Technology & Marketing Law Blog

January 31, 2010

January 2010 Quick Links

By Eric Goldman

Copyright

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

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

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

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

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

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

Trademark/Publicity Rights

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

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

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

Pornography

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

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

Spam

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

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

Blogs/Social Networking Sites

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

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

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

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

* The “moldy tweet” lawsuit was dismissed.

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

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

E-commerce

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

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

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

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

Miscellaneous

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

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

* Oddee: 15 Funny Facebook Fails.

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

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

January 21, 2010

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

By Eric Goldman

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

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

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

Copyright in Product Shots

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

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

Trademark Claims over Metatags and Keyword Ads

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

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

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

January 11, 2010

Top Cyberlaw Developments of 2009 (Eric's List)

By Eric Goldman

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

* * * * *

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

December 28, 2009

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

By Eric Goldman

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

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

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

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

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

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

December 26, 2009

November-December 2009 Quick Links, Part 1

By Eric Goldman

Trademarks/Domain Names

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

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

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

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

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

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

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

Marketing and Advertising

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

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

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

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

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

* NYT: False advertising litigation is a growth industry.

Search Engines

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

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

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

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

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

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

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

December 11, 2009

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

[Post by Venkat]

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

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

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

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

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

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

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

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

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

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

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

December 10, 2009

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

By Eric Goldman

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

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

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

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

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

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

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

December 04, 2009

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

[Post by Venkat]

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

Citing Gordon v. Virtumundo, the court finds that:

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

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

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

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

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

December 03, 2009

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

By Eric Goldman

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

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

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

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

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

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

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

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

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

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

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

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

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

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

November 24, 2009

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

By Eric Goldman

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

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

Azoogle/Epic

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

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

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

Competitor Lawsuits

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

Lawsuits Against the Search Engines

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

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

Conclusion

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

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

AdWords Lawsuit Roster

The updated roster of pending AdWords cases:

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

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

November 22, 2009

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

By Eric Goldman

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

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

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

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

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

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

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

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

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

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

November 18, 2009

Citysearch Click Fraud Class Certified--Menagerie v. Citysearch

By Eric Goldman

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

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

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

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

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

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

October 21, 2009

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

By Eric Goldman

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

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

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

Two other interesting doctrinal notes from the opinion:

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

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

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

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

October 17, 2009

Q3 2009 Quick Links, Part 3

By Eric Goldman

Copyright

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

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

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

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

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

eBooks

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

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

Search Engines

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

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

* Greg Linden: Google AdWords Now Personalized.

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

Marketing

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

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

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

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

October 15, 2009

Q3 2009 Quick Links, Part 2

By Eric Goldman

Trademark

* Venkat: Twitter makes the dictionary.

* Federal Circuit says Hotels.com is generic.

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

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

* Lots of action involving Mary Kay.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Domain Names

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

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

* ICANN claims it has killed domain name tasting.

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

October 12, 2009

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

By Eric Goldman

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

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

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

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

The FTC's Example

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

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

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

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

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

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

Prima Facie Elements of a 47 USC 230 Defense

47 USC 230(c)(1) reads:

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

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

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

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

Application of 47 USC 230 to Example #5

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

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

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

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

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

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

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

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

Applicable 230 Precedent

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

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

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

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

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

Conclusion

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

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

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

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

October 06, 2009

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

By Eric Goldman

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

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

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

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

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

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

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

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

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

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

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

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

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

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

August 26, 2009

Yahoo Subpoenas Expedia in American Airlines Lawsuit

By Eric Goldman

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

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

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

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

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

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

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

August 25, 2009

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

By Eric Goldman

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

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

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

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

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

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

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

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

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

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

August 07, 2009

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

By Eric Goldman

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

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

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

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

"Internet Access Service"

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

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

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

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

"Adversely Affected"

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

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

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

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

And the court says:

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

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

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

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

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

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

Preemption of State Laws

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

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

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

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

Implications

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

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

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

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

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

Other comments on this case:
* Venkat
* Jeff Neuburger

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

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

August 06, 2009

State of the Net West Recap

By Eric Goldman

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

Boucher on Broadband

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

* revise the Universal Service Fund to allow dollars to be spent on broadband deployment; and require USF fund recipients 5 years from now to be offering broadband or be cut off from USF
* federally preempt state laws prohibiting municipal broadband offerings (which about 25 states have)
* get the FCC to develop a broadband deployment plan

He expressed disappointment with the guidelines that NTIA and the Department of Agriculture have adopted to give away the $7.2B broadband fund that was part of the stimulus package. It appears he will be encouraging both entities to rethink their guidelines.

My colleague Al Hammond was the broadband discussant. Al made a number of good points, including noting that broadband deployment is both a rural and low-income issue (Boucher appeared to be focusing more on the former) and raising concerns about municipalities not playing fair and the FCC overcounting actual broadband availability.

Boucher on Privacy

Rep. Boucher also gave a preview of the privacy bill he is planning to introduce next month. He started off by saying he likes ad targeting, especially first party targeting (he said he buys items based on customized recommendations). So he wants to encourage "appropriate" ad targeting, not eliminate it. His bill is expected to contain the following elements:

* websites collecting data will be required to post a prominent privacy policy
* users can opt-out of first party targeted ads. This also includes data sharing necessary to enable first party ads
* websites that want to share data with unaffiliated third parties will need opt-in. However, behavioral ad networks can proceed on an opt-out basis if they allow users to see and edit their behavioral profile, except for sensitive information categories that would always be opt-in
* both the FTC and state AGs would have enforcement authority

To the extent that the mandatory privacy policy and opt-out options codifies existing industry practices, this proposal generally seems benign but not worth the effort--the costs of the inevitably poor statutory drafting outweighs any benefit we might get from regulatory codification. Requiring opt-in would likely eliminate third party behavioral ad networks, which (as I've discussed before) is more likely to be a detriment than a win.

I was especially intrigued by the proposal that behavioral networks can flip from opt-in to opt-out by letting users access a user profile. I need to see more details about Boucher's thinking, but doesn't this superficially sound crazy? The most obvious problem is authentication of the user before seeing his or her profile. How would this be done? The networks usually don't know the identity of the specific individuals they are profiling, so they can't authenticate identity. And just tying profile access privileges to a cookie or machine sounds like a recipe for disaster for all shared computers. Plus, a web interface seems to increase the security risks that the bad guys can see profiles they shouldn't be able to see. On first blush, it sounds like this part of Boucher's proposal may need a complete rewrite, with unknown consequences for the entire structure of his proposal.

Mike Hintze of Microsoft was the privacy discussant. He espoused Microsoft's standard line that there should be a comprehensive privacy law.

In the Q&A, Boucher appeared willing to consider concurrent privacy enforcement authority by self-regulatory organizations, so long as they enforced the law's minimum requirements. But any self-regulatory effort wasn't a substitute for other aspects of his bill.

Lofgren on Antitrust

Rep. Lofgren said that if the Bush administration did too little on antitrust enforcement, the Judiciary committee is now concerned that Obama and Varney will do too much. Lofgren is particularly focused on the chilling effects of the mere threat of antitrust scrutiny, not just the actual successful prosecution in court of cases. Thus, an "informal" DOJ expression of interest can deter innovative activity by high tech companies.

She also expressed skepticism that antitrust laws remain effective at protecting technology markets, which are marked by fast innovation and low barriers to entry. (I believe her exact words were "traditional antitrust measures of marketplace behavior might no longer work.") At minimum, any technology-related antitrust enforcement actions should be focused on improving innovation rather than trying to manage current marketplace prices.

Finally, she said that copyright restrictions should be considered in antitrust inquiries. Mike Masnick has more to say on this.

Michael Katz of UC Berkeley was the most colorful respondent. He shared Lofgren's concern that antitrust law may be counterproductively squelching innovation, especially when companies try to capture antitrust enforcers to hassle competitors. He had especially harsh words for the FCC, calling it much less disciplined than the DOJ and observing how the FCC can blackmail companies using its leverage. He also complained that the FCC's review of mergers takes too long, and as an example of their lack of discipline, the FCC will impose merger conditions that have nothing to do with the merger.

Tim Bresnahan of Stanford and my colleague Cathy Sandoval were the other respondents.

At the end of her talk, Lofgren praised the Google Book Search settlement, saying that in some ways it lowers barriers to entry. She also said she was grateful that Google appears to have found a back-door way to liberate orphan works given that she wasn't able to pass an orphan works bill. I'm all in favor of orphan works reform, but a class action settlement seems like a weird way to get there.

Chopra on Open Government

Aneesh Chopra is the new White House CTO, a role that never existed before, which puts Chopra at Obama's elbow on all technology issues. This was Chopra's first Silicon Valley trip since he undertook his new role. His first talk was on Tuesday night at a Churchill Club event; we were his second. Lots of people were very interested in learning more about him. He was the big draw for the press, and we got an unprecedented number of walks-in based in part (we think) on his talk. He was also mobbed before and after his talk--everyone seemed to want a piece of his attention (then again, I'd love to have a chance to kick some stuff around with him one-on-one myself!).

It's easy to see why Chopra sparks such curiosity. My impressions were that he was genuinely affable, smooth without being slick, substantive without being bookish, a big fan of crowdsourcing and an even bigger fan of assessment and measurement of outcomes.

He started off by discussing the importance of technology and how the US's rate of technological performance is lagging against other countries. He then identified three ways to "turn the ship around":

1. invest in innovation building blocks, such as a smart/secure infrastructure, more R&D and improved workforce expertise
2. healthcare reform, especially improvements to the information technology side of healthcare delivery
3. an improved education system, including distance learning and more emphasis on lifelong learning

He then discussed open government issues and gave examples of ways technology can facilitate participatory governance.

Goodlatte and Discussants on Immigration

Rep. Goodlatte laid out the Republican's high tech agenda, which includes:
* skilled workforce, including immigration reform
* patent reform
* trade issues
* taxation, including efforts to define when activity in a state triggers tax obligations
* net neutrality (don't regulate but improve antitrust enforcement)
* privacy (opt-out except for sensitive information)

The panel then drilled down on immigration reform. I was really excited to have this panel because workforce issues are so central to the Silicon Valley's "secret sauce" and yet I couldn't recall a time that the HTLI had sponsored a discussion about them. Obviously immigration issues are age-old and are well-trodden, but I nevertheless found the discussion helpful--with the one caveat that everyone on the panel agreed with everyone else, so there was a lot of preaching to the choir. I learned an interesting factoid that both Reps. Goodlatte and Lofgren were formerly immigration attorneys, so they have some front-line domain expertise in this area.

First discussant was AnnaLee Saxenian of UC Berkeley. She talked about how skilled immigrants have fueled innovation in this country. She gave a number of stats in support of this, including that a majority of Silicon Valley engineers are foreign-born, and a high percentage of technology entrepreneurs and patent applicants are foreign-born individuals. She also noted that foreign-born skilled works create net new jobs and also help build better ties to their home country.

We benefit from the best and the brightest from around the world, who come to the US because of our higher education system and historically have chosen to stay. However, she is concerned about this retention because of bureaucratic barriers. She is also concerned that companies, frustrated by their lack of access to development talent, will offshore their R&D.

Finally, she pointed out that immigration discussions kludge together the issues of skilled and low-skilled workers, even though their issues are very different.

Keith Wolfe of Google reinforced many of AnnaLee's points from Google's specific experiences.

My colleague Deep Gulasekaram was the last discussant. He pointed out that free marketplaces may require free movement of labor, which isn't consistent with our current immigration policy. He raised concerns about state and local anti-immigration policies and the negative consequences of tying foreign workers to specific jobs (by linking their visa to the job).

Rep. Lofgren added a few remarks:
* Obama told her that it's time for comprehensive immigration reform. [This led to a polite back-and-forth between Lofgren, who favors comprehensive reform, and Goodlatte, who would settle for piecemeal immigration reform]
* Immigration reform is not a substitute for educating the US workforce
* We should give permanence to people we want to keep (i.e., not keep them on some treadmill with the possibility of a forced exit, which prevents their long-term life planning)
* We need to address the family of skilled immigrants, not just the immigrants themselves

More Coverage of the Event

* ABC 7 News
* KCBS radio
* Zusha Ellison of the Recorder
* Joyce Cutler of BNA (BNA subscription required)
* Mike Masnick
* Joel West
* Colette Vogele
* Warren's Washington Internet Daily also ran a story (not web-linkable) "Boucher Promises Online Privacy Bill Draft Soon"
* The extensive Twitter discussion at hashtag #sotnw. Twitterers included @ipolicy, @caminick, @persistance, @miss_eli, @techpolicygirl, @cathygellis, @mmasnick, @nextgenweb, @marianmerritt, @larrymagid, @christinela, @mblatkin, @seangarrettnow, @vogelelaw (who didn't always use the hashtag--we will try to publish a standardized hashtag at future events). Whew! Apologies if I missed anyone. I can't recall seeing more Twitterers in an audience--everyone seemed to have their Twitter page up constantly. As usual, I didn't turn on my computer at the conference (I take notes by hand and blog them later), so my comments seem woefully out-of-date already!

We plan to post the event audio soon so you can listen for yourself. I'll announce the audio posting at my Twitter account when it's live.

UPDATE: Audio now available: Download (item 27) or Stream

Posted by Eric at 10:54 AM | Adware/Spyware , Copyright , E-Commerce , General , Internet History , Marketing , Patents , Privacy/Security | TrackBack

July 31, 2009

Google Not Liable for False Ads--Goddard v. Google

By Eric Goldman

Goddard v. Google, Inc., 5:08-cv-02738-JF (N.D. Cal. July 30, 2009)

I previously blogged on this case in December 2008. The case involves AdWords advertisements for allegedly fraudulent mobile subscription services. In an underappreciated opinion, Judge Fogel wrote the smartest 47 USC 230 opinion of 2008 dismissing the case with leave to amend. In that ruling, he said that plaintiffs could state a valid claim if "Plaintiff could establish Google's involvement in 'creating or developing' the AdWords, either 'in whole or in part.'"

It was pretty clear then that further efforts would be a waste of time. I wrote "the writing is on the wall for this lawsuit. The plaintiff can't win, and it would be a mistake for the plaintiff to refile." But hope springs eternal among many plaintiff's lawyers, so naturally they tried anyway. Not surprisingly, their second attempt was futile, and Judge Fogel shuts the door by dismissing without leave to amend this time. Among other things, he is sensitive to the costs of fruitless litigation undercutting 230’s policy objectives. He writes "this Court’s conclusion that Plaintiff almost certainly will be unable to state a claim compels the additional conclusion that Google must be extricated from this lawsuit now lest the CDA’s ‘robust’ protections be eroded by further litigation." I hope other judges will embrace early ends to 230 cases for the same reason.

The Roommates.com Attack

To plead around 230, the plaintiffs allege that Google's keyword suggestion tool encourages advertisers to buy "free ringtone" as a keyword when advertisers are buying "ringtone." The plaintiffs then argue that Google should know that "free ringtone" is frequently used by shady players, and therefore suggesting the term to other advertisers kicks Google out of 230. This weak argument makes numerous unsupported inferences, and Judge Fogel easily rejects it. He says:

a plaintiff may not establish developer liability merely by alleging that the operator of a website should have known that the availability of certain tools might facilitate the posting of improper content. Substantially greater involvement is required, such as the situation in which the website “elicits the allegedly illegal content and makes aggressive use of it in conducting its business.” [cite to Roommates.com]

I'm not exactly sure what it means to make aggressive use of content, but I'm glad to see the Google's keyword suggestion tool isn't that.

The Barnes Attack

The plaintiffs also attack 230 using the promissory estoppel discussion from Barnes v. Yahoo. The basic argument is a familiar one in 230 jurisprudence. The plaintiffs allege that Google's AdWords contract had negative covenants restricting the advertisers' behavior, and this language in the Google-advertiser contract acted as a promise to consumers that the restricted advertiser behavior would not occur on Google's network. I have repeatedly criticized the illogic of these arguments, and fortunately it doesn't fly here. Judge Fogel guts it when he points out that "there is no allegation that Google ever promised Plaintiff or anyone else, in any form or manner, that it would enforce its Content Policy."

I'm sure we'll see many plaintiffs make this same bogus argument in future cases, and I hope other judges reach the same conclusion. At the same time, I think websites should prune their ever-expanding lists of negative behavioral covenants in their contracts to curb plaintiffs’ misdirected arguments and to avoid unintentionally criminalizing users (see the Lori Drew conviction).

Dismissal on 12(b)(6) Motion

A major gripe about the initial Ninth Circuit Barnes opinion was its loosely worded and poorly researched conclusion that 47 USC 230 was an affirmative defense that could not support a 12(b)(6) motion to dismiss. The plaintiffs argue that Judge Fogel shouldn’t dismiss the case now for that reason, even though the Ninth Circuit withdrew that portion of the opinion. Judge Fogel cites to several cases allowing a 47 USC 230 defense on a 12(b)(6) motion to dismiss before doing the same himself.

Posted by Eric at 10:59 AM | Derivative Liability , Marketing , Search Engines | TrackBack

July 15, 2009

Lifestyle Lift Settles NYAG Claim Over Fake Consumer Reviews

By Eric Goldman

Lifestyle Lift has settled a claim from the New York Attorney General's office over its employees posting fake consumer reviews to the web. According to the NYAG press release, Lifestyle Lift will stop posting anonymous positive product reviews and pay $300k plus costs.

This is not the first time I've blogged about Lifestyle Lift. In early 2008, I blogged about a cross-suit between Lifestyle Lift and my client RealSelf.com, which allows consumers to share their perspectives about cosmetic treatments. Lifestyle Lift was getting hammered on RealSelf, so it sued RealSelf for trademark infringement for allowing consumers to discuss the company. Not only was this lawsuit a bald attempt to use trademark law to stifle unwanted critical commentary about the company, but RealSelf hit back with a counterclaim that Lifestyle Lift was illegally posting fake reviews on RealSelf. The parties ultimately settled, which ended RealSelf's efforts to demonstrate Lifestyle Lift's bad behavior.

Fortunately, the NYAG saw RealSelf’s concerns to a conclusion, and I'm glad the NYAG did so. Fake consumer reviews are a real issue on the Internet. They generally come in three flavors: (1) a company posting favorable reviews of itself, (2) a company posting negative reviews of its competitors, or (3) a griping consumer who goes rogue. Each of these types has the potential to distort consumer decision-making. Competitive fake consumer reviews also can create wasteful arms races involving the review website and competitors trying to stomping out the bad behavior. In some cases, competitors are drawn into the morass, feeling like they have to emulate their competition to keep the playing field level.

While the NYAG got a good settlement, it's not clear exactly what legal rules govern fake consumer reviews today. The NYAG press release doesn't mention the NYAG's legal theory, and in general there is no single law that clearly prohibits fake reviews. In that sense, there is a fairly obvious implicit gap in legal doctrines that makes it hard to crack down on fake reviews.

Even so, I am not convinced that regulation is a preferred option to combat fake consumer reviews. Ultimately, I believe the burden should largely rest on review websites to provide a forum that is sufficiently game-resistant that consumers can trust the information on the website. I can't say Epinions was perfect on this score, but we had a number of techniques that I thought discouraged fake reviews more effectively than many other websites. Review websites that can effectively suppress fake reviews should earn consumers' trust, which should deliver a premium economic payoff. So there are strong marketplace mechanisms to encourage review websites to fight fake reviews.

This mechanism doesn’t work as well when fake consumer reviews are published in less mediated fora, such as standalone marketer-created websites that consumers find through search engines. Lifestyle Lift used this technique as well (the NYAG posted some examples; another example). These situations are potentially more pernicious because (1) there is no intermediary website who is concerned about managing its own reputation, and (2) searchers tend to trust highly ranking sites in Google search results on that basis alone. (If the site isn't highly ranking, then the odds that it will influence consumer decision-making go way down). Anti-fake review enforcement efforts can have some value to improving information credibility in our society, but they can only do so much. Too many publication venues, not enough enforcement capacity. As a result, the odds are way too stacked in the gamer's favor.

