The Competitive Market System and the Right to Compete A.

Unfair Trade Practices Law and the Competitive Market System Includes misappropriation, false advertising and product disparagement all 3 are united by the existence of either deception or theft-like behavior that disadvantages sometimes competitors, sometimes consumers and oftentimes both. The past 50 years have seen the most change in this area of legal doctrine, most specifically the past 30 o Reagan-era had more market-oriented govt who thought that best consumer protection was a policy of self-correcting markets. Laissez faire and Adam Smiths Invisible hand o Economic analysis as an attempt to use economic tools in resolving difficult cases or in choosing what business practices to challenge. Posner and Easterbrook and other judges have greatly shaped this approach o The Internet as a major venue for commerce has required a rethinking of many of the traditional problems of trade identification, consumer deception, false advertising, etc. Consumer sovereignty pre-market economy, the consumer should be the ultimate ruler in terms of what are successful entries in the market and what are not. Judicial decisions and govt regulation is at least in theory/ideal operating on a concept of consumer sovereignty. 1- Perfect/True competition competing within the rules, as many as competitors as the market will allow, so no monopoly, people in the market would be getting prices approaching perfect competition a. Major regulatory policy to try to approach this is the Sherman Anti-Trust law b. Anti-trust law is seen as being key to consumer protection c. BASIC CONCERN: prevent nominalization d. We always want to get as close to perfect competition as we can and that is the whole purpose and intent of anti-trust laws and regulations 2- Perfect information view of consumers making the purchasing decisions and they have perfect information necessary to make the purchase. Concept is that competition doesnt work if the consumer doesnt have access to perfect information bc otherwise they make uninformed purchasing decisions a. Deceptive practices, especially deceptive advertising and misleading information b. The more access you have to perfect information then the closer you are to a perfect market 3- No unnecessary govt fiat no regulations in the market and they are introduced without sufficient justification i.e. environmental protection a. Deals with whether the laws in question are necessary or not b. Occupational licensing is one example fence me in laws 1. Inconsistent with common law of freedom to enter markets 2. Whether govt involvement benefits consumer sovereignty or not? 1. Pros: higher quality products, standard of minimal competence 2. Cons: increase costs bc it will presumably cost more to enter the occupation, distorts the market bc the requirements are set at a high level that people w/o resources or time can meet B. The Right to Enter Markets and to Compete Fairly If competition is to be vigorous and effective, the market should be free from artificial or unnecessary restrictions upon entry by new business concerns.

Principle of freedom of entry

Schoolmasters Case, Y.B. Hilary 11 Hen. 4, f. 47, pl. 10 (1410) Facts & procedural posture 2 educators had been granted exclusive permission by the prior to teach the schoolboys but then another educator came to town and charged cheaper tuition which took away students from the original school masters. Reasoning the school masters had a monopoly and bc all parties were equally educated there was no rationale for the original 2 schoolmasters to be charging a higher price (i.e. difference bt different level of degrees PhD and masters). Situational / Policy factors - Presumption that this holding would allow for more students to be educated bc it lowered the cost of tuition and thus making it more accessible Rule there is a right to enter the market and thereby the damage caused to the original participants is not unfair and should actually be encouraged IN CLASS o Horton defendants attorney o Skrene plaintiffs attorney o Hill, Hank, Till, Thir. Judges o This is not a case of unfair competition, if anything it is a fair competition o Hypothetical 20 merchant families who could afford 40 pence 20 peasant families could only afford 12 pence They could offer education costing 12 pence for 40 families = 480 pence -OR- the original schoolmasters could charge 40 pence for the merchant family = 800 pence Likely to charge higher price to make more money which would block out the lower class, socio-economic discrimination Impossible to successfully offer a tiered approach for families with different economic capabilities o Suppose the new schoolmaster leaves Gloucester for a more prosperous community, what would happen to the original schoolmasters? They might return to their original rates until there is another competitor. There is incentive to increase rates while preventing someone else from entering. o Right to compete o Tarleton v McGawley (1793) Why would a govt grant an exclusive franchise in business when there was no natural monopoly? Payoff doesnt have to be part of a legal bribe. The govt can share in the profits and the govt can get income without having to deal with taxation and the administrative problems assoc with taxation. No need to raise revenue when you have an instant profit o Keeble v. Hickeringill (1706) Defendant used duck decoys to detract from plaintiffs business The idea of harming people bc you want to is not a proper way to go about competing. Malice is a cause of action Suppose there is no malice but bc one cares about the animals and protecting wildlife? You are still liable bc it is a political issue and not one you should take into your own hands, there is available remedies available o Gregory v Duke of Brunswick (1843) Intentional interference with a persons livelihood (despite their profession/industry) is actionable

Tuttle v. Buck, SC of MN, 107 Minn. 145, 119 NW 946 (1909) Facts & procedural posture small town barber alleging unfair trade against the town banker who established a competing barbershop. The banker was not intending to operate for profit but to simply cause the barber to lose money. Malicious intent. The action started in the trial court and the defendant files a general demurrer which was overruled by the trial court. Issue(s) presented is the action alleged such that it should go to trial? Is there a plausible claim? Holding majority says there is a cause of action assuming the barber can prove the malice of the banker improper entry into the market Reasoning o Distinguishable from Schoolmasters case, you can enter the market and compete fairly, because in Tuttle the defendant was acting with malice and the issue goes to intent. Situational / Policy factors natural monopoly market. A market may be so small that it cannot support competition. A natural monopoly market does not of itself impose restrictions on one who actively, but fairly competes for it, any more than it does on one who passively acquires it. There must be some affirmative showing of conduct from which a wrongful intent can be inferred. Rule - In order to prevail, the barber (Tuttle) must prove Defendant entered the market Demonstrate that plaintiff was harmed by defendant entering market Defendants purpose was to injure plaintiff and not necessarily to make a profit Defendant operated at a loss Defendant intended to leave market once plaintiff was put out of business IN CLASS: o Predatory pricing is a violation of the anti-trust act but at this time it was not codified o There is no doubt that if you can prove all 5 prongs that Tuttle will win o What if Tuttle could only prove the first 3 prongs? Could he still win? Would be much harder to win under the Restatement bc it requires more than just a showing of malice o Restatement Third of Unfair Competition Thain reads aloud the motives of the actor on page 11 Malicious motive is not sufficient but there must include an analysis of the business methods employed by the actor and not just the actors motivation A. Business methods constitute #4 and #5 of the above test o Many say that the result of Tuttle would be different if Restatement of Unfair Trade had been adapted at this time Entering market with hope of putting someone out of business is not necessarily unfair competition However, Tuttle was about putting them out of business and then leaving the business afterwards so its hard to determine what the ruling would be under the restatement o Union Leader v Newspapers of New England (1960) The fact that one loses doesnt cause unfair competition o Hypothetical: Suppose that you have 1 barber in a town and this barber entered into a contract with the townspeople to cut their hair at a fixed price. Assume that you have no anti-trust law, assume that this is legal, and assume that this contract was signed Jan 2. June rolls around and a barber comes into town and will cut hair for a lower price. Does the first barber have an action? Yes, bc the first barber can no longer enforce his contract o Hypothetical: One barber in town assumes he has entered into valid contracts with every resident in town at a set price for one year and they have no right to cancel a hair cut appt. This time, no new barber comes into town. But there is a new religious movement that catches on and the mystic says you cant cut your hair. The barber brings action against the mystic for interference with contractual relationships. Is there any defense to escape liability? First amendment of religious freedom

o Advance Music Corp v. American Tobacco (NY Cir Ct 1946) court used the prima facie
tort doctrine to hold that a company selling sheet music had a cause of action against a tobacco company for its radio broadcast misrepresenting which songs were in the top ten, omitting songs owned by the sheet music company. o Prima facie tort theory- It has been considered that, prima facie, the intentional infliction of temporal damages is a cause of action, which, as a matter of substantive law, whatever may be the form of pleading, requires a justification if the is to escape. o Fence-me-in laws occasionally a hot topic. Certain kinds of occupations that require you pass examinations in order to practice. Over the course of the 21st century have seen a host of industries saying you cant engage in the trade unless you pass the examination and have a license to practice. There are questions of whether the public benefits from such licensure restrictions. Its a way to guarantee and ensure higher standards and thus higher prices. The fence-me-in is coming from those already practicing and they have the economic means to gain licensure. This goes against the freedom to enter the market and goes against the Schoolmasters case. There is a disincentive for others to enter if they dont have the financial means but yet those with the money have been fenced in o What is unfair competition? Sales Below Cost A. Wis. Stat. Said you had to have gasoline sold no less than the market price that you paid for for consumers its bad bc it means gas cant go below a certain price but the legis sd they did it bc it allows more people to enter the market to sell the gas and it means fewer smaller businesses will go out of business B. Need to control prices bc companies with greater share of markets can lower prices and then drive out the competition and then eventually jack up the prices once they have a monopoly predatory pricing i.e. Wal-Mart C. Counter-argument says that you dont need this type of statute bc unfair trade practices should be enough to attack predatory pricing D. Robinson-Patman Act at the Federal level prohibits price discrimination but has a plethora of exceptions as to what constitutes actual violation rarely invoked C. Interference with Contractual Relationships and the Right to Compete 1. Intentional Inducement of Breach of Contract Price v. Sorrell, SC of WY, 784 P2d 61 (1989) Facts & procedural posture a collector for Riverton Memorial Hosp angered an attorney who thought their practices were unfair and wrote a letter to complain. Then the collector sued the attorney for prevention of enforcement of contract, resulted in a breach of contract. If Sorrells actions had been effective, it would have resulted in the termination of the contract. Prices case is based on factual allegations and on the Restmt 766A which says this is a tort and is actionable Issue(s) presented- the intentional and improper interference inducing or causing a breach Holding for it to be an actual tort there would have to be an actual breach and something upon which a claim could be founded. Reasoning majority doesnt think that 766A should be the law making someone liable for making anothers contract more expensive or burdensome is too imprecise to presently justify the addition of 766A into the litigation arsenal of economic activities Rule the breach or non-performance of a contract, or the loss of a prospective contractual relation, is a reasonably bright line that reduces the potential for abuse of the causes of action defined by 766 and 766B. IN CLASS:

Thain agrees that there hasnt been any actual harm All of the judges say that there is no cause of action but they come to the same conclusion based on different reasoning o So long as the judges deciding the case has seen that there is an extra burden on the plaintiff then there would be a cause, but since thats not the case here, there is no action o There is a place in tort litigation for damage recovery when someone improperly causes a contract bt two other actors to be broken or the performance denied no justification in expanding tort liability to include an increase in the costs of performance since that liability can potentially reach the ends of free enterprise The pursuit of conflicting economic interests is the essence of free enterprise o Note 5 on pg 21 some courts have allowed relief even when the defs conduct did not result in an actual breach of contract, but rendered performance more difficult or expensive in Hannigan v Sears (7th Cir 1969) the court rejected Sears argument that since the contract was modified by agreement of the parties, no breach occurred which Sears could be held responsible. The court refused to distinguish bt conduct that causes a breach and unjustifiable coercive conduct which effects the same result without a breach Isnt it better to uphold a contract? There are policy considerations in the law other than simply economic benefit or detriment the concern about the monopoly power of stores like sears are such that when they dont engage in fair play then they should be held to those standards even if the consumers benefit in the short term by lower prices o Contract at will / terminable at will suppose you have a law firm and some of the associates are going to leave to form a new law firma nd they contact their previous clients to come to their new practice. Some of the clients do in fact decide to join the new law firm. The old firm now sues the new firm for intentional breach of contract bc the clients were under retainer with the old firm. Is there a cause of action? I say no bc whats the diff bt the new firm and an original competing firm taking these clients away? They only way that I see a cause of action would be a breach of trade secrets of the assoc taking clients from the firm Thain says its a mixed bag and it would depend upon the facts of the case o o 2. Intentional Interference with Prospective Contractual Relation Doliner v. Brown, 21 Mass.App.Ct. 692, 489 N.E.2d 1036 (1986) Facts & procedural posture Doliner wanted to buy property but needed funds so he reached out to his investor guys to help him. His guys contact Brown to invest. Brown decides, he likes the property so much that he buys it himself. Doliner sues him saying it was an intentional interference with a potential contract Holding a competitor may interfere with anothers contractual expectancy by picking the deal off for himself, if, in advancing his own interest, he refrains from employing wrongful means. Rstmt of Torts 768 Rule - Interference with prospective contractual relations is not actionable. Contract in place + interference = unfair trade = cause of action Prospective contract + interference wrongful means = no cause of action Prospective contract + interference + wrongful means = cause of action IN CLASS: o Whats the difference bt Doliner v Brown and Price v Sorrell? Here its not an issue of the facts but rather that the law does not allow the action. One distinction is that in Price v Sorrell one of the legal allegations is the intentional interference, which according to the Rsttmt then it is actionable. Whereas in Doliner the intentional interference with a potential contract is not a cause of action. The main difference is the lack of an existing contract contracts are about expectations, payments, commitments and reliance on all of the above.

o o

When you only have a prospective contract there is uncertainty of whether the contract will actually go through and so there are no expectations. Its speculative and uncertain. Absence of engaging in some sort of wrongful means leaves you with no cause of action Two things from this case It is difficult to have successful claim with prospective contractual relations To show that competition can benefit sellers as well as buyers. Sellers position was probably improved by browns actions. Browns financing was much more solid than Doliners. The seller was actually better off. Note 1 on pg 24 Note 2 on pg 24 its not always clear when a prospective contract becomes an existing contract facts are very very important!!! Texaco v Pennzoil the court found that Texaco had interfered and awarded damages to Pennzoil bc although the contract was not formally finalized the negotiations were in the works and expectations were being established Acquiring Trademark Rights

A.

Introduction Trade names the legal name of a business Trade marks words, symbols, and packaging that is publicly used to identify goods/services and to distinguish from the goods/services of others Trade dress- basic appearance of the good/service i.e. shape of the coke bottle Trade names can be used as a trademark Trademarks may be registered with the fed govt with the patent office, US PTO o Intent to use or actual use State registration or common law are also ways for your mark to be recognized Any plans to engage in substantial business then you should consider registering with the fed govt A trademark can last indefinitely so long as it is used and updated. Or it can be abandoned Trademarks are territorial and can only be used in the areas in which they are registered Benefits for general public: o Allows consumers to easily identify the good o Provides info about the origin of the product o Cuts down on cost of search for the product if you are satisfied with a product from this source then you know you are getting a good thing every time you use it in the future rather than having to search for a new product One major function of trademarks is to provide info about the origin of the product Benefits for the seller: o Consumers are willing to pay more for a trademarked product when they know it is quality Oldest unfair trade practice is passing off or palming off pretending that your product is someone elses basic violation from the standpoint of consumers and sellers Most common violation in trademark law is infringement you cant say you are trademark registered unless you really are o Infringement constitutes many things but it basically is the conduct of the defendant which causes the likelihood of confusion Other example of trademark violation is dilution o Not a situation where there is a likelihood of confusion but there is either a blurring, reduction in strength or a tarnishment of the trademark Example of Utahs license plates greatest SNOW on earth as a dilution of Barnum and Baileys greatest SHOW on earth Victors Secrets selling sex toys and adult items as a dilution of Victorias Secret and

their feminine apparel items Victorias sued saying they are a legit business and that their reputation is being tarnished and diminished by the items being sold at Victors Predatory pricing is unlawful even if the intent to drive someone out of business is not there. Wisconsin recently passed legislation that outlawed predatory pricing in the sale of gasoline Torts and unfair trade per se tort most famous case was the Hit Parade radio singers who wouldnt sing the rock & roll songs and the recording company who owned the rights to the songs being left out sued saying that they lost out on $$ bc of the Hit Parades failure to play/sing the songs. The tobacco company who sponsored the radio show sd it was a business tort and that it was lacking a competitive element. 2nd circuit sd it was an intentional tort bc the tobacco company took action and continued to take action knowing that it would harm someone else and it resulted in an unfair trade practice. The rstmt of UTP says that per se torts such as this should be recognized but not all states do so, WI and NY does. Knowingly and willingly engaging in unfair competition There is a section in the restmt that deals with unfair trade and trademark law Trademarks have specific purposes o Identify and indicate information, such as the source of the product o Quality control for businesses and consumers Two kinds of trademark causes of action o Infringement = likelihood of confusion o Dilution = you cant est that there is a likelihood fo confusion, instead you must demonstrate lowering or tarnishment

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Obtaining Trademark Rights by Federal Trademark Registration Federal trademarks are obtained by registration o means that it is a federally registered trademark Basic federal trademark law is the Lanham Act of 1946, primary statutory base, was heavily amended in 1988 A. Dilution was one of the amendments so there is now a statutory base for it o Use the mark in interstate commerce Then rely on that use in the registration application as the basis for the claim of registration. Required specimens of use Use first and register later o Intent to use (ITU) Pre-use application by any person who has a bona fide intentionto use a trademark in commerce Entitled to registration only after it finally makes actual use of the trademark in commerce and files proof of that use with the PTO PTO will issue a notice of allowance and then the applicant has 6 months to begin using the mark in actual sales Seek registration first and then use o Either of the above approaches is okay, however, no registration will issue until the mark has ultimately been used USE remains a pre-req for federal registration Marks are registerable on the Principal Register if they distinguish an applicants goods or services Marks are registerable in the Supplemental Register if they meet the more lenient test of being capable of distinguishing applicants goods or services Trademarks can only be made nationally, not internationally unless by treaty. You would have to register with each nation in which you do business in order to guarantee and secure protection of your trademark

Affirmative Defenses B. Reference to Genuine Goods & Services

1.

Comparative Advertising

Smith v. Chanel, Inc., 402 F.2d 562, (9th Cir. 1968) Facts & procedural posture Smith came out with a perfume that they advertised as smelling like Chanel No. 5 but at a deeply discounted price. Chanel sued for infringement. The trial court grants a preliminary injunction and then Smith appealed Issue(s) presented whether one who has copied an unpatented product sold under a trademark may use the trademark in his advertising to identify the product that he has copied Holding and reasoning appellate court held that under the Lanham Act or the common law of unfair competition, you can use a trademark in advertising so long as it does not contain misrepresentations or create a reasonable likelihood that purchasers will be confused as to the source, identity, or sponsorship of the advertisers product Situational / Policy factors courts have generally confined legal protection to the trademarks source identification function for reasons grounded in the public policy favoring a free, competitive economy anti-competitive consequences would produce little public benefit o Imitation is the lifeblood of competition o A competitors chief weapon is his ability to represent his product as being equivalent and cheaper and to prohibit use of a competitors trademark for the sole purpose of identifying the competitors product would bar effective communication of claims of equivalence Rule common law unfair competition must be grounded in either deception or appropriation of the exclusive property of the plaintiff but the right of the complainant in his mark is limited to dilution which is brought about by confusion as to source or affiliation The Lanham Act does not prohibit a commercial rivals truthfully denominating his goods a copy of a design in the public domain, though he uses the name of the designer to do so. Indeed it is difficult to see any other means that might be employed to inform the consuming public of the true origin of the design. Arguments made for protection of trademark values other than source identification o Competitors can take a free ride on the trademark owners goodwill and reputation BUT this serves an important public interest by offering comparable goods at a lower cost o Use of the trademark of another creates a serious threat to the uniqueness and distinctiveness of the trademark IN CLASS: o Comparative advertising is a specific reference to a competing product o Comparative advertising, so long as its truthful, is not necessarily allowed by the FTC but by the media, TV networks and common law. The example of ABC, CBS and NBC allowed them back in the day and its been okay ever since Disparagement is NOT allowed o Smith was not misleading or confusing and therefore no cause of action o Why isnt this considered passing off? Bc they arent labeling their product as Chanel No. 5. They are making the distinction bt the products o Policy of fair use in trademark law promotes competition Also commonly noted in copyright law. The copyright owner cannot tax someone for fairly using portions/excerpts of the work. o Reverse engineering involves taking apart a finished product to analyze it and see how it is made, etc. I.e. Remington taking apart shavers and groomers from Norelco and Braun

Generic branding its understood by consumers that they are the same product but they are choosing to purchase the full price product for the illusion of quality control. The generic seller can do it So long as it says compare to and doesnt use the same script There is not a reasonable likelihood of confusion Many customers prefer a brand name and are willing to buy the extra price Thain points out and discusses note 2 on page 440 Charles Ritz Group v Quality King Distributors August Storck v Nabisco Why might a firm refrain from comparative advertising? Note 4 on pg 441 Suppose a company has 3 lines, and 1 is successful but the other 2 arent. You dont want to draw attention to less competitive brands You might doing well now, but in a few yrs maybe not so much so you dont want to be too competitive now Refer to the WSJ article in the supplement which talks about injuries in comparative advertising A. Inappropriate to get overly aggressive B. Attack ads confuse consumers when they become too intense

Under U.S. law, use of a competitor's trademark in accurate and non-deceptive comparative advertising is legal and does not constitute trademark infringement. In fact, truthful comparative advertisements even those that display a competitor's trademark, are considered to be informational for consumers and beneficial to competition, provided that the competitor's mark is accurately depicted. Legally permissible comparative advertising must unequivocally convey that the competitor's products or services sold under its mark(s) are independent from yours, and your advertising reference to a competitor's trademark must neither imply an affiliation nor explicitly or implicitly endorse your products. When using your competitor's trademark in advertising, your company should consider the following: Always accurately depict your competitor's trademark. Do not alter it in any form. Do not prominently position or otherwise highlight your competitor's trademark in any manner that implies an affiliation with or sponsorship by your competitor. Where possible, include proper trademark notice ("TM" or "(r)") and add a footnote stating that the trademark is owned by your competitor. Ensure that all claims associated with the use of your competitor's trademark, such as the content or effects of the trademarked product or service that your company's advertisement refers to, can be substantiated 2. Use for Comment

The New Kids on the Block v. News America Publishing Co, 971 F2d 302 (9th Cir. 1992) Facts & procedural posture 2 newspapers had polls asking which NKOTB was the fans favorite. NKOTB filed a complaint with 10 claims that basically boiled down to trademark infringement, false advertising, unfair competition etc etc. The newspapers said the polls were part of their first amendment rights and the court granted summary judgment. Issue(s) presented - whether using a trademark name in a public opinion poll is trademark infringement

Holding and reasoning NO- summary judgment is affirmed bc the nominative use requirements are met bc they all hinge on a theory of implied endorsement Rule nominative fair use defense 1- The product or service in question must be one not readily identifiable without use of the trademark 2- Only so much of the mark or marks may be used as is reasonably necessary to identify the product or service 3- The user must do nothing that would in conjunction with the mark, suggest sponsorship or endorsement by the trademark holder When a trademark comes to describe a class of goods rather than an individual product, the courts will hold as a matter of law that use of that mark does not imply sponsorship or endorsement of the product by the original holder o Kleenex, Clorox are examples Trademark law recognizes a defense where the mark is used only to describe the goods or services of a party or their geographic origin 15 USC 1115(b)(4) o Fair use defense forbids trademark registrant to appropriate a descriptive term for his exclusive use and so prevent others from accurately describing a characteristic of their goods Its impossible to refer to a product for purposes of comparison or criticism without referencing the trademark Competitors may use a rivals trademark in advertising and other channels of communication if the use is not false or misleading IN CLASS: o Nominative fair use is related to the use of a NAME o Court says nominative fair use applies in this case and there was no siphoning of money, nothing unfair took place o Do logos resonate more than the names themselves?

