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 07, 2008
Rip-off Report Back in Court
By Eric Goldman
It's been a few months since I've blogged on new Rip-off Report litigation. For many companies, a blog hiatus might signal good news, but in Rip-off Report's situation, it merely reflects that I've been falling behind in tracking all of the new lawsuits. I don't blog all of their cases, but two relatively new lawsuits caught my attention:
Certain Approval Programs v. Xcentric Ventures, 2:08-cv-01608-MHB (D. Ariz. complaint filed Aug. 29, 2008).
Among the plaintiff's allegations are that automatically putting the words "Rip-off Report" into a user report page's title tag is defamatory and not covered by 230. The complaint has some useful screen shots depicting how Rip-off Report works.
Xcentric Ventures, L.L.C. v. Opinion Corp. dba Pissed Consumer, 2:08-cv-01841-JAT (D. Ariz. complaint filed Oct. 7, 2008).
Rip-off Report is on the plaintiff's side (again), this time suing a putative competitor and its web host for copyright and trademark infringement. Among the interesting tidbits:
(1) Rip-off Report successfully sent three DMCA 512(c)(3) takedown notices to the web host but is suing the web host anyway for failing to terminate the hosting relationship.
(2) if Rip-off Report has ownership or an exclusive license to the user-supplied reports sufficient to have standing to sue, would this alter its ability to disclaim responsibility for the content of the reports? I think the answer should be "no"--see Schneider v. Amazon and Blumenthal v. Drudge--but exclusive control over user content for copyright enforcement purposes but without concomitant responsibility for other purposes will strike most people as counter-intuitive.
(3) the putative competitor allegedly infringed the Rip-off Report's trademarks by creating and using the URL "http://rip-off-report.pissedconsumer.com" and putting "Rip-off Report" in the site metatags. Hmm...does Rip-off Report really want to establish the precedent that these activities infringe???
Posted by Eric at 09:40 AM | Content Regulation , Copyright , Derivative Liability , Trademark | TrackBack
November 06, 2008
First Amendment Protects Spoof Strip Club in Video Game from Trademark Claim--ESS Entertainment v. Rock Star Videos
By Eric Goldman
E.S.S. Entertainment 2000, Inc. v. Rock Star Videos, Inc., No. 06-56237 (9th Cir. Nov. 5, 2008)
This case reinforces how trademark law has gone so far astray that easy cases have become hard ones. This lawsuit was brought by the Play Pen, a strip club in downtown Los Angeles. The Grand Theft Auto: San Andreas video game depicts stylized but grittily realistic scenes inspired by a few major metropolitan areas, including Los Angeles. At issue is a virtual strip club in the East LA-inspired area titled "Pig Pen" that resembles the actual Play Pen's trade dress and logo. The Play Pen argues that consumers will assume that it endorsed or is otherwise associated with the video game and therefore the depiction constitutes trademark infringement and unfair competition.
On the one hand, I can almost see Play Pen's point. Due to overexpansive merchandising rights, consumers nowadays have no idea when an acknowledgement or homage in an entertainment product is a paid placement or otherwise a licensed use by the IP owner. But on the other hand, come on! First, if users can actually recognize the homage to Play Pen, inclusion in the video game only seems likely to stimulate consumer interest in the brand. Second, even if users make the recognition, the risk that consumers will be confused about the source of goods in the marketplace is ZERO. What a complete waste of time and money to push such a meritless "problem" to the Ninth Circuit.
So from my perspective, it's absolutely clear that the plaintiff should lose. However, as we've seen with other commercial referential trademark uses, trademark law doesn't have a single apropos doctrinal tool to kill this lawsuit. (See Bill McGeveran's paper for a preliminary cut at this problem).
I personally think that the plaintiff's case fails because the defendant didn't make a use in commerce of the trademark, just like the depiction of a fictional character going into a Wells Fargo bank as a movie's plot point does not qualify as a trademark use in commerce. If courts can ever embrace my commercial referential trademark use argument, it will make it much easier to dismiss these referential cases and substantially clean up the doctrinal contortions courts are using in desperation.
The defense here argued nominative fair use, which both the district and appellate court rejected because the fictionalized variation of Play Pen did not actually refer to Play Pen. I can't really dispute that, but it only further reinforces that the nominative use defense is fairly narrow and not robust enough to solve many problems.
Another "defense" would be the lack of consumer confusion about product source. (I put that in quotes because it's actually the burden of the plaintiff to establish as part of the plaintiff's prima facie case). This seems like an easy out for the court, and the Ninth Circuit waxes philosophic on the topic by making its own implicit findings of fact without any support, but nevertheless both the district court and appellate court decided to rely instead on a First Amendment defense. This is noteworthy for at least three reasons. First, there is no automatic First Amendment defense to trademark law, so it's hardly a well-accepted option for courts. Second, courts usually prefer to avoid constitutional issues if they can, and here the courts bypassed the consumer confusion doctrine to reach for constitutional grounds. Odd. Third, the Rogers v. Grimaldi/Mattel v. MCA rulings--the precedents cited by the court--both involved the defendant referencing the plaintiff's trademarks in media titles, a very specialized fact pattern for trademark law, and here the court treats the First Amendment defense as a broad salve for a parody/spoof. This is a pretty big jump for the Ninth Circuit, and one I suspect other panels will follow reluctantly at best.
UPDATE: See the comparison photos yourself here.
UPDATE 2: Rebecca does a better job explaining the doctrinal messiness than I did.
Posted by Eric at 04:52 PM | Trademark | TrackBack
October 20, 2008
American Airlines Sues Yahoo for Selling Keyword Advertising
By Eric Goldman
American Airlines, Inc. v. Yahoo! Inc., 4:2008cv00626 (N.D. Tex. complaint filed Oct. 17, 2008). The Justia page.
Here's a lawsuit I never expected. Fresh off their settlement with Google, American Airlines is suing Yahoo for selling keyword advertising triggered by American Airlines-owned trademarks. I didn't run a redline comparison, but the complaint clearly borrows liberally from the Google complaint, right down to the heavy-hearted declaration that American Airlines doesn't bring this lawsuit lightly (paragraph 6) and the completely meritless vicarious trademark infringement claim (which erroneously uses the language of vicarious copyright infringement).
I'm surprised by this lawsuit for three reasons. First, most SEMs I've spoken with think that Yahoo has a much more trademark owner-favorable trademark policy than Google. Thus, I would have thought that Yahoo would be better positioned and willing to address American Airlines' concerns than Google was, and it's surprising to see that Yahoo couldn't resolve the dispute outside of court.
Second, it wasn't clear that American Airlines "won" its settlement with Google. The settlement was confidential, but after the settlement I could still easily find triggered ads that the lawsuit targeted. So exactly what did Google concede to, and how were those concessions appealing enough to motivate American Airlines to tango again?
By the way, this afternoon I replicated the searches I ran after the Google settlement. American Airlines, aa.com and AADVANTAGE now have no advertisers at all--which is different than in July. Did Google made some systematic changes after the settlement? (Maybe the settlement had a delayed effectiveness, such as to give Google time to build a new tool). Or has American Airlines chased individual advertisers off the search terms? Hmmm.
Third, and most importantly, I just don't see the business case for any trademark owner to sue a search engine. Maybe Google paid off the lawsuit sufficiently to make the effort financially attractive, but as I explained with the Google lawsuit, otherwise I just don't see how American Airlines could possibly be losing enough in "diverted consumers" to justify the litigation expense.
(On that point, paragraph 83(E) of the complaint was particularly laughable, saying that airline purchasers exercise a minimal degree of care when selecting air transportation services online. Really...? I'm sure people are pretty careless about making many-hundred-dollar non-refundable travel plans, just like they pick the wrong pack of gum in the checkout line.)
I'd be surprised if this lawsuit didn't settle like Google's did. If it doesn't, then it could be interesting.
Posted by Eric at 03:35 PM | Search Engines , Trademark | TrackBack
October 10, 2008
September 2008 Quick Links, Part 1 (Special Trademarks/Domain Names Edition)
By Eric Goldman
For some reason, September was an unusually busy Cyberlaw month, so I'm going to have at least 3 installations of my quick links series. This post focuses just on trademark- and domain name-related items from last month.