In my opinion, the only real "solution" to fake consumer reviews is to teach consumers proper techniques for searching for information and evaluating the credibility of the information they consume. This is one of those crucial life-coping skills that everyone needs to learn at an early age, right up there with the three Rs and how to manage money. Education is the only scalable answer to the problems of information credibility in our complex information society.

This settlement is a small part of ongoing marketing law battles over testimonials, editorial content v. advertising and the degree of required transparency about an author's biases and financial interests. We know that marketers play games in this area and that consumers can be misled by non-credible information (I'm reminded of my recent post on the efficacy of testimonials). So consumers may need some protection. But we can also make some serious regulatory missteps here. The editorial/advertising distinction is incoherent, it's not clear if consumers want or benefit from additional transparency, no one has figured out how additional transparency viably can be provided in restrictive interfaces like Twitter or search engine text ads, and any efforts to suppress anonymous reviews could have serious collateral consequences. So while it's good to see Lifestyle Lift get smacked down, I remain a little nervous where some of the other regulatory efforts may take us.

More on this story:
* Kate Kaye at ClickZ looks at the current and possibly inadequate disclosures at some Lifestyle Lift-operated standalone sites
* Paul Levy

Posted by Eric at 04:31 PM | Marketing | TrackBack

July 13, 2009

Facebook Sued for Click Fraud--RootZoo v. Facebook

By Eric Goldman

RootZoo, Inc. v. Facebook, Inc., 5:09-cv-03043-HRL (N.D Cal. complaint filed July 7, 2009)

Facebook appears to have run into some trouble with click fraud recently. Last month, TechCrunch had a series of articles about Facebook click fraud. TechCrunch postulates the following story: competitors are clicking on each others' ads to reduce their ROI and drive each other off Facebook. To ensure that the click fraudders can see Facebook's microtargeted ads, the fraudsters are creating thousands of fake accounts with heterogeneous profile information. The fraudster's software eventually finds a target ad and clicks on it like crazy, so fast that the advertiser's page never loads. This is distorting the advertisers' server logs, causing a big discrepancy in reporting and making it impossible for advertisers to track down the click fraud. TechCrunch reports that it spoke with Facebook and Facebook claims the situation has been addressed. Of course, could Facebook say otherwise?

I'm not clear if it's related to the TechCrunch coverage or not, but last week a putative class action against Facebook was filed, alleging click fraud. The plaintiffs allege that they were charged for clicks that never occurred at alarming rates--in RootZoo's case, they claim they were charged for 804 clicks on a single day when their servers recorded about 300 clicks. Now, I'm never sure how much credit to assign to plaintiffs' allegations like this. First, advertisers always want more performance for less cash. Second, advertisers' tracking systems are not always reliable, so RootZoo's undercounting could be due to their system, not Facebook's. However, combined with the TechCrunch reports, it raises some concerns that something could have been amiss at Facebook (and maybe still is?).

That's not to say the plaintiffs will get a check out of Facebook. The plaintiffs face many hurdles, including potential difficulties establishing a class, the many challenges getting competent evidence, and Facebook's contract and all of the various protective provisions contained therein. So the plaintiffs have plenty of work ahead of them. Then again, so may Facebook.

Posted by Eric at 09:43 AM | Licensing/Contracts , Marketing , Search Engines | TrackBack

July 07, 2009

June 2009 Quick Links, Part 2

By Eric Goldman

State Regulation of the Internet

* iAWFUL, the Internet Advocates Watchlist for Ugly Laws

* Texas HB 2003. Part of the anti-cyber-harassment mania. Very broad statute with lots of room for prosecutorial mischief.

* BNA (BNA subscription required): "State Legislatures Consider Criminal, Civil Restrictions on Ticket Purchasing Software": "At least six state legislative bodies are considering bills this session that would place restrictions on the use of “ticket bots.""

* Because states are embracing the Amazon affiliate tax, the online affiliate industry is shrinking as we speak (1, 2, 3). But in one of his rare good moves, Schwarzenegger has vetoed CA's attempt to impose the Amazon tax.

* Clive Thompson in Wired: "By severing the link between location and geography, the internet turned everything upside down. Now mobile phones are inverting everything again, in the other direction — because your location becomes most important thing about you. So how is the return of geography going to change our lives?" My previous commentary on geolocation and the law.

Blogs/Social Networking Sites

* Yath v. Fairview Clinic, 2009 WL 1751767 (Minn. App. Ct. June 23, 2009). Posting illegitimately obtained health information to a MySpace page qualified as “publicity” for purposes of an invasion of privacy claim. The court says: “Yath's private information was posted on a public MySpace.com webpage for anyone to view. This Internet communication is materially similar in nature to a newspaper publication or a radio broadcast because upon release it is available to the public at large.” As a result, the publication qualified as “publicity” even if the material was posted for less than 48 hours and the plaintiff could only prove that a small number of folks actually saw it. Compare the Moreno v. Hanford Sentinel case, where republication of information the plaintiff voluntarily published on her MySpace page could not support an invasion of privacy claim.

Nevertheless, the defendants were excused because they had not created the MySpace page, even though they had supplied the information republished on the MySpace page.

* Richerson v. Beckon. Ninth Circuit upheld reassignment of teacher-mentor based on negative blog comments. My blog post on the district court opinion.

* Kaufman v. Islamic Soc. of Arlington, -2009 WL 1815641 (Tex. App. Ct. June 25, 2009). An online-only journalist qualified as a "member of the electronic or print media" for purposes of an interlocutory appeal statute.

* After von Brunn committed his hate crime outside the US Holocaust Museum, a bunch of his digital trails went dark as websites newly realized his vitriol was posted there.

* If you're looking for a paper topic, here's one: the use of MySpace, Facebook and other social networking sites in family law disputes, especially over child custody. I'm seeing cases every week where social networking site postings are being introduced to corroborate or contradict testimony about a parent's fitness.

Security

* FTC v. Pricewert. The FTC takes down an allegedly rogue Internet access provider. To the extent that the IAP is engaged in criminal activities, no problem; but it's less clear to me if the FTC can get a civil injunction under its Sec. 5 authority to stop the IAP from serving its putatively illegal customers. Such an action could be preempted by 47 USC 230. The FTC, in its brief, says the IAP fits into a Roommates.com exception, an argument presumably bolstered by their 10th Circuit win in FTC v. Accusearch.

* Johnson v. Microsoft Corp., 2009 WL 1794400 (W.D. Wash. June 23, 2009). This is a putative class action over Microsoft’s use of Windows Genuine Advantage (WGA) to validate copies of Windows XP. In this ruling, Microsoft gets SJ on the claim alleging that the contract prevented Microsoft from doing WGA validation. Especially interesting is the court’s conclusion that IP addresses are not personally identifiable information.

* Microsoft v. Lam. Microsoft brings a lawsuit against alleged click fraudders who caused Microsoft to issue $1.5M in credits to advertisers. The NYT article.

* EFF on the most recent amendments to the Computer Fraud & Abuse Act.

Miscellaneous

* Expedia tagged for $184M in damages for improperly marking up its service fees.

* In re Jamster Mktg. Litig., 2009 U.S. Dist. LEXIS 43592 (S.D. Cal. May 22, 2009). Wireless carriers aren’t liable under RICO and false advertising laws for various deceptive practices by wireless content providers.

* New unmeritorious patent lawsuit trend: lawsuits over patent markings for expired patents.

* NYT: Investing in Lawsuits, for a Share of the Awards

* Oddee: 15 geekiest license plates:

Posted by Eric at 09:18 PM | Content Regulation , Derivative Liability , E-Commerce , Licensing/Contracts , Marketing , Patents , Privacy/Security , Publicity/Privacy Rights , Search Engines | TrackBack

ABA Antitrust Section Consumer Protection Conference Recap

By Eric Goldman

Last month I attended the ABA Antitrust Section’s Consumer Protection Conference. This post recaps some highlights from the event.

A few overarching themes:

* in light of the country’s economic malaise, the FTC is focusing its enforcement on economic harms. This is both to combat those who prey on victims of the economic downturn as well as curbing some of the excesses that contributed to the economic downturn.

* there was significant confusion, and some apprehension, about the proposed new Financial Product Safety Commission and how it will affect other government agencies, including the FTC. If nothing else, the proposed new agency creates some turf wars and might send an implicit message that the FTC somehow wasn’t up to the job (a characterization I wouldn't necessarily agree with).

* not exactly news, but the FTC is itching to do something different about regulating online privacy.

* on a related theme, there is widespread hand-wringing about the failures of consumer notices to effectively educate consumers and improve their decision-making. I agree with this, and in fact I’ve noted before that we are experiencing a “crisis of contracts.” While some UI improvement can be made in how information is presented to consumers, we are also stuck with the bigger problem that some consumer decisions are more complicated than consumers are able to handle, no matter how effectively the complexity is disclosed. There is no clear regulatory solution to this problem.

David Vladek’s Opening Remarks

David Vladek, the new director of the Bureau of Consumer Protection, outlined some things to expect from the FTC going forward:

1) The FTC will keep up/step up its aggressive pace of litigation, education and policy-making. In particular, the FTC will have to do more on economic fraud.

2) He expects the FTC will look more at privacy regulation. He said he did not find the notice/consent and harm paradigms for regulating privacy convincing. Regarding the notice/consent paradigm, he said it is hard to know what a person is consenting to. Notices are unintelligible, and they don’t address secondary uses. The harm paradigm doesn't address harms we feel but can’t quantify. So he is wondering, how the FTC can rationalize privacy approach going forward?

3) He expects the FTC to take a hard look at Internet behavioral advertising and ads directed to vulnerable sub-populations.

4) Echoing proposals that have been floated before, he said that the FTC should be on equal footing as other government agencies, including better rule-making authority, civil penalty authority and independent civil litigation authority.

More on Vladek’s presentation from Arnold & Porter, Perkins Coie and Rebecca Tushnet. While there, make sure to look at Rebecca’s introductory remarks, which were excellent but came before I was ready to take notes!

Former Chairmen’s Panel

John Villafranco moderated a panel of Bob Pitofsky and Tim Muris, both former FTC chairmen. The panel’s overriding theme is how much Bob and Tim agree with each other, even though they come from opposite sides of the political spectrum.

Villafranco asked some questions about the FTC’s past. He noted that 40 years ago, the FTC was derided, and there were calls to shut it down. Bob explained that the FTC was viewed as the “Little Old Lady on Pennsylvania Avenue” because it was preoccupied with trivial cases, hired experienced lawyers who weren’t very accomplished, didn’t take advantage of its broad mandate, and was widely regarded as weakest agency in Washington. Bob and Tim also explained why there were deep divisions between commissioners and between commissioners and staff at that time.

Villafranco asked about the biggest misconception by outsiders. Bob said that staff runs the place; Tim said that antitrust lawyers can do consumer protection.

Villafranco also asked about the staff’s biggest misconception about companies they investigate. Tim said that staffers deal with pathologies, so sometimes they assume every business is bad actor. Bob said that the FTC’s rules are on the vague side, so good-intentioned companies can get into trouble because they didn’t understand the rules.

Rebecca’s recap of this panel.

Privacy/Behavioral Advertising Panel

Eileen Harrington of the FTC: Disseminating content online means that the sender surrenders control over that content, even when not wanted or intended. Categories of content dissemination:
* blogging/microblogging
* social networking sites
* first party collection/behavioral advertising (ex Amazon, NetFlix). In these contexts, data collection/use is intuitive, and the consumer can always leave if he/she doesn’t like the site’s practices.
* Gmail ads, which she distinguishes from first party collections. Google discloses its ad practice but buried in a big privacy policy. Also, consumers may expect greater privacy in email. [Eric’s note: I really didn’t understand how Gmail is different from Amazon in this regard, and I didn’t get a chance to push Eileen about this. Having used Gmail for a very long time, the value proposition and the ad presentation is unambiguously clear to me.]
* Third party collection practices. She further broke these down into:
- Third party ad networks. Websites are unrelated and no relationship between consumer and ad network. Consumer may not understand why they receive ads. Also, data sharing increases risks.
- Researchware. Improper disclosures that consumers won’t understand.
- Deep packet inspection. May be less transparent/voluntary. Consumers don’t know to look at their contracts with their connectivity suppliers. Deleting cookies won’t help.

In response to a question about whether there is there a different way to communicate privacy to different generations/subcommunities, Eileen expanded on David Vladek’s comments by saying that it’s time to look again at the commission’s privacy framework. For a time, the FTC followed Fair Information Practices. Then, the FTC moved to a framework focused on harm. The FTC still thinks notice-and-choice can work in some circumstances, but it fails in other circumstances. There is concern that notice hasn’t prevented harm. The FTC wants to develop a better framework, but business practices are constantly changing around the FTC.

I asked Eileen how companies can decide what is important enough to be disclosed. I pointed out that Sears’ privacy policy fully disclosed its researchware practices but only deep within its privacy policies. Eileen responded that Sears wasn’t a close call because their disclosures were completely inadequate and the pop-up ads offered consumers a different value proposition.

Perkins Coie’s recap of Eileen’s remarks.

Wendy Seltzer’s presentation did a nice job summarizing the privacy advocate’s view. What’s new online = more data + better data crunching. Most responses have been self-regulatory and focus on notice and choice. Self-regulation works only if there an effectively functioning market for privacy. Market failures:
* information costs of reading privacy policies.
* Behavioral economics/psychology. Consumers have difficulty evaluating near vs. distant events (i.e., hyperbolic discounting). Consumers are too optimistic that they won’t experience harm, even if disclosed to them. Technology moving too fast, so consumers can’t anticipate future developments (such as better deidentification).

In response, Leslie Harris of the CDT added that the latest generation of kids may value its privacy, they just may not have been faced with privacy challenges yet. We don’t know what we don’t know, and we shouldn’t assume people don’t care about privacy.

Leslie also lauded the FTC behavioral advertising principles because it discourages distinctions between PII and non-PII. Also, self-regulatory efforts have been shaped by FTC’s intervention. But she is not persuaded that self-regulation works.

Rebecca’s recap of this panel.

Research on Consumer Decision-Making

Alan Levy from the FDA. Regulators’ biggest mistake is thinking consumers read labels to learn more information about the product. Instead, consumers read labels when they have specific Qs that the label can answer. But framing the Q requires consumers to have lots of domain knowledge already, and consumers often don’t know enough to ask the Qs.

The function of label-based product claims is to ease consumers’ information search. Consumers want to make good decisions, but they satisfice. They look for products that can meet minimum adequacy standard and won’t embarrass them if asked to justify their decision. Most decisions aren’t life-and-death, and consumers usually can fix most bad decisions with their next purchase. Product claims work because they are convenient for consumers and help satisfice.

Consumers assume advertiser claims signal unique attributes of their products compared to their competitors. Consumers don’t generalize claims to the product class. Consumers want new and relevant information. The most effective marketing tells consumers something they do not already know. So claim effectiveness depends on heterogeneous consumer experience and knowledge.

Consumers need reliable information to satisfice. Consumers will accept information if it’s consistent with what they already know and legitimate on its face (i.e., not seemingly manipulative). Disclaimers about product claims can actually make claims more effective or are just ignored.

Health claims on package label front truncates a consumer’s product search—when a claim is on front, consumers won’t read the back of the package label.

Policy-makers focus too much on trying to perfect claim language, and not enough on helping frame the decision for consumers. This is based on mistaken assumption that claims don’t work well enough at educating consumers, but the real risk is that claims work too well at motivating consumer decision-making.

Michael Mazis of American University. Lessons:

* disclosure medium matters. Disclosures are more effective in media that give consumers more time to review them.
* Consumer motivation matters to the efficacy of disclosures
* Marketing claims trump other disclosures/disclaimers

Broadcast ads: text disclosures don’t work.
Print ads: consumers aren’t in search mode, so disclosures aren’t relevant
Web ads: consumers are in product search mode, so disclosures are more likely to be effective

Ways to improve disclosure effectiveness: proximity, prominence, easy to find, comprehensible, no legalese (consumers discount these disclosures), no repetitive “throw away” disclosures.

Findings from a research study about testimonial ads:
* when consumers see testimonials in ads, they assume that results are typical
* general disclosures that “results aren’t typical” aren’t effective
* specific disclosures about lack of typicality are somewhat more effective than general disclosures, but still aren’t very effective

Rebecca’s recap of this panel.

Role of Consumer Surveys in Enforcement/Litigation

Chris Cole of Manatt Phelps said that in every false advertising case, parties disagree about whether claims are literal or implied. Courts vary widely about what constitutes a literal claim; much depends on advocacy quality and the judge’s intuition (results-oriented judgment). There is no uniform standards for survey admissibility. There is a trend towards accepting non-traditional evidence such as internal brand tracking surveys not specifically prepared for the litigation.

Chris also talked about the difficulty designing a defensive survey because it’s hard to prove a negative (i.e., the absence of consumer confusion). To do so requires lots of directed (but not leading) questions to present enough evidence to convince the judge. Further, the other side often tries to reinterpret survey results, which is another reason not to conduct a defensive survey in the first place.

He also said there is no reason to give FTC or State AGs’ interpretation of ad claims any extra deference. The government should have to prove its case.

Finally, Chris discussed problems with trying to do surveys over the Internet, which may be more representative of consumers in practice than mall intercept surveys—who goes to a mall any more? However, he noted that the screen display may not be the same (ex: TV ads shown on a computer monitor may be harder to read), and there may be questions about the motivation and representativeness of panelists who are incented to participate.

Lee Peeler, a long time FTC staffer, said that years ago, FTC was perceived as not using extrinsic evidence because surveys might prove defendant’s case or get tossed out. Now, FTC looks at extrinsic evidence, but non-exclusively.

Patricia Conners of the Florida AG’s office said that state AGs don’t like to do consumer surveys because (1) they are not statutorily required, (2) they are expensive and time-consuming, (3) they distract the case from substantive issues to focus on survey methodology, and (4) many cases are against really bad actors, so survey evidence isn’t necessary to prove the case. On the flip side, defendants often overclaim their extrinsic evidence when trying to avoid regulatory intervention, which makes the regulators skeptical.

Rebecca’s recap of this panel.

More on the Conference

* Rebecca on financial products safety
* Rebecca on green marketing and internet issues. Arnold & Porter on the green marketing panel.
* My post on my talk on 47 USC 230 and consumer protection law.

Posted by Eric at 08:24 AM | E-Commerce , Licensing/Contracts , Marketing , Privacy/Security | TrackBack

July 06, 2009

June 2009 Quick Links, Part 1

By Eric Goldman

Just a reminder that I post some items to Twitter that don’t make it into these monthly recaps. If you want even more, you can track a superset of my online activities at Friendfeed.

Search Engines

* All Things Digital had an interesting 3 part series on the role of humans in configuring Google's algorithms: Scott Huffman; Matt Cutts; Amit Singhal. My initial 2005 blog post on the topic.

* More evidence of the deleterious consequences of latency on users' enjoyment of search results pages.

* Google is stumping in favor of its book search settlement deal and putting on the "charm offensive."

* Wired on niche search engines competing around the edges of Google.

* Google has dropped its feature that allowed quoted sources to reply in Google News.

* First, kosher phones. Now, kosher search engines.

Trademark

* Wendy Davis on a trademark lawsuit against Craigslist for allegedly infringing ad copy supplied by one of its users.

* Rookie mistake: Tony LaRussa publicly announced a settlement deal in his trademark lawsuit against Twitter before the papers were signed. Guess what....NO DEAL! UPDATE: A deal was struck subsequently.

