive. But, compared to the typical law school dead-trees casebook, $10 is a ridiculous bargain. Many print casebooks of comparable size cost $150 or more. In an era of rising tuition and hyper-competition for jobs, we just couldn’t justify asking students to pay that much.

Even better, a DRM-free PDF is more functional for readers than dead-trees books. Readers can load it onto laptops or other portable devices (although, as a PDF, it’s not completely mobile device-friendly—something we’re working on) and can copy it onto all of their computing devices. Readers can do full-text word searches. Depending on the reading client, readers can annotate and mark-up the book electronically. Readers can cut-and-paste material from the book into their course notes or outlines. Readers who want a hard copy can print it out (if needed, we provide a letter authorizing printing at a copyshop). And unlike some of the DRMed digital companions to dead-trees books, readers can keep the PDF indefinitely.

While we could easily justify a higher price than $10, we’re not exactly philanthropists. Here’s how I see the math: a $150 casebook may have a $110 price wholesale (or less). At 10% royalties to the authors, Rebecca and I would share $11. At the $10 download price, Scribd takes $2.25 a download, leaving us author royalties of $7.75. So discounting the retail price 93% perhaps reduces our royalties by less than 30%. Let’s hear it for disintermediation! Plus, just like any demand curve, the lower price point should lead to higher sales, which may, in fact, make our approach profit-maximizing. (Just so we don’t delude ourselves, we’re not talking big numbers in any case).

With such cheap pricing, we do have a request for readers: if you like the book so much you want to share it with your friends or colleagues, please send them over to the Scribd download page so they can purchase their own copy. You’ll still get kudos from your friends when they realize what a bargain you found for them.

2) Culmination of a Multi-Year Effort. I’ve been contemplating an advertising law casebook since at least 2006, when I had an epiphany about advertising law. I’ll blog more about that epiphany in a future blog post. Looking back through my emails, Rebecca and I first discussed this project in December 2007. Since then, Rebecca and I each have invested hundreds (possibly thousands) of hours on the casebook.

While we’ve deemed the book ready for public release, it’s not “done.” I’d say it’s only about 90% done. Unfortunately, you’re going to notice some of the unfinished 10%, starting with the crap-ass book “cover” I whipped up in about 5 minutes some time around midnight one night last week, and continuing with the countless typos and formatting errors you’ll find throughout the book. We’ll be fixing errors as we find them, so please send us your corrections and suggestions. Because Rebecca and I own the copyright and completely control the publication schedule, we anticipate issuing new versions fairly frequently. No promises, but I anticipate we’ll publish annual editions for at least the next few years.

Furthermore, although the book is already robust, we have a long list of desired improvements. In addition to the ordinary casebook maintenance, we hope future editions will include a better front cover, working hyperlinks, more case studies, a fully enabled eBook version suitable for mobile devices, and much more. We are also working on publishing a print-on-demand version.

3) Building an Advertising Law Academic Community. Before now, there wasn't a law school casebook optimized for a standalone Advertising Law course. As a result, historically the small community of Advertising Law professors each independently built their own teaching materials. We hope this casebook proves useful to that existing community (indeed, some of them have already used beta versions of the casebook over the past couple of years). We also hope that the casebook encourages other professors to start teaching the course for the first time. We think the course is an excellent addition to the law school curricula, and in a later post, I’ll explain the many virtues of teaching an Advertising and Marketing Law course. If you’re currently teaching the course or are interested in doing so, please email me and I’ll send you a complimentary PDF.

We offer a variety of supplemental resources to help new (and existing) instructors ramp up to teach the course, including:

* a rudimentary teaching manual. This is another area we’ll be improving over time
* the Georgetown Intellectual Property Teaching Resources database, a treasure trove of useful digital artifacts and props. Email Rebecca for access to the database, and see her article Sight, Sound and Meaning: Teaching Intellectual Property with Audiovisual Materials
* copies of both Rebecca’s and my PowerPoint slide decks, teaching notes and syllabi

Overall, the casebook is a critical step—but only one step—in a larger and longer-term effort to organize and expand the community of teachers and scholars in Advertising and Marketing Law. Some of the other community-building endeavors we plan to pursue:

* an email list for Advertising Law professors
* an AALS section
* a work-in-progress series or other regular face-to-face opportunities for scholarly and pedagogical exchanges

We look forward to that journey. Thanks for being a part of it.

Posted by Eric at 09:51 AM | Marketing | TrackBack

July 06, 2012

H1 2012 Quick Links, Part 3 (Advertising & Privacy)

By Eric Goldman

Advertising

* Gomez-Jimenez v. New York Law School: False advertising lawsuit against NYLS dismissed. Rebecca's coverage.

* Marketing Land: Pew Survey: 68% View Targeted Ads Negatively; 59% Have Noticed Targeting.

Partially related: Search Engine Land: Pew Report: 65% View Personalized Search As Bad; 73% See It As Privacy Invasion.

* Britain’s ASA holds an advertiser liable for user-posted YouTube videos.

Related: Cogent Solutions Group, LLC v. Hyalogic, LLC, 2012 WL 1083513 (E.D. Ky. March 30, 2012): "CSG cannot meet the high threshold of clear and convincing evidence to show that Hyalogic was responsible for posting the YouTube video. Hyalogic contends that the video was posted by an unrelated Malaysian company that was “acting independently” and uploaded the YouTube video to the Internet “without permission.”…CSG argues that Hyalogic's website provides contact information for many international retail partners, including partners located in Malaysia….This listing of “retail partners” referencing companies in Malaysia on Hyalogic's website merely supports a weak inference; it does not prove by clear and convincing evidence that Hyalogic caused the YouTube video to be uploaded to the Internet when the affidavit of Landis directly refutes this assertion. Landis states, “Hyalogic did not cause that video to be posted on YouTube—it was posted, without permission, by [a] user with the screen name “purewhiteclean,” operated by a Malaysian company which sells Hyalogic's products (the company is otherwise unrelated to Hyalogic).”…CSG offers no evidence, other than its own speculation, to show that this company is related to Hyalogic."

* AdAge: Class action lawyers are trolling through NAD proceedings looking for cases.

Related: Technology Review: Why Privacy Is Big Business for Trial Lawyers

* More evidence that search advertising provides substantial incremental lift in organic search referrals. Related from Search Engine Land: "even when advertisers show up in the number one organic search result position, 50% of clicks they get on ads are not replaced by clicks on organic search results when the ads don’t appear."

* Marketing Land: Study suggests clicks on display ads have almost no correlation with conversion.

* AdWeek: SheKnows.com editors caught encouraging staffers to click on ads shown on the website.

* Ascentive settles false advertising lawsuit that it was "scareware" for $9.6M.

* Adscend settles “clickjacking” lawsuit by Facebook. It also settled with the Washington state regulators for $100k, which Adscend claimed was a win for it.

Privacy

* Slaughter v. Aon Consulting, 10C-09-001 (Del. Superior Ct. Jan. 31, 2012). Dismissing a class action over a data breach because of "nationwide credit card theft trends, the potentially catastrophic effect of data breaches, and Chinese hacking methods. While Stump raises reasons for concern, his report never states Aon’s breach caused Plaintiffs’ actual harm, nor does it show there is a probability that harm will occur. No named plaintiff has suffered an actual, demonstrated injury."

The court continues: "In summary, the string of dismissals is unbroken. No court has allowed a similar case to go to trial. The fact that there is a string of cases is troubling. Perhaps, the legislature or the Restatement needs to consider this problem. Meanwhile, the court is unaware of a similar case where a plaintiff has gotten past the dismissal stage."

* U.S. v. Fulford, 2012 WL 750548 (S.D. Ala. March 7, 2012):

What we do know is that the Internet is a medium through which people can and routinely do assume fictitious identities. Some do it to heckle professional athletes or disparage musicians. Others do it to air unpopular political or social views, thus allowing their voices to be heard from behind a comforting veil of anonymity. Still others may fabricate a persona on the Web to promote nefarious objectives, such as trying to conceal unlawful activity or endeavoring to defraud or trick other users into providing confidential information, sending money, or distributing pornographic images. And, of course, law enforcement agents regularly go undercover on the Internet to identify and investigate criminal activity. The point is not whether, normatively speaking, Internet anonymity is inherently good or bad. The point is that it is pervasive. As a practical reality, surfing the Internet is akin to attending a masquerade ball in the land of Oz on Halloween. No one is who they seem to be.

* NYT: Verifying Ages Online Is a Daunting Task, Even for Experts

* Can "anonymous" website commenters be reidentified through linguistic analysis? If so, this could be huge.

* NY Times: Panopticon redux: kids have toned down their Spring Break revelries due to the ubiquity of cellphone cameras.

* To help prop up publisher paywalls, Google puts together an offering that makes consumers' private information the price of admission to paywalled content. AdWeek’s coverage. Wired's coverage.

* In re Facebook Privacy Litigation has been appealed to the 9th Circuit. Prior blog post.

* NY Times: On Facebook, the Semantics of Visibility vs. Privacy

* Valentine v. Wideopen West Finance, LLC, 2012 WL 1021809 (N.D. Ill. March 26, 2012). A deep packet inspection (DPI) case gets sent to arbitration.

* The FTC busts Wyndham for lax security based on language that is found in thousands of privacy policies. The FTC has been busting companies for a number of years for lax security, but I’m still questioning the basic premise of these enforcement actions.

* FCC ruling in Google Street View wi-fi case. NY Times coverage (1, 2).

* SJ Mercury News: Is an FTC investigation of Google's Safari/Google+ mistake coming imminently?

* ZDNet: State AGs affix target to online privacy issues

* MediaPost: the Bose v. Interclick case ends a little mysteriously. Prior blog post.

* IAPP on the F.A.A. v. Cooper ruling.

* The FTC approved its RockYou settlement.

* The average website has 14 third party tracking tags.

Posted by Eric at 02:43 PM | Marketing , Privacy/Security | TrackBack

Confirmatory Opt-Out Text Message Doesn't Violate TCPA – Ibey v. Taco Bell

[Post by Venkat Balasubramani]

Ibey v. Taco Bell Corp., 12 CV 0583 (HVG) (S.D. Cal.; June 18, 2012)

Plaintiff responded to an invitation to complete a survey about Taco Bell and “voluntarily sent a text message . . . to the number 93138.” In response to his text, he received instructions on how to complete the survey. He then changed his mind and sent a “STOP” message. In response to the STOP message, he received a confirmatory text message from Taco Bell acknowledging that he would receive no further messages.

He sued, alleging that the confirmatory message violated the TCPA. Taco Bell moved to dismiss or in the alternative for summary judgment. The court grants the motion to dismiss.

The court says that plaintiff “expressly consented” to contact by Taco Bell, and that

[Taco Bell’s] sending a single, confirmatory text message in response to an opt-out request from Plaintiff, who voluntarily provided his phone number by sending the initial text message, does not appear to demonstrate an invasion of privacy contemplated by Congress in enacting the TCPA.

In order to assert a claim under the TCPA, the plaintiff must also allege that the text was sent using equipment that had the capacity to generate random or sequential numbers. (See Satterfield.) The court says that plaintiff failed to make this allegation. In fact, the court says that if the facts are as they had been pled by plaintiff, Taco Bell would be entitled to summary judgment. Although the court grants plaintiff leave to amend, judging from the tone of the court's order, Ibey would be wise to drop his claims. (Ibey moved to reconsider the court's order, you can access his motion here.)

There has been at least one case going the other way – i.e., holding that even confirmatory opt-out messages can violate the TCPA. (See Ryabyshchuk v. Citibank.) This case is distinguishable from Ryabyshchuk on the basis that consent was not an issue here. Plaintiff admitted that he voluntarily texted Taco Bell in the first place. In any event, it’s nice to see this court come to the conclusion that should be glaringly obvious: a confirmatory opt-out message shouldn’t violate the TCPA or separately form the basis for liability.

This decision notwithstanding, companies should consider avoiding sending a confirmatory opt-out message to avoid the hassle of litigating these types of claims.

Related posts:

Posted by Venkat at 12:16 PM | Content Regulation , E-Commerce , Marketing , Spam

July 05, 2012

Men's Journal Beats Lawsuit Alleging Violation of California’s “Shine the Light” Privacy Statute -- Boorstein v. Men’s Journal

[Post by Venkat Balasubramani with comments from Eric]

Boorstein v. Men’s Journal LLC, 12-771 DSF (Ex) (C.D. Cal.; June 14, 2012)

California’s Shine the Light (STL) statute is a little unusual in that it mandates that businesses make specific disclosures about their privacy practices. For the most part, when it comes to telling consumers what you will do with consumer information and restrictions on how you will use such information, your own privacy policy and the FTC Act are the main regulations that companies need to worry about. The STL law is designed to inform users as to how their information is being used for direct marketing purposes. It doesn’t necessarily impose any substantive restrictions on the use of such information, but it requires websites to disclose (at the consumer’s request) how their information is being used. To this end, businesses are supposed to designate contact information where consumers can request how their information is being distributed. Alternatively, the business can comply with the statute by allowing consumers to opt-in or opt-out of distribution of their information. It’s an interesting attempt by the California legislature to give consumers more control and choice, but as this case illustrates, things didn’t really work out that way.

Boorstein sued (on behalf of a putative class) alleging that Men’s Journal did not comply with the statute because it failed to provide consumers with the appropriate contact information to enable consumers to make requests under the STL statute. Boorstein did not allege that he took any steps to find out this information (or otherwise find out about Men's Journal's information sharing practices) by contacting Men’s Journal. Boorstein simply alleged that Men's Journal's failure to designate contact information alone was sufficient to allege a violation of the statute.

The court says no go.