* Dozier Internet Law v. Riley. The Dozier Internet Law Firm is at it again. I last blogged about John Dozier for his claim that websites infringe copyright by republishing cease-and-desist letters. Now, he’s suing for trademark infringement because, among other things, a website put the Dozier law firm’s name into anchor text without the link going to the firm website. Fortunately, superstar trademark defense litigator Paul Levy of Public Citizen has taken up the matter and initiated a declaratory judgment lawsuit to stop the nonsense.
* Paul Levy is also taking on an “I-can’t-believe-it” trademark enforcement action by the Jones Day law firm. See Paul Levy’s post and their amicus brief. Wendy Davis piles on.
* adidas America, Inc. v. Payless Shoesource, Inc., 2008 WL 4279812 (D. Or. Sept. 12, 2008). The blockbuster trademark infringement damages award of over $300M has been reduced to “only” $65M.
* Miyano Machinery USA, Inc. v. MiyanoHitec Machinery, Inc., 2008 WL 4145649 (N.D. Ill. Sept. 5, 2008). More initial interest confusion silliness, including the court's belief that a defendant’s disclaimer tacitly admits IIC.
* Healix Infusion Therapy, Inc. v. Murphy, 2008 WL 4155459 (S.D. Tex. Sept. 2, 2008). Previous blog coverage of this case. A domain name registrant who isn’t aware of the plaintiff’s trademark lacks the requisite bad faith to constitute ACPA cybersquatting.
* Richard D. Salgado, Piracy and Chaos in the Marketplace of Ideas: Why Money Cannot Be Everything When Assessing Initial-Interest Confusion and Nonprofit Trademark Holders, 61 Ark. L. Rev. 241 (2008). I generally ignore most articles on initial interest confusion, especially those that actually think the doctrine is a good one. However, this one caught my eye because of this paragraph:
This article argues that courts err when they require financial gain as part of the initial-interest analysis where the trademark holder's enterprise is noncommercial. This requirement undermines the value of a trademark for a wide range of potential trademark holders. These holders include nonprofit organizations, churches, schools, and political organizations. These sanctions are what amount to cyber terrorism against others' valuable ideas, messages, and expressions. This problem is particularly relevant in any election year as the Internet floods with websites on behalf of issues and candidates, selling nothing more than an ideology or identity. (emphasis added)
Cyber-terrorism??? Wow. Call Homeland Security pronto.
* The Power of Internet Gripe Sites: Managing the Destructive Potential of "BrandSucks.com." Destructive potential....? Really. Once again, I ask, just how many people still type "[tm]sucks.com" into their web browser?
* I got an email from GoDaddy's PR department touting: "New Go Daddy Product Helps Domainers Get Sites Developed." I'll be interested to see how this plays out. First, given GoDaddy's history of having an itchy trigger finger when it comes to taking down its customers (see, e.g., 1 and 2), I wonder how many domainers are willing to rely on them? Second, if GoDaddy's domainer customers get sued for trademark infringement, I wonder how a court will evaluate a domainer service provider so closely connected to the site content. See the Vulcan Golf v. Google lawsuit.
Posted by Eric at 09:21 PM | Domain Names , Trademark | TrackBack
September 29, 2008
Delayed Enforcement Blocks Domain Name Lawsuit--Southern Grouts v. 3M
By Eric Goldman
Southern Grouts & Mortars, Inc. v. 3M Co., 2008 WL 4346798 (S.D. Fla. Sept. 17, 2008)
I'm often baffled by lawsuits over domain names and keywords because they just don't seem to make any economic sense. This lawsuit is especially perplexing given the plaintiff's delays and the seeming impossibility of the plaintiff reaching a profitable outcome, even if it won in court. What was the plaintiff thinking?
Background
3M and SGM compete in the field of "quartz aggregate products for surface finishes." SGM has a federal trademark registration for "Diamond Brite." In 2000, 3M bought an unrelated business whose assets included a trademark in "Diamond Brite" and the domain name "diamondbrite.com." For a while, 3M redirected the domain name to the home page of the other business unit it owned. No later than July 2002, the domain name stopped resolving, but 3M continuously renewed its domain name registration. Ultimately, 3M migrated the new unit to its existing trademarks and let its acquired trademark in "Diamond Brite" lapse.
Meanwhile, in 2005, 3M did a 3 week trial buying "diamond brite" in Google AdWords, but the lawsuit only involves the domain name, not the AdWords purchase.
SGM contacted 3M three times about the diamondbrite.com domain name. No later than July 2002, SGM emailed 3M asking if it could acquire the domain name. In Feb. 2005, SGM sent a cease-and-desist letter, which 3M rejected. Then, in July 2007, SGM wrote to 3M again proposing an amicable solution, and 3M continued to resist. SGM then sued 3M in Sept. 2007.
Laches
From my perspective, this is an easy laches case. Taking 5 years to pursue the matter, with nothing resembling an ongoing dialogue, is simply too long. 3M wound down use of the domain name, so its economic expectations aren't disturbed like a typical laches case, but there is still the increased litigation costs due to the 5 year delay. The court rejects that either the AdWords purchase and the domain name renewals resetted the laches analysis.
Unfair Competition on the Merits
The court says that the mere possession of the diamondbrite.com domain name without any further use does not constitute a "use in commerce" sufficient to support Lanham Act violations. Along the way, the court distinguishes a veritable who's-who list of junky domain name cases from the turn of the century, including PACCAR, Brookfield, PETA v. Doughney, OBH and Planned Parenthood v. Bucci. The court distinguishes most on the fact that 3M didn't have an active website resolving to the domain name, but it goes further with the OBH and Bucci cases:
OBH and Planned Parenthood[] are both nearly a decade old. As with any widespread change in technology, there is a learning curve. Even if those cases were correct when decided, I decline to adopt the position today that internet users of any significant number would be frustrated or hindered by merely not arriving at the expected site the first time a web address (domain name) was typed in... With the advent of multiple, and increasingly powerful search engines, it is unlikely that a potential consumer of SGM's products would be turned away by not finding a website at diamondbrite.com. In any event, SGM has presented not a scintilla of evidence to show that consumers have been prevented from accessing SGM's own website, or prevented from obtaining any of SGM's goods or services. (emphasis added)
The bolded language, of course, is true and has been for a number of years, but it's nice to see a court expressly acknowledge that "technological facts" embedded in the precedent are now out-of-date. It's also nice to see the court clearly recognize the substitutability of the domain name system and search engines and to realize that consumers prefer search engines.
The court also rejects the precedent by pointing out that there cannot be likelihood of consumer confusion when the domain name owner doesn't resolve at all. As the court says, "The seven factors use to determine whether a likelihood of confusion exists become irrelevant if there is no “use” to compare the mark to." There is plenty of stupid precedent to the contrary (including those predicated on initial interest confusion, which the court expressly rejects), but this court nails it.
ACPA on the Merits
In my opinion, the ACPA claim is an easy defense win because 3M (and the predecessor company) had legitimate trademark interests in "Diamond Brite" prior to the domain name's registration. The court still courteously goes through the "bad faith" ACPA analysis before concluding that 3M had none. Along the way, the court soundly rejects a pretty silly argument that the domain name registration pointing to an unresolved domain name would divert consumers because frustrated consumers would do a Whois lookup query for the defunct domain, learn that 3M was the registrant and seek out 3M to transact with. Some arguments are better left unmade.
In the end, the court grants summary judgment to 3M and dismisses the lawsuit.
Lawsuit Futility
I understand how matters like this can sit on an in-house counsel's desk for years, only resurfacing every couple of years and prompting a "ping" to the other side. But I simply can't understand how, in 2007, after 5 years of irresolute progress, SGM thought the economic upside justified the expense of a lawsuit.
On the benefit side, a domain name like "diamondbrite.com" has some value, especially when it's associated with a product line bearing that name. But how much value? Assuming a lawsuit like this costs at least six figures, I can't imagine that the domain name is worth anywhere close to that. Indeed, any incremental selling power from the domain name could be cost-effectively replicated through a combination of SEO and SEM on the term "diamond brite." Better yet, SGM could have poured the money into product sales and marketing, which I'm confident has a substantially higher ROI than suing or gaming the search engines.