* Speaking of which...the WSJ on Twittersquatting.

* WSJ: Europe's High Court Tries On a Bunny Suit Made of Chocolate. The EU struggles with trademarkability of chocolate bunnies.

* Productive People, LLC v. Ives Design (D. Ariz. May 29, 2009). TRO against a domainer.

* Oddee: 10 of the Worst Restaurant Names ever.

Copyright

* Supreme Court declined certiorari in the Cartoon Network v. CSC case.

* Arista Records LLC v. Usenet.com, Inc., 2009 WL 1873589 (S.D.N.Y. June 30, 2009). Usenet service provider committed (1) direct copyright infringement (because it “actively engaged in the process so as to satisfy the “volitional-conduct” requirement for direct infringement”) as well as contributory infringement, vicarious infringement and inducement of infringement. This case was colored by defendants’ evidence spoliation and the lack of a viable 512 defense; in situations like this, courts smack down defendants hard. The court’s analysis would be troubling for many online service providers if this case isn’t an outlier. Mike Masnick has more on the import (or lack thereof) of this case.

* Brave New Films 501(C)(4) v. Weiner, 2009 WL 1622385 (N.D. Cal. Jun 10, 2009). BNF was denied summary judgment on its declaratory judgment request because (a) Savage never threatened BNF directly, and (b) ORTN, which did threaten BNF directly, isn't the copyright owner. My previous coverage of this case.

User Agreements

* In the Matter of Sears Holdings Management Corporation. The FTC busted Sears for installing tracking software/spyware, even though Sears (1) asked all users to expressly opt-in, (2) paid users $10 to install the software, and (3) made full disclosure of the thorough tracking function of the spyware in the user agreement, albeit late in the installation process and in a buried fashion.

* Universal Grading Service v. eBay Inc., No. 08-CV-3557 (E.D.N.Y. June 10, 2009). eBay venue selection clause upheld.

* McMillan v. Wells Fargo, 2009 WL 1686431 (N.D. Cal. June 12, 2009). Wells Fargo asks some customers to agree to four different documents with differing governing law/venue selection clauses, leading to massive judicial confusion about how to determine governing law and venue.

* I’m using EFF's new "TOSBack" tool to track changes to major online services' user agreements. For my commentary on an article by Becher/Zarsky predicting the development of tools like this, see my writeup.

Posted by Eric at 04:54 PM | Adware/Spyware , Copyright , Derivative Liability , Domain Names , Licensing/Contracts , Marketing , Search Engines , Trademark | TrackBack

Seventh Lawsuit Over Google AdWords--Jurin v. Google

By Eric Goldman

Jurin v. Google, Inc., CV 09-03934 (C.D. Cal. complaint filed June 2, 2009)

Frankly, I don't know exactly how many lawsuits are pending against Google over its AdWords service. I know of seven, including this one, but I don't a high confidence that I've seen all of them. For example, I missed this lawsuit initially because PACER misidentified the defendant as Goggle, not Google. (PACER is notorious for sloppy typos). See the Justia page.

Even if the lawsuit count is currently "only" seven, Google is seeing plenty of litigation activity. Clearly, one or more factors have changed the plaintiffs' cost-benefit calculus sufficient to open the litigation floodgates. Now, I'm wondering when all of these lawsuits will be consolidated into a multi-district litigation (MDL) proceeding...?

Substantively, this complaint isn't materially different from the others. The plaintiff owns a trademark in the term "Styrotrim" for building materials, competitors are buying the term for competitive keyword ads, and Google is suggesting the purchase through its keyword suggestion tool. As with most of the other lawsuits, the plaintiff also alleges consumer confusion about the distinction between sponsored links and organic search results. The plaintiff's press release.

The six other AdWords-related lawsuits I'm tracking. If you think I've missed any, I'd be grateful for the reference.

* Rescuecom v. Google
* FPX v. Google
* John Beck Amazing Profits v. Google
* Stratton Faxon v. Google (this wasn't a trademark case last I checked)
* Soaring Helmet v. Bill Me
* Ascentive v. Google

UPDATE: As a good example of my imprecise counting, I had forgotten Ezzo v. Google, a doomed-to-fail pro se case filed before the Rescuecom case. So my count is now 8, not 7.

Posted by Eric at 09:06 AM | Derivative Liability , Marketing , Trademark | TrackBack

July 03, 2009

Ninth Circuit Revives TCPA Claim--Satterfield v. Simon & Schuster

By Eric Goldman

Satterfield v. Simon & Schuster, Inc., No. 07-16356 (9th Circuit June 19, 2009)

Satterfield sued Simon & Schuster (and its mobile ad agency) for sending text messages to her cellphone without the requisite permission. The district court dismissed her lawsuit; but in this ruling, the Ninth Circuit revives it. Three aspects of this ruling make it noteworthy.

When is a Text Message a Telephone Call?

The court holds that a text message to a cellphone is a "call" for purposes of the Telephone Consumer Protection Act (TCPA). This isn't unprecedented. The FCC took this position in 2003, and in 2005, I blogged on the Joffe v. Acacia Mortgage case reaching the same conclusion. Nevertheless, as I pointed out in response to the Joffe case, it reminds us of the silliness of medium-specific anti-marketing restrictions when the media collapse into each other. See my Coasean Analysis of Marketing paper for more.

Poor Consent Language

Satterfield signed up for a free ringtone from Nextones. As part of the registration process, Satterfield affirmatively checked off a box next to the following language:

Yes! I would like to receive promotions from Nextones affiliates and brands. Please note, that by declining you may not be eligible for our FREE content.

This language is hardly a model of clarity. What are "Nextones brands"? What are "Nextones affiliates"? The court adopts a trademark-style definition for "brands" and a corporate governance-rooted definition for "affiliates." Interestingly, Nextones posted its own definition of affiliates elsewhere on its site to mean other companies who “sell mobile content such as ringtones and graphics.” As the court points out, "Simon & Schuster does not fall within Nextones’ own definition." Whoops.

Obviously, better drafting could have easily avoided this problem and probably would have had little effect on conversion rates. Say what you mean, and mean what you say!

For what it's worth, one of my past Cyberlaw exams involved an ambiguously drafted online checkbox consent, a problem partially based on a real-life situation encountered by Yahoo. See the exam and sample answer.

Complex Chain of Distribution

Satterfield's cellphone number/text message address fell into Simon & Schuster's hands through a complex chain of distribution as follows:

Satterfield gives # to Nextones =>
Nextones gives # to MIA, its "exclusive agent for licensing the numbers of Nextones subscribers" (huh?) =>
MIA gives # to ipsh!, which describes itself as "the world's award-winning, full-service mobile marketing and advertising agency" =>
ipsh! gives # to mBlox, an aggregator who "handled the actual transmission of the text messages to the wireless carriers" =>
Simon & Schuster contracts with ipsh! to run a text message campaign for Simon & Schuster's new Steven King novel Cell. (Ironic name? Maybe this lawsuit will spur Stephen King to write a sequel, Cellphone).

As you know, lawyers aren't very good at math, but according to my count, it looks like four different intermediaries "touched" Satterfield's number (Nextones, MIA, ipsh! and mBlox) before it was used by Simon & Schuster, the ultimate advertiser. With that many intermediaries, there are significant additional transaction costs to reach cellphone subscribers.

More importantly, this complex chain creates a sizable risk that one or more of the entities along the way would misinterpret or forget any restrictions on the customer's grant of permissions. Certainly, I can't figure out how Nextones/MIA thought this distribution chain fit within the checkbox consent it asked for and received. (Interestingly, neither Nextones nor MIA are defendants in the case).

I also cannot figure out how ipsh!/Simon & Schuster failed to detect this permissions problem in their diligence. They did diligence the source of the cellphone numbers...didn't they? They didn't just blindly assume that they could purchase a package of random cellphone numbers and party on...did they?

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

July 01, 2009

Securities Fraud Case Premised on Click Fraud Allegations Dismissed--Brodsky v. Yahoo

By Eric Goldman

Brodsky v. Yahoo, Inc., 2009 WL 1766002 (N.D. Cal. June 18, 2009).

The legal battles over click fraud are pretty much played out, but some legacy cases are still working through the system. This lawsuit was a securities fraud action alleging that Yahoo inflated its stock price by, among other things, deliberately ignoring some click fraud activity to grab quick revenue. The lawsuit was dismissed in October of last year with leave to amend. Having tried again, the plaintiffs still didn't satisfy the judge, so the judge booted the case permanently. However, given the plaintiffs’ investments in this case, it would not surprise me if the plaintiffs appeal.

The actual opinion isn't all that remarkable. For the click fraud allegations, the plaintiffs rely principally on confidential witnesses who are former Yahoo employees. The cloak-and-dagger Deep Throat stuff is mildly interesting, but the court still wasn't convinced that these insiders had enough personal knowledge about Yahoo's revenue recognition practices (except for one witness, who didn't allege malfeasance). As I wrote in October, "it will be interesting to see if the plaintiffs can produce any witnesses who can testify about the rate of Yahoo's click fraud overcharging sufficient to satisfy legal standards." This ruling seems to answer that with a big "negative."

Posted by Eric at 09:53 AM | Licensing/Contracts , Marketing , Search Engines | TrackBack

June 24, 2009

47 USC 230 and Consumer Protection Talk Notes

By Eric Goldman

Last week I made a very short presentation on 47 USC 230 and consumer protection at the ABA Antitrust Section’s Consumer Protection Conference. (I was scheduled for 6 minutes, but I think I took about 8). My talk notes:

47 USC 230 tries to divide online content into first party content and third party content. In its simplest form, 230 says that online actors can’t be liable for third party content unless (1) ECPA, (2) federal criminal enforcement, or (3) IP claims.

230 is the flagship example of cyberspace exceptionalism. As a result, its outcomes can challenge our traditional notions of tort law. This befuddles bright lawyers.

Despite 230, websites always remain liable for first party content.
* Ex 1: if they post their own content, they are liable
* Ex 2: if they make marketing representations, they are liable under standard doctrines like contract and false advertising law. Even so, some courts have been giving websites a pass for marketing representations which are rendered untrue by third party actions.
* Ex 3: Barnes v. Yahoo: website can by liable under promissory estoppel theory if it promises to remove third party content

Plaintiffs often try to argue that third party content becomes first party content.
* Ex 1: website contract may take ownership of user-supplied content
* Ex 2: SEC says that issuers endorse/adopt content that they link to
However, these arguments generally fail under 230. If content starts out as third party content, there is almost nothing the website can do that will convert the content into first party content. As a result, agency civil enforcement actions can unexpectedly run afoul of 230 when they collapse the distinctions between first party and third party content.

However, there is a possible workaround. In the Roommates.com case, the Ninth Circuit said that websites can lose their 230 protection in civil cases if they “encourage illegal content” or “require users to input illegal content.” The FTC is relying on this language in its recent Pricewert/3FN enforcement action against an Internet access provider who facilitated customers allegedly engaged in illegal activities. From my perspective, the Pricewert enforcement action could make sense in the following postures:
* if the FTC is bringing a criminal enforcement action, 230 is irrelevant
* if the FTC’s civil enforcement action is premised on Pricewert’s actual illegal behavior, 230 is irrelevant
* otherwise, if the civil enforcement action is premised on the illegal behavior of Pricewert’s customers, then this might fit into the Roommates.com exception if such an exception exists. However, I am troubled by such an exception, especially given that the enforcement action might also adversely affect Pricewert’s customers who only engaged in completely legal activity.

Two concluding observations:

1) 230’s basic division between first party content and third party content sounds great in theory but is tough to apply in practice.

2) In light of 230, enforcement agencies should rethink their expansive liability theories that basically assume that everyone should be responsible for a common set of online behavior (unless the agency is pursuing a criminal enforcement action).

Posted by Eric at 10:08 AM | Derivative Liability , Marketing | TrackBack

June 17, 2009

Twitter, Email and Brand Engagement

By Eric Goldman

Last week, in an interview with a reporter, I extolled the virtues of Twitter as a tool for brands to keep in touch with and engage their customers. The reporter responded by asking why brands would choose Twitter to engage customers instead of email, which companies have been using successfully for many years. I thought this question raised important issues about online marketing, so I thought it would be worth exploring the differences here.

Let's start with some basics. I am a big fan of email marketing. Like many of you, I have voluntarily signed up for numerous commercial email newsletters/announcement. I also get unrequested email from companies I've dealt with; I look at some of these, I ignore others, and occasionally I get so fed up that I blacklist the sender or report it as spam. I also get spam, LOTS of spam, but it doesn't bother me too much. Gmail has a good spam filter and it only takes a minute or two a day to sort, review and delete the spam.

However, as a recipient, email has some downsides. Most obviously, it is not always easy to unsubscribe. I remain amazed in this post-CAN-SPAM era by how often email unsubscriptions don't work. The link may be down, or my opt-out simply doesn't stick technologically, or the sender just ignores me. This is true even for senders who are involved in the legal industry and are spamming lawyers who love to bring lawsuits (never a wise move). If I were a litigious plaintiff, I would have no problem finding plenty of defendants.

Email also has the downside that the sender has my email address and may share it with others who are going to clutter up my in-box. With a good spam filter, this extra unwanted email isn't a huge problem, but the mere threat of subsequent email deluges can give me pause about whether or not I trust a website enough to give them my email address. (As you can appreciate, the website's privacy policy is a complete non-factor in my trust determination).

From the sender's standpoint, email is a huge pain. It is more heavily regulated than other marketing media, and complying with the regulations (such as providing a reliable opt-out mechanism) is costly and filled with litigation risks. Perhaps more importantly, email can be reported or killed as spam at several steps along the way, and the sender can be tagged as a spammer as well for all future messages. So, for example, a big website's email distribution of an announcement about a new user agreement or privacy policy--a completely legitimate communication between a site and its users--is almost certain to prompt a flurry of unsubscribes, emails from users who insist to their IAPs and email service providers that they are being spammed (even though they often just forgot about the relationship), and lots of bouncebacks from dead email addresses that may cause some IAPs/email service providers to blacklist the sender as a spammer. Plus, a bunch of users will never see the message at all because it goes into their spam folder. (Recall, for example, that AT&T spam-foldered its own contract amendment announcement). These are not exactly the hallmarks of an effective communication technology.

Contrast the user experience with Twitter. More than anything, Twitter is a no-risk opt-in communication tool for consumers to listen to marketers. I can follow a brand at Twitter any time, and more importantly, I can unfollow at any time too. Plus, there isn't any risk that the brand I'm following will ignore my unsubscribes or pass along my Twitter username to spammers. When I unfollow, the relationship is completely over on my terms.

From the brand's standpoint, Twitter has none of the baggage of email marketing. No spam folders to fear, no unsubscribes to manage, no CAN-SPAM. Sure, Twitter's tight character restriction mostly limits marketers to headlines, but frankly this isn't all that different from maximizing email subject lines to get email recipients to open the email.

Twitter has one other really important benefit for brands. Folks are often willing to retweet a message--even a commercial message--thereby sharing it to their entire follower base in ways that these same folks would never forward a commercial email to hundreds of their friends. And this type of word-of-mouth marketing is the holy grail of marketing because of the extra imprimatur of having the message validated by someone in the reader's social network. The retweeting phenomenon is a powerful traffic driver (I've been watching how it boosts my bit.ly stats), and marketers who aren't on Twitter are missing some upside. (Please, marketers, don't even consider shilling or astroturfing or any of those other silly stunts to generate faux word-of-mouth marketing; if you have a good offering, you really don't need to disrespect people that way).

I don't follow many commercial brands in Twitter, but I do want to mention three brands that have impressed me:

@LivingHarvest. I tried hempmilk for the first time recently, and I was fascinated to learn about the extensive anti-industrial hemp regulations that have hampered hempmilk from coming to market. LivingHarvest, a hempmilk manufacturer, is Twittering the status of various legislative efforts to enable industrial hemp farming. It's a fascinating political drama.

@UnitedAirlines. I am a frequent flyer on United Airlines, so I'm already on their email list. But they have totally gotten the point of Twitter. Not only have they been offering valuable freebies to their Twitter follower to boost their subscriber count (they are giving away discount certificates if you sign up before they hit 50,000 followers), but they also offer "Twares," blowout deals on remnant inventory. LOVE IT!

@AmazonMP3. Amazon offers one highly discounted MP3 download a day, and this Twitter account notifies me of the deal of the day. Great stuff. I've lost track of the number of times I've purchased albums this way.

Twitter practices like these build my trust as a loyal customer and pull cash out of my wallet in ways email marketing never did.

One final point: RSS offers many of the same benefits as Twitter in terms of reader empowerment, although it does not have the same retweeting upside. In particular, RSS is a true opt-in like Twitter. The website doesn't get my email address, and whenever I unsubscribe from the RSS feed in my RSS reader, it's over.

For example, as I recently mentioned, RSS is a great option for websites to allow users to learn about changes to user agreements and privacy policies on a true opt-in basis. In this respect, RSS is so much better than email. Consider, for example, DoubleClick's privacy policy, which offers users the opportunity to learn about privacy policy amendments by signing up to an email list. (DoubleClick will rarely have the email address already because it doesn't have direct privity with users). DoubleClick's option is a more enlightened practice than most similar web services, but still, no thanks. If I don't trust DoubleClick's privacy practices to begin with, I'm not going to give them my email address with the risk that they will spam the crap out of it and pass it along to others who will spam the crap out of it too. Of course DoubleClick promises not to do this, but the whole point is that those promises mean nothing to the people who don't trust DoubleClick to begin with. On the other hand, if DoubleClick offered an RSS feed to announce modifications to its privacy policy, then I could subscribe to its notifications with no spam risk at all.

I'm so enamored with RSS as a superior notification tool for announcing privacy policy and user agreement amendments that I will be recommending it to all of my clients as a supplement to other notification options. I hope you'll consider doing the same.

Posted by Eric at 07:03 AM | Marketing , Spam , Trademark | TrackBack

June 08, 2009

May 2009 Quick Links Part 1

By Eric Goldman

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

Trademarks

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

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

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

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

Advertising and Marketing

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

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

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

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

* Perennially funny: unfortunate product names.

Copyright

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

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

Security

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

* Oddee: problematic CAPTCHAs. Funny.

Google

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

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

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

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

June 03, 2009

An Insider's Look at Utah's Failed HB 450

By Eric Goldman

Perry Clegg is a Utah IP attorney and the 2009 chair of the Utah State Bar's Cyberlaw Section. A few months ago, he wrote an article entitled "Insight on Utah Senate's Sedation of HB 450," which provides his assessment of why HB 450--Utah's latest legislative attack on online advertising--failed to pass the Utah Senate this year.

The article implies that HB 450 failed in part due to in-fighting among various influential folks in Utah, perhaps caused by some bruised feelings/egos. With slicker and more inclusive politicking in the future, these influencers are poised to rally behind a similar future regulation.

As a result, the article provides some support for why I think Utah will attack online advertising a fourth time. Indeed, the article quotes a third party as saying that "the bill’s opponents should either propose a compromise solution or expect some form of this bill to pass next year. Senate leadership apparently believed that there were not enough votes to pass it this year, but that they could gather the votes to pass it by next year."

What I find most amazing is that there appears to be broad insider consensus that some type of Utah regulation of online advertising makes sense. As the article says, "the Utah legislature is generally behind HB 450’s policy but want to make sure they do their homework so the policy is implemented using the right language." In most other places around in the country, most policy-makers recognize the illogic and futility of trying to reshape global online advertising to meet state specifications. The pro-regulatory Utahns seem to see the world differently, and many of us who don't live in Utah simply cannot understand why the Utah legislature keeps picking a fight that it's almost certain to lose in the courts, even if legislation passes. I have no rational explanation for this.

