Intellectual Property Litigation

The Preparatory Committee charged with the implementation of the Unified Patent Court (“UPC”) announced on 16 January 2017 that it anticipates that the UPC agreement would come into force in December 2017, at which point it is assumed the court will open for business. The announcement coincides with a speech by Theresa May, the British Prime Minister, signaling that the UK will not seek to continue its participation in the European single market after it leaves the EU. The speech has been received as the first clear announcement by the UK Government that it expects negotiations with the EU to result in a “hard” Brexit, even though the Prime Minister also expressed the Government’s desire to enter into a comprehensive free trade deal with the EU that would allow tariff-free access to the single market for British businesses and possible other sector-specific special arrangements. Much debate has taken place since the Brexit referendum in June 2016 on the question of whether the UPC could become reality notwithstanding the UK’s anticipated break from the EU. The UK Government’s official statements over the past few months suggest that participation in the UPC system does not depend on EU membership and the UK announced that it would ratify the UPC agreement later this year. However, it is still difficult to see how Brexit (particularly the hard version now envisaged by the Government) could be reconciled with continued British participation in the UPC system. For one thing, the UPC agreement is based on the supremacy of EU law and the jurisdiction of the Court of Justice of the EU as its final arbitrar. PM May made it clear several times that Brexit means that the UK will no longer be subject to the jurisdiction of the ECJ. It is possible that the Government would be willing to make an exception insofar as European Patents are concerned, although this would seem to be a constitutional fudge. In any event, even if Britain is willing to accept the supremacy of EU law and the jurisdiction of the ECJ in relation to European Patents (and the jurisdiction of an EU court system within its borders presiding, effectively, over all patent matters), the other EU member states that signed up to the UPC agreement still have to agree as well. The UPC agreement will come into force if and when it is ratified by the UK and Germany (it has already been ratified by 11 other EU member states including France which is a required party). Given that the agreement includes the UK hosting the important pharma and life science section of the Court’s Central Division, which is envisaged to be based in London, other member states may see the country’s participation in the UPC as a prize for the UK. Given the UK’s apparent desire to see the system becoming reality, and to continue its participation after Brexit, EU member states may use this issue as a bargaining chip in negotiations with the UK. Germany may decide therefore to delay its ratification of the UPC agreement until a final deal on Brexit (and on the new trading arrangements between the UK and the EU) is struck. A different question might arise if both Germany and the UK ratify the agreement. The UPC agreement was open for participation only by EU member states. It is silent on the question of what happens when a party leaves the EU. If the agreement is indeed ratified before the UK leaves the EU, the question of what happens on the day after will be one more item on the list of issues for Brexit negotiations. Notwithstanding the announcement of the Preparatory Committee, therefore, it remains somewhat premature to assume that the UPC will actually open up for business at the end of this year.

A Star-Trek fan-film is boldly headed to a jury trial to determine whether Axanar Productions—the company behind the fan-film—is liable for copyright infringement.  Paramount Pictures and CBS Studios sued Axanar Productions in December 2015 after it created a 20 minute fan-film that was based in the Star Trek universe, and to stop the company's planned feature length follow-up. The dispute started after Axanar Productions created and released a 20 minute "mockumentary" in 2014 called Prelude to Axanar.  Axanar spent over $100,000 that it raised through crowdfunding to create the short and upon release, it was a big success.  Due to the success of Prelude, Axanar Productions was able to raise over $1,000,000 through crowdfunding to fund the production of a feature length follow up.  It would have been the highest budget for a piece of fan-fiction ever. The funds were raised and production was underway, but the lawsuit changed everything.  Movie studios often let fan-fiction proceed without legal action.  The projects are usually supported by the most hardcore fans of the studios’ projects, so it may not serve their interests to shut them down and potentially alienate fans.  Paramount and CBS decided that the chance they would alienate some fans should not stop them from enforcing their copyrights against Axanar Productions. Both parties filed summary judgment motions, but it was Axanar’s shields that took a serious phaser blast.  The Hon. Gary Klausner of the U.S. District Court for the Central District of California ruled that the case will proceed to trial and Axanar Productions cannot assert fair use.  Judge Klausner found all four fair use factors weighed (heavily) in favor of Paramount and CBS.  One problem for Axanar Productions that appeared in multiple factors was that, “Defendants intentionally use elements from the Star Trek Copyrighted Works to createworks that stay true to Star Trek canon down to excruciating details.” Opinion at 11.  In other words, Axanar Production’s fidelity to the existing—and copyrighted—Star Trek canon ultimately may have been its undoing. The jury will still decide whether the projects at issue have “subjective substantial similarity” that would render Axanar Productions liable for copyright infringement.  As Judge Klausner said, “If the jury finds subjective substantial similarity, the Axanar Works are rightfully considered derivative works of the Star Trek Copyrighted Works.  Rejection of Defendants’ fair use defense is consistent with copyright’s very purpose because derivatives are an important economic incentive to the creation of originals.”  Opinion at 13 (case citations omitted). Stay tuned to see how this unique copyright dispute is resolved in the next episode.  

In a previous post we discussed what SpongeBob SquarePants can teach us about trademark licensing.  Now, more IP lessons are bubbling up from the fathoms below thanks to our absorbent, yellow and porous friend.  This time, we learn about how fictional places—such as the famed underwater greasy spoon, “The Krusty Krab”—can be protected under the Lanham Act.  Nautical nonsense, you say? Before you tell me to drop on the deck and flop like a fish, let me explain. Viacom owns various copyrights and trademarks associated with “SpongeBob SquarePants,” the wildly popular animated TV series that airs on the Nickelodeon Network.  In 1999, “The Krusty Krab” was introduced in one of the espisodes as the fast food restaurant owned and operated by Mr. Krabs, the thrifty crustacean and slave driver employer of SpongeBob, who serves up Krabby Patty Burgers as the fry cook. Fifteen years after The Krusty Krab made its splash into the watery, whimsical world of Bikini Bottom, a real company located here on dry land, IJR Capital Investments, LLC, filed a service mark application with the USPTO for “The Krusty Krab” for “restaurant services.”  Viacom objected, IJR persisted, and the whole dispute landed in the U.S. District Court for the Southern District of Texas with Viacom suing for various claims including trademark infringement and dilution.  Viacom moved for summary judgment, which the Court granted faster than you can ask, “Who lives in a pineapple under the sea?”  How did Viacom best this real world imposter?  In several ways. First, even though Viacom did not have a registration for “The Krusty Krab,” that did not sink its infringement claim.  Far from it.  The Court noted that “The ‘Krusty Krab’ backdrop is regularly featured in the television show and was also depicted in two SpongeBob SquarePants feature films released in 2004 and 2015, that had total gross receipts of over $470 million.”  Further, Viacom established rights in the name “through its sales and licensing of consumer products.” Second, the Court observed that trademark protection extends to “specific ingredients of a successful T.V. series,” including such things as symbols, design elements, and characters that the public directly associates with the plaintiff or its products.  The Court cited a previous case where the terms “Kryptonite” and the “Daily Planet” were imbued with trademark protection because they had been a “staple of the Superman character and story.”  The Viacom Court had little trouble finding that The Krusty Krab was a protectable trademark, even though there had never been a single Krabby Patty served under that name in real life. Third, the Court found The Krusty Krab had acquired secondary meaning given its long, storied history as part of the immensely popular TV series.  Finally, there was little doubt consumers would likely be confused into believing that the real-world Krusty Krab was somehow affiliated with its fictional brother down in Bikini Bottom.  In this regard, the Court was persuaded by the results of a nationwide survey showing that thirty percent of the respondents (restaurant goers) believed Viacom was the source of the Defendant’s restaurant. So, the lesson from many leagues down under is that in certain scenarios fictional locations can be protected by the Lanham Act.  The Krusty Krab is one such location given its longevity and popularity as an under the sea eatery in the iconic TV series SpongeBob SquarePants.  The Court got it right.  The faux Krusty Krab should now sleep with the crustaceans.