As further evidence of the weak value of the domain name, SGM did not cite any harm from not owning the domain name, and the matter only rose to the top of SGM's in-house personnel's desk 3 times in 5 years. Clearly, this is not a "must have" domain name,
On the expense side, these types of lawsuits are costly. In addition to the normal attorney's fees, SGM obtained at least one expert witness (and, to add insult to injury, the court bounced the expert's report), did some expensive discovery (including obtaining and reviewing 3M's portfolio of 13,000 domain name registrations) and tied up key internal personnel on the lawsuit (including testimony from the "head of information technology and the executive vice-president of SGM"). The cost of a lawsuit isn't measured just by out-of-pocket attorney expenses but by overall opportunity cost, and on that basis, this lawsuit tied up valuable resources.
Finally, the rational decision-maker multiplies the cost-benefit amount by the probability of winning, and it seemed clear to me that this lawsuit had bad odds from the get-go. The ACPA claim was destined to lose because on the high "bad faith" standards (it also makes me wonder why SGM didn't try the UDRP first) and the fact that 3M had clear legitimate rights at the beginning. The potential success of the unfair competition claim is naturally less clear, but even if SGM won this claim, they had almost no chance of recovering meaningful damages or attorney's fees. As a result, I can't see a scenario where this was a breakeven lawsuit from the beginning. Given the low odds of success, this just seems like a clearly futile waste of money from day 1.
[A personal note: I'm out for the rest of the week for the Jewish holiday and a trip to the heartland. I'll probably next see you again next week. L'shanah tovah tikatev v'taihatem!]
Posted by Eric at 09:53 AM | Domain Names , Marketing , Search Engines , Trademark | TrackBack
September 08, 2008
August 2008 Quick Links, Part 1
By Eric Goldman
eBay
* Mazur v. eBay Inc., 2008 WL 2951351 (N.D. Cal. July 25, 2008). See my previous blog post on the case. Some commentators are excited about this ruling because it rejects eBay's motion to dismiss a RICO claim.
* Missing Link, Inc. v. eBay, Inc., 2008 WL 3496865 (N.D. Cal. Aug. 12, 2008). This is a lawsuit by eBay sellers complaining that eBay didn’t immediately index their listings in its search engine and eBay raised the price on “Good Until Cancelled” listings. This is the second time the court has dismissed some claims, but even so some claims have also survived the motion to dismiss process.
* As expected, Tiffany appealed the eBay ruling. My initial post.
* Vulcan Golf, LLC v. Google Inc., 2008 WL 2959951 (N.D. Ill. July 31, 2008). The court dismisses a few claims made in the plaintiff's third amended complaint. My post on the initial complaint.
* JIT Packaging v. Google (E.D. Ill. complaint filed Aug. 11, 2008) A third lawsuit against Google over the placement of AdWords ads on parked domains and other putatively undesirable pages.
* A heavily redacted version of the Google/Yahoo agreement. The SEC examiner who let the agreement go through with this many redactions was asleep at the wheel!
47 USC 230
* Bauer v. Glatzer (N.J Superior Ct. July 21, 2008). Wikimedia easily wins a lawsuit against it alleging that a Wikipedia entry was defamatory.
* Capital Corp. Merchant Banking, Inc. v. Corporate Colocation, Inc., 2008 WL 4058014 (M.D. Fla. Aug 27, 2008). 47 USC 230 defense denied against allegations that "Leonard Norwich posted defamatory statements about [the plaintiff] on three websites and Francesca Norwich allowed Leonard to use “a computer registered in her name” to make the defamatory statements." The denial makes sense for Leonard but seems clearly erroneous with respect to Francesca.
* Vanginderen v. Cornell (S.D. Cal. June 3, 2008). CMLP page. This isn't specifically a 230 case but it's still relevant. Interesting lawsuit against Cornell and related entities for electronically posting a school newspaper story from 1983 that was allegedly defamatory. The court dismisses the lawsuit on an anti-SLAPP motion.
Blogging
* A Las Vegas nightclub loses its cool and sues a blogger for, among other things, including its logo in the blog post.
* As part of the fallout from the Troll Tracker blog, Dennis Crouch, of PatentlyO fame, has received a subpoena for communications related to his blog. Dennis' comments and LegalWatch. In a related lawsuit, Frenkel (a/k/a Mr. Troll Tracker) was dismissed from a lawsuit again. Ward v. Cisco Systems, Inc., 2008 WL 4079286 (W.D. Ark. Aug 28, 2008)
Content Restrictions
* Kings English, Inc. v. Shurtleff, 2008 WL 3285898 (D. Utah Aug. 8, 2008). The judge denied the plaintiffs’ motion to reconsider its highly unfavorable prior ruling. My initial post on the lawsuit.
* Reisinger v. Perez (E.D. Wis. complaint filed Aug. 18, 2008), First amendment lawsuit against the City of Sheboygan for intimidating a woman into removing a website link to the city's police department.
* National Federation for the Blind v. Target has settled, with Target paying $6M and redesigning its site.
Posted by Eric at 09:47 PM | Content Regulation , Derivative Liability , Licensing/Contracts , Search Engines , Trademark | TrackBack
September 05, 2008
426,487 Reasons Why Metatags Still Matter (In Court)--Venture Tape v. McGills
By Eric Goldman
Venture Tape Corp. v. McGills Glass Warehouse, 2008 WL 3959997 (1st Cir. Aug. 28, 2008). For more on the case, see the initial 2003 ruling denying a motion to dismiss for lack of jurisdiction and a 2006 district court ruling on damages.
Regular blog readers know that metatags don't matter from a technological standpoint and haven't mattered for years. But because they once might have mattered, courts are still treating them as the uber-SEO technique. In this ruling, the First Circuit joins the 11th Circuit as the latest appellate courts this year to experience a judicial freakout about metatags. The price tag to the defendant for using ineffectual metatags: $426,487 in damages, costs and attorney's fees.
The story is all too familiar. McGills sells competitive products to Venture Tape and in 2000 put Venture Tape's trademarks ("Venture Tape" and "Venture Foil") into its metatags and in white-on-white text with the hope of getting some search engine traffic. (As usual, the judge doesn't know or seem to care that there are multiple flavors of metatags, but the opinion treats them as keyword metatags). In 2003, Venture Tape realized this and sued. The district court found for the plaintiff and awarded $230k in damages for the period 2000-2003, $188k in attorney's fees and over $7k in costs. McGills appealed to the First Circuit.
With respect to trademark infringement, the First Circuit's test omits any requirement of trademark use in commerce (a seeming doctrinal problem in its own right), so the only issue was likelihood of consumer confusion. On that front, because the parties are direct competitors and the defense admitted that they referenced the trademarks to generate search engine traffic, the court says "By the conduct of its case below, McGills effectively admitted seven of the eight elements of" the likelihood of consumer confusion test.
The only disputed point is evidence of actual confusion, and the defendant points out that there's no evidence that any consumers were lured to its site due to the trademark references. The court says it doesn't care about this evidence one way or another because this is only 1 of 8 factors, so the 7 other factors are damning enough. In other words, this court says it doesn't matter if any consumers actually changed their behavior because the other proxies to measure the efficacy of the defendant's actions (i.e., the other elements of the likelihood of consumer confusion test) should matter more. Hmm.
The court has no problem declaring the defendant's conduct "willful" (the white-on-white text is really tough to defend, even if it's not efficacious), opening the path to an award of damages. The calculation starts with the defendant's entire revenues during the period of time the plaintiff's trademark was on the website (2000-2003), or $1.9M. The defendant is able to show that its gross profits during that time were only $230k, but it further argued that the competitive products were only 1% of its business. The district court wasn't satisfied with the evidence to bolster that argument, so the court awards 100% of the gross profits (instead of 1%). The consequence is that the defendant's entire business ran at zero profit for over three years solely because of its competitive metatagging--even if the metatagging didn't divert a single consumer. To make it worse, the court awards $188k of attorney's fees for the willful infringement plus $7k of costs. And, of course, the defendant paid for its own attorney for 5 years of litigation. All told, ouch.
I won't now belabor the point that both the district court and the appellate court are wrong in their analysis of metatagging. See here for my previous belaboring of that point. Instead, let me reinforce two practice pointers that I've made before:
1) Don't put third party trademarks in keyword metatags. It's just not worth it. The marketing payoff is trivial at best, and too many courts are overreacting to the presence of metatags. Here, it cost the defendant 3+ years of profits for their entire business plus another nearly $200k for some SEO tactics that had little chance of helping anyway. That's a bad business call.