No standing as a result of loss of economic value to Boorstein’s information: First, the court says that Boorstein did not suffer economic injury that was caused by a violation of the statute. It’s questionable in the first place whether Boorsteein’s information has economic value in Boorstein’s hands. (See, e.g., Del Vecchio v. Amazon, among other cases.) In any event, the court says the statute does not actually prohibit the exploitation of consumer information for marketing purposes. Additionally, the statute is backward looking, and only requires businesses to disclose their use of consumer information for the “immediately preceding calendar year.” End result: even to the extent plaintiff's personal information is property that can be appropriated by Men's Journal, any harm Boorstein suffered isn't caused by the alleged statutory violation.

Failure to provide contact information is not an “injury” under the STL law: The court also says that Men’s Journal’s failure to display the contact information alone does not state a claim under the STL law. The law requires some sort of “injury” flowing from a violation, and as mentioned above, the court says there’s no injury to the value of Boorstein's personal information that results from the alleged statutory violation. Case law only recognizes “information injury” (failure to provide required information) where the information is requested but not provided. Boorstein’s failure to allege that he requested the contact information from Men's Journal undermines his claim. The court also says that Boorstein’s injury is “procedural,” rather than “informational.”

Boorstein’s argument based on the Men’s Journal subscription fee fails: Boorstein also made the typical consumer protection argument that the price of the Men’s Journal subscription included the value of the designated contact information for STL law purposes, and Men’s Journal’s failure to provide this information means that he has been cheated out of his bargain. [Say what?] The court says that Boorstein’s allegation that Men’s Journal impliedly represented that it would "abide by all applicable laws" doesn’t mean that Men’s Journal agreed to provide contact information as part of the subscription price--or, more importantly, that Boorstein would not have subscribed had he known the contact information would not be forthcoming. The court also says that Boorstein cannot make out a UCL claim because he has not lost “money or property” as a result of Men’s Journal’s violations of the statute. As already mentioned, he would have subscribed anyway, so Boorstein can’t use the subscription price as part of his “money or other property” argument. Similarly, he also can’t use the value of his personal information in order to support his UCL claim.

A few observations:

1. The "personal information as property" meme is not gaining much traction. In fact, apart from an initial decision or two that recognized this as a possible theory (for standing purposes), courts have pretty resoundingly rejected it. (Del Vecchio v. Amazon and In re iPhone App Litigation are two recent examples.) Perhaps a blockbuster appellate ruling will come along to rescue privacy plaintiffs. Until then, the trial courts are not buying this argument at all.

2. The "privacy as part of the purchase price" argument is also something that plaintiffs often raise, but courts don’t like this either. It’s worth noting that in this case, even the plaintiff’s own allegations (as the court described them) didn’t expressly say that he would not have bought the magazine subscription had he known he would not have been provided contact information. There's an obvious reason for this.

3. The court doesn’t get into Article III standing here, and instead relies on lack of statutory standing. To me, the two standing concepts all run together into a big quagmire, but when dealing with a state law in federal court, it seems preferable to rely on statutory standing as a bar. (First American v. Edwards, the then-pending Supreme Court case in which Facebook and other companies weighed in on as amici, involved standing under a federal statute. But in an anticlimactic move, the Supreme Court dismissed the case without ruling on it. I didn't think a ruling in First American's favor in this case would have dramatically changed the landscape, but the lack of a decision from the Supreme Court moots this issue for now.)

4. Obviously, this ruling puts a slight crimp in the legislature’s vision of using STL to give consumers additional control over how their information is used. The court's ruling doesn’t leave consumers in a great position. Even if Boorstein had requested the information and it wasn’t provided, would he be able to obtain damages under the statute? STL provides for statutory penalties, but the tone of the ruling is that Boorstein hadn’t been damaged anyway (or damaged in a way that was tied to the statutory violation), so it’s possible that the court would have come out the same way even if Boorstein had made the necessary request.
____

Eric's Comments:

California's "Shine the Light" statute is a textbook example of a miscalibrated privacy statute (which I would argue describes almost all privacy statutes). It starts from a simple premise--consumers just want to know if a business is selling their personal information to marketers--and, to effectuate this premise, imposes substantial compliance costs and obligations on businesses (mostly just creating traps for the unwary) without any clear countervailing benefit for consumers or society at large. Not only do I question the basic premise that consumers "just want to know" about sales of their private info to marketers (see my Coasean Analysis of Marketing article), but as this and related cases illustrate, the private cause of action means that the statute almost certainly will be enforced by privacy class action lawyers who are more interested in their own quick profits than in advancing consumer welfare (see my Irony of Privacy Class Action Litigation article). There are a number of good cautionary lessons that legislators, and the privacy advocates who egg them on, could learn from this statute and this ruling, but I'm skeptical either legislators or privacy advocates will take the time to reflect on those lessons.
____

Venkat's follow-up comment:

I mildly dissent from Eric's position questioning "the basic premise that consumers 'just want to know' about sales of their private info to marketers." I may be idiosyncratic and in the minority in this regard, but particularly when it comes to magazine subscriptions I would love to know where my information ends up. (My instinct is that a big chunk of my junk mail is a result of the three or four magazine subscriptions I have in place.) I'm not sure I would change my purchasing decisions dramatically, but knowing this bit of information may tip the balance a bit or cause me to try to pressure the companies into not making my information available to third parties for direct marketing purposes. [On a loosely related note, those who are trying to get rid of junk mail may want to check out PaperKarma, an app that lets you take photos of and upload junk mail and then sends an unsubscribe request on your behalf.]

Other coverage:

First Reported Shine the Light Suit Dismissed for Failure to State Cognizable Injury
'Shine The Light' Lawsuit Against 'Men's Journal' Dismissed
Federal Judge Dismisses Shine-the-Light Suit

Posted by Venkat at 12:10 PM | E-Commerce , Marketing , Privacy/Security , Spam

June 18, 2012

Recap of the Fourth Trademark Scholars Roundtable at DePaul University

By Eric Goldman

In April, Graeme Dinwoodie and Mark Janis once again convened a roundtable of trademark law scholars to geek it out on trademark law. Group photo. This year’s theme was “trademark boundaries,” i.e., how trademark law abuts against other legal doctrines (such as copyright, patent or publicity rights) or no doctrines at all (a legally unregulated zone). As usual, Mark Lemley provided a helpful recap of our discussion:

* as a group, we principally interpreted “boundaries” as limits to trademark’s doctrines rather than as frontiers with other doctrines.

* we discussed how often trademark law gives way to conflicts with patent or copyright doctrine. Mark observed that not many of us questioned the supremacy of copyright/patent over trademarks in those conflicting cases. Mark spun through a series of hypotheses why we routinely view trademark law as subordinate to copyright or patent:

- the constitution. Patent and copyright have a Constitutional clause authorizing Congress to protect them. Trademark law exists only under Congress’ general commerce clause powers.

- venerability. Patents can be traced back a half-millennium; copyrights have a history of 300+ years; trademarks are a comparative newcomer, as they are principally a product of the 19th century.

- timing in product development. Copyrights and patent are often part of the thing being sold and are thus part of the discussion from the beginning of the product development cycle, while trademarks become relevant later in the product development cycle.

- public domain concerns. Copyright and patent have clearer paths to the public domain, and thus to enable free copying, than trademark law. Mark didn’t mention it explicitly, but one reason we subordinate trademarks to copyright and patent doctrine is that trademark protection is potentially perpetual, while copyrights and patents aren’t. The Qualitex case expressly referenced this consideration.

Mark noted that none of these explanations are fully satisfactory. As a result, we should reexamine why we denigrate trademarks’ status relative to copyrights and patents.

* where they conflict, we presume trademark law preempts state doctrines. This may be a subset of general federal/state supremacy issues.

* the group spent as lot of time discussing functionality, especially aesthetic functionality. Mark asked if we need two separate functionality doctrines. He thinks perhaps we could develop a unified doctrine, which may have the collateral benefit of keeping the doctrine from being treated like a stepchild. We spent substantial time wondering about the role of aesthetic functionality, which is at the border of trademark law and both copyrights and design patents. Perhaps the term “functionality” throws us off; Stacey Dogan offered the alternative terminology of “aesthetic utility,” which may be a more accurate descriptor.

* there was near-consensus that we should overcome any tendency to feel like “there must be some applicable law” to every situation. One way to counterbalance this impulse is by extolling the virtues of “freedom to copy” or the right to compete, a value that isn’t expressly in the Constitution even though it’s a linchpin of our economy and our system of governance. Previously, Mark observed that competition is what’s left over when there’s not an applicable intellectual property. When IP doctrines grow, competition recedes. Or as Mark McKenna observed, all IP is about unfair competition; competition norms inform IP boundaries. Somehow, we’ve flipped the presumptions and now make defendants prove why they are allowed to copy.

In my summary near the session’s end, I made two main points:

1) Compared to many of my peers, I hold a relatively absolutist position naturally informed by neo-classsical economics. I think trademark law should perform only one task, which is solely to correct specific types of marketplace defects in the marketplace that harm marketplace efficiency—the presentation of product source information that hinders consumers’ abilities to effectuate their preferences. That particular defect in the marketplace hurts society by interfering with the “invisible hand” mechanism.

This takes us to a point raised by Michael Grynberg about institutional competences for enforcement (i.e., the “who” of enforcement, as opposed to the “what”). Comparative institutional competency is a major topic in advertising law (I explored it a bit in my paper on privacy class action lawsuits), so it’s natural to revisit it in the trademark “corner” of advertising law. We rely on trademark owners to enforce their trademark rights, just like we only let competitors enforce Lanham Act false advertising claims. Competitor-initiated enforcement actions have their virtues; after all, no one has greater financial motivation to fix a marketplace defect than a competitor who is losing profits due to legal corner-cutting. But competitor-initiated enforcement has numerous downsides too, including the possibility that it’s motivated by anti-consumer impulses and the collusion risks (i.e., a competitor who lives in a glass house isn’t likely to throw stones at a competitor). Thus, we have a suite of other enforcement mechanisms for advertising law problems, including consumer lawsuits, government regulation, certification bodies, and non-legal recourse.

We don’t need trademark law to solve every problem because these other enforcement mechanisms can shoulder some of the load. In turn, we should resist the impulse to keep expanding trademark law to cover more border cases internally within trademark law, and instead trademark law should “outsource” any non-core problems to other doctrines enforced by other enforcement institutions. There’s a long list of para-trademark rights or other doctrines (ranging from defamation to antitrust law) that can handle legal concerns without expanding trademark law to cover them as well. (Rebecca gave the example of dilution as “defamation-lite,” a point often overlooked in the discussions about dilution's "merit").

2) In contextualizing the boundary problem, Bob Bone noted the possibility of both cumulation of doctrines and conflicts of doctrines. I am much more troubled by doctrinal cumulation/overlap than many of my peers. Bill McGeveran and I sparred with each other on this point all weekend; Bill observed that we shouldn’t care about doctrinal tidiness for its own sake, although I in fact would love a lot more doctrinal tidiness. Bill teaches civil procedure and I loath civil procedure (no disrespect intended!), so maybe we just start from different places.

My main objection to overlapping doctrines is that they produce two types of transaction costs. First, when in court, overlapping doctrines impose greater litigation/adjudication costs on all players. This is especially true when different doctrines are resolved at different stages of litigation, i.e., doctrines A-C can be resolved on motions to dismiss and doctrine D requires litigation through summary judgment or even fact adjudication. In those circumstances, when doctrine D isn’t meritorious, the litigants and the court bear additional costs for no extra social payoff.

Second, and more importantly, overlapping doctrines impose substantial extra costs on companies trying to bring products to market. Each doctrine requires its own research/clearance; indeed, my perspective from my in-house counsel days is that these costs grow logarithmically with each new doctrine, not arithmetically. In effect, cumulative doctrines are similar to “IP rights thickets” we lament elsewhere. Clearance costs can dramatically suppress innovation.

Jeremy Sheff rightly noted an internal tension in my two points. He observed that overlap in institutional enforcement scope creates transaction costs just like the transaction costs in doctrinal overlaps that I lamented. I responded that (in theory) we can design the enforcement institutions, and their substantive enforcement portfolios, such that they sit next to each other and don’t overlap. This is probably untrue in practice, especially, as Mark Lemley pointed out, given that regulators tend to regulate and thereby expand their portfolio of responsibilities.

Dastar came up frequently in our discussion, but there was widespread consensus that none of us feel like we understand it. Barton Beebe described Dastar as “so heavy,” which really does sum it up nicely.

Prior years' recaps:
* First
* Second
* Third

Rebecca's characteristic quasi-transcription of the discussion:
* Part 1
* Part 2
* Part 3

Posted by Eric at 09:33 AM | Marketing , Trademark | TrackBack

June 07, 2012

Trademark Registrant Isn't Required to Shut Down Competitive Keyword Advertisers--STK v. Backrack

By Eric Goldman

STK LLC v. Backrack, Inc., Cancellation No. 92049332, 2012 WL 2024459 (TTAB May 21, 2012). The TTAB designated this opinion "non-precedential," which they do with the vast majority of their opinions.

Deborah Gerhardt, Leah Chan Grinvald and I are writing two companion articles on trademark policing doctrines. Our basic thesis is that the trademark policing "duty" is grossly overstated in ways that have pernicious effects on everyone--other than trademark lawyers who extract extra cash from clients due to the ambiguities. You'll be hearing more about this project as we make more progress (i.e., when I actually write the portions I promised to write).

This opinion illustrates an unsuccessful attempt to overstate the trademark policing "duty." I believe it's also the first opinion that expressly addresses what, if any, obligations a trademark owner has to shut down competitive keyword advertising. Consistent with our belief that trademark policing obligations are overstated, the opinion tells trademark owners that they don't necessarily have to go after competitive keyword advertisers as a precondition to maintaining their trademark rights.