The United States Patent and Trademark Office recently issued final rules amending the Trademark Trial and Appeal Board Rules of Practice and raising fees for many transactions involving trademarks.  The new rules and fees will take effect on January 14, 2017, and will apply to all proceedings filed on or after that date and, to the extent practical, to all proceedings that are pending on that date.  A link to the new rules appears here, and a link to the new fees appears here. The new TTAB rules are intended to make proceedings in the Trademark Trial and Appeal Board more efficient and less costly, and formalize many of the Board’s current practices. Electronic Communications The new rules move TTAB practice toward paperless filing and docketing by strongly encouraging parties to file documents electronically through ESTTA, the Board’s electronic filing system.  The rules also encourage the parties to communicate with each other electronically by making e-mail the default system for service, and eliminate the practice of allowing parties extra time to respond to documents served by First Class Mail.  The parties may agree in writing to service by means other than e-mail, but because the response time will not change if they do so, the parties may also wish to agree to provide a courtesy copy by e-mail at the time a document is served. In addition, all documents that are required to be filed with the Board must be filed electronically through ESTTA, with only a few limited exceptions.  If ESTTA is not operating when a document is due, in most, but not all, circumstances the filer may file the document by paper, along with a petition to the Director and the required $200 fee for the petition, requesting leave to file a paper version of the document.  This rule makes plain that there may now be a cost to waiting until the last minute to make a filing. Commencing an Opposition or Cancellation As under current practice, parties may obtain extensions of up to 180 days from publication to oppose an application.  A request to extend the time to oppose an application filed under Section 66 may be filed only electronically.  There are no exceptions to this rule.  It therefore is important not to wait until the last minute to request an extension if a Madrid application is involved.  An extension request for an application filed under Sections 1 or 44 should be filed electronically, but if ESTTA is down, the request may be made through a paper filing accompanied by a petition to the Director and the required fee. The opposition period for all applications is the same as under current practice, i. e., 30 days from publication.  A party may request an initial extension of 30 days upon request, followed by a second request for a 60-day extension upon a showing of good cause, or one extension of 90 days upon a showing of good cause.  It will no longer be possible to request an initial extension of 60 days.  In addition, a party may request a final 60-day extension upon stipulation or with the consent of the applicant.  Beginning on January 14, 2017, there will be a fee of $100 for each electronically-filed extension request up to 120 days from publication, and $200 for a final 60-day extension.  The fees for filing these requests by paper will be $200 and $300, respectively. The substance of a Notice of Opposition or Petition for Cancellation will not change from current practice, but there will be some important procedural differences.  First, oppositions against Madrid applications must be filed electronically.  There are no exceptions.  Oppositions against applications filed under Sections 1 or 44 and Petitions for Cancellation should be filed electronically, but if ESTTA is down the Notice of Opposition or Petition for Cancellation may be filed by paper accompanied by a petition to the Director and the applicable fee.  If a Notice of Opposition is being filed at the opposition deadline, or a Petition for Cancellation includes any claims based on grounds that are time-sensitive, the notice or petition may need to be filed using the Priority Mail Express procedure set forth in Trademark Rules 2.195-2.198 if ESTTA is down. In addition, in an opposition against a Madrid application, the cover sheet to the Notice of Opposition will control the grounds and goods or services that are the subject of the opposition.  Once the opposition deadline has passed, the opposer cannot add additional grounds or goods/services to an opposition against a Madrid application.  Thus, it is crucial to confirm that all goods or services that will be the subject of an opposition against a Madrid application and all grounds for such an opposition are listed in the cover sheet before the time to oppose closes. Finally, the Board will be reinstituting its pre-2007 practice of serving the Notice of Opposition or Petition for Cancellation.  When a Notice of Opposition or Petition for Cancellation is in proper form, the Board will send an e-mailed notice of institution identifying the proceeding and containing a link to the electronic proceeding record to the opposer or its counsel and to the applicant or its attorney in an opposition, or in a cancellation, to the petitioner or its counsel and to the record owner of the registration that is the subject of the proceeding or its domestic representative, and, if the petitioner identifies an owner who is not the record owner, notice will also be sent to the alleged owner.  A petition for cancellation must indicate, to the best of the petitioner’s knowledge, the name, address and current e-mail address of the current owner of the registration.  Because of these new procedures, it is important that the owner of a registration keep its contact information current in the PTO’s registration files. Discovery Under the new rules, discovery will be more limited and streamlined than under current practice.  The new rules also afford the parties more flexibility to tailor discovery to the specific needs of their case by, for example, limiting its scope, shortening the response times or agreeing to reciprocal disclosures instead of formal discovery requests.  Also, unlike practice under the present rules, requests must be served early enough in the discovery period that responses will be due before discovery closes.  This means that a party will no longer be able to wait until discovery is about to close to serve its requests. The scope of discovery will also be more limited.  The new rules expressly incorporate the doctrine of proportionality, which is also made explicit in the revised version of the Federal Rules of Civil Procedure that took effect in December 2015, and has been a hallmark of the Board’s decisions concerning discovery for many years.  In addition, the number of document requests and requests for admission each will be limited to 75, including all subparts.  As with the current practice with respect to interrogatories, a party who believes that it has been served with more than the allowed number of requests may respond by interposing a general objection, after which the propounding party may re-serve the discovery in amended form to comply with the limits imposed by the rules.  A party may move to increase the discovery limits for good cause.  Comments to the rules suggest that good cause may be found when the opposing party is a foreign entity that is not subject to a deposition in the U.S., or when the opposition involves multiple parties or an extensive list of goods or services.  There is one exception to the 75 request limit for requests for admission to allow each party to serve one comprehensive request to authenticate documents that the opposing party produced in discovery.  Such a request must identify the specific documents to which the request applies, and the responding party must admit which specific documents are authentic, and identify any that are not. In general, a discovery deposition of a witness residing in a foreign country must be taken by written interrogatories unless the Board, upon motion for good cause, orders that the deposition be taken orally or the parties so stipulate.  If an officer, director, managing agent or other witness of a foreign party will be present in the United States during the discovery period, that person may be deposed orally while in the U.S.  There is no obligation on a foreign party to disclose if or when its witnesses will be traveling to the U.S. during the discovery period.  It would be advisable, therefore, to include an interrogatory to a non-U.S. adverse party to request this information specifically if an oral deposition is of interest. There also were changes to Trademark Rule 2.120(f), which governs motions to compel discovery.  As with current practice, the parties must meet and confer in an attempt to resolve the issues before such a motion may be filed.  The amendments to the rules, however, have imposed new time limits on when a motion to compel may be brought.  A motion to compel a party to serve initial disclosures must be brought within 30 days of when the disclosures were due, or the motion is waived.  A motion to compel involving any other type of discovery request must be made promptly, and in no event may be brought after the first pre-trial disclosures are due. The changes to the discovery rules will require parties to focus on the information that is most relevant to their cases, and should discourage broad, sweeping requests that amount to a fishing expedition.  These changes will also benefit parties who start discovery early in the discovery period, and who are prompt in raising any discovery disputes. Trial Probably the modifications that have received the most attention are the changes to the manner in which evidence may be submitted during a party’s testimony period.  Under current practice, parties typically present evidence through oral testimony of one or more witnesses at a testimonial deposition, which is subject to the Federal Rules of Evidence.  As at a trial in a court, the opposing party or its attorney may make objections to testimony or exhibits marked at the deposition, and may cross-examine the witness.  Testimonial evidence may also be presented in other formats, such as through an affidavit or declaration, but only if the parties agree to that procedure. This will change under the new rules, which will allow a party to decide unilaterally whether it wishes to present its direct testimony through an oral deposition or whether it prefers to do so through an affidavit or declaration, which can be considerably less expensive and time-consuming.  Under the new Rule 2.123, a party may submit its direct testimony through an affidavit or declaration, which must comply with the Federal Rules of Evidence.  When a party elects to present a witness’s direct testimony in writing, however, the proffering party must make the witness available for cross-examination, which can be done orally if the witness is in the United States, or through written interrogatories if the witness is in a foreign country.  A party electing to cross-examine an opposing party’s witness must bear the expense of the cross-examination, which will consist primarily of paying for the court reporter and copies of the transcripts.  The proffering party will be responsible for the cost of producing the witness.  A notice to cross-examine a declarant or affiant must be served within twenty days of service of the affidavit or declaration, and must be filed with the Board.  The deposition must be completed within thirty days of the date of the notice. The new rules also specify the procedure for taking testimony from witnesses who are not located in the United States.  Generally, testimony of a non-U.S. witness must be taken through written interrogatories.  Accordingly, if a foreign witness submits a declaration in a TTAB proceeding, the cross-examination must be conducted through written interrogatories.  The new rules, however, provide that if the non-proffering party serves a notice of taking testimonial deposition by written questions of a witness who will be in the United States at the time the deposition will be taken, the party seeking the deposition may, within twenty days of service of the notice, file a motion on good cause to have the deposition taken orally. In addition to submitting trial evidence by testimony or affidavit/declaration, as in the past a party may submit certain types of evidence, such as printouts of registrations, printed publications, internet materials and the like, through a Notice of Reliance.  The rules have clarified, but not changed, certain aspects of the requirements for evidence that may be submitted through a Notice of Reliance.

Ask any fan of the American improvisatory rock band Phish to explain the significance of the following pattern and you will invariably receive the same answer:         It’s of course the pattern of drummer Jon Fishman’s iconic dress, which he has worn during nearly all of the band’s 1,700-plus shows.  But the U.S. Patent and Trademark Office (“PTO”) thinks something is a bit fishy, and has repeatedly rejected Phish’s pending applications to register the pattern for entertainment services, clothing, and other merchandise.  The refusal rests in part on the PTO’s assertion that the pattern is merely ornamental and lacks distinctiveness such that consumers would not understand it as exclusively identifying Phish products or services.  The PTO has cited an abundance of products bearing the design created and sold by Phish fans through the Etsy online marketplace.  Nearly all of the products include the words “Phish” or “Fishman” in the title.  Due to the prevalence of these fan products, the PTO contends, the design does not necessarily indicate a single source – it could refer to any number of parties selling products with the design.  (Having just attended the Phish New Year’s Eve show, I can attest to the staggering amount of fan-created merchandise featuring this design, including flags, shirts, ties, bow ties, eyeglasses, bandanas, leggings, jumpsuits, and even a matching sequined tuxedo/ball gown combo worn by one Phish-loving couple.)  You can find the PTO’s initial refusal here. In an attempt to convince the PTO of its exclusive rights in the design, Phish argued the design has acquired distinctiveness and submitted substantial evidence of the band’s use of the pattern, including decades of articles referencing or featuring pictures of Fishman’s dress and affidavits from those closely associated with the band, including Phish’s general counsel and archivist Kevin Shapiro, describing the band’s long-time use of the design and significant sales of products bearing the design.  The response also dismissed the third-party uses cited by the PTO as “bootleg merchandise,” which are clearly attempting to trade on Phish’s goodwill in the pattern.  The band indicated that it intends to engage in a robust trademark enforcement program to stamp out these uses, but that it needs “acknowledgement of its rights in the mark to have a high rate of success.”  You can find Phish’s initial response here.  Although the PTO recently accepted the claim of distinctiveness for entertainment and music services, it continues to reject the claim for Phish merchandise in part on the ground purchasers may instead view the parties producing “knock-off goods” as the source of the merchandise. This is certainly not the end of the road (or stream) for Phish, which now has an opportunity to submit additional evidence of distinctiveness or arguments against the refusal.  Nonetheless, the band’s experience serves as a cautionary tale in brand management both for musicians and other brand owners, especially for those that, like Phish, have an enthusiastic fan base with a long history of creating and selling fan art and merchandise.  These often well-intentioned tributes can have very negative repercussions because each unlicensed coexisting use of a mark weakens the original mark owner’s scope of rights.  If the coexistence becomes too widespread, the mark owner may even lose all rights to exclusively use its mark.  Additionally, brand owners should remember that the PTO is not a closed ecosystem – it will take into account evidence of third-party use to determine whether an applicant may assert exclusive rights in the purported mark. So what are brand owners like Phish to do?  First and foremost, they should adopt a consistent enforcement strategy for key trademarks as early as possible.  And this strategy should evolve over time to account for technological changes in the marketplace, such as the creation of online retailers like Etsy and Ebay (both of which allow brand owners to request removal of infringing and counterfeit products).  For brands wishing to take a lighter approach to enforcement against fan-created merchandise, it is also equally important to collect any direct evidence showing that consumers associate the mark with its owner (i.e., message board comments, consumer letters or statements, advertisements, etc.), which could help to counteract an argument that the mark lacks distinctiveness.  However, if the coexistence with fan-created merchandise is pervasive, even this type of evidence could prove unsuccessful. We will continue to monitor these applications to see if Phish wriggles free of the PTO’s refusal.