2) If you are defending a lawsuit involving metatags or other technology-mediated uses of trademarks like keyword advertising, you MUST hire an attorney who already understands search engine technologies. As a good acid test, ask your attorney if they know how search engines index keyword metatags. If they don't know that keyword metatags are irrelevant technologically, drop them immediately. The point is that your attorney will need to explain to the judge why keyword metatags don't matter from a technological standpoint (like the attorneys apparently did in this case), and if your attorney doesn't understand the technology, the judge won't either.
Posted by Eric at 02:29 PM | Search Engines , Trademark | TrackBack
August 27, 2008
7Search Sues McAfee For Red Flagging It
By Eric Goldman
7Search.com v. McAfee, Inc., 1:2008cv04831 (N.D. Ill. complaint filed Aug. 25, 2008). The Justia page.
I don't have a good sense of how many lawsuits have been filed against anti-spyware vendors for classifying third party software as "adware" or "spyware." I've blogged on a few (including Kaspersky, PC Tools and Symantec v. Hotbar), and Ben Edelman maintains a larger catalog of such lawsuits (not sure how up-to-date this is). However, I don't know if these lawsuits are relatively rare (as Ben's chart implies) or if they are multitudinous but most quietly fly under the radar screen.
If there aren't many unpublicized lawsuits, that may reflect that suing an anti-spyware vendor over its classification decisions almost never makes sense. First, many vendors have a private adjudicatory/appellate process that resolves many potential disputes without a lawsuit. Certainly, most vendors don't want to make errors, which undermines their own credibility, and most reputable vendors want to fix their mistakes. Second, lawsuits bring generally unwanted publicity to the plaintiff, calling extra attention to their alleged deficiencies and bringing out all of the gripers. Third, the costs of the lawsuit may be more than the value of any frustrated transactions. Finally, many of the lawsuits have low probabilities of legal success for the reasons I'll discuss in a moment. So there is good reason to believe classification-related lawsuits such as this one are rare. (I'm not saying that grumbles or C&Ds are rare; I'm just referring to formal lawsuits).
In this lawsuit, 7Search says that it was in the toolbar business but stopped offering downloads from its site in 2003. However, McAfee's SiteAdviser gives 7Search the big red X and says "Feedback from credible users suggests that downloads on this site may contain what some people would consider adware, spyware, or other potentially unwanted programs." 7Search claims that this statement is false because it isn't offering any downloads at all. 7Search thus alleges false advertising (Lanham 43(a)), deceptive trade practices, defamation and unfair competition.
The most obvious barrier to 7Search's lawsuit is 47 USC 230. Both (c)(1) and (c)(2) could be implicated. (c)(1) is less likely, but if in fact McAfee is republishing information from third parties (as suggested by the statement's reference to "credible users"), they may be able to claim (c)(1) for the republication. Either way, (c)(2)--the immunization for filtering decisions--is directly on point and potentially immediately fatal to the lawsuit. Zango's lawsuit against Kaspersky was soundly and quickly knocked out on 230(c)(2) grounds (though that is now on appeal to the Ninth Circuit), and a district court in Illinois gave broad deference to the Zango ruling in finding that Comcast could claim 230(c)(2) for email filtering decisions.
At the same time, 7Search alleges that McAfee's classifications were in bad faith. If so, then 230(c)(2) wouldn't apply even under the liberal Kaspersky or Comcast approaches, both of which required subjective good faith. We'll have to see how McAfee responds to determine if 7Search's allegation has any chance of getting traction.
There are two other possible holes in the potential 230 coverage for this lawsuit. First, courts have been inconsistent whether a false advertising 43(a) claim under the Lanham Act fits within the "IP" exclusion to 230. Second, most of 7Search's gripe goes to McAfee's statement that bad downloads are available--words chosen by McAfee to describe its filtering decision. It remains unclear if 230(c)(2) protects an intermediary's characterization of its filtering decision as much as it protects the filtering decision itself--just like 230(c)(1) may protect against liability for third party information but may not protect against marketing representations rendered untrue by third party content or actions.
In any case, I think this lawsuit and others over classification decisions raise interesting and important issues that I plan to explore in my Economics of Reputational Information project. We want skillful intermediaries to digest the overwhelming amount of information available in the marketplace and make reputational judgments that speed up our consumer decision-making. On that basis, we definitely don't want reputational judgments removed from marketplace actors and put into the hands of the judges. However, we also want the reputational intermediaries to make factually accurate judgments because their misjudgments also could distort marketplace decision-making.
Posted by Eric at 03:54 PM | Adware/Spyware , Derivative Liability , Marketing , Trademark | TrackBack
August 26, 2008
Court Slams Competitive Metatagging and Keyword Advertising--Soilworks v. Midwest Industrial Supply
By Eric Goldman
Soilworks, LLC v. Midwest Indus. Supply, Inc., 2008 WL 3286975 (D. Ariz. Aug. 7, 2008)
All too frequently, we get an opinion where the judge clearly didn't grasp current implementations of keyword advertising and metatagging. Often, it's simply a bad luck of the draw; in other cases, the defense lawyers may have failed to educate the judge properly (IMO, the Axiom case is an example of the latter).
This opinion, an outgrowth of patent litigation involving two competitors in the soil anti-erosion business, is a good example of a judge who just doesn't get it. The advertiser's misdeed is that it "uses the [trademarked] phrase 'soil sement' in keyword advertising on an Internet search engine and uses variations of the phrase in metatags for its websites." The opinion doesn't specify if the advertiser triggered ads on the term "soil sement" or displayed the trademark in the ad copy, nor does the opinion specify which metatags (keyword, description, others) contained the "soil sement" references.
Those "details" don't matter to this judge, though, because the initial interest confusion doctrine provides a cure-all for any factual or analytical deficiencies. Even though there was zero evidence that the advertiser's behavior actually or might have confused consumers one bit, the court says that the potential for attention diversion from keyword advertising and metatagging was sufficient to constitute initial interest confusion ("the wrong in a metatag initial interest confusion case is ... the diversion of the consumer's initial attention to the defendant's website using the plaintiff's trademark and goodwill"). Unfortunately for the analytical rigor of the judge's discussion, it's already well-established that (1) keyword metatags have no meaningful diversionary power, and (2) as I've explained here, it is impossible to conclude that consumers were diverted until we can confirm where the consumers were trying to go in the first place (and a simple keyword search can't tell us that). (There are plenty more bases to attack the "logic" here; I'm trying to be selective). As a result, this court's reliance on attention diversion concerns is anachronistic at best and pernicious at worst.
This opinion is too inscrutable to draw many useful lessons from it. However, it reinforces a broader lesson that there remains significant legal downside, and minimal marketing upside, to including competitive trademarks in keyword metatags. Therefore, I continue to strongly suggest that advertisers should avoid this practice.
For more, see Rebecca's commentary, where she says she's "depressed" by rulings like this.
Posted by Eric at 09:57 AM | Search Engines , Trademark | TrackBack
August 20, 2008
Competitive Pop-up Ads Aren't Unfair Competition or Tortious Interference--Overstock v. SmartBargains
By Eric Goldman
Overstock.com, Inc. v. SmartBargains, Inc., 2008 UT 55 (Utah Sup. Ct. Aug. 19, 2008)
In light of the death of adware and the fact that almost all of us have moved on, it is jarring to see adware opinions still emerging. This case, percolating in the courts four years, is quite a throwback.
In 2004, Overstock sued SmartBargains for buying adware-delivered pop-up ads that were triggered by user visits to Overstock.com. There have been a lot of keyword advertising cases since then, but this case is unusual because (for reasons not clear to me) Overstock did not make the more typical trademark infringement claim or even the less common trademark dilution claim.
Instead, Overstock asserted three causes of action: (1) violation of the initial Utah Spyware Control Act passed in 2004, (2) unfair competition, and (3) tortious interference with prospective business relations. The Spyware Control Act claim was mooted when the statute was deemed unconstitutional and further mooted when the legislature amended the law, so Overstock did not pursue that claim further. The district court also ruled against Overstock on the other 2, and Overstock appealed to the Utah Supreme Court. [for reasons that aren't clear to me, this case apparently bypassed the Utah appeals court.]