Before I get to the opinion, a note about the TTAB. The TTAB is an administrative adjudication system (not a "court") within the USPTO that resolves disputes about trademark registrations. TTAB proceedings can be fiercely contested and often are equivalent to judicial proceedings in both scope and cost. In this case, STK sought to cancel Backrack's trademark registration on the grounds that Backrack for "pick-up truck racks" is generic. Although Backrack is a weak mark, STK had an uphill battle proving genericide.

To support its claims, STK argued that Backrack had not adequately policed against third parties purchasing "backrack" as the trigger for keyword advertising. The TTAB panel rejects the argument for several reasons, including that trademark law's applicability to keyword advertising is legally unsettled:

In view of the evolving status of the case law in this area, respondent's failure to pursue purchasers of "backrack" as a keyword is not evidence of failure to police its mark.

Further, the panel says that advertisers may be purchasing the keyword precisely because it is a competitor's trademark, which would undercut the argument that the term has become generic. Indeed, the panel found that competitors were advertising a variety of analogous goods (not just truck racks) in the ads triggered by "backrack," and the panel says this reinforces that the term isn't generic. The panel doesn't cite Rosetta Stone on this point, but the 4th Circuit's Rosetta Stone opinion mentions nominative use several times--a doctrine that can apply only if the advertisers use the keyword trigger for its referential meaning. I provide much more support for this legal interpretation in my Deregulating Relevancy article.

While a non-precedential TTAB ruling is hardly the most authoritative source on this topic, this opinion reaches a sound result and provides some helpful insights for trademark owners wondering if they must chase off competitive keyword advertisers to satisfy their trademark policing "duty." I would argue the answer has always been "no," and this opinion gives additional legal support for that conclusion. Now, I recognize trademark owners might have other reasons to "protect" their trademarks as keyword ad triggers, but I hope they won't spend the time and money on the misperception that they have to do so. As usual, that time and money would be better spent competing on the merits than on trying to suppress information available to consumers.

UPDATE: Comments on the case from:

* John Welch/TTABlog
* Rebecca Tushnet

Posted by Eric at 01:37 PM | Marketing , Search Engines , Trademark | TrackBack

June 06, 2012

Backpage Gets TRO Against Washington Law Attempting to Bypass Section 230--Backpage v. McKenna

By Eric Goldman

Backpage.com, LLC v. McKenna, 2:12-cv-00954-RSM (W.D. Wash. June 5, 2012). The complaint. Backpage's TRO motion.

As part of states' ongoing crusade against online prostitution ads, earlier this year Washington enacted SB 6251, captioned "Regulating advertising of commercial sexual abuse of a minor." The bill page. The actual bill.

The law has two main provisions. First, it defines a new crime of "advertising commercial sexual abuse of a minor," which occurs when a person "knowingly publishes, disseminates, or displays, or causes directly or indirectly, to be published, disseminated, or displayed, any advertisement for a commercial sex act, which is to take place in the state of Washington and that includes the depiction of a minor." Second, the defendant can't claim ignorance of the depicted individual's age as a defense, but it sets up a safe harbor when the defendant "made a reasonable bona fide attempt to ascertain the true age of the minor depicted in the advertisement by requiring, prior to publication, dissemination, or display of the advertisement, production of a driver's license, marriage license, birth certificate, or other governmental or educational identification card or paper of the minor depicted in the advertisement." Thus, the law both targets the publication of prostitution ads and imposes a de facto age verification and record-keeping requirement for publications running such ads.

Although the statutory language doesn't say so explicitly, the law was intended to attack Backpage for not doing enough to screen out prostitution ads. Thus, the law seeks to bypass Backpage's obvious Section 230 immunity for the ads submitted by its users.

In response, Backpage sued the state to prevent enforcement of the law, scheduled to take effect this coming Thursday. It appears the state didn't contest the TRO request. Yesterday, the court granted Backpage's TRO in a short and mostly non-substantive ruling. The court wrote:

Backpage.com has shown a likelihood of success on the merits of its claim, pursuant to 42 U.S.C. § 1983 and the Declaratory Judgment Act, 28 U.S.C. § 2201, as well irreparable harm, the balance of equities tipping strongly in its favor, and injury to the public interest, justifying injunctive relief.

Getting an uncontested TRO may have been Backpage's easiest step. It will be interesting to see if this criminal statute has enough existing circumscriptions (such as its scienter pseudo-requirement) to survive the constitutional and federal preemption challenges, or if the court imposes some limitations into the statute to exclude intermediaries like Backpage, or if the court will just toss the legislation altogether (as I've argued before regarding all state-level attempts to regulate the Internet). The court scheduled the next hearing for June 15. Obviously this litigation will be worth watching.

May 05, 2012

Franchisor Really, Really Unhappy With Franchisee's Co-Promotion With a Topless Bar--Capriotti's v Taylor

By Eric Goldman

Capriotti's Sandwich Shop, Inc. v. Taylor Family Holdings, Inc., 2012 WL 1448514 (D. Del. April 25, 2012). The complaint and exhibits A-D, E-H and I-O. Some background.

Capriotti's is a franchised fast-food sandwich chain, with its signature sandwich being "the Bobbie" with roasted turkey, cranberry sauce and stuffing. I've never been to the chain and it doesn't sound like my kind of place, but they do have a comparatively well-developed (for a fast-food sandwich place) vegetarian menu.

In 2003, Taylor became a Capriotti's franchisee in Las Vegas. The franchise agreement contained standard provisions requiring franchisor pre-approval of any franchisee ad copy.

You'd think that Thanksgiving-in-a-roll would sell itself, but Taylor sought a marketing edge in Las Vegas by appealing to local sensibilities. And what sells better in Vegas than sex appeal? So Taylor hooked up with a local topless bar ("Crazy Horse III") to offer a happy hour special of a sandwich and beer for $5. The ad copy displayed the franchisor's trademarked logo; though the parties disputed if Taylor authorized that or not. Several local publications and blogs shared the promotion with their audiences, such as this post:

“Hey, you like boobs, don't you? Of course you do. You like sandwiches too, right? Now why not put them together.... Apparently Crazy Horse III is teaming up with Capriotti's to offer lap dance enthusiasts six-inch-subs with a beer for five bucks during happy hour from 1 to 7 p.m. daily....”

Capriotti's learned that Taylor had allegedly cooperated with the topless bar on the promotion and sent a breach notice with a 5 day cure period. Feeling that Taylor didn't adequately remedy the situation, Capriotti's then sent a notice to terminate the franchise agreement. Taylor continued operating the franchise without change (although at some point the topless bar stopped the promotion), so Capriotti's sued Taylor in Delaware, and Taylor countersued.

The court doesn't understand why the parties sued in Delaware when both litigants are based in Nevada, so it transfers the case back to Nevada. The court also denies the plaintiff's preliminary injunction request because of the parties' factual disagreements and the unavailability of a key witness (the topless bar manager). These parties should settle, but they'll probably spend hundreds of thousands of dollars on attorneys' fees fighting over the implications of associating sub sandwiches with naked breasts instead.

What remains puzzling to me is why Capriotti's thinks it's worth suing to get Taylor out. Perhaps the association with a topless bar is so irreparably distasteful to Capriotti's that it's worth killing the relationship. The opinion also indicates that other franchisees in the local area were unhappy (jealous?) about the promotion. More likely, there's a backstory that makes the franchisor's litigiousness more explainable. Many franchisors would have gladly looked the other way or simply counseled the franchisee about its behavior going forward. After all, even if Taylor authorized the ad copy without permission, it was in the service of moving more Bobbies.

From the franchisee's perspective, this case is a good reminder that franchisors can be unduly sensitive about lascivious associations. Plus, franchisees shouldn't forget that franchisors may be delighted to have a pretextual excuse to shut down a longtime franchisee. The franchise agreement is the foundational document for the franchisee's business; it needs to be respected at all costs.

Posted by Eric at 08:12 AM | Licensing/Contracts , Marketing , Trademark | TrackBack

April 19, 2012

Facebook Beats Class Certification in Click Fraud Case

By Eric Goldman

In re Facebook, Inc., PPC Advertising Litigation, 2012 WL 1253182 (N.D.Cal. April 13, 2012)

I don't know what I like less: click fraud, or bogus lawsuits over click fraud. This three-year-old case (see my initial blog post on filing) was questionable from day 1. The advertisers signed up to a contract that clearly told them they had no claim for click fraud. To get around this, the plaintiff canvassed every corner of Facebook's site for innocuous language that could be twisted around tendentiously, and the plaintiffs argued that they weren't suing for bad clicks but instead for invalid "phantom" clicks that never occurred. Judge Fogel, bless his heart, didn't kill the case when he had the chance; instead, he gave the plaintiffs another chance. No matter, as Judge Fogel handed the case off to Judge Hamilton when Judge Fogel relocated to DC, and Judge Hamilton properly shut down the nonsense and denied class certification. The case might still continue individually, but I can't imagine why it would.

The plaintiffs sail through the standard class action analysis on numerosity, commonality and typicality. The plaintiffs hit a small but curable bump on adequacy of representation, but it's embarrassing when the named class representatives admit that the lawyers are the real prime movers in the case (as is far too typical in class actions). The court says:

Fox is also not an adequate class representative for the additional reason that he testified in his deposition that he knows essentially nothing about the case, and indicated that he would defer to counsel in prosecuting this action.

Clients guiding lawyers, or lawyers guiding clients? The legal system assumes the former; the latter is the reality in class actions.

Despite the hiccup on adequacy of representation, the case runs into real trouble on the predominance of common issues. On the contract breach claim, the court summarizes its concerns:

plaintiffs have failed to establish that the terms of the contract that were allegedly breached by Facebook are part of any contract between CPC advertisers and Facebook; have failed to establish that there is any uniform method for distinguishing, on a classwide basis, between “invalid” clicks (at issue in the case) and “fraudulent” clicks (not at issue in the case); and have failed to establish that damages can be calculated on a classwide basis.

Particularly noteworthy is the court's rejection of the plaintiffs' efforts to stitch together various site text to tell the story it wants to tell. This passage about the plaintiffs' efforts to incorporate language from the Glossary into the "contract' is representative of the court's discussion:

Because the Glossary is not referenced in or linked to the “Place Order” page or to the SRR, it is not clear how it can reasonably be considered part of a “uniform written contract.” Not only is it unnecessary for an advertiser to review any material on the Glossary page in order to place an ad, it is also impossible to link directly to the Glossary from the “Click Agreement” or “Place Order” page, or even from the SRR.

Stepping back from the case specifics, the rulings demonstrates that publishers, guided by the right lawyers, should fight back against advertiser class action lawsuits rather than take quick settlements. Recall that both Google and Yahoo settled their click fraud lawsuits before reaching the class certification stage. They may have done so because they wanted class-wide resolution of the issues; but more likely, they were skittish about fighting to the end. Here, unlike Google and Yahoo, Facebook fought class certification rather than settling, and the ruling validates Facebook's decision. Perhaps this ruling will embolden other publishers to stick to their guns when the click fraud lawyers come a-callin'.

Posted by Eric at 09:14 AM | Licensing/Contracts , Marketing | TrackBack

April 16, 2012

Terminating an NFL Player's Endorsement Agreement for Polemic Tweets May Be Contract Breach--Mendenhall v. Hanes

[Post by Venkat Balasubramani, with comments from Eric]

Mendenhall v. Hanesbrands, 2012 WL 1230743 (M.D.N.C.; Apr. 12, 2012)

This case has it all: Twitter, a pro football player, terrorism, Osama bin Laden and contract law geekiness!

Background: Rashard Mendenhall plays professional football as a running back for the Pittsburgh Steelers. Mendenhall entered into an endorsement contract with Hanesbrands, which owns the Champion brand. The agreement between Hanesbrands and Mendenhall had a “morals clause,” which originally said that Hanesbrands could terminate the agreement if Mendenhall was arrested, charged with, or indicted for a felony or a crime involving moral turpitude. This clause was later amended to provide that Hanesbrands could terminate the agreement if, in addition to being charged with or indicted for a crime, Mendenhall:

[Became] involved in any situation or occurrence . . . tending to bring Mendenhall into public disrepute, contempt, scandal, or ridicule, or tending to shock, insult, or offend the majority of the consuming public . . . . [Hanesbrands’] decision on all matters arising under [this section] shall be conclusive.

Mendenhall’s Tweets: Mendenhall is an avid user of Twitter (@R_Mendenhall) and describes himself as a “Conversationalist and Professional Athlete.” [Eric's note: sadly, the conversation stopped pretty much right after Mendelhall sued Hanes; his last post is from July.] In the wake of President Obama’s announcement of Osama bin Laden’s assassination, Mendenhall posted a series of Tweets decrying the joy that people expressed about this incident (a link to the first tweet in the series):

What kind of person celebrates death? It’s amazing how people can HATE a man they never even heard speak. We’ve only heard one side . . .

I only believe in God. I believe we’re ALL his children. And I believe HE is the ONE and ONLY judge.

Those who judge others, will also be judged themselves.

For those of you who said we want to see Bin Laden burn in hell and piss on his ashes, I ask how would God feel about your heart.

There is not an ignorant bone in my body. I just encourage you to #think [nice touch on the hashtag here]

Not surprisingly, Mendenhall’s tweets generated a negative reaction. Mendenhall issued an explanation, saying that he was encouraging people to think; his tweets were meant to “generate conversation.”

Hanesbrands issued a public statement to ESPN distancing itself from Mendenhall’s statements and saying that his statements were inconsistent with the Champion brand. It said it was terminating the endorsement contract. Mendenhall sued, asserting that Hanesbrands’ termination was a breach.