Last January, we blogged about a district court decision involving trademark parody in Louis Vuitton Malletier, S.A. v. My Other Bag, Inc.  In that decision, the court held that defendant My Other Bag had convincingly argued that its products, shown below, were a parody of Louis Vuitton’s iconic handbag and, as such, did not violate Louis Vuitton’s trademark and copyright rights. Granting summary judgment to My Other Bag, the district judge commented that Louis Vuitton perhaps “cannot take a joke” and observed that “in some cases, it is better to ‘accept the implied compliment in a parody’ and to smile or laugh than it is to sue.” The Second Circuit Court of Appeals got the joke, issuing a Summary Order on December 22, 2016 affirming the district court’s decision in favor of My Other Bag. This result was not a surprise, as it was reported that at oral argument, one of the appellate judges had laughed at an argument advanced by Louis Vuitton’s counsel, saying “This is a joke. I understand you don’t get the joke. But it’s a joke.” Turning to the merits of the legal arguments, the Second Circuit agreed that the My Other Bag tote bag qualified under the parody defense to a trademark dilution claim. The bags mimicked Louis Vuitton’s designs in a way that was recognizable, but still a “conscious departure” from Louis Vuitton’s luxury image. Accordingly, it was clear that My Other Bag was not a real Louis Vuitton handbag.  Further “the fact that the joke on LV’s luxury image is gentle, and possibly even complimentary to LV, does not preclude it from being a parody.” The court distinguished other cases in which the parody defense to a dilution claim was rejected where the defendant had used the plaintiff’s trademark as a designation of source to sell its goods. Here, My Other Bag was the “undisputed designation of source.” The appellate court also affirmed summary judgment on Louis Vuitton’s New York state law dilution claim, holding that even though the New York dilution statute “does not provide an explicit fair use defense, the manifest parodic use here precludes the requisite finding that the marks are “substantially similar” for purposes of prevailing on the state law dilution claim. The Second Circuit also affirmed the dismissal of the trademark infringement claim, holding that under a deferential or a de novo standard of review, obvious differences between the marks, the lack of market proximity between the products at issue and “minimal, unconvincing evidence of consumer confusion” compel a judgment in favor of My Other Bag. Finally, the appellate court affirmed the district court’s holding that the My Other Bag tote bag did not constitute copyright infringement. The parodic use of Louis Vuitton’s designs was found to constitute a “transformative” use as a new expression and message, and the remaining fair use factors under the Copyright Act either weighted in favor of My Other Bag or were deemed irrelevant. The message of this case, in both the district court and Second Circuit opinions, is that brand owners may not like trademark parodies, but depending on how their marks are presented on the parody products, it can be very difficult to do anything about it under a trademark or copyright theory of intellectual property protection.

The Third Circuit Court of Appeals recently affirmed the dismissal on summary judgment of copyright infringement claims brought by Daniel Marino (not that Dan Marino) against Usher and nineteen other defendants in Marino v. Usher.  The decision underscores the bedrock principle that joint authors cannot sue their co-authors for copyright infringement and serves as a cautionary tale for joint authors, illustrating how not to vindicate their rights when their joint work has been licensed without their authorization. Marino was part of a songwriting trio with defendants Dante Barton and William Guice that co-wrote a song called “Club Girl” in 2001. Barton successfully shopped the song to the music industry, and landed a licensing deal with Usher’s representatives.  “Club Girl” was re-worked with Marino’s assistance, recorded, renamed “Bad Girl” and released to the public on Usher’s 2004 album “Confessions.” As the district court noted, Marino’s problems arose from entrusting the trio’s business affairs to Dante Barton. When Mr. Barton copyrighted “Club Girl,” he did not include Marino as an author.  And when Mr. Barton negotiated the licensing agreement with Usher, Marino was named only as a musician, not as a songwriter.  So when “Bad Girl” was released, Marino was not credited as a songwriter, and he never received any songwriting royalties. After waiting several years, Marino sued Usher, the other members of the songwriting trio and seemingly every other entity affiliated in any way with “Bad Girl,” asserting myriad claims including direct, vicarious and contributory infringement.  He also sought an accounting and a constructive trust.  Ultimately, all the causes of action against all of the defendants were dismissed on various grounds at various times.  Marino appealed all of these orders, in addition to many other unappealable orders of the district court. With the benefit of hindsight, it is surprising that the case lasted as long as it did, because Marino admitted from the start that he, Barton and Guice were joint authors of “Club Girl.”  As a joint author, Marino could not sue Barton or Guice for copyright infringement.  And it follows that there could be no vicarious or contributory infringement by the other defendants in the absence of an underlying direct infringement.  These principles are straightforward, and the district court called Marino’s arguments to the contrary “absurd.” Also, as a joint author, Marino’s consent was not required for Barton to license the song to Usher.  Contrary to Marino’s claims, the licensing of “Club Girl” to Usher on an exclusive basis without Marino’s consent did not invalidate the license; rather, it transformed it into a non-exclusive license.  Because Usher and his representatives were operating under a valid license and within its scope, they could not be liable for any direct infringement.  The Court also found that Marino himself granted an implied license by assisting Usher and his representatives in creating “Bad Girl” from “Club Girl.” Finally, although Barton was legally permitted to license “Club Girl” without Marino’s consent, he still would have been required to account to Marino for any profits earned from licensing “Club Girl.”  But Marino’s accounting and constructive trust claims were not properly pleaded, so they were preempted by the Copyright Act.  Marino based his accounting and constructive trust claims on the alleged underlying infringement.  By doing so, he subsumed those claims within his infringement claims, which led to their preemption. The lesson here, and what Marino could have done (and what he belatedly tried to do) was to assert accounting and constructive trust claims not based on the underlying infringement, but rather based on the profits earned by Guice and Barton from licensing “Club Girl.”   These claims would not have run afoul of the laws applicable to joint authorship because they would not have challenged the basis for Guice and Barton earning profits from “Club Girl” in the first place, but instead would have asserted Marino’s valid right to share in those profits. There may have been practical reasons why Marino did not choose this course.  The accounting and constructive trust claims could not have been brought against the deep-pocketed (and famous) defendants, because licensees have no duty to account to joint authors for lost profits earned by the joint authors with whom they contract.  Also, state law accounting and constructive trust claims would not have provided the same potential for the recovery of attorneys’ fees.  But these decisions harmed Marino even more in the end.  Due to the frivolity of his claims, he was assessed over one million dollars in defendants’ attorneys’ fees (an amount that was eventually reduced by ninety percent due to his financial condition). Going forward, joint authors who feel wronged by their co-authors would be wise to understand the broad scope of permissible activities in which joint authors can engage with respect to the joint work, and the restrictions inherent in seeking to right those wrongs through the Copyright Act, as opposed to more traditional remedies.

It’s no secret that plaintiffs bringing patent litigation choose the forum carefully.  Though the appellate review of patent litigation is centralized in one appellate court with limited jurisdiction – the Court of Appeals for the Federal Circuit – patent litigations proceed in district courts of general jurisdiction throughout the nation.  There is a remarkable concentration of cases; over half of the patent infringement cases filed in 2015 were filed in two jurisdictions: the Eastern District of Texas (43.6%) and the District of Delaware (9.3%).  The other 47% of cases were spread among the remaining 92 district courts across the nation. One defendant is challenging this practice, and the U.S. Supreme Court has agreed to consider the issue.  TC Heartland LLC was sued in federal court in Delaware for alleged patent infringement.  TC Heartland moved to transfer the venue to Indiana, its state of incorporation, but the request was denied.  The Federal Circuit affirmed the district court’s decision, and TC Heartland petitioned for certiorari. TC Heartland’s argument relies on a distinction between general venue rules – which allow for suit in any jurisdiction in which a corporation operates or can be found – and the specific venue rules for patent cases. In simplified terms, TC Heartland’s argument is as follows: Section 1400(b), the patent venue provision, states that a “civil action for patent infringement” can be brought in one of two places:  (1) the district in which defendant resides, or (2) a place where defendant committed acts of infringement and has a regular and established place of business. Section 1391(c), a general venue provision, has come to mean that a defendant can be sued in any jurisdiction in which personal jurisdiction can be exercised over it. In 1957, the U.S. Supreme Court held that "§ 1400(b) is the sole and exclusive provision controlling venue in patent infringement actions, and that it is not to be supplemented by the provisions of 28 U.S.C. § 1391(c),” which is a general venue provision.  Fourco Glass Co. v. Transmirra Prods. Corp., 353 U.S. 222 (1957). In 1990, the Federal Circuit was asked to decide a similar issue as in Fourco in VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990).  Noting that Congress had revised § 1391 in 1988, the Federal Circuit stated that it was faced with a “question of first impression.”  It came to the opposite decision as the Supreme Court.  The Federal Circuit held that the new § 1391 applies to patent infringement cases, and that a corporate defendant “resides” in any jurisdiction in which there would be personal jurisdiction. In 2011, Congress modified § 1391 again, providing that § 1391 governs “all civil actions” “except as otherwise provided by law.” Petitioner TC Heartland argues that the general venue statute does not modify the patent-specific statute, particularly in light of the 2011 amendment.  The respondent, Kraft Foods, argues that the Federal Circuit correctly ruled that § 1391 – after the 1988 amendment – does modify § 1400(b), and that the Federal Circuit’s decision was correct. The Supreme Court granted certiorari on December 14.  This complicated issue of statutory construction is the type of issue the Supreme Court enjoys.  We can expect to see a hotly-contested issue and some heavy-duty briefing with extensive legislative history and analysis, and a substantial number of amicus briefs.  Just at the petition stage, the Court received seven amicus briefs from four industry groups, 56 professors and 33 companies. If Heartland is successful in narrowing the jurisdictions in which a defendant may be sued, the ruling could apply to copyright cases as well, though the limits would not be the same.  Section 1400(b) allows a defendant in a patent infringement suit to be sued in (1) the district in which it resides, or (2) a place where defendant committed acts of infringement and has a regular and established place of business.  In contrast, a copyright case can proceed under § 1400(a) in any jurisdiction “in which the defendant or his agent resides or may be found.” Stay tuned for further developments on this case at The TMCA!

We only want one thing for Christmas this year: clear and unambiguous terms for ownership of intellectual property. We know you’ll understand after the year you’ve been having. #FashionSanta was the social media sensation of the 2015 holiday season. Children and adults alike (including Canada’s own Justin Bieber) lined up for selfies with the sexy and stylish Fashion Santa at Yorkdale Mall in Toronto. The exciting, new spin on Father Christmas was created by long-time fashion model Paul Mason after he discovered his ability to grow a glorious, long, white beard. This Canadian Père Noël won’t be caught in an over-sized jacket of tacky faux fur – Fashion Santa is a man of exquisite taste, with a predilection for designer labels. He prefers a burgundy leather biker jacket or a bespoke crimson suit. And everything seemed holly jolly until Mason and the mall fell out over ownership of the intellectual property – now the mall has a new model to play Fashion Santa for Christmas 2016. Fashion Santa bedecked in Dolce & Gabanna, Salvatore Ferragamo, and John Varvatos. Precisely what kind of intellectual property exists in Fashion Santa is an open question. Mason filed a copyright application in Canada for a literary work entitled “Fashion Santa,” claiming a publication date of September 23, 2014. It is uncertain what the now registered copyright protects. While copyright cannot protect short words and phrases like the name Fashion Santa, it is well recognized that copyright can exist in literary characters. To qualify for protection, a character must be original and well-developed, rather than a simple stock character type. Judge Learned Hand provides an analogy to Shakespeare: “If Twelfth Night were copyrighted, it is quite possible that a second comer might so closely imitate Sir Toby Belch or Malvolio as to infringe, but it would not be enough that for one of his characters he cast a riotous knight who kept wassail to the discomfort of the household, or a vain and foppish steward who became amorous of his mistress.” Nichols v. Universal Pictures Corp., 45 F.2d 119, 121 (2d Cir. 1930). Where on this spectrum does Fashion Santa fall?  It isn’t all that clear. The mall took a different route, filing a Canadian trademark application for the words FASHION SANTA on December 8, 2015. Mason filed for the same two weeks later. The application filed by the mall primarily covers advertising and promotional services. But is a word mark really the thing to protect here and, if so, how strong is the FASHION SANTA mark? Surely SANTA is a generic term for old Saint Nick and FASHION is highly descriptive. While the Canadian examination documents are not publicly available, the USPTO database shows the Examiners requested disclaimer of the term FASHION in both the parallel US applications; as well as SANTA in Mason’s application. Perhaps instead of a word mark, the trademark is in the character itself (something like an exceedingly dapper breakfast cereal mascot). If trademark protection is otherwise limited to the name, a competitor would be free to introduce Kris Kringle Couture. It is not exactly surprising that Mason saw his creation as a work of art, while the mall saw it as a brand – but all this humbug could have been avoided if the parties had negotiated an appropriate agreement before Fashion Santa started posing for selfies with the Biebs. That’s why we’re asking for better contract terms around IP ownership. We promise we’ve been very good this year and hardly sued anyone.