The Supreme Court had little difficulty disposing of the remaining claims. The pop-up ads didn't constitute unfair competition (in Utah, an anti-passing off claim) in this case because SmartBargains' pop-ups appeared in a separate window and displayed the SmartBargains' logo. The tortious interference claim gets tossed for exactly the right reason--competitive ads are a good thing, not bad. The court says "SmartBargains’ pop-ups indisputably exist to compete with Overstock. Competition is not an improper purpose, even though other byproducts of competition may exist." Case dismissed.
In one sense, this case isn't all that important. With respect to lawsuits over competitive online ads, most of the action relates to trademark infringement and particularly what constitutes a trademark use in commerce. But this case is important because it's fairly typical for plaintiffs in those lawsuits to add a laundry list of additional claims with the hope that something sticks. As this case shows, the laundry list claims are junky and easily disposed of, and a state supreme court ruling to that effect is a nice and useful precedent for defendants.
Even so, I wonder about the political ramifications of this ruling. Overstock's attitude towards keyword advertising has been erratic. On the one hand, it went to the Utah legislature to protest the Utah Trademark Protection Act because it apparently buys keyword ads on third party trademarks. On the other hand, it supported Utah's initial Spyware Control Act, it was the first to try to take advantage of the law, and it was willing to pursue this silly lawsuit for over 4 years. In response to this loss, will Overstock flip--just like its Utah Internet retailing peer 1-800 Contacts flipped--and go seek out a friendly and easily persuaded Utah state legislator to give it a tailor-made anti-keyword advertising statute? Stranger things have happened in Utah...
HT: Evan Brown
Posted by Eric at 07:15 AM | Adware/Spyware , Marketing , Trademark | TrackBack
August 11, 2008
Minnesota Court Says Keyword Advertising is TM Use in Commerce--Hysitron v. MTS
By Eric Goldman
Hysitron Inc. v. MTS Systems Corp., 2008 WL 3161969 (D. Minn. Aug. 1, 2008)
In a brief and pedestrian opinion, another court outside the Second Circuit said that buying a trademarked keyword is "use in commerce" under the Lanham Act even if the trademark doesn't appear in the ad copy. The court says:
This Court adopts the majority view that using a trademark to generate advertising constitutes a “use in commerce” under the Lanham Act. This approach adheres to the plain meaning of the Lanham Act's definition of “use in commerce.” The language used in the definition suggests that a “use in commerce” is not limited to affixing another's mark to one's own goods but also encompasses any use of another's mark to advertise or sell one's own goods and services.
The court is right about the majority vote, but it's hardly a strong majority. According to my count, the vote was 7-to-6 before this ruling. However, all 6 no votes are in the 2d Circuit, so geographically there is a stronger basis to characterize the rule as the majority rule.
The court also denied the defense SJ motion because more discovery is required to determine consumer confusion.
Posted by Eric at 11:01 PM | Search Engines , Trademark | TrackBack
August 08, 2008
Affiliate Liability Extravaganza
By Eric Goldman
[Note: I recently published a version of this article at InformIT. Here's the pre-edited version I sent them.]
Introduction
This article discusses marketers’ liability for the actions of their marketing affiliates (what I refer to as “affiliate liability”). The affiliate liability issue has become red-hot recently because numerous plaintiffs have taken aggressive legal positions seeking to expand the boundaries of affiliate liability. In three recent rulings, courts have emphatically rejected these expansive liability arguments. Even so, it seems likely that plaintiffs will continue to look for ways to expand affiliate liability, and despite the favorable rulings, defendants often settle a lawsuit alleging affiliate liability rather than establish their rights in court.
Affiliate Marketing—Good and Bad
Marketers create affiliate programs to outsource marketing decisions to domain experts. For example, independent third parties may have better or cheaper access to subcommunities of potentially interested consumers than a marketer’s employees. An affiliate marketing program compensates these local experts for work and expertise involved to take the marketer’s message to those consumer communities. When it works properly, affiliate marketing programs can play an important role in the broad “invisible hand” economic phenomenon of allocating scarce resources to consumers who value them the most.
Affiliate marketing doesn’t always have this salutary effect. Affiliate marketing programs create payoffs to motivate affiliate behavior, and inevitably some affiliates will try to obtain the payoff without doing the desired activity. Thus, even if the marketer would prefer otherwise, some affiliates might do “whatever it takes” to get paid, including using false advertising or illegitimate marketing mechanisms. Further, the fact that the marketer outsources some choices to affiliates (a necessary part of any affiliate program) can lead to “diffuse responsibility” where the marketer and affiliates point fingers at each other if something goes wrong. Sometimes, when there are multiple tiers of affiliates, it can become effectively impossible to assign responsibility for the wrongdoing.
To bypass these legal entanglements, plaintiffs have sought ways to hold marketers vicariously (automatically) liable for their affiliates’ actions. However, these efforts “break” standard tort law by trying to treat independent contractors as if they are principal-agents without the requisite supervision or authority that typically triggers agency liability. As a result, overexpansive theories of affiliate liability cause marketers to internalize too many costs, curtailing potentially socially beneficial marketing activities or leading to overinvestment in socially wasteful liability minimization schemes.
Plaintiffs Gone Wild: Two Recent Efforts to Expand Affiliate Liability
There have been countless affiliate liability enforcement actions, but I’ll focus on two recent initiatives.
New York Sales Tax Law
State and local taxing jurisdictions have long coveted a way to impose sales tax collection responsibilities on non-resident Internet vendors. In general, these efforts have been stymied by the Supreme Court’s decision in Quill Corp. v. North Dakota, 504 U.S. 298 (1992), which requires a vendor to have a physical presence in the jurisdiction before the taxing entity can impose sales tax collection obligations on it.
New York, however, developed a nifty workaround. In April, it passed a law (Chapter 57, N.Y. Laws of 2008) declaring that a vendor’s marketing affiliates in New York constituted a physical presence in New York by the vendor. If so, New York can impose sales tax collection obligations on remote vendors due to their New York affiliates. As part of its crafty plan, New York tried to induce compliance with a carrot—if remote vendors voluntarily agreed to collect and pay sales tax from New York residents going forward, then New York would grant them amnesty for any back sales tax collection obligations.
Neat trick, but…a small problem: affiliates are independent contractors of the vendor, so this effort to treat them as legally related entities surely doesn’t comply with the Constitution. I suspect a court will confirm this flaw because both Amazon and Overstock.com have sued New York over the law. At the same time, to minimize its risk, Overstock has also tossed all of its New York affiliates overboard. One might question the wisdom of the New York legislators prompting marketers to cut off opportunities for New York online entrepreneurs.
Trademark Owners Claiming Marketers Are Liable for their Affiliates’ Marketing
Another trend: trademark owners are trying to hold a marketer liable for the alleged trademark infringement committed by its affiliates, such as when affiliates purchase the third party trademark as a keyword trigger for search engine ads. Plaintiffs have alleged affiliate liability in at least three lawsuits in the past couple of months:
* DSW v. Zappos.com (S.D. Ohio complaint filed May 12, 2008). For more, see SEOmoz.
* NameSafe v. LifeLock (M.D. Tenn. complaint filed June 26, 2008). For more, see Techdirt and News.com.
* Rosetta Stone v. Rocket Languages (C.D. Cal. complaint dated July 2, 2008). For more, see the WSJ Law Blog.
Courts Weigh In—and Plaintiffs’ Expansive Theories Don’t Fare Well
The efforts to extend liability in the sales tax and trademark contexts are novel, and it’s hard to predict the final outcome because we have limited direct precedent to consult. However, looking at some recent rulings in other contexts, there is good reason to believe that both legal theories go way too far.
CAN-SPAM
Unlike many other areas of the law, CAN-SPAM (15 USC 7705 and 7706) specifically authorizes affiliate liability in the statute. The Federal Trade Commission (FTC) has routinely invoked this provision in its pursuit of marketers promoted by affiliate-initiated spam (for one of the more recent examples, see the FTC’s press release on one of its porn spam busts and settlements). Further, typically when the FTC targets a marketer on an affiliate liability theory, the marketer rolls over and settles rather than fight.