In any case, I will be closely watching the Utah legislature in February 2010 to see what shenanigans they might be trying anew.

Posted by Eric at 02:35 PM | Marketing , Search Engines , Trademark | TrackBack

May 29, 2009

Another Lawsuit Over Google AdWords--Stratton Faxon v. Google

By Eric Goldman

Stratton Faxon v. Google, Inc. (New Haven Superior Ct. complaint filed May 27, 2009)

Today's lawsuit combines two trends:

Trend #1: Lawyers-as-plaintiffs suing Google for their own account. I don’t have a complete inventory of these lawsuits, but other examples include the Field, Feldman, Person and Bradley lawsuits. Ironically, I believe all of these lawsuits were shot down in inglorious flames--lawyers-as-plaintiffs often seem to do even worse than other plaintiffs.

Trend #2: Lawsuits over Google AdWords, Heck, two were filed earlier this month (the Firepond and John Beck lawsuits).

This lawsuit is brought by a Connecticut plaintiff-side law firm that discovered a rival law firm was keying AdWords ads to the law firm name. Trademark owners faced with this situation might normally contact the rival and ask them to stop (which the rival firm claims to have done as soon as it heard of the lawsuit) and take advantage of Google's trademark policy. But, if you're a plaintiff's lawyer, it sure is tempting to sue first and ask questions later…

And this lawsuit does raise a lot of questions, including:

* why didn't the plaintiff sue for trademark infringement? The plaintiff claimed interference with business relations and unfair competition, but both claims fundamentally sound in trademark law and would be preempted if there was a robust trademark preemption doctrine. Perhaps a trademark claim is coming.

* why didn't the plaintiff sue the advertiser instead of Google? Among other things, the plaintiff complains that its rival firm is mimicking other offline marketing efforts. If the problem is with the rival firm, wouldn't they be the more appropriate target?

* why did the plaintiff seek a prejudgment $50,000 lien against Google instead of just filing a complaint? Maybe Connecticut law has some quirks that encourage or require this procedural step. Otherwise, is the firm concerned that Google won't have $50,000 to pay off the plaintiff if it wins?

* did the plaintiff really just discover that its competitors are advertising on its name? The plaintiff was quoted as saying that the Firepond lawsuit prompted him to check the search results for the first time. What is this, 2002?

All of these questions make me wonder if this lawsuit is really intended to get some publicity and maybe prompt some calls from potential plaintiffs to form a new class action suit. Otherwise, Connecticut law may differ from California law, but under CA law this lawsuit would almost certainly be DOA. For example, even without relying on 47 USC 230, under CA law I don't see any possibility that the plaintiff could establish the requisite scienter to make the interference with business relations claim stick. For a good analogous example of a failed misdirected attempt to smack a search engine for unwanted advertising, see the Heartbrand Beef case, where Yahoo was excused (without relying on 230) from a false designation of origin claim for selling trademarked keywords.

Stated differently, lawsuits like this--from lawyers who are clearly new to our community--simultaneously make me feel really smart and really stupid. Their allegations are so unmoored from our normal legal discussions that either the lawyers know something I don't, or they have no idea what they are doing. I'll let you to form your own conclusion about this lawsuit.

Clearly, this lawsuit isn't a clone of the Firepond lawsuit, but I think it's fairly characterized as a spawn of it in that the Firepond lawsuit helped educate another plaintiff lawyer about the desirability of suing Google. I expect other plaintiffs’ lawyers are getting the same message as we speak.

In theory, if the plaintiff firm really wanted to tweak its rival, it might also complain to the bar regulators about impermissible advertising under rules about lawyer advertising. This prompted me to wonder: have any bar association opinions on the permissibility of buying trademarked search keywords? I am not aware of any, but I may be forgetting something. Please let me know if you've seen such an opinion.

Posted by Eric at 10:15 AM | Marketing , Search Engines , Trademark | TrackBack

May 20, 2009

EFF's Guide to Griping, Plus Some Recommendations of My Own

By Eric Goldman

The EFF has posted "Avoiding Gripes About Your Gripe (or Parody) Site," which includes 6 prophylactic recommendations to prospective gripers:

1) Be noncommercial — no ads, no links to commercial sites, no affiliate links, no Café Press T-shirt sales, no fundraising if you can help it.

2) Don't use the target's name alone in the domain name — adding "sucks" is good, but you can be creative.

3) Have a prominent disclaimer that explains that your target is neither affiliated with nor endorses your site.

4) Find a service provider with backbone.

5) If you borrow from the target's own materials, such as text or images from the target's own websites, be selective.

6) If a mark-owner challenges your use of a mark in a domain name, don't offer to sell it to the mark-owner without the assistance of legal counsel.

All excellent advice. I'd like to add a few suggestions of my own (all standard disclaimers apply--this is not legal advice, and you should consult your own attorney):

7) I would modify #1 to say don't have any outlinks from your gripe site, period. Courts sometimes engage in bizarre link-counting exercises to determine commerciality, including in some cases considering sites two or more links away. Keep it simple and skip outlinks altogether if you can.

8) I would modify #5 to recommend against using the target's logo at all unless it is absolutely essential to the gripe. Otherwise, courts can get hung up on the logo display even when if other aspects of a trademark claim are weak. See, e.g., BidZirk v. Smith and SMJ v. Lafayette Restaurants.

9) I would also modify #5 to say that if you recycle any graphics or photos from the target, consider presenting them as a thumbnail (with a link to the original source if necessary) rather than presenting them full-size. The thumbnail sizing may help with a fair use defense.

10) Never EVER include the target's trademarks in the site's keyword metatags. Some courts lose all sense of perspective the moment they see a trademark in the keyword metatag. Plus, the keyword metatag offers very little or no SEO benefit, and there are much more effective ways to spread the word about your site. It should be OK to include the trademark in the description metatag if the site description clearly communicates the griping nature of the website, but even then, be careful. Courts don't know how to evaluate description metatags either.

11) Think carefully before buying the target's trademark as a keyword for sponsored ads to promote your gripe site, Some courts are suspicious of keyword advertising and may unduly fixate on the ad triggering and not the underlying message.

12) Make sure every fact you say is 100% accurate and everything else is couched as your opinion. Plaintiffs will carefully read every word on your site text looking for anything that they can argue is inaccurate.

Posted by Eric at 11:13 AM | Copyright , Domain Names , Marketing , Trademark | TrackBack

May 03, 2009

April 2009 Quick Links

By Eric Goldman

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

Marketing/Spam

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

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

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

* Tsan Abrahamson on social media and marketing law.

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

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

Defamation

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

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

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

Intellectual Property

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

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

* Octomom is seeking trademark registrations.

Miscellaneous

* GeoCities is shutting down.

* eBay will referee customer disputes.

* Wilson Sonsini's VC financing term sheet generator.

* Oddee: 10 Most Bizarre [Online] Gaming Incidents

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

April 27, 2009

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

By Eric Goldman

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Some implications of this case:

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

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

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

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

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

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

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

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

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

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

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

Ron Coleman has more to say on this case.

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

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

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

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

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

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

April 14, 2009

GoDaddy Sued for Cybersquatting for Parked Domain Names--uBid v. GoDaddy

By Eric Goldman

uBid, Inc. v. GoDaddy Group, Inc., 1:09-cv-02123 (N.D. Ill. complaint filed April 6, 2009)

Domain name parking programs have generated some lawsuits, including the Vulcan Golf v. Google lawsuit (plus several "me-too" lawsuits following in its footsteps) and the recent Philbrick v. eNom decision. Here, uBid (the online auction site) goes after GoDaddy for its parked domain name program when the domain names include a uBid trademark. In a mild surprise, uBid only claims an Anti-Cybersquatting Consumer Protection Act violation; it does not claim trademark infringement or the various junky unfair competition claims that often accompany a trademark claim. Maybe those claims are coming in an amended complaint. I'm also interested in the fact that uBid only sued GoDaddy and not the other providers of domain name parking services (of which I believe there are many)--what did GoDaddy do (or not do) to deserve special attention?

Tom O'Toole handicaps uBid's ACPA claim and raises some questions about the lawsuit.

From my perspective, I remain baffled by lawsuits over domain name parking programs and other programs to associate domain names with ads. First, although I understand that it's mostly a fight over cash, these lawsuits have always struck me as a manifestation of domain name exceptionalism in that the law treats domain names as having magical search powers compared to other keywords. If displaying ads triggered by the uBid marks in the domain name is so bothersome to uBid, shouldn't it also be chasing advertisers who buy its trademark for ad triggered at the search engines?

Second, as I explain my Deregulating Relevancy article, there has been a longstanding battle between domain name registries, domain name registrars, toolbar providers, computer manufacturers and others to control the ad inventory of inactive domain names. Even if GoDaddy "turns off" its parking program, others may try to fill the void and monetize the exact same domain names. As a result, I'm still not clear exactly what uBid hopes to accomplish with this lawsuit (other than to take some cash out of GoDaddy's pocket if it wins).

Posted by Eric at 07:25 AM | Domain Names , Marketing , Search Engines , Trademark | TrackBack

April 10, 2009

Q1 2009 Quick Links, Part 2

By Eric Goldman

Trademarks/Domain Names

* The ridiculous Jones Day v. BlockShopper case settled. The settlement agreement. The ABA Journal and Legal Blog Watch stories. Commentary from CMLP, Paul Levy, Tom O'Toole.

* The trial court denouement of the S&L Vitamins v. Australian Gold did not turn well for the defense--$6M jury award. The S&L Vitamins v. Australian Gold and Designer Skins v. S&L Vitamins cases subsequently settled. According to Ronald Coleman: "This settles, for our clients S&L Vitamins, Inc., the Australian Gold case and the related appeal in the Designer Skin case. All money judgments are vacated and parties bear their own fees. Our client agrees to move on to another line of work, however."

* Twelve Inches Around Corp. v. Cisco Systems, Inc., 2009 WL 928077 (S.D.N.Y. March 12, 2009). 17 USC 512(f) does not cover trademark takedown notices.

* Suarez Corp. v. Earthwise, 2008 U.S. Dist. LEXIS 92931 (W.D. Wash. Nov. 14, 2008). Including a competitor's name in a web page disclaimer creates initial interest confusion when the competitor's name is indexed by the search engines. Compare Promatek v. Equitrac, the 2002 7th Circuit case ordering the defendant to include the plaintiff's name on its web page as a cure for initial interest confusion.

* CRS Recovery v. Laxton, 2008 WL 4408001 (N.D. Cal. Sept. 26, 2008). Another California-based court says that domain names are property that can be converted. I'm amazed that these cases are still being brought.

* North American Bushman, Inc. v. Saari, 2009 WL 211932 (M.D. Pa. Jan. 27, 2009) The parties entered into a settlement agreement that "Plaintiffs further agree not to use, and in addition, to offer up or destroy, any material that includes, but is not limited to, the names, photos, images, embroideries, of likeness of [Defendant] James Saari and any of the a above named trade names and trademarks of Defendants." The court holds that this provision wasn't breached when third party users posted comments referencing the defendants in UGC areas of websites operated by the other party.

* Advice Co. v. Novak, 2009 WL 210503 (N.D. Cal. Jan. 23, 2009). Justia page. Stupid lawsuit alert! Attorneypages.com believes Attorneyyellowpages.com infringes its trademark. Case dismissed for lack of personal jurisdiction. Participating in Google AdSense doesn't automatically create jurisdiction in CA.

* DSW v. Zappos, which involved allegations of trademark infringement based on Zappo's affiliates, settled.

* An update on Google's AdWords woes in France.

* Kiva Kitchen & Bath Inc. v. Capital Distributing Inc., 2009 WL 890591 (5th Cir. April 2, 2009). The Fifth Circuit upholds enhanced damages under ACPA. Good discussion of the purpose of damages in the ACPA.

* Toys R Us buys the domain toys.com for over $5M. Is any domain name worth $5M any more?

* A 2007 interview with "Pokey" of Pokey.org fame. This is one of my favorite domain name disputes from the 1990s. A very smart cyberlawyer (Ian Ballon), on behalf of the trademark owners of Pokey & Gumby, unexpectedly got into a public tangle with a 12 year old kid nicknamed "Pokey" over the domain name pokey.org. Debating 12 year old kids in the press never turns out well.

Advertising/Marketing

* Some new material on behavioral advertising: an FTC report and a CRS report.

* Latest NYT article on human billboards. See my prior blog post.

* Privacy advocates are freaking out about Google Android and its ability to deliver location-based information and ads. But location-based information and ad targeting is inevitable...and a good thing.

* Action over mobile marketing: Mobile Messenger settled a false advertising suit with Florida for $1M, and another settlement. Google's response.

* The class in the "Vista Capable" lawsuit was decertified.

* Tsan's post on the latest FTC efforts to rein in testimonials on social networking sites and blogs. Unfortunately for the FTC, some of its efforts may be preempted by 47 USC 230.

* eBay v. Digital Point Solutions, 2009 WL 481269 (N.D. Cal. Feb. 24, 2009). eBay loses an intermediate round in its cookie stuffing lawsuit against Digital Point Solutions.

* e360, a serial defendant in spam cases, sued Choicepoint for selling it email addresses that led to the suits. Apparently neither e360 nor Choicepoint got the memo that the days of email list brokering are dead.

* 10 Creative Bathroom Ads.

Search Engines

* Study: Google's search lead not matched by loyalty. A critical response.

* Is Google giving big brands extra credit in its organic search results rankings? Compare: media giants complaining they don't get enough weighting in organic results.

* Sign of improving consumer search skills: search queries are getting longer.

* Yahoo reserves the right to "auto-optimize" advertiser accounts by changing ads and advertiser bids automatically. This is not a popular move.

* Wired: The Plot to Kill Google.

Posted by Eric at 10:20 AM | Domain Names , Internet History , Marketing , Search Engines , Spam , Trademark | TrackBack

March 30, 2009

CLRB Hanson v. Google Preliminarily Settles for $20M

By Eric Goldman

CLRB Hanson Industries v. Google, 5:05-cv-03649-JW (settlement papers filed March 26, 2009). The new case filings:
* The settlement motion
* The settlement agreement
* The proposed court order granting the settlement

My previous blog coverage of the case:
* my initial post from August 2005
* the August 2007 determination that advertisers were bound by the AdWords contract
* the May 2008 initial refusal to grant summary judgment to Google
* the December 2008 second refusal to grant summary judgment to Google

The long-running CLRB Hanson v. Google case (also referred to as the Howard Stern case because he is a named plaintiff), over Google's alleged mishandling of budget caps set by its advertisers, has reached a proposed settlement. The settlement needs court approval, but I would be surprised if that didn't occur in due course. Individual advertisers could choose to opt out of the settlement and pursue individual claims, but I expect few will find it economically rational to do so. In the extreme case, the deal could unravel if more than 5% of advertisers opt out of the class, but I would be shocked if this happened. As a result, I expect this development to substantially resolve the case.

The stated settlement price tag is $20M of cash. Plaintiffs' counsel are likely to get $5.25M, the named plaintiffs are likely to get $20k each, and the $14.7M balance will go into a bank account. Google will provide AdWord credits for affected advertisers who are still advertising and have a balance due to Google, and Google will get cash back from the pot for any actual credits given to advertisers. It is unclear how much of the $14.7M Google will recoup this way. Or, advertisers can opt to receive cash instead for their putative harms. If less than $200k is left over after all this, the money will go to charity. If more than $200k is left over, the parties will go back to the judge to propose how to reallocate the remaining money to the class.

in my previous post on the case from December 2008, I wrote:

I suspect the case is still around because the parties can't work out a deal on the attorney's fees--which, if this situation is anything like the click fraud cases, almost certainly will dwarf any actual monetary relief received by the putatively injured advertisers. If the parties can work out the plaintiff attorneys' cut of the spoils, I'm confident this lawsuit will settle before trial

Seeing the size of this settlement, I'm not sure I called it right. Given the fairly narrow advertiser harms left open by the judge's prior rulings, I expected the advertiser relief to be nominal (certainly less than $15M). Furthermore, unlike prior advertiser v. search engine lawsuits where advertiser credits were use-it-or-lose-it, Google could be out much of the $20M no matter what. In the end, Google probably will pay a lot more cash than I expected it would have to.

While Google can easily afford the dough, the settlement is a big enough sum to potentially attract further class action lawyers seeking their piece of the Google fortune. Contrast this with Google's stance on patent lawsuits, where it has taken a hard line on settlements with the hope that its refusal to buy out lawsuits will discourage future weak patent claims from being asserted against it. However, the plaintiffs in this case had to work pretty hard--Google fought them for nearly 4 years--so it's possible that the actual economic return for the plaintiffs' lawyers for their four years of labor wasn't especially lucrative.

I have lost track of the many lawsuits against Google, but I believe this settlement ends the 2005-era advertiser v. Google class actions. There may still be some individual click fraud claims, and there are other advertising-related lawsuits still pending (such as the Vulcan Golf and related/copycat lawsuits). Let's hope this means that Google has improved its ability to keep advertisers happy.

Posted by Eric at 06:46 AM | Licensing/Contracts , Marketing , Search Engines | TrackBack

March 13, 2009

Utah HB 450 Dies in Utah Senate Without a Vote

By Eric Goldman

After barely passing the Utah House, Utah HB 450--Utah's third ill-fated attempt to regulate keyword advertising--died quietly last night when the Utah Senate failed to act on it before the Utah Legislature adjourned for the year. My understanding is that 1-800 Contacts, the bill's principal advocate, stopped pushing the bill in the Senate earlier this week when it became clear that it couldn't muster the votes.

On its face, this bill's failure appears to be good news. While the bill was less ill-conceived than Utah's past two anti-keyword advertising laws, it was still an ill-conceived anti-competitive law designed principally to advance the protectionist interests of a local Utah company. Laws like this should be rejected.

Nevertheless, I feel that there is no real good news here. If the law had died because the Utah Legislature had recognized the folly of thinking that it was uniquely well-positioned to improve keyword advertising, or had abandoned the quest because of its abysmal track record in regulating the Internet, we'd have good reason to celebrate. Unfortunately, I haven't seen any evidence of such an epiphany.

Instead, I *guarantee* that the Utah legislature will revisit the topic of regulating keyword advertising for a fourth time. (I'm reminded of the fable of Ulysses and the Sirens; trying to "fix" keyword advertising appears to be simply irresistible to the Utah Legislature). One reason is that there remains a lot of hostility towards keyword advertising in the Utah Legislature. For example, Rep. S. Clark was quoted last week as opposing HB 450 (indeed, he voted no) because:

"We should be going after the Googles that are creating this problem. They're the villains." .... "If we're going to use the strength and resources of the state to go after businesses, then we ought to go after the business that is causing the harm. … We ought to go after the Googles with the state's resources and reputation."

Nice. In addition to this ill-informed antipathy, companies like 1-800 Contacts and Overstock.com--both Utah-based web retailers with, at best, highly descriptive trademarks--are always interested in ways to reduce their competition. So, Utah's legislative hubris plus local company rent-seeking creates a toxic brew that ensures repeat surfacing of bad policy proposals. Let's reconvene here in February 2010 and see what the Utah bunch is cooking up for the 2010 legislative session. [UPDATE: Kate Kaye has a little more to say about the future.]