“The Ninth Circuit has stated that laches is seldom susceptible of resolution by summary judgment,” but the federal district court for the Northern District of California recently held just that in Dropbox Inc. v. Thru Inc.  Thru Inc. is a software company offering file management software, which first began using the designation “Dropbox” in 2004.  Dropbox is a major player in the software industry, offering an application by the same name that allows users to store files in the cloud.  Dropbox launched its application in 2008 and today has over 500 million users.  Dropbox filed an application to register the mark DROPBOX for its software application in September 2009, which matured to registration on February 4, 2014. Thru sent a single demand letter to Dropbox objecting to its use of the mark in December 2011 and did not take any further action for over 2 years, when it petitioned to cancel Dropbox’s trademark registration in February 2014.  The cancellation action, however, did not actually challenge Dropbox’s continued use of the mark; it merely sought to remove Dropbox’s registration from the register.  It was not until Dropbox filed the instant proceeding in April 2015 for declaratory relief, in which Thru asserted counterclaims for trademark infringement and unfair competition, that Thru made any genuine effort to stop Dropbox from using the mark.  Dropbox moved for summary judgment on the affirmative defense of laches. In order to prove laches, a party must show that its opponent unreasonably delayed filing suit and that such delay would cause prejudice if the suit were to continue.  In its verified interrogatory responses, Thru said it only learned of Dropbox’s use of the mark in mid-2011 (a time when Dropbox already had 40 million users).  Yet, emails produced during discovery blatantly contradicted Thru’s interrogatory response and showed that Thru was aware of Dropbox at least as early as June 2009.  Further, when confronted about this discrepancy, Thru’s witness conceded that the interrogatory response was false.  As such, the Court found that the clock started running on Thru’s claims in June 2009 and that laches could be presumed after June 2013. In addition to showing that Thru blatantly lied about its first knowledge of Dropbox, emails showed that Thru made strategic plans to wait to file an infringement suit until Dropbox announced its IPO.  The Court held that “[t]hese documents demonstrate that Thru purposefully delayed bringing suit in an attempt to increase its leverage over Dropbox and thus the value of its claims.” Further, Thru’s delay clearly prejudiced Dropbox because during the relevant time period Dropbox had spent millions of dollars to build both its business and brand recognition. Given the unique facts at play, this decision is not likely to make it easier to succeed in the 9th Circuit on a laches defense at the summary judgment stage.  Nevertheless, that won't stop parties with a potential laches argument from trying their hardest to convince courts that the standard to establish laches has been lowered from the "clouds."

In previous posts, we’ve discussed the Federal Trade Commission's significant enforcement efforts focused on two hot button issues: unsubstantiated health marketing claims and deceptive product endorsements.  Once again, both came together in a Complaint and Settlement announced by the agency on December 12, 2016. The target of the enforcement action was Aura Labs, Inc., which had marketed an Instant Blood Pressure (IBP) mobile app, purported to give blood pressure readings as accurately as a traditional blood pressure “cuff” device. Consumers paid $3.99 or $4.99 to download the app; input data on their gender, age, weight and height; and then were instructed to remove outer clothing, place their right index finger over the rear camera lens and light, and place their mobile device against the left side of their chest until a blood pressure measurement was taken and displayed. The problem? Clinical studies demonstrated that the blood pressure readings generated by the IBP were significantly less accurate than readings taken by a traditional blood pressure cuff. Aura Labs also ran into trouble with consumer endorsements posted about the product in the Apple App Store and on its website. In the App Store, “Archie” gave the product five stars. Archie was in fact Ryan Archdeacon, the CEO and President of the company. Interestingly, Archie’s review was not all glowing. While proclaiming that the product was a “breakthrough,” he noted that “there are some kinks to work out” and that users might experience “some connection problems”. While these quality issues were disclosed in the review (albeit not by the company), Archie’s identity as an officer of the company was not. On the “What People Think” portion of Aura Labs’ website, two positive endorsements were posted by relatives of Aura’s co-founder. The stipulated federal court order settling the matter enjoined Aura Labs from making efficacy claims about the IBP without “competent and reliable scientific evidence” to substantiate the ad claims, misrepresenting that any endorser of the IBP is an independent user or ordinary consumer, and failing to disclose material connections between the endorser and the company. A monetary sanction of almost $600,000 was imposed and suspended based on the company’s inability to pay (the agency also included one of its typical “avalanche” clauses requiring the full amount to be paid if it is later found that the company had misrepresented its financial condition). So what can you do to keep your company’s blood pressure in check? All advertisers should caution their officers, employees and family members not to post product reviews without full disclosure of their material connection. Companies selling health products, apps or services should ensure that their advertising claims are adequately substantiated beforehand and if the science does fit the claim, don’t suggest otherwise.

On November 7, 2016, the Standing Committee of China’s National People’s Congress promulgated the Cybersecurity Law of the People’s Republic of China, a law James Zimmerman, chairman of the American Chamber of Commerce in China calls “a step backwards for innovation in China that won’t do much to improve security.”  The law becomes effective on June 1, 2017 and will apply to businesses in every sector of the economy. While the law purports to create an overall national cyber security plan, its provisions, some of which are vague, create significant potential uncertainties for companies doing business in China.  Below are some of the noteworthy provisions of the law.  Full details regarding the law can be found on Dorsey’s Computer Fraud and Data Protection Blog here. Makes local storage mandatory and eliminates the option of storing business data outside of China, if (1) the company falls within the definition of an operator of “critical information infrastructure” (“CII”), and (2) there are personal information and “important data” collected and generated in China. For certain “important” sectors enhanced security obligations will be triggered. These include public communications, information service, energy, transport, water conservancy, finance, public service and e-government, as well as other CII. Companies will be required to have clear policies and procedures to protect data and information, and those policies and procedures must comply with national standards. Companies must establish high-level corporate oversight, including at the board of directors level, which must provide adequate funding of the program in proportion to the size of the company and the risk. Companies must identify and empower the relevant stakeholders and place overall control of data security in the hands of an individual or a small group of individuals. Companies must carefully select and scrutinize the individuals in charge of data security compliance. Not only must they not pose a risk for unethical behavior, they must be trained and certified with a cybersecurity expertise. Companies must have clear standards and procedures that are communicated effectively to the entire workforce. Conduct must conduct periodic audits of the effectiveness of the data security compliance program. Companies must consistently enforce the policies and establish mechanisms for reporting violations The law is broadly drafted, filled with ambiguities and creates significant potential uncertainties for companies doing business in China in terms of maintaining and protecting competitively sensitive and personal data. Going forward, the Chinese authorities will be interpreting and applying the many ambiguous and vague terms in the new regulations and implementing rules that will directly impact how companies conduct business in China. For businesses to grow in global markets like China, companies must support seamless mobility with the ability to conduct transactions on any device or platform in any country.  It remains to be seen whether this law will enhance security of data in China and how difficult compliance may become.

A sound mark can be registered in China since May 1, 2014. According to a draft Standard of Examination issued by the Chinese Trademark Office, a sound mark can consist of a musical or non-musical sound, or a combination of both.  Non-musical sound includes natural sound, human and animal voice. The first sound mark application in China was filed by China Radio International on May 4, 2014. The sound sought to be registered is the opening music for one of its programs and consists of music and human voice.  That mark was preliminarily approved on February 13, 2016 and registered on May 14, 2016.  As at the end of October 2016, five sound marks have been successfully registered in China, all consisting of both musical and non-musical sounds, including the first sound mark “SOFY” filed by a foreign party Unicharm,  a Japanese household and hygiene products company, which registered on August 21, 2016. The Nokia ringtone was the first preliminarily approved application for a sound mark in China that consists of only musical sound. It will become a registered trademark in early January 2017 if the application is not opposed. The first sound mark application that will be “heard” by the IP Court in China is “Di Di Di Di Di Di.”  That tune is the notification sound for an incoming message in QQ, one of the most popular social networking apps of Chinese IT Giant Tencent.  The Chinese Trademark Office rejected the application on the basis that the sound mark in question lacks distinctiveness because it consists of six simple “Di” sounds only.  The PRC Trademark Review and Adjudication Board maintained that rejection. According to the draft Standard of Examination, a sound mark shall meet the same examination requirements as visual marks. A few examples of non-registrable sounds are provided in the draft Standard, e.g., the national anthem of a country, religious music, dog barking or cat meowing for “pet breeding” services, baby laughter for “infant milk powder”, melody from classical music on “arrange and organize musical concert”.  Until more guidance is available from the Chinese trademark authorities, applicants and trademark professionals will have to rely on their experience in prosecuting analogous applications as well as common sense in their efforts to secure a registration for a sound mark in China.