But…a small problem: the FTC’s expansive interpretation of the affiliate liability statute—the basis it has used to procure these settlements from marketers—may not actually reflect the law. In an outcome that didn’t get nearly the press it deserved, in an lawsuit against Impulse Media earlier this year, the FTC took its affiliate liability theories to a jury and lost. This is a huge verdict because (1) the FTC rarely loses in court, and (2) perhaps more importantly, when average citizens evaluate the FTC’s expansive affiliate liability theories, they may balk.
Oddly, the FTC didn’t take no for an answer. It subsequently asked the judge to enjoin Impulse Media even though Impulse Media won the jury verdict. Talk about chutzpah! Not surprisingly, the court declined the request. US v. Impulse Media, 2008 WL 1968307 (W.D. Wash. May 1, 2008).
In another lawsuit, ASIS Internet Services, v. Optin Global, Inc., 2008 WL 1902217 (N.D. Cal. March 27, 2008; unsealed April 29, 2008), a civil plaintiff, ASIS (a serial anti-spam litigant), invoked the CAN-SPAM affiliate liability provision in its anti-spam lawsuit against 20 defendants. One defendant never showed; 18 defendants settled up (as mentioned, the typical response); and only one defendant—Azoogle—persisted in court.
Azoogle is a lead generation company for upstream marketers, and it relies on downstream affiliates to help it generate leads for its clients. Some of those downstream affiliates generate leads via spam. In this ruling, the court rejects Azoogle’s liability for spam sent by its marketing affiliates:
Although ASIS has pointed to significant evidence that Azoogle, during the relevant time period, did little to investigate the third party vendors it engaged, there is no evidence in the record from which a jury could conclude that Azoogle, in contracting with Seamless Media, made a deliberate choice not to know that Seamless Media would engage third parties to send out spam on Azoogle's behalf. The evidence cited by ASIS to establish knowledge on Azoogle's part is entirely speculative. Even assuming it is true that the Emails were sent by a single individual and that the lead was typed into a web site that was copied from Azoogle's lowrateadvisors site, this is insufficient to show that Azoogle consciously avoided knowing that the Emails would be sent. Further, while ASIS relies primarily on the allegation that Azoogle failed to adequately investigate its third-party vendors, ASIS has pointed to no evidence that if Azoogle had investigated Seamless Media prior to entering into the Insertion Order, it would have learned facts sufficient to show that Seamless Media was likely to engage in CAN-SPAM violations. There is no evidence in the record that would put Azoogle on notice that Seamless Media, or Seamless Media's vendors, obtained leads from spammers. Indeed, the only evidence on this subject is that Seamless Media had a good reputation at the time, and was obliged by its contract with Azoogle to follow the law.
Adware
Another recent affiliate liability decision is the remarkable ruling in People v. Direct Revenue LLC, 2008 WL 1849855 (N.Y. Sup. Ct. March 12, 2008), another case that did not get the attention it deserved. Disclosure note: I helped file an amicus brief in this case.
In 2006, the NY Attorney General’s office (NYAG) made the apparent decision that adware vendor DirectRevenue needed to be shut down by any means necessary, and it launched a multi-front attack on DirectRevenue. It publicly posted a website with information about DirectRevenue that had no apparent purpose other than to denigrate DirectRevenue’s reputation. It bullied DirectRevenue’s advertisers, ultimately procuring, and then releasing a hyperbolic press release about, an insignificant settlement that spooked potential advertisers away from DirectRevenue. And finally, it sued DirectRevenue directly.
The NYAG’s actions had their desired effect. Perhaps due in part to the NYAG’s campaign to close DirectRevenue down, DirectRevenue did in fact go out of business. Congratulations to the NYAG for achieving its apparent goal.
But…a small problem: the NYAG’s assessment of DirectRevenue’s legitimacy may have, in fact, been itself lawless, because the court emphatically rejected all of NYAG’s legal theories. This might be amusingly ironic if the NYAG’s anti-DirectRevenue campaign wasn’t such a chilling and crushing misuse of governmental powers.
The opinion is worth reading in its entirety, especially where the court affirms the EULA formation and limits extraterritorial liability. However, apropos to this post, the court rejected DirectRevenue’s liability for allegedly illegitimate software installations made by its affiliates, saying “petitioner has not shown that respondent should be held liable for the actions of those third parties under a theory of agency or ratification, or otherwise.” The court explains:
Dismissal is required with respect to the 22 [installations by] third parties, who petitioner concedes were independent contractors rather than agents of Direct Revenue. A principal is generally not liable for the acts of an independent contractor because of the lack of control over how the contractor's work is performed (Chainani v. Bd. of Educ., 87 N.Y.2d 370, 380-81 [1995]). Neither may the principal be charged with the conduct of even more remote subcontractors (People v. Synergy6, Inc., Index No 404027/03 [Sup Ct N.Y. Co 2006][unpublished disposition][Attorney General's action for deceptive practices and false advertising under GBL dismissed as against email marketing company where fraudulent emails were sent by company retained by agent]). Although exceptions exist, such as where the contractor was negligently retained or supervised (Saini v. Tonju Assocs., 299 A.D.2d 244, 245 [1st Dept 2002]) or where the principal has ratified the wrongful acts (Kormanyos v. Champlain Valley Fed. Sav. and Loan Assoc. of Plattsburgh, 182 A.D.2d 1036, 1038 [3d Dept 1992]), the record here does not support any grounds for departure from the usual rule.
As noted, under the SDA, Direct Revenue contractually required its distributors to obtain consent of consumers consistent with the terms of the EULA. The SDA also forbade the distributors from holding themselves out as respondent's agents. Respondent was not authorized or obligated to control their work, particularly since many of them additionally acted as distributors for various other advertisers. Although in Sotelo v. Direct Revenue, 384 Supp2d 1219 (ND Ill 2005) the court upheld a cause of action against respondent for negligent supervision of distributors, the issue arose on a motion to dismiss and the court thus restricted its inquiry to the four corners of the complaint. Notably, the court stated that it was precluded at that procedural juncture from considering respondent's evidence that the distributors were independent contractors, evidence which, as here, included the SDA.
…
The theory that respondents ratified the alleged third party misconduct also fails. The allegations that respondent had general and/or constructive knowledge of some distributors' wrongful practices are insufficient to impose liability (see, Synergy6, supra; Del Signore v. Pyramid Sec. Servs., Inc., 147 A.D.2d 759, 760-61 [3d Dept 1989][mere knowledge of litigation and complaints against security company for undue force by guards insufficient to impose liability upon hiring firm]; see also Hamilton v. Beretta USA Corp., 96 N.Y.2d 222, 237 [2001]). Moreover, it is conceded that in those few instances in which respondent obtained actual knowledge of a distributor's misconduct, it took significant steps to modify its procedures. A finding of ratification cannot be found upon such facts, notwithstanding that respondent may have benefited financially from its relationship with the distributors before remedial measures were implemented (see Synergy6, supra).
It is my understanding that the NYAG has filed a notice of appeal in this case to preserve its options, but it is still deciding if it will pursue the appeal.
Unfortunately, I’m not aware of the Synergy6 opinion being available electronically, which is a shame because it’s an interesting and relatively early rejection of the NYAG’s expansive affiliate liability doctrines. Due to that ruling (which involved email marketing instead of adware), the NYAG already had good reason to suspect that its predicate theories were dubious, which makes its decision to pursue those theories against DirectRevenue even more lamentable.
Conclusion
This post highlights two seemingly inconsistent trends. Trend #1 is that plaintiffs (private actors or government agencies) are taking very expansive positions on affiliate liability. Trend #2 is that when tested, expansive affiliate liability theories are failing in the courts. These two trends seem to be in conflict with each other. My hope is that trend #2 becomes so strong that it overrides trend #1, i.e., plaintiffs and government actors get the message that they have gone too far.
Unfortunately, in the interim, many defendants will capitulate and settle an expansive affiliate liability claim—even if it’s lawless—because it’s the cheapest path to resolution or because the precedent isn’t strong enough to ensure victory. Perhaps some defendants will realize that the trend is in their favor and will fight back accordingly. More judicial clarity about the line between permissible and impermissible behavior would benefit everyone.