Meanwhile, even though 1-800 Contacts didn't get its statutory shortcut to control keyword ads on its trademarks, I expect 1-800 Contacts will keep bringing traditional trademark lawsuits against competitive retailers who buy competitive keyword advertising. 1-800 Contacts has already been busy on this front; I don't have a complete census of these lawsuits, but I pulled the following case list from PACER ()which is usually incomplete for a variety of reasons):

* 1-800 Contacts v. Lensworld.com, 2:2008cv00015 (filed 01/08/2008, closed 09/09/2008)
* 1-800 Contacts v. Drugstore.com, 2:2008cv00157 (filed 02/26/2008, closed 08/12/2008)
* 1-800 Contacts v. Lens.com Inc., 2:2007cv00591 (filed 08/13/2007)
* 1-800 Contacts v. Premier Holdings, 2:2007cv00946 (filed 12/06/2007, closed 05/16/2008)
* 1-800 Contacts v. Memorial Eye, 2:2008cv00983 (filed12/23/2008)
* 1-800 Contacts v. Lensfast, 2:2008cv00984 (filed 12/23/2008)
* 1-800 Contacts Inc v. Manila Industries Inc, 8:2007cv00102 (filed 01/26/2007, closed 04/07/2008) (note: the complaint wasn't on PACER, so I couldn't confirm that this was a keyword suit)

Given this level of activity, I doubt we've seen the last of these lawsuits (unless 1-800 Contacts has exhausted the universe of defendants).

One last point: I remain flabbergasted by the standards of acceptable conduct in the Utah Legislature. For example, as I mentioned before, I got a reliable tip (but I haven't been able to confirm otherwise) that one house representative mistakenly voted yes on HB 450. Whoops! Subsequently, the Salt Lake Tribune reminded us that Rep. Jennifer "Jen" Seelig--who voted yes on HB 450, in case that wasn't obvious--is a lobbyist-employee of 1-800 Contacts, the principal advocate for the bill. (This page describes her title as "Associate Director of Governmental Relations" for 1-800 Contacts). What??? Rep. Seelig explained that she doesn't lobby for 1-800 Contacts in the Utah Legislature, but I would think any representative with such obvious conflicts would necessarily abstain from voting on bills advocated by her employer. (Or perhaps there should be rules against legislators also being employed as lobbyists, but I digress...). Apparently not in the Utah Legislature. Utah residents, I just don't get it--why are you not demanding better practices from your elected representatives???

Posted by Eric at 10:27 AM | Marketing , Search Engines , Trademark | TrackBack

March 06, 2009

Utah House Barely Passes HB 450 (Maybe)--UPDATED

By Eric Goldman

The Utah legislature is continuing its embarrassing third attempt to regulate keyword advertising. Today, after making a ticky-tack amendment, the Utah House passed HB 450 and sent the bill to the Senate. However, the House was sharply divided, voting 38-36-1 to pass it. The law barely made it through due to the fierce last-minute lobbying efforts of 1-800 Contacts; Kate Kaye catches us up on some of 1-800 Contacts' maneuverings.

It's not clear if the Senate will approve the law; or if it will even act on the law before the legislature recesses on March 12. It's also possible that the governor would veto the law. However, for now, it is clear that the Utah legislature is still working hard to retain its status as the reigning jesters of Internet regulators.

UPDATE (12:30 Pacific): Perhaps I should have known better than to rely on the Utah legislative website. I got the following email from a tipster:

"So the bill passed by one vote but one rep realized she voted the wrong way....So she's putting a hold on it and they're going to try to reconsider the action, basically revote the thing, today or Monday."

WHAT??? I realize that mistakes can happen, but I would think that legislators would work really, really hard to vote the right way on bills. After all, isn't that the single most important thing we pay legislators to do? In light of this apparently crucial flub, it seems like the last line of my initial post was even more apropos than I realized.

UPDATE 2: Kate Kaye provides an update.

UPDATE 3 (6 pm Pacific): My latest understanding is that the misvoting representative lifted her hold, and the bill will move to the Senate.

Posted by Eric at 11:26 AM | Marketing , Search Engines , Trademark | TrackBack

March 04, 2009

Utah Trying to Regulate Keyword Advertising....Again!? Utah HB 450

By Eric Goldman

When I first heard that the Utah legislature is considering yet another law to regulate keyword advertising, I thought: Are you kidding me? After all, Utah has pursued these regulations twice with disastrous results. The first time, in 2004, Utah's attempt to regulate adware-mediated keyword advertising was declared unconstitutional, and Utah amended the law in 2005 to make it irrelevant. In 2007, Utah tried again, passing a law that restricted keyword advertising across-the-board. That law was a spectacular failure, garnering derision both within Utah--especially from angry Utah citizens shocked that their elected representatives passed a law that the state AG thought was unconstitutional and that was going to cost valuable taxpayer money to defend in court--and globally as everyone wondered if the Utah legislature was really that crazy. In 2008, the legislature tucked its tail between its legs and repealed the 2007 law.

With this track record, the Utah legislature wants to try regulating keyword advertising again...? Are you kidding me?

Then again, perhaps this latest foray really isn't all that surprising. My sources tell me that 1-800 Contacts is the prime mover behind this statute, and 1-800 Contacts has testified in support of the law. 1-800 Contacts has an hard-to-explain love/hate relationship with keyword advertising. 1-800 Contacts has been a repeat litigant against keyword advertising, including being the losing plaintiff in the landmark 1-800 Contacts v. WhenU case, and 1-800 Contacts has continued to bring other lawsuits against competitive retailers (such as the LensWorld case I blogged about a year ago). At the same time, 1-800 Contacts has been a buyer of trademarked keyword ads, and it was one of the companies that protested the 2007 law because it was concerned the law would limit its own advertising practices (although, at the last minute, 1-800 Contacts flip-flopped and tried to sneak in new restrictions on keyword advertising into the putative repeal of the 2007 law). Clearly, 1-800 Contacts has a complex attitude towards keyword advertising, although it might just be pure duplicity. Either way, with 1-800 Contacts’ flip in 2008 and its continued litigation against keyword advertising, it’s not unexpected that they might try to bend the ear of the apparently pliable Utah legislature.

The Proposed Law

The 2004-05 laws banned trademark-triggered pop-up ads triggered by adware. The 2007 law allowed trademark owners to register their marks with a newly created Utah administrative registry (which never got created) and prohibited keyword buyers and sellers from using registered marks as triggers for keyword advertising. HB 450, the proposed 2009 law, takes a very different approach than the 2007 law:

Fewer Defendants. The law only applies to keyword buyers (advertisers). Unlike the last two laws, keyword sellers such as search engines are immune from liability under this law. However, the law is expansive in other ways: the law expressly holds an advertiser liable for affiliates' keyword purchases (a currently open point in trademark law), and the law expressly references telephone directory assistance advertiser as being within its scope.

Opt Out. The law only applies after the trademark owner sends a takedown notice/cease & desist demand to the advertiser. Further, if the advertiser stops within 10 days of the takedown notice, it is not liable for any remedies under this law. (They might still be liable under other legal doctrines).

Limited Remedies. My reading of the law is that the only remedies against an advertiser are an injunction and attorneys fees--no damages. I'm not 100% sure about this because some states have laws that create damage claims outside the scope of any specific statute (I'm thinking of California B&P 17200). I don't know if Utah has a catchall provision like that.

Geographic Restrictions. One of the most deficient aspects of Utah's 2007 law was that it required advertisers throughout the country to check the new registry before buying keyword advertising on a third party trademark, even if the advertiser, the keyword seller and the trademark owner all had zero connection with Utah. This law tries much more clearly to restrict its reach to Utah. First, the law only applies to ads "in Utah," whatever that means. Second, the law only restricts keyword buys made from sellers that allow "an advertiser to limit the display of advertisements by geographic location." I'm not exactly sure what this means--after all, a site like eBay segregates its listing database by country; does that mean eBay gives advertisers geographic choices?--but it's clear that an advertiser purchasing ads from a seller that doesn't offer any geolocation choices isn't covered by the law. Third, the law doesn't apply if segregating Utah ad viewers from non-Utah ad viewers isn't "technologically feasible" or would impose "an undue financial burden." I'm not saying that this law will survive a dormant commerce clause challenge--personally, I think all state regulation of the Internet is inherently suspect--but the law certainly tried to limit its reach to Utah.

Narrow Scope. The law applies when "the delivery or display of an advertisement in Utah...is the product of a bad-faith attempt to profit from the registrant's mark by diverting a consumer from the registrant, the registrant's authorized licensees, or another source authorized by the registrant." The statute provides for a multi-factor evaluation of what constitutes a "bad faith diversion" by keyword advertising, with the first factor being that the ad "is likely to create an initial, misleading impression that the person is a legitimate source of the goods or services" (which itself is subject to another multi-factor evaluation). Personally, I don't think there is such a thing as bad faith diversion or initial misleading impressions with respect to truthful ad copy, so this ought to be a null set. Even so, the law lists a number of categorical exclusions from its coverage, including:

* advertiser belief that the ad is fair use. Note: the bill uses the term "fair use" several times, even though this term is not well-defined in trademark law. So it isn't clear to me if "fair use" meant descriptive fair use, nominative use, both, neither, or yet something else.
* the sale is permissible under the First Sale doctrine. This should exclude keyword buys by other parties in a trademark owner's distribution channel. However, as I recently blogged, courts are struggling with the First Sale doctrine's application to e-commerce.
* "(a) fair use of a mark in comparative commercial advertising or promotion to identify the competing goods or services of the owner of the famous mark; (b) noncommercial use of a mark; and (c) all forms of news reporting and news commentary." This is an interesting set of exclusions; it looks like the drafter tried to (incompletely) mimic the federal dilution exclusions. However, the implicit redundancy with the other fair use aspect mentioned above also raises a question why (a) only applies to famous marks. That's either a drafting error or a significant limitation on that prong.

So What Does This Law Do?

From my reading, it appears that this law does not apply to gripe ads or trademark conflicts within a distribution channel. Therefore, I think the law really only applies to advertising on competitors' trademarks, and even then, only some of the ads.

Given the application to competitive keyword advertising and the focus on an injunction as a remedy, this law covers only limited circumstances that are not already addressed by the search engines' trademark policies, which provide an extrajudicial "injunction." Indeed, this law is nearly co-extensive with Yahoo's and Microsoft's trademark policies. On the other hand, the law would govern situations that Google isn't remediating with its trademark policy because it could force advertisers off keywords that Google would happily sell. Furthermore, the ambiguous application of the law to keyword buys from places other than search engines, such as telephone directory assistance services, may implicate some keyword sellers who don't currently have trademark policies.

Conclusion

If I'm right that this law simply codifies current search engine trademarks policies and extends them some, then this law isn't as problematic as Utah's last two efforts. But it also makes me wonder--what's the point? Doesn't Utah have more important problems to solve???

Even if the law is less troublesome than the last two, let's be clear: this is not a good proposal. As with Utah's past two efforts, this law has nothing to do with improving consumer welfare. Instead, it would allow companies to suppress competition by helping companies keep their competitors from gaining exposure among the company's potential customers; meaning that companies won't have to work as hard competing on price and quality. I understand why companies such as 1-800 Contacts, who has a pattern of trying to use legal tricks to suppress competitors, would find it attractive to ply their local legislators for some corporate welfare. But why any legislator would waste their time with such an unabashed anti-competitive, anti-consumer request is simply beyond me. As I have explained elsewhere, policy-makers should be helping consumers get relevant content, not enacting laws to take it away from them.

The bill is making its way through the Utah House, and my observation of Utah legislative proceedings is that bills can be amended substantially from beginning to end. So this bill could get better, or it could get much worse. Fortunately, a coalition of Internet companies is lobbying against the bill, and the bill barely survived its first committee hearing on an 8-6 vote. Thus, it's not guaranteed that this law will make it through. My hope is that the Utah legislators will recognize the law’s depravity and their own poor track record in the area and squelch this latest effort.

Posted by Eric at 09:55 PM | Adware/Spyware , Derivative Liability , Domain Names , Marketing , Search Engines , Trademark | TrackBack

February 26, 2009

McGeveran on Facebook Beacon and Social Media Marketing

By Eric Goldman

Bill McGeveran, a law professor at University of Minnesota, has posted Disclosure, Endorsement, and Identity in Social Marketing to SSRN. The paper walks through Facebook Beacon and marketers' other efforts to take advantage of online word of mouth through social media. It's a surprisingly complex endeavor to parse the various harms putatively experienced by consumers and applicable legal regulations protecting against those harms, and McGeveran's paper navigates through the morass in a sophisticated but easy-to-read way. Facebook Beacon may be over as a cause celebre, but for reasons that McGeveran explains, online word of mouth marketing will undoubtedly play a big role in our future.

The abstract:

"Social marketing" is among the newest advertising trends now emerging on the internet. Using online social networks such as Facebook or MySpace, marketers can send personalized promotional messages featuring an ordinary customer to that customer's friends. Because they reveal a customer's browsing and buying patterns, and because they feature implied endorsements, the messages raise significant concerns about disclosure of personal matters, information quality, and individuals' ability to control the commercial exploitation of their identity. Yet social marketing falls through the cracks between several different legal paradigms that might allow its regulation-spanning from privacy to trademark and unfair competition to consumer protection to the appropriation tort and rights of publicity. This Article examines potential concerns with social marketing and the various legal responses available. It demonstrates that none of the existing legal paradigms, which all evolved in response to particular problems, addresses the unique new challenges posed by social marketing. Even though policymakers ultimately may choose not to regulate social marketing at all, that decision cannot be made intelligently without first contemplating possible problems and solutions. The Article concludes by suggesting a legal response that draws from existing law and requires only small changes. In doing so, it provides an example for adapting existing law to new technology, and it argues that law should play a more active role in establishing best practices for emerging online trends.

Posted by Eric at 10:16 AM | Marketing , Publicity/Privacy Rights | TrackBack

February 24, 2009

Guerrilla Marketing Under False Pretenses Might Be Passing Off--Heartland v. Forest River

By Eric Goldman

Heartland Recreational Vehicles, LLC v. Forest River, Inc., 2009 WL 418079 (N.D. Ind. Feb. 18, 2009). The Justia page.

When deciding whether it should bring a lawsuit, a potential plaintiff needs to consider not only their likelihood of winning, but also the risk that the lawsuit will prompt some counterclaims or affirmative defenses that leave the plaintiff worse off than if it had never sued in the first place. We've seen several examples of plaintiffs who probably wished they hadn't started the litigation. See, e.g., American Blinds, Axact, and Buying for the Home. Sometimes it really is better to do nothing.

Today's lawsuit started with a patent infringement claim by Heartland, a manufacturer of travel trailers/RVs, against its competitor Forest River. Forest River strikes back against Heartland by arguing that Heartland engaged in a type of guerrilla marketing. Here's a recap (based on the facts recounted in the opinion):

Forest River brought RV dealers to lovely Mishawaka, Indiana (a suburb of South Bend) for a private trade show (which sounded like an event to wine-and-dine dealers of Forest River's RVs). Forest River put the 700+ attendees up at local hotels. Heartland apparently got wind of the shindig and prepared packets for these attendees containing comparative advertising and an invitation to visit Heartland's facility in beautiful Elkhart, Indiana (also part of the greater South Bend/Michiana metro area). Then, while the attendees were at one of Forest River's events, Heartland employees:

went to the front desks of the hotels and then falsely stated and represented to the hotel attendants that they were "from Forest River" and that they had "important" envelopes which needed to be delivered to the Forest River guests "for a Forest River dealer meeting the next day."

At least two hotel security cameras caught Heartland employees making these requests. (Say cheese!) Not wanting to reject a request putatively from a major customer, the hotel employees dutifully distributed Heartland's packets to the guests staying there. According to Forest River, Heartland's action caused "disruption and confusion among several of Forest River's guests because of the incongruity and surprising manner in which the envelopes were delivered ... [and] adversely affect[ed] Forest River's good will with its dealers and adversely affected Forest River's sales of its products."

Clearly Heartland isn't afraid of aggressive marketing. But was their stunt illegal?

The opinion does not suggest that Heartland's packets contained deceptive marketing materials. The court also does not say that Heartland misappropriated a trade secret or otherwise impermissibly learned about the attendees (although the opinion implies that Heartland might have gotten an illicit copy of the attendee list). Further, knowing that the dealer group was in town, Heartland can freely communicate with the attendees in a variety of ways--billboards, radio ads, even leafletters standing outside the various hotels

So the main crux of the problem is Heartland's apparent misrepresentation to the hotel employees to get them to distribute the packets to the hotel guests. Is such a misrepresentation actionable by the putatively harmed competitor? The court expresses doubt about the merits of Forest River's claim but does not dismiss it, saying:

Heartland's intentionally deceptive conduct in the hotel action plausibly had the natural and probable tendency and effect of which was to deceive the public so as to pass off its goods or business as for that of Forest River. Moreover, the Court will not condone Heartland's actions as simply healthy competition.

One possible lesson from this case is that it would make a lot of sense for Heartland and Forest River to collaborate on a greater Michiana RV trade show that would have given them shared access to the dealer group. This would have mitigated the risk of guerrilla marketing by one of the local competitors and allowed them to share expenses.

Another lesson is that the case reinforces the already well-established rule that marketers should not lie in marketing campaigns, either in the marketing message's substance or to get the marketing message delivered.

Finally. the case reminded me a little of the Toy Manufacturer's case (Toy Manufacturers of America, Inc. v. Helmsley-Spear, Inc., 960 F.Supp. 673 (SDNY 1997)), which suggests that certain kinds of time-and-space adjacencies for competitive activities are not permissible. For more discussion about the trademark implications of such adjacencies, see my Brand Spillovers article.

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

February 19, 2009

TradeComet Sues Google for Antitrust Violations

By Eric Goldman

TradeComet.com LLC v. Google, Inc., 09 CIV 1400 (SDNY complaint filed Feb. 17, 2009). The Justia page.

TradeComet, which operates the SourceTool.com website, has sued Google for a variety of antitrust violations. As is typically the case with lawsuits against Google, this lawsuit turned into a media event, and TradeComet's PR firm did a great job pushing this story into AP, NYT, CNET News.com, BusinessWeek and many others. Maybe SourceTool hoped to get some PageRank bounce from such broad media coverage? (sorry, no link love from me).

The lawsuit was filed by lawyers at Cadwalader Wickersham & Taft, one of the oldest and most prestigious law firms in the country, which is of some note because that firm has represented Microsoft in various dealings that would have some bearing on Google's market position (such as Microsoft's aborted takeover of Yahoo). Further, Cadwalader has had a particularly rough time in this market downturn, so perhaps they had some lawyers with idle hands...?

The complaint itself is the typical grumblings of an unhappy advertiser who wanted more traffic for less money. We've heard these complaints from advertisers many, many times before. Advertisers tend to be a particularly hard-to-please bunch. TradeComet tries to connect the dots that Google's price increase was due to Google's efforts to squelch SourceTool's competition with Google, which would be a more convincing argument if anyone actually believed that the two were bona fide competitors.

In terms of legal precedent, there are three cases of note here:

1) KinderStart v. Google. KinderStart was a vertical portal (in this respect, not dissimilar to SourceTool in marketplace juxtaposition with Google) that had its PageRank slashed and was de-indexed for a time. KinderStart brought a variety of claims against Google, including an antitrust claim alleging that the PageRank drop was designed to punish a competitor, but those claims went nowhere--and, in fact, the plaintiff's lawyer was ultimately sanctioned for making unsupportable claims in the complaint.

2) Person v. Google. This was a pro se lawsuit by a disgruntled Google advertiser who wasn't happy with his treatment by Google, so he brought an antitrust lawsuit against them. It wasn't a meritorious lawsuit from inception, but of particular interest is that in dismissing the case, Judge Fogel defined the relevant market for antitrust purposes as "Internet advertising," not "search advertising." There's no question Google is a dominant player in the search advertising market, but they are only a major player in the much larger Internet advertising market.

3) Langdon v. Google. This wasn't an antitrust case, but it stands for the proposition that search engines have the absolute right to reject ads in their discretion.