Last week we blogged about a recent decision of the National Advertising Division of the Better Business Bureau, holding that two YouTube videos for Rayovac brand batteries misleadingly communicated an unsupported "line" claim of superiority against all Energizer batteries. This post will discuss a second decision issued by NAD a few days later, also finding comparative advertising to be misleading. The problem this time? The product testing conducted by the advertiser on which the advertising claims were based failed to evaluate the performance of the competitive products in accordance with the manufacturer instructions for use. Zoetis, Inc. (Case # 6013 Oct. 31, 2016). Zoetis made claims on its website and in print advertising that its Simparica brand oral flea and tick medication for dogs provided better protection than the competitive Trifexis product marketed by the Elanco Animal Health division of Eli Lilly. Both Simparica and Trifexis are administered on a monthly basis and are FDA approved for re-dosing after 30 days. The labeling on both companies' products directs consumers to repeat the treatment after one month. Zoetis commissioned a study that compared the efficacy of both products after an initial administration of the competing flea and tick medications. Dogs were re-infested at days 0, 7, 14, 21, 28 and 35, without having re-dosed the dogs after 30 days, as directed by product labeling. Measurements of effectiveness were taken on these milestone days at 8, 12 and 24 hour intervals. Zoetis's advertising featured a chart that highlighted results of the study showing better efficacy by Simparica on day 35.  Zoetis argued that day 35 results were relevant to pet owners who may forget to re-dose the dogs at the end of the month.  According to Elanco, however, it was misleading to evaluate the efficacy of Trifexis on day 35 -- 5 days beyond the recommended re-dosing date.  Elanco also complained that Zoetis had "cherry picked" data points for its chart showing superior performance by Simparica at the 8 hour measurement point on certain milestone days, whereas the products had more equivalent effect at 12 and 24 hours on those days. NAD concluded that it was misleading for Zoetis to advertise the day 35 results: "Testing the advertised products as they are intended to work, by following manufacturer's use instructions, provides the basis for a claim that a product is measurably better than its competitor because it does not materially distort the performance capability of competing products.... While consumers are free to disregard product instructions if they wish, advertisers have an obligation to follow product use instructions when conducting comparative performance testing for the purposes of claim support." NAD also agreed with Elanco that touting the better performance of Simparica at the 8 hour measurement point while ignoring the 12 and 24 hour measurements that showed more equivalent efficacy communicated the impliedly misleading message that Simparica was superior to Trifexis on the entire milestone day tested. NAD recommended that Zoetis discontinue advertising claims based on comparative performance after 35 days, but observed that Zoetis could make a non-comparative claim that Simparica is effective for 35 days, particularly for consumers who forget to re-dose their dogs on a monthly basis. NAD also noted that the different product performance results at 8, 12 and 24 hour intervals on the milestone days could have been properly advertised as a speed-to-efficacy superiority claim, rather than one of overall efficacy. The overarching lesson from the two NAD decisions discussed in Parts 1 and 2 of this post is that comparative advertising claims must be carefully and narrowly crafted.  Competitors identified in such claims will likely scrutinize the advertising for both express and implied messages that cannot be substantiated. The pitfalls are many, and different types of comparative advertising calls for different precautions. But following the do's and don'ts of NAD in Spectrum Brands and Zoetis will help: If specific models of competitive products are the intended comparison of an advertisement, do identify those specific products clearly and unambiguously.  Don't depict product varieties, use props or narrative content or tag lines that suggest a broader comparison is being made. If the comparative ad is based on performance testing of the competitive products, do test the products in accordance with labeling directions for use by consumers.   Don't cherry pick data from test results if doing so communicates a misleading message of overall superiority. And do carefully correlate the advertising claim to the specific aspect of superiority revealed by the product testing.

On 28 November 2016, the UK Government made a surprising announcement at the meeting of the Competitiveness Council (an EU institution), stating that it intends to ratify the Unified Patent Court Agreement, marking its first commitment to a new EU initiative since the Brexit referendum in June.  In a press release the UK Government stated that: “The UK will continue with preparations for ratification over the coming months. It will be working with the Preparatory Committee to bring the UPC into operation as soon as possible.” This is an unexpected development, as it appears to contradict much of the political rhetoric since the EU referendum result on 23 June 2016.  The UPC system, which has been under intensive development for several years, will enable companies to defend their rights with a single patent and a single legal system across the EU. Most observers and legal professionals had considered the prospect of granting further supremacy of EU law and enhanced jurisdiction to the ECJ to be politically unlikely following the Brexit result.  Therefore, it was generally thought that the UK would pull out of the UPC. The decision to ratify will require Parliamentary approval, so there is of course the potential for Parliamentary scrutiny and further delays. Before the referendum, it was anticipated that the UPC system would be in place by the end of 2017. It is difficult to assess whether in practice the patent court system would now progress towards the previous target for its commencement given the question mark over the UK’s involvement in the UPC post-Brexit. The UK was a driving force behind the UPC and one of the central divisions of the UPC (widely referred to as the “pharmaceutical court”) was to be set up in London. However, given that the UK is to leave the EU, which means that it would be unable to participate in the UPC system (unless the agreement constituting the system is radically overhauled), it would seem questionable whether the EU would now wish to allocate a budget for implementing the UPC and whether the other participants to the agreement would wish to ratify it at this stage. The agreement requires the ratification of at least thirteen countries before it comes into force including at least the UK, France and Germany (which has not yet ratified the agreement and may decide not to do so). The decision to ratify the UPC agreement has led to widespread speculation that the Government intends to seek a soft-Brexit and therefore keep close legal and regulatory ties to the EU following Brexit. However, Baroness Neville-Rolfe, the UK Minister of State for Intellectual Property, was keen to add in her statement that “the decision to proceed with ratification should not be seen as pre-empting the UK’s objectives or position in the forthcoming negotiations with the EU.” The reasoning behind the decision is not clear, but it appears that the Government has decided to honour its treaty obligations whilst it is still a member of the EU. However, like many of the recent political movements, the Government’s decision has raised further questions. It can perhaps be seen as a decision which at least keeps open the UK’s option for long term participation in the UPC, with further discussions to take place as part of the wider Brexit negotiations. In practice, though, it is difficult to see the UPC kicking into action whilst Brexit negotiations are on-going.

Two recent decisions of the National Advertising Division of the Better Business Bureau provide helpful insights into how product performance comparisons should (and should not) be crafted to be considered fair comparative advertising against competitors. The first decision, Spectrum Brands, Inc. (Case #6012 Oct. 26, 2016), involved a challenge by Energizer Holdings (of Energizer Bunny fame) to two YouTube videos that advertised the longer lasting power of Rayovac FUSION batteries marketed by Spectrum Brands, in comparison to Energizer MAX batteries. Both videos depicted humorous scenarios that occurred on family vacations, one in which a teenage daughter's electronic device abruptly blacks out and the other where the father's flashlight runs out of power just when he needs it most. Energizer conceded that Rayovac's high-end FUSION AA batteries do in fact provide longer lasting power than Energizer MAX batteries when used in certain devices. So what was Energizer's beef with the videos? It argued that the videos communicated a broader implied "line" claim that all Rayovac batteries last longer than all Energizer batteries, when that was not in fact the case. NAD agreed. NAD first stated the factors it looks at to determine whether a commercial reasonably conveys a "line" claim: (1) are there general brand references in the advertisement; (2) does the copy effectively limit the applicability of the advertising claims; (3) is only one variety of the product shown; and (4) is there a "beauty shot" of the product line that would reinforce a message of broader applicability of the claims. In this case, the Rayovac videos suffered from several problems. First, the specific products that were the intended focus of the ad - Rayovac Fusion AA and Energizer AA batteries -- were only fleetingly shown onscreen, and thus NAD found that these "brief visuals" were insufficient to limit the claim to Rayovac Fusion AA vs. Energizer AA batteries. The commercials also depicted a flashback scene where the father had selected the Energizer brand and says "silly bunny" -- a clear reference to the Energizer brand generally. And at the end of the commercial, the voiceover states "Batteries matter. Choose Rayovac" as the Rayovac logo appears full screen. These general references to both brands served to communicate that the whole Rayovac line of batteries is being compared to the whole Energizer battery line. NAD held that "Where, as here, an advertisement makes general brand references but fails to adequately qualify the claim to limit its applicability to the one product shown in the advertisement, NAD has found that it is likely to convey the message that the benefits or attributes touted extend to the entire product line." Interestingly, NAD had one further objection to the Rayovac video, involving the size of the flashlight used as a prop in the ad: it was the size flashlight that would normally use larger C or D batteries, not AA. This again communicated that the comparative longer lasting claim made in the videos extended beyond just the Energizer MAX AA batteries. NAD stated that nothing in its decision would preclude Spectrum Brands from crafting a more limited comparative superiority claim that more clearly targeted the Energizer MAX AA batteries. And NAD helpfully suggested that if Spectrum were to revise the videos, it should use a "mini flashlight" typically powered by AA batteries as a prop. Stay tuned for Part 2 of this post for further comparative advertising do's and don'ts from the NAD.

          You know Green Eggs and Ham, and the Cat in The Hat, Horton, the Lorax, and others like that. But a new book is coming, although now a bit slow, It’s called “Oh, The Places You’ll Boldly Go!” Sure it sounds like the book already penned by Doc Seuss, But it’s not, oh it’s not, an infringer’s on the loose! Or so claims the estate of the author of Grinch, Bring on the lawyers, this case is a cinch! So the lawyers lined up and formed quite a roster, All hands on deck to take down this imposter. They filed their suit for the Green Eggs writer, And sought an injunction to make things a bit brighter. Who is this villain, this dastardly soul? Who dares to infringe "Oh, The Places You'll Go!?" The main culprit's a company called ComicMix, And its VP and others are in quite a fix. It is claimed they have copied a work of great fame, And created confusion in the market for same. They may ask, "what's the problem, say, what the heck?" "It's simply a mash-up with a touch of Star Trek." "We know about fair use and its factors of four," "We're sure to prevail, at the courthouse door." But fair use is tricky, as the defendants may see, It's not quite as simple as A, B, and C. Who will prevail, say, who will win? The defendants' chances appear quite dim. An injunction is likely, perhaps damages too, And fees for the lawyers, after all, they had to sue. For what appears to be a very good reason, Dr. Seuss sues in Sue-ville this holiday season. We will keep you all posted, it should be quite a sight, Happy holidays to all, and to all a good night!

On October 27, 2016, the Federal Communications Commission (“FCC” or “Commission”) adopted sweeping new privacy rules applicable to all telecommunications providers including broadband internet access service (“BIAS”) and interconnected voice-over-internet-protocol (“VoIP”) providers. Protecting the Privacy of Customers of Broadband and Other Telecommunications Services. These rules place limits on how providers can use and share customer data, regulate providers’ privacy policies, require telecommunications providers to take “reasonable” steps to prevent data breaches, and establish new data breach notification requirements. Some of the rule’s new requirements become effective as soon as 30 days after publication in the Federal Register, others may not become effective for a year or more. It is unclear how the change in administrations might affect the timing and/or the implementation of these rules. Use and Sharing of Customer Data The customer information covered by the new rules includes (1) customer proprietary network information (“CPNI”), (2) personally identifiable information (“PII”), and (3) the content of communications, all of which the Commission calls, collectively, customer proprietary information (“PI”). The Commission also clarified that PI is “information that BIAS providers and other telecommunications carriers acquire in connection with their provision of service.” CPNI is a statutory term, defined in 47 U.S.C. § 222(h)(1), and has a more-or-less well understood application in the traditional telephone context. However, its application to BIAS providers was and still is somewhat unclear. The Commission declined to set out a comprehensive list of data elements that do or do not satisfy the statutory definition of CPNI in the broadband context, but did provide a short list of examples of broadband CPNI: Broadband Service Plans; Geo-location; MAC addresses and other device identifiers; IP addresses and domain name information; traffic statistics; port information; application headers; application usage data; application payload and customer premises equipment; and device information. PII is defined as “information that is linked or reasonably linkable to an individual or device.” The Commission’s new rules require providers to obtain affirmative customer consent prior to using so-called sensitive customer PI, which includes, “at a minimum,” financial information; health information; Social Security numbers; precise geo-location information; information pertaining to children; content of communications; call detail information; and a customer’s web browsing history, application usage history and their functional equivalents. In addition, providers must provide mechanisms to allow customers to opt-out of the use or sharing of non-sensitive PI. The Commission recognizes certain exceptions to this opt-in, opt-out regime, such as the use of customer information in order to provide the telecommunications service from which the information is derived. Customer consents obtained by BIAS providers prior to issuance of these rules are “grandfather[ed]” only if they are consistent with the requirements of the new rules. Privacy Policies The new FCC rules require that telecommunications carriers must maintain privacy policies describing the types of customer PI that the provider collects and how the provider uses that information; under what circumstances the provider shares PI that it collects; and how a customer can make opt-in and opt-out decisions related to his or her privacy. The privacy policy must be presented to a customer at the point when they initially sign up for service, and must be made available on a continuing basis on the provider’s website. Steps to Prevent Data Breaches The FCC rules require that telecommunications providers take “reasonable measures to protect customer PI from unauthorized use, disclosure or access.” The Commission chose not to prescribe specific practices that a provider must undertake to comply with the new data security rules, but did list a series of practices that it considers to exemplify reasonable data security measures, such as robust customer authentication. The FCC cautioned, however, that the practices it listed were neither mandatory to comply with the rule nor a safe-harbor for compliance. Data Breach Notification Requirements The rule establishes new notification requirements for telecommunications providers in the event of a data breach. Specifically, unless a provider can reasonably determine that no harm to customers is reasonably likely to occur, it must notify the Commission of any data breach. If the breach affects 5,000 or more customers, the provider must also notify the Secret Service and FBI. For data breaches effecting more than 5,000 customers, notification to the Commission, FBI and Secret Service must occur within seven days of the breach and at least three days prior to any customer notification. The term “breach” is defined by the new rules as “any instance in which a person, without authorization or exceeding authorization, has gained access to, used, or disclosed customer proprietary information [PI].” The FCC promises to develop a centralized portal for reporting breaches to the FCC and other federal law enforcement agencies. Notification to customers must be made “without unreasonable delay and no later than 30 calendar days following the carriers’ reasonable determination that a breach has occurred, unless the FBI or Secret Service requests a further delay.” In addition, the Commission’s rule requires customer notifications to include certain information such as the date of the breach, a description of the customer PI that was disclosed, customer service contact information, information about how to contact the FCC and any relevant state regulatory agencies, and, if there is any risk of financial harm, information about the national-credit reporting agencies and steps customers can take to protect themselves from financial harm. These data breach regulations, and all the regulations announced in the new rule, pre-empt state laws only to the extent they are inconsistent with the rules adopted by the Commission.