Playboy Enterprises Inc. v Welles, 279 F3d 796 (9th Cir. 2002) Facts & procedural posture former Playboy Playmate of the year had a website with pictures and biographical info that tied back to Playboy. PEI then sued for trademark infringement, dilution, unfair competition and false designation of origin. District court granted Welles summary judgment and PEI appealed. Issue(s) presented o Headlines and banners nominative use bc she could only describe herself as being a former Playmate of the Year by using that exact wording. Furthermore, she only uses the words and refrains from using the font or symbols assoc with the trademarks. Plus her website contains a stmt that she is not connected to PEI o Metatags no descriptive substitute for the metatags playboy and playmate and precluding their use would have the unwanted effect of hindering the free floe of information on the internet o Wallpaper/watermark the defense of nominative fair use fails here bc the wallpaper says PMOY 81 but her name is not by the mark o Trademark dilution nominative uses do not dilute the trademarks Precedent New Kids on the Blocks test for nominative fair use o The three factor test addresses concerns regarding the likelihood of confusion in nominative use cases Holding summary judgment is affirmed bc all of Welles uses of PEIs marks, except for on her wallpaper, are proper, nominative uses Reasoning it is in the nature of honors and awards to be identified with the people who receive them. Of course, the conferrer of such honors and awards is free to limit the honorees use of the title or references to the award by contract. So long as a use is nominative, however, the trademark law is unavailing

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Rule reaffirms the 3 factor test in NKOTB Dilution works its harm not by causing confusion in consumers minds regarding the source of a good or service, but by creating an association in consumers minds between a mark and a different good or service A nominative use refers to the trademark holders product. It does not create an improper association in consumers minds bt a new product and the trademark holders mark IN CLASS: o This is a dilution case bc there is not a likelihood that people would think her website was the same as Playboys o Nominative fair use protected except for the wallpaper/watermark on the website o Points out the Journal on Affairs and parodies (immediately after the WSJ article) o PEI lost on the claim on dilution o NKOTB was a direct nominative fair use as opposed to trademark infringement whereas this is more indirect nominative fair use for dilution o The use of the words Playboy Playmate or Playmate of the Year is more about identifying herself rather than confusing the consumer

o o

3. Use in Parody Lots of litigation in this area bc of trademark infringement Parody means that you start with something that is highly recognized by your audience and then you do something that identifies that work and do something humorous o Only protected if you have something so close to the original that many people will mistake it as the original o Not a parody if there is actual disparagement and a portion of the work that the audience thinks is realistic

Anheuser Busch, Inc v L&L Wings Inc, 962 F2d 316 (4th cir. 1992) Facts & procedural posture Venture created t-shirts that said Myrtle Beach on a beer can that had a red, white and blue label. The references to beer were replaced with references to beaches and beach slogans replace Bud beer slogans etc. Venture marketed the shirts through Wings who then sold the shirts. Anheuser Busch sued saying that the beer can looked markedly similar to their Budweiser cans and that consumers would think the Myrtle Beach logo was endorsed by AB. Jury found for defendants but the trial judge granted a judgment notwithstanding the verdict. The appellate court reversed Issue(s) presented o Does similarity of format by itself infringe upon registered trademark? Under the Lanham act, a holder of a registered trademark is entitled to protection only from uses of the mark that create a likelihood of consumer confusion the standard is whether the use in its entirety creates a likelihood of confusion o Is parody the equivalent of infringement? Holding in favor of the defendant bc there are sufficient differences bt the t-shirt design and the plaintiffs trademark to permit the jury to conclude that consumer confusion was unlikely and therefore the jury verdict should be upheld Reasoning the differences are sufficient at least to create a reasonable jury question on the issue of likelihood of confusion a reasonable jury could find that the t-shirt was readily recognizable as parody and that such a finding provides additional support for the jury verdict Rule most important factor was whether plaintiffs mark and defendants t-shirt design looked alike in the eyes of the ordinary consumer Anheuser Busch says there was insufficient evidence to support jury verdict under the factors set forth in Pizzeria Uno Corp v Temple o The strength of the plaintiffs mark o The degree of similarity bt the 2 marks

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o The similarity of the goods they identify o The similarity of the facilities used in the businesses o The similarity of the advertising o The defendants intent o The presence of action confusion ****The court in the present case say these factors are not hard and fast but rather are a catalog of various considerations that may be relevant in determining the ultimate question of likelihood of confusion Conventional definition of trademark parody a simple form of entertainment conveyed by juxtaposing the irreverent representation of the trademark with the idealized image created by the marks owner (LL Bean v Drake) IN CLASS o The dissenting opinion is written by retired Justice Louis Powell o No real competition here bc people purchasing the t-shirts arent doing so to support another beer company o The jury was entitled to conclude that this was not a violation of the Budweiser trademark bc whether the consumer would be confused is a purely factual issue o Whats the essence of Powells dissenting argument? Even a successful parody is still infringement and this is not even a true parody and therefore it is in fact a violation and infringement Not unreasonable to believe that a significant number of consumers will think that this t-shirt design is sponsored by AB

Anheuser-Busch Inc v. Balducci Publication, 28 F3d 769 (8th Cir. 1994) Facts & procedural posture the Balduccis published a humor magazine Snicker that featured a Michelob Oily spoof ad on the back of their magazine. AB sued saying that it was trademark dilution, unfair competition and fed and state trademark infringement. Balducci said at trial that he used the ad as a parody to comment on environmental pollution of the Gasconade River from which AB got its water supply. AB conducted a survey of 201 people to find out whether the ad was likely to confuse consumers. The district court ruled in favor of defendants saying that their use of the mark did not create a likelihood of confusion in the marketplace and bc the ad was used in an editorial context, there was no threat of tarnishment. AB appealed Standard of review Lanham Acts likelihood of confusion this is a factual determination which the appellate court reviews under the clearly erroneous standard o The strength of the trademark o The similarity bt the plaintiffs and defendants marks o The competitive proximity of the parties products o The alleged infringers intent to confuse the public o Evidence of any actual confusion o The degree of care reasonable expected of the plaintiffs potential customers ***These factors were enumerated as a way to determine the likelihood of confusion in SquirtCo. Holding and reasoning in favor of plaintiffs, AB, because there is significant doubt as to whether many customers would develop an understanding of Balduccis true purpose of creating a parody. A review of the record in conjunction with the survey results are proof that there is likely to be confusion IN CLASS: o Trademark owners typically dont make fun of themselves and thats what this looks like o An effective parody has the presumption that the public understands its not the trademark owner who is responsible for the parody o This is a much stronger case of trademark infringement than the previous AB case and is more likely to have turned out differently AB would obvi be associated with the beach t-shirt rather than an ad saying their beer

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has oil in it A number of people say that the outcome in Balducci is wrong Surveys of consumer confusion can be very convincing evidence but it must be a well done, competent survey o Note 4: some trademark parodies make fun of the trademark owners but others make fun of society in general. Which one is likely to cause more confusion and which one is more likely to be protected? Parodies of society are more likely to be interpreted as being a parody. Disparagement of trademark owners is less likely to be protected o o L.L. Bean Inc v. Drake Publishers Inc, 811 F2d 26 (1st Cir. 1987) Facts & procedural posture High Society was an imitator of Playboy magazine and they published various kinds of articles and photo spreads of nude women etc. There was a 2-page article in 1984 issue titled LL Beams Back to School mimicking the LL Bean catalogs but featuring erotic poses and sex toys. LL Bean filed for an injunction order and they didnt get it but there was summary judgment issued for LL Bean for state claims of dilution but not for trademark infringement Issues presented whether the injunction was a violation of the First Amendment Holding yes Reasoning The trial court applied the reasoning from Dallas Cowboys Cheerleaders, which stated that the trademark is a property right and need not yield to the exercise of the first amendment. The court says that this sweeping rejection is dangerously simplistic. o The sweep of a trademarks owners rights extends only to injurious, unauthorized commercial uses of the mark by another. Trademark rights do not entitle the owner to quash an unauthorized use of the mark by another who is communicating ideas or expressing points of view. o The overriding purpose of anti-dilution statutes is to prohibit a merchant of non-competitive goods from selling its products by trading on the goodwill and reputation of anothers mark. o The trial court read the anti-dilution statute as granting a trademark owner the unfettered right to suppress the use of its name in any context, commercial or non-commercial, found to be offensive, negative, or unwholesome. o Neither the strictures of the first amendment nor the history and theory of anti-dilution law permit a finding of tarnishment based solely on the presence of an unwholesome or negative context in which a trademark is used without authorization. o The constitution is not offended when the anti-dilution statute is applied to prevent a defendant from using a trademark without permission in order to merchandise dissimilar products or services. o If the anti-dilution statute were construed as permitting a trademark owner to enjoin the use of his mark in a noncommercial context found to be negative or offensive, then a corporation could shield itself from criticism by forbidding the use of its name in commentaries critical of its conduct. o Court rejects Beans argument that enjoining the publication of appellants parody does not violate the first amend because there are innumerable ways that drake could have made a satiric statement concerning sex in the outdoors. The court states that this argument fails to recognize that Drake is parodying LL Beans catalog, not sex in the outdoors. Rule The sweep of a trademarks owners rights extends only to injurious, unauthorized commercial uses of the mark by another. Trademark rights do not entitle the owner to quash an unauthorized use of the mark by another who is communicating ideas or expressing points of view. IN CLASS: o LL Bean sd this was tarnishment and these crude pictures were tarnishing their good name and reputation o Appellate court sd this was not a good claim about dilution regarding the injunction order and violating the first amendment This is a true parody

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Trademark parodies, even when offensive, do convey a message Trademarks as Speech by Denicola is a Wis. Law Review article that is cited frequently Unauthorized non-commercial use magazines are pure expression which are heavily protected by the first amendment bc that is the whole intent of the amendment Unauthorized commercial use are held to a stricter standard Note 1 on page 478 Old Farmers Almanac [this commentary is] an expressive message that is fully entitled to First Amendment deference, as much so as in the case of typical parody Note 2 How did the Pink Panther Patrol case come out? What about the San Francisco Arts and Athletics? A. PPP . Defendant activist organization adopted part of the trademarked name as their street patrol's name. Plaintiff brought an action alleging trademark infringement and state and federal unfair competition. o holding - The trial court granted plaintiff's motion for an injunction in part, holding where plaintiff demonstrated irreparable harm, likelihood of confusion, and success on the merits, an injunction was warranted. The court denied an injunction enjoining defendant's use of a paw print where harm was not likely. B. SFAA o SCOTUS affirmed the grant of summary judgment in favor of respondent United States Olympic Committee (USOC), concluding that Congress had reasonably determined that the value of the word "Olympic" was the product of the USOC's efforts and, hence, proof of likelihood of confusion was not necessary. In addition, the First Amendment had not been affronted because restrictions against the use were not broader than necessary. Court came up with an 8 factor test every circuit has there own list but for the most part they are all very similar There was a likelihood of confusion in this case Very fact specific as are all trademark infringement cases are

Mattel Inc v MCA Records, 296 F.3d 894 (9th Cir. 2002) Facts & procedural posture Mattel sued MCA Record alleging trademark infringement and dilution because of Aquas Barbie Girl. MCA Records counter-claimed for defamation. The United States District Court for the Central District of California granted summary judgment in favor of MCA regarding the trademark infringement and dilution claims and granted summary judgment in favor of Mattel on the defamation claim. Both sides appealed. o The court of appeals held that MCA Records use of the doll was not an infringement of Mattel's trademark because the song's title was relevant to the underlying work and the song did not suggest that it was created by Mattel. The song was not purely commercial speech and was fully protected by the First Amendment. The use of the Barbie doll mark in the song fell within the noncommercial use exemption to the Federal Trademark Dilution Act. Holding and Reasoning o MCAs use of Barbie is not an infringement of Mattels trademark bc the song title does not explicitly mislead as to the source of the work nor does it suggest it was produced by Mattel Therefore MCA was entitled to SJ o Use of the Barbie mark falls within the noncommercial use exemption to the FTDA bc it lampoons the Barbie image and comments humorously on the cultural values that Barbie represents IN CLASS o The United States Court of Appeals for the Ninth Circuit holds that the likelihood-of-

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confusion test, generally strikes a comfortable balance between the trademark owner's property rights and the public's expressive interests. But when a trademark owner asserts a right to control how people express themselves -- when people would find it difficult to describe the product any other way (as in the case of aspirin), or when the mark (like Rolls Royce) has taken on an expressive meaning apart from its source-identifying function -applying the traditional test fails to account for the full weight of the public's interest in free expression o Mattel cannot assert unfair competition under Paris Convention o Is this a first amendment protected parody of Barbie? This is different than the other parodies that we have so far looked at. 9th circuit says that this is a protected parody for both trademark infringement and dilution. Rules in favor of MCA before telling both parties to chill out Under trademark law, where an artistic work targets the original and does not merely borrow another's property to get attention, First Amendment interests weigh more heavily in the balance. A parodist whose expressive work aims its parodic commentary at a trademark is given considerable leeway, but a claimed parodic use that makes no comment on the mark is not a permitted trademark parody use o "commercial use in commerce" refers to a use of a famous and distinctive mark to sell goods other than those produced or authorized by the mark's owner o trademark injunction is usually limited to uses within one industry or several related industries. Dilution law is the antithesis of trademark law in this respect, because it seeks to protect the mark from association in the public's mind with wholly unrelated goods and services. The more remote the good or service associated with the junior use, the more likely it is to cause dilution rather than trademark infringement. A dilution injunction, by contrast to a trademark injunction, will generally sweep across broad vistas of the economy o Ginger and Fred a movie involved an Italian dancing couple but Ginger Rogers sd this would make people believe she had some affiliation with it and its a false impression. But when you look at it, a title is meant to express the underlying work, which does not violate the Lanham Act. o What kind of commercial use of the mark is Barbie Girl? Its obvi an unauthorized use but its also a non-commercial use MCA is in the business to make a profit but the message in the song is not to have you buy the song instead of actual Barbie dolls, rather it is an expressive use and therefore a non-commercial use Depending on the strength of the mark, Trademark injunction is meant to prevent consumer confusion and there is none of that here Dilution is meant to protect the distinctiveness o Pet Peeves: trademark Law and the Consumer Enjoyment of Brand Pet Parodies Who should prevail? Is this a parody? Or is trademark infringement? Is there any likelihood of confusion? Doubtful a reasonable consumer would think Louis Vuitton was behind it but there are dumb asses who will think so. Dilution claims? Possibly so but its more likely to simply be stronger argument for blurring Court sd its a parody and a successful parody Author of this article sd there was 3 factor test: degree of similarity, proximity of competition, imitators intent Deere & Company v MTD Products, 41 F3d 39 (2nd Cir. 1994) Facts & procedural posture a smaller competitor of John Deere, MTD, used comparative advertising to show what they thought was a parody of the Deeres deer. The modified logo was tiny and was an animated cowardly deer meant to achieve a humorous effect. Deere sued for a preliminary

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injunction Holding The court affirmed the preliminary injunction, holding that the animated version of trade mark and commercial was a likely violation of anti-dilution statute because it posed the risk that consumers would likely attribute unfavorable characteristics to the mark and ultimately associate the mark with inferior goods and services Reasoning Rule Lanham Act requires a showing that the challenged advertisement is literally false or that it is likely to mislead or confuse consumers. IN CLASS: o Dilution is limited by fed statute to famous marks. Nationally recognizable? o dilution by "blurring" may occur where the defendant uses or modifies the plaintiff's trademark to identify the defendant's goods and services, raising the possibility that the mark will lose its ability to serve as a unique identifier of the plaintiff's product o Alterations, accomplished for the sole purpose of promoting a competing product, are properly found to be within New York's concept of dilution because they risk the possibility that consumers will come to attribute unfavorable characteristics to a mark and ultimately associate the mark with inferior goods and services o In this case, the action was under the NY state statute bc at this time, there was not a fed antidilution statute o One of the problems that the court has with this case is that it doesnt fall easily into the category of dilution. Pg 481. District court originally sd no blurring or tarnishment. There is a hint that this might be a separate form of dilution rather than simply just blurring or tarnsihment In the notes following the case, in note 2 for the Jim Hensen case, the 2nd circuit declared that tarnishment should be interpreted broadly whereas in Deere it was read too narrowly o One of the things that comes up, is the question of how far the fair use, how much is necessary to identify the product easily? Only use the products name instead of the logo? o Suppose MTD instead of using the animated scared deer, and had used a static version of the Deere logo? We dont know for sure but there is a hint in the NKOTB opinion that it would be infringement bc its the equivalent of using the product name o Does the parody here go too far? Use of parody in and of itself is not a violation. But here there isnt likelihood of confusion and the rstmt says dilution if there is defamation o How far is too far when determining if the action is unfair? Thain says this case gets really, really close to the line o courts will regularly enjoin competitive advertising, even where the underlying claim or comparison was substantiated, if the competitor's trademark was altered and/or portrayed in a negative manner. For example Deere & Company, a well-known agricultural equipment manufacturer, had used a deer silhouette logo for over one hundred years. MTD Products, the manufacturer of a competitor lawn tractor, produced a commercial utilizing an altered version of Deere's deer logo without Deere's permission. The federal court, applying New York state anti-dilution law, noted that although using Deere's exact deer logo to compare the competitor's product to MTD's product might have been lawful, the disparaging alterations namely, changing the proportions of the logo and making the deer appear to run fearfully as it is pursued by the MTD tractor and a small barking dog could "risk the possibility that consumers will come to attribute unfavorable characteristics to a mark and ultimately associate the mark with inferior goods and services." Since the trademark was altered by a competitor, and the alteration was seen as a negative portrayal of that trademark, the use of the altered logo in the comparative advertising was prohibited. REMEDIES Injunctive Relief

1.

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What is the most common remedy in a TM dispute if the plaintiff prevails? Permanent injunction. TRO temporary injunction The most contested of all these is the temporary injunction. Once the PI is issued you cant really contest it except by appeal. There are three things that must be demonstrated before a TI can be issued: Likelihood of success on the merits Irreparable injury Balancing the equities favors granting the injunction

Starter Corp. v Converse Inc., 170 F.3d 286 (2nd Cir. 1999) Facts & procedural posture the dispute was in regards to athletic footwear bearing a star as part of the trademark. There was an agreement bt the 2 companies that Starter would not use the star on any footwear but when head-to-toe marketing came out, then Starter filed another application to use the star mark on footwear and Converse threatened to sue. Starter filed this action for declaratory judgment, Converse file counterclaims, and then both parties moved for summary judgment but the court denied both sj motions. A trial was held and the jury found in favor of Converse for infringement and dilution (see below). The district court issued sua sponte an injunction against Starter o Starters use of the star mark on athletic footwear would cause a likelihood of confusion o Starters use of the composite mark on athletic footwear would case a likelihood of confusion o There was a binding contract bt the parties that Starter would not use the mark on athletic shoes o That Starter was estopped bc Starter made oral representations that it would not its star marks on athletic shoes Issue(s) presented did the district court abuse its discretion in awarding a permanent injunction? Did the district court abuse its discretion as to the scope of the injunction? Standard of review appellate court reviews a district courts entry of a permanent injunction in a trademark case for abuse of discretion and reviews de novo questions of law concerning the courts authority to issue the injunction Holding the appellate court found that the district court did not abuse its discretion by granting a permanent injunction BUT they did find that the district court abused its discretion by granting a very broad injunction. Therefore, the case is remanded to the district court so they can order a more narrowly tailored injunction based on the findings of the jury Reasoning in regards to the scope, there may be little likelihood of confusion where 2 entities use the same trademark in different thought related markets. Therefore the Rugged Shoe by Starter is considered an athletic shoe but not in the same scope as athletic shoes being produced by Converse and therefore there is no likelihood of confusion and thus no infringement Rule a permanent injunction must be narrowly tailored to fit specific legal violations bc the district court should not impose unnecessary burdens on lawful activity i.e. competition o Injunctions are meant to be remedial and not punitive IN CLASS: o Preliminary injunction will only be granted if the following 3 factors are met Likelihood of success on the merits Irreparable injury Balance of equities favors the plaintiff **Recent years, some courts have added a 4th factor: injunction would be in the public interest o Starter hadnt asked for the prelim injunction and typically courts only grant relief once it has been asked for. So why can the district court issue an injunction sua sponte? In trademark cases, the courts have sd that there is a public interest involved in preventing confusion and if

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there is cause for confusion, then they can act sua sponte In the appellate court, they didnt take issue with the injunction but rather they took issue with the broad scope Note 4 willful trademark dilution the court may ordered that all signs etc bearing the mark be destroyed

American Board of Psychiatry and Neurology v Johnson-Powell, 129 F.3d 1 (1st Cir. 1997) Facts & procedural posture Johnson-Powell was a psychiatrist who was claiming she was ABPN certified in depositions and on trial. Her resume and CV said it too. ABPN notified her that she was misrepresenting herself on behalf of their trademark and she said it was a clerical error that it was on her resume and that going forward she would no longer represent herself as being ABPN certified. ABPN still brought suit and then the district court denied ABPNs request fro preliminary injunction and they brought an interlocutory appeal Standard of review appellate courts will only reverse denial of preliminary injunction if the district court abused its discretion we review findings of fact made as part of the DCs denial of injunctive relief under a clearly erroneous standard absent clear error or other abuse of discretion, we will not reverse a DCs denial merely bc we would have been inclined to grant the injunction had we heard the matter ourselves Holding reject ABPNs argument that the court committed legal error in denying injunctive relief on the ground that there was no prospect of future infringement Reasoning although her past conduct is ample evidence of infringement and conduct indicative of bad faith, ABPN did not present sufficient evidence to give rise to a strong inference that further infringing acts would occur in the future Rule when determining whether to issue a prelim injunction in a trademark action, the court should weigh these 4 factors o The Ps likelihood of success on the merits o Whether the P risks suffering irreparable harm if the injunction is not granted o Whether such injury outweighs the harm that injunctive relief would cause D o Whether the public interest would be adversely affected by granting or denying the injunction IN CLASS: o Certification mark is at issue o Not surprisingly, the board sd that the doctor has infringed their trademark and while the action is pending they wanted to bring a preliminary injunction o The lower court refused to grant the prelim injunction bc they thought that she would be unlikely to infringe in the future the appellate court sd it was ok to grant the injunction bc it was not an abuse of discretion o Any argument to say that this isnt a total waste of time? If the injunction was not issued and she reviolates then the lower court may say it has become moot whereas a prelim injunction would be contempt of court issue o Note 3 FRCP 65(c) requires bond amount to cover expenses 2. Monetary Relief

Bishop v Equinox Intl Corp., 47 USPQ.2d 1949 (10th Cir. 1998) Facts & procedural posture Bishop had a supplement titled Essence of Life and then found out that Equinox was distributing something similar with the same name. His attorney sent Equinox a cease and desist letter and then Equinox responded that they would discontinue using that name. Equinox failed to discontinue using Essence of Life and Bishop filed suit. The district court grants Bishop a permanent injunction against Equinox but finding no actual damages, denied request for monetary relief. Issue(s) presented whether an award of profits in this case is appropriate

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Standard of review clearly erroneous Holding cannot find the record to be clearly erroneous and therefore remand the case for a determination of whether an award of profits is appropriate o However, the court did find that awarding Bishops attorney fees was appropriate bc they found that Equinox premised their actions on the relative economic weakness of Bishops operation and would not reverse Equinoxs request re the attorney fee award Rule the unavailability of actual damages as a remedy does not preclude plaintiff from recovering an accounting of defendants profits o 2 widely recognized rationales for awarding profits to a plaintiff who cannot demonstrate that he or she has suffered damages as a consequence of the infringement Preventing unjust enrichment A. The infringers use of the mark to make a profit results in unjust enrichment that may be properly be remedied through an award of profits Deterring willful infringement A. An award of profits requires a showing that defendants actions were willful or in bad faith IN CLASS: o Atty fees were proper bc Equinoxs actions were deliberate and willful and their failure to cease and desist using the name despite their written word that they would do so o This is an example of unfair practice bc its misconduct of using someone elses mark and doing so deliberately o Section 37 of rstmt deals with accounting profits and deceptive marketing basically says in addition to intent, court will consider if atty fees are appropriate if the facts are in support of it o Damages Lost sales due to infringement Loss incurred by selling at discount to counter infringement Sums plaintiff spent on correcting messages in advertising Harm to reputation or goodwill

Big O Tire Dealers v. Goodyear Tire & Rubber Co., 561 F.2d 1365 (10th Cir. 1977) Facts & procedural posture o Big-O used the Bigfoot tradename first. Goodyear was aware of this. They told BO that it intended to market its own Bigfoot brand. BO objected and GY went ahead and did it anyway. BO sues for infringement. o BO needs to demonstrate likelihood of confusion. They win and are awarded $2.8M in compensatory damages and $16.8M in punitive damages. [The purpose of punitive is punishment and deterrence.] Holding The appellate court modified the district court's judgment on the issue of the compensatory damages that was awarded. As modified, the court affirmed the district court's judgment. The court remanded the case to the district court with directions to vacate its judgment and to enter a judgment in compliance with the court's opinion. Rule the purpose of general compensatory damages is to make the plaintiff whole o A dollar-for-dollar expenditure for corrective advertising is unnecessary to dispel the effects of confusing and misleading advertising. o A plaintiff's inability to prove with precision that amount necessary to make itself whole does not preclude recovery since the most elementary conceptions of justice and public policy require that the wrongdoer shall bear the risk of the uncertainty which his own wrong has created. IN CLASS o The district court permanently enjoined the manufacturer from infringing the dealer's

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trademark. On appeal, the court affirmed, finding that the forum state, if given an opportunity, would extend its common law trademark infringement actions to include reverse confusion situations in order to further the state policy of protecting trade names and preventing public confusion. Although the dealer could recover advertising expenses incurred to counteract the resulting public confusion, the court reduced the compensatory damages award because a dollar-for-dollar expenditure was unnecessary to dispel the effects of the confusing advertising. Under Colorado law, exemplary damages had to bear some relation to the compensatory award. The court deferred to the district court's persuasive six-to-one exemplary to compensatory ratio. Reverse passing off Main name disputes in courts What is an example of passing off or pawning off? Restaurant menu listing Coke when generic cola is actually being served. Im not sure what reverse passing off is. Email the prof later. What does the court determine the proper amount of damages is? They are for corrective advertising. What is the relevance of 28%? BO is in about 28% of states. What is the relevance of 25%? The FTC rule is to award 25% of an advertising campaigns budget as damages for corrective advertising. The appellate court says that the damages should be reduced by both percentages. Doing that you get about $600k. They move on to punitive damages. The court says that a ratio of 6:1 of punitive to compensatory damages is appropriate, so it reduces the award accordingly. Is there anything in the opinion that obligates the plaintiff to spend the money on corrective advertising? It seems like the court is assuming that they will do this. INTERNET ISSUES

A. B.

Introduction Domain name disputes in the courts

Domain name is an address used to access a website. They are purchased from ICAN. Cybersquatting is when you purchase a domain name that uses another companys trademark with the intent to profit from it. Panavision Intl LP v Toeppen, 141 F3d 1316 (9th Cir. 1998) Facts & procedural posture o He registers Panavision.com. He makes a website that shows pictures of Pana, IL. o Panavision sues for TM dilution, TM infringement, and unfair competition. o What is his argument that there was no commercial use? He didnt initiate contact with Panavision Ps lawyers did. He argues that he didnt initiate contact. The counterargument is that he fully expected them to contact him. o The court doesnt buy his argument. That he didnt initiate contact is irrelevant. His intent is to ransom the domain name back the TM owner. Issue was the registration of a domain name commercial in nature? And if so, did it dilute the trademark? Holding and reasoning yes and yes -- court concludes that Panavision was entitled to summary judgment under fed and state dilution statutes bc Toeppen made commercial use of Panavisions trademarks and his conduct diluted those marks Rule For dilution it is required that you demonstrate that there is a commercial use. IN CLASS o Statute used to attack cyber-squatting was Trademark Anti-Dilution Act. Some of the notes following the case sd dilution is not the most satisfactory means of dealing with cyber-

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squatting. Blurring or tarnishment are a bit of a stretch for this case This case attempts to deal with cybersquatting under preexisting TM law. Is it really blurring or tarnishment though? Not really. But the court nonetheless determines that it is dilution because it is the closest fit. The court says that the mark is diluted because this use of the domain name will make it more difficult for customers to find what they are looking for. o In order to prove a violation of the Federal Trademark Dilution Act, 15 U.S.C.S. 1125(c), a plaintiff must show that: (1) the mark is famous; (2) the defendant is making a commercial use of the mark in commerce; (3) the defendant's use began after the mark became famous; and (4) the defendant's use of the mark dilutes the quality of the mark by diminishing the capacity of the mark to identify and distinguish goods and service o Registration of a trademark as a domain name, without more, is not a commercial use of the trademark and therefore is not within the prohibitions of the Federal Trademark Dilution Act o To find dilution, a district court need not rely on the traditional definitions such as "blurring" and "tarnishment." Blurring occurs when a defendant uses a plaintiff's trademark to identify the defendant's goods or services, creating the possibility that the mark will lose its ability to serve as a unique identifier of the plaintiff's product. Tarnishment occurs when a famous mark is improperly associated with an inferior or offensive product or service o The commercial use here was that Toeppen was in the business of squatting the domain name and making the rightful owners of the tradenames buy the domain name off of him this constitutes a commercial use his attempt to sell the trademarks themselves was commercial o Cases such as this resulted in the passage of the Anti-cybersquatting Consumer Protection Act (ACPA) in 1999. The act is codified as Lanham Act 43(d) o o Sportys Farm LLC v Sportsmans Market, Inc., 202 F3d 489, cert denied (2nd Cir. 2000). Facts & procedural posture Sportsmans was an aviation related magazine. Omega was looking to get into the aviation business. It registered sportys.com as a domain name. It then created a subsidiary called Sportys Farm and assigned the domain name to them. Sportys sued for declaratory judgment; Sportsmans counterclaimed for infringement and dilution. The trial court dismissed on infringement but found dilution. Before the appeal was heard, congress passed the anticybersquatting act. Holding and reasoning The court found that the new act was violated. Unlike dilution, under the new act you dont need to show fame only distinctiveness. Situational / Policy factors - Anti-Cybersquatting Act was passed by the time this case was brought Rule Dilution applies only to famous and distinctive trademarks/names o Distinctiveness refers to inherent qualities of a mark and is a completely different concept from fame. A mark may be distinctive before it has been used -- when its fame is nonexistent. By the same token, even a famous mark may be so ordinary, or descriptive as to be notable for its lack of distinctiveness IN CLASS o Was their bad faith intent? Yes. They were trying to divert sportys business to their own burgeoning aviation business. o The court concluded that the only relief is transfer of the domain name. The Act says that you cant get damages for domain names that were already in existence prior to the passage of the act.