The Court’s analysis: Hanesbrands says the contract vested it with discretion to terminate the agreement, and this decision shouldn’t be second guessed by the court. The court disagrees and says that this discretion is constrained by Hanesbrand’s duty of good faith and fair dealing. (The court doesn’t explicitly say that the contract would suffer from illusoriness if Hanesbrand could terminate it for any reason, but this is the same reasoning we’ve seen in other agreements that give one party a free hand to alter the terms.)

Does Mendenhall get past the good faith hurdle—can he show that Hanesbrands’ actions were unreasonable or in bad faith? At the pleading stage, the court says yes: and points to Hanesbrands initial public statement said that it “disagreed” with Mendenhall’s statements. In contrast, the agreement requires that Mendenhall make a statement that brings him into disrepute or shocks the majority of consuming public.

Hanesbrands responded that there was no dispute Mendenhall’s statements caused a public outcry and this backlash justified its termination of the agreement. The court says there is a factual dispute about the extent of the backlash. Mendenhall submitted evidence that although many people freaked out, he received supportive tweets and some people even changed their minds, thanking Mendenhall for making them think about the situation.

Celebrities and athletes getting into hot water over incendiary tweets that are sent in the heat of the moment. Sound familiar?

I do think there’s more to the story here, though. I don’t deal with morals clauses with much frequency, but it’s interesting to see that even a morals clause has to be constrained by some standard. If the brand reserves for itself the right to freely terminate the contract any time the endorser says something the brand disagrees with, this raises the problem of the contract being illusory.

Unlike the government, which has to comply with First Amendment constraints, private employers and brands can freely restrict the speech of their employees or endorsers. (Employers have to deal with NLRB guidelines, but those were not implicated here.) The challenge is to come up with a standard that doesn’t tie the hands of the brand but at the same time provides some metric that is not totally subjective and does not give the brand unbridled discretion.

Mendenhall’s path to victory will not be an easy one. He has a pretty tough hurdle to prove that either (1) Hanesbrands tolerated his own previous statements and this established some sort of course-of-dealing, or (2) Hanesbrands tolerated similar statements of other endorsers. As to the underlying issue of whether his tweets were offensive to a large segment of the population, the parties will probably both present competing evidence, but Hanesbrands probably has a lot to drawn on from an evidentiary standpoint here. (It's unclear as to whether use of the term "majority" in the agreement will come back to haunt Hanesbrands.)

In the meantime, Tweeters beware. We don't need another cautionary tale to remind us that the ability to instantly publish our often emotional reactions to the current goings on is a double edged sword, but regardless of how it plays out, this case serves that purpose.
_________

Eric's Comments

I love love LOVE this case! It's an instant Contract Law classic. I could see the opinion, or its facts, appearing in Contract Law casebooks and courses throughout the country. In addition to the star power/pro sports angle, it's a rich springboard for intellectual pursuits:

* the value of endorsement contracts. There is significant literature questioning whether endorsement contracts are profitable for advertisers. See, e.g., AdAge, Celebrities in Advertising Are Almost Always a Big Waste of Money. When the endorsement arrangement does work out financially, I wonder if being controversial subtracts, or enhances, the endorser's value? It brings to mind the maxim "there's no such thing as bad press." Did Mendenhall's endorsement become less financially valuable after all of the press coverage he got--or more?

In Tiger Woods' case, it could be argued that Tiger Woods' brand fell so hard so fast that it instantly tainted any other brands it touched. Perhaps that's true, but his case was exceptional because he had manufactured a strong "good guy" brand before the ugly dirt got publicized. Here, I wonder if Rashard had such a strong brand that he had as far to fall...and if not, if the enhanced public recognition he got from the controversy outweighed any negative associations in consumers' minds.

* how to negotiate a morals clause in the Twitter age. When I taught 1L Contracts in 2005, I gave students a three-part skills exercise involving negotiating a morals clause. (See this page for links to the exercises and my writeups). My hypothetical was based on Tiger Woods before we learned about his sexual predilections. Tiger's ultimate fall from grace really closed the circle for those students. Thanks for the extra help with the pedagogy, Tiger!

I thought the skills exercise was effective for a number of reasons, including the fact it required students to think about how to describe normal social interactions in words. Students soon realized how our everyday foibles could have massive financial impact in the context of an endorsement agreement. I hope this lesson served them well as lawyers, because the financial downsides of our foibles applies even to us non-celebrities.

The Twitter overlay puts even more pressure on drafters of morals clauses. I love Twitter, but one of its downsides is that very smart people make ill-advised posts in the heat of the moment. (I'm not saying Rashard's posts were ill-advised--see below).

Recall, for example, how Aflac terminated Gilbert Gottfried for his tweets about the Japanese tsunami--his jokes were insensitive but timely, perhaps the most toxic brew (i.e., the same jokes told a few months later might have been less controversial, but partially because they would be divorced from the context). Or recall Ashton Kutcher's ill-timed and ill-informed remarks about the Penn State sexual abuse scandal, that were enough to temporarily kibosh Kutcher's otherwise irrepressible tweeting and induce him to get a spokesperson to handle tweeting for him.

Inevitably, celebrities' tweeting in near-real-time on current events will result in train wrecks. Without a buffer/editor to insulate the celebrity, the celebrity's direct access to his/her audience + Twitter's low-friction posting + working at Internet speed = trouble. Attorneys representing celebrities negotiating morals clauses should incorporate a "Twitter exception" to the clauses, i.e., give the celebrities a free pass for being themselves on Twitter, because that's what's going to happen no matter what the contract says. This may sound like a clause advertisers would strenuously resist, but perhaps they shouldn't. Twitter is often a big part of the celebrity's flywheel of public visibility and the value the celebrity brings to the contract, so advertisers need to give celebrities breathing room to keep tweeting to keep that flywheel turning and deliver the value sought by the advertiser.

* can endorsement contracts draft around the "implied covenant of good faith and fair dealing"? Recall that the contract clause says "[Hanesbrands’] decision on all matters arising under [this section] shall be conclusive." This raises the issue of whether the implied covenant of good faith and fair dealing can be contractually waived. (Ken Adams has covered that issue several times, somewhat inconclusively: see, e.g., 1, 2, 3). Hanes surely thought it had been waived. If Hanes lacked that unilateral discretion, the contract clause (almost certainly the product of spirited negotiation) raises some interesting evidentiary questions--most obviously, how either party could prove/disprove that Mendenhall did something "tending to shock, insult, or offend the majority of the consuming public." (Emphasis added). Does a party need to do some kind of large-scale sampling survey to establish the "majority" threshold? That sounds expensive.

[UPDATE: Frank Snyder has more to say about the lack of doctrinal novelty in this case.]

* political orthodoxy and terrorism. At the core of this case--superficially about pro football players and sports jerseys--is one of the most burning political and philosophical questions of this decade: was the United States' killing of Osama bin Laden legitimate and ethical? The government's PR machine did a wonderful job of demonizing bin Laden for a decade, so perhaps not surprisingly a consensus/orthodoxy emerged: of course it was justifiable to kill bin Laden because he was the face of evil.

To Mendenhall's credit, he challenged this orthodoxy and prompted some hard questions about the US government's own conduct and our own emotional response to bin Laden's death. One way of reading the court's opinion is that it wanted to know more about Hanes' condemnation of Mendenhall for asking tough and probing questions, however contrarian they may be.

I think it's this extra layer that makes it an especially wonderful teaching case. Getting students to question their assumptions about bin Laden's death, and its implications for an otherwise garden-variety commercial dispute, could yield some powerful pedagogical payoffs.
_________

Venkat's Follow-up Comments

As always, Eric's comments raise a bunch of interesting questions.

The suggestion to build in a "Twitter exception" to a morals clause is a good one, but is sure to encounter stiff resistance from any advertiser or brand. In fact, even raising the issue could send up red-flags and result in pushback. The whole point of a morals clause is for the brand to make the call when things take a short or long-term turn for the worse.

As Eric notes, Mendenhall raised questions about the orthodoxy, and did so in a pretty even-keeled way. Should he take a financial hit because people reacted negatively? For better or worse, this is what being a brand spokesperson is all about. You no longer get to weigh in freely on current affairs and have to be careful about what you say. Everyone pretty much agrees there was strong negative reaction to the tweets. I don't know that it makes much sense to have either side quantify this or conduct an expensive survey. I also don't know whether it makes sense for Hanesbrands to have to meet some numerical threshold to make its case. The tie should go to the brand, and not the athlete or celebrity. (It's worth noting that the data is readily available and it would be fairly easy to categorize every single online reaction to Mendenhall's tweets.)

Unless the trial is scheduled to take place in Berkeley (California), Mendenhall is unlikely to receive any help in front of the jury, who will be colored by their own views in determining whether Mendenhall's tweets were "shocking, insulting, or offensive to a majority of the consuming public."

I wonder what the prospects are for the parties to make up. How likely is it that we see an act of contrition on Mendenhall's part after which the parties resume their relationship? This assumes that Mendenhall is open to this, and it's quite possible that he's not willing to publicly apologize or retract his statements. Judging from his statement in the wake of the controversy, the answer may well be no. On the other hand, maybe Hanesbrands does not need a public apology. Perhaps our memories are, like our attention spans, getting shorter. It's possible that the public may have already forgotten about this incident.

Posted by Venkat at 09:09 AM | Licensing/Contracts , Marketing , Publicity/Privacy Rights , Trademark

April 13, 2012

"Social Media and Trademark Law" Talk Notes

By Eric Goldman

Today, I gave a talk at Suffolk University's event "Social Networking Sites: Law, Policy and Practical Strategies" on Social Media and Trademark Law. My talk notes:
_____

1. Overview

A. Trademark doctrine is inherently elastic
* Schizophrenia about consumer protection vs. producer protection
* Hard to legally model consumer mental processes
* Trademark law relies on commercial/non-commercial distinction, and that model breaks down on the Internet

B. TM doctrine becomes more incoherent as it gets further away from product counterfeiting
* Little value to marching through doctrinal analyses in other circumstances

C. Internet technologies permit TM uses completely unrelated to product counterfeiting
* Pressure on TM law
- And SNSs feel pressure to do private ordering, although their efforts are often kludgy and inconsistent
* Pressure for new or expanded para-trademark rights
- ACPA
- False advertising/false designation of origin
- Defamation
- Publicity/privacy rights
- Identity theft/E-personation (“knowingly and without consent credibly impersonates another actual person through or on an Internet Web site or by other electronic means for purposes of harming, intimidating, threatening, or defrauding another person”)
- CFAA, trade secret, etc.

2. Namespace Disputes

A. Usernames are scarce and valuable
* Namespace proliferation with every new social media
* Leads to username squatting

B. Value + emotion = messy divorces
* Co-venturers (Tea Partiers, OMGFacts)
* Employee/contractor (Maremont, PhoneDog)

C. Doctrinal Ambiguities
* Does using a username create trademark rights? i.e., is it a qualifying “use in commerce”?
* Can a username, on its own, infringe trademark rights? Analogies to domain names
* Must the namespace operator adjudicate complaints to manage its liability? Even if not required, will the operator adopt a private ordering system that is dispositive in practice?

D. Username litigation is rarely cost-justified!

3. Content Source Confusion

A. Taxonomy of types of Content Source Confusion
* Competitive Injury. Ex: Ron Paul (YouTube video)
* Griper. Ex: Iacovelli (fake posts in doctor’s name)
* Parody. Ex: LaRussa, Coventry, BPGlobalPR

B. TM law isn’t designed to protect against content source confusion, but sometimes courts do it anyway

C. Enforcement raises Streisand Effect risk and is rarely cost-justified

4. Brands Can't Control Social Media

A. Social media gives brands unprecedented engagement with customers, but things can go wrong

B. Companies can self-injure their brands with ill-timed/ill-advised posts
* Kenneth Cole: “Millions are in uproar in #Cairo. Rumor is they heard our new spring collection is now available online at http://bit.ly/KCairo -KC”
* Entemann’s: “Who’s #notguilty about eating all the tasty treats they want?!” on same day as Casey Anthony’s verdict
* Ketchum exec James Andrew tweet “True confession but i'm in one of those towns where I scratch my head and say "I would die if I had to live here!“” while on way to client, FedEx.

C. Users control brands; brands don’t control users
* Nestle: Nestle took down Greenpeace’s critical video from YouTube, users complained on Nestle’s FB page, Nestle chided them for their behavior, users went crazy
* McDonalds: hashtag #McDStories became a “bashtag”
* For more, see my Online Word of Mouth article

Posted by Eric at 01:13 PM | Derivative Liability , Domain Names , Marketing , Trademark | TrackBack

April 11, 2012

Parents' Lawsuit Against Apple for In-App Purchases by Minor Children Moves Forward -- In re Apple In-App Purchase Litigation

[Post by Venkat Balasubramani]

In re Apple In-App Purchase Litigation, 5:11-CV-1758 (N.D. Cal.; Mar. 31, 2012)

Facebook recently dealt with a class action over sponsored stories where minors asserted violations of their publicity rights. The court enforced the Facebook terms of service and transferred the dispute to California. ("Facebook's "Browsewrap" Enforced Against Kids--EKD v. Facebook.") Apple is grappling with a lawsuit also involving minors, where parents of minor children argued that Apple’s practice of distributing free apps was misleading because minor children could purchase “game currency” for a short duration after the parents had logged in. The court denies Apple’s motion to dismiss the lawsuit.

The factual allegations are somewhat interesting, and I have to give credit to the plaintiffs’ counsel for their creativity. Plaintiffs argued that Apple distributed free apps, and users of the apps could purchase in-app virtual currency for a short duration (15 minutes) after the password authentication process. Parents supposedly downloaded apps, gave them to their kids, and in this fifteen minute duration, the kids allegedly rang up bills (ranging from $99.99 to $338.72 “at a time”).