It is also possible that the legal ambiguities of affiliate liability will be resolved by statute. However, despite the defendants’ string of court victories, I see the chances of legislative intervention to curtail expansive affiliate liability doctrines as nil. If anything, it’s more likely that future legislation will codify liability expansion.
For a rare in-depth analysis of affiliate liability, see Jean Noonan and Michael Goodman, Third-party liability for federal law violations in direct-to-consumer marketing: telemarketing, fax, and e-mail 63 Bus. Law. 585-596 (2008) [ABA subscription required to download].
Posted by Eric at 08:04 AM | Adware/Spyware , Derivative Liability , Marketing , Spam , Trademark | TrackBack
August 05, 2008
July 2008 Quick Links, Part I (IP Edition)
By Eric Goldman
Copyright
* Granger v. Gill Abstract Corp., 2008 WL 2791264 (S.D.N.Y. July 18, 2008). A title company admitted infringing the defendant's copyrighted "rate calculator" by posting it to the title company's website. The plaintiff demanded actual damages of $766 MILLION on the theory that the title company's entire revenues were attributable to the rate calculator on the website. The court dismisses this argument as "preposterous." Instead, the plaintiff admitted that its licensing rate is $500/year, so the court awards a maximum of $1,500 for three years of infringement, an amount that the defendant surely would have happily paid to settle before going to court if the plaintiff would have accepted it. Instead, this is great example of a dispute that had no chance of settling because the plaintiff’s demands were so out of this universe. For another example of irrational plaintiff damage demands faring poorly in court, see the Gregerson case.
* An update on Designer Skin v. S&L Vitamins. You may recall that S&L Vitamins lifted product shots from Designer Skins, and in the previous ruling, the court said that such copying isn't fair use. However, in a July hearing, the court subsequently concluded that Designer Skin suffered no actual damages from the copying when S&L marketed legitimate Designer Skin goods using the images, netting the plaintiff zero dollars. An injunction may still be possible. Of course, plaintiffs in the future will try to register their product shots on a timely basis, positioning themselves for statutory damages and attorneys' fees, so this ruling is helpful only in the cases where the registration isn't timely.
* Chronicle of Higher Education: "When Web Sites Post Test Answers Online, Professors Worry"
* 11th Amendment geeks will be interested in the CRS on Infringement of Intellectual Property Rights and State Sovereign Immunity, July 23, 2008.
Trademark
* Nothing spoils a good birthday party like trademark concerns.
* Paul Levy informs us that the ABA IP Section has finally given up their pointless quest to opine on the keyword advertising issue.
* CafePress has settled a trademark infringement lawsuit by Hustler magazine.
* This month, several interesting trademark academic articles emerged:
1) Margreth Barrett, Finding Trademark Use: The Historical Foundation for Limiting Infringement Liability to Uses 'In the Manner of a Mark' Prof. Barrett does some historical sleuthing to determine the scope of trademark use in commerce” doctrine, and she offers a suggested multi-factor test for defining use in commerce in the future. I previously blogged on one of Prof. Barrett's earlier papers on this topic.
2) Bill McGeveran, Rethinking Trademark Fair Use. Prof. McGeveran discusses trademark rules vs. standards and the interplay between the plaintiff’s prima facie case and the defenses.
3) Ken Port, Trademark Extortion: The End of Trademark Law. Prof. Port marshals some empirical evidence to argue that the quantity of trademark lawsuits is dropping but more trademark demands are settling on extortionate terms prior to a lawsuit being filed.
Posted by Eric at 06:59 AM | Copyright , Trademark | TrackBack
August 01, 2008
Domainer Loses Cybersquatting Lawsuit--Verizon v. Navigation Catalyst
By Eric Goldman
Verizon California, Inc. v. Navigation Catalyst Systems, Inc., 2008 WL 2651163 (C.D. Cal. June 30, 2008). The Justia page. A page with some of the early filings.
[Sorry for the delay blogging this--it just showed up on my radar screen]
This is an extremely interesting and potentially precedent-setting case regarding domaining and domain name tasting. The court condemns both practices, leading to a preliminary injunction against the domainer and its registrar based on the Anti-Cybersquatting Consumer Protection Act (ACPA). As far as I can recall, this is the first time that a domainer has lost an ACPA lawsuit in court, and it provides an important data point confirming that domaining can be cybersquatting (a previously unresolved issue). I also believe that this is the first time a domain name registrar has lost an ACPA lawsuit. Although the court wasn't asked to assess damages (it was just an injunction request), it's clear from the strongly worded opinion that Verizon will get paid if the case gets that far. As a result, this is a major loss for domainers and might very well force them to change their practices.
The defendants are Navigation Catalyst, a domainer, and Basic Fusion, its registrar. Navigation Catalyst engaged in some common domainer practices, including:
* high volume automated domain name tasting. Many of the registered domains have nothing to do with anyone's trademark, but some were typographical error versions of Verizon's trademarks (allegedly, nearly 1400 were variations of Verizon's trademarks)
* trademark "scrubbing" of domain names during the tasting period (both an automated blacklist and a manual review)
* disabling ads on any challenged domains and offering to transfer those domain names to the trademark owner
Despite the scrubbing, Navigation Catalyst registered and kept 126 domain names that Verizon alleges infringe its trademark. Navigation Catalyst also tasted nearly 1300 other challenged domains, and as the court points out, made some money from those domains during the tasting period.
Navigation Catalyst's main defense is that it merely reserved the domains during the tasting period instead of "registering" them (the ACPA statutory requirement) because they hadn't paid for the domains prior to the end of the grace period. Not surprisingly, the court is completely unimpressed with this sophistry.
Further, the court determines that domain tasting is a bad faith intent to profit under the ACPA:
It is clear that their intent was to profit from the poor typing abilities of consumers trying to reach Plaintiffs' sites: what other value could there be in a name like ve3rizon.com? Further, the sites associated with these names often contained links to products directly competitive with Plaintiffs' cellphone and internet businesses, potentially diverting consumers who would otherwise have purchased goods or services from Plaintiffs away from Plaintiffs.
Finally, the defendants tried to argue that Verizon had unclean hands because of Verizon's monetization of wildcard traffic in its FIOS service. Despite some pretty apparent duplicity on Verizon's part, this argument also fell on deaf ears.
While this is a big loss for the domainer, it's a shocking ruling against the registrar. After all, the ACPA specifically limits injunctions against domain name registrars (see 15 USC 1114(2)(d)(i)(II)), and the court did not discuss this section at all or otherwise why an injunction against the registrar was appropriate. I suspect the registrar should be able to get the court to clarify or reconsider its ruling if it asks.
It will be interesting to see how this ruling affects the domainer industry. There is absolutely no good news for them in this ruling. This court rejected the standard risk-management that domainers claim protect them from cybersquatting liability. Further, the big win will only encourage Verizon--already one of the most aggressive plaintiffs against domainers--to keep suing, and it might spur other trademark owners to join the party. Although a single ruling like this often doesn't change an industry overnight, I wouldn't be surprised if we look back in a couple of years and point to this ruling as the beginning of the end of standard domaining practices circa 2007-08.
Posted by Eric at 10:10 PM | Derivative Liability , Domain Names , Trademark | TrackBack
July 19, 2008
American Airlines and Google Settle Keyword Advertising Lawsuit
By Eric Goldman
American Airlines and Google have settled American Airlines' trademark lawsuit over Google's sale of keyword advertising. The settlement terms are confidential. See the unenlightening stipulation and the judge's dismissal order. The Justia page. The Bloomberg News story.
Because the terms are confidential, we don't know who "won" this lawsuit (other than the lawyers, of course). I did a search this morning for "American Airlines" and American Airlines had the only keyword ad. No third party ads showed, which as I recall is different than past results, but it's possible that American Airlines has run third party advertisers off the term one-by-one rather than getting Google to block the term for them. I also did a search this morning for "aa.com" and got one third party ad for lowfares.com. A search for "AADVANTAGE" showed two third party ads, one for an AAdvantage credit card (probably authorized) and the other for firstclassflyer.com (probably not).
Based on this data, my initial hypothesis is that Google did not make any special concessions to American Airlines to block keyword ads on their trademarks. Perhaps Google made other concessions. Or perhaps American Airlines completely wasted its time and money. If so, it wouldn't be the first time that a company with the word "American" in its trademark took on Google and got nothing.