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Note 5 on pg 561 No specific intent to register the name in order to use it for commercial purposes and so no liability o Cybersquatting involves the registration as domain names of well-known trademarks by nontrademark holders who then try to sell the names back to the trademark owners. Since domain name registrars do not check to see whether a domain name request is related to existing trademarks, it has been simple and inexpensive for any person to register as domain names the marks of established companies. This prevents use of the domain name by the mark owners, who not infrequently have been willing to pay "ransom" in order to get "their names" back. o Anticybersquatting Consumer Protection Act (ACPA) provides that a court may order the forfeiture or cancellation of the domain name or the transfer of the domain name to the owner of the mark, if the domain name was registered before, on, or after the date of the enactment of this Act. It also provides that damages can be awarded for violations of the ACPA, but that they are not available with respect to the registration, trafficking, or use of a domain name that occurs before the date of the enactment of the ACPA o the owner of the famous mark shall be entitled only to injunctive relief unless the person against whom the injunction is sought willfully intended to trade on the owner's reputation or to cause dilution of the famous mark. Accordingly, where willful intent to dilute is demonstrated, the owner of the famous mark is -- subject to the principles of equity -- entitled to recover (1) damages (2) the dilutor's profits, and (3) costs o the crux of ACPA claim is whether the defendant has acted in bad faith absence of any legit motive for adoption of the domain name or a crazy ass story about how the defendant came up with the name (like this one) will give a court a good reason to find the act has been violated o Ford Motor Co v Greatdomains.com, Inc., 177 F.Supp.2d 635 (ED Mich. 2001) Facts & procedural posture Ford Motor Company had found out that there were many registered domain names that were similar to their trademark brands of cars. They bring an in rem action in Michigan were they are located. Under the in rem action, Ford says the jurisdiction may be maintained over the domain names themselves Holding court says not in rem jx bc its only available when in personam jx is not available and bc these defendants are in the US then in personam is available o The court concludes that asserting in rem jx in this matter is not permissible exercise of the courts authority Rule under ACPA a court may exercise in rem jx only if both (1) the domain name authority that registered or assigned the domain name is located in this district and (2) in personam jx over the registrant defendants is unobtainable IN CLASS o Ford had not actually listed the domain names as defendants nor did they state the domain names in the complaint o What if they amended their complaint to include the domain names? Would it make a difference? No bc the court sd insofar as the parties who had registered the domain names reside in the US then in personam is available. Lack of sufficient contacts violates due process according to Intl shoe o Ford then tries to go after the individuals under personal jx. Why would they have gone after in rem instead of personal? Its cheaper and more favorable to Ford if the action is upheld o Note 1 on 564 bc internet is worldwide, Congress recognized that sometimes a trademark owner seeking to assert the rights provided by ACPA might not always be able to secure personal jx over the relevant defendants Created the alternative in rem procedure that the court uses in Ford Motor

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Note 2 points out that remedies under in rem action are limited to the forfeiture or cancellation of the domain name or the transfer of the domain name to the trademark owner. No additional relief is available. The statutory language is unambiguous An in rem ACPA case must be filed where the domain name registrar is located. Bc NSI is located in burbs of DC, prior to 1998, the majority of in rem cases under ACPA were filed in the ED of Virginia The in rem provision of ACPA has no mention of the bad faith intent to profit but courts still require plaintiffs to prove bad faith Courts generally have held that a domain name that incorporates a trademark is "confusingly similar to" that mark if consumers might think that the domain is used, approved, or permitted by the mark holder. Thus, courts consistently find that slight differences between domain names and registered marks, such as the addition of minor or generic words to the disputed domain names are irrelevant Anticybersquatting Consumer Protection Act, the United States Congress provides a nonexhaustive list of factors to consider in determining whether a domain name registrant has acted with "bad faith intent to profit." Specifically, the statute directs courts to consider whether the defendant (1) has trademark rights in the domain name that are concurrent with the plaintiff's; (2) is identified by the domain name; (3) has previously used the domain name in connection with goods or services; (4) has engaged in noncommercial or fair use of the mark on the internet; (5) intends to divert customers away from the mark owner; (6) has offered to sell the domain name before using it for a legitimate purpose; (7) provided misleading contact information when registering the domain name; or (8) has registered multiple domain names that are confusingly similar to others' trademarks. the use of a domain name for purposes of comparative advertising, comment, criticism, parody, news reporting, etc., even where done for profit, does not alone satisfy the badfaith intent requirement.

PETA v Doughney, 263 F3d 359 (4th Cir. 2001) Facts & procedural posture def registered a domain name at peta.com for the People Eating Tasty Animals and PETA got pissed so they sued him for various claims under both state and fed law, including cybersquatting. The district court granted PETA motion for summary judgment and stated that the domain name must be transferred to PETA but did not award atty fees. Both parties appealed. Issue(s) presented trademark infringement / unfair competition is this in connection to goods or services? anticybersquatting consumer protection act Holding and reasoning defendants actions prevented users from obtaining or using PETAs goods or services and connected the website to other goods or services and therefore he used the mark in connection with goods or services. There was enough bad faith for the defendant to have been found in violation of the ACPA Rule using a mark in connection with goods or services is likely to confuse and prevent internet users from reaching the correct/sought after website IN CLASS o Unable to prevail on the defense that this was a legit parody that is protected by 1st amend He parodied PETAs political agenda rather than parodying the trademark name in his domain name Bleedingheartpeta.com is okay bc there is a negative connotation and one can assume that its not connected to PETA 1st amend gives protection to domain names that indicate a critical or negative approach to the trademark name being used. Although it doesnt always come out that way o The unauthorized use of a trademark infringes the trademark holders rights if it is likely to confuse an ordinary consumer as to the source or sponsorship of the goods

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o o o

Looking at peta.org there is no suggestion of a parody and by simply copying the mark, it conveys that it is related to PETA A defendant who acts even partially in bad faith in registering a domain name is not, as a matter of law, entitled to benefit from [the ACPAs] safe harbor provision. Fuckgeneralmotors.com xWho would put this up? A competitor or a consumer? There was investigation and it was an individual who was interested in car repairs. For whatever reason he hated GM but loved Ford and so the website was dedicated to Fords superiority. He had no connection to Ford. There was an action brought by Ford to bring down the website and rescind the domain name. Ford brought the action bc they didnt want the website to reflect poorly on them

D. Domain Name Dispute Resolution MAHA Maschinenbau Haldenwang GmbH v. Deepak Rajani, WIPO Arbitration and Mediation Center, 2001 Facts & procedural posture the plaintiff had a car company that brought action against the defendant whose website maha.com that provided services to Sanskrit speaking peoples. Holding and Reasoning o The panelist found that it was unclear bc the trademarks were not strictly words but instead contained graphic or figurative elements o In this case, there is no real evidence that shows that complainants only aim was to deprive the respondent of his domain name and so no reverse domain name hijacking o Rejects the complainants request for transfer of the domain name and rejects respondants request for finding of reverse domain name hijacking Rule domain name can be transferred only when the complainant has demonstrated the following o The domain name is identical or confusingly similar to a trademark or service mark in which the complainant has rights o The domain name holder has no rights or legit interests in respect of the domain name o The domain name has been registered and is being used in bad faith IN CLASS o Maha means great, mighty, magnificent, divine etc in Sanskrit o Could not say that there was a sufficient showing of bad faith that would warrant transferring the domain name o Reverse domain name hijacking, page 579 Means using a disputed policy in a bad faith attempt to deprive a registered domain holder of a domain name. Typically involves big businesses threatening to sue legit domain name registrants who do not give up the right to the registration To prevail on this claim, the respondent must show that the complainant knew of respondents unassailable right or legit interest in the disputed domain name or the clear lack of bad faith registration and use, and brought the complaint in bad faith o There are a variety of domain name dispute resolution panels and the forum can be one of which the party has a complaint and can proceed with an action Note 1 and 2 only the complaining parties chose the forum and if there is a particular forum that is more favorable to complainants then it prevents other forums from capitalizing on the litigation disputes What happens if the losing party decides to take it to court? Is the court going to give deference? No bc they are not required to do so under the law So whats the significance of the dispute resolution forums conclusion if the losing party has the legal right to take it to court? Sallen v Corinthians Licenciamentos LTDA, 273 F3d 14 (1st Cir. 2001)

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Facts & procedural posture The registrant had registered the English equivalent of the Portuguese name of a Brazilian soccer team. A World Intellectual Property Organization panel awarded the name to the trademark holder, the soccer team's owner, in a Uniform Domain Name Dispute Resolution Policy (UDRP) proceeding. The registrant brought an action under 15 U.S.C.S. 1114(2)(D)(v) of the Anticybersquatting Consumer Protection Act (ACPA). The district court dismissed the case holding it lacked subject matter jurisdiction since there was no case or controversy since the trademark holder had no intention of suing the registrant under the ACPA. The appellate court held that 1114(2)(D)(v) provided the registrant who had lost a domain name under the UDRP with a cause of action for an injunction returning the domain name if the registrant could show that he was in compliance with the ACPA o Plaintiff internet domain name registrant appealed the holding of the United States District Court for the District of Massachusetts that it lacked jurisdiction over his claim made under the Anticybersquatting Consumer Protection Act after he had lost an administrative dispute resolution under the Uniform Domain Name Dispute Resolution Policy to defendant trademark holder Holding and Reasoning reversed and remanded Rule IN CLASS o A court declaration of compliance under ACPA would be superior to the dispute resolution panels finding No deference from the district court o "mark" includes "any trademark" and that same section defines "trademark" as any word, name, symbol, or device (1) used by a person, or (2) which a person has a bona fide intention to use in commerce and applies to register on the principal register, to identify and distinguish his or her goods and to indicate the source of the goods. "Mark owner" must be understood against the backdrop of U.S. trademark law, which provides some protections to unregistered marks. o Note 1 whats the point of delaying any action by a court until the dispute resolution procedure is completed if the UDRPs decision is not absolute? Might not make sense but thats the way it is o Note 2 any way to limit or mitigate defending name registration aka reverse domain name hijacking? No answer provided, but there are some suggestions such as atty fees and monetary penalties. Would probably only be enforced in very egregious cases

E. Other Trademark Problems on the Net Brookfield Communications v. West Coast Entertainment Corp., 174 F3d 1036 (9th Cir. 1999) Facts & procedural posture Brookfield had a database of movie stuff and they called it moviebuff. West Coast was a large video rental chain that had a registered domain name moviebuff.com and were planning on releasing a database similar to Brookfields. Brookfield sought to enjoin them Issue(s) presented is this trademark infringement? Holding The use of the domain name would cause a likelihood of confusion, therefore trademark infringement, and so West Coast cant use moviebuff.com Rule initial interest confusion consumer wont be confused for long but is sufficient to constitute as infringement IN CLASS o Famous and often cited decision despite being controversial. How should the decision be applied? Its disputed o What kind of confusion exists in this case? Initial interest confusion Confusion is not going to last for very long bc you know right away that you are at the wrong website Still considered to be a violation of trademark law bc.

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o o

Arguably goes back before Brookfield but is it just the 9th circuit finding a first impression issue? You know that by looking at the results of the search engine, you should know which is the official website and which is not So before this case was decided and they searched moviebuff they would have gotten the west coast site. And if you dont know that west coast is what you are looking for, then you would need to do additional research, which more consumers are unwilling to do Its questionable if initial interest confusion is that much of an injury How often do you end up at the wrong website? How much injury does this confusion cause you as a consumer? How different is it from comparative advertising? This still exists in the law but not without a lot of criticism from within and outside of the courts Court is not saying that West Coast cant use movie buff altogether just simply not use it as the domain name can be used to say that they offer a comparable service Important to understand initial interest confusion and then understand the arguments on how it applies to trademark infringement in regards to website issues

Playboy Enterprises Inc., v Netscape Communications Corp., 55 F.Supp.2d 1070 (CD Cali. 1999) Facts & procedural posture Netscape operated Internet search engines and key various adult entertainment ads to a group of over 450 keywords related to adult entertainment. Two of the keywords were words trademarked by PEI. PEI filed a motion for preliminary injunction for trademark infringement and dilution under the Lanham Act and state common law. Netscape filed a joint opposition. The court denied PEI's motion and held that defendants did not actually "use" the trademarks in their trademark form or in commerce. Moreover, the court held that a trademark does not confer an absolute property right on all uses of the protected terms. The court recognized that the two terms at issue were also English words in their own right. Thus, the court found that even if defendants did "use" plaintiff's trademarks, no likelihood of confusion would result. Plaintiffs also failed to show tarnishment or blurring. In sum, plaintiff did not show a likelihood of success on the merits or irreparable injury and its preliminary injunction was, therefore, denied Issue(s) presented is the use by Netscape infringement or dilution? Holding and Reasoning o Infringement: Playmate and Playboy have been meaningful words in the English language for decades and the search engine can list those words in their earlier sense and so there was no infringement o Dilution by tarnishment: court stated on 605 that PEI has not shown blurring of its trademarks which would occur if defendants used the marks to identify defendants goods or services. Plaintiff has also failed to show tarnishment which occurs when a famous mark is associated improperly with an inferior or offensive product or service Situational / Policy factors the trade names are associated with adult entertainment in the minds of consumers and even to a degree more scandalous than PEI would like Rule initial interest confusion may result when a user conducts a search using a trademark term and the results of the search include web sites not sponsored by the holder of the trademark search term, but rather of competitors. o As a result, the user may be diverted to an unsponsored site, and only realize that she has been diverted upon arriving at the competitor's site. Once there, however, even though the user knows she is not in the site initially sought, she may stay. In that way, the competitor has captured the trademark holder's potential visitors or customers IN CLASS o Different from other web cases bc the defendant is the search engine itself PEI is worried about alleged infringement of their trade names when Netscape puts

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up competing banner ads PEI says if not infringement then it is tarnishment bc they are essentially a higher class provider of adult entertainment and not associated with the other filth Example Victorias Secret v Victors Secret who was selling erotic sex toys

F. Interfering with Internet Communications America Online, Inc. v. LCGM, Inc., 46 F. Supp.2d 444 (ED Virginia, 1998) Facts & procedural posture AOL sued a number of people with AOL contracts who were sending spam bc spam is a violation of the contract esp bc it appeared as though the spam was coming from AOL. Received 450,000 complaints to AOL about the spam and reason to believe that there were closer to a million people who were actually mad about the spam. Very common spam technique to harvest email addresses from email providers Holding court held that the use of AOL.com was a false designation of origin. Significant bc it is at the root of Lanham Act and trademark law and therefore classic unfair trade practice. In terms of dilution, there is a strong likelihood of confusion. Its pretty clear that there was dilution by tarnishment. Another violation of state law in trespassing of chattels Rule SPAM is not allowed and a violation of trademark law and unfair trade practices IN CLASS o Trespassing by chattels (personal property) essentially using or interfering with someones property. Applicable to cyberspace bc its unauthorized use of AOL.com domain name and cyberspace presence. At the time of this case, there was a computer fraud act but nothing to deal with spam and so this is the best the court could do Dilution by way of cybersquatting Instead of looking at tradition chattel misuse, you should talk about digital disturbance, note 2 There have been some efforts to come up with federal statutes to deal with spam o The defendants in this instance had contractual relations with AOL and they broke it when they used the contract in a negative manner to AOL o Could telephone companies sue telemarketers? Note 1 the phone companys goal is to get more calls placed so unlike AOL, who doesnt want their customers burdening with unwanted email, the phone company makes money on every use by its customers so they would be happy for telemarketers to use their services o Unsolicited commercial email is called spam bc of the Monty Python skit about spam o Spam is not just annoying but it is also deceptive o CAN SPAM act federal legislation actually legalizes some spam so long as it identifies the sender and allows receivers to unsubscribe also requires the labeling of solicitation of ads. Makes harvesting emails a felony. Allow you to spam so long as its less than 25,000/month and then limits to how many per day and per year. Biggest deficiency is that +50% of spam originates outside of US and outside of a treaty, there is nothing the US can do about it o Spam is very important issue to Thain. He also says to pay attention to internet issues in general APPROPRIATION OF INTANGIBLE VALUES CREATED BY ANOTHER A. Introduction o Protects things other than trademarks and trade names o Well look specifically at right of publicity and trade secrets A. The Right of Publicity

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Henley v. Dillard Dept. Stores, 46 F. Supp. 2d 587 (ND Texas, 1999) Facts & procedural posture Don Henley (from the Eagles) sued Dillards when they had a shirt in their ads called the henley and in the ad there was a guy with an arrow pointing to him saying this is Don and then an arrow saying this is Dons henley. Shirts worn by English crewmen were generically called henleys. Issue(s) presented did Dillards appropriate Henleys name for a newsworthy purpose? Can Henley be identified by the publication? Was there a commercial advantage? No requirement to show likelihood of confusion. No requirement to show that Dillards made $$ Holding and Reasoning The court granted plaintiff Henleys motion for partial summary judgment because it found that Dillards misappropriated Henleys name and likeness, that the likeness was identifiable and was not incidental, and that Dillards received a benefit as a result, regardless of the profit or tangible benefit realized. Rule right of publicity is the inherent right of every human being to control the commercial use of his or her identity IN CLASS o Celebrities have an interest in protecting their identity from unauthorized commercial exploitation o Great example of what state courts require as right of publicity claim o Pg 621 P points out that there is no evidence to suggest that the court requires P to prove that Ds use of Ps name or likeness in his sales promo court says that D should not be shielded from liability bc the product promoted is undesirable, the ad is clumsy or somehow ineffective, or sales slumped during the relevant time frame. Court concluded that there is no fact issue from which a reasonable jury could conclude that D did not receive a benefit from its use of Ps likeness o All you have to do is prove likelihood of confusion But this would be problematic to Henley bc he is not in the shirt or clothing business and it may be considered too far apart for infringement and dilution is a long stretch too Hed have a better chance proceeding with an unfair trade claim and its a stronger case as it gets closer to right of publicity o Right of publicity is a new issue for courts to be dealing with, relatively recent concept, the concept first brought up in a Harvard Law Review article titled Invasion of Privacy written by Brandeis in 1880s 1- Direct invasion 2- Stirring up of quietude 3- False light general way in which the party is depicted, false light on character 4- Right to publicity part of the right to privacy is not to have your likeness or equivalent to be used in a way that is unjustified o Right of publicity raises many issues How long should the right of publicity last? How long does a defamation action last? General rule is defamation actions last until death of the individual but now most states say there is some period of time beyond the demise of a party from which a right of publicity will continue Who is entitled to the claim of right of publicity? Some people are famous for obvious reasons while others are famous for a limited amount of time. Should people who can claim the right of publicity be limited to those in the spotlight whose careers are about making a profit from being famous? Can we include it to include religious figures? Almost everyone has come to the conclusion that people will engage in efforts that bring them fame and potential publicity from other sources for something other than profit. A. Rstmt of torts at the time of this case sd right of publicity is invasion of

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o o

privacy and anyone should be able to recover Note 2 on 622 Roberson v Rochester Box Company Housewife had her image depicted on the box of the defendant company and she sued bc she had not given her permission State court sd no common law privacy Actual term right of publicity was not used until the Tops Chewing Gum case in Note 3 on 622 Notes 4 and 5 continue next big issue if there is a right of publicity that a person has and that person is deceased, and the heirs of the deceased want to file suit for right of publicity

Midler v. Ford Motor Co., 849 F.2d 460 (9th Cir. 1988) Facts & procedural posture Ford had a radio commercial that included a snippet of Midlers song but sung by a former Midler back-up singer. Ford had gotten the copyright permission for the songwriter but was denied permission by Midler. Issue(s) presented Whether Ford invaded a proprietary interest of Midler o No unfair competition cause of action bc Midler didnt do commercials so there was no competition. No violation of statutory right to publicity under CA civil code Holding and reasoning o The court did not find unfair competition here: one minute commercials of the sort the defendants put on would not have saturated Midlers audience and curtailed her market. Midler did not do TV commercials. The defendants were not in competition with her o However, Midler made a showing that was sufficient to defeat summary judgment, that the defendants did appropriate part of her identity and therefore the lower courts summary judgment is reversed and remanded Rule a voice is not copyrightable. The sounds are not fixed. What is put forward as protectible here is more personal than any work of authorshipa voice is as distinctive and personal as a face to impersonate her voice is to pirate her identity IN CLASS o This case along with the Johnny Carson case, teach us that the common law right of publicity reaches means of appropriation other than name or likeness and that the specific means of appropriation are relevant only for determining whether the defendant ha in fact appropriated the plaintiffs identity. The right of publicity does not require that appropriations of identity be accomplished through particular means to be actionable o Right of publicity grows out of right of privacy, ie Hirsch ( which is the current day use of right of publicity) o Nancy Sinatra had a similar case for These Boots are Made for Walking - unfair competition claim action based on secondary meaning of the song o Midler right of identity cannot use voice, face, likeness as a way to appropriate identity not an unfair competition case because then you run afoul of the copyright laws. Hirsch v SC Johnson & Son, 90 Wis. 2d 379 Facts & procedural posture Elroy Hirsch is a native of WI who went to school at UW and played sports here. His nickname was Crazylegs bc a newspaper writer commented on Hirschs crazy and wobbly legs when running for a touchdown. Over time, the nickname became heavily associated with Hirsch. SC Johnson came out with a shaving product for women called Crazylegs and then Hirsch sued. A problem that Hirsch faced was that WI did not have a statutory invasion of privacy tort and so they had to look at it from common law. After this action passed, the WI legis passed a common law invasion of privacy tort. Issue(s) presented o Whether a cause of action for appropriation of a persons name for commercial use exists as a matter of WI common law o Whether Hirsch est a prima facie case of common law trademark or trade name infringement

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when he failed to allege or prove that his name had ever been used to identify a product or service Holding and reasoning o Concluded that Hirschs pleadings and proof were sufficient to state a cause of action. The appropriation cause of action protects not merely the right to be let along but protects primarily the property rights in the publicity value of aspects of a persons identity o Concluded that the trial court failed to consider the common law of trade name infringement and that under trade name law, there need be no evidence of the prior marketing of a product or service under the plaintiffs nickname crazylegs Public policy protection of the publicity value of ones name is supported by public policy considerations, such the interest in controlling the effect on ones reputation of commercial uses of ones personality and the prevention of unjust enrichment of those who appropriate the publicity value of anothers identity Rule the misuse of trade name is apportion of the law of unfair competitionthe modern approach to the law of unfair competition holds that property right of commercial value are to be and will be protected from any form of unfair invasion or infringement or from any form of commercial immorality IN CLASS o WI SC held that right of publicity is sufficiently different than the other 3 invasion of privacy actions and it deserves different analysis o If there is a common law right, as the WI Sc says there is, do you think that Hirsch has a good case? Yes, bc he was well known in WI and SC Johnson was also based in WI so there is no way that they could claim ignorance o Thain says to note the convoluted reasoning here and the dissenting opinion of Day. Dissent says no right of publicity before but the majority has cited other states cases which clearly had a right o When a word at issue is a common word, such as bulldog, then you cant say there is a violation of right of publicity whereas crazylegs is more distinct o Two hurdles for Hirschs lawyers to overcome. State of Wisconsin at the time he brought the case did not recognize invasion of privacy as a tort, and He had never used his name in a commercial enterprise, and that it had never been identified with a commercial product The court gets around this by calling crazylegs a trade name, as noted above. Under common law there can be a cause of action for taking Hirschs publicity of his name

Babe Ruth v Baby Ruth candy bar o Contrary to popular opinion, the candy bar was not named after the baseball player, or so the candy company says ;) rather it was named after Ruth Cleveland, the daughter of POTUS Grover Cleveland White v. Samsung Electronics America, Inc., 971 F.2d 1395 (9th Cir 1992) Facts & procedural posture Samsung ran a series of commercials about many things changing in the future but included a tagline that their products would still be #1. One of the ads featured a robot wearing an evening gown and appearing on a game show similar to Wheel of Fortune. Vanna White took issue bc she had not given her permission and thus she sued. In the district court, granted summary judgment for Samsung. Court sd no CA statutory right of publicity violation. 9th circuit agreed with that but the majority sd otherwise, that there was an issue of fact for a jury to determine. Summary judgment was reversed and remanded. Issue(s) presented trademark act and right of publicity Holding and Reasoning o The appellate court affirms the district courts finding that the robot was not in the likeness

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of Vanna White so there was no violation of She failed to fulfill the second prong of the Eastwood test (below) for right of publicity, however, there was an issue of material fact and so summary judgment was not appropriate Rule The right of publicity is not limited to the appropriation of name or likeness factors relevant to a likelihood of confusion include: (1) strength of the plaintiff's mark; (2) relatedness of the goods; (3) similarity of the marks; (4) evidence of actual confusion; (5) marketing channels used; (6) likely degree of purchaser care; (7) defendant's intent in selecting the mark; and (8) likelihood of expansion of the product lines IN CLASS o IMPORTANT / SEMINAL CASE IN RIGHT OF PUBLICITY o Samsung argued the parody defense and the 9th circuit rejected that argument saying that parody defense isnt supposed to be used to make a profit o Eastwood v. Superior Court set forth California common law right to publicity The defendants use of the plaintiffs identity The appropriation of plaintiffs name or likens to defendants advantage, commercially or otherwise Lack of consent Resulting injury to plaintiff o What are some difference bt the persona of Bette Midler and that of Vanna White? Midlers voice is distinct and unique Hard to say what is unique about Whites character o Very heavily criticized decision and the dissent goes well beyond the actual case o Note 3 Cheers chain of airport bars had animatronics versions of Norm and Cliff and the actors sued. Did it violate the rights of publicity? Eventually it was settled out of court. But those characters were copyrighted material to the shows writer/creator so its a matter of determining whether there was a violation to the actors themselves. Many thought that they had no case except in the 9th Circuit, White was still good law o

White v. Samsung Electronics America, 989 F.2d 1512 (9th Cir. 1993) Dissent on the rejection to hear this case en banc by 9th circuit Private property, including intellectual property, is essential to our way of life. It provides and incentive for investment and innovation. Overprotecting intellectual property is as harmful as under protecting it. Science and technology grow by accretion, each new creator building on the works of those who came before. Overprotection stifles the very creative forces its suppose to nurture. Under the majoritys opinion it is now a tort for advertisers to remind the public of a celebrity. Instead of having an exclusive right in her name, likeness, signature or voice, every famous person now has an exclusive right to anything that reminds the viewer of her. Thats what Samsung did: it used an inanimate object to remind people of White, to evoke her identity. Its that the robot is posed near the wheel of fortune game board. Remove the game board from the ad, and no one would think of white. But once you include the game board anybody standing beside it a brunette woman, a man wearing womens clothes, a monkey in a wig and a gown would evoke whites image. Its the wheel of fortune set, not the robots face or dress, or jewelry that evoke whites image. The ad parodied vanna white appearing in wheel of fortune a copyrighted television show, and federal copyright law governs parodies of copyrighted works. Its impossible to parody a movie or TV show without at the same time evoking the identities of the actors. Its our responsibility to keep the right of publicity from taking away federally granted rights, either from the public at large or from a copyright owner Is the Samsung parody any different from a parody on SNL or in Spy Magazine? Both are equally

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profitable, both use a celebritys identity to sell things, one to sell VCRs the other to sell advertising. Both mock their subjects, both try to make people laugh, both add something, perhaps something worthwhile and memorable, perhaps not, to our culture. Both are things that the people being portrayed might desperately want to suppress.