Voidability of the contract: Apple argued that although the minors purchased the apps, the relevant contract was the terms of service in place between the parents and Apple and this was a binding, enforceable agreement. The terms of service placed responsibility for unauthorized use of log-in credentials on the end user; therefore, Apple argued it was not responsible for the in-app purchases. The parents argued that each in-app purchase was a separate and voidable contract that may be disaffirmed by the parent or guardian. The court punts on the issue and says that at the pleading stage, the plaintiffs’ arguments should be allowed to proceed. The court footnotes an interesting contract law issue, noting Apple’s argument that a contract cannot exist where an offer is made to one party (the parents) but is accepted by another party (their children) and the consideration is supplied by the original offeree (the parents). Disappointingly for afficianados of contract law, the court does not resolve this issue.

Consumer Legal Remedies Act claim: The Consumer Legal Remedies Act statute prohibits unfair or deceptive acts or practices and looks to what is likely to “mislead a reasonable consumer.” The key question was whether Apple concealed or omitted facts that it had a duty to disclose. Citing to advertising from Apple that billed the “bait Apps” as “’free’ or nominal,” the court says that plaintiffs alleged the requisite misrepresentation by Apple. Two of the plaintiffs testified that they downloaded apps because they were free and gave them to their kids, only to find out later that for fifteen minutes after they had entered their iTunes passwords, their kids could make purchases from within the apps. These allegations were sufficient at the pleading stage.

Unfair Competition Law: Finally, the court also finds that plaintiffs adequately state a claim under California's unfair competition statute. Plaintiffs' allegation that Apple violated their CLRA rights independently states a cause of action under the UCL statute. The court also finds that plaintiffs plausibly state a claim under the substantial injury/benefit test: plaintiffs alleged substantial harm with no countervailing benefit to Apple from Apple’s unfair practices.

Duty of Good Faith/Restitution: Apple gets a mixed result on these two claims. The good faith and fair dealing claim is dismissed because there is no allegation that Apple lacked subjective good faith or that it intended to frustrate the common purpose of the agreement. The restitution claim moves forward, but piggybacks on the contract, CLRA, and UCL claims.

Forming online contracts with minors always struck me as a tricky issue. While most sites get by with a provision in the agreement that the minor has obtained the consent of his or her parent or guardian, as noted in E.K.D. v. Facebook, there’s a potential disaffirmance problem. As Eric mentions in his post on E.K.D., resolution of this issue may depend on whether the benefit has already been conferred on the minor, in which case the minor can’t disaffirm the contract. (See A.V. v. iParadigms, discussed in Eric's post here: "Clickthrough Agreement Binding Against Minors--A.V. v. iParadigms".) So what happens if the minor disaffirms? Can the site cease the allegedly improper conduct on a prospective basis and avoid liability? In this case, the minors surely enjoyed the benefits of their purchases (“game currencies!”); so in order to disaffirm the agreement, they should have to return the currency, which may pose a problem for the parents. (For this reason, my instinct tells me that Apple has the better argument on the disaffirmance issue, but this is just a gut feeling.)

As always, in these cases where plaintiffs challenge Apple’s conduct in the app store, I wonder about the viability of a Section 230 defense. It doesn’t seem as viable in this case as in the typical case since plaintiffs are alleging that Apple made statements that were misleading, but the court doesn’t delve into the details on these statements so it’s tough to tell. Apple's statements may be fairly narrow and not sufficient to get around a Section 230 defense. In any event, I'm curious about Apple's reasons for not asserting a Section 230 defense.

One thing is for sure. The knives of plaintiffs’ lawyers are sharpened when it comes to online litigation. I can see Apple defeating this lawsuit eventually, but the claims themselves surprised me from a factual standpoint. I doubt Apple could have anticipated something like this.

Added: Rebecca Tushnet comments: "What, exactly, was not easy to anticipate about what would happen with "free" games suitable for kids allowing easy in-app purchases (when the phone's been handed over to the kid)?"

Posted by Venkat at 11:19 AM | E-Commerce , Licensing/Contracts , Marketing

April 06, 2012

AdKnowledge Denied 47 USC 230 Immunity (Again)--Chang v. Wozo

By Eric Goldman

Chang v. Wozo LLC, 2012 WL 1067643 (D. Mass. March 28, 2012)

This case is a cross between Swift v. Zynga and Goddard v. Google. Tatto runs a website, Wozo, that sells art posters. It created a "poster of the month" negative-option club that sent 2 posters/month for $30/month until the customer opts-out. Who has enough wall space for 24 posters a year? Tatto ran ads offering a "free" poster for a 99 cent shipping fee. Unlucky customers allegedly were surreptitiously enrolled in the poster club. To sweeten the deal, Tatto bundled its free poster offer with additional incentives to consumers, including AdKnowledge's virtual currency ("Super Rewards Points") pursuant to a deal with AdKnowledge. Chang, as class representative, alleges he responded to an ad for the bundled free poster and virtual currency and got duped into the poster club.

AdKnowledge tries a number of tactics to exit the lawsuit early, but I'm going to focus only on its 47 USC 230 defense. Citing Swift v. Zynga in a footnote (in which AdKnowledge was denied a 230 dismissal in a similar circumstance), the court's rejection of 47 USC 230 is brief:

Adknowledge and Chang dispute whether the content of the internet advertisements at the heart of this case were developed solely by Wozo and Tatto or whether the content was developed at least in part by Adknowledge....This is a dispute of fact that cannot be resolved at this juncture.

Nowadays, every plaintiff asserts that a 230-immunized entity "developed in part" the offending content. Therefore, it was lazy at best for the court to simply take the statement at face value in rejecting the 230 immunity. As Judge Kozinski said in Roommates.com, the Section 230 immunity needs to be robust to avoid death by a thousand duck bites.

On the other hand, the court may be responding to AdKnowledge's contract with Tatto to advertise a bundled offering, which does raise the question of how the contract allocated responsibilities for the bundle. For example, if AdKnowledge crafted the ad copy and deliberately omitted any reference to the poster club, 47 USC 230 probably doesn't apply to the ad copy. In contrast, if AdKnowledge crafted fully legally-compliant ad copy based on everything AdKnowledge knew but Tatto independently and surreptitiously crammed the poster club onto users, 47 USC 230 might very well protect AdKnowledge for Tatto's rogue behavior. See, e.g., Goddard v. Google and Mazur v. eBay. I can see why a court would want to see more facts beyond the complaint before making assumptions on a 12b6 motion to dismiss. At the same time, I hope the court will be willing to revisit Section 230 if AdKnowledge has the facts to throw Tatto under the bus.

Posted by Eric at 11:54 AM | Derivative Liability , E-Commerce , Marketing | TrackBack

April 02, 2012

Brief Brand Reference in TV Ad Constitutes Trademark Dilution--Louis Vuitton v. Hyundai

By Eric Goldman

Louis Vuitton Malletier, S.A. v. Hyundai Motor America, 2012 WL 1022247 (S.D.N.Y., March 22, 2012). The ad in question (also embedded below). The first amended complaint.

Introduction

Back in 2007, we held a major academic symposium on the trademark dilution doctrine at SCU. My main goal was to see if two dozen leading trademark academics could find some justification--ANY justification--for the trademark dilution doctrine. We struck out, of course. The trademark dilution doctrine is an elegant intellectual exercise with intuitive appeal, but it has the fatal flaw that absolutely no social science supports that intuition.

Fortunately, we don't see too many egregious trademark dilution "wins" in court. Barton Beebe showed that trademark dilution and infringement are highly correlated, so it's rare that a court finds trademark dilution standing alone. Furthermore, we've recently had a pretty good string of defense wins in dilution cases, highlighted by the Chewy Vuiton (also a Louis Vuitton case) and Charbucks rulings, among others.

And then we have an opinion like this--where the court finds trademark dilution without finding infringement (not resolved yet) and in a situation where EVERYONE can immediately tell there was zero harm to the brand owner. Rulings like this make trademark academics shudder in fear that trademark dilution will swallow up all of trademark law and confer rights-in-gross to trademark owners. While I don't share those fears for reasons I'll explain in a bit, unquestionably this is a bad ruling.

The case involves a TV ad for Hyundai Sonata. Watch the ad:

Hyundai's goal was to show that it brings luxury to the masses, so it depicts a few fictional examples of what it might look like if luxury items were widely available. One of the examples shows four seconds of a group of men playing street basketball using a basketball covered with a lightly modified version of the famous Louis Vuitton "toile monogram" pattern (yes, the same one at issue with Louis Vuitton's ill-advised enforcement against a student-organized fashion law event at University of Pennsylvania). In particular, the ad shows a close-up of the basketball for about one second. Hyundai didn't seek permission from Louis Vuitton for use of the modified design (an ad agency rep said the modified design "came out of somebody's imagination, so there was nobody to go seek permission from"), but Hyundai unsuccessfully sought permission from thirteen luxury brands--including Louis Vuitton--for other possible vignettes in the ad.

Undoubtedly, if Louis Vuitton were to offer a basketball with its design, the crowds would go wild. (The opinion cites several Twitter comments coveting the fake basketball). They should be thanking (not suing) Hyundai for showing them the enthusiastic market demand for such an item. But Louis Vuitton doesn't roll that way, preferring to sue anyone who depicts the logo in unexpected contexts. Sigh.

Meanwhile, the ad was a failure for Hyundai. Still widely seen as the purveyor of cheap Korean cars, its latest attempt to try to move upscale didn't go anywhere, and Hyundai pulled the ad after 5 showings. Yes, this means that Louis Vuitton is making (and winning!) a federal case over five seconds of human history. SIGH.

The Court's Doctrinal Discussion.

Blurring. On the key question of how Hyundai's use blurred Louis Vuitton's trademark rights, the court follows the Lanham Act's 6 factor statutory test rather tendentiously, which kind of misses the big picture. By evoking the logo, Hyundai didn't introduce a new definition of the logo--and the court repeatedly notes that the depiction went past so quickly that consumers couldn't recognize the differences. Nor did Hyundai introduce a new product into the marketplace; the basketball was fictional. So to the extent "blurring" is a proxy for harm to Louis Vuitton's brand, there was no harm at all. Yet, the court mechanically breezes past this crucial point. In my opinion, it's a pretty damning indictment of the six factors as a screen for blurring.

From my perspective, Louis Vuitton's strongest evidence of "harm" is that "[a]ccording to Louis Vuitton's expert, among those who recognized the Louis Vuitton mark, sixty-two percent believed the ad was approved by Louis Vuitton." Taking this at face value, this "harm" sounds in confusion, though, not dilution. Furthermore, this type of sponsorship confusion is highly problematic; it's a one-way rights escalator as we move towards a "permission culture," and it still doesn't show how either Louis Vuitton or consumers suffered any harm (let alone a harm cognizable under dilution law) from thinking Louis Vuitton approved the ad.

Nowhere does the court connect the dots to explain how Hyundai's usage "impaired the distinctiveness" of Louis Vuitton's mark. Instead, the court condemns Hyundai for its intentional evocation of Louis Vuitton's brand without permission. For that reason alone, I think this opinion could be vulnerable to an appeal.

The court separately finds blurring under New York's state dilution law.

Willfulness. Even if Louis Vuitton establishes its prima facie case, getting an injunction isn't all that valuable because Hyundai already scuttled the ad. To get damages under dilution, Louis Vuitton has to show that Hyundai “willfully intended to trade on the recognition of the famous mark.” Generally, we've assumed this statutory language applied only when the defendant was actually selling goods bearing the brand. Here, the court finds the requisite willfulness because:

* Hyundai asked for permission for other luxury brand usages (yet another reminder that judges often punish defendants who ask for permission rather than forgiveness)
* Hyundai continued running the ads after getting Louis Vuitton's C&D
* Hyundai modified the logo so that it would still evoke Louis Vuitton's logo

Does this evidence a willful intent to trade on Louis Vuitton's reputation? No, and it's not even close. Hyundai intended to evoke Louis Vuitton, but there's no trading taking place because of that evocation. This ruling also could be vulnerable on appeal.

Fair Use. The federal dilution law expressly has a fair use defense. Hyundai fails to get it because it admitted its brand evocation was satire (a commentary on society's standards of luxury), not a parody (a commentary about Louis Vuitton's brand). Indeed, Hyundai admitted that it could have substituted other luxury brands to achieve an identical effect. Hyundai's related claim that it was making a noncommercial use of the mark failed because the subject material was an advertisement.

Consumer Confusion. The court denies Hyundai's summary judgment on the infringement claim.

Implications

If the case goes to trial, it will be interesting to see what damages a jury awards. There is no intellectually defensible way to compute damages to Louis Vuitton's brand from Hyundai's ad. They can't even value it at a hypothetical licensing fee because Hyundai only asked for free licenses and Louis Vuitton wouldn't have licensed this usage anyway. As a result, any damages computation will be purely fictional. Ideally, the jury would come back with zero damages, because that's really the appropriate way to signal the complete lack of harm here.

However, I'm hoping Hyundai will appeal this ruling. There are a number of points where the court got it wrong, fairly clearly IMO, so there are good grounds for a reversal. If it pursues the appeal, Hyundai probably ought to try new appellate counsel. The opinion bristles with hostility to Hyundai's arguments, making me think defense counsel miscalculated its pitch to this judge.