This settlement is presumably a disappointment to trademark diehards who were cheered by a well-financed and well-recognized trademark owner taking on the mighty Google. Now, this case isn't going to break any new ground in the Fifth Circuit. Combined with Utah's repeal of the Utah Trademark Protection Act, the only major threat to Google's keyword ad practices in the United State still pending is the Rescuecom appeal in the Second Circuit, which I must confess I remain nervous about.
Posted by Eric at 09:05 AM | Derivative Liability , Trademark | TrackBack
July 17, 2008
GoDaddy Gets 230 Defense for Web Hosting--Kruska v. Perverted Justice Foundation
By Eric Goldman
Kruska v. Perverted Justice Foundation Inc., 2008 WL 2705377 (D. Ariz. July 9, 2008). The CMLP page with lots of source material.
GoDaddy allegedly hosted some third party websites that said some not-nice things about Kruska (calling her a convicted child abuser, a convicted child molester and a pedophile). Kruska brought a pro se lawsuit against (among other defendants) GoDaddy for hosting the websites. This is squarely in 47 USC 230's sweet spot, and the court notes that "this immunity has proved nearly limitless." Claims dismissed.
More unusual is the court's decision to dismiss a 43(a) Lanham Act claim per 230. The opinion isn't very clear in its discussion (and maybe I missed them in my quick review, but I don't see a 43(a) claim in the two complaints posted on the CMLP page), but I infer her claim is that GoDaddy puts its logo on pages hosted by it and therefore is confusing consumers about the source of the page. The court might have simply dismissed Kruska's claim for lack of standing, but instead refers to 230 in dismissing this claim. I don't believe Kruska was claiming trademarks in her own name (not that it would have improved her odds), but a federal trademark infringement claim is clearly not preempted by 230. Otherwise, I think it's an open question about whether the false advertising parts of 43(a) are preempted by 230. See my slides recapping some of the developments through April. See also Rebecca's blog post trying to sort through the 43(a)/230 interplay in a different case.
As I've now said repeatedly, the interaction between 230 and a website's marketing activities is increasingly unclear and maybe reaching a point of incoherence, and this case certainly doesn't reduce our befuddlement.
Posted by Eric at 02:42 PM | Derivative Liability , Trademark | TrackBack
July 14, 2008
Tiffany v. eBay District Court Opinion Analysis
By Eric Goldman
Tiffany (NJ) Inc. v. eBay Inc., No 04 Civ. 4607 (RJS) (S.D.N.Y. July 14, 2008)
It took most of the day, but I've finally read through the 66 page book in the Tiffany v. eBay case, and this post supplements my brief announcement post with a more thorough critique. Overall, the opinion is very thoughtful. If you have the time, it's worth reading in its entirety. If you deal with websites that are potentially liable for user-caused trademark infringements, you should definitely read the case to get a roadmap of eBay’s multitudinous infringement suppression practices that the court endorses. But if you don't have the time to read the whole case, this post focuses on some of the best parts.
eBay's Counterfeit Suppression Efforts Endorsed
Most noteworthy is that the judge endorsed eBay's various efforts to reduce the sale of counterfeit goods on its site and provide extrajudicial recourse to brand owners like Tiffany. Back in the 1990s, some caselaw suggested that affirmative efforts to suppress user activity might exacerbate liability, so the preferred strategy was to remain "passive" with respect to users. eBay chose a different approach. It proactively attempted to reduce the incidence of counterfeiting on the site through its VeRO program, its fraud engine, manual review efforts to seek out auctions that looked like they might be counterfeit goods. Further, eBay continues to innovate new ways to curb bad users or help brand owners.
A ruling like this validates eBay's investments. The judge fully acknowledged and appreciated that eBay didn't just stand on the sidelines and let Tiffany take it up with its users. Kudos to eBay's management and in-house legal department for navigating the liability issues in a way that clearly impressed the judge.
One small cautionary note. The judge rejected eBay's argument that it was just an online advertising venue. Instead, because of the many value-added services that eBay provides to its sellers, the judge thought that the offline swap meet analogy was more apt. The determination was inconsequential in this case, although I'm sure eBay wishes the reference wasn't there. However, it's a good reminder that this "we're just a venue" argument can be a tough sell to judges. Google, if you're listening, this doesn't bode well for your argument that you just sell ad "space" instead of selling trademarked keywords.
Tiffany's Arguments Rejected
This ruling is a stinging rejection of some of Tiffany's core arguments. First, the court found that Tiffany didn't invest enough in its policing efforts, referring to Tiffany’s investment as "relatively modest." I've argued before that this case is really just a Coasean battle over transaction cost allocation (i.e., once the judge sets the entitlements, the parties can negotiate from there), and Tiffany's arguments to persuade the judge that eBay should bear more costs clearly failed (meaning that eBay gets the legal entitlement). Indeed, the court goes so far to say "even if it were true that eBay is best situated to staunch the tide of trademark infringement to which Tiffany and countless other rights owners are subjected, that is not the law."
Second, it was really interesting to see the court's treatment of Tiffany's demand to eBay that eBay should filter out any auctions containing 5 or more Tiffany items of the same type because such an auction is an obvious red flag of suspect users. Tiffany's approach is very common among IP owners--they manufacture an artificial rule and then demand fidelity to the rule at peril of litigation. (As another recent example of this phenomenon, recall the dustup over the AP's unilateral declaration of the permissible amount of quoting of AP articles. Where did that rule come from?). Many times websites kowtow to these demands to avoid litigation, but here the court shreds Tiffany for creating a baseless rule and then treating eBay as the villain for "breaching" the rule--especially because Tiffany kept on changing the rules and softened its adamancy. Tip to IP owners--if you are going to manufacture a rule about how people can engage with your IP from whole cloth, don't be surprised if judges won’t rubberstamp it. If anything, they may think you're overreaching.
Notice-and-Takedown Scheme for User-Caused Trademark Infringements
Historically, the standards for contributory trademark infringement due to user activity have been underdeveloped. Copyright is covered by the DMCA (512) and non-IP claims are covered by the CDA 47 USC 230, but trademark law lacks an analogous statute. Further, there have been very few cases on the topic, and possibly applicable statutory provisions, such as the 1114 printer/publisher partial defense, are also underlitigated in the online context. Due to the dearth of statutory and caselaw material, Cyberlaw specialists have not had a good sense of the rules applicable to secondary trademark infringement online.
This case fills an important gap in our precedent. In the context of this case, it squarely anchors website liability for user-caused trademark infringements in a notice-and-takedown regime not dissimilar to the RTC v. Netcom copyright ruling from 1995 (which provided the basis for the DMCA notice-and-takedown system). Because it's not statutory, this court doesn't prescribe the specific contours of a sufficient takedown notice. At the same time, it rejects any generalized knowledge of future infringements as being sufficient--and most specifically, it declares as insufficient a trademark owner's C&D letter demanding that the website prospectively police its premises to prospectively prevent any future infringements. (Cite to, and endorsement, of the Ninth Circuit's 1999 Lockheed v. NSI case). It also says that failing to prospectively look for infringement does not equal willfully turning a blind eye.
While this is good news, I remain uncertain how generalizable this ruling is. So much of the court's discussion is deeply linked to eBay's specific situation--both the fact that it allows users to sell legitimate Tiffany goods, as well as the many efforts that eBay made to prospectively accommodate the interests of IP owners, which eBay can afford to do but many other websites can't. Personally, I think a notice-and-takedown scheme is the most probable solution to a website's liability for user-caused trademark infringements, and I hope this ruling moves us more clearly in that direction. However, we'll have to see how much future courts limits this case's holdings to eBay's unique attributes.
An interesting side note: the judge blessed eBay's tiered efforts to punish users whose listings were the subject of a NOCI. In some cases, eBay had a one-strike rule; but in other cases, especially when dealing with a known and trusted user who might be trying to earn a livelihood through the site, eBay had a three-strikes rule. The court endorses this practice, and specifically says that it was OK for eBay not to adopt a universal one-strike rule.
The Nominative Use Defense
With respect to Tiffany's trademark infringement claim, the court largely skipped over the use in commerce and likelihood of consumer confusion discussion and in