Cardtoons LC v MLB Players Association, 95 F.3d 959 (10th Cir. 1996) Facts & procedural posture Cardtoons produced parody trading cards featuring caricatures of famous baseball players. Like Treasury Bonds instead of Barry Bonds. The cards even said at the bottom in fine print that they were not licensed nor associated with MLB or MLBPA (no likelihood of confusion). The MLBPA sued saying the cards infringed on the publicity rights of members of the MLBPA. Appellate court held lower courts decision that these cards constitute expression protected by the First Amendment Issue(s) presented whether Cardtoons infringed on publicity rights and whether that infringement is protected by the First Amendment o Oklahoma statute 1449(A) that recognizes right of publicity requires that the below elements be proven. The court held that these 3 elements were est and therefore the cards did infringe upon MLBPAs publicity rights (1) Knowing use of players names and likenesses, (2) On products, merchandise, or goods (3) Without MLBPAs prior consent o The statute has 2 exceptions designed to accommodate the First Amendment Holding and Reasoning o Cardtoons trading cards receive full protection under the First Amendment o Cards are not commercial speech bc they do not merely advertise another unrelated product o Co adequate alternatives avenue test does not sufficiently accommodate the public interests interest in free expression Situational / Policy factors the cards provide social commentary on public figures speech that entertains and/or informs is protected speechthese cards convey info about their subject and constitute an important means of expression parody, both as a free expression and a means of self expression, is a vital commodity in the marketplace of ideas . Society does not have a significant interest in allowing a celebrity to protect the type of reputation that gives rise to parody Rule the justifications offered for the right of publicity falls into economic and non-economic categories o Economic The principal argument made in support of the right of publicity is that it provides an incentive for creativity and achievement Artificial scarcity most persuasive in the context of advertising where repeated use to sell products may diminish its commercial value A. Court rejects this notion here bc this is a nonadvertising issue o Non-economic Publicity rights stem from natural rights Publicity rights allows celebrities to enjoy the fruits of their labor Prevention of unjust enrichment IN CLASS o Just bc a product is sold in the marketplace does not immediately transfer it into commercial speech simply bc they are sold for a profit o Parody rarely acts as a market substitute for the original and so MLBPAs argument that people will buy Cardtoons instead of legit cards is a weak argument o Read up through 690 for next class

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Ahn v. Midway Manufacturing CO., 965 F.Supp. 1134 (ND Illinois 1997) Facts & procedural posture Mortal Kombat - Plaintiffs sued defendants for the alleged unauthorized use of their names, persona and likeness in connection with a home video, home computer, and hand held version of a video game. Plaintiffs alleged that defendants' unauthorized use violated their common law right of publicity and violated the Copyright Act. Plaintiffs also brought a claim for common law quantum meruit. Defendants filed a motion for summary judgment. The court granted defendants' motion for summary judgment since plaintiffs' claims alleging infringement of the common law right of publicity were preempted by the Copyright Act. Plaintiffs failed to prove that they were joint authors of the copyrighted source code. Thus, the court granted summary judgment for defendants on plaintiffs' claims under the Copyright Act. Plaintiffs' claims of quantum meruit were dismissed since a valid enforceable agreement existed between the parties Holding and reasoning the court granted defendants' motion to dismiss plaintiffs' claims alleging infringement of the common law right of publicity since plaintiffs' claims were preempted by federal copyright law and plaintiffs did not satisfy the requirements for a claim under federal law. Plaintiffs' claims of quantum meruit were dismissed since a valid agreement existed o Summary judgment was appropriate Rule three conditions for copyrightability. o the work must be fixed in a tangible form To be fixed in a tangible form, the work must be recorded by or under the authority of the author o the work must be the original work of authorship o the work must come within the subject matter of copyright IN CLASS o the copyright owner has certain rights including reproduction, the preparation of derivative works, and distribution. o copyrightable subject matter test to determine the issue of joint authorship requires that the parties must have intended to be joint authors at the time the work was created. The intent requirement is satisfied if the parties intended to merge their respective contributions into a single whole. The mere fact, however, of contemporaneous input into the copyrighted work does not satisfy the statutory requirement of intent. To qualify as an author, one must supply more than mere direction or ideas. An author is the party who actually creates the work, that is, the person who translates an idea into a fixed, tangible expression entitled to copyright expression. Brown v. Ames, 201 F.3d 654 (5th Cir. 2000) Facts & procedural posture Holding and Reasoning Decision of the trial court affirmed because the trial court correctly held that appellee musicians' state law misappropriation claims were not preempted by federal copyright law, that sufficient evidence supported jury's damage award, that sufficient evidence supported conclusion recording agreement was invalid, and objection to copyright award was waived. Situational / Policy factors major purpose of the Copyright Act is to promote the progress of science and useful arts o Legislative history describes other factors To promote the national uniformity and avoid the difficulties of determining and enforcing rights under different state laws To have copyright protection last for a limited time period, so that scholars and the public can benefit from the dissemination of copyrighted materials To improve our international dealings in copyrighted materials Rule tort of misappropriation does not fall within the context of copyright o Rstmt of Torts 652C - a tort for misappropriation of name and likeness protects the interest of the individual in the exclusive use of his own identity, in so far as it is represented by his name or likeness, and in so far as the use may be of benefit to him or to others.

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o The tort of misappropriation of name of likeness protects a persons persona. A persona

does not fall within the subject matter of copyright it does not consist of a writing of an author within the meaning of the copyright clause of the constitution IN CLASS o Preemption problems arise if a State attempts to protect an intangible that congress has specifically determined should remain in the public domain o It is quite possible that certain applications of state law protecting the right of publicity might conflict with the federal copyright statute so if it is covered by the copyright statute then you must state a federal claim (right under fed law) in order to get a remedy o There has been some discussion about creating a fed statute covering right to publicity. Doing so would simplify the law in 3 ways Substantive uniformity among the different forums Would allow nation-wide injunctions It would eliminate many argument over preemption bc one fed law cannot preempt another

B. Trade Secrets and Similar Confidential Information o Trade Secrets v Patents: The New Calculus o The decision to convert a trade secret into a patent is based on NUN: novelty, usefulness, and non-obviousness The NUN factors are not applicable to trade secret protection trade secret analysis is constrained only by the difficulty to reverse engineer the secret o Patents expire but trade secrets can be licensed forever o Recent decisions in patent law have weakened patent protection while trade secrets have broad protection and a wide range of remedies o Trade secrets have no subject matter constraints so long as the info provides a competitive advantage derived from the secrecy of the info o Negative know-how (what doesnt work) is a viable trade secret as are business practices and methods o Patents are becoming harder to get and harder to defend o Patent infringement is very strict and must be infringed down to the very last detail whereas trade secret misappropriation is not so limited a finding of misappropriation can rest on substantial similarity or substantial deviation of the producers or processes at issue o Remedies Patent infringement Must show actual damages, show that the infringer had actual notice and continued to infringe in order to recover damages Patent damages are meant to compensate patentees and not punish accused infringers Patent owner must turn to reasonable royalty and entire market value (EMV) to come up with amount for damages Trade secret misappropriation Can include both the actual loss and the unjust enrichment. There is also no need to worry about reasonable royalty bc unjust enrichment always leads to larger sums of money o Injunctive relief Patent infringement Patentee must show the 4 factors (eBay test) in order to get an injunction o The patent holder has suffered irreparable injury o Remedies available t law, such as monetary damages, are inadequate to

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compensate for the patent infringement o Considering the balancing of hardships, a remedy in equity is warranted o The public interest would not be disserviced by a permanent injunction Trade secret misappropriation Injunctive relief is the primary remedy in a trade secret lawsuit: once a trade secret is lost, it is lost forever Can be issued to prevent actual or threatened misappropriation IN CLASS Courts would grant injunction to plaintiff claiming infringement but then SCOTUS held in eBay that standard rules for granting injunction should apply to patents and other kinds of cases going before fed courts You have to apply the standard criteria before granting prelim injunction o Irreparable harm if injunction is not granted o Likelihood of success on the merits o Balancing of the equities favors granting the injunction o Public interest benefits by granting injunction

1. Overview Kewanee Oil Co., v. Bicron Corp. , 416 US 470 (1974) Facts & procedural posture Harshaw Chemical, an unincorporated division of Kewanee, commenced research in 1949 to grow a synthetic crystal. By 1966, the crystal had grown to be 17 inches. In the meantime, Harshaw had developed many processes, procedures etc related to the crystal, all of which they considered to be trade secret. In 1969, 2 former Harshaw employees formed Bicron and by 1970 had created their own 17 inch crystal. Kewanee sued for permanent injunction and the district court granted it under Ohio trade secret law. Issue(s) presented whether state trade secret law was preempted bc of conflicts with the fed patent laws Holding and Reasoning SCOTUS sd there was no preemption of fed patent law Rule the protection accorded to trade secret holder is against the disclosure or unauthorized use of the trade secret by those to whom the secret has been confided under the express or implied restriction of disclosure or nonuse o Duty of nondisclosure o Fed patent law does not preempt state trade secret law bc trade secret law encourages the development an exploitation of those items of lesser or different invention than might be accorded protection under the patent laws but which items still have an important part to play in the technological and scientific advancements. Trade secret law promoted the sharing of knowledge and the efficient operation of industry Situational / Policy factors - The maintenance of standards of commercial ethics and the encouragement of invention are the broadly stated policies behind trade secret law The necessity of good faith and honest, fair dealing, is the very life and spirit of the commercial world IN CLASS o A trade secret does not offer protection against discovery by fair and honest means, such as by independent invention, accidental disclosure, or by reverse engineering o SCOTUS sd trade secret is something used in ones business and gives him an advantage over competitors o A trade secret may consist of any formula, pattern, device or compilation of information which is used in ones business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. It may be a formula or a chemical compound, a process of manufacturing, treating, or preserving materials, a pattern for a machine or other device, or a list of customers. o A trade secret must be secret, and must not be of public knowledge or of a general

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knowledge in the trade or business. The necessary element of secrecy is not lost, however, if the holder of the trade secret reveals the trade secret to another in confidence, and under an implied obligation not to use or disclose it Even though a discovery may not be patentable, that does not destroy the value of the discovery to one who makes it, or advantage the competitor who by unfair means, or as the beneficiary of a broken faith, obtains the desired knowledge without himself paying the price in labor, money, or machines expended by the discoverer.

2. Subject Matter of Trade Secrets Religious Technology Center v. Wollersheim, 796 F2d 1076 (9th Cir. 1986) Former high-ranking members of Scientology formed an offshoot of Scientology. When they formed the new church, they used many of the same teachings and pamphlets from Scientology. The church of Scientology then sued and the district court held that the materials in question constituted a trade secret and granted the Church a prelim injunction ordering the new church to desist from using or disseminating the disputed materials Issue presented whether religious materials constitute a protectable trade secret? Holding and Reasoning no trade secret violation bc a trade secret cannot be based on the spiritual advantage the Church believes its materials provides to adherents, rather it must be based in commercial advantage. Therefore, the Church was not entitled to an injunction Rule to be protectible as a trade secret under the Rstmt section or under CA statute, the confidential material must convey an actual or potential commercial advantage, presumably measures in dollar terms o Information that can have no commercial value cannot be the subject of trade secret protection Religious material is not commercial and therefore not subject of trade secret protection Leo Silfin v. Cream, 29 NY2d 387 (CoA NY 1972) Facts & procedural posture a former employee of a janitorial supply company took a list of customer names with him after leaving the company to start his own company. This was even after he signed a non-disclosure form while employed but it was limited for only 1 yr past termination. The court concluded that the list of customers was trade secret and enjoined the def from doing business with any of plaintiffs customers Issue(s) presented whether the employers investment of time and money in accumulating a list of approx 15,000 customers entitles the list to trade secret protection Holding and Reasoning the injunction was reversed and the complaint dismissed bc plaintiffs failed to prove a physical appropriation or copying of confidential info bc the customers were readily ascertainable outside the employers business as prospective users or consumers of the employers services or products Rule - Where customers are not readily known or discoverable only by extraordinary efforts then the courts are willing to hold those lists as trade secret material o Where the customers are readily ascertainable outside the employer's business as prospective users or consumers of the employer's services or products, trade secret protection will not attach and the courts will not enjoin the employee from soliciting his employer's customers. 3. Secrecy and Methods of Protecting Secrets Rockwell Graphic Systems v. DEV Industries, 925 F2d 174 (7th Cir. 1991) Facts & procedural posture former Rockwell employees left the company to form DEV. At issue are piece parts that are basically blueprints for coming up with manufacturing pieces. District court

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granted summary judgment to DEV. Appellate court sd even though Rockwell gave drawings to outside vendors, it was limited and they exercised reasonable efforts at protecting the trade secrets. Rockwell demonstrated taking steps to maintain secrecy but nothing extreme Issue presented whether defendant has taken reasonable precautions to protect their trade secret Holding reversed the summary judgment bc whether appropriate steps were taken is a matter for the fact finder to determine Rule you have to take reasonable steps to maintain secrecy o Reasonable is a question of fact to be determined by a fact finder IN CLASS o The owner of a purported trade secret must keep it secret, or the law will not protect it. Posner views this requirement not as an end in itself, but chiefly as a matter of evidentiary significance, demonstrating either the improper conduct of the defendant or the inherent value of the information Posner defines adequate secrecy in terms of a cost-benefit analysis Information that is generally known, or readily ascertainable, cannot be protected as a trade secret, but secrecy is not destroyed just bc the info is known by a limited number of persons other than the trade secret owner o Efforts to maintain secrecy need not be perfect and courts tend to avoid specifying bright-line requirements for secrecy o Assuming you have something that possibly falls into category of trade secret, how do you go about treating it as a trade secret? o Six Factors to consider when thinking about protection of trade secret How widely known is the alleged secret by outsiders? Who in company has knowledge of the secret? Mainly execs, middle mgmt?? How extensive are the steps taken to protect it? How valuable is the secret to company and its competitors? How much expended to develop or obtain? How difficult for others to copy or reproduce? o Reasonable steps must be taken drastic steps are not required What are reasonable steps under the circumstances? You dont have to have perfection (note 2) o Note 6 points out that case began in 1984 and was still going on in 2001 o Note 3 what steps are appropriate for a company to keep trade secret confidential for as long as possible? Confidentiality agreements with employees who have access to the secrets Keep access to the material as limited as possible Effort to keep those without good reason to see secret away from it Limit number of copies floating around that outline secret Be sure there is a record who accesses the secret o Note 4- litigation often exposes the secret which is contrary to keeping it secret

Milwaukee Linen Supply v. Ring, 210 Wis 467 (SC WI 1933) Facts & procedural posture Ring was a delivery-man for MKE Linen Co but then they fired him. He got another job for a competing company and MKE Linen imposed a restraint on him saying he couldnt deliver linen anymore bc its possible he would take away from their business. But he was only a deliveryman and not a sales man. Plus, he was a cripple and his field of employment was limited. Issue(s) presented whether a restraint on trade is enforceable Holding and Reasoning SCOTUS sd this was not a valid non-compete agreement bc it was an unreasonable restraint on trade that went beyond the interests of MKE Linen Rule restraint on trade will be upheld if the court finds that the restriction is reasonably

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necessary for the fair protection of the employers business or rights and not unreasonably restricting the rights of the employee and if the restraint is not in violation of public policy o If the reasonable and fair protection of plaintiffs business does not require such extended restriction of the defendants field of employment as the contract provides, the restraint is unreasonable o A restraint that is unreasonable as to the defendant is prejudicial to the public and is therefore not enforceable IN CLASS o A contract on restraint on trade may be valid as applied to one set of circumstances and invalid when applied to another set fact based o Courts tend to give close scrutiny to non-compete agreements, bc of their potential to deprive the employee of any way to earn a living o Covenant to not compete in Cream case it was an issue of whether he took the list of customer names o Non-compete agreements were common during this time o Great Depression made finding employment difficult as it was and combined with his physical disability, Ring was extremely limited in what types of jobs he could get and this restraint was against public policy o Covenants not to compete but be limited to a small geographic area and a short time frame in order to be upheld. Can lead to monopolization of a company and eventually raising prices o No rationale behind having non-compete agreements for unskilled laborers o Note 2 pg 694 CA approach to non-compete agreements is to assume that they are invalid unless they are necessary to provide legit protection of the initial employers trade secrets o Note 4 standard steps to protect trade secrets for employees include pre-employment interviews to screen people to glean their real interests; employment contract; security arrangements and clearance procedures; and, termination interviews and notification of new employer to remind the departing employee of their duty to keep their mouth shut 4. Improper Means of Learning Anothers Secret

DuPont v. Christopher, 431 F2d 1012 (5th Cir. 1970) Facts & procedural posture DuPont was building a new facility to house their new technology, the last part of the building that was built was the roof, and the Christopher brothers flew overhead to take aerial pictures of the inside of the facility for a 3rd party. Issue(s) presented what constitutes appropriation of trade secrets? Industrial espionage o Are the Christophers liable for obtaining the trade secret? The Christophers argue that for an appropriation of trade secrets to be wrongful there must be a trespass, other illegal conduct, or breach of a confidential relationship Holding there is a cause of action for the discovery of a trade secret by any improper means o Regardless of whether the flight was legal or illegal, the espionage was an improper means of discovering DuPonts trade secret Reasoning will not require a person or corporation to take unreasonable precautions to prevent another from doing that which he ought not to do in the first place Rule to obtain knowledge of a process without spending the time or money to discover it independently is improper unless the holder voluntarily discloses it or fails to take reasonable precautions to ensure its accuracy o Means may be improper under this rule even though they do not cause any other harm than that to the interest in the trade secret o A complete catalog of improper means is not possible but in general they are means which fall below the generally accepted standards of commercial morality and reasonable conduct o Proper means of gaining possession of a competitors trade secret process is through inspection and analysis of the product in order to create a duplicate

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IN CLASS o Highly precedential case cited often by SCOTUS in regards to protecting trade secrets o Christophers flight was legal in that they were in their right to be in the airspace and they did not violate any law by taking these pictures and they argued that they should not be held liable o How can this be an improper means without a trespass, other illegal conduct, or breach of a confidential relationship? Thain points out cases involving peeping Toms and how theu dont necessarily trespass but it is a violation of privacy Criminal law also has illegal search and seizure without any illegal trespass o Three improper means trespass/breaking in and stealing, breach of trust or confidence, unscrupulous behavior This case falls under the latter

Chicago Lock v. Fanberg, 676 F2d 400 (9th cir. 1982) Facts & procedural posture defendant locksmiths created a manual of how to pick locks and it included the plaintiffs brand of locks which were known for being super safe. What really got the plaintiffs mad was that lay people could purchase the manual. The district court held that there was a duty of nondisclosure and that Chicago Lock had a cause of action Issue(s) presented whether the procurement of the individual locksmiths reverse engineering data is improper means Holding the lock owners did not owe a duty to the company bc it was contrary to law and therefore it cannot be said that there was a breach of that duty Rule trade secrets are protected in a manner akin to private property, but only when they disclosed or used through improper means. Trade secrets do not enjoy absolute monopoly protection afforded patented processes, and trade secrets will lost their character as private property when the owner divulges them or when they are discovered through proper means o Fair and honest means include independent investigation, accidental disclosure, or reverse engineering IN CLASS o Employment of improper means, rather than merely copying or using, is the basis for liability o Chicago Lock identifies the breach of trust or confidence as a third category of improper means though no such breach was found on the facts of this case o Great case in terms of analysis of what constitutes misappropriation of trade secret o District court sd these were trade secrets and that Fanburg was liable for paying by acquiring trade secret through improper means appellate court reverses o Two principle elements that are typically cited You have to have economic value You also have to have situation where the company has exercised reasonable precaution to keep secrets safe o Why is it then that 9th circuit reverses the district court? Whats the relationship bt Fanburg and Chicago lock? No contractual or fiduciary relationship. Fanburg did not employ improper means bc the locksmiths who had the codes owed no duty to Chicago lock Chicago Lock customer locksmith Fanburg published manual o Do individual locksmiths have fiduciary duty to customers of Chicago Lock? Impliedly? If locksmiths have any duty (absent a contract) then it is to their customers and not to Chicago Lock o Interesting case bc it points out who owes a duty in order constitute trade secret violation o Fanberg is not in any direct competition with Chicago Lock. The information was discovered by proper means, ie reverse engineering.

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 5. Remedies

There is no breach of duty. There is a relationship between locksmith and customer, but not between locksmith and Chicago. Locksmiths got the information properly from customers, and fanberg got the information from the locksmiths.

Kubik v. Hull, 56 Mich.App. 335 (CoA Mich. 1974) Facts & procedural posture there was a violation of the trade secret but it was easily ascertained by reverse engineering Issue(s) presented what is the appropriate remedy? Is an injunction appropriate? Holding and Reasoning the award of a permanent injunction in this case prevents defendant from doing that which others in the field could lawfully do. The court thinks that such relief is punitive, rather than compensatory in nature, and therefore inappropriate. o Damages, properly assessed, will fully compensate plaintiff for the loss occasioned by defendants disloyalty a plaintiff cannot ask for nor ask for more than what it will take to make him whole Rule basic tenet that equitable relief should bear some reasonable relationship to the extent of the injuries suffered by the plaintiff where, as in this case, the secret embodied in a tangible product is available to any member of the public, permanent injunctive relief grants the plaintiff that which did not have before the misappropriation the power to eliminate a competitor from the market o When the damage to the plaintiff ceases, the restraint of the defendant ends; the restraint does not continue thereafter for the purpose of punishing the wrongdoer Policy considerations extensive injunctive relief undermines the public interest by restraining legitimate competition IN CLASS o Victims of trade secret misappropriation may also seek monetary remedies. Under the Rstmt of Unfair Trade, a plaintiff is entitled to recover either its own pecuniary loss, or the defendants pecuniary gain, whichever is the greater amount o Shellmar and Conmar approaches to appropriate remedies Shellmar when a trade secret has been breached, a permanent injunction is ok bc it is punishment for obtaining it by improper means A. These people violated the law and should not be allowed to do it again Conmar no permanent injunction, remedy should be damages or temporary injunction. Concept here is that info is available to the public then there is no reason to permanently keep a competitor out of the market even if they engaged in improper conduct earlier on A. Competition is a good thing and a permanent injunction will keep this person out of the competition forever. So punish them but not permanently o In this case, the district court utilized the Shellmar approach but the appellate court sd the Conmar approach is preferred and reversed the district court o There are some arguments about the benefits and detriments about each approach Shellmars greatest detriment is that it deprives public of better competition Conmar detriment is that it suggests punishment might be too mild for the action industrial espionage is not good and should be dealt with in a way to deter others from doing it o Some scholars have sd that there should be a combo bt Shellmar and Conmar, potentially consider criminal actions for industrial espionage o Note 1 pg 711 Rstmt view is that injunctive relief should ordinarily continue only until the def could have acquired the info by proper means. Injunctions extending beyond this period are justified only when necessary to deprive the defendant of a head start or other unjust advantage that is attributable to the appropriation more extensive injunctive relief

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undermines the public interest by restraining legit competition PepsiCo v. Redmond, 54 F3d 1262 (7th Cir. 1995) Facts & procedural posture Redmond was a high-ranking employee at Pepsi who worked in pricing and distribution. He left the company to go and work for Quaker, a substantial competitor. Pepsi sought an injunction to prevent him from working on pricing and distribution at his new employer. District court issued the injunction order enjoining him from assuming his position at Quaker for 6 months and permanently enjoining him using or disclosing trade secrets or confidential info Holding appellate court affirms bc Pepsi demonstrated that Redmond possessed extensive confidential info and would inevitably use this info in his new job Rule Threatened misappropriation can be enjoined under Illinois law where there is a high degree of probability of inevitable and immediate use of trade secrets o A plaintiff may prove a claim of trade secret misappropriation by demonstrating that defendant's new employment will inevitably lead him to rely on the plaintiff's trade secrets IN CLASS o Inevitable disclosure doctrine enjoins departing employees from taking a job with a competitor for a pre-determined length of time Permits employers to threaten departing employees with litigation if they show any indication of leaving in order to go to work for a competitor (note 3) o Redmond was not totally candid with the people he was working with at Pepsi inevitable that he would disclose some confidential info but that after a period of time, the strategies would change and he would no longer pose a threat o It is possible for an employee to be able to get a contract that specifically excludes the possibility of inevitable disclosure o Employees are sometimes outside the arena so that the inevitable disclosure is not an issue but in this case it does o Note 1 no covenant not to compete in this case but there was a confidentiality clause. You could wonder how much the court relied on a 6 month non-compete covenant that wasnt truly there o Other courts have looked at it narrowly and that you should show a strong risk to trade secrets o Historically, trade secrets were state law and that was true until 1996 until the economic espionage act was signed into law. There have been few cases under it but it was essentially an effort to have a fed statute to be used against purchasing trade secrets by intl companies. Makes it illegal to possess or transmit without the authorization of the trade secret owner. You have to prove knowingly misappropriation and actual harm o Trade secret law serves to protect standards of commercial morality and encourage invention and innovation while maintaining the public interest in having free and open competition in the manufacture and sale of unpatented goods. Yet that same law should not prevent workers from pursuing their livelihoods when they leave their current position US v. Martin, 228 F3d 1 (1st Cir. 2000) Facts & procedural posture Camp was a lab tech in Maine and Martin was a scientist in California. They begin email communication over about 7 months where Camp provided trade secret and confidential info to Martin. Camp inadvertently sent an email to someone in her company (a superior) and he alerted company officials and authorities. Holding Defendant's convictions and sentences were affirmed on finding that there was sufficient evidence for a reasonable jury to conclude that defendant conspired to steal trade secrets from a veterinary products manufacturer and that defendant intended to injure the manufacturer by obtaining its trade secrets and competing against it. Rule to find a defendant guilty of conspiracy to steal trade secrets, the agreement need not be

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express, as long as its existence may be inferred from the defendants' words and actions and the interdependence of activities and persons involved. A so-called "tacit" agreement will suffice. Moreover, the conspirators need not succeed in completing the underlying act IN CLASS o To find a defendant guilty of conspiracy, the prosecution must prove (1) that an agreement existed, (2) that it had an unlawful purpose, and (3) that the defendant was a voluntary participant. The government must prove that the defendant possessed both the intent to agree and the intent to commit the substantive offense. In addition, the government must prove that at least one conspirator committed an "overt act," that is an affirmative step toward achieving the conspiracy's purpose Economic Espionage Act defines a "trade secret" broadly, to include both tangible property and intangible information, as long as the owner has taken reasonable measures to keep such information secret and the information derives independent economic value from not being generally known to the public o conviction for conspiracy does not require that the defendant was successful in the underlying offense, but only that an agreement to commit the underlying offense existed, and that at least one co-conspirator committed an overt act in furtherance of the conspiracy o the opinion is that there is sufficient evidence for a fact finder to find that there was a violation and that Martin had intent to injure IDEXX despite his claims that he didnt want to harm them. o Note 1 Thain points out the differences in the sentences bt the 2 individuals It was a federal criminal statute so it makes sense to apply criminal remedies and not just civil There were severe consequences for violating the economic espionage act o One key difference bt economic espionage act and state trade secret law: Improper means!!! Is necessary for a state trade secret law violation A. Illegal B. Breach of fiduciary duty (contract or implied duty) C. Unscrupulous conduct ala Christopher Without authorization is the element for fed economic espionage act violations A. Could potentially be a breach of fiduciary duty but it goes further o Economic espionage act violations by taking without authorization o Wisconsin Lawyer Landslide Magazine had an article about trade secret law