Even if Hyundai ends up losing the case at the end, I'm not sure this would signal the sky is falling due to the dilution doctrine. Although the judge never says it outright, much of the opinion is based on the fact that Hyundai referenced a third party brand in its own ad. In my Advertising Law course, I teach that when the advertiser references an individual in its ad without the individual's permission, the advertiser loses the publicity rights lawsuit. (All of the publicity rights cases in our Advertising Law casebook are defense losses). Maybe this case stands for nothing more than that a non-competitor can't reference a famous third-party brand in its ad copy without permission (a competitor may qualify for the comparative advertising exception to dilution law). While that shouldn't be the law, that legal conclusion nevertheless wouldn't be the end of advertising or of trademark law.

Posted by Eric at 08:55 AM | Marketing , Trademark | TrackBack

March 29, 2012

Lawsuit Against Avvo for Lawyer's Profile Dismissed as SLAPP--Davis v. Avvo

By Eric Goldman

Davis v. Avvo, 2:11-cv-01571-RSM (W.D. Wash. March 28, 2012). Avvo's post when the lawsuit was initially filed.

Florida lawyer Larry Joe Davis, Jr. claimed that his Avvo profile misrepresented his practice. He sued Avvo in Florida for false advertising, publicity rights misappropriation and unfair trade practices. Avvo invoked the forum selection clause in its user agreement to successfully transfer the case from Florida to Washington. In this ruling, the court finds the lawsuit is a SLAPP and dismisses the case. Further, per Washington's anti-SLAPP statute, Avvo will get its attorneys' fees plus a $10k bonus. In other words, another lawyer-plaintiff will be writing a large check to the defense for a lawsuit he never should have brought.

The court first finds that a lawsuit over providing information to the public to help them choose professional service providers constitutes "an action involving public participation.” The court treats this as self-evident, but as I've documented before, California courts (for anti-SLAPP purposes) don't automatically treat consumer reviews as matters of public concern even though I think they should. It's good to see this court recognize the social importance of providing information that guides the marketplace's invisible hand.

Once Avvo made that threshold showing, the burden fell on Davis to show his prima facie case, which he failed to do. On the crucial question of whether Avvo's allegedly wrongful activities occurred in "trade or commerce," the court says Avvo's ad-supported listings are not sufficiently commercial, citing Avvo's 2007 win in the similar Browne case.

The key to this ruling is that Washington's anti-SLAPP law is more robust that Florida's mostly toothless anti-SLAPP protection. Had Avvo not been able to transfer the case to Washington and get its choice-of-law provision enforced, it probably still would be litigating the case and burning its cash. This story turned out well for Avvo, but the case nevertheless highlights the potential deficiencies of some states' anti-SLAPP laws. This is another reason why we need federal anti-SLAPP protection.

Posted by Eric at 08:16 AM | Content Regulation , Marketing , Publicity/Privacy Rights | TrackBack

March 22, 2012

No Breach of Contract Claim from Mid-Stream Change of WSJ Online Pricing – Lebowitz v. Dow Jones

[Post by Venkat Balasubramani]

Lebowitz v. Dow Jones & Co., 06 Civ. 2198 (MGC) (S.D.N.Y.; Mar. 12, 2012)

Dow Jones operates WSJ Online. Historically, it offered WSJ Online subscribers access to WSJ Online and Barron’s Online. At some point, Dow Jones decided to spin-off Barron’s. It gave existing subscribers the choice between accessing Barron’s instead of WSJ Online or accessing WSJ Online and paying a separate fee (pro-rated and up to a maximum of $20) to access Barron’s.

Plaintiffs brought a putative class action, arguing that a mid-stream change in the subscription price was a breach of the subscriber agreement. Alternatively, plaintiffs argued that if the agreement was interpreted to allow Dow Jones to unilaterally change the price this would render the contract illusory. The contract provision allowed Dow Jones to:

change the fees and charges then in effect, or add new fees or charges, by giving [subscribers] notice in advance.

The court disagrees, noting that contractual provisions which allow unilateral changes are not illusory as long as the right to make these changes are constrained in some manner. Looking to case law in New York, the court says that requiring an obligor to exercise its discretion in a reasonable manner or a manner evincing good faith sufficiently constrains the obligor’s discretion. The court says this is the case here:

there is no evidence that Dow Jones used the discontinuance provision to deprive plaintiffs of an unreasonably large part of WSJ Online’s content, and there is no reason to interpret this provision as permitting such extreme behavior. Dow Jones acted reasonably, and therefore this provison of the subscriber agreement is not illusory.

Plaintiffs also argued that Dow Jones failed to give advance notice of the price change and this constituted a breach. Dow Jones had provided notice via a “pop-up” box, which indicated that it was conveying an “IMPORTANT NOTICE TO READERS.” This box appeared on each homepage. When users clicked on this box, a notice appeared which informed subscribers of the spin-off and the fact that the pricing would be changing.

There have been a slew of disputes involving contracts which one party says they can modify at any time. Harris v. Blockbuster presented this problem and Eric’s advice was on point: “STOP PUTTING CLAUSES INTO YOUR CONTRACTS THAT SAY YOU CAN AMEND THE CONTRACT AT ANY TIME IN YOUR SOLE DISCRETION BY POSTING THE REVISED TERMS TO THE WEBSITE” It doesn’t look like companies have heeded this advice and thus continue to struggle with arguments from consumers that this type of a provision renders contract illusory. Dow Jones dodged a bullet here, and although I’ll leave the contract law 101 deep dive to others, the result here did not comport with basic common sense and equity. It’s as if you sign up to on a month-long plan to purchase a particular type of combo meal deal at McDonald’s and halfway through they come along and change up the combination. Rather than forcing customers to pick between WSJ Online or Barron’s going forward, Dow Jones could have just refunded a portion of the subscription fees. The court’s decision deprives plaintiffs of this choice. It wasn't clear from the opinion, but it seemed like the decision was made just to separate the two subscriptions--the order did not discuss some compelling reason (other than subscriptions) why Dow Jones made the decision.

Another interesting part of the dispute was how Dow Jones dealt with notice. Dow Jones has to provide subscribers notice in order for the revised terms to be effective. This is another problem area for companies. (See Eric’s post on the Douglas v. Talk America case, where the Ninth Circuit struck down a contract amendment due to failed notice: “Ninth Circuit Strikes Down Contract Amendment Without Notice--Douglas v. Talk America.” Some suggestions as to notice are discussed in that post.) The court here spends two sentences on the adequacy of notice via a pop-up box. The pop-up box method of notice would work in many cases, but it was surprising to see the court ignore the details of the notification here. I suspect other courts would not always be so approving of notice via this method, absent consideration of other facts, such as the size of the box and the overall user experience.

Previous posts:

Vendor Fails to Form Either an Online or Paper Contract With Customers--Kwan v. Clearwire
Zynga Wins Arbitration Ruling on "Special Offer" Class Claims Based on Concepcion -- Swift v. Zynga
Judge Can't Decide if Facebook's User Agreement is a Browsewrap, But He Enforces It Anyways--Fteja v. Facebook
Stop Saying "We Can Amend This Agreement Whenever We Want"!--Harris v. Blockbuster
Facebook's "Browsewrap" Enforced Against Kids--EKD v. Facebook

Posted by Venkat at 06:03 AM | E-Commerce , Licensing/Contracts , Marketing

March 17, 2012

Text Spam Class Action Against Jiffy Lube Moves Forward – In re Jiffy Lube Int’l, Inc., Text Spam Litigation

[Post by Venkat Balasubramani]

In re Jiffy Lube International, Inc., Text Spam Litigation, 11-md-2261-JM-JMA (N.D. Cal.; Mar. 9, 2012)

Plaintiffs filed a class action against Jiffy Lube (a multi-location franchisee Heartland Automotive Services) and TextMarks alleging TCPA violations based on text messages sent by TextMarks on behalf of Jiffy Lube:

JIFFY LUBE CUSTOMERS 1 TIME OFFER:REPLY Y TO JOIN OUR ECLUB FOR 45% OFF A SIGNATURE SERVICE OILCHANGE! STOP TO UNSUB MSG&DATA RATES MAY APPLY T&C:JIFFYTOS.COM.

The court denies Heartland’s motion to dismiss. The big takeaway from the order is that text message-based marketing is something that companies often screw up, and these screw-ups end up being costly. Given the draconian provisions of the TCPA (statutory damages, stringent consent provision, no free pass for the initial message, and liability for any unsolicited message that is sent with certain equipment), rulings like these make me think companies should consider avoiding text message-based marketing altogether.

TCPA Provides for Derivative Liability:

Heartland’s first argument was that it should not be held liable because it did not actually send out the text messages (TextMarks did). The court cites to Satterfield v. Simon & Schuster and notes that the Ninth Circuit had no problem imposing liability on Simon & Schuster despite the fact that Simon & Schuster did not physically send the messages. The court also cites to an unsolicited fax case for the proposition that “congressional tort actions implicitly include the doctrine of vicarious liability.” If advertisers were allowed to escape liability by not actually sending the messages, this would allow advertisers to make an end-run around the TCPA’s prohibitions.

Heartland also argued that plaintiffs failed to sufficiently plead vicarious liability, but the court says that plaintiffs’ allegation that Heartland "engaged TextMarks to send the messages" is sufficient.

Plaintiffs’ Prior Consent:

Heartland produced invoices and sought to rely on the invoices to demonstrate that plaintiffs consented to receive the messages. The court rejects Heartland’s request that the court take judicial notice of the invoices, saying they stand for the opposite of what plaintiffs allege in their complaint. The invoices are not central to plaintiffs’ claims; therefore, they are not properly the subject of judicial notice in the same way that contractual terms—which the plaintiff relies on in the complaint—are. In passing, the court expresses skepticism as to whether the invoices would satisfy the TCPA's strict consent requirements.

Were the Messages Sent Using an Auto-Dialer:

The TCPA only imposes liability for text messages that are sent using equipment that has the capacity to store or produce random numbers. Heartland argued that plaintiffs should only be permitted to allege the use of an auto-dialer on in formation and belief if (1) the content of the message was impersonal, and (2) the text message was sent by a specific SMS-short code. I think what Heartland is trying to argue is that only if the text messages bear indicia of being transmitted en masse should a TCPA plaintiff be entitled to allege the use of an auto-dialer on information and belief. The court rejects this, noting that in Simon & Schuster the Ninth Circuit only required that the equipment at issue have “the capacity” to store or produce numbers using a random or sequential number generator. Under Satterfield, it does not matter whether this capability was actually used to send the messages.

First Amendment Challenge:

Heartland also brings a First Amendment challenge, arguing that the broad definition of auto-dialer would mean that friends who text each other dinner invitations could incur TCPA liability, and this would render the statute overbroad. As expected, this argument doesn’t get much traction with the court. The court says that the statute is intended to protect consumers against the costs and privacy invasions that accompany unsolicited text messages, and regulating texts sent through auto-dialers adequately serves this interest. The court also says that the prospect of friends incurring liability under the TCPA for texting each other dinner invitations is fairly remote. At worst, this type of a text message lies at the fringe of the statute and thus the statute does not suffer from overbreadth issues.

Plaintiffs’ Cannot be Compelled to Arbitrate Their Claims:

Heartland finally argued that one of the plaintiffs who signed an agreement with Jiffy Lube (and other class members who fell into the same category) should be required to arbitrate their dispute. This plaintiff entered into an agreement while obtaining services at Jiffy Lube which contained the following provision:

[the parties] agree that any and all disputes, controversies or claims between Jiffy Lube and [the customer] (including breach of warranty, contract, tort or any other claim) will be resolved by mandatory arbitration according to the terms of this Mandatory Arbitration Agreement (“Agreement”), except that any such dispute can be resolved by a small claims court if and for so long as the dispute is within its jurisdiction. By this Agreement, Jiffy Lube and [customer] also agree to only bring disputes against each other in an individual capacity and not as a class representative or class member and waive the right to a jury trial.

The court says the arbitration language is “incredibly broad,” and application of the clause to disputes unrelated to the contract would raise conscionability issues. The court cites to a Judge Posner opinion and concludes that if enforced as drafted, “absurd results would ensue.” Heartland asked the court to construe it narrowly but the court declines, saying it is not authorized to do so. Even if the clause were construed to be limited to disputes “arising out of or relating” to the contract, the court says that the TCPA claims would not fall within the clause.
__

As mentioned above, text message litigation has been brutal for marketers and advertisers, and this decision is no different. (Liability for spam email in contrast has been much more limited.) To my knowledge, the issue of dervative liability hasn't been squarely argued by a TCPA defendant, but decisions have implicitly recognized that the TCPA provides for derivative liability in rejecting the requests to dismiss filed by advertisers who did not transmit the messages in question. From that standpoint, the ruling is not significant, but it is still worth nothing.

Outsourcing your text message-based marketing was a risky proposition to start with, but as this decision squarely allows for derivative liability (albeit under somewhat vague standards), this makes it an even riskier proposition. Marketers may labor under the perception that the initial text message is a freebie (from a liability standpoint) and including an opt-out from receiving future texts absolves the marketer or advertiser from liability under the TCPA. It's worth repeating that this is not the case.

Previous posts:

"Group Text Services Grapple with TCPA Class Actions"
"Text Spam Lawsuit Against Citibank Moves Forward Despite Vague Allegations of Consent -- Ryabyshchuk v. Citibank"
"Court Rejects Constitutional Challenge to TCPA Based on Vagueness in "Prior Express Consent" Exception -- Kramer v. Autobytel, Inc."
"Another Court Finds that TCPA Applies to Text Messages -- Lozano v. Twentieth Century Fox Film Corp."
"Court Finds that SMS Spam Messages are Subject to the TCPA and Rejects First Amendment Defense -- Abbas v. Selling Source, LLC"
"Ninth Circuit Revives TCPA Claim--Satterfield v. Simon & Schuster"
"Cellphone Spam Violates TCPA--Joffe v. Acacia Mortgage"

Posted by Venkat at 08:46 AM | Derivative Liability , Marketing , Privacy/Security , Spam

March 12, 2012

Jan.-Feb. 2012 Quick Links, Part 5 (Advertising, Consumer Reviews & Search Engines)

By Eric Goldman

Advertising and Marketing

* CLRB Hanson Industries, LLC v. Weiss & Associates, PC, 2012 WL 20539 (9th Cir. Jan. 5, 2012). Ninth Circuit rejected a challenge to the CLRB Hanson v. Google settlement over AdWords budget caps. Prior blog post.