The combination of these three precedents shows that (A) most/all of TradeComet's complaints have been advanced before, and (B) they haven't gotten a favorable reception in court. Then again, all three of these rulings are from 2007, so it's possible that Google and the market have changed since then in ways that degrade Google's antitrust posture. Indeed, last year the DOJ said it was hours away from filing an antitrust lawsuit based on the Google-Yahoo deal, although I think it's easy to read too much into that situation. It is not uncommon for government enforcement agencies to take aggressive positions that may not reflect the law, and usually their targets back down rather than test those aggressive positions in court (just like Google did in the Yahoo transaction). So even if the DOJ took the position that the relevant market was search advertising, not Internet advertising, there is no guarantee that a court would have agreed with that position.

There is another troubling aspect of the TradeComet lawsuit. Google and other search engines have been repeatedly criticized for not doing enough to police their ads on a variety of dimensions, including allowing advertisers to hawk bogus products and distribute malware through their ads. We want--and expect--Google to police its advertisers. Google can do so in a variety of ways, including manual review of ads, but its pricing mechanisms and ad sorting algorithms (including its landing page quality score) provide an effective first-line of defense against ads that aren't useful to consumers. Therefore, it would be odd/dichotomous for antitrust law to conclude that Google's ad cleanup mechanisms are anti-competitive.

While I think this lawsuit is much more rehash/ennui than groundbreaking, there was one set of allegations that caught my eye. Check out Paragraphs 100 and 101, where TradeComet alleges that Google "relaxes its Landing Page Quality methodology for certain 'search partners'" such as Business.com. I'd sure like to know more about this allegation and the factual basis for it. If true, I imagine Google's advertiser community would be up in arms about this favoritism. However, I suspect that if Business.com and other search partners get seemingly premium ad placement, it's due to some consistently applied factor that measures an independent attribute that happens to correlate with attributes of Google's search partners.

Posted by Eric at 05:17 PM | Marketing , Search Engines | TrackBack

February 17, 2009

Affiliate Liability Talk Notes from SMX West

By Eric Goldman

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

General Principles

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

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

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

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

CAN-SPAM

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

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

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

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

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

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

Other Types of Affiliate Liability

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

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

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

Other Consequences of Affiliate Liability

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

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

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

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

Implications of the NY Sales Tax law:

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

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

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

* Competition with affiliates for AdWords/organic placement.

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

Best Practices for Advertisers

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

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

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

4) Advertisers must actually police affiliate behavior

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

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

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

February 13, 2009

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

By Eric Goldman

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

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

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

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

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

Ryan Gile has also blogged on the case.

UPDATE: Rebecca weighs in.

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

February 06, 2009

2008 Cyberlaw Year-in-Review

By Eric Goldman

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

Broad Themes

A few broad themes emerged last year:

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

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

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

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

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

Top 11 Cyberlaw Developments of 2008

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

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

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

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

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

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

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

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

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

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

Other Developments of Special Note

47 USC 230

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

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

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

Affiliate Liability

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

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

Trademarks/Domain Names

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

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

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

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

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

Others

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

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

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

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

February 05, 2009

Publisher Promising "Visitors" Owes "Visitors," Not "Unique Visitors"--WebMD v. RDA

By Eric Goldman

WebMD, LLC v. RDA Intern., Inc., 2009 WL 175036 (N.Y. Sup. Ct. Jan. 6, 2009)

It's been a while since I've blogged about a lawsuit between an Internet publisher and advertiser, so you may enjoy this one. RDA placed a series of advertising orders with WebMD, including one order where WebMD promised "36,000 visitors" to an RDA website. RDA eventually stiffed WebMD to the tune of $350k, which is enough outstanding cash to get WebMD into court for a collections action. Once there, RDA argued that WebMD failed to perform the contract because the contract required 36,000 unique visitors and WebMD only delivered 70-80% of this number.

Most of us in the Internet advertising business immediately scoff at RDA's argument. Everyone in our industry knows that "visitors" and "unique visitors" are two very different things, and that if the parties actually meant "unique visitors," they would have said so. The court efficiently reaches this conclusion as well, saying that the term "visitors" is unambiguous and "If defendant wished to be guaranteed “unique visitors” to the site, it should have specified such in the agreement." Even if the term were ambiguous, the court still isn't sympathetic, in part because the advertiser never complained about the invoices while the parties were still in a relationship. (And, as we know, advertisers will complain if they think the deal isn't performing to their expectations!!!)

Two practice pointers from the case. First, it's critical to precisely define the metric for computing payment in advertising contracts. Often, when I'm asked to look at Internet ad contracts, I'm sent the T&Cs but not the actual IO where the payment metric for the particular ad deal is specified. That's one of the most important aspects of an ad contract, so as a lawyer, we really need to get our hands on the IO business terms in addition to the T&Cs. Second, the opinion doesn't mention any clause in the WebMD contract that WebMD's numbers control for calculation purposes. (The clause might have been in the contract, but it wasn't referenced in the opinion). Even if the court won't enforce those clauses verbatim, they can still be extraordinarily helpful in tipping any ambiguities in favor of the publisher and against the advertiser when the parties dispute the numbers.

HT: Ken Adams, who thinks that "visitors" is ambiguous. His example shows how it could be in some contexts, but it's not ambiguous in this context. Ken, in turn, links to the ContractsProf post.

Posted by Eric at 05:55 PM | Licensing/Contracts , Marketing | TrackBack

January 22, 2009

Brand Spillovers Article Now Available

By Eric Goldman

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

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

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

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

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

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

The abstract:

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

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

January 20, 2009

Outdated Whois Information Might Lead to False Light Tort--Meyerkord v. Zipatoni

By Eric Goldman

Meyerkord v. The Zipatoni Co., 2008 WL 5455718 (Mo. App. Ct. Dec. 23, 2008)

It's a late entry, but this opinion may be a dark horse candidate for the most bizarre case of 2008.

Meyerkord was a Zipatoni employee and listed as the registrant on domain names at Zipatoni's Register.com account. Meyerkord left in 2003. In 2006, Zipatoni ran an astroturfing viral campaign for Sony to promote the Play Station Portable at the domain alliwantforxmasisapsp.com. A BusinessWeek story on the campaign and the Urban Dictionary entry.

Unfortunately for Sony--and Meyerkord--the campaign did not go well. Bloggers and others got suspicious of the overly colloquial site, unmasked the astroturfing and decided to "out" the people involved. They pulled up the Whois records, saw the outdated information that Meyerkord was the registrant, and mistakenly assumed he was involved in the campaign.

The case doesn't get into the specific treatment of Meyerkord, but it seems logical to assume that he was subject to a blogger firing squad circa 2006, i.e., shoot first and ask questions later (I'd like to think the blogosphere would be a little more circumspect circa 2009, but maybe not). For example, the Consumerist has its own category tag for alliwantforxmasisapsp, and it awarded Sony the "Lucky Golden Shit" award for best "flog" of 2006. In this post, the Consumerist "outs' Meyerkord and calls him a "douchebag" (which, for reasons my aging brain can't comprehend, has become the modern derogatory term of choice) until they modified the post, striking out his name and recanting "he is an innocent bystander in this sordid affair." Oops...a little late for that, don't you think, Consumerist?

In response to this rough justice from the blogosphere, Meyerkord sued Zipatoni for the privacy tort of false light. The lower court dismissed the complaint for failure to state a claim. In this ruling, the appellate court reverses the lower court and remands the case to allow Meyerkord to file an amended complaint if he can allege that Zipatoni acted with actual malice.

While I can see why the court was sympathetic to Meyerkord for being falsely associated with an astroturfing campaign, in my opinion, Zipatoni's real negligence was its failure to keep its domain name records updated FOR THREE YEARS! I feel silly mentioning the obvious and well-known practice pointer that you should keep your Whois records up-to-date; and especially remove any former employees from Whois records. Not only does outdated Whois information pose a major security risk, but it could allow former employees to assert ownership over the domain. Now, keeping them on the record may be tortious to the former employee as well. In any case, for having a former employee listed on its domain names for three years, Zipatoni deserves whatever punishment they get.

One more oddity: alliwantforxmasisapsp.com now is a promotional site for Haagen Dazs ice cream. Huh? I presume Haagen Dazs bought the residual traffic from all of the links bashing the domain, but (1) the association between PSP and Haagen Dazs doesn't make any sense, and (2) I would have thought a big brand like Haagen Dazs wouldn't want the implicit taint of benefiting from an astroturfed website.

Posted by Eric at 07:08 AM | Domain Names , Marketing , Publicity/Privacy Rights | TrackBack

January 08, 2009

December 2008 Quick Links, Part 2

By Eric Goldman

Social Networking Sites/Cyber-Bullying/Sexual Predation

* More on the Lori Drew conviction:
- Wired has a tough behind-the-scenes look at the Lori Drew jury deliberations.
- The jury instructions
- In case you missed it, my special three part series on implications of the Lori Drew conviction: Part 1, Part 2, and Part 3.

* Yet more fallout from the Lori Drew prosecution and conviction. Wired has a story on the cyberbullying litigation frenzy. The Washington Post has a recap on the proliferation of state anti-cyberbullying laws.

* U.S. v. Morris, 2008 WL 5101636 (7th Cir Dec. 5, 2008). Judge Posner talks about the difference between entrapment (not OK) and vigilantism (OK) in the context of a mom who created a fake MySpace persona to chat with an alleged sexual predator who had contacted her underage daughter.

* Facebook's policy on breast-feeding photos has sparked protests both online and off (1, 2, 3). It reminds me a bit of one of my first challenges as Epinions' general counsel. (search for Epinions).

Google

* Barry Schwartz: is Google getting desperate for ad revenue?

* The Register: "Google this week admitted that its staff will pick and choose what appears in its search results." However, I don't think the article supports this aggressive statement. Instead, it appears the article is getting excited about the fact that Google manually tweaks the algorithms when they produce goofy results--something we've known for years.

* Updates on Axact v. Student Network Resources, the case involving alleged copyright infringement of term papers. Axact allegedly has been trying to get its domain name registrars to release its domain names for transfer, and SNR is trying to cut them off. Apparently Google also balked at the instructions to kick the subject domain names out of its index, but SNR and Google resolved their differences enough to reach a stipulation. Finally, I've received numerous threats and requests from Axact to modify my original post, which has prompted me to make some minor changes.

Marketing

* IMS Health v. Ayotte. New Hampshire passed a law restricting the use of a doctor's past prescribing practices (i.e., behavioral information) for personalized/targeted sales calls. This opinion upholds the NH law against a First Amendment and dormant Commerce Clause challenge.

* Australian advertisers are cookie-ing users at high CPM sites so that they can show the users targeted ads when those users appear at lower CPM sites.

* Sony busted for COPPA violations.

* New advertising medium: school exams.

Miscellaneous

* Good article on the Sprint v. Cogent peering fight.

* And a good article showing limits to the Long Tail theory.

* U.S. v. Grober, 2008 WL 5395768 (D. N.J. Dec. 22, 2008). Grober pleaded guilty to uploading and downloading child porn over the Internet. The judge rejects the 19 1/2 year minimum sentence specified by the Sentencing Guidelines and instead sentences Grober to the 5 year statutory minimum. This opinion poignantly explains why this judge, like several others, rejects the Sentencing Guidelines in Internet child porn cases because the dictated sentences are too severe.

* BusinessWeek is still amazed that people actually--get this--provide their time and efforts over the Internet without getting paid!

* Lior Strahilevitz, Reputation Nation: Law in an Era of Ubiquitous Personal Information, 102 Nw. U. L. Rev. 1667 (2008). Lior explores the cross-elasticities of demand for types of reputational information and shows that if some information isn't available (due to, say, privacy laws), decision-makers will consult less credible or pernicious sources. For example, if a landlord can't get good credit information about a prospective tenant, the landlord may resort to discriminatory considerations (like race) to decide whether or not to rent to the tenant. Good article.

* I have previously written about New York v. Synergy6, Inc., 404027/03 (N.Y. Sup. Ct. Jan. 6, 2006), where the court soundly rejected the New York Attorney General's office regarding a marketer's liability for allegedly illegal emails sent by downstream affiilates (i.e., not in direct privity). I have not been able to find a copy of the opinion electronically, but over the holidays I found my hard copy and scanned it to a PDF. Check it out, especially in combination with the 2008 New York v. DirectRevenue opinion, which soundly rejected the NYAG's affiliate liability arguments in the adware context.

Posted by Eric at 07:44 AM | Content Regulation , Copyright , Domain Names , Marketing , Privacy/Security , Search Engines | TrackBack

January 07, 2009

December 2008 Quick Links, Part 1

By Eric Goldman

Copyright

* Stockwire Research Group, Inc. v. Lebed, 577 F .Supp. 2d 1262 (S.D. Fla. Sept. 18, 2008). $2.5M default judgment for violation of anti-circumvention provisions.

* The RIAA announced that it is shifting away from suing its customers to putting more pressure on Internet access providers to do their dirty work. Fred at EFF and Mike Masnick weigh in. But Mike wonders if the RIAA is really changing its practices?

* Capitol Records v. Thomas, No. 06-1497 (MJD/RLE) (D. Minn. Dec. 23, 2008). In the Jammie Thomas case, the judge refused to certify the "making available" theory for an interlocutory appeal.

Trademarks/Domain Names

* Nerds on Call (Indiana) v. Nerds on Call (California), 1:07-cv-00535-DFH-TAB (S.D. Ind. Dec. 22, 2008):

The court realizes that a simple internet search for "nerds on call" could return the Nerds/California site. If a person has lived in Indiana and used Nerds/Indiana's services before, the person might be confused momentarily. Given trademark law's explicit approval of concurrent uses of marks in different geographic areas or product markets, see 15 U.S.C.A. §1052(d), this momentary confusion on the internet is not a sign of intentional targeting. The internet is available worldwide. Use of a locally established trademark on a website may cause momentary confusion among consumers. The solution to that problem is not to require that all trademarks be given worldwide effect even if their non-web use is limited to a narrow geographic area. Instead, users of the web simply need to understand that a worldwide web search may turn up results from distant businesses.

* Saint Louis University v. Meyer, 2008 WL 5412263 (E.D. Mo. Dec. 24, 2008). SLU allegedly threatened to close the student newspaper, so the paper's faculty advisor registered a new non-profit organization with the secretary of state under the name "The University News, a Student Voice Serving Saint Louis University Since 1921" in case the students wanted to go independent. The university and the students worked out a deal, and the faculty advisor promptly dissolved the organization without ever having done anything with it. Still, the university sued the advisor for trademark infringement, dilution and other claims. In this ruling, the court rejects most of the claims because the advisor never made a "trademark use in commerce." Why was the university suing its own tenured faculty member for forming and then promptly dissolving a non-profit organization without ever using it? Makes no sense to me.

* 1-800 Contracts, Inc. v. Lens.com, Inc., 2008 WL 5191705 (D. Utah Dec. 10, 2008). In a trademark lawsuit over keyword purchases, Lens.com is hit with sanctions for discovery abuses.

* The EFF has collected amicus briefs in the Tiffany v. eBay appeal to the Second Circuit.

* WSJ on the growth in numerical SLDs.

* Paul Levy shines the spotlight on yet more questionable marketing practices by Lifestyle Lift.

Linking

* GateHouse v. New York Time. The CMLP page. Another silly anti-deep linking and headlines-as-copyright infringement lawsuit, this time between two media companies. Some of the claims are clearly off-base, like the trademark claims. Note to dilution plaintiffs: it is almost impossible by definition to be both a hyper-local business and a famous trademark. Also oxymoronic is the allegation that the sites are competitors when a competitor is prominently promoting the website and apparently passing PageRank. If you are my competitor and would like to pass me some PageRank, I would be happy to chat. The most novel part is the plaintiff's attempt to use the Creative Commons license as an affirmative contract to claim breach of contract. I can't recall a similar allegation in the past where the Creative Commons license was used as a sword instead of a shield. Finally, the complaint doesn't mention anywhere that the plaintiff's website apparently offers RSS feeds, which raises a bunch of problems for its arguments.

* McVey v. Day, 2008 WL 5395214 (Cal. App. Ct. Dec. 23, 2008). This is a dispute between rival members of the teacher's union. Among other activities, the defendant sent an email linking to a website that had allegedly defamatory statements about the plaintiff, but the website's statements were authored by third parties. In this ruling, the court grants the defendant's anti-SLAPP motion, saying that the defendant wasn't liable for the emailed links per 47 USC 230. This is another nice anti-SLAPP win for Internet content, following on December's Higher Balance case.

Some Personal Notes

* I'll be at AALS and plan to attend the blogger's get-together Thursday night. If you're going to be around, hope to see you there!

* If you're in the Sacramento area on January 13, come to this free event!

* Most of you know that I maintain my personal blog for posts that don’t really belong on this blog. But you may not know that I’ve also been Twittering with some regularity. Check it out!

* Good news: this blog is a finalist for Best Law Blog from Weblog Awards.

Posted by Eric at 09:48 AM | Copyright , Derivative Liability , Domain Names , Marketing , Search Engines , Trademark | TrackBack

January 02, 2009

OnlineNIC Loses One Lawsuit and Gets Sued in Another

By Eric Goldman

Two anti-domainer developments involving OnlineNIC occurred over the holidays.

Yahoo! Inc. v. OnlineNIC, Inc., 5:08-cv-05698-PVT (N.D. Cal. complaint filed Dec. 19, 2008)

Yahoo has sued domain name registrar OnlineNIC and some Does for cybersquatting, trademark infringement, trademark dilution and related causes of action. This lawsuit caught my eye because OnlineNIC is a registrar, and normally lawsuits against registrars are barred by 15 USC 1114(2)(d)(iii). However, that immunization does not apply if the registrar has a "bad faith intent to profit from such registration or maintenance of the domain name." Here, Yahoo alleges that OnlineNIC registered the domain names for itself (i.e., it was both the registrar and the registrant--see Para. 47) and used a variety of covers and fronts to mask that it was the true registrant. I also think many of Yahoo's allegations of "abusive" domain name tasting and domain name kiting support a bad faith argument if Yahoo chooses to go that route.

Verizon California, Inc. v. OnlineNIC Inc., 5:08-cv-02832-JF (N.D. Cal. Dec. 19, 2008)

The same day Yahoo sued OnlineNIC, Verizon won a "record" $33+M default judgment against OnlineNIC. The Verizon press release. It was a slow news week before Christmas, so Verizon got a lot of press coverage (see, e.g., WSJ, NYT, News.com) for its victory.

Although it's hard to divine much insight into future jurisprudential developments from a default judgment order, Judge Fogel's brief opinion does conclude that OnlineNIC violated the Anti-Cybersquatting Consumer Protection Act:

Defendant’s actions with respect to Verizon’s trademarks undoubtedly violated the ACPA. Defendant has registered hundreds of domain names that are designed to attract web users seeking to access Verizon’s legitimate websites. Moreover, Defendant has refused to alter its behavior, and its bad faith is further evidenced by its machinations to avoid detection through the use of fictitious business entities, shell corporations, and kiting of its domain names.

This builds on Verizon's early win against Navigation Catalyst that certain domaining practices can constitute impermissible cybersquatting.

Three Brief Observations

FIrst, Verizon's sizable award against OnlineNIC is a pretty empty public gesture. Good luck collecting that, Verizon. (InternetNews has more on the likelihood of collection). It's a little like Facebook's recent $873M default judgment against spammers using its private messaging system. As we used to say in the old days, these multi-million judgments plus a nickel will buy you a cup of coffee. (I recognize Starbucks is more like $5/cup, but you get the point). Yahoo shouldn't bank on any big paydays either, even if it wins.

Second, earlier this year, I suggested the Verizon v. Navigation Catalyst case could be a turning point in the legal battles over domaining, and the latest ruling might reinforce that. Even though Verizon's latest win has no real financial implication, it does help accrete the anti-domaining legal precedent. I expect to see nothing but bad legal news for abusive domaining in 2009.