C. The Misappropriation Doctrine Intl News Service v Associated Press, 248 US 215 (1918) Facts & procedural posture INS was taking news from AP and transmitting it as their own and the district court issued a prelim injunction saying that it was unfair trade. The CoA affirmed the injunction Issue(s) presented whether defendant may lawfully be restrained from appropriating news taken from bulletins issued by plaintiff for the purpose of selling it to defendants clients o Can you copyright the news? Holding the majority says that the news is not copyrightable but the format presenting it or analyzing it is copyrightable but the court says there is no remaining property interest bt the 2 parties and the public but there is a property interest bt the 2 parties o Focusing on the interests bt the 2 parties then there is misappropriation o Dissent focuses on the interests of the public Reasoning o The court assumes that neither party has any remaining property interest as against the public in uncopyrighted news matter after moment of its first publication, it by no means follows

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that there is no remaining property interest in it as between themselves. Material out of which both parties are seeking to make profits as between them must be regarded as quasi property, irrespective of the rights of either as against the public o insists that when a portion of APs member communicates the news to the general public by posting it upon bulletin boards so that all may read, or by issuing it to newspapers and distributing it, it becomes the common possession of all to whom it is accessible. o The fault in this reasoning lies in applying as a test the right of the as against the public, instead of considering the rights of and , competitors in business, as between themselves o in appropriating news and selling it as its own is endeavoring to reap where it has not sown, and by disposing of it to newspapers that are competitors of s members is appropriating to itself the harvest of those who have sown. o -The court makes a distinction between the utilization of tips and bodily appropriation of news matter. The use of tips that are then independently researched and verified is a practice that is accepted industry wide. Situational / Policy factors INS was barred from England and couldnt report any news from there so they had to get it from AP Rule You cant copyright the news, but you can protect your method of distributing the news. o A highly generalized theory providing relief for the misappropriation of any valuable intangible o Plaintiff has made a substantial investment of time, effort and money into creating the thing misappropriated such that the court can characterize the thing as a kind of property right o Defendant has appropriated the thing at little or no cost, such that the court can characterize defendants actions as reaping where it has not sown o Defendant has injured plaintiff by the misappropriation Dissent by Holmes a suitable acknowledgment of the source is all that the plaintiff can require o Talks about palming off and reverse engineering. Says this seems to be unfair trade but in his view the only ground of complaint is the implied misstatement and that all INS needs to do is disclose that they are gathering their news from AP Dissent by Brandeis o An essential element of individual property is the legal right to exclude others form enjoying it. If the property is private, the right of exclusion may be absolute; if the property is affected with a public interest, the right of exclusion is qualified o The general rule of law is that after voluntary communication to others, human productions become free as air to the common use o Says that the property at issue does not entitle the plaintiff to any type of relief o Talks about the consequences to the public no one will benefit if this is ruled misappropriation o Very concerned about the INS being shut off from being shut off from sources in Britain but this is a close question bc there is a balance needed bt preserving incentives vs promoting competition IN CLASS o The question of what is unfair competition in business must be determined with particular reference to the character and circumstances of the business. The question here is not so much the rights of either party as against the public but their rights as between themselves o The view the court adopts is not meant to give AP a monopoly on the news gathering industry o Defendants conduct differs from the ordinary case of unfair competition in trade principally in this that, instead of selling its own goods as those of complainant, it substitutes misappropriation in the place of misrepresentation, and sells complainants goods as its own o The third rstmt of unfair competition has refused to incorporate any codification of misappropriation The recognition of exclusive rights in intangible trade values can impede access to o

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valuable info and restrain competition the appropriation of indo or other intangible asset does not ordinarily deprive the originator of simultaneous use the law has long recognized the right of a competitor to copy the successful products and business methods of others absent protection under patent, copyright or trademark law It is clear that no general rule of law prohibits the appropriation of a competitors ideas, innovations, or other intangible assets once they become publicly known o Balancing the rights of the creator of ideas or info to exploit them for commercial gain against the publics right to free access to those ideas The dilemma arises bc the attempt to provide the necessary incentives to the creators of the intellectual property may unnecessarily restrict the publics free access to the info o You cant copyright the facts of the news but you can copyright the format o Defendant has injured plaintiff by misappropriating o According to the 3rd rstmt, if not covered under 1996 copyright law, then it cant be protected cannot recover under misappropriation doctrine bc it prohibits competition Thain not sure if the rstmt is uninfluential and whether courts will accept it or not US Golf Assoc v St Andrews Systems, 749 F2d 1028 (3rd Cir 1984) Facts & procedural posture USGA came up with a formula to determine a players handicap. The defendant came up with a system using that formula. USGA sued, seeking to exclude a rival from using a formula it has derived for commercial gain. The district court said no actionable misappropriation Issue(s) presented is this misappropriation actionable? Holding the appellate court affirmed the judgment of the district court, concluding that 1) appellant's formula was a functional aspect of its handicap system, and thus may not be protected as an identifying characteristic under either federal or New Jersey law regarding false designation of origin; and 2) the misappropriation claim was legally insufficient because appellee's use of the formula was not in direct competition with appellant. o The formula is generally accepted by the public a reliable means of performing its function the primary value of the results produced are not the inherent value in performing the underlying function, but rather in the fact that they enable the public to discuss the underlying matter by means of a common set of terms o Reasoning Rationale for requiring direct competition and the argument that the risk of destroying incentives is at its greatest with direct competitors, and more competition is good for general public Situational / Policy factors where such a monopoly is unnecessary to protect the basic incentive for the production of the idea of information involved, we do not believe that the creators interest in its idea or info justifies such an extensive restraint on competition o There is a need for uniformity and a the emergence of a single standard is the publics best interest Rule direct competition is necessary to find misappropriation bc it properly balances the competing concerns of providing incentives to producers of info while protecting free access o Indirect competition (use of info in competition with the creator outside of its primary market) falls outside the scope of misappropriation doctrine, since the public interest in free access outweighs the public interest in providing an additional incentive to the creator or gatherer of info IN CLASS o Data-max would not affect the good will of the USGA, and the USGA may have an interest in data-max promoting the formula, and could market their name to the companies using the formula, because they have the industry standard.

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There are no alternatives to the USGA method of calculating handicaps, because it has been accepted. o A feature of goods is functional if it affects their purpose, action, or performance, or the facility or economy of processing, handling, or using them; it is non-functional if it does not have any such effect. o When products or services of different providers are close substitutes for one another, the development of industry standards for certain aspects of the products or services will benefit consumers by facilitating comparability between and interchangeability among alternative products. o Allowing one provider to obtain exclusive rights in such a standard would enable it to exclude competitors desiring to provide the same product or service, particularly if the original provider starts with a virtual monopoly. To allow a monopoly over such a standard would defeat the policy of fostering competition that underlies the functionality doctrine. o Pg 744 one of the cases which 3rd circuit referred to was Dow Jones and the industrial average and the court held there that there was no direct competition required. Here the court tried to make a distinction Board of Trade v. Dow Jones and Co. (IL S Ct 1983)- upheld an injunction that barred the Chicago from creating a stock index future contract based on the DJIA. The court based its decision largely in part on the fact that a significant part of the value of using the DJIA is the association with Dow Jones A. There are an infinite number of stock market indexes which could be devised and the CBT would be encouraged t develop a new index if it is barred from using the DJIA B. Dow was entitled to protection against misappropriation of the index for use by the CBT C. The dissent concentrated on the absence of direct competition between the creator and copier in the creators primary market. D. They also argue that this decision broadly expanded the tort of misappropriation in Illinois Standard and Poors Corp (S&P) v. Commodity Exchange (Comex) - (2d Cir 1982) - court upheld a prelim injunction against comex which was using the S&P500 as the basis of its stock index future contract. A. The court relied on the expenditure of time and money in creating the index, and the competition between Comex and the Chicago Mercantile Exchange, which s&p had licensed to create a stock market index future based on the S&P500 o Note 4 idea submissions cases you cant copyright an idea as such and so you cant claim that an idea has been misappropriated. But you can say there is an implied contact Orth-O-Vision v. Home Box Office, 474 Fsupp 672 (SD NY 1979) Facts & procedural posture Orth-o-vision had been authorized to retransmit HBO shows but then HBO terminated the authorization. Ortho sued saying violation of trade but HBO counter claimed saying infringement and misappropriation and implied criminal violation of theft of video services. Summary judgment for HBO on copyright issue. Ortho got summary judgment for misappropriation claim bc the claims of copyrightable material (fed statute). Theft of video claim was possible despite preemption of fed copyright bc it may be construed as an additional element not under copyright law must send back bc you cant rule summary judgment on this due to too many facts Holding and Reasoning The subsidiary's motion for partial summary judgment and a permanent injunction was granted because plaintiff failed to establish its antitrust defense where there was no nexus between plaintiff's alleged anti-competitive actions and its power over copyrighted material, and plaintiff infringed the subsidiary's copyrighted works. Rule copyright act preempts misappropriation tort

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IN CLASS o Preemption case o Attempt to avoid payment is what prompted the theft of video services claim o Congress has abolished all state law rights in copyrightable material that are equivalent to any of the exclusive rights of copyright recognized in the statute o The only state law rights preserved by Congress are those which involve: 1. subject matter that is not copyrightable; 2. causes of action arising from works created before January 1, 1978; or 3. rights that are not equivalent to any of the exclusive rights recognized by the federal statute o In the case of motion pictures and audiovisual works, the Copyright Act of 1976 grants the copyright owner exclusive rights to perform works, to show their images in any sequence, or to make the sounds accompanying them audible to the public by means of any process, and to display them, to show individual images non-sequentially to the public by means of any process o No defense to a copyright infringement claim that the copyright owner is violating the antitrust laws

NBA v. Motorola, 105 F3d 841 (2nd Cir 1997) Facts & procedural posture Motorola had a pager service that would transmit the game scores and stats to those who purchased the pagers. NBA sued saying it was a misappropriation. Argument in the appellate court about misappropriation Issue(s) presented does the copyright act preempt misappropriation? Holding 2 issues were teased out and addressed o State misappropriation tort is preempted by copyright bc it is too broad and doesnt include an extra element that would allow the claim to be denied o INS v AP concept of misappropriation court says that issue survives preemption and Motorola does not qualify for INS type of misappropriation based on the below facts The court holds that the "hot-news" claim is limited to cases where: A. (i) a plaintiff generates or gathers information at a cost; B. (ii) The information is time-sensitive; C. (iii) A defendant's use of the information constitutes free-riding on the plaintiff's efforts; D. (iv) The defendant is in direct competition with a product or service offered by the plaintiffs; and E. (v) The ability of other parties to free-ride on the efforts of the Rule limited exception to the rule that copyright act preempts misappropriation (in the HBO case) The subject matter requirement is met when the work of authorship being copied or misappropriated falls within the ambit of copyright protection IN CLASS o If you had the broad misappropriation tort pre-1976 then you would a lot more causes of action that are actually actionable but since the Copyright Act was amended in 1976, there has been a more limited application of what constitutes as misappropriation o Copyright Act amended in 1976 specifically to insure that simultaneously recorded transmissions of live performances and sporting events would meet the Act's requirement that the original work of authorship be "fixed in any tangible medium of expression. o The "fact/expression dichotomy" is a bedrock principle of copyright law that limits severely the scope of protection in fact-based works. No author may copyright facts or ideas. The copyright is limited to those aspects of the work -- termed "expression" -- that displays the stamp of the author's originality o Once a performance is reduced to tangible form, there is no distinction between the

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o o

performance and the recording of the performance for the purposes of preemption under 17 U.S.C.S. 301(a). Misappropriation is not synonymous with copyright protection NBA obvi wanted to enjoin Motorola from using their license Should they be entitled to profits? One would think that incentives for revenue would be affected but they make so much money anyways, it really shouldnt matter They are not in direct competition

COMPETITOR REMEDIES FOR FALSE ADVERTISING & DISPARAGEMENT A. False Advertising 2- Before the Lanham act the only cause of action that existed was one for palming/passing off. i. Lanham act provided for false advertising claims. ii. Under Lanham you only need to show a likelihood of injury, not actual injury. But if you can show actual injury that is the best. iii. If you can show irreparable injury and likelihood of success on the merits, and the advertising is blatantly false, you dont have to get to balancing the merits, because there is no equity in the injury that is done by the false advertising Coca-Cola v. Tropicana products, 690 F2d 312 (2nd Cir 1982) Facts & procedural posture Tropicana had a commercial in the 1980s featuring Bruce Jenner squeezing an orange while saying its pure, pasteurized juice as it comes from the orange and then there is audio saying that it is the only leading brand not made with concentrate and water. Coke, maker of Minute Maid OJ, sued for false advertising. The district court denied Cokes motion for a prelim injunction to enjoin further broadcast of the commercial and then Coke appealed o 43(a) of Lanham Act says false advertising provides that anyone who uses a false description or representation in connection with goods placed in commerce shall be liable to a civil action by anyone who believes that he is or is likely to be damaged by the use of such false description or representation Issue(s) presented what is false advertising? Holding the prelim injunctive relief is appropriate - defendant made a false representation in its advertising that would likely cause irreparable harm to plaintiff, which justified issuance of a preliminary injunction preventing the broadcast of defendant's advertisement o Evidence in the record (market studies) supports the conclusion that consumers are likely to be misled Rule only need a reasonable expectation of a likelihood of injury you dont need to show actual injury o The elements required to recover on a false advertising claim under the Lanham Act are 1- A false stmt of fact by defendant in a commercial advertisement about its own or anothers product * Express or an implied misrepresentation 3- The stmt actually deceived or has the tendency to deceive a substantial segment of its audience * In seeking injunctive relief, need only show that the falsities complained of had a tendency to deceive * No requirement to show that the defendant had intent to deceive but there is an inference that consumers are deceived if intent is demonstrated 3- The deception is material in that it is likely to influence a consumers purchasing decision 4- The defendant caused its false stmt to enter interstate commerce *Requires that the advertisement not the goods or service in question be used in interstate commerce

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*A purely local business that runs a radio commercial that is received in multiple states satisfies the commerce requirement 5 - The plaintiff has been or is likely to be injured as a result of the false stmt, either by direct diversion of sales from itself to defendant or by a lessening of the goodwill assoc with its products IN CLASS o If there is even the assumption that there are damages then there is a likelihood of damages o A party seeking issuance of a preliminary injunction must always show that it is likely to suffer possible irreparable harm if the requested relief is not granted. In addition, it must demonstrate either: (1) a likelihood of success on the merits of its case; or (2) sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly in its favor o The Lanham Act plaintiff must offer something more than a mere subjective belief that he is likely to be injured as a result of the false advertising; he must submit proof, which provides a reasonable basis for that belief. o The likelihood of injury and causation will not be presumed, but must be demonstrated in some manner o When the challenged advertisement is implicitly rather than explicitly false, its tendency to violate the Lanham Act by misleading, confusing or deceiving should be tested by public reaction. o Once it is determined that a stmt is false by the finder of fact, then in the majority of cases, it is virtually assumed that there is deception representation is also assumed to be material o Note 4 intent is irrelevant o Materiality may pop up but for the most part, once its determined its false, its assumed that it is also material

Explicit representation Implicit representation o A cleaning product will kill germs on all environmental surfaces Difficulty is that most communicable diseases are airborne so cleaning surfaces doesnt really help In order to kill the germs through the air that you have to use so much of the product that it makes it impossible to be in the room Indiscernible exaggeration o Wheaties breakfast of champions Irrelevance o Using sexual images to sell autoparts or hamburgers

Clorox CO Puerto Rico v Proctor & Gamble Commercial Co, 228 F3d 24 (1st Cir 2000)

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Facts & procedural posture Clorox sued P&G when P&G came out with a marketing campaign that said their detergent got clothes whiter than when washed with chlorine bleach (Whiter is not possible). Clorox sd this was false advertising. The district court dismissed the case, reasoning that Clorox failed to state a claim under the Lanham Act. o Holding and reasoning the district courts dismissal was erroneous bc it ignored many of the allegations on the face of the complaint and bc it applied an overly restrictive view of the requirements for pleading a false advertisement claim under the Lanham Act a fact finder could reasonably conclude that these advertisements claim that P&Gs product is equal or superior in whitening ability to a detergent and bleach combo In determining the first prong of falsity, the fact finder can find any implication of stmt of misrepresentation o Rule CLAIMS OF LITERAL FALSITY: a claim is conveyed by necessary implication when, considering the advertisement in its entirety, the audience would recognize the claim as readily as if it had been explicitly stated o IN CLASS Basic proposition is that the false stmt of fact can be there when there is a necessary implication So court found the stmt was comparative A plaintiff can succeed on a false advertising claim by proving either that an advertisement is false on its face or that the advertisement is literally true or ambiguous but likely to mislead and confuse consumers o If the ad is clear on its face, there is no need for evidence of how consumers perceive its message or claim o If the advertisement is literally false, the court may grant relief without considering evidence of consumer reaction o In the absence of literal falsity, an additional burden is placed upon the plaintiff to show that the advertisement, though explicitly true, nonetheless conveys a misleading message to the viewing public 1. To satisfy this burden, plaintiff must show how consumers have actually reacted to the challenged advertisement rather than merely demonstrating how they could have reacted Whether an advertisement is literally false is an issue of fact o Fact finders usually base literal falsity determinations upon explicit claims made by an advertisement, they may also consider any claims the advertisement conveys by necessary implication 1. A claim is conveyed by necessary implication when, considering the advertisement in its entirety, the audience would recognize the claim as readily as if it had been explicitly stated CLAIMS OF MISLEADING ADVERTISING: plaintiff has the burden of proving that a substantial portion of the audience for that advertisement was actually misled Puffing is exaggerated advertising, blustering, and boasting upon which no reasonable buyer would rely 1. A specific and measurable advertisement claim of product superiority is not puffery 2. Ability of advertiser to lie its pants off on the assumption that they are not subject to objective verification and consumers will not take them as truth No puffery in this case bc when taken in context, the tagline whiter is not possible invites the consumer to compare products. So despite ambiguity, it is a specific, measurable claim and thus not puffing Majority of courts interpreted Lanham Act narrowly to cover trademarks but the language is much more broad than that By the 1970s the Lanham Act was allowing a cause of action for false advertising by competitors o

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There is a lot that is considered in this case: allowable puffing (objectively verifiable stmts) and false stmts of competitors product are false by necessary implication 782 note 2 there is more than one interpretation that consumers take from an ad and how can you structure your ads to only have one meaning so that no one is misled? Note 3- Tambrands v. Warner-Lambert Co. (673 Fsupp 1190 (SDNY 1987) home pregnancy kit that is advertised as having results in as fast as 10 min is this a false claim? expressly false with necessary implication that this is routine expectation? 1. What did court say on this case? a. Where a defendant's advertising claims are facially false, a defendant is permanently enjoined from using these claims in its advertising 2. Defendants concede that non-pregnant women require thirty minutes to know for sure that they are not pregnant, regardless of the day on which they perform the test. Any pregnant or non-pregnant woman using the test must confirm the results at thirty minutes if no color change occurs within ten minutes. Defendants argue that "positive results are generally, though not always, obtainable in 10 minutes, Defendants argue that the ten-minute claim is "true on its face since the overwhelming majority of women who use E.P.T. Plus will in fact obtain accurate results in 10 minutes, even on Day 1. 3. Court holds that Defendants' advertisements are facially false in that they state by necessary implication that New E.P.T. Plus is a ten-minute test, when in fact the test requires at least thirty minutes for most women to obtain accurate test results. I find that the thrust of defendants' advertisements is false, and that even the qualifying words added to the advertising copy do not sufficiently modify the message to render the advertisements true. 4. The defendants agree to modify their advertising claims to conform with accurate claims but the court doesnt think the proposed modifications will suffice to correct the false claims and therefore issues a permanent injunction

5. Not literally false but the implication is that the result would take only 10 min
in the absence of other information, it represents the typical result only taking 10 min

Johnson & Johnson v. Carter-Wallace, 2nd Circuit 1980

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o o o o o

Facts & procedural posture Carter Wallace was the distributor of NAIR and they came out with a marketing campaign promoting the new NAIR featuring baby oil. The inclusion of baby oil left legs feeling softer than using an ordinary depilatory cream would. J&J sued for injunctive relief alleging false advertising claims and that the packaging and advertising of NAIR gave consumers the false impression that NAIR was a J&J product. The district court denied the application for a temporary restraining order and dismissed J&Js false advertising claim Issue(s) presented identifying the burden of proof necessary to constitute likelihood of damage Holding dismissing the case was inappropriate. However, J&J still needs to prove that NAIR advertising was false before being entitles to injunctive relief under the Lanham Act Reasoning J&J provided sufficient evidence that they were likely to be damaged by Carters advertising Situational / Policy factors failure to prove actual damages in an injunction suit, as distinguished from an action for damages, poses no likelihood of a windfall for the plaintiff. The complaining competitor gains no more than that to which it is already entitled a market free of false advertising Rule the standard for demonstrating damage is providing a reasonable basis for the belief that the plaintiff is likely to be damaged as a result of the false advertising The correct standard is whether it is LIKELY that the advertising has caused or will cause a loss of sales and not whether the plaintiff ahs come forward with specific evidence that the ads actually resulted in a definite loss The likelihood of injury and causation must be demonstrated evidence must est a reasonable belief that he is likely to be damaged and entitled to injunctive relief Must also show a logical casual connection bt the alleged false advertising and plaintiffs own sales position Inability to point to a definite amount of sale lost does not preclude injunctive relief IN CLASS Basic point you dont have to demonstrate actual damages if the stmt is false False advertising claims were governed by the common law of trade disparagement until the enactment of 43(a) of the Lanham act B. Under common law, liability was generally confined to palming off and cases where the deceit related to the origin of the product 43(a) differs from common law tort of disparagement in 2 important ways It does not require proof of intent to deceive It entitles a broad range of commercial parties to relief The broadening of the scope of liability results from a provision in 43(a) that states a suit can be brought by any person who believes that he is or is likely to be damaged by the use of any false description or representation Indirect competitors may avail themselves of the protection of 43(a) not necessary that the parties be direct competitors In ALPO Petfoods (Note 4 on pg 790) the court cautioned that trial judges must ensure that the record adequately supports all items of damages claimed and est a causal link bt the damages and the defendants conduct, lest the award become speculative Went up to DC circuit and identified potential elements of misrepresentation Profits lost as a result of false advertising was quantifiable Most common relief is permanent injunction against misrepresentation Un-rare to have litigation over damages Note 5 talks about remedies under state laws Most competitors prefer seeking relief under the Lanham Act but 2 local small businesses are more likely to turn to state law remedies With a few exceptions, there are no remedies for consumers for false advertising, typically found under state statute

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Pizza Hut v. Papa Johns, SCOTUS Amicus Brief requesting cert Better ingredients, better pizza The district court sd not puffing bc it was measurable the CoA sd it was puffing SCOTUS denied cert If you can make the distinction when it does become puffing, then its possible to measure the claim discernibly What it comes down to is how the judge interprets the general publics stupidity C. Disparagement US Healthcare v. Blue Cross of Greater Philadelphia, 3rd Circuit 1990 Facts & procedural posture the parties were competitors for health insurance subscribers in the greater Philly area. Blue Cross was there first and once US Healthcare started gaining more business, Blue Cross came out with some ads (TV, radio, print etc) that were disparaging to US Healthcare. Almost immediately, US Healthcare came out with disparaging ads against Blue Cross. District court applied a heightened standard to defamation by applying NY Times v Sullivan Issues presented Whether these advertisements violated varied federal and state laws prohibiting unfair trade and false advertising o 43(a) of the Lanham Act, state law defamation, state law disparagement and state law tortuous interference with contract (???) Malice standard for defamation if you have a public figure, then an action for defamation against that public figure will not be allowed by the first amend unless the alleged defamation was made knowing it was false or with a reckless disregard to the truth Holding appellate court says this is commercial speech and therefore the NY Times full blown first amend protection does not apply commercial speech is not fully protected speech Reasoning the thrust of all of the ads is to convince the consuming public to bring its business to one of these health care giants rather the other, there is no doubt that the ads were motivated by economic selfinterest Rule o In an action for defamation, the plaintiff must prove The defamatory character of the communication Its publication by the def Its application to the plaintiff An understanding by the reader or listener of its defamatory meaning An understanding by the reader or listener of an intent by the def that the stmt refer to the plaintiff o To maintain an action for disparagement, the plaintiff must prove That the disparaging stmt of fact is untrue or that the disparaging stmt of opinion is incorrect That no privilege attaches to the stmt That the plaintiff suffered a direct pecuniary loss as the result of the disparagement o Commercial speech may be broadly defined as expression related to the economic interests of the speaker and its audience, generally in the form of a commercial ad for the sale of goods and services Is the speech an ad? Does the speech refer to a specific product or service? Does the speaker have an economic motivation for the speech? ****answering yes to the above 3 questions provides strong support for the conclusion that the speech is commercial Commercial speech is not afforded full protection of the first amendment IN CLASS

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o o o o o o o o o o o

Defamation and commercial disparagement are closely related but there are differences (796) Distinction turns on the harm Defamation is meant to protect character and reputation 43(a) says that a stmt is actionable if it is affirmatively misleading, partially incorrect, or untrue as a result of failure to disclose a material fact applicable to stmts made about his own or another persons products Defamatory stmts must be examined in context Defenses to defamatory stmts include: evidence that the stmt was of public concern or that the stmt was of privileged character An action for commercial disparagement is meant to compensate for pecuniary loss bc such stmts have reduced their marketability An action for defamation is meant to protect an entitys interest in character and reputation Stmts of opinion cannot be challenged in a suit alleging product disparagement Thain likes this case for a number of reasons he says its really good/useful analysis for free speech protection in commercial speech No protection for false stmts per se Note 1 useful in terms of ref to case about Budget Publishing Co court sd it was disparaging but not defamation bc it didnt go to the character of the business owner, simply went against the products he provided Commercial disparagement is meant to compensate a vendor for pecuniary loss suffered because statements attacking the quality of his goods have reduce their marketability, while defamation is meant to protect an entitys interest in character and reputation. Commercial speech does not fall under the protection of the first amendment and may be broadly defined as expression related to the economic interests of the speaker and its audience, generally in the form of a commercial advertisement for the sale of goods and services.