* Facebook is rolling out Sponsored Stories in users' newsfeeds, while making the disclosure incredibly opaque by calling it "featured" (with an additional disclosure that shows when users mouse over the word). Between this spamming of users' newsfeeds and the MySpace-ification of Facebook via its Timeline UI, Facebook is making it harder and harder to actually use the site to communicate with each other (which, Facebook might have forgotten, WAS THE WHOLE POINT).

* Facebook v. Adscend Media complaint over "likejacking."

* Rebecca on the injunction in the Fresh Step kitty litter case.

* The FTC's settlement with Upromise is a deja vu to the old adware wars of the last decade. Prior blog post on the adware wars.

Consumer Reviews

* Britain's ASA says TripAdvisor can't make claims ""Reviews you can trust", "... read reviews from real travellers", "TripAdvisor offers trusted advice from real travellers" and "More than 50 million honest travel reviews and opinions from real travellers around the world"" because it has fake reviews on its site.

* EFF brought a declaratory judgment action for LawyerRatingz based on 47 USC 230.

* Law firm sues the BBB over an adverse rating. Compare CHW Group, Inc. v. Better Business Bureau of New Jersey, Inc., 2012 WL 426292 (D.N.J. Feb. 8, 2012) (dismissing a Lanham Act false adverting claim against BBB for an allegedly bogus letter grade).

* Rebecca on a litigation battle over fake consumer reviews.

Search Engines

* Danny Sullivan: 2011: The Year Google & Bing Took Away From SEOs & Publishers

* Google is bundling Gmail and Google+ accounts; is this a way of padding the number of Google+ accounts, or forcing people to take Google+ accounts who don't want them?

* The "Focus on the User" website provides some evidence that the Google+ integration into search may not be in users’ best interest.

* PandoDaily: "Larry Page to Googlers: If You Don’t Get SPYW, Work Somewhere Else"

* Search Engine Land: An Interview With A Google Search Quality Rater. Prior blog post.

* A Microsoft-sponsored event to attack Google sours one European member of Parliament.

* Bing presents integrated results similar to Google's Universal Search, even though Microsoft fronted groups have raised antitrust concerns about Google doing so.

* Reagan-era FTC chairmen (and Google consultants) tell the FTC to back off Google.

* Polls like this are interesting and probably unreliable:

87 percent agreed with the statement “I feel I can easily switch to a competing search engine if I’m not happy with the results I receive;” just 8 percent said they were “stuck with using a particular search engine and don’t have the ability to switch.”

Respondents were then asked whether “the federal government should regulate the content and appearance of search engines and their results.” A whopping 79 percent strongly or somewhat disagreed with this idea, compared to 12 percent who strongly or somewhat agreed. The depth of opposition was striking – 64 percent strongly disagreed versus just 3 percent who strongly agreed.

Participants were presented with arguments about more enforcement of federal antitrust laws, and then asked to choose which statement was most true. A massive 76 percent agreed that “More government involvement and regulation will make the Internet worse for consumers,” while just 8 percent thought that such involvement and regulation “will make the Internet better for consumers.”

* Custom Led v eBay complaint: alleges that eBay didn't give the promised priority in search results for eBay Motors "Featured Plus" listings.

* Scroogle is dead. I tested on Scroogle in my 2005 Internet Law exam (see also the sample answer).

Posted by Eric at 04:57 PM | Marketing , Search Engines | TrackBack

March 09, 2012

Fake Political Attack Video Doesn't Violate Lanham Act--Ron Paul v. Does

By Eric Goldman

Ron Paul 2012 Presidential Campaign Committee, Inc. v. Does, 3:12-cv-00240-MEJ (N.D. Cal. March 8, 2012)

The Doe Defendants registered the alias “NHLiberty4Paul" at YouTube and Twitter and posted a YouTube video attacking Jon Huntsman. The video ends "American Values and Liberty – Vote Ron Paul." The Does acted without Paul's permission--so much so that Paul sued them for violations of the Lanham Act and defamation. After filing the lawsuit, Paul sought to unmask the Does.

The court denies the unmasking request because Paul's Lanham Act claims weren't valid. (By doing so, the court sidesteps a battle over which of several different legal standard should govern the unmasking request). The federal court then declines to exercise supplemental jurisdiction over the state-law defamation claim.

The lawsuit's subject matter is a fake political video. It's "selling" a candidate (or, more accurately, trying to improve the competitive posture of candidate A by degrading the attractiveness of rival candidate B), but it's not selling anything commercial. Rebecca explained this when the complaint was first filed. Because the Lanham Act governs commercial activity, not political activity, it's clearly inapplicable to this situation.

To try to salvage the situation, Paul tries two mockable arguments. First, he argues that YouTube and Twitter are commercial sites, and that gives the dispute enough commerciality. The court rightly points out that the inquiry is about the defendant's conduct, not the websites where it took place, and notes the argument's illogic would mean non-commercial activity on any commercial website would be governed by the Lanham Act. In a footnote, the court adds that "using another company’s commercial website to post a comment or video is just far 'too attenuated' to result in an individual’s own conduct automatically meeting the Lanham Act’s commercial use requirement."

Second, Paul argues that "the video was intended to frustrate Plaintiff’s fundraising efforts and increase the amount of money contributed to Presidential nominees other than Ron Paul." The court says the Lanham Act is predicated on the defendant trying to improve its competitive status, and these defendants had no competing services; and the video on its face didn't try to solicit any donations.

In this case, it seems likely that the Does would suffer extra-judicial punishment if their identity gets revealed, irrespective of the case's merits. Kudos to the judge for aggressively gatekeeping the unmasking request rather than just rubber-stamping it. (Venkat emailed me: "I wonder if N.D. Cal. Judges are savvier at screening out these types of issues since they must deal with so many request to unmask.").

This case also reinforces that the Lanham Act is not designed to regulate fake content or consumer confusion about the source of content injected into the information ecosystem. But that makes me wonder if other reputation-protective legal doctrines might apply better, including defamation (kicked to the state court) or perhaps California's recent e-personation statute.

Some related posts:

* Reputation Management Lawsuit Is Shot Down--Bernard v. Donat
* Court Smacks Down Koch Industries' Attempt to Shut Down Satirical Website -- Koch Industries v. Does
* Griping Patient Goes Too Far Posting Fake Content in Doctor's Name--Eppley v. Iacovelli

Posted by Eric at 08:20 AM | Content Regulation , Marketing , Trademark | TrackBack

February 27, 2012

Reputation Management Lawsuit Is Shot Down--Bernard v. Donat

By Eric Goldman

Bernard v. Donat, 2012 WL 525533 (N.D. Cal. Feb. 16, 2011). The Justia page.

Donald Ray Bernard is an energy consultant, big game hunt tour operator, former lawyer and former law professor. His LinkedIn page. His Google search results look like the kind of search results I see when someone uses a reputation management service; I find SEOed vanity search results are often linked to a litigious hypersensitivity about reputation (see, e.g., the litigation fusillade from Bev Stayart). Unfortunately, like far too many lawyer-plaintiffs/law professor-plaintiffs, the judge has to teach him what the law actually says.

Bernard alleges that Donat went on an online rampage against Bernard's veracity and former legal practice, including an attack blog, posts at Complaintsboard and PissedConsumer, attack emails and postings to Scribd. Bernard sued Donat for Lanham Act false advertising, defamation and tortious interference. In this ruling, Judge Whyte dismisses the Lanham Act false advertising claim as unmeritorious (with leave to amend), which (if Bernard can't successfully replead) will result in the state law claims going to state court.

The opinion doesn't say exactly who Donat is, but it implies that Donat is a rival in the energy and hunting industries. Nevertheless, the opinion says Bernard didn't allege any competitive injury/diversion from Donat's online activities, and in particular, that Donat's posts about Bernard's legal career won't necessarily affect their competition in the hunting business. Judge Whyte goes further to say that Bernard didn't show the online posts were "commercial advertising or promotion" or were even commercial speech at all.

Unfortunately, this opinion doesn't provide a clear statement why Donat did what he did. On the one hand, it seems entirely plausible that Competitor A in a personal services business (such as big game hunting tours, where consumer trust is essential) could hurt Competitor B by casting doubt on the person's general trustworthiness. On the other hand, Donat is free to speak the truth as a concerned citizen, and if that's what's going on here, reputation management/"right to forget"-style lawsuits to cover up truthful facts are a misuse of the court system. We don't know which styling fits these facts yet.

Either way, the Lanham Act false advertising isn't designed to govern activity like negative consumer reviews and gripe sites. To me, that's a feature, not a bug. Unfortunately, the Lanham Act's poor drafting encourages far too many meritless assertions over social discourse.

One oddity: Donat apparently didn't bring an anti-SLAPP motion, even though this lawsuit superficially looks like a SLAPP and even though the lawsuit is in CA and therefore governed by CA's broad anti-SLAPP law. Donat is proceeding pro se, so perhaps that explains the omission.

Posted by Eric at 01:47 PM | Content Regulation , Marketing | TrackBack

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

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

"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.

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).]

__________

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).
__

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.

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)

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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.

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.

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.

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.
_______________________________________

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.

* Sellify is appealing its loss against Amazon. My initial blog post.

* NYT: Star athletes are trying to trademark their catchphrases.

* B&B Hardware, Inc. v. Hargis Industries, Inc., 2010 WL 4683725 (E.D. Ark. Nov. 10, 2010): "Here, the jury expressly found that B & B copied Hargis' fastener photos and size/weight charts and posted them on its website as its own, thus causing Hargis to prevail on its cross-complaint for false advertising and false designation of origin. The Court finds B & B's conduct focusing on the creation of a new website as well as its contacting Hargis customers, using metatags and purchasing domain sites using the term “sealtite” or phrases containing that term, introducing bogus design drawings into evidence of purported construction fasteners, and other conduct previously discussed, was a willful and deliberate attempt to manufacture evidence to support its trademark infringement claim. The Court finds this is an exceptional case in which the award of fees is justified."

* NYT: A New York state law requires “the education commissioner’s consent for the words library, school, academy, institute and kindergarten, among others to be used in a certificate of incorporation or company name.” Thus, the incorporation papers for a library-themed chocolatier named “Chocolate Library” got bounced.

* I'm helping Paul Levy and Public Citizen try to unseal the "confidential" joint appendix in Rosetta Stone v. Google.

Advertising

* The EU has opened an antitrust investigation into Google. I know that Google's making too much money to just walk away from Europe, but I think both the EU and Google would live happier lives if they were to go their separate ways.

* Google is changing its ad label from "Sponsored Link" to "Ad." Google has rolled this change out in Gmail, and I've also noticed a new ad unit right by the place where I archive or delete messages--sloppy clicking will earn Google a few extra pennies.

* Congress enacted the “CALM Act” to regulate the volume of TV commercials.

* California's rules on Political Online Advertising. (see items 19 and 20)

* Seattle mandates an opt-out system for Yellow Pages book deliveries, which prompts a lawsuit. Meanwhile, Verizon wants to stop distributing white pages directories.

* The FTC approved the Reverb settlement over fake blog posts. Venkat’s prior blog post.

* In re Facebook PPC Advertising Litigation, 2010 WL 5174021 (N.D. Cal. Dec. 15, 2010). Facebook gets another dismissal without prejudice. The judge says:

To the extent that Plaintiffs allege that Facebook is subject to UCL liability merely because its filtering system is insufficient or ineffective, such allegations fail to state a claim….To the extent that Plaintiffs could allege that Facebook failed to employ any "filtering" system to protect against click fraud or knew but did not disclose that its system was subject to regular and frequent failure in excess of flaws inherent in such systems, they might state a claim.

Previous blog posts (1, 2).

* More detail on the Largo Cargo v. Google settlement.

* ClickZ: Still No Answers for Digital Pharma Marketers.

* Google is telemarketing local advertisers.

Posted by Eric at 08:33 AM | Marketing , Search Engines , Trademark | TrackBack

December 22, 2010

Hotels Benefit When Distributors Reference the Hotel's Trademark in Keyword Ad Copy

By Eric Goldman

Lesley Chiou of Occidental College and Catherine Tucker of MIT have posted an empirical study, How Does the Use of Trademarks by Third-Party Sellers Affect Online Search? The study tries to model what happens when distributors use a manufacturer's trademark in keyword ad copy, specifically by looking at data for the hotel industry.

This intra-channel conflict was exacerbated by Google's 2009 trademark policy change that meant manufacturers could not prevent channel members and aggregators from using the third party manufacturer's trademark in their keyword ad copy. Trademark owners did plenty of teeth gnashing about this change, and that change (plus the Rescuecom Second Circuit decision) helped open the floodgates of trademark litigation against Google that peaked with a dozen pending lawsuits.