Third, I can't avoid observing how interesting it is to see Yahoo and Verizon bringing plaintiff-side lawsuits over domaining. After all, Verizon sells ads on mis-typed domain names when its consumers use its browser (i.e., on its mobile devices), and Yahoo is still fighting a lawsuit over having placed ads on domaining sites.

Posted by Eric at 12:02 PM | Domain Names , Marketing , Search Engines | TrackBack

December 30, 2008

Doe v. SexSearch Affirmed by 6th Circuit, But Not on 230 Grounds

By Eric Goldman

Doe v. SexSearch.com, 2008 WL 5396830 (6th Cir. Dec. 30, 2008)

I previously summarized this case as follows:

Defendants operate a website that helps people hook up to have sex. Roe posted a profile saying that she was 18 and wanted sex. After Doe connected with Roe via the profile, they met offline at Roe's home and had "consensual" sex. But Roe was actually 14, and Doe was busted for felony statutory rape. Doe turned around and sued the website on 14 counts, which the court summarizes as claims that "(a) Defendants failed to discover Jane Roe lied about her age to join the website, or (b) the contract terms are unconscionable."

In August 2007, the district court dismissed the case. Frankly, I always thought this should be an easy case for the reason articulated by the district court judge: "Plaintiff clearly had the ability to confirm Jane Roe’s age when he met with her in person, before they had sex, yet failed to do so." But fitting the claim into legal doctrines is trickier, and the district court relied on both 47 USC 230 and substantive contract/marketing law to dismiss the case.

On appeal, the defendant fared no better, and the Sixth Circuit has little trouble dismissing the case. However, the Sixth Circuit disavows the district court's 47 USC 230 discussion:

we do not reach the question of whether the Communications Decency Act provides SexSearch with immunity from suit. We do not adopt the district court’s discussion of the Act, which would read § 230 more broadly than any previous Court of Appeals decision has read it, potentially abrogating all state- or common-law causes of action brought against interactive Internet services.

The court instead dissects the substantive contract and marketing law claims one-by-one (all 14 of them) to show why none of them were valid. The opinion is a pithy read, so if you're interested in seeing how an online contract survives a multi-front attack, check it out. I did get a chuckle out of the part when the court explains why the contract's dollar cap wasn't unconscionable: "Given the nature of the service, which encourages members to meet in person for sexual encounters, SexSearch’s potential liability is nearly limitless. For example, arrest, diseases of various sorts, and injuries caused by irate family members or others may be the result of such hedonistic sex. When selling such services, then, it is commercially reasonable for SexSearch to limit its liability to the price of the contract."

It's easy to see why the Sixth Circuit was troubled by the 230 issues in this case. This case involves a knotty question that has become a blog perennial: when is a website liable for its marketing representations that are rendered false by user content or actions? In this case, the website said in a variety of ways that users were over 18, but it never authenticated users' ages, and Roe affirmatively lied about her age. As I've mentioned before, this creates a legal conundrum--on the one hand, websites should be responsible for the marketing representations that they choose to make; but on the other hand, this can open up a bypass to 230 as plaintiffs use the marketing representations as a proxy to hold websites liable for third party content. I'm disappointed the Sixth Circuit didn't decide to tackle this issue head-on, but I understand why they chose to sidestep the issue and make clear that they weren't ratifying the district court's rationale.

I noticed that the court also doesn't mention Doe v. MySpace, the recent Fifth Circuit 230 opinion also involving online hook-ups leading to offline statutory rapes. That case turned on a negligence-style "premises liability" theory rather than a breach of contract/false marketing representation theory, but the Sixth Circuit could have tried to equate the two if it wanted (especially in its discussion about "failure to warn").

So, where does this ruling leave us? This ruling, along with the Goddard opinion from earlier this month, reinforces that plaintiffs trying the breach of contract/false marketing representations workaround to 47 USC 230 still have to establish their prima facie substantive case or they will be dismissed (in this case, on a 12b6 motion). Plus, numerous district court cases still hold that 47 USC 230 applies to false marketing representations, including the Mazur and Friendfinder cases from earlier this year. So I think the news remains very, very good for defendants. Nevertheless, I remain confused about the precise boundaries between 47 USC 230 and breach of contract/false marketing representations, and clarity will have to wait until 2009 (or beyond).

Unless something really big happens in the next 36 hours, I'll see you in 2009. Happy new year!

Posted by Eric at 09:53 AM | Derivative Liability , Licensing/Contracts , Marketing | TrackBack

December 22, 2008

Lawsuit Over Google Ads for Mobile Services Dismissed Per 230--Goddard v. Google

By Eric Goldman

Goddard v. Google, Inc., 2008 WL 5245490 (N.D. Cal. Dec. 17, 2008). My initial post when the complaint was filed. The Justia page.

Goddard sued Google because Google displayed third party AdWords ads for allegedly fraudulent mobile subscription services. On its face, this lawsuit appeared preempted by 47 USC 230 (consistent with other opinions granting 230 for third party ads, such as the recent Cisneros case), although the plaintiff included some allegations to try to get around 230. No such luck for them. This ruling kicks the lawsuit out on 230(c)(1) grounds with leave to amend (more on that in a moment).

I'm a big fan of Judge Fogel's opinions. He's a meticulous and thoughtful judge, and his opinions are always carefully constructed. In particular, this opinion is a terrific read for anyone who would like to see a cutting-edge 230 opinion. It discusses many of the major recent 230 cases (Roommates.com, Mazur, Doe v. MySpace, Craigslist, National Numismatic) and contextualizes them nicely. It's like a 230 year-in-review opinion. If you want a one-stop resource to see what's happened in 47 USC 230 jurisprudence in 2008, read this opinion.

Among other interesting aspects, this is the first opinion by a Ninth Circuit-bound district court judge that has a robust analysis of how Roommates.com applies to the case. (Roommates.com has been cited in a few other opinions, but usually in a very cursory fashion). Judge Fogel deftly wrestles with the multiple contradictory provisions of Roommates.com, noting that it is principally is a defendant-favorable ruling with only a thin layer of plaintiff-side opportunity. For example, Fogel reads the Roommates.com opinion very narrowly when he says "The [Roommates.com] court emphasized repeatedly that the website lost immunity only by forcing its users to provide the allegedly discriminatory information as a condition of access." The opinion did say that, but I'm not sure about the "only," and it said lots of other contradictory things as well.

The Unfair Competition Claim

The plaintiff argued that Google engaged in 17200 unfair competition by receiving funds from fraudulent ads. Though this may be a novel way of framing Google's involvement, it doesn't adequately mask the underlying argument that the defendant should lose 230 coverage because it received an economic benefit from third party tortious conduct--an argument that has been rejected many, many times before and doesn't fare any better here. The court reframes the argument as a premises liability argument and rejects it per Gentry and Doe v. MySpace.

Along the way, the court addresses the plaintiff's allegation in the complaint that Google helped draft the impermissible ad copy. The plaintiff didn't press this point after the complaint, and the court says (referencing its reading of Roommates.com) that "there is no suggestion in the current record that Google “encouraged” the [advertisers] to create the allegedly fraudulent content, or that the creation of such content was anything less than voluntary."

The court also addressed the plaintiff's argument that the claim was anchored in the federal anti-money laundering criminal statute and therefore should drop out of 230 per the exclusion for federal criminal law (230(e)(1)). The court correctly rejects this but doesn't cite precedent on this point, missing Doe v. Bates.

Breach of Contract/Negligence

The plaintiff's other main attack vector is that Google should be liable because it failed to enforce a provision in Google's AdWords contract with advertisers restricting fraudulent conduct. I've complained repeatedly about arguments trying to treat a vendor's contractual negative behavioral restriction as an affirmative representation by the vendor that such behavior won't occur on the website (my latest rant on this point). Fortunately, Judge Fogel has little difficulty rejecting this argument, correctly pointing to the Green v. AOL precedent involving the distribution of third party viruses in an AOL chatroom (the Noah v. AOL precedent would have been an appropriate additional citation).

To try to get around this, the plaintiff cites to the Mazur case, which said that eBay can be liable for its affirmative marketing representations even if they are rendered untrue by third party conduct. I've repeatedly expressed my concern that the Mazur case is a more scary ruling to defendants than Roommates.com, but this opinion slightly calms my fears. Judge Fogel correctly notes that Google never made affirmative marketing representations on this point and the negative behavioral restrictions in the AdWords contract weren't an affirmative marketing representation.

Google also argued that this line of claims are barred by 230(c)(2), the immunization for filtering decisions. Citing to National Numismatic v. eBay, Judge Fogel rejects the argument based on the statutory list of immunized harmful content, saying "the relevant portions of Google's Content Policy require that [advertisers] provide pricing and cancellation information regarding their services. These requirements relate to business norms of fair play and transparency and are beyond the scope of § 230(c)(2)." I'm not sure the 230(c)(2) argument was Google's strongest, but I would have loved to see Judge Fogel unpack this discussion and the implicit assumptions a little more.

Aiding and Abetting

Finally, the court rejects the attempted 230 pleadaround that Google aided and abetted the advertisers, saying "there are no allegations here that Google “developed” the offending ads in any respect." (Cite to Roommates.com).

Leave to Amend

Given that this case was filed after the Roommates.com en banc opinion, and therefore the plaintiff had the chance to structure the complaint based on a reading of the latest Ninth Circuit standard, it would have made sense to dismiss this complaint without leave to amend. Instead, Judge Fogel gives the plaintiff another chance and articulates his reading of allegations that should survive 230 preemption:

there may be instances in which an internet content provider will be considered “ ‘responsible’ at least ‘in part’ for [posted third-party content] because every [posting] is a collaborative effort” between the internet provider and the third-party content provider. Fair Housing Council, 521 F.3d at 1167. If Plaintiff could establish Google's involvement in “creating or developing” the AdWords, either “in whole or in part,” she might avoid the statutory immunity created by § 230. In light of that possibility, Plaintiff will be given an opportunity to amend her complaint in order to allege such involvement.

Reading between the lines, the writing is on the wall for this lawsuit. The plaintiff can't win, and it would be a mistake for the plaintiff to refile. The judge even says as much in a footnote to this quote, saying "at present it appears unlikely that Plaintiff can" make the requisite allegations. Nonetheless, I'd be shocked if the plaintiff didn't refile. If they do, I hope Judge Fogel vigilantly polices the boundaries of Rule 11 for any allegations the plaintiffs make but can't back up--just like he did in the KinderStart v. Google case.

A Final Point

By my count, this is the third post-Roommates.com case where Roommates.com has been cited in favor of the defendant in kicking the case out of court. (The other two are Best Western v. Furber and GW Equity). In contrast, I am not aware of any case yet citing Roommates.com in favor of a plaintiff. It's obviously early, but at this point the limited evidence suggests that Roommates.com was not a watershed change to 230 jurisprudence. On that basis, Roommates.com may not be as bad a substantive ruling as we had initially feared.

Posted by Eric at 07:48 AM | Derivative Liability , Marketing , Search Engines | TrackBack

December 19, 2008

Vulcan Golf v. Google Class Certification Denied

By Eric Goldman

Vulcan Golf, LLC v. Google Inc., 1:07-cv-03371 (N.D. Ill. Dec. 18, 2008). Previous blog posts: initial complaint filed, ruling on motion to dismiss

This is a complex lawsuit by trademark owners attacking domaining and the role of the Google AdSense for Domains program in funding domaining activity. When I first blogged on the case in 2007, I wrote:

the lawsuit could effectively fall apart if the judge rejects formation of a class. Trademark class action lawsuits are rare for good reason-- trademark owners must establish the validity of their marks, the famousness of their marks (for dilution) and the similarity between their marks and the defendants' usage. These are all intensely fact-specific questions; none of which seem susceptible to class adjudication

Yesterday, the court ruled on class certification, and perhaps not surprisingly, the court denied certification--giving Google and the other defendants an early Christmas gift. Happy holidays! This ruling doesn't completely squelch the lawsuit, but without class certification, the case becomes a whole lot less interesting to the plaintiff's lawyers. For that reason, it also wouldn't surprise me to see them appeal the class certification denial.

The ACPA and Trademark Infringement Claims

The court rejects class certification for the trademark infringement and Anti-Cybersquatting Consumer Protection Act claims because the individual questions of fact predominate over the common questions of law.

The court blanches at the thought of trying to determine the owners of the applicable trademarks. The plaintiffs said that TESS could answer any ownership questions, but the court rightly realizes that TESS is not a definitive and comprehensive source of trademark ownership information. As a result, the court says "Even if the court has to conduct hearings regarding ownership on even a tiny fraction of the potentially millions of registered and unregistered marks or personal names of the putative class members, such an undertaking would render proceeding as a class unmanageable."

The court also rejects the verifiability of trademark "distinctiveness." The plaintiffs argued that a trademark registration could suffice as evidence of distinctiveness, but the court rightly points out that registration only provides rebuttable evidence of distinctiveness. The court also points to problems with unregistered trademarks and personal name marks. The court thus concludes "were the class to be certified, the court would be required to engage in thousands (or more) of individual inquiries as to whether a class members’ mark is distinctive," which would be a "staggering" undertaking with respect to the unregistered and personal name marks.

The court also assesses the prospects for adjudicating various affirmative defenses, such as abandonment or fair use. The court says "the affirmative defenses related to the putative class members’ marks simply add another layer to an already fact-specific inquiry that the court must delve into with respect the putative class members’ marks or names."

The Unjust Enrichment Claim

The court bounces the unjust enrichment claim because unjust enrichment laws vary by state. The plaintiffs tried to say California law applies categorically due to Google's involvement, but the court correctly points out that there are plaintiffs and defendants who have nothing to do with California and therefore would not be appropriately governed by CA law. Once CA law is out of the picture, the court confronts the state-by-state variations in unjust enrichment law and concludes that those variations are enough to deny class certification.

Whether Class Action Relief is Superior to Other Methods

In addition to these legal problems, the court has some interesting discussion about the plaintiffs' desired remedy. The court expresses some frustration that the plaintiffs seem to vacillate between saying they want damages and saying they only want injunctive relief. If the plaintiffs only want injunctive relief, the court says that a class action lawsuit is inferior to the extrajudicial options to plaintiffs of pursuing a UDRP action and opting-out of Google's and the domainers' program (which the plaintiffs have already done to some degree). This is the first time I can recall a court favorably citing either the UDRP or a search engine trademark policy as a substitute for judicial action such that it curtails legal recourse. The court also notes the availability of direct non-consolidated actions against the defendants, including large statutory damages plus attorneys fees under ACPA, as another substitute for the class action.

Some Further Implications

First, this case reinforces the difficulty of establishing class action lawsuits to enforce trademark rights. They are possible, but so often the idiosyncrasies of each trademark preclude summary adjudication.

Second, this case might have some utility for the multitudinous other class action lawsuits against Google and the other search engines over their advertising practices, such as the CLRB Hanson case and the string of advertiser lawsuits against Google over AdSense placement on domainer sites. Although this ruling principally turns on the vagaries of trademark law and the other lawsuits typically involve contract interpretations, this court signaled some clear discomfort with class litigation where there are meaningful factual differences between the plaintiffs. To that extent, this case does not suggest favorable outcomes for class certification in those cases either.

Posted by Eric at 02:30 PM | Domain Names , Marketing , Search Engines , Trademark | TrackBack

December 17, 2008

Google's Latest Attempt to Kill the CLRB Hanson Lawsuit Fails

By Eric Goldman

CLRB Hanson Industries, LLC v. Google, Inc., NO. C 05-03649 JW (N.D. Cal. Dec. 16, 2008)

CLRB v. Google is the long-running lawsuit (3 1/2 years and counting) over Google's adherence to advertising limits that advertisers set in Google AdWords. I have blogged on the case several times, including:

* my initial post from August 2005
* the August 2007 determination that advertisers were bound by the AdWords contract
* the May 2008 initial refusal to grant summary judgment to Google

Over the course of the litigation, the court has substantially narrowed the scope of claimants who have a potentially viable claim against Google to just three groups: advertisers of less than 1 month, advertisers who ended their campaign in a partial month, and advertisers who paused their campaign. Seemingly undaunted by the May 2008 ruling denying summary judgment to squash these three groups, Google again sought summary judgment on narrower grounds. Maybe Google thought it had a real chance of winning this second attempt at summary judgment, but it smelled a little "hail mary" to me. Thus, perhaps not surprisingly, Judge Ware rejected the motion and reiterated that summary judgment isn't appropriate (at one point saying, with a hint of frustration, "Defendant appears to be attempting to re-litigate an issue decided in the May 14 Order").

As a result, it appears that at least some aspects of the case appear destined for a trial--which, as far as I can recall, would be the first US trial on Google's AdWords practices. Fortunately for Google, the class is so limited that Google's damages exposure should not break the bank even if it loses badly at trial. Normally cases with light damages would settle, but I suspect the case is still around because the parties can't work out a deal on the attorney's fees--which, if this situation is anything like the click fraud cases, almost certainly will dwarf any actual monetary relief received by the putatively injured advertisers. If the parties can work out the plaintiff attorneys' cut of the spoils, I'm confident this lawsuit will settle before trial.

Posted by Eric at 05:38 PM | Licensing/Contracts , Marketing , Search Engines | TrackBack

December 08, 2008

Keyword Ads and Other Marketing Supports Remote Jurisdiction--Market America v. Optihealth

By Eric Goldman

Market America v. Optihealth Products, Inc., 2008 WL 5069802 (M.D.N.C. Nov. 21, 2008)

This lawsuit involves the trademark "OPC-3." "OPC" is the generic term for "group of antioxidant bioflavonoids" that companies sell as dietary supplements. The plaintiff has obtained a trademark registration for "OPC-3." Numbers can become trademarks with enough marketing to educate consumers that they have secondary meaning, but I'm pretty suspicious of trademarks that consist of generic term + number. It's like "Bread 7" for bread.

The defendants sell OPCXtra, a competitive dietary supplement to OPC-3. The defendants deployed some aggressive marketing approaches (which reminded me of the Nowcom case), including registering the domain name opc3.com, purchasing keyword ads that apparently included opc3 and other plaintiff trademarks as keyword triggers, and including OPC-3 in the metatags (as usual, the court was imprecise about which type of metatag, but I infer it was a keyword metatag). In response, the plaintiff sued for trademark infringement, cybersquatting and other claims.

In this ruling, the court held that the NY-based defendant was subject to jurisdiction in the plaintiff's home court of North Carolina. That ruling, on its own, isn't all that interesting. The court found jurisdiction using the standard "minimum contacts" test, but even if it hadn't, trademark infringement lawsuits support jurisdiction based on the "Effects tests" and this circumstance (with its aggressive marketing) seems particularly well-suited to do so. Unfortunately, the court plotzed in excitement because the case involved the Internet and the analytical rigor suffered accordingly, but it got to the logical result.

More interesting is that to attack jurisdiction, the defendants argued that their metatags didn't constitute a trademark use in commerce. This is an odd attack on jurisdiction, though it would have been more logical for a 12b6 motion to dismiss. Consistent with courts outside the Second Circuit, the court rejects the defense because metatag usage qualifies as a trademark use in commerce. Frankly, even if the metatags didn't qualify as a trademark use in commerce, the keyword advertising is probably a use in commerce in all jurisdictions outside the Second Circuit, and the domain name registration presumably qualified as a use in commerce in every court (the domain resolved on comparative reference material with prominent ads for defendants' products). As a result, the no-use-in-commerce defense to jurisdiction seemed doomed from the get-go..

While I still don't understand why the defendants tried this substantive doctrinal attack on jurisdiction, the defendants did get some valuable information. The judge clearly signaled no interest in supporting the defendants' choices, so the defendants got a strong hint to settle up before things get worse.