Proctor & Gamble v. Haugen, 10th Circuit 2000 Facts & procedural posture Haugen was a distributor of Amway products and sent an email to his sales team alleging that P&G was associated with Satan. Sd that the president of P&G appeared on Phil Donaghue show saying that P&G profits went to Satanic purposes. The email sd to boycott P&G products. The district court dismisses the case saying there is no cause of action and if there is action, P&G is limited to publishing contrary info. They sd it identified their products but didnt contain false stmts about the products characteristics Issue presented did the subject message classified as commercial activites for section 43(b) purposes? Holding and reasoning yes bc the subject message clearly related to P&Gs commercial activities -appellate court says it is commercial speech and a viable cause of action and therefore should not have been dismissed Rule - In order for representations to constitute "commercial advertising or promotion" they must be: (1) commercial speech; (2) by a defendant who is in commercial competition with plaintiff; (3) for the purpose of influencing consumers to buy defendant's goods or services. While the representations need not be made in a "classic advertising campaign," but may consist instead of more informal types of "promotion," the representations (4) must be disseminated sufficiently to the relevant purchasing public to constitute "advertising" or "promotion" within that industry IN CLASS o the fact that there is a theological element, does not mean it is a protected stmt bc it is not a core religious principle o No doubt that products are often marketed and purchased not only on the basis of their inherent utility but also for the images they project and the values that they promote In this regard, the subject message implies that recipients should question the values

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o o

promoted by the businesses from whom they purchase goods The language of 43(d) makes it clear that Congress did not intend to narrowly limit the term commercial activities but rather intended to encompass those activities which do not solely involve the provision of services or the production of goods A representation is not necessarily commercial speech bc it is contained in an ad, made with an economic motive, or refers to a specific product Difference bt commercial and non-commercial is a matter of degree

CONSUMERS REMEDIES FOR DECEPTION AND OTHER UNFAIR TRADE PRACTICES A. Introduction a. Only limited effective remedies for consumers against companies that engage in deceptive trade practices that harm them B. Federal law remedies Colligan v. Activities Club of NY, 442 F2d 686 (1971) Facts & procedural posture a bunch of kids paid money to go on a ski trip. The trip ended up being the trip from hell. If something could go wrong, then it did go wrong. Parents bring a Lanham Act suit against the travel company Holding - the court affirmed the district court's dismissal of the students' Lanham Act (Act) class action lawsuit against the ski tour service because the students lacked standing to maintain their lawsuit; the students were consumers who were not covered under the Act. IN CLASS o Congress' purpose in enacting 43(a) was to create a special and limited unfair competition remedy, virtually without regard for the interests of consumers generally and almost certainly without any consideration of consumer rights of action in particular. o Court admits that reading the words on their face, there is evidently a right for consumers to bring action under 43(a) o But the court ends up holding that there is no cause of action bc there was no standing. If congress had intended for consumers to have standing, they would have written the statute accordingly o Must pursue some other remedy bc 43(a) does not provide them standing o There was some significant effort to include provision that would allow action by consumers when the act was being amended back in the 80s but the provision was shot down Kastenmeier was a huge proponent of consumer rights o This is not inconsistent with other statutes that provide for remedies for public bodies o Truth in lending, fair credit act, telephone consumer act examples of consumer rights but they come by specific authorized provision in the relevant statutes. No general statutory provision o Reed v King is classic example of common law deceit requirements of deceit make it rare for a consumer to be able to prevail o THESIS OF THE LAST SECTION: It is very difficult for a consumer or consumer group to find recourse for a deceptive practice that is injurious to him/them. C. State law Remedies a. Traditional Common Law and Statutory Remedies Reed v King, 145 Cal.App.3d 261 (1983) Facts & procedural posture Reed purchased a home from King but after moving in, she found out people had been murdered in the home a number have years before she purchased it. King knew about the murders but failed to disclose the knowledge. Reed sued for fraud under tort and contracts o The lower court dismissed plaintiff homebuyer's action for rescission of the real estate contract after she learned that a multiple murder had occurred in the house. The court found that the

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failure of defendant real estate agents to disclose physical defects and legal impediments to the use of the real property were material to the contract. The court held that there was no basis for making the duty to disclose turn on the character of the information. The court reversed because the fact of the murders may have had a quantifiable effect on the market value of the real estate, which plaintiff was entitled to prove. Holding - The court reversed the order of the trial court that dismissed plaintiff homebuyer's complaint against defendant real estate agents because defendants' failure to disclose the fact that murders had occurred in the house was material to the real estate contract IN CLASS o elements of actual fraud, whether as the basis of the remedy in contract or tort, may be stated as follows: there must be (1) a false representation or concealment of a material fact, or, in some cases, an opinion, susceptible of knowledge, (2) made with knowledge of its falsity or without sufficient knowledge on the subject to warrant a representation, (3) with the intent to induce the person to whom it is made to act upon it; and such person must (4) act in reliance upon the representation (5) to his damage o Common law tort action for fraud or deceit requires proof of a false representation, scienter, which means knowledge by defendant of its falsity, and justifiable reliance by the purchaser upon the misrepresentation Very difficult to prove these elements o seller of real property has a duty to disclose: where the seller knows of facts materially affecting the value or desirability of the property which are known or accessible only to him and also knows that such facts are not known to, or within the reach of the diligent attention and observation of the buyer, the seller is under a duty to disclose them to the buyer. The ancient maxim caveat emptor, let the buyer beware, has little or no application to California real estate transactions o Whether information is of sufficient materiality to affect the value or desirability of the property depends on the facts of the particular case. Materiality is a question of law, and is part of the concept of right to rely or justifiable reliance. Accordingly, the term is essentially a label affixed to a normative conclusion. Three considerations bear on this legal conclusion: the gravity of the harm inflicted by nondisclosure; the fairness of imposing a duty of discovery on the buyer as an alternative to compelling disclosure, and the impact on the stability of contracts if rescission is permitted o All states recognize claims based on strict tort liability Most courts refuse to extend this theory to situations involving defective products that cause purely economical losses o Breach of Warranty o Elements of the tort of deceit are on page 821. There must be a false statement or a concealment of a false material fact. o The trial court determined that this was not a material fact. o The appellate court said that it could be a material fact and remands to determine if it is. Whether there was a significant effect on marketability will be the significant question on appeal. o Hypothetical: If the buyer considers certain facts to be important and the seller does not disclose them, does that mean the buyer can recover? No, the standard is objective. o Also note that Reed places no duty on the seller to investigate a defect. o What about if the owner has aids, didnt disclose that and this would have a significant effect on market value. Can buyer rescind? NO. There are other values besides economic value. o Notes There are other theories that a consumer could try, but they all have problems.

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Strict liability requires physical harm K rescission has problems of puffing and parol evidence Breach of warranty has the same problems and the cost of litigating will outweigh your recovery Note 7 This is probably an overstatement. The opinion seems to require some objective proof and notes that expert testimony could suffice. This case doesnt set forth subjective standard.

b. Remedies under Baby FTC statutes Pennington v. Singleton Facts & procedural posture Pennington boat a used boat from Singleton through a private sale. Singleton represented the boat as being excellent conditionjust like new and Pennington relied on those stmts when purchasing the boat. However, the boat was actually in need of repairs and Pennington sued for fraud. District court found in favor of Pennington but the court of appeals reversed and sd Pennington couldnt recover. o The trial court said that the Act covered consumer-to-consumer transactionsThe appellate court reversedThe SC revd and reinstated the trial court decision. Holding the misrepresentations made by Singleton gave rise to a cause of action under Texas Baby FTC statute and that Pennington is entitled to treble damages IN CLASS o Misrepresentations, so long as they are of material fact and not merely puffing or opinion, are nevertheless actionable even though they are broad descriptions o A broad interpretation of what constitutes an actionable violation is warranted due to human inventiveness in engaging in deceptive or misleading conduct. The legis did not intend to protect those who can find loopholes in the Act o There is no justification for excluding some misrepresentations and including others on the basis of the reason for their falsity o The terms used are not so vague or indefinite as to violate due process, and the court will not read into them an intent requirement merely to restrict the scope of their coverage o Most baby FTC acts permit plaintiffs to recover for a false affirmative stmt about a product without having to prove either that the defendant had the intent to deceive or that the defendant knew the stmt was false o Many FTC lawsuits are similar to tort actions o This deals with the TX baby FTC act. o Also, this is an individual-to-individual transaction. o Singleton described the boat as being in perfect condition when in fact it was not. Pennington sued under the TX FTC act. o Note that Pennington could not have recovered under fraud Singleton had no knowledge of his statements falsity. o Is this decision equitable? It seems to come down every strongly against sellers. o Would this be a good rule for used cars? It might be hard to apply there because so much can go wrong with used cars. o Suppose you are in a Jx that applies this standard and one of the conditions of sale is that a buyer must sign a release of any COAs in order to complete the sale? It seems like here since it is consumer to consumer, there is equal bargaining power, and so youd enforce it. However, if you enforce it you could argue that you are giving an unfair advantage to those who have knowledge of the law. o Notes 9 and 10 TX amended its statute so that consumers could only bring actions for specifically

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enumerated practices, but 26 are listed covering a great deal of conduct. The assault in the apartment hypothetical raises an interesting question. Thain said that he thinks the conduct could be covered as long as there is no limit on damages. Are baby FTC acts appropriate venues for bringing public interest claims? There s no satisfactory answer to this, but keep it in mind as we move onto the FTC portion. PUBLIC CONSUMER PROTECTION ACTIVIES

A. FTC Regulation of Deceptive Advertising and other Unfair and Deceptive Practices a. Overview of FTC Powers and Procedures i. Federal Trade Commission Act key substantive provision is section 5 1. It declares 3 basic categories of conduct unlawful a. Unfair Methods of Competition b. Deceptive Acts or Practices c. Unfair Acts or Practices ii. Est by Congressional action in 1914 and is one of the earliest admin agencies. Successor to the Bureau of Corp. iii. Progressive Party was concerned that POTUS had full control over Atty Gen and the DOJ and wanted an admin agency that would take more action against unfair trade practices b. The FTCs Unfairness Jurisdiction i. The original wording of the 1914 FTC Act did not include a prohibition of unfair or deceptive practices. The sole substantive provision addressed unfair methods of competition ii. Congress added a prohibition against unfair or deceptive acts or practices to the existing unfair methods of competition in 1938 iii. 1931 Raladan company that sold an anti-obesity product. FTC alleged that Marmola had been falsely advertised. In some cases if you took too much marmola it could kill you. 1. S Ct said commission would have to start over again, on the grounds that the FTCA covered only actions that related to competition, and because Marmola had no competitors, the FTC did not have jurisdiction. iv. 1938 Wheeler-Lea Amendment: added a prohibition against unfair or deceptive acts or practices to the existing proscription of unfair methods of competition v. The failure to mention competition in the later phrase in the amendment shows a legislative intent to remove the procedural requirement set up in the Raladam case and the commission can now center its attention on the direct protection of the consumer where formerly it could protect him only through the protection of the competitor vi. Wheeler Act amended section 5 of the act to include unfair or deceptive practices vii. 1975 the Act was again amended to say unfair or deceptive practices affecting interstate commerce viii. Very very broad mandate its authority cuts across almost all business lines except for a few explicit exceptions very diverse types of businesses that it regulates ix. Very broad jurisdiction of things that it could attack smaller circle of things they think it is appropriate to attack even smaller circle of things that they will attack 1. Dont want to waste their capital 2. Actually very small area of actions they will actually attack x. There are 5 commissioners who serve 7 yr terms. 1. They are appointed terms 2. No more than 3 of the commissioners may belong to the same political party as a way to encourage bipartisanship xi. Steps FTC takes when bringing an action against a violator of FTC Act 1. FTC investigation 2. Staff make recommendation to FTC commissioner

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xii. xiii. xiv. xv. xvi.

3. Assuming the recommendation is approved by the commissioner and they decide an action should be brought, they will issue a complaint against the respondent a. Adjudicative posture all communication must be formal and through pleadingsno ex parte communication 4. Trial before ALJ (admin law judge) a. Decision 5. A respondent can appeal the decision to any Court of Appeals in the US 6. Appellate Court will issue a decision and rarely will the case go beyond that 7. Either party may petition for cert to SCOTUS a. Filtered by solicitor general and US AG Normal administrative adjudicative complaint process but it takes time regardless of how smooth the process goes Whenever there is a final order of the FTC, then that order is final and runs in perpetuity unless a commission modifies or deletes it If there is any kind of violation of a final order then the respondent is subject to civil penalties up to $10,000 failure to abide by final order results in contempt of court and then the case turns into a criminal case (rarely happens but the option is there) Advisory opinions will be issued if the FTC is asked to do so subject to revocation depending on the facts of the case FTC also has rulemaking process 1. Akin to legis process

Meaning of Unfairness: - 1) Whether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwisewhether, in other words it is within at least the penumbra of some common law, statutory, or other established concept of unfairness - 2) Whether it is immoral, unethical, oppressive or unscrupulous; 3) Whether it causes substantial injury to consumers or competitors or other businessmen International Harvester Co. (1984) Facts & procedural posture when gas tanks in tractor-trailers would get super hot, it could cause the fuel to boil. If you took the gas cap off, you risked a fuel geyser from shooting up to 20 ft in the air and spilling raw flammable fuel all over you. Fuel geysers killed 1 person and seriously injured 11 people. Harvester knew about this for 17 yrs before notifying its consumers (starting in 1963). Evidence showed that such accidents could have been prevented entirely by following certain safety rules. It was not until 1979 that Harvester directly notified its customers with a warning and provided them with a free replacement gas cap to prevent the fuel geysers from occurring. Issues presented whether the failure to notify was deceptive and unfair Holding DISCLOSURE WAS NECESSARY - the admin law judge concluded that the failure to warn about the hazards of fuel geysering was a form of deception and that such failure was unfair since it subjected consumers to a risk of harm that they could not reasonably have avoided o BUT the court decided not to issue an order for 2 reasons The voluntary notification program had already provided all of the relief that could be provided The changing technology and shift to diesel fuel eliminated any remaining concerns over safety Rule such omissions should be judged as cases of possible unfairness rather of possible deception therefore requiring a cost-benefit analysis o An actionable consumer injury must be (meet all 3 prongs) Substantial / serious consumer injury Unlike deception, which focuses on likely injury, unfairness cases usually involve actual and completed harms

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Not outweighed by any offsetting consumer or competitive benefits A balancing test risks of injury outweigh the costs of notification and the costs of determining what the prevailing consumer misconceptions actually are Consumers could not reasonably have avoided the injury Meant to ensure markets operating freely so that consumers can make their own decisions

IN CLASS o In most cases it is appropriate to limit mandatory disclosure to those core aspects of a transaction that all consumers would consider essential to making an informed decision characteristics connected to merchantability Info bearing on fitness for intended use Info bearing on significant hidden safety hazards o An omission may be found to be unfair even though it is not deceptive o Harvesters cost of notifying their customers was $2.8m plus costs of monitoring and experimentation to solve the problem however, the court finds that these costs do not outweigh the need to notify customers. o Implicit in the duty to warn is the duty to warn with a degree of intensity that would cause a reasonable man to exercise for his own safety the caution commensurate with the potential danger o Congress codified and legislatively adopted the Harvesters definition of unfairness in 1994 o Think about 1) what is covered and what is not covered by unfairness std and 2) will this be significant in the actions that the FTC can and cannot bring? o Commission says this practice is unfair to consumers but would not necessarily say it was deceptive bc the warning was included in the instructions o This case resulted in the commissioner finding that they were unfair but yet they didnt issue an order against Harvester o If you have a survival suit case, can it reasonably be avoided by consumers is a major issue Does the injury outweigh the economic benefits? o Note 2 7th circuit agreed with FTC if this case had been applied to the Harvester consumer unfairness analysis, how would things have turned out? There is serious consumer injury but there is more of a question about how substantial it is. By keeping costs low by prosecuting everything in one state saves money. Does it outweigh the injury though?

Orkin Exterminating v. FTC (11th cir 1988) Facts & procedural posture Orkin violated the terms of the pre-1975 customer contracts, which provided for a fixed annual renewal fee, by unilaterally raising the fees. The FTC issued an admin complaint charging that Orkin had committed an unfair act or practice in violation of section 5. The ALJ found in favor of the FTC saying that Orkin had breached the contract, the breach was in violation of section 5, there was consumer injury, consumers couldnt have avoided the injury and there were no countervailing benefits to consumers Issue presented whether the unilateral breach of 200,000 contracts was unfair Standard of review deference to the ALJ Holding YES -- affirmed the ALJ and found in favor of the commissioner rejected Orkins arguments that they had no other choice but to raise prices due to inflation Reasoning - -The injury was substantial because the increased on the pre-1975 contracts generated $7,000,000 for orkin, to the injury of the customers. o The benefits do not outweigh the costs because the increase in fee was not accompanied by an increase in the level of service provided or an enhancement of its quality o Consumers could not have reasonably avoided the harm caused by Orkins conduct. The companys accommodation program could not constitute an avenue for avoiding injury because relief from orkins conduct was available only to those customers who complained about the increases in the renewal fees.

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The commissions conclusion was simply that is an unfair practice to breach over 200,000 contracts. We think this was reasonable application of the commissions unfairness standard. o A practice may be both deceptive and unfair, but it may be unfair without being deceptive. Deception is really just one specific form of unfair consumer practice o Orkins final argument is that the commission erred in not considering that Orkin relied on legal advice o The unfairness standard focuses on consumer injury and does not take into account the mental state of the party accused of a section 5 violation o A practice may be found unfair to consumers without showing that the offending party intended to cause consumer injury. IN CLASS o The unfairness standard focuses on consumer injury and not the intent of the wrongdoer does not take into account the mental state of the party accused of a section 5 violation The purpose of the FTC Act is to protect the public and not to punish the wrongdoer o Unfairness standard A finding of substantial injury to consumers Serious consumer injury? No worry about life or death but there is economic/monetary injury Do you take the individual cost per consumer or the total sum paid to Orkin? Thain says it depends but you should consider both Beneficial and adverse consequences No real arguable consumer benefit Although you could argue that Orkin may go bankrupt and that it would harm the consumers bc they would have to find another vendor for the same services o There is always a danger that a company will go out of business so this is actually a weak excuse Consumers could not have reasonably avoided the harm Consumers had their contracts unilaterally altered and they could not do anything about it in advance no bargaining Pg 880- plain meaning of the words show that the fee was fixed o Unfair is akin to anti-trust and therefore unfair to consumers o Orkin sd they will continue to abide by the contract terms but that they would raise the price. The FTC sd it was injurious to customers o SCOTUS says unconscionable practices is automatically unfair Its extremely difficult to argue in the alternative o

In the Matter of RJ Reynolds Tobacco Company (1997) Facts & procedural posture FTC filed a complaint against the tobacco company for violating the provisions of FTC Act. The claims were that the tobacco company was intentionally targeting young people with Joe Camel advertising to get them to begin smoking, specifically smoking their brand of cigarettes Situational / Policy factors consumers who smoke risk addiction and a number of immediate and long term adverse health effects minors do not adequately comprehend the nature of the risks and seriousness of addiction IN CLASS o Deceptive advertising Bc there was implied health benefit by having less tar Huge amount of tar and nicotine in cigarettes and there was no health difference bt those with more tar and nicotine than those with less o Does the use of Joe Camel constitute unfairness? FTC initially wouldnt say yes or no but

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o o

o o

eventually did bring a complaint. There was a settlement bt the states and the tobacco companies (cant use animated characters to advertise tobacco) so the FTC proceeding became moot There is argument that there is implicit deception Appropriate for young people to smoke? Try applying the 3 prong unfairness standard There is substantial injury addictive nature of smoking is hazardous to health and expensive Benefits? Its arguable Could consumers have avoided it? They could chose to avoid smoking but you are talking about a young market and they couldnt make a full rational decision Unfairness under the FTC Act includes anti-trust violations and those on the cusp of being violations unfairness in a consumer context what was est by FTC in Harvester? Criteria est had 3 prongs (Congress codified it as a statute) Substantial consumer injury Injury exceeds any consumer benefits Consumers couldnt have reasonably avoided the injury

c. Deceptive Claims about Products or Services i. The Standard of Deceptiveness Charles of the Ritz Dist v. FTC (2nd Cir 1944) Facts & procedural posture FTC issued a cease and desist order against Charles of the Ritz for advertising that their product, Rejuvenescence Cream, would restore natural moisture to the skin and a bunch of other claims that the FTC felt were false claims Issues presented whether the trademark is deceptive and misleading within the meaning of the FTC act Holding and Reasoning - the trademark was deceptive bc the average consumer thought that the Rejuvenesence name meant the restoration of youth Rule representations merely having a capacity to deceive are unlawful o The important criterion is the net impression which the advertisement is likely to make upon the general public dont need to prove actual deception o The fact that a false stmt may be obviously false to those who are trained and experienced does not change its character nor take away its power to deceive others less experienced o If a reasonable person could believe the claim the advertisement makes then there is deception IN CLASS o The commission may insist upon the most literal truthfulness in advertisements and should have the discretion to insist if it chooses upon a form of advertising clear enough not to deceive Need to protect the wayfaring fools o Tendency/capacity to deceive no need to worry about likelihood likely is a higher standard o Note 3- under puffing doctrine, certain plainly false claims are deemed permissible bc no one would be likely taking them seriously Puffing amounts to a seller lying his head off so long as he says nothing specific under the theory that no reasonable person will believe him o Note 4- FTC exercises prosecutorial discretion judiciously by asking 29 questions before determining whether to bring action against a violating entity Issues include the scale of deception, the materiality of the challenged claim, the law enforcement efficiency of devoting resources to the challenged advertisement, and the likely deterrent value of FTC action Search traits are those that can be discovered prior to purchase, such as color or size

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Experience traits can only be discovered after purchase, such as the taste of toothpaste or the cleaning performance of a washing machine Credence traits are those that can never be directly assessed by a consumer, such as getting a new transmission Implied claim of uniqueness the FTC will also use its deception authority to challenge advertisements that claimed expressly or impliedly that a product was either unique or in some way, superior to the products of competitors

Implied claim of uniqueness- have a standard product, i.e. wonder bread. - Only wonder bread gives you the nutrition you need this is a misrepresentation, because it suggests that other breads do not do this. Which is untrue. - FTC attacked wonder bread for saying that it was extraordinary bread Over the years a number of doctrines and practices have emerged to confine the legal standard of deception within relatively reasonable bounds. - 1) An advertiser cannot be charged with liability in respect of every conceivable misconception, however outlandish, to which its representations might be subject amend the foolish or feeble-minded. - 2) Puffing- sellers privilege to lay his head off. Generally speaking the puffing doctrine will protect advertisers who use such superlatives or hyperbolic terms as perfect, amazing, best, wonderful, or exceptional, provided that their products are not so shoddy or worthless as to make the terms wholly inaccurate. Certain elements undergird all deception cases: - 1) There must be a representation, omission, or practice that is likely to mislead the consumer - 2) Must examine the practice from the perspective of a consumer acting reasonable in the circumstances - 3) The representation, omission or practice must be a material one likely to affect the consumers conduct or decision - Basic Question: Is there a representation, omission, or practice that is likely to mislead the consumer acting reasonably in the circumstances, to the consumers detriment. Cliffdale Assoc Inc. (FTC 1984) Facts & procedural posture the company used false advertisement and endorsements to sell a gas saving invention Ball-matic (actually didnt increase gas consumption). FTC brings a case against them, ALJ says they engaged in false advertising and deceived consumers Issues presented addresses the appropriate deception standard finds it to be circular o Any advertisement representation that has the tendency and capacity to mislead or deceive a prospective purchaser is an unfair and deceptive practice which violates the FTC act Holding the claims and representations made in advertisements by Ball-Matic were false and material to consumers Reasoning - Court uses this case as a vehicle to articulate the deception standard, changing it somewhat from the standard articulated in Charles of the Ritz. o Commission will find an act or practice deceptive under section 5 if: 1) There is a representation, omission, or practice that, 2) is likely to mislead consumers acting reasonably under the circumstances, and 3) the representation, omission, or practice is material. o In this case there was a representation that ball matic could save 20% in gas mileage, the way it was presented it was likely to mislead consumers. Saying it was backed by studies and customer testimony. In addition it was material because these misrepresentations led consumers to buy ball-matic when there was no evidence it was any benefit to gas mileage, thus injuring the consumer. Rule consumers are much better protected by the traditional test for deception, which requires only that

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a substantial number of consumers could be misled o This standard does not put the Commission in the position of passing judgment on the credulity, impetuousness, or inattentiveness of the victims of the alleged misconduct IN CLASS o When the advertisement contains an express claim then the representation itself establishes its meaning o What is reasonable for the general population isnt always reasonable to a specific group of consumers second paragraph on pg 903 It all depends on how you define reasonable o When the claim if implied, the Commission will be able to determine the meaning through an examination of the representation, including an evaluation of such factors as the entire document, the juxtaposition of various phrases in the document, the nature of the claim and the nature of the transaction o Note 3 under the Cliffdale rule, the Commission can only condemn a claim as deceptive if, in addition to the other aspects of the rule, it is material A material misrepresentation is one that involves information that is important to consumers, and that is, therefore likely to affect a consumers choice of or conduct regarding a product Proof of actual consumer injury is not required The commission presumes many types of claims to be be material: express claims, implied claims where there is evidence that the seller intended to make the claim, an claims or omissions that significantly involve health, safety or other areas with which reasonable consumers would be concerned o The argument is being made by the dissent that this is anti-consumer to turn away from the standard of tendency or capacity to deceive. As a practical matter under the new standard they say you need to find the product likely to mislead a reasonable consumer. o Material Misrepresentation- is one that involves information that is important to consumers, and that is, there fore likely to affect a consumers choice of or conduct regarding a product. o Ritz Tendency or capacity to deceive o Cliffdale 1) on Reasonable consumer (non-gullible) 2) likelihood of deception 3) materiality of deception o Who should be liable for deceptive advertising? Executives in the company, advertising agencies both of these can be held to the order that is handed down from the FTC o What about the media that disseminate the deceptive ad? Are they responsible? Commission has never cited a radio station or television station with violations for disseminating a deceptive ad. For print media there has not been much action against them. If there is something that is wildly deceptive and it hurts consumers, and the print publication was grossly negligent about allowing the ad then they might be held liable.