A trademark registration for the shape of a product (usually in the form of a drawing or 3D illustration) can be useful, particularly where the product is recognised predominantly by its distinctive visual appearance. However, if that shape or appearance is also essential for achieving a practical function, the exclusivity secured by the registration could impede competition in the product market. European Union trademark law allows the registration of trademarks for the shape of goods but only as long as the registered shape does not result from the nature of the product, is not necessary to obtain a technical result and does not give substantial value to the goods. Trademark registration is not intended to confer a monopoly in technical solutions. The Court of Justice of the EU recently decided to invalidate a registration consisting of three drawings of the Rubik’s cube shown in perspective (below) registered for “three dimensional puzzles”.   The registration was challenged on the basis that the shapes claimed in the registration were essential for achieving the property of the cube by which each of its segments can rotate independently of the others (in order to change their respective position on the cube). It was argued that this functionality was reflected in the dividing lines between the nine sections of each face of the cube as shown in the drawings. The EU court held that it did not matter for the analysis that the rotating mechanism itself was invisible. When considering a registration representing the shape of the product, the Court held, it is appropriate to take into account the way the product actually works. With that information in mind, the registered shape was clearly an aspect essential to the functionality of the rotating cube segments. The shape was essential to achieving the technical function of the product and therefore could not be protected as a trademark. The Rubik’s cube registration follows prior precedent by the same court in 2014 and confirms that drawings do not need to disclose the full mechanism for the shape to be deemed essential to the function. Unless the trademark includes some aesthetic or arbitrary elements that have nothing to do with the technical design, functionality remains a significant barrier for registration of 3D shape marks in the EU.

In recent years, a boomlet of litigation – primarily in California – has arisen regarding the product known as “evaporated cane juice” or “ECJ.” The product – made by extracting fluid from crushed sugar cane, clarifying the fluid, evaporating the fluid to create a concentrate, filtering and crystallizing the concentrate, and then separating out the molasses using centrifugation – is sometimes used as a sweetener in consumer products, including yogurts and beverages. Several class-action suits have been brought in the name of consumers who claim to have been health conscious but duped into thinking that products labeled as containing ECJ were free of added sugars. Courts largely put the cases on hold, awaiting guidance from the federal government under the “primary jurisdiction doctrine,” which allows courts to stay proceedings or to dismiss a complaint without prejudice pending the resolution of an issue within the special competence of an administrative agency. In May, the U.S. Food and Drug Administration issued its long-awaited “Guidance for Industry" regarding ECJ. In its Guidance, the FDA concludes that “such sweeteners should not be declared on food labels as ‘evaporated cane juice’ because that term does not accurately describe the basic nature of the food and its characterizing properties (i.e., that the ingredients are sugars or syrups). Moreover, the use of ‘juice’ in the name of a product that is essentially sugar is confusingly similar to the more common use of the term ‘juice’ – ‘the aqueous liquid expressed or extracted from one or more fruits or vegetables, purees of the edible portions of one or more fruits or vegetables, or any concentrates of such liquid or puree’ (21 C.F.R. § 120.1(a)). Thus, the term ‘evaporated cane juice’ is false or misleading because it suggests that the sweetener is ‘juice’ or is made from ‘juice’ and does not reveal that its basic nature and characterizing properties are those of a sugar.” Further, because federal regulations require that “ingredients required to be declared on the label or labeling of food . . . shall be listed by common or usual name,” 21 C.F.R. § 101.4(a)(1), a food labeled as containing “evaporated cane juice” would be considered mislabeled; the proper term, according to the FDA, is “sugar” – with or without a descriptive term (such as “cane sugar” or “turbinado sugar”). In light of the FDA’s Guidance, courts have lifted stays in several ECJ cases. See, e.g., Swearingen v. Pacific Foods of Oregon, Inc., No. 3:13-cv-4157 (N.D. Cal.); Perera v. Pacific Foods of Oregon, Inc., No. 3:14-cv-2074 (N.D. Cal.). After lifting such a stay, Judge Susan Illston of the U.S. District Court for the Northern District of California issued a ruling on August 17, 2016, largely denying Santa Cruz Natural, Inc.’s motion to dismiss claims brought against it by a putative class of consumers who claim to have been misled by the use of “evaporated cane juice” on the label of a line of beverages. Swearingen v. Santa Cruz Natural, Inc., No. 13-cv-04291 (N.D. Cal. Aug. 17, 2016). The plaintiffs, claiming to be “health conscious consumers who wish to avoid ‘added sugars’ in the food products they purchase,” claim that they read the labels on Santa Cruz Natural’s flavored beverages, noted that “sugar” was not listed as an ingredient, and supposedly therefore reached the conclusion that the products did not contain any added sugar. (The fact that the labels also disclosed that the drinks had between 29 and 35 grams of sugar apparently did not serve as a red flag; the plaintiffs claim that they assumed that the sugars were naturally occurring in the other ingredients, such as lemon juice and mango puree.) Judge Illston’s decision to allow the case to move forward may serve as a playbook for plaintiffs in other ECJ lawsuits. The Court ultimately found plaintiffs had standing to bring the lawsuit, adequately pleaded “injury in fact” to establish standing under Article III of the Constitution, and that the state law claims were not preempted by the FDCA.  In addition,  Santa Cruz Natural’s argument that the plaintiffs could not meet the “reasonable consumer” test of the California consumer protection statutes – under which a plaintiff must show that consumers acting reasonably in the circumstances would have been deceived – fared no better. Although Judge Illston noted that she had “some reservations as to whether a reasonable consumer would be misled as regarding added sugars in the Lemonade Soda and Ginger Ale Soda” – whose 35 grams and 32 grams of sugar, respectively, were unlikely to occur naturally in ginger root or lemon juice – she nonetheless found that, because other sodas were closer calls (a reasonable consumer might conclude that the 29 grams of sugar in the Orange Mango Soda, for example, occurred naturally in the orange juice and mango puree listed as ingredients), the question of whether a reasonable consumer would have been misled was a question better decided by a jury. The FDA’s Guidance is likely to embolden plaintiffs who have brought (or who are considering bringing) ECJ claims. Judge Illston’s opinion in Swearingen, moreover, provides sufficient direction on pleading and sufficient precedent (at least in the 9th Circuit) for careful plaintiffs to survive motions to dismiss. The combination of the two makes it unlikely that the boomlet in ECJ litigation will end anytime soon. Read the full update here.

The Sims is a popular series of video games in which players create virtual people called “Sims,” design these virtual peoples’ homes and neighborhoods, and help them navigate their in-game relationships, careers, and social lives.  When a player controls a specific character, a green, gem-shaped icon called a “PlumbBob” appears over the character’s head.  EA owns a copyright in this two-dimensional gem.   In Direct Technologies LLC v. Electronic Arts, Inc., the question arose as to whether the design of a USB flash drive based on the PlumbBob is copyrightable.  The trial court said no, but the 9th Circuit held there were material issues of fact for the jury to decide. Here’s what happened: To promote the release of The Sims 3, EA wanted to include a PlumbBob-shaped USB drive as a marketing trinket to be included with copies of the game. EA contracted with company called Direct Technologies (“Direct”) to design these PlumbBob-shaped USBs.  As the following prototype illustration shows, Direct created a “cut-away” design where the USB flash drive would be embedded into the PlumbBob: EA ultimately sent Direct’s prototype to a company in China for production instead of Direct.  Direct sued EA for copyright infringement, among other causes of action. Judge Guildford of the Central District of California held as a matter of law that the design of the flash drive was not sufficiently original to qualify for copyright protection as a derivative work - that Direct’s contributions to the drive were either trivial or functional. The Ninth Circuit panel reversed. The Ninth Circuit held that there was a genuine issue of material fact regarding whether the manner in which Direct designed the USB flash drive stick to fit into the PlumbBob object was merely functional or utilitarian. The Ninth Circuit instructed that although the mere feature of having a USB flash drive that can be removed from the PlumbBob object is not copyrightable, the “cut-away” design of the USB flash drive may be. The Ninth Circuit also found that there was a genuine issue of material fact as to whether Direct’s derivative work was sufficiently original to warrant copyright protection. However, the Ninth Circuit warned that to the extent the scope of Direct’s design was found to be original by the jury, the copyright would be limited to its unique contribution, i.e. “the artistic manner in which it designed the USB flash drive to fit into the PlumbBob object.” This decision encourages companies to be diligent in identifying potentially copyrightable derivative works. Though a USB thumb drive itself is functional, there may be non-functional attributes that are sufficiently original to qualify for copyright protection. Careful consideration of this issue by copyright holders may prevent disputes with business partners who are granted permission to use protected designs. Indeed, in this case, Direct submitted evidence to show that it considered at least four other designs that had different aesthetic characteristics, all of which are potentially copyrightable as original derivative works.  