As usual with empirical studies, we could debate the data, the assumptions and the conclusions in this study. Acknowledging these limitations, the article reaches a provocative yet perhaps intuitive conclusion that trademark owners were unnecessarily freaking out about Google's policy change. According to this study, when travel distributors/aggregators reference specific hotel trademarks in their ad copy, the hotel sees a slight reduction in the clicks on the hotel's own ad but simultaneously gets a more significant increase in the clicks on the hotel's organic listing. Effectively, then, when channel members include the upstream "manufacturer's" trademark in their ad copy, it indirectly contributes to the manufacturer getting more users for "free" (i.e., by clicking on the free organic links instead of the CPC links). As the article says:

when third-party ads started displaying the brand name, this encouraged search engine users to click directly on the main link to the branded website. This change in click-through behavior for the main non-paid link after a change in the composition of paid search ads suggests that there are spillovers from the presence of a branded search ad to that brand's main non-sponsored link.

I discuss spillover effects from keyword advertising in more detail in my Brand Spillovers article.

The article offers some social science theories to try to explain this phenomenon. I personally didn't find the explanations compelling, but they are worth considering if you are thinking about this topic.

If we find these empirical results credible, I can see some implications:

1) TM owners should be *encouraging*, not discouraging, its channel members to reference its trademarks in keyword ad copy.

2) Aggregators/distributors might decide it's not in their best interests to include the actual trademark in the ad copy, even if Google's policy lets them do so. The article suggests that these advertisers may drop poor-performing ads over time, so advertisers may be reaching this conclusion independently.

3) This article supports the cases that have found that keyword ads aren't likely to cause consumer confusion (e.g., the trial findings in College Networks and Fair Isaacs cases and the summary judgment in the Rosetta Stone case).

4) It would be ridiculous to hold search engines liable for trademark infringement from keyword advertising when the keyword advertising may be creating positive spillovers for the trademark owner. I explore the possibility of trademark owner duplicity in my Brand Spillovers article.

The article doesn't address the implications where channel members purchased a trademarked keyword but don't show the trademark in the ad copy. That issue is just one of many unresolved questions about consumer perceptions of and interactions with keyword advertising.
___

The article abstract:

Should firms who want to promote their direct channel allow the use of their trademarked brand name by third-party sellers of their products? This paper examines this question empirically using a natural experiment in advertising on search engines. In June 2009, Google started allowing any third-party reseller for a product to use a trademark, such as "Doubletree," in the text of its ad, even if the reseller did not have the trademark owner's permission. We study the effects of this practice within the hotel industry. We find some evidence that allowing third-party sellers to use a trademark in their online search advertising did indeed divert clicks from the hoteliers' paid search ads. However, this decrease in paid clicks was more than outweighed by an increase in consumers clicking on the unpaid links to the hotelier's website within the main search results. We provide evidence from both historical data and a lab experiment as to why this occurs. When third-party sellers focus on the trademarked brand in their ads, this distracts from their own low-price marketing message, and customers are consequently more likely to buy from the direct channel.

Posted by Eric at 07:37 AM | Marketing , Search Engines , Trademark | TrackBack

December 08, 2010

Advertising & Marketing Law Syllabus for Spring 2011

By Eric Goldman

Next semester, I am teaching Advertising & Marketing Law for the first time. My syllabus. This is a brand-new course built from the ground up. As teaching materials, I will be using an early draft of a new casebook that Rebecca Tushnet and I are co-authoring. I'll have more to say about the book later. I will also be relying heavily on Rebecca's database of artifacts/props. If you teach in the IP/Internet/advertising law area and don't already have access to the database, you should contact her.

As you'll see in the syllabus, I am experimenting with several different grading options for the students. Among other things, I am participating in the Wikipedia Public Policy Initiative and allowing students to edit Wikipedia for a grade. See my recap of my prior experiment with graded Wikipedia assignments. I'll be interested to see how many students choose that option. [Note: I have more to say about my 2005 prediction of Wikipedia's demise shortly.]

I was absolutely blown away by student interest in the course. Over 80 students tried to enroll in the course! I had deliberately capped the course enrollment at 18 because of the course's experimental status as well as the fact that it's a voluntary uncompensated overload. As a result, I had a LONG list of disappointed students.

Based on this surprisingly high level of student interest and the course's relevance to new lawyers (many of whom will quickly encounter advertising law issues in their practices), I believe that many law schools would benefit from offering the course. If you're thinking about offering an advertising law course, I'd love to chat with you about it.

Posted by Eric at 02:15 PM | Marketing | TrackBack

November 27, 2010

Junk Fax Claim Fails Due to "Established Business Relationship" Exception -- Cardinal Partners v. Fernandez Discipline

[Post by Venkat]

Cardinal Partners, Ltd. v. Fernandez Discipline, LLC, Case No. L-10-1180 (Ohio Ct. App.; Nov. 19, 2010)

Background: Toledo chiropractor Dr. William J. Houttekier II shared a fax number with Cardinal Partners (they both apparently had the same fax number). Houttekier received a fax (advertising an upcoming two day marketing seminar) sent by Fernandez Discipline, a marketing consulting firm. [It's interesting to see marketing consultants advertise their services via communications that turn out to be unwelcome. I would think this does not engender much trust in the consulting services, but that's neither here nor there.] Houttekier threatened suit but offered to settle for $3,000. The parties did not settle, and ultimately Cardinal Partners (not Houttekier) filed a class action lawsuit alleging junk fax violations.

The procedural details are murky, but it appears the trial court dismissed (or denied certification of) the class action, and Cardinal Partners appealed. While the appeal was pending, the parties both moved for summary judgment. Cardinal Partners voluntarily dismissed its appeal, and the case moved forward on an individual basis in the trial court. The trial court granted summary judgment in favor of Fernandez Discipline, on the basis that Fernandez Discipline had an established business relationship with Houttekier, who "co-used the telephone number at which [the fax to Cardinal Partners] was received."

Discussion:

Was the "established business relationship exception" defense available?: The first question was whether the "established business relationship" was available as a defense to the fax at issue. The court looks at the TCPA (enacted in 1991), as amended by the Junk Fax Prevention Act (enacted in 2005), and concludes that although it was unclear as to whether the TCPA (as implemented by the FCC regulations) provided for an "established business relationship" exception to faxes, the enactment of the Junk Fax Prevention Act cleared this up, and since the fax at issue was sent after enactment of the Junk Fax Prevention Act, the exception was available.

Did Fernandez Discipline put forth sufficient evidence to demonstrate that it was entitled to the "established business relationship" exception?: In support of its motion for summary judgment, Fernandez Disciple submitted pages from an online directory which showed that Houttekier and Cardinal Partners shared the same telephone number. This evidence was uncontested. Although there were hearsay problems with the remainder of the evidence submitted by Fernandez Discipline, the court concluded that there was enough competent evidence to show that Fernandez Discipline had an "established business relationship" with Houttekier (who had attended several Fernandez Discipline seminars). Based on this, the court affirms the trial court's dismissal of the claims.
__

The case raises two questions, which the court does not really dig into. First, who has the cause of action when people share a telephone number? Presumably, the person or entity who the number was assigned to (in this case Cardinal Partners) does. Second, if two people share a number, does consent from (or a business relationship with) one undermine a cause of action for the other?

Related posts:
"Latest Junk Fax Lawsuit--Adler v. Vision Lab Telecommunications"
"Junk Fax Doesn't Create Conversion Claim--Edwards v. Emperor's Garden"
"One Judge's Derisive View of Junk Faxes as Conversion"
"Ghostwritten Attorney Newsletter is an "Ad" for TCPA Junk Fax Law Purposes--Holtzman v. Turza"

Posted by Venkat at 09:52 AM | Marketing , Spam

November 23, 2010

Wildcarding Subdomains Is OK; Reverse Domain Name Hijacking Isn't--Goforit v. Digimedia

By Eric Goldman

Goforit Entertainment LLC v. Digimedia.com LP, 2010 WL 4602549 (N.D. Tex. Oct. 25, 2010). See the related personal jurisdiction ruling from 2007 featuring a completely different but still ridiculously large and expensive cast of lawyers.

This is a super-interesting dispute involving two not-so-interesting litigants. The plaintiff Goforit runs a type of meta-search engine at goforit.com. After spending 5 minutes at the site, I couldn't identify a single reason why anyone would want to use it. Also inexplicably, Goforit appears to be quite pleased with its trademark rights in "Goforit," a term that seems more like an exhortation than a trademark.

The defendants own or operate many domain names, including "org.com," "com.org," "gov.org," and "org.net." All of these domain names have wildcarded subdomains, meaning that XYZ.com.org will lead to a working web page, no matter what "XYZ" is. (See my descriptive and normative discussion about wildcarding in my Deregulating Relevancy article). The resulting com.org web page presents a mostly useless directory of CPC links. I noticed that the pages now include a disclaimer at the top saying "xyz.com.org was not found on our servers. www.com.org is shown below" and a link at the bottom saying "Information on how you reached this site" which says:

Occasionally we receive inquiries from users who do not understand why they have accessed our site. Please be advised that you are not reaching our site as a result of spyware. We are not exactly sure why you have been directed here, however, we believe it is a result of the autosearch feature of Internet Explorer. If a site entered into the address bar cannot be accessed, Explorer apparently appends ".org" to the name and then tries to access that sit

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Recent Entries

May 20, 2013

Suing Over Keyword Advertising Is A Bad Business Decision For Trademark Owners--General Steel v. Chumley (Forbes Cross-Post)

April 29, 2013

Differences Between Consumer Surveys for Trademark Cases and False Advertising Cases

April 11, 2013

Competitive Keyword Advertising Lawsuit Survives Motion to Dismiss--Elcometer v. TCQ-USA

April 03, 2013

Product Review Website Defeats Trademark Claims--Boarding School Review v. Delta Career Education

March 29, 2013

FTC Warns Nordstrom Over Tweetup Freebies

March 27, 2013

Why Google's Commitment Letter to the FTC Isn't Commercial Speech (Guest Blog Post)

March 24, 2013

Linkwrap of Google's Antitrust Deal With the FTC

March 20, 2013

Book Recommendation: "Trademark and Deceptive Advertising Surveys"

February 28, 2013

Buying Keyword Ads on People's Names Doesn't Violate Their Publicity Rights--Habush v. Cannon (Forbes Cross-Post)

February 26, 2013

Lindsay Lohan Loses Publicity Rights Claim Against Pitbull Over Song Lyrics--Lohan v. Perez

February 20, 2013

Telephone Consumer Protection Act Case Update – February 2013 Edition

February 19, 2013

With Its Australian Court Victory, Google Moves Closer to Legitimizing Keyword Advertising Globally (Forbes Cross-Post)

February 18, 2013

Another Google AdWords Advertiser Avoids Trademark Liability--Whipple v. Brigman

February 12, 2013

Yelp Defeats Legal Challenge to Its User Review Filter (Forbes Cross-Post)

January 23, 2013

Why You Should Consider Teaching Advertising Law (Including Comments from Felix Wu of Cardozo)

January 11, 2013

Top Ten Internet Law Developments of 2012 (Forbes Cross-Post)

January 09, 2013

Q4 2012 Quick Links, Part 2 (Privacy, Advertising, Content)

December 31, 2012

Google's Privacy Policy Integration Initially Defeats Legal Challenge -- In re Google Privacy Policy Litigation

December 28, 2012

Sale of "Damn You Auto Correct!" Website Leads to Fights Over Its Google Analytics Numbers -- Studio 159 v. PopHang, LLC, et al.

December 10, 2012

Facebook Doesn't Violate Antitrust Law When It Controls Its Users' Experience--Sambreel v. Facebook (Forbes Cross-Post)

November 29, 2012

Yet Another Ruling That Competitive Keyword Ad Lawsuits Are Stupid--Louisiana Pacific v. James Hardie (Forbes Cross-Post)

November 28, 2012

Lawsuit Over "Google Tags" Dismissed--Frezza v. Google

November 15, 2012

Court: Customer Consents to Receive Texts by Providing Phone Number to Pharmacy – Pinkard v. Wal-Mart Stores, Inc.

November 13, 2012

Another Google AdWords Advertiser Defeats Trademark Infringement Lawsuit--CollegeSource v. AcademyOne (Forbes Cross-Post)

November 05, 2012

Confirmatory Opt-out Text Message Not Actionable Under the TCPA -- Ryabyshchuck v. Citibank

October 22, 2012

Ninth Circuit Says Yellow Pages are Entitled to Full First Amendment Protection--Dex v. Seattle

October 21, 2012

Q3 2012 Quick Links, Part 3 (Advertising, Privacy, Consumer Protection)

October 20, 2012

9th Circuit Zings Best Buy Over Robocalls – Chesbro v. Best Buy

October 12, 2012

Wikipedia's "Pay-for-Play" Scandal Highlights Wikipedia's Vulnerabilities (Forbes Cross-Post)

September 30, 2012

Lovelorn Plaintiffs Strike Out Against Match.com – Robinson v. Match.com

August 13, 2012

Court Declines to Dismiss Video Privacy Protection Act Claims against Hulu

August 09, 2012

Judge Alsup Tries to Out the Shills in Oracle v. Google

Craigslist’s Latest Moves Show It Cares More About Its Market Position Than Delivering Value to Its Users (Forbes Cross-Post)

August 06, 2012

Online Marketplace Isn't Liable for Bad Conduct by Merchants It Certifies--Englert v. Alibaba

July 31, 2012

Backpage Gets Important 47 USC 230 Win Against Washington Law Trying to Combat Online Prostitution Ads (Forbes Cross-Post & More)

July 25, 2012

Franchisor Isn't Liable Under the TCPA for Franchisees' Text Message Campaign – Thomas v. Taco Bell

July 21, 2012

Offering P2P File-Sharing Software for Downloading May Be Copyright Inducement--David v. CBS Interactive

July 19, 2012

Judge Koh Puts the Kibosh on LinkedIn Referral ID Class Action -- Low v. LinkedIn

July 18, 2012

Why Defensive Domain Name Registrations Aren’t a Good Deal for Small Businesses (Forbes Cross-Post)