FTC v. Algoma Lumber Co (SCOTUS 1934) Facts & procedural posture Algoma Lumber sold California White Pine which was actually ponderosa pine, a type a of yellow pine. White pine is superior to yellow pine but bc the name contains the claim that it is white pine, consumers thought the product they were paying for was white pine. The CoA reversed the Commissions order bc they did not think it was deceptive under section 5 -- basic ruling was that the 2 products were so close to equality that there was no injury to consumers for purchasing one and thinking it was the other. Holding there were 2 separate holdings o SCOTUS says that the products are not that close to equal that if you purchase the CA white pine that you are not getting something like actual white pine o SCOTUS went on to say that that didnt make a difference (lack of equivalent products) if the consumer wants a particular product, the consumer is entitled to get that. So even if there

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was difference, the selling of one as the other is deception Reasoning - The circuit courts supposed equivalence in the two woods is unreal, as white pine is more durable than pinus ponderosa, AND even if the equivalence existed, the practice would still be wrong o The consumer is prejudiced if upon giving an order for one thing, he is supplied with something else. o Competition may be unfair within the meaning of this statute and within the scope of the discretionary powers conferred upon the commission, though the practice condemned does not amount to fraud as understood in the courts of law Rule deception = injury IN CLASS o This is after Raladam I but before Raladam II only unfair practices were covered by Section 5 o This case says there is a difference bt deception and unfairness. The main issue in an unfairness case is consumer injury In a deception case, proof of injury is not required rather the injury is presumed o Deception = injury major difference bt standard of unfairness and the standard of deception o Suppose that Algoma Lumber came down many years later after FTC adopted deception standard, would selling ponderosa pine as CA white pine constitute as Cliffdale deception? Thain says to look at the Cliffdale standard If there is a representation? Is the representation likely to deceive? Did the consumer act reasonably under the circumstances? Is this a material representation? o Elements of unfairness: 1) The practice causes a serious consumer injury 2) The injury exceeds any offsetting consumer benefits 3) The injury was one that consumers could not have reasonably avoided. o Deception (traditional Charles on the Ritz test): Protects the wayfaring fool o Cliffdale deception (heightened by FTC): 1) There must be a representation, omission, or practice 2) That is likely to mislead consumers acting reasonably under the circumstances [note that under the circumstances was added later to broaden the standard] 3) The representation omission or practice is material o Cliffdale will affect vulnerable consumers youths and those who have limited language skills. A by-product of Cliffdale is that it created a reaction from the states. Some state little FTC acts consider FTC standards to be binding. Some state attorneys general wanted to create an exception to this rule and ignore the Cliffdale standard to better protect vulnerable consumers. ii. The Substantiation Doctrine

Pfizer Inc (FTC 1972) Facts & procedural posture Pfizer had a product called UNBURN that was advertising to anesthetize nerves in sensitive sunburned skin and stop sunburn pain fast. The FTC alleged that the claims were not substantiated by adequate and well controlled scientific studies or tests prior to the making of such stmts but that the advertisements made consumers believe that testing had been completed Holding commission says that it is unfair practice in violation of the FTC act to make an affirmative product claim without a reasonable basis for making the claim the record can demonstrate either that reasonable basis was lacking or that the evidence is inconclusive Reasoning - fairness to the consumer and to competitors affect this holding absent a reasonable basis for the affirmative product claims, a consumers ability to make an economically rational product choice and a competitors ability to compete on the basis of price, service or convenience are all materially impaired and impeded

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Situational / Policy factors given the imbalance of knowledge and resources bt a business enterprise and each of its customers, economically it is more rational, and imposes far less cost on society, to require a manufacturer to confirm his affirmative product claims rather than impose a burden upon each individual to test, investigate or experiment for himself Rule ad substantiation requires that advertisers have a reasonable basis for making a claim BEFORE making the claim o Reasonable basis constitutes the following The type and specificity of the claim made Safety, efficacy, dietary, health, medical The type of product Food, drug, potentially hazardous consumer product The possible consequences of a false claim Personal injury, property damage The degree of reliance by consumers on the claims The type, the accessibility, of evidence adequate to form a reasonable basis for making the particular claim ***Reasonable basis is an issue to be determined on an ad hoc basis bc it is based on circumstances at the time the claim was made, facts known to the advertiser, and those which a reasonable prudent advertiser should have discovered IN CLASS o Background whether making verifiable claims by themselves are deceptive? Deceptive when you dont have adequate support? The commissioners all held yes but not without a lot of controversy Variety of claims were made by Pfizer about how quickly the product would begin working to alleviate the sunburn FTC action did not say necessarily that the claims were deceptive but that the company made them without having adequate substantiation o Section 5 advertising cases, the requisites acts or practices are usually one of the following Advertising contained direct representations Advertising containing representations which reasonably may be said to be implied in the advertising Advertising which fails to disclose material facts o A sufficient showing of deception is made if there exists a capacity to deceive determined by the net impression of the advertisement The controlling perspective is that of the audience to whom the advertising is directed o In this case, the unsubstantiated ad relies on unfairness theory but other cases have used the deception rationale o The fundamental unfairness results from imposing on the consumer the unavoidable economic risk that the product may not perform as advertised o The commissions didnt attack the underlying claims. The commission attacked the lack of adequate substantiation for the claims. o When the FTC staff first brought the case, they first argued that it was both unfair and deceptive. How is it deceptive? The argument would be that there was an implicit representation that there was substantiation i.e. you dont make verifiable claims unless you have substantiated them. o The commission rejected this and approached it from the perspective of unfairness. What would make the claim unfair? The risk of a product not performing as indicated is placed on the consumer, who is poorly situated to deal with the risk, instead of the business that is well suited to deal with the risk. o The FTCs attorney was that the only way that Pfizer could have substantiated its claim is through adequate and well controlled clinical studies. This is the FDA standard. o Did the commission agree? No. The commission says that in this case they didnt need adequate

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and well-controlled scientific studies. Instead, the commission said that in this case they needed a reasonable basis to make their claims. o Note that this will lead to a case-by-case determination of claims such as these. o How did Pfizer argue for reasonable basis? o They looked at the scientific literature on the ingredients in the UnBurn and the ingredients in competing products, which had made substantiated claims. o The commission determined that Pfizer did not have a reasonable basis to make its verifiable claim. o What kind of order did they issue? They didnt issue an order. They said that although Pfizer didnt establish a reasonable basis, the commission didnt prove that Pfizer lacked one. More importantly, this was a test case for changing the standard, so based on notions of equity the commission didnt want to hold Pfizer accountable to the new standard. o Lets say you have only unfairness to support the substantiation standard. What is the serious consumer injury? [Note that the claim might be true even if there is not adequate substantiation.] One argument is that the risk consumers run constitutes a serious consumer injury. o Is there any problem supporting substantiation with deception? No, you can run through the three factors pretty easily. o There are two major policy arguments and two major legal arguments against substantiation. Policy: 1) The cost companies will incur in substantiating their claims will be passed onto consumers o Counter: why shouldnt companies be burdened by this cost if there is a risk their claims will be untrue, even if the costs are being passed onto consumers in some nominal amount 2) The doctrine is an incentive to produce uninformative advertising. o I.e. consumers wont have information to make informed choices based on advertising, because companies will cease to make informative advertising. o Counter: A certain segment of unsubstantiated ads wont be informative in the first place. Also, there are a lot of products that companies will need to advertise informatively for despite the incentives against doing so big ticket purchases. Legal: 1) The standard illegally shifted the burden of proof in advertising cases. The FTC should have the burden of proof, since they are the party bringing the complaint. The response of the commission is that no were not. o Essentially, this is an issue the burden of going forward or burden shifting. Once the FTC puts forward a prima facie case that the defendant has put forth an ad without adequate substantiation, the burden shifts to the defendant to show reasonable basis. 2) The standard violates the first amendment free speech rights of companies. The argument is that truthful speech is protected under the first amendment, so if it turns out to be true, you are violating our First Amendment rights to engage in commercial free speech. o Counter: This is commercial speech, which is not fully protected. In addition, courts are allowed to fashion remedies that prevent future injury by speech. o Note 3 -- For some years after the Pfizer case, the FTC decided that it would be an effective approach to issue orders (like subpoenas) to companies on an industry wide basis. The companies argued that this was putting the companies to undue effort and the costs were being passed onto consumers. This practice was discontinued in the 1980s. o Another criticism is that reasonable basis is too general. The FTC responded that it is better to

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look at these issues on a case-by-case basis than to adopt a categorical approach. It was asserted that the representations about un-burn were deceptive and unfair because they did not have a reasonable basis for making these affirmative product claims. - The deception claim was dropped but they argued that it was deceptive to imply that un-burn would stop sunburn pain fast with out any scientific studies to back that up. - The unfair practice is advertising that a product can do something that can be verified and measured, without prior adequate substantiation to back up those assertions - What would have constituted a reasonable basis in this case- clinical experience, well controlled and adequate tests, medical literature, comparison to competing products that claim to do the same thing as unburn? - Never decided whether Pfizer had a reasonable basis, there was not enough evidence to decide, but they do articulate that failure to possess a reasonable basis for affirmative product claims constitutes an unfair practice in violation of the FTCA It is unfair to advertise without a reasonable basis because your are forcing the consumer make an economic gamble on purchasing the product that might now work, because they have not done studies to find out if it works. - Failure to have PRIOR adequate substantiation is chargeable, even if you obtain adequate substantiation subsequent to the advertisements - Was argued that substantiation doctrine would lead into a lot more puffing for products, because if you dont make verifiable claims then you do not have to have a reasonable basis for making them, which means less research and cost, but no longer will provide any useful information in their ads. - Substantiation doctrine applies only to verifiable claims. Ad Substantiation doctrine- Shifts the burden of proof? The burden of proof is always on the FTC to prove that the ad is deceptive - Once they find that the ad is deceptive, it is up to the companies show that some sort of evidence has substantiated their claims. But does this really shift the burden of proof - After that the FTC has to prove that the companies evidence is not sufficient to verify the claims that the company is making - You have to have substantiation of your claim PRIOR to making the claim. You are still in violation of the ad substantiation doctrine, because you made statements that were not substantiated, even if they are later substantiated. Thompson Medical Co v FTC (DC Circuit 1986) Facts & procedural posture Thompson Medical manufactured and advertised Aspercreme, an OTC analgesic. Aspercreme is composed of TEA/S, which is a chemical relation to aspirin, but which is not actually aspirin. The advertising and packaging claims stated that was aspirin or provided the relief of aspirin. The FTC filed a compliant against Thompson charging them with having made unsupported claims and falsely representing that Aspercreme contained aspirin. The ALJ entered an order against Thompson and FTC affirmed stating that Thompson lacked reliable and credible info constituting a reasonable basis for the efficacy claims it represented FTC issued a final order against Thompson prohibiting them from using the name Aspercreme unless its advertising and packaging made clear that it did not contain aspirin Issues presented what constitutes reasonable basis o FTC required that there be 2 clinical studies and Thompson is unhappy with its imposition Holding affirms the FTC and ALJs final orders Reasoning - est claims require a stricter standard in this case, 2 clinical studies instead of just 1 o In evaluating the reasonable basis arguments, it is important to distinguish between two types of advertising claims: 1) Establishment claims-are advertisements that contain express representations about the level of support for a particular claim.

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The FTC has traditionally required that if an advertisement contains an establishment claim (states that a product has been found superior by scientific tests) the advertiser must possess the level of proof claimed in the ad. 2) Non-establishment claim i.e. a simple claim of efficacy, the reasonable basis required has been defined more flexibly o Pfizer holds that the commission itself may identify the appropriate level of substantiation for ads that do not expressly or impliedly claim a particular level of substantiation o Thompson is contesting the requirement of clinical testing in an efficacy claim, and the court says that despite the FTCs departure from its usual result of not requiring clinical testing to support a non-establishment claim, its reasoning in arriving at the requirement of clinical testing is well founded in precedent. o Thompson asserts that clinical testing should never be required in an OTC case. They merely cite cases that are arguably similar to this one and observing that a less stringent standard was applied in them does not amount to proof that the FTC acted contrary to law in imposing a higher standard in this case o Thompson asserts that the commissions decision will destroy its business and is tantamount to an order to cease selling Aspercreme. The court disagrees with this. o The sale of aspercreme was not barred at all, only misleading advertising was prohibited o Although the effect on Thompsons business may be severe, there is no reason Thompson should be able to make advertising claims that are false. Allowing firms to continue such advertising because to stop would hurt the firms economic interests is obviously not part of the calculus of interests Congress intended the FTC to consider. Rule for establishment claims, there requires a stricter standard o In the case of simple claim of efficacy, a non-establishment claim, the reasonable basis required has been defined more flexibly (Pfizer) As for the argument that they are prohibited form using Aspercreme would result in losing their business, the court says that Thompson is free to advertise Aspercreme so long as it does not make false or misleading representations court sees no reason why Thompson should be allowed to make false claims simply in order to stay in business Thompson has no right to stay in business if the only way they can do so is to engage in false and misleading advertising IN CLASS o Establishment/Specific establishment claim: The advertisement refers to reasonably specific tests. Major hospital studies confirm that our product These claims require the companies have the data that support the studies. Commission would require you to produce the materials that are referred to in your claim. o General establishment claim: A claim that represents that there is some supporting data but doesnt reference the quantity or nature of the data. These claims require two well-controlled clinical tests. you have not made as specific of a reference, but you do say explicitly that you have proof to support the claims that your are making. Are product works better than any other product, and we have support for this Commission would require something that shows you had a reasonable basis for making these claims. General policy of commission requires two well-controlled scientific studies or tests. Need two studies to make sure that the one study is not some sort of fluke or anomaly. o Non-establishment claim: The advertisements dont reference supporting data or substantiation at all. They are still subject to substantiation, however, because they are verifiable. These are subject to reasonable basis. If you have a stained shirt, use Thains detergent bc it works general claim without any specific reference to proof or support for that claim. In these claims the FTCs reasonable basis requirement has been defined flexibly.

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Thompson is arguing that since they arent making a general establishment claim, they shouldnt have to do two clinical studies the FTC has never required this before. o The commission responds that just because they have never required two well-controlled clinical studies to establish a reasonable basis in the past, doesnt mean that this case doesnt warrant two studies. o Thompson asserts that this is new ground for the commission to break. The commission has never required controlled scientific tests for a non-establishment claim o They are not treating this any different than an establishment claim. o The court says that you cannot have these efficacy claims in the aspercreme ads without a scientific controlled study to show that efficacy. o Just because they have not required these in the past does not mean that they are prevented from doing so. o Thompson also says that the decision of the commission will destroy its business. BUT, if the only way you can stay in business is through the use of unfair or deceptive advertising, then you dont deserve to be in business. o Pom Handout -- POM claims that they dont need verification for their claims because they are not a prescription drug. However, we know from Pfizer and Thompson Medical that this is well within the FTCs Jx. POM is making establishment claims POM powerful stuff for your health non-est claim bc there is no specifics about what it is doing to be beneficial to your health POM prevents strokes specific est claim bc you need substantiation o Kevin Trudeau handout -- Natural Cures They Dont Want You to Know About book guy. The FTC issued an order against him, he was hit with a contempt of court citation. On his website, he encouraged his fans to flood the judges email, which they did. Hes facing more proceedings for contempt of court. Note that the claims made in his books are protected he was hit up by the FTC for claims he made in his commercials. Note additionally, that he would have been protected if he had just confined him to repeating what he wrote in the book. o Tax Relief Company Handout -- Just summarized the handout. The claim that was made was specific est claim One of the ads (all actors) has the person saying that he settled with the IRS o iii. Deceptive TV Advertising FTC v. Colgate-Palmolive Co (SCOTUS 1965) Facts & procedural posture Colgate had a shaving commercial for Rapid Shave where the shaving cream was on sandpaper and the razor was able to glide across the sandpaper. Turns out it was simply sand glued onto plexiglass. Furthermore, had it really been sandpaper, it would have required 80 min to absorb the shaving cream to actually do as the commercial suggested. The FTC issued a complaint for misrepresentation. The hearing examiner dismissed the complaint bc he didnt think either misrepresentation was material. The Commission reversed the examiner and sd that the misrepresentations were deceptive. The Court of Appeals sustained the Commissions finding of misrepresentation but would not accept the order forbidding the future use of undisclosed simulations in TV commercials. o The parties disagree about what constitutes a material fact Colgate says material facts are those which deal with the substantive qualities of a product FTC says that the misrepresentation of any fact so long as it materially induces a purchasers decision to buy is a deception prohibited by section 5 o Colgate says there is a difference bt misrepresentations related to the product itself and those of

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advertising Issues presented whether it is deceptive trade practice to represent falsely that a televised test, experiment, or demonstration provides a viewer with visual proof of a product claim, regardless of whether the product claim itself is true Holding SCOTUS agrees with FTCs interpretation of what constitutes a misrepresentation and also rejects Colgates argument that there is a difference in misrepresentations o Affirms the Commissions order forbidding the future use of undisclosed simulations in TV commercials Reasoning - Even if an advertiser conducts a test, experiment or demonstration which he honestly believes will prove a certain product claim, he may not convey to television viewers the false impression that they are seeing the test, experiment or demonstration for themselves, when they are not because of undisclosed use of mock-ups. o In the present case the seller misrepresented to the public that it was being given objective proof of a product claim, and that the undisclosed use of plexiglass in the present commercials was a material deceptive practice, independent and separate from the other misrepresentations found. o In this case the respondents produced three different commercials, which employed the same deceptive practice. This we believe gave the commission a sufficient basis for believing that the respondents would be inclined to use similar commercials with respect to other products they advertise Rule The misrepresentation of any fact so long as it materially induces a purchasers decision to buy is a deception prohibited by 5. IN CLASS o If it becomes impossible or impractical to show simulated demonstrations on TV in a truthful manner, this indicates that TV is not a medium that lends itself to this type of commercial, not that the commercial must survive at all costs o All methods of advertising do not equally favor every seller. If the inherent limitations of a method do not permit its use in the way a seller desires, the seller cannot by material misrepresentation compensate for those limitations o The Commission found that the representations in the commercials are deceptive: shaving cream will shave sandpaper, fast and fair demonstration has been conducted to prove this, viewer of TV ad will see the result of the demonstration The lawyer for Colgate sd the third representation is not true (only concede to the first 2) Was the viewer seeing the results of the demonstration for him/herself? o Pg 931 endorsements typically celebrities endorsing a product. FTC has guides on this. If you endorse a product, you must have proof that the claim is correct. FTC guides include an indication that the endorser is paid. The support/proof necessary includes iv. Deceptive Price Advertising

FTC v. Mary Carter Paint (SCOTUS 1965) Facts & procedural posture Mary Carter paint advertised their paint cans as being buy one get one free. The FTC brought this action saying that the initial paint can was 2x as much as a single paint can and so technically the 2nd paint can was not free. The Commission found that Mary Carter has no history of selling single cans of paint and it was marketing twins, and in allocating what is in fact the price of two cans to one can, calling it free FTC Guides Against Deceptive Pricing informed companies that they may advertise an article as free even though purchase of another article was required, so long as the terms of the offer were clearly stated, the price of the article required to be purchased was no increased, and its quality and quantity were not diminished. o Reference to two for the price of one offers, the guide requires that either the sales price for the two be the advertisers usual and customary retail price for the single article in the recent, regular course of business of where the advertiser has not previously sold the article, the price

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for two be the usual and customary price for one in the relevant trade area o This is a guide and not a fixed rule Holding SCOTUS found that Mary Carter misrepresented there was substantial evidence in the record to support the Commissions finding, the determination that the practice was deceptive was neither arbitrary nor clearly wrong Dissent disagrees with the majority bc it rests on the proposition that the second can is not free bc its receipt is tied to the purchase of the first can o No one suggests that the additional can of Mary Carter paint is free in the sense that no conditions are attached to its receipt o The advertising in the present case does not really suggest that the free can is a departure from MCs usual pricing policy o The advertising affirmatively suggests that the extra-can offer has been and will continue to be the sales policy MC has striven over a number of years to assoc itself irrevocably in the public mind with the notion that every second can is free o There was a lack of consumer complaints IN CLASS o It is not for the courts, but for the Federal Trade Commission, to determine whether any deception--in a manufacturer's advertisements representing that for every item purchased, the manufacturer would give the buyer a "free" item of equal quality and quantity--limited to a representation that the manufacturer has a usual and customary price for single items when it has no such price, violates, as a deceptive trade practice, 5 of the Federal Trade Commission Act o The FTC doesnt really bring any deceptive pricing cases anymore o A number of states have adopted statutes providing for criminal penalties against those who engage in bait advertising Bait and switch offer you one thing (cheap/good deal) and when you go to buy it is basically impossible to get but you are sold something else that is more expensive o The question of what is free sometimes causes concern bc there are several possibilities Does free mean you dont pay anything for it? Truly free? There is no additional cost for something that you would have otherwise paid for d. Forms of Relief Available to the Commission i. Administrative Cease and Desist Orders 1. FTC has 2 methods of formally challenging illegal conduct a. Proceed via administrative complaint i. Cease and Desist Order b. Go to court and file a civil suit 2. Commission has turned its cease and desist authority into a surprisingly flexible and powerful tool 3. Commission has wide discretion in its choice of a remedy deemed adequate to cope with the unlawful practices in this area of trade and commerce it has wide latitude for judgment and the courts will not interfere except where the remedy is selected has no reasonable relation to the unlawful practices found to exist 4. The Commission can also forbid practice other than those which initially gave rise to the complaint, so long as the prohibitions bear a reasonable relationship to those practices 5. Traditional remedy was cease and desist order 6. Affirmative disclosure 7. Corrective advertising a. This remedy caused contention amongst advertisers bc Congress intended to only provide remedial damages and not punitive

Warner Lambert Co v FTC (DC Circuit 1977)

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Facts & procedural posture Warner Lambert is the company that sells Listerine and for over 100 years the product was advertised as preventing, curing and alleviating the common cold. The FTC filed a complaint that the ad misrepresented the efficacy of Listerine against the common cold. The ALJ affirmed and a cease and desist order was issued Warner Lambert could not represent that Listerine was effective at preventing colds and cease and desist from disseminating any ad unless it clearly and conspicuously disclosed in each ad that contrary to prior ads, Listerine will not help prevent colds or sore throats or lessen their severity. Issues presented does the FTCs order requiring corrective advertising exceed the FTCs statutory power? o The FTC says that the corrective advertising is absolutely necessary to give effect to the prospective cease and desist order to counteract erroneous consumer belief, which would persist unless corrected. Holding court says that FTC has the statutory authority to order corrective advertising FTC has power to shape remedies which go beyond the simple cease and desist order o BUT Warner Lambert is not required to say contrary to prior ads (distinguish from the Ocean Spray case where they do say contrary to prior ads but Ocean Spray settled before this case was heard) Reasoning - SCOTUS held that it is not necessary to find express statutory authority for the power such ancillary powers have always been treated as essential to the effective discharge of the Commissions responsibilities. Legislative History o Section 19 of the Act authorizes the Commission to redress injury to consumers resulting from a deceptive practice. This includes public notification respecting the rule violation or the unfair or deceptive act or practice o Under Section 19, Commission must demonstrate that the conduct was such as "a reasonable man would have known under the circumstances was dishonest or fraudulent." First Amendment issues o SCOTUS expressly noted that the First Amendment presents no obstacle to govt regulation of false or misleading advertising Precedents o An advertiser may be required to make affirmative disclosure of unfavorable facts o SCOTUS has said if the commission is to attain the objectives Congress envisioned, it cannot be required to confine its road block to the narrow lane the transgressor has traveled; it must be allowed to effectively to close all roads to the prohibited goal, so that its order may not be bypassed with impunity FTCs standard for the imposition of Corrective Advertising o If a deceptive ad has played a substantial role in creating or reinforcing in the publics mind a false and material belief which live on after the false ad ceases, there is clear and continuing injury to competition and to the consuming public as consumers continue to make purchasing decision based on the false belief affirmative action is therefore necessary to correct the negative effects Rule affirmative disclose is required when an advertisement, although not misleading when taken alone, becomes misleading considered in light of past advertisements o It is the accumulated impact of past advertising that necessitates disclosure in future advertising To allow consumers to continue to buy the product on the strength of the impression built up by prior advertising an impression which is now known to be false would be unfair and deceptive IN CLASS o Corrective advertising is now quite common o DC circuit reasoned that corrective advertising does not interfere with free speech rights bc there is no constitutional right to engage in false commercial speech o If the tradename is deceptive in itself, then you must disclose the limits of it

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FTC issues cease and desist order and if the company violates it then there are substantial civil penalties but in most cases they dont violate the order o Most ad campaigns are relatively short lived and when anyone is cited for violation it can take years to litigate so you have to determine if its worth it o Corrective advertising is the concept that when you are in violation of rules and regs of FTC that you must not only cease and desist but they must inform the public of their deception o Controversy is that congress never authorized punitive actions for the FTC to take and many say that corrective advertising constitutes punitive damages Cease and desist is remedial measures o Four arguments for corrective advertising remedial and not punitive Dissipate residual consumer deception Has had the most emphasis over the years Help restore competitive balance If ad campaign is deceptive and competitors have suffered as a result then by requiring corrective advertising you are helping to restore the competitive balance Fruit of the poison tree If you are required to give up gains that you obtained illegally/unfairly, then it is not punitive it is simply putting things back in balance Return to balance is not punitive Taking fruit away from the poison tree is not punitive kinda like restitution Rethink brand loyalty o Page 940 opponents against corrective advertising say its against 1st amend and was never approved by court BUT Legis history includes provision (section 19) which gave the commission other remedies 1st amend although there may be some implications, SCOTUS says there is no right to false speech o Affirmative disclosure remedy of affirmative disclosure is available when implicit deception is present Mandate of affirmative disclosure lasts indefinitely o Implicit deception generally leaves something out in advertising. Lysol kills germs on environmental surface but most germs are spread through the air and Lysol doesnt kill airborne germs Geritol provides relief from tiredness but most people are tired for other reasons than anemia and iron deficiency o Corrective advertising vs affirmative disclosure whats the difference? Difference bt Listerine and Geritol? The difference is bt explicit and implicit deception o In terms of upholding corrective advertising, including duration, commission says cessation from advertising does not mean you get out of advertising o Thain talks about the note case dealing with instant tax returns o Thain points out the interesting situation/note that RJ Reynolds published series of print ads about smoking. Reynolds sd editorials and not paid ads. Commission sd it was commercial speech based on the way it was presented and eventually Reynolds settled the case o Commercial Speech Test - 1) Is it misleading or for an illegal product - 2) Does the regulation purport to advance a substantial govt interest prevent deception, protect fair competition - 3) Does regulation directly advance asserted interest 4) Does the regulation go no further than is appropriate? (Sufficiently narrowly tailored to justify the restriction)

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Novartis Corp v FTC (DC Circuit 2000) Facts & procedural posture FTC filed a complaint against Novartis bc of advertisements of its Doans back pain remedies were deceptive bc they contained an unsubstantiated implied claim of superior efficacy. FTC ordered Novartis to cease and desist as well as corrective advertising. The ALJ rejected the FTCs request for corrective advertising but agreed to the cease and desist order. Novartis appealed the cease and desist order and the FTC counter-appealed the rejection of the corrective advertising. The FTC reversed the ALJs corrective advertising determination concluding that Doans ads has created or reinforced consumer misbelief in Doans superior efficacy and the misbelief was likely to continue Issues presented were Novartis ads for Doans deceptive? If so, were they material? If material, is corrective advertising necessary? Holding yes, yes and yes Reasoning o court found the claims to be material bc it found that the implied claim was intention and involved both a health matter and the products purpose and efficacy o court found that corrective advertising was necessary bc the deceptive ads effects are likely to linger even after the ads cease Situational / Policy factors no first amendment protection is afforded to those who engage in unfair or deceptive advertising o A corrective remedy is overbroad only when the remedy imposes a restriction greater than necessary to serve the interest involved goes to the appropriateness of the order Rule a material claim is one that involves info that is important to consumers and likely to affect their choice of, or conduct regarding, a product IN CLASS o Three pronged test to determine deceptive advertising (Cliffdale standard) A claim was made The claim was likely to mislead a reasonable consumer The claim was material o Test for materiality All express claims Intentional implied claims Claims that significantly involve health, safety or other areas with which the reasonable consumer could be concerned Includes claims that concerns the purpose, safety, efficacy or cost of the product or service Claims of durability, performance, warranties or qualities o Corrective advertising standard under Warner-Lambert dictates two factual inquiries Did the ads play a substantial role in creating or reinforcing in the publics mind a false belief about the product? Would this belief linger on after the false advertising ceases? o Court rejects the companys challenges that it wasnt material implied claim is a material claim per the court o Corrective advertising was ordered in this case and is appropriate based on the above factual inquiry, there was corrective advertising o There is no commercial speech protection bc it is deceptive and regulation is appropriate Heater v. FTC (9th circuit 1974) pre-Section 19