A recent decision by the United States Court of Appeals for the 11th Circuit highlights the perils of delay in filing a motion for a preliminary injunction in a trademark infringement case. In Wreal, LLC v. Amazon.com, Inc. (11th Cir. Oct. 28, 2016), the appellate court affirmed the denial of preliminary injunctive relief because the plaintiff “pursued its preliminary injunction motion with the urgency of someone out on a meandering evening stroll rather than someone in a race against time.” Plaintiff Wreal, LLC is a technology company that developed a platform for streaming online pornography under the registered marks  FyreTV and FyreTV.com. Wreal’s streaming service was initially available over its website and through a proprietary set-top box, but it subsequently developed a FyreTV application and shifted its business model to streaming over third-party devices. Amazon began using the mark “Fire” in 2011 in connection with its Kindle Fire tablet. In 2012 and 2013, Amazon developed several new products, including a new generation of tablets, a phone and a set-top box, and it decided to use the Fire mark along with the Amazon house mark in connection with all of these products. On April 2, 2014, Amazon launched the Amazon Fire TV set-top box to stream general interest video and third-party streaming services such as Netflix. Two weeks after the launch of Amazon Fire TV, Wreal filed a complaint for trademark infringement and unfair competition in Florida federal district court, relying on a theory of “reverse confusion.” Significantly, however, Wreal conducted no discovery, made only routine case management filings, and waited until September 22, 2014 – over five months after filing its complaint – to move for a preliminary injunction. The district court concluded that Wreal’s unexplained five-month delay in seeking a preliminary injunction undermined any showing of irreparable injury, one of four threshold requirements for obtaining expedited relief. The 11th Circuit agreed: “A delay in seeking a preliminary injunction of even only a few months – though not necessarily fatal – militates against a finding of irreparable harm.” Wreal did not offer any justification for the delay, and its motion “relied exclusively on evidence that was available to Wreal at the time it filed its complaint in April 2014,” demonstrating that it had the evidence it thought it needed when the case commenced. Because Wreal did not establish reversible error with respect to the irreparable injury requirement, the appellate court held it was unnecessary to consider the district court’s other conclusions that Wreal had failed to demonstrate a likelihood of success on the merits and that any potential injury to Wreal exceeded the harm to Amazon from an injunction. For more on the impact of delay in seeking preliminary injunctive relief in trademark infringement cases, see S. Edelman & F. Sunderji, “Delay in Filing Preliminary Injunction Motions: 2015 Edition,” 105 Trademark Reporter 1012 (Sept-Oct 2015).

The Digital Millennium Copyright Act (DMCA) sets forth a mechanism through which online service providers can avail themselves of a safe harbor from copyright infringement liability by recording an agent with the Copyright Office and following notice and takedown procedures.  17 U.S.C. 512.  The agent’s information must not only appear in the Copyright Office’s records, but also on the service provider’s website.  Service providers are required to keep their contact information current. To date, the Copyright Office has received and processed designations of DMCA agents via paper-based forms.  As such, the process has required significant Copyright Office staff hours to scan the paper forms and to keep the online directory updated.  Further, an audit by the Copyright Office revealed that a number of agent designations are either out of date or identify companies that no longer exist. As of December 1, 2016, the Copyright Office will require service providers to register their designated DMCA agents electronically.  Paper filings will no longer be accepted.  Each designation will become invalid after three years, unless a service provider either:  (a) amends the designation to correct or update the information contained in the designation; or (b) resubmits the existing information without amendment.  The renewed designation will then be effective for a new three-year term. Service providers who have already designated agents under the paper-based system will be required to submit new designations through the Copyright Office’s online system by December 31, 2017.  If they do not do so, their agent designation will expire and they will technically no longer be protected under the DMCA’s safe harbor provisions. Information submitted through the online registration system will automatically populate the Copyright Office’s new online DMCA agent directory.  This will ensure that the public has timely access to the most current information.  The online directory will also contain service provider designations dating back up to ten years.  The directory will identify whether a designation is active or historical.  If there are active and prior designations for a particular entity, only the most recent version of the designation will appear as a search result, but users will be able to navigate to prior versions of the designation. Because service providers have until December 31, 2017 to file an electronic designation, the public should search the Copyright Office’s existing paper-based agent directory and the new online agent directory, because an agent may be validly registered in either directory.  If there are any discrepancies, the new online directory will control. Finally, the fees for the new online registration system will be significantly cheaper than the soon-to-be obsolete paper-based registration system.  Previously, the cost to record an agent designation was $105, plus an additional $35 fee for each group of ten alternate names used by the service provider.  Under the new registration system, recording an agent designation will cost only $6, with no additional fees for including alternate names in the designation.

In the immortal words of the most recent Nobel Laureate in literature, “the times they are a changin.’”  Section 35(a) of the Lanham Act provides that “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.”  Until just last week, the Ninth Circuit had historically interpreted that provision to mean that a plaintiff must prove that the defendant engaged in “malicious, fraudulent, deliberate or willful” infringement.  Further, the Court reviewed fee awards de novo, instead of for an abuse of discretion.  That test for an award of fees and the de novo standard of review are now officially blowin’ in the wind, compliments of the Ninth Circuit’s  en banc decision in Sunearth, Inc. v. Sun Earth Solar Power, Co.  Thus, successful litigants in Lanham Act cases in the Ninth Circuit should now find it a bit easier to recover an award of attorneys’ fees. This all came about as a result of the U.S. Supreme Court’s 2014 decision in Octane Fitness, LLC v. Icon Health and Fitness, Inc.  In that case, the Court interpreted the identical “exceptional cases” language from the Patent Act’s attorneys’ fee provision, 35 U.S.C. § 285.  The Court rejected the notion that “exceptional” required a showing of bad faith or other culpable conduct before fees could be awarded in patent cases.  Instead, the Court held that “exceptional” simply meant “uncommon,” “rare,” or “not ordinary.”  Accordingly, an exceptional case is “simply one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.”  The Court also rejected the heightened “clear and convincing” burden of proof, in favor of a preponderance of the evidence standard. On the same day the Supreme Court handed down its decision in Octane Fitness, it also decided that a district court’s award of fees under the Patent Act should be reviewed for abuse of discretion. Highmark Inc. v. Allcare Health Mgmt. Sys., Inc., 134 S. Ct. 1744, 1748–49 (2014). Because the fee-shifting provision in the Patent Act is identical to its Lanham Act counterpart, several lower courts began holding that the Octane Fitness standard should be applied in Lanham Act cases, too.  In fact, the Third, Fourth, Fifth, and Sixth Circuits have all adopted the Octane Fitness approach in Lanham Act cases.  The Ninth Circuit has now joined the chorus and held that: (i) “district courts analyzing a request for fees under the Lanham Act should examine the ‘totality of the circumstances’ to determine if the case was exceptional” based on the nonexclusive factors set forth in Octane Fitness; (ii) exceptionality need only be established by a preponderance of the evidence; and (iii) review of district court fee awards will now be for abuse of discretion. The jury is still out, though, on how district courts within the Ninth Circuit will deal with this new standard.  We will keep you apprised of any worthy developments, including whether any additional circuit courts join the Octane Fitness family.

Judge Rakoff is back at it in Classic Liquor Importers, Ltd. v. Spirits International, B.V.  We previously blogged about the dangers inherent in sending a cease and desist letter without the concurrent appetite for litigation, a post that was prompted by Judge Rakoff’s denial of defendant SPI’s motion to dismiss.  Most recently, in the same case, Judge Rakoff issued an order on plaintiff Classic Liquor’s motion for summary judgment.  Judge Rakoff’s most recent order includes an interesting analysis of whether misuse of the ® symbol can support a Lanham Act claim, and also sheds further light on how establishing literal falsity can be frustrated when a statement has more than one reasonable interpretation. Classic Liquor sought declaratory relief regarding whether its use of the ROYAL ELITE mark infringes on SPI’s trademark rights in variations of the term ELIT, which SPI uses in conjunction with its “elit by Stolichnaya” vodka brand. SPI then counterclaimed for false advertising and unfair competition in violation of the Lanham Act, unfair competition in violation of New York common law, and deceptive trade practices and false advertising in violation of New York General Business Law Sections 349 and 350.  All of SPI’s counterclaims against Classic Liquor were premised on (1) the inclusion of the ® symbol next to the word “ROYAL” on Classic Liquor’s Royal Elite vodka bottle (falsely indicating a trademark registration for ROYAL or ROYAL ELITE), and (2) the inclusion of the words “Since 1867” on the front of the bottle. Judge Rakoff started with an analysis of whether Classic Liquor’s misuse of the ® symbol on its vodka bottle violated the Lanham Act.  According to Second Circuit precedent, a false advertising claim must reference both a false statement and the false statement must “pertain to the inherent qualities or characteristics of the good or service in question.”  (Emphasis added.)  Judge Rakoff noted that the purpose of federal registration is merely to put the public on notice of the registrant’s ownership of the mark.  Based on this, Judge Rakoff held that misuse of the ® symbol “in no way relates to ‘an inherent quality or characteristic’ of its vodka,” and therefore was not actionable under Section 43(a)(1)(B) as a matter of law.  For the same reason, Judge Rakoff also held that misuse of the ® symbol could not support the state law counterclaims premised on General Business Law §§ 349 and 350 because each of those claims required the deceptive act be “consumer-oriented.” Judge Rakoff next considered whether inclusion of the words “Since 1867” in Classic Liquor’s vodka bottles could support SPI’s Lanham Act claims.  SPI argued that use of the phrase “Since 1867” was literally false because it implied either that Classic Liquors had been making or selling vodka since 1867, or that this particular vodka product had been sold since 1867.  Classic Liquor defended that the phrase was not literally false because it refers to the “Tashkent distillery” that manufactures its Royal Elite vodka, which has allegedly manufactured vodka since 1867.  Relying on the fact that there were three different potential reasonable interpretations, Judge Rakoff noted that what was meant by the phrase “Since 1867” was not unambiguous, and thus could not be literally false.  Absent literal falsity, SPI had the burden to establish consumer deception through extrinsic evidence.  Because SPI could point to no extrinsic evidence of consumer deception – aside from a single statement from its employee that most consumers would believe the “Since 1867” designation signified that Royal Elite vodka had been sold since 1867 – Judge Rakoff concluded that SPI could not prevail on an “implied falsity” theory of liability, and granted Classic Liquor summary judgment on SPI’s Lanham Act counterclaim. Significantly, however, relying on differences in the legal standards of liability under the Lanham Act as compared with New York’s General Business Law §§ 349 and 350, Judge Rakoff denied Classic Liquor’s request for summary judgment on those state statutory claims.  In contrast to the Lanham Act, General Business Law §§ 349 and 350 do not require extrinsic evidence to demonstrate that consumers perceive an ambiguous statement as misleading.  Instead, Sections 349 and 350 apply an objective test focused on whether the practice or advertisement is “likely to mislead a reasonable consumer acting reasonably under the circumstances.”  Because extrinsic evidence is not required for the state statutory claims, Judge Rakoff concluded a jury would be entitled to determine whether the “Since 1867” statement on Classic Liquor’s vodka bottle is likely to mislead a reasonable consumer. Judge Rakoff’s analysis and dismissal of the Lanham Act claims is particularly interesting.  First, his holding that misuse of the ® symbol is not actionable under Section 43(a)(1)(B) as a matter of law is at odds with prior Southern District court precedent relied on by SPI (Perfect Pearl Co. v. Majestic Pearl & Stone, Inc., 887 F. Supp. 2d 519 (S.D.N.Y. 2012)), in which the plaintiff sought injunctive relief, but not monetary damages, on the claim. The court in Perfect Pearl held the plaintiff was entitled to injunctive relief under the Lanham Act for misuse of the ® symbol on a theory of literal falsity. The opinion in Perfect Pearl noted the requirement that a false statement pertain to an inherent quality or characteristic of the product at issue, but then never squarely addressed why misuse of the ® symbol satisfied this requirement, and even  acknowledged that Perfect Pearl had not shown that misuse of the symbol played a substantial role in customers’ purchasing decisions. Judge Rakoff first distinguished Perfect Pearl on the ground that SPI was seeking both injunctive relief and monetary damages. Further, Judge Rakoff held that to read Perfect Pearl as dispensing with the requirement that a literally false statement pertain to an inherent quality or characteristic of the good or service in question would be “inconsistent with the Second Circuit case law by which this Court is bound.”  At a minimum, after Judge Rakoff’s decision there is ambiguity in the Southern District of New York about whether a party may seek purely injunctive relief under the Lanham Act to enjoin misuse of the ® symbol. Second, Judge Rakoff’s suggestion that the “Since 1867” statement could not be “literally false” merely because the statement was susceptible to more than one reasonable interpretation seems incomplete.  For example, if each of the three potential reasonable interpretations were literally false, then it should not matter if there are three reasonable interpretations.  Notwithstanding, Judge Rakoff’s opinion, as drafted, suggests that if a statement is susceptible to more than one reasonable interpretation, the statement cannot be literally false, even if each reasonable interpretation is literally false.  Only time will tell whether a finding of literal falsity is precluded any time a statement is susceptible to more than one reasonable interpretation, or whether literal falsity may still be found to exist in a statement susceptible to more than one reasonable interpretation so long as each reasonable interpretation would be literally false.