Posted by Eric at 12:28 PM | Marketing , Search Engines , Trademark | TrackBack

November 25, 2008

Search Engines Aren't Liable for Gambling Ads Per 230--Cisneros v. Yahoo

By Eric Goldman

Cisneros v. Yahoo, CGC-04-433518 (Cal. Superior Ct. "Tentative Trial Decision" Nov. 6, 2008)

I am frequently asked if 47 USC 230 protects websites for claims based on the ads they run. My answer is emphatically "yes" unless the claim relates to IP, federal criminal law or the ECPA. The fact that the third party content is advertising is irrelevant to the immunization, and so is the fact that the website is being paid to display the allegedly tortious material. I have never organized the 230 jurisprudence to identify all of the cases that confirm immunization for third party ads, but two examples come to mind: (1) the eBay cases over listings, such as the Stoner and Gentry cases, and (2) Ramey v. Darkside Productions. Because it reinforces the lack of liability for third party ads, I should add that 230 protects websites for their own ads in some cases--see here.

However, Internet gambling can violate federal criminal law, and sites associated with third party Internet gambling could drop out of 47 USC 230 coverage accordingly. However, this exclusion only applies when it's a federal criminal agency bringing the enforcement action. Furthermore, when it relates to gambling ads, the criminal claim can be trickier, and the First Amendment can provide some protection for the ads. Nevertheless, I understood why the search engines settled up with the DOJ over gambling ads. They may have had powerful defenses, but 230 wasn't one of them, and it may have been cheaper/smarter to settle up than continue to fight.

In contrast, when a state agency or a private plaintiff complains about a website running third party gambling ads online, the law clearly says that the plaintiff should buzz off. A recent ruling in a long-running lawsuit (filed Aug. 2004; see John O's post from 2005) confirms that, proposing to dismiss a private plaintiffs' lawsuit against Google and Yahoo because it's preempted by 47 USC 230 (among other reasons).

The plaintiffs' 17200 unfair competition lawsuit had already taken some hits along the way, including a ruling that damages weren't available. This left only injunctive and declaratory relief on the table, but the injunctive relief claim was effectively mooted by the search engines' settlement with the DOJ (which, interestingly, the court does not directly discuss).

The plaintiffs persisted, alleging that some gambling ads slip past Google's and Yahoo's efforts to suppress the ads. The court expresses some sympathy for the filtering challenge, noting that "much like bacteria that mutate in order to survive antibiotics, would be on-line gambling operators change their tactics to escape detection, necessitating different enforcement techniques by the defendants." (This sounds like a good basis for a 47 USC 230(c)(2) dismissal, also not discussed by the court). The court gives props to the defendants' suppression efforts and refuses to promulgate a technology-based injunction telling the search engines how to run their business, saying "the defendants are doing as good a job as possible at removing on-line gambling links, and that job is far better than anything this court could come up with in an injunction."

The 230 discussion is pretty straightforward. One nice touch: the court explicitly talks about the plaintiffs' allegations that Google and Yahoo were "aiding and abetting" the illicit gambling. Citing the 7th Cir. Doe v. GTE ruling from 2003, the court correctly says that 230 trumps aiding and abetting claims, even if Google and Yahoo made money from the advertising. This is a good reminder that "aiding and abetting" or similar claims (like conspiracy) should not be a viable plead-around to 47 USC 230.

Posted by Eric at 01:49 PM | Content Regulation , Derivative Liability , Marketing , Search Engines | TrackBack

November 18, 2008

October 2008 Quick Links, Part 2

By Eric Goldman

Spam

* Kramer v. Perez. An Iowa court awards $236M in damages in a spam case. Venkat's comments.

* After the government lost its jury trial against Impulse Media, the court denied Impulse Media attorneys fees.

Contracts

* AT&T put its own emailed notice of amended contract terms into its spam folder. Whoops! Due to spam filters and other automated blocks, it is becoming almost impossible for websites to communicate with their users by email.

* An estimate of the massive "tax" imposed on consumers by reading privacy policies. Of course the financial drain is overstated because many people make a rational decision not to read every privacy policy, plus not every person has to read a privacy policy for marketplace responses to be effective.

* The Blizzard v. MDY WOWGlider case has reached a stipulated damages amount of $6M.

* Pulaski & Middleman, LLC v. Google Inc., 5:2008cv03888 (N.D. Cal. complaint filed August 14, 2008). The Justia page. Yet another me-too lawsuit against Google over serving ads to parked domains and error pages.

* An Israeli GPL enforcement action settled.

Trademarks/Domain Names

* Kentucky v. 141 Domain Names. Is a domain name property? Yes. See the Sex.com case. Can a plaintiff seize a domain name pursuant to a favorable judgment? Yes. Is it appropriate for Kentucky to seize domain names for gambling websites available in Kentucky? Of course not, because this would effectuate an extraterritorial reach by curtailing non-Kentucky residents from making possibly legal uses of the domain name. More recently, the seizure was stayed.

* Speaking of inappropriate seizures, the Feds are trying to seize the trademarks of the Mongols motorcycle group. DOJ press release. LA Times article.

* Best Western Intern., Inc. v. Doe, 2008 WL 4630313 (D. Ariz. Oct. 20, 2008). Prior blog post in this case. The judge is losing patience: "These filings are wasteful in the extreme. The Court is not a forum for the parties to expend every possible dollar seeking to litigate every conceivable issue, no matter how insubstantial. The Court will no longer tolerate the excesses of this case."

* The Verizon v. Navigation Catalyst Systems domainer lawsuit settled.

* 50 Cent brings yet another questionable lawsuit. (1, 2).

Advertising

* Goddard v. Google Inc., 2008 WL 4542792 (N.D. Cal. Oct. 10, 2008). The case against Google for deceptive mobile phone ads will stay in federal court.

* Eyeblaster, Inc. v. Federal Insurance Co., 2008 WL 4539497 (D. Minn. Oct. 7, 2008). This is a collateral lawsuit to Sefton v. Eyeblaster alleging that Eyeblaster distributed spyware. Eyeblaster tendered the claim to its insurer. This court holds that the CGL policy doesn't apply because the claim relates to software problems, not physical damage to the users' computers. Further the E&O policy doesn't apply because Sefton alleges that Eyeblaster intentionally installed the spyware, bumping Eyeblaster into one of the policy's exclusions.

* Are consumers becoming more tolerant of pop-up ads? For more on consumer acceptance of new advertising formats, see here.

* A big damages award in NetQuote v. Byrd.

Posted by Eric at 06:42 AM | Adware/Spyware , Domain Names , Licensing/Contracts , Marketing , Privacy/Security , Search Engines , Spam , Trademark | TrackBack

November 17, 2008

Yellow Pages Publisher Hit with $1.5M Fraud Judgment for Publishing False Ad--Knepper v. Brown

By Eric Goldman

Knepper v. Brown, CC 9903-02495 (Or. Sup. Ct. Oct. 9, 2008)

A woman got a botched liposuction job (which plaintiff's expert described as an "uncorrectable disaster") from Dr. Brown, a dermatologist. She sued the dermatologist and Dex, the publisher of his Yellow Pages' ad, for fraud based on Brown's ad. The court describes the ad and the interplay between the doctor and Dex as follows:

In 1996, Brown placed a second advertisement in Dex's Yellow Pages -- this time under the subheading "Surgery, Plastic and Reconstructive." The new advertisement stated that Brown performed liposuction, wrinkle treatments, and sclerotherapy. It also stated that Brown was "Board Certified" -- without specifying any area of certification.

The new advertisements were added at the urging of a Dex sales representative, Mueller. Brown's office manager, Newman, told Mueller that Brown was interested in attracting more liposuction patients. Mueller met with Newman to help her "mock up" a new advertisement. Mueller told Newman that the "plastic and reconstruction surgery" subheading in the Yellow Pages would be the best place to reach that target market. Mueller also told Newman that the advertisement should identify Brown as "board certified," because "patients were expecting a [board certified] plastic surgeon to do these techniques." Newman repeatedly told Mueller that she was concerned that such an advertisement would be misleading, because Brown's board certification was in dermatology, not plastic and reconstructive surgery. Mueller continued to push for a nonspecific "board certified" designation under the "Surgery, Plastic and Reconstructive" subheading, and Brown, who had the final say, acceded to Mueller's advice.

Brown (probably wisely) settled, leaving Dex as the only defendant. After a mistrial, the jury in the second trial awarded the plaintiffs $1.5M for the fraud claim against Dex. The Oregon Supreme Court upheld this judgment.

There are a number of interesting points to observe about this case:

1) I'm sure all of the lawyers reading this post are shaking their heads at the apparently rogue salesperson!

2) I understand why Dex thought it could win on the legal merits, but this looks like the kind of situation where a jury will pay the plaintiff regardless of the legal merits. Given that the doctor had settled, Dex was the only target for the jury to nail. And that's exactly what they did.

3) The dermatologist's use of the undefined phrase "board certified" is a good example of an implied false representation. It also seems like something the medical profession ought to regulate. For example, for most lawyers, there are very specific rules about how lawyers can describe themselves as "specialists."

4) Assume that Google sold the keyword "liposuction" to Brown and Brown's ad included the undefined phrase "board certified." What result? 47 USC 230 almost certainly would protect Google in that case. Of course, the Dex salesperson allegedly did far more in encouraging the falsity than Google would likely do. If an online publisher/ad network's salesperson was similarly aggressive at pushing a false representation, it may be possible that the 47 USC 230 shield would drop. Even so, this is a good example of how 47 USC 230 may privilege online publishers over offline publishers in a way that grants significant competitive advantages to online publishers.

Tom Seery at RealSelf has more to say on the case.

Posted by Eric at 05:31 PM | Derivative Liability , Marketing | TrackBack

November 11, 2008

Lambotte's Click Fraud Lawsuit Against IAC Survives Motion to Dismiss

By Eric Goldman

Lambotte v. IAC/InterActiveCorp, 2008 WL 4829882 (C.D. Cal. Nov. 4, 2008). Initial blog post on the filing of the first complaint.

Lambotte filed this putative class action lawsuit against IAC in May based on alleged click fraud. In July, the court granted summary judgment to dismiss portions of the lawsuit. Lambotte and two new named plaintiffs then filed an amended complaint in September. IAC moved to dismiss. This ruling largely rejects that motion.

The plaintiffs argued that the contract says that IAC would charge for clicks by "users," and reasonable advertisers would assume that "users" are "potential clients" for the advertiser, not bogus clickers. The judge is rightly skeptical of this argument, saying that the plaintiffs' definitions "may not be the most reasonable interpretations." At the same time, California law has a liberal parol evidence rule, so the judge gives the plaintiffs a chance to introduce evidence to support their aggressive definitions. I would be surprised if this claim ultimately prevails, but the plaintiffs can try.

The plaintiffs also argue that the implied covenant of good faith and fair dealing effectively requires IAC to prevent click fraud, and thus IAC breached that obligation. The court, citing In re Yahoo, says that this allegation survives a motion to dismiss.

As with In re Yahoo, this ruling is a win for the plaintiffs because they get to keep litigating the case. However, there remains some basic problems with the plaintiffs' allegations that should ultimately doom the lawsuit. If in fact the plaintiffs do lose the lawsuit, it's unfortunate that everyone had to incur the extra adjudication costs. More likely, if the lawsuit can survive another few rounds, IAC probably cuts a check to end the threat regardless of substantive legal merit.

Posted by Eric at 02:24 PM | Licensing/Contracts , Marketing , Search Engines | TrackBack

October 29, 2008

CAN-Spam-a-Friend?--Hoang v. Reunion.com

Hoang v. Reunion.com sidesteps an eagerly anticipated legal dispute over the legality of commercial address book scraping and 'send-to-a-friend' emails, and also highlights the damage that can cascade when a federal Circuit Court woefully misreads a statute.

By Ethan Ackerman

In July 2008, Violetta Hoang filed a class action lawsuit under California's state anti-spam laws against Reunion.com, a Los Angeles-based social network site. On October 6th, the court ruled for Reunion.com, granting its motion to dismiss, but allowing Hoang leave to re-file an amended complaint. While a less-than-3-months turnaround is admirable, this case stands as an apt reminder that haste makes waste.

What was sent?

A series of May 2008 solicitations from plaintiffs' acquaintances were the origin of this suit. More precisely, the series of emails were sent from Reunion.com mail servers but bore the names (and in some cases, addresses) of plaintiff's acquaintances in the 'From' line of the email. The emails also contained subject lines like "[Acquaintance] Wants to Connect with You." The emails were sent by Reunion.com servers because plaintiffs' acquaintances had registered with Reunion.com and at some point agreed to, or failed to opt out of, Reunion.com's address scraping practices. In the lawsuit, plaintiffs alleged that these emails were sent to plaintiffs not by plaintiff's acquaintances, as the email 'From' line and subject suggested, but by Reunion.com after Reunion.com had scraped the plaintiffs' addresses from acquaintances' address books when acquaintances became Reunion.com members. In short, pursuant to a possibly agreed-to Terms of Service, Reunion.com scraped its members' address books and then sent solicitations to the resulting addresses, but also took several steps to make it appear that the solicitation was from the member.

This email-scraping-and-dodgy-addressing practice sounds consistent with other accounts of Reunion.com's less than desirable (or legal) efforts to expand its member base. The site claims tens of millions of registered members, suggesting these email campaigns seem to work. The frequency of critical coverage over Reunion.com's various advertising and data-gathering methods also seems to suggest the tactics are as commonly objectionable as they are effective.

In February of this year, Eric highlighted a Wired article about address book scraping and other common web gathering processes. It's a very interesting area with a lot of thorny legal questions. This post, however, is just about the resulting spam.

But was it spam?

Claiming a violation of all three portions of California's anti-spam law, plaintiff's brought a claim against Reunion.com. Plaintiffs alleged Reunion.com used a falsified, misrepresented or forged 'From' line. Plaintiffs alleged that the subject lines Reunion.com used were misleading. Plaintiffs also alleged Reunion.com used a 3rd party domain name (yahoo.com) without Yahoo's permission.

[Author's aside: From the complaint, which describes several instances of 'From' line name forging, but only one instance of 'yahoo.com' appearing as part of a 'From' line, it sounds like Reunion.com's address book scraping likely picked up an email address that was stored in the name field of a member's address book, rather than some more nefarious domain name forging.]

Smells like spam, so what does the law say?

Rather than denying these accusations, Reunion.com chose to counter with a preemption defense. Reunion.com claimed that its practices were sanctioned by federal law and thus, even if actionable under California law, the federal CAN-SPAM Act preempted plaintiffs' claims.

The CAN-SPAM Act's preemption clause, 15 USC 7707 (b)1, does broadly preempt most state anti-spam laws - "This chapter supersedes any [State law] that expressly regulates the use of electronic mail to send commercial messages." This first sentence makes Reunion.com's preemption defense sound pretty plausible. But wait, as the late night infomercials say, there's more. The rest of the clause identifies a significant exception that preserves many of these state laws - "except to the extent that any such statute, regulation, or rule prohibits falsity or deception in [an email]."

So state law claims, like the plaintiffs', are preempted, except to the extent that the state law addresses falsity or deception, in which case the claims may proceed. Courts have been handling the preemption and preemption exception clauses of CAN-SPAM now for several years, and have had more or less no problem concluding that compliant state anti-spam laws can survive if they fit in CAN-SPAM's exception.

OK, so that's what CAN-SPAM says. Let's compare that to the California state law at issue. As identified above, the plaintiffs made three claims under the California law: a falsified 'From' line, a deceptive subject line, and the deceptive use of a 3rd party's domain name in an email header. All three claims address falsity and deception in an email's header, the core of CAN-SPAM's preemption exception. While Reunion.com might dispute the facts of each claim (not misleading, not false because authorized, etc.) it seems pretty clear that the claims can survive CAN SPAM's preemption test as written.

So if the law passes the CAN-SPAM test, whose preemption test is it failing?

The Reunion.com preemption defense cited two sources - the Mummagraphics holding and an FTC rule-making and policy paper on refer-a-friend email marketing.

The court accepts Reunion.com's first source, the prior Mummagraphics case, and doesn't rely on the FTC's policy paper for its holding. As a result, its discussion of the FTC guidance is a very brief discussion at the opinion's end in its discussion over whether to grant leave to amend.

A brief tangent

Before addressing the Mummagraphics precedent, I want to address the FTC rulemaking and policy paper too. Reunion.com asserts that the FTC rulemaking and policy paper permit, as a matter of law, its address book scraping and subsequent emailing. As a threshold matter, there's the fairly complex question of which portions of the FTC's Rulemaking and policy paper on refer-a-friend emails are actual Rulemakings with the force of law and which are policy guidance. Fun APA stuff. But even if the refer-a-friend portions are construed as a rulemaking, a brief read of the guidance reveals that there's, to put this politely, no sane way to conclude that the guidance makes Reunion.com's actions "as a matter of law, exempt from liability under CAN-SPAM." The guidance is page after page of non-exclusive, hedged discussions of what may make a sender liable. The FTC doesn't hand out any 'exemptions from liability' in the rules. Even this otherwise preemption-accepting court is suspicious of this assertion, stating

The FTC did not rule that a commercial entity whose message is the subject of a "forward-to-a-'friend'" email is, as a matter of law, exempt from liability under CAN-SPAM or that such entity could never be held liable, as a matter of federal law, for initiating an email containing false information. Rather, the FTC found that a determination as to whether such entity is exempt from liability under CAN-SPAM would require a "highly fact specific inquiry.

To further beat a dead horse, I'll just focus the issue a bit more. The guidance discusses when a commercially motivated refer-a-friend email is, and very infrequently isn't, subject to CAN-SPAM's provisions. It is page after page addressing when an email will be held to CAN-SPAM's standards, not on when an email will be held to, or preempted from, a state law's standards. While it may be possible that the FTC rules could categorize a given email as "not covered" by CAN-SPAM, that's not the same thing as preempted by CAN-SPAM. Buried deep within a hypothetical set of facts there might be a negative implied preemption argument that could be teased out of the FTC ruling, but Reunion.com isn't making that argument.

Back to the holding, then...

It's not that common in the development of case law that a significant intellectual error can be traced to one particular case, but that's the case here. This case errs because the court was too quick to rely on the erroneous 4th Circuit holding of Omega World v. Mummagraphics to dismiss.

The Mummagraphics court was faced with a similar suit alleging state and CAN-SPAM claims over emails with similar false and misleading subjects and headers, including subject lines falsely suggesting the recipient had requested the email, and "from:" addresses from unaffiliated domains that were not even in the actual transmission path.

A more critical argument against the Mummagraphics opinion could easily be made, but I'll simply opine that Judge Wilkerson of the Fourth Circuit sent spam jurisprudence down the wrong path in several key respects with this holding. While each of the errors will likely cause a lot of damage, several of them (e.g. the re-writing of the statute's 'materiality' standard, concluding that truthful email body text 'cures' header falsity) only have to do with claims under CAN-SPAM, and not on state law preemption. As a result, I'll focus on the error of Mummagraphics that causes so much headache for preemption claims - what constitutes a "falsity or deception" for purposes of determining preemption.

The statute says 'falsity and deception,' but this court thinks it should say fraud instead, so we now hold that it does...

The Mummagraphics court was faced with a claim under an Oklahoma statute that prohibited falsity and deception in email headers. While acknowledging that 'falsity' means just that - "erroneous, wrong," or "untrue", the court proceeded to construe the CAN-SPAM exception as preempting any state law using any standard less than "fraudulent".

This shift is no angels-on-the-head-of-a-pin difference. It's more analogous to the difference between murder and simple assault. Fraud requires misrepresentation and knowledge of falsity and intent to def