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Facts & procedural posture the order in question not only directs Heater to discontinue the unfair and deceptive practices but to also make restitution of the moneys secured by those practices. Heater argues that restitution is unnecessary to bring to an end the misconduct and constitutes an attempt to punish him and to award damages to private persons. Commission says that the refund provision is within its legis grant of broad remedial discretion. Commission also asserts that it serves the public interest to compel the payments bc consumers were defrauded Issues presented does the Commission under the cease and desist provision possess power to order refunds to consumers? Holding court said no Heater does not have to provide restitution Reasoning - Congress limited the consequences of violation of the Act to a cease and desist order and there is a reason why Congress did not give the Commission the power it seeks to exercise o No matter how egregious the conduct, or how unreasonable his reliance on the legality of the operation, the Commission was not given the power to recast the consequences of conduct occurring prior to its entry of an order o If Congress wanted more of a remedy for fraud then it would have said so more explicitly IN CLASS o SCOTUS sd FTC had broad remedial authority o Pg 949 argument is that commission is trying to give itself more power than it has but that it proves to be too much o FTC act and various amendments were not passed until 76 / 77 and one of them was section 19 Section 19 allows FTC to file a complaint and seek restitution (see below) o Assuming that the practices in Heater were hard-core fraud, recognized by a reasonable person, would not be reversed under section 19 bc it does not cover cease and desist order. Section 19 allows you to go to court directly to seek restitution from the court Shadow of the law impact commission in bringing proceedings which may otherwise go to admin procedure, companies ??? o FTC has never accepted Heater despite it being good law o Section 19 has been used less in the past years bc of section 13(b) In its original terms talked about food and drugs Gave the commission a much greater power to stop something in its tracks (see pg 952-3) o Section 5 is the primary authorization to attack unfair trade practices ii. Relief Obtained in the Fed Courts 1. Lawsuits seeking Consumer Redress under Section 19 a. Section 19 permits the FTC to file a complaint in the US District Court seeking various forms of consumer redress (including restitution) in certain circumstances b. Section 19(a)(2) permits the Commission to proceed against a party who engages in any unfair or deceptive act or practice with respect to which the Commission has issued a final cease and desist order which is applicable to such person i. Requires a showing to the court that the acts or practices are one which a reasonable man would have known to be dishonest or fraudulent c. Punitive damages may not be awarded 2. Lawsuits seeking Consumer Redress under Section 13(b) a. Section 13(b) permits the Commission to go to court prior to commencing adjudicative admin proceedings against a particular firm

Process of litigating a case even if you try to be efficient it still takes lots of time

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FTC Staff Investigation Commission complaint ALJ decision FTC decision Court of Appeals in which the company does business SCOTUS Remedies available to the commission o Standard cease and desist is basically an indefinite injunction o Civil penalties are listed under section 5 o In addition to cease and desist order there is also affirmative disclosure you make the claim that is implicitly deceptive trigger mandate to disclose the limited/inherent nature of the product o A third remedy is excision of tradename or brand name is so inherently deceptive that it misleads peoples then the commission will require that the name be excised o Corrective advertising issued at the end of a regular proceeding after a cease and desist order has been issued not only do you have to stop the deceptive practice but now you have to disclose the misrepresentations o Section 13(a) commission could go to court to get injunction against practices (primarily for food, drug and cosmetics) while the admin proceeding was taking place o Section 13(b) o Section 19(a)(2) commission can go after those intentionally disobeyed a cease and desist order. Obtain restitution relief by going directly to fed district court. Does not go against Heater bc Heater came out of a cease and desist order ?????? ALJ cannot order restitution but a district court judge can o Ability to obtain injunction pending suit (prelim injunction) example of razor blades in the newspapers, complaint issued on Tuesday and prelim injunction was issued on Friday to prevent company from putting blades in the next 2 Sundays papers FTC v. Amy Travel Service (7th circuit 1989) Facts & procedural posture Amy Travel was a travel agency who did business by telemarketing. They would call people up, ask for their credit card numbers to see if they were credit worthy, and then sell vacation packages for $289-329 plus airfare. However, customers were not informed that the price did not include airfare and were not aware that the airfare being purchased was highest-priced coach fare available. Consumers began complaining about many things including how their credit cards were being misused. FTC filed a suit to enjoin Amy Travel allegedly deceptive trade practices. FTC also asked for rescission of contracts and restitution to consumers. The magistrate entered a permanent injunction, ordered restitution, and imposed personal liability on the individual defendants. Issues presented does the Commission /district court have the authority to grant monetary equitable relief (such as rescission and restitution) in a section 13(b) permanent injunction action? o Defendants say the language in the statute does not grant the authority bc it doesnt explicitly mention monetary equitable relief Holding court says that ancillary equitable relief is allowed Reasoning - rescission and restitution are proper forms of ancillary relief and such ancillary equitable relief is necessary to effectuate the exercise of the granted powers Rule the granting of permanent injunctive power also gave the district court the authority to grant any ancillary relief necessary to accomplish complete justice bc it did not limit that traditional equitable power explicitly or by inference IN CLASS o Section 13(b) has been interpreted to permit the FTC to secure either prelim or permanent injunctive relief along with ancillary relief such as consumer refunds or restitution o Section 13(b) says that permanent injunctions may be sought in proper cases o Very useful case in terms of looking at section 13(b) o Thain considers this case as being hard core fraud scripted message to entice people to purchase

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travel bargains How does this square with the Heater case in terms of analysis? o Pg 957 equitable powers under 13(b) defendants say no authority for monetary relief and in making this claim they point to the language of the statute that says no monetary relief is allowed. However 13(b) by implication the statutory language grants any ancillary relief necessary o Consistent holding by courts even though the specific language only says permanent injunction but ancillary power is there o Note 1 given broad scope of 13(b) why would they go fwd with traditional cease and desist order? Why doesnt FTC use 13(b) more frequently? Thain says hard core fraud is more deserving of 13(b) relief but this case also has customer list as to who was injured whereas Colgate Palmolive or Geritol its harder to discern who was harmed (plus they only lost a couple bucks as opposed to hundreds, if not, thousands of $$$) o DOJ or state AG may decide to expend resources to seek criminal action against the company there have been some cases where the surrender of assets made by misrepresentation you can, it is not precluded to bring criminal action o Note 2 courts under section 13 can grant prelim or permanent injunctive relief what if commission wants to pursue permanent injunctive relief w/o filing admin proceeding? Yes you can get a prelim injunction while waiting to find out if permanent injunction is warranted o iii. Lawsuits Seeking Civil Penalties under Section 5 1. Section 5(l) permits the FTC to go to a court to seek civil penalties when firms violate administrative cease and desist orders or rules 2. if you have a final order of the FTC, any order filed in any manner with restrictions on what company can do, and there is a violation of that order, then the commission can go into court and get civil penalties -- $10,000 US v. Readers Digest Association (3rd circuit 1981) Action in practice, for years, Readers Digest materials promised winnings to a few lucky winners sweepstakes promotion had a check or a negotiable instrument in an effort to get people to enter the sweepstakes but the checks had no cash value Readers Digest was issued a cease and desist order that meant they couldnt do the sweepstakes promotion but then a few years later they were in trouble again for engaging in similar practices Violation of order means section 5(l) penalties The phrase confusingly simulated item of value was intended to apply to promotional material that was similar to the items reproduced in the administrative complaint, and on its face, could be said to have the same capacity or tendency to mislead consumers Court sd each mailing was an individual mailing and there was a huge liability for the violation which went over and beyond the 5(l) civil penalty limits but still sd civil penalties for ~$1m court injunction was also issued so it meant they could be held in contempt of court order 3rd circuit upheld the number of violations Readers Digest made 4 arguments: o (1) district court was wrong and should have made commission present evidence of consumer confusion court sd no need for evidence bc confusingly similar is not ambiguous o (2) interpretation of proving actual confusion was violation of first amendment court sd no rights if deceptive speech o (3) o (4) injunction issued is ambiguous court sd not ambiguous so get over it

US v. Hopkins Dodge Inc

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Facts & procedural posture auto dealer engaged in repeated violations of the Truth in Lending Act. District court awarded injunctive relief against future violations. FTC sought civil penalties under 15 USC 45(m)(1)(B) and the district court issued summary judgment saying that the FTC failed to make specific findings required by the statute Holding Court says no civil penalties Reasoning - nowhere in the 4 decisions provided to Hopkins did it provide specifics on deceptive practices. The consent orders did not show automobile industry involvement and so there was no actual acknowledgment o Would have to have a violation in every respect the same as the orders provided and in the same industry in order to fulfill actual notice ?? IN CLASS o Commission was trying to upheld broad authority the statutory language doesnt say it has to be in the same industry so the commission sent notification to the company that they were violated cease and desist orders o Section 5(l) permits the FTC to seek penalties against a firm if it violates an administrative order previously entered against it (Readers Digest case) Section 5(l) penalties are only available against firms who violate the terms of a cease and desist order previously entered against them. o Section 5(m) goes further and allows the FTC to seek penalties against a firm that was not, itself subject to a cease and desist order, if the firm engages in practices that were previously declared unfair or deceptive in administrative proceedings against some other party (Hopkins Dodge) To win on a section 5(m) case, the FTC must show that the defendant has actual knowledge that the practice was unfair or deceptive and unlawful Section 5(m) permits the FTC to seek civil penalties against a firm that was not itself subject to a cease and desist order, if such firm engages in conduct that has been declared unfair or deceptive in a cease and desist order entered against another party, and has actual knowledge that such act or practice is unfair to deceptive and is unlawful o To lay a foundation for 5(m) litigation the FTC will often send summaries of FTC administrative decisions and orders to other firms in relevant industry, or to firms suspected of engaging in similar practices. o Courts have been reluctant to uphold 5(m) because it is too much like rule making. They hand down one decision and suddenly all similar companies or companies engaging in similar conduct have to abide by the rule in that case. o Only in the narrowest cases has 5(m) been held up. o Industries cannot challenge Trade Regulation Rules (TRR), they can only dispute whether or not they engaged in the practice that violates the TRR o Ways to provide actual notice if you can prove that a practice that is so obviously fraudulent then you dont need to prove actual knowledge? No Thain says that goes to far o Note 3 what kinds of issues should 5(m) be permitted to raise? It would appear that language of 5(m) that its not subject to litigation and much more like a rule that applies and the rules existence precludes deceptive practices o Variety of actual and potential limitations on FTCs litigating powers

- Civil Penalty Enforcement against Non-Respondents o Where the Commission has determined in a litigated administrative adjudicatory proceeding that a practice is unfair or deceptive and has issued a final cease and desist order, the Commission may obtain civil penalties from non-respondents who thereafter violate the standards articulated by the Commission. To accomplish this, the Commission must show that the violator had "actual knowledge that such act or practice is unfair or deceptive and is unlawful" under Section 5(a)(1) of the FTC Act. To prove "actual knowledge," the Commission typically shows that it had

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provided the violator with a copy of the Commission determination in question, or a "synopsis" of that determination. Section 5(m)(1)(B) limits wrongdoers to only a "single bite of the apple" before they are subject to monetary penalties. e. FTC Rulemaking 1. Violation of a Trade Regulation Rule is equivalent to a violation of 5 of the FTC Act and consequently subjects the violator to suits for consumer redress and civil penalties. 2. Trade Regulation Rules are distinct from FTC Guides, which are merely stmts of enforcement policy, the violation of which does not automatically trigger sanctions 3. Trade Regulation rule administrative legislation (admin equivalent to statute) 4. Once adopted by agency and not turned down by court then it becomes law 5. courts said FTC have administrative legislation authority even before congress gave them that authority 6. Care labels for clothing items is an FTC action very controversial when it was first mandated 7. Kid-Vid rules late 70s the commission proposed a reduction in advertising to kids as well as regulating what could be said to kids a. But the political climate at the time was opposed to it and fought to prevent the commission from controlling 8. obesity campaign to educate kids is receiving similar treatment as the kid-vid controversy 9. Go to ftc.gov and look at the site ii. Judicial Limits on the Power to Make Rules 1. Katharine Gibbs School v FTC (2nd circuit 1979) a. The court faulted the challenged regulations for requiring vocational schools to adopt new practices even though existing practices had not been found unfair or deceptive. b. If there is an alternative way to do business that would result in a greater net consumer benefit, isnt the prior practice necessarily unfair under the current, cost-benefit approach to the unfairness doctrine? c. A Trade Regulation Rule could simply forbid certain itemized practices, or it could also impose affirmative obligations on the persons subject to regulation iii. Legislative Limits on the Power to Make Rules 1. Procedural Limitations a. FTC is subject to the Administrative Procedure Act b. Prior to making a new rule, the FTC must publish a Stmt of Basis and Purpose and it must include the following i. A stmt as to the prevalence of the acts or practices treated by the rule ii. A stmt as to the manner and context in which such acts or practices are unfair or deceptive iii. A stmt as to the economic effect of the rule, taking into account the effect on small business and consumers c. FTC must also issue a prelim and final Regulatory Analysis that contains an analysis of the projected benefits and any adverse economic effects of the rule d. FTC must publish a regulatory agenda twice a year itemizing any rules it intends to propose with an indication of their subject matter

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e. The rulemaking process is very expensive and all of these requirements are designed to prevent the promulgation of ill-considered regulations whose costs outweigh their benefits. These requirements discourage the commencement of rulemaking proceedings absent a flagrant pattern of industry abuses or widespread public concern 2. Topical Limitations a. Examples of advertising to children and funeral homes deceptive practices b. With the change from an active to a relatively passive FTC during the Reagan administration, and with the virtual abandonment of rulemaking as a regulatory tool at the FTC, Congress has little occasion or need to exercise oversight on a topical basis in the current climate c. Congressional oversight is either applauded as an effort to make sure the Commission is politically responsive or its to be mourned on the ground that it reflects the success of special interests in thwarting actives that could inure to the general public good B. State and Local Public Consumer Protection Mechanisms i. All states have general statutes prohibiting deceptive and/or unfair consumer practices and provide for some public civil enforcement of those prohibitions ii. Most often that state Attorney General is the authorized officer empowered to bring suit iii. Public civil enforcement at the state level can be a key aspect of consumer protection in instances where consumers are either unable or unwilling to take advantage of private remedies or where private remedies do not even exist, and where the practices are too localized to warrant fed intervention iv. All states had them by the end of the 1970s - they all use the FTC as at least persuasive authority b. Substantive Reach of State Statutes People v Wilco Energy Corp Facts & procedural posture Wilco is heating and air conditioning company and they signed 2 yr fixed price contracts with customers. They then broke the contracts unilaterally. The AG of NY brought suit against the company for unfair and deceptive practices. There were procedural errors and the case was dismissed. NY SC granted Wilcos motion to dismiss. On appeal, the court ruled it was a deceptive practice and not procedurally defective. Holding Wilcos action constituted a deceptive practice Reasoning - it offered a fixed-price contract and then refused to comply with the agreed upon price. Rule IN CLASS o The NY law targeting deception does not require a showing that the practice was intentional while some states, like Indiana, dont require the AG to show intent to secure injunctive relief but intent is a required element if civil penalties are sought o Intent may be a factor for remedies but not necessary to bring action o Many states also have provisions imposing criminal penalties for various types of consumer fraud and exploitation o NY public enforcement scheme now requires the AG give notice before bringing suit meant to save time and money for both parties if they can come to a settlement o AG must demonstrate injury to the public at large here it was 143 consumers What if 75 consumers were harmed? Probably 20 consumers? The lower the number then the more it relies on prosecutorial discretion o note 4 many states including WI have provisions that impose criminal penalties for fraud and

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exploitation on the books but almost never enforced unless it is blatant and malicious fraud other statutes which prohibit certain likes of conduct, like mail fraud, but once again there are lots of possibilities so you have to pick and choose in addition to state baby FTC acts, there are in larger cities some city protection agencies. Mainly aimed at practices based at and aimed at larger cities enable public authorities to combat the dishonest corner garage as well as the national auto manufacturer

Mother & Unborn Baby Care of North Texas v. Texas Facts & procedural posture The Center and its founder Pelletier placed an ad in the yellow pages under abortion services. A large number of women found the ad and when they called was led to believe that it was an abortion clinic. The women gave person al medical information and gave urine samples to obtain a free pregnancy test. While waiting for the results they were led into a room and shown a slide show and videotape showing graphic pictures pertaining to abortion procedure. After the presentation counselors came into the room to try to convince the women to not have an abortion. Suit was brought and they were found to be in violation of the TX deceptive trade practices act (DTPA) Center brought up 10 points of error for why they were not in violation of DTPA Issues presented Whether Centers acts amounted to a violation of the DTPA Holding yes Reasoning - they first argue that the DTPA does not apply because they do not actually sell abortions and medical services o The court read the statute which referred to distribution of any good or service, and found because the appellants distributed goods in the way of pamphlets the act pertained to them - It is immaterial whether appellants provided a service in exchange for money; the statute as a whole supports the conclusion that transfer of valuable consideration is not necessary Appellants argue that because they are a non-profit the DTPA does not apply to them. They cite federal statute, which exempts non-profits groups - The court disagrees finding that they are not setting aside the interpretations of federal courts, but merely applying the Texas law. Appellants argue that the DTPA in unconstitutionally vague and overbroad. - The court disagrees. The statute prohibits false statements or advertisements to protect the public. Untruthful speech, commercial or otherwise, had never been protected for its own sake. - In addition the statute is not impermissibly vague. The general rule for determining whether a statute is void for vagueness is: That a statute which either forbids or requires the doing of an act in terms so vague that men of common intelligence must guess as to its meaning and differ as to its application, lacks the first essential of due process. - The appellants were found guilty of violating four sections of the DTPA which are very clearly delineated. Appellants argue that enforcement of the DTPA on them violates their first amendment rights. - The court disagrees. When a statutory provision burdens first amendment rights it must be justified by a compelling state interest. - Protecting the innocent public form those deliberately engaging in deceptive practices is a justifiable compelling state interest. The advertising was intentionally, deceptively utilized to bait women into believing they would receive services from the appellant - The DTPA does not prohibit speech it merely insures that the stream of information to the public is not false Finally, the appellants contend that the trial court erred in assessing civil penalties to Pelletier. - Pelletier started the business and incorporated it, placed all the advertising, was the president, counseled the women, and instructed the volunteers - Pelletier controlled and dominated the centers corporate affairs and a separateness of the corporate identity had failed to exist. The corporation cannot shield him. IN CLASS o The court upholds the district court o Texas statute states that def of trade and commerce includes distribution of thing of value and their ads constitute trade or commerce in the statutory language so the argument that they are

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non-profit holds no weight Note 1 women who sought out the service were consumers and although these actions were not typical consumer-transactions, they were still actionable Misleading political advertising? No the baby FTC statutes cannot be used to bring action against political speech bc such speech is protecting by the first amendment Mud-slinging is protected unlike commercial speech even if the commercial speech has elements of political speech Is it likely that an individual plaintiff would bring a case like this? No esp not in a case like this bc you dont want people knowing that you considered having an abortion. Plus, these types of women generally come form lower socio-economic class and they not have the funds to bring suit and there is a possibility that they may not know they can bring suit. And even if they did bring action, the remedies are limited in terms of financial gain so no strong incentive to bring case. Therefore its better for public officials to bring Could the FTC have brought an action? Not if this was truly a non-profit org bc they would have no jx. But assuming its not, then the FTC still could not bring action bc the state of Texas local authority is more appropriate. Plus there are political considerations involved some people in congress would be concerned if FTC funds were appropriated to cover this case

c. Multi-state Cooperation and Federalism Issues i. Occasionally states will band together to bring action national assoc of attorney generals ii. NAAGs (appropriate acronym) had tension with the FTC during the passive FTC and micro-economic viewpoint regulation Explicit preemption govt explicitly says that we preempt all state laws in this field. This is the easiest because the statute says so. Implicit Preemption occupies the field -- based on congress intent in making the statute the states are preempted. Based on the structure of the statute or field, it would be unnecessary to have more than one authority Conflict Preemption where complying with the state law and federal law is impossible, the federal law preempts the state law. Determination that you cant uphold both statutes bc they are in conflict States are much more active now with the Little FTC acts. The govt encourages this because the FTC cannot cover the field in all areas. WI State v Amoco Oil Some cases where state and FTC bring joint action Publishers Clearing house FC determination sd it would have been easier for states to proceed large settlement!!! $19m of which went to consumers Preemption really only comes into purview when there is a federal interest in uniformity and there is a federal scheme that cover the entire field. Like the section of the FAA that pertains to airlines rates, routes and services.

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Henderson v. Maine Attorney General Facts & procedural posture A Womens Project is a voluntary assoc of women who meet for gifting parties and dinner parties. Reasons for joining include helping others, empowering themselves, discussing womens issues and giving to favorite charities. Members are allowed to leave whenever they want and no one is required to recruit others, and there are no oral or written contracts. But in order to join, you must pay $5000 to a member who has reached the desert level. The AG of Maine issued press releases saying this was an illegal pyramid scheme (under Maine state law) and urged victimized woman to file a formal complaint. A Womens Project sd this violated their 1st amend rights to freedom of association IN CLASS o Pyramid scheme and multi-level distributorship o Sued for violation of consumer protection laws o Argument being made is that they should be able to prevent the AG of Maine from proceeding against them freedom of assoc, participation is voluntary, no finding that they have engaged in illegal conduct o US District Court (there bc the case involved constitutional claims) says the motion to dismiss is granted bc the first amendment does protect They determined that the action was proper o Court says AG wasnt do anything more than advising the organization that if they didnt change their ways then they would get sued not a threat just a fact of their assessment of the situation o Note 1 one of the reasons the press release was to provide info to consumers to prevent more of them being sucked into the scheme pre-litigation notice hope is that the cost and time expense will be diminished if more opportunity to settle Part of an effective public strategy against unfair or deceptive practices that cheat customers is public education and timely warnings ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
o o o o 3-4 essay questions that will take 2 hours Remainder of the exam will be short answer, multiple choice, T/F (20 ??s with multiple parts so its really about 45) Open book exam Also responsible for the info on the video for the exam Has not left any topic out has made sure to include everything

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Review session Make sure the case briefs include sufficient facts to distinguish or analogize Dilution -- Blurring v tarnishment o Allegation of blurring distinctiveness of the mark is blurred Mattel v MCA Records Barbie Girl but in the case the first amendment protected it bc they were not in direct competition or promoting something in competition Victorias Secret v Victors Secret PEI v Netscape argument for blurring is that people would think of Playboy as being assoc with porn and obscene material lose their distinctiveness but the court says the word had a meaning before Hefner used it Blurring is traditional dilution distinctiveness of your trademark is diminished and customers will think of something else besides your trademark o Allegation of tarnishment LL Bean v Drake parody defense was sufficient and the graphic depictions were not subject to trademark action bc they were not promoting something in competition PEI v Netscape PEI sd they engaged in erotic but tasteful publications but the other websites were raunchy and brought a

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 The defendant has hurt your name by associating it with something that is not good Need to know details of Anti-dilution statute trademark infringement only requires a likelihood of confusion and not necessarily actual confusion Cliffdale case new standard created by the FTC in terms of deception Algoma Lumber case says that you dont have demonstrate injury at all bc deception is injury Cliffdale required more but actions wont be brought unless they bring the standard of Algoma Remedies what is appropriate and why? Misappropriation v Copyright Act o Subject matter of copyright? If so then the copyright act rules. o MLBPA v Baltimore Orioles performance on the field was not subject of copyright but court dismissed case saying rebroadcast material bc it was subject to copyright Complaint was that you didnt have to go that far into copyright discussion you simply needed to say that the players had waived any rights to their involvement as players in the rebroadcast o Ahn v Midway involved recording of movements that was copyrighted Argument made was that the right to the performance All Ps had signed release form to be used in connection with the coin-operated video games but Ps later argued that they had not agreed to home video game usage Videotaping was subject to copyright bc it was fixed and tangible form o NBA v Motorola not copyright action but couldnt really be misappropriation either see note 1 on 763 o Main thing is, if copyright applies, then fed law preempts but it must be the subject of copyright aka fixed form o Midler v Ford had a copyrighted song and she brought action under common law of right of publicity and won whereas Nancy Sinatra brought action under statute and they said it was not a cause of action so she lost Where do you draw the line between actionable conduct and that which is simply competition? This is key to know Common law v FTC statute? And what about state counterpart statutes? Does a statute cover the field or not? If so then it wins but if not then you need to turn to common law to try to bring action Standard for deception reasonable person or wayfaring fool? ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Victorias Secret v Victors Little Secret began in 1998 and is still on-going Kentucky District Court and 6th Circuit Court of Appeals held that Victorias Secret proved that it had a famous name and that the similarly named store would likely tarnish its image. 2003- SCOTUS ruled against lingerie seller Victoria's Secret, finding no proof that a small sex toy and adult video shop that wanted to call itself Victor's Secret harmed the big company's trademark. o SCOTUS has now set up a standard where a company trying to protect its trademark against a competitor using a sound-alike name has to come to court with strong evidence of damage. o SCOTUS sent the case back down to lower courts Victoria's Secret unquestionably has an interest in protecting its famous name, but federal trademark law requires more evidence that a competitor actually caused harm by using a sound-alike or knockoff name, a unanimous court ruled. At issue for SCOTUS was whether Victoria's Secret had to show that its trademark was "diluted," or whether there was merely the likelihood of economic harm if the store was allowed to keep its name. "Use of the name 'Victor's Little Secret' neither confused any consumers or potential consumers, nor was likely to do so," Justice John Paul Stevens wrote for the court. The fact that a consumer may make the mental association between a famous trademark and a knockoff is not the same thing as showing that the famous name was damaged The decision is likely to make it harder for other big companies to go to court to successfully prevent

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smaller competitors from even remotely using the same sort of name or logo The high court did not answer a central question in the case: How a famous company is supposed to show the dilution, or harm, that the 1995 Federal Trademark Dilution Act requires as proof of injury. The 1995 law added new protection for famous trademarks, akin to a property owner's right to put up a "no trespassing" sign. The idea was to allow big companies to put a quick stop to a business name or logo that "causes dilution" of the distinctive famous name. In 2007, on remand from SCOTUS, the 6th Circuit remanded only after Congress changed the law and reduced the burden of proof from a showing of actual dilution (i.e. proof of actual dilution harm) to likelihood of dilution. The district court applied the new TDRA and held that the Victors Little Secret name was nevertheless likely to tarnish the Victorias Secret brand under the new law. The only issue in the latest appeal was the tarnishment claim brought by Victorias Secret. The sex related-ness of those products proved to be Victors undoing in the Sixth Circuit. Under the TDRA, a newcomers use causes dilution by tarnishment if consumers associate it with the famous mark based on their similarity, and harm to the reputation of the famous brand results. Under the new legal standard, a likelihood of dilution by tarnishment is sufficient to support an injunction against the junior use. In the process, Congress also clarified that tarnishment was included in the law (SCOTUS expressed its doubts about that) and actually provided a definition that made clear that the cause of action is all about harm to reputation In May 2010, Victor Mosely filed a petition with SCOTUS to hear his case for the second time

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