On June 22, 2016, the South Texas College of Law announced that it was changing its name to Houston College of Law.  This seems like a natural choice, as the school is based in Houston and is a stand-alone institution not affiliated with a university.  But the name change immediately raised the ire of the school’s much-larger and more famous competitor, the University of Houston (“UH”), which filed a trademark infringement lawsuit the very next day.  UH alleged that HOUSTON COLLEGE OF LAW infringed its trademarks the UNIVERSITY OF HOUSTON and UNIVERSITY OF HOUSTON LAW CENTER, and asked the court to issue a preliminary injunction. On October 14, the federal court for the Southern District of Texas granted the motion, finding that UH had demonstrated that the defendant’s use of the name “HOUSTON COLLEGE OF LAW” was likely to cause confusion with UH’s trademarks and to result in significant irreparable harm.  The Board of Regents of the University of Houston System on behalf of the University of Houston System and its Member Institutions et al. v. Houston College of Law, Inc., formerly known as South Texas College of Law (S.D. Texas October 14, 2016).  The decision is primarily a straightforward, albeit unusually thorough, application of the 5th Circuit’s likelihood of confusion factors: the strength of the plaintiff’s mark, the similarity of the marks, the similarity of the services, the identity of retail outlets and purchasers, the similarity of advertising media used, the defendant’s intent, the evidence of actual confusion, and the degree of care exercised by potential purchasers.  The court’s analysis of the issue of initial interest confusion, however, is worthy of note. The likelihood of confusion factors posed some obvious problems for the defendant.  UH’s mark, while descriptive, had some strength based on UH’s extensive advertising and long history of use. UH and the defendant offer the same services through the same media channels to the same prospective purchasers in the same city.  But the defendant thought it had an ace up its sleeve: the potential purchasers are sophisticated, and the notion of a prospective law student committing to pay the significant cost of a legal education due to confusion over the names seems preposterous.  That is, “point of sale” confusion seems impossible, so why not allow the defendant to use its Houston location as part of its name? The federal court was not persuaded by these arguments.  Judge Ellison found that defendant’s use of HOUSTON COLLEGE OF LAW would be likely to create significant “initial interest” confusion, and to permit the defendant to use that name would allow it to trade on UH’s significant goodwill. Judge Ellison relied on the discussion of “initial interest” confusion in the case of Elvis Presley Enterprises, Inc. v. Capece, 141 F.3d 188, 204 (5th Cir. 1998).  That case involved the unauthorized use of the King’s famous name by a nightclub (complete with a menu and décor full of Elvis images and references).  The court held that a trademark infringement claim “can be based upon confusion that creates initial consumer interest. . . even though no actual sale is finally completed as a result of the confusion.”  The concern is that “initial interest confusion gives the junior user credibility during the early stages of a transaction,” which “can possibly bar the senior user from consideration down the road.”  Id. In analyzing UH’s claim, Judge Ellison held that the initial interest confusion doctrine applies to situations involving careful and extended purchasing decisions, just as it applies to walking in to the wrong tavern by mistake.  He reasoned that otherwise “sellers of goods and services that involve extended purchasing processes would be effectively outside the ambit of the Lanham Act’s protection, leaving competitors free to appropriate the senior user’s goodwill with impunity, and allowing them to gain ‘credibility during the early stages of a transaction.’” In this case, Judge Ellison was persuaded by evidence suggesting that: [P]rospective students are likely to further investigate Houston College of Law not necessarily because of their initial interest in the law school, as Defendant suggests, but rather because the mark seemingly bears the imprimatur of UH’s well-known brand-in other words, because of initial interest confusion.  And not only is Defendant benefiting from the goodwill of a stronger brand, the stronger brand is that of a direct competitor. The lesson of this case is that “initial interest” confusion can support a trademark infringement claim, even in cases where the confusion seems likely to dissipate early in the selling process and even where ultimate point of sale confusion is effectively impossible. Trademark practitioners should be careful not to rely on this case as a pure test of that proposition, however.  Here, UH was able to present evidence suggesting that Defendant may have intended to benefit from even a fleeting association with UH’s more famous brand, as Defendant changed its colors to come very close to UH’s well-known red and white color scheme.  The court ultimately didn’t rely on a finding of bad intent, finding that to be a neutral factor in the analysis.

Medical endorsements can be powerful selling tools for health care products. But if a medical professional has a connection to the company marketing the products that would be material to consumers in evaluating the credibility of the endorsement, the connection must be disclosed in advertising and promotion. A company that ran afoul of this requirement in an unusual way was the subject of an FTC enforcement action announced earlier this month. The FTC filed a Complaint and subsequently arrived at a Stipulated Final Judgment and Order concerning the marketing of a liquid supplement product under the brand name “Supple” for the relief of joint pain caused by arthritis and fibromyalgia. While most of the claims in the action focused on the lack of substantiation for representations made about the efficacy of the products in treating pain and repairing cartilage and joints, the FTC also took issue with the independence of the doctor who endorsed the product in various advertising media. The defendants named in the action were Supple, LLC (the company marketer), Peter Apatow (Supple’s founder and CEO) and Dr. Monita Poudyal, who was married to Apatow while serving as a medical endorser of the liquid supplements. By the time the Complaint was filed, however, Dr. Poudyal was identified as the “ex-wife” of defendant Apatow. What went wrong, at least with respect to the advertising and promotion of the Supple products? Lots. In addition to making many unsubstantiated therapeutic health claims, the company presented Dr. Poudyal in an infomercial and in online advertising as an apparently independent medical endorser of the Supple liquid supplement products. In the infomercial, Dr. Poudyal acted as the medical expert and show-host, with Apatow as the guest.  Dr. Poudyal’s university training and board certification were prominently mentioned, but her marriage to Apatow, not so much. The existence of the relationship appeared only in what the FTC characterized as “teeny-tiny mouseprint” run simultaneously with a much larger on-screen message about how the Supple product could end joint and arthritis pain. To boot, the "disclosure" was only on screen for 7 second of the 30 minute infomercial.  And within this teeny-tiny mouseprint, dense facts about Dr. Poudyal’s medical credentials came first before indicating that Dr. Poudyal “had recently joined Mr. Apatow in matrimony, and is now assisting Supple, LLC with research and public education.” Other ads made no mention that Dr. Poudyal was Mr. Apatow’s wife. The FTC complaint charged Supple LLC, Apatow and Dr. Poudyal with making many deceptive claims about the product’s ability to treat pain, repair cartilage and restore mobility. In addition, the Complaint contained two different claims regarding the medical endorsement issue: (1) representing, expressly or by implication, that Dr. Poudyal is an independent, impartial medical expert; and (2) failure to disclose or to disclose adequately that Dr. Poudyal was married to Supple’s founder and CEO at the time of making endorsements of the Supple product in the infomercial and on the website. According to the FTC's Guides Concerning the Use of Endorsements and Testimonials in Advertising, the rules are clear:  "when there exists a connection between the endorser and the seller of the advertised product that might materially affect the weight or credibility of the endorsement (i.e., the connection is not reasonably expected by the audience), such connection must be fully disclosed." The Guides themselves provide many helpful examples to help advertisers determine what is and is not a material connection that should be disclosed. If Apatow and Poudyal has referenced the guides before advertising Supple, they might have realized that the failure to prominently disclose their marriage was a bad idea. In particular, Example 4 in Section 255.5 of the FTC’s regulatory guide tells the story of a physician who was endorsing an anti-snoring product. The Guides conclude that consumers would expect the physician to be reasonably compensated for his appearance in the ad and thus a disclosure of this type of arrangement is not necessary.  However, according to the guide, consumers are unlikely to expect that the physician receives a percentage of gross product sales or that he owns part of the company, and either of these facts would likely materially affect the credibility of the endorsement. As a result, the advertising example described by the FTC staff should clearly and conspicuously disclose the connection between the company and the physician. The happy couple could have also consulted one of the many other FTC publications on how to make clear and conspicuous disclosures.  For example, for video ads (including infomercials), the FTC staff recommends that disclosures should be: (1) in clear and unambiguous language; (2) in a font and color that’s easy to read; (3) in a shade that stands out against the background and (4) on the screen long enough to be noticed, read, and understood. The settlement announced by the FTC included a $150 million judgment, most of which has been suspended due to the financial condition of Supple and Apatow, as well as injunctive relief requiring scientific evidence, including human clinical studies, to support the varied efficacy claims made for the liquid supplement. The order also prohibits the company from making deceptive representations that medical endorsers are independent and objective when in fact those endorsers have a close personal or financial stake in company’s product sales.  Interestingly, Poudyal was not on the hook for any of the financial judgment (consistent with the FTC's position that the advertiser is primarily responsible for any acts of false advertising), but she and the other defendants are all subject to the portion of the order permanently restricting them from advertising any products through the use of an endorser unless they disclose all material connections "Clearly and Conspicuously, and in Close Proximity to the representation."