California’s Bureau of Cannabis Control has proposed emergency regulations requiring cannabis retailers to display their QR code certificate outside their storefronts and to require cannabis distributors and retail delivery drivers to carry the certificate when transporting cannabis.  These regulations are designed to allow consumers to confirm that retailers have a legitimate cannabis business license by quickly scanning the QR code on their smartphones.

These proposed regulations, if implemented, will require California cannabis retailers to re-think their storefront advertising and to make space for what may be considered a new form of advertising.  My colleague, Melissa T. Sanders, has provided additional information in a recent Alert.

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Artificial Intelligence, commonly referred to as AI, is increasingly being used to perform tasks previously only capable of being done by humans. For example, some companies are pioneering automated journalism, allowing smart software to analyze data, match relevant phrases in a story template and put together a narrative that can be published. AI is also being used in songwriting and to create works of art. These advances generate numerous legal questions. Of course, to the extent these works create value, the question of ownership and whether these works are protectable under the current legal frameworks is important. Regardless of whether these works are protectable, however, the finished product created by AI could still read on other human works creating infringement concerns.

Assuming AI does write a story or create a work of art that reads on the work of another, who is liable? Is there an infringer or not? Is the infringer the developer who created the AI program that made the infringing work? What about the owner of the AI program? Would it matter if the AI program required significant training before it could/did make the infringing work? Is the infringer then the trainer of the AI?

One could argue that there should not be liability until the work is used or published. But what if the AI uses or publishes the work without human involvement? Alternatively, must a human that wishes to use or publish a work created by AI review all of the data the AI program analyzed in the creation of that work to ensure, e.g., that the machine did not copyright another work? Given that most AI programs constantly learn and synthesize new data, the amount of information analyzed for each subsequent work would likely grow exponentially, making such a task nigh impossible.

As we have previously discussed, the USPTO is struggling with these questions. Moreover, there may be no easy answer. New legal theories of infringement and liability are bound to spring forth. For now, it may be best to use AI work-product with caution.

Sometimes it’s back to basics.  This time, the simple difference between trademarks, copyrights, and patents. The U.S. Patent & Trademark Office (“USPTO”) provides guidance.

A trademark is a word, phrase, symbol, and/or design that identifies and distinguishes the source of one party’s goods.  A service mark is the same but for services, and can still be referred to as a trademark.  Examples can include brand names, company names, logos, tag lines, slogans, and the like.  Trademarks do not expire as long as they are used in commerce.  A person/entity may register a trademark with the USPTO (and/or individual states) if it uses or intends to use the trademark, but registration is not required because there can be common law trademark rights in brands, logos, etc.  Use of the ® symbol signals registration; use of the ™ symbol signals common law rights.  A registered trademark enjoys a presumption of validity that a common law trademark generally does not enjoy.  A person/entity may sue another person/entity for trademark infringement whether or not it has already applied for the trademark or had it registered.  The USPTO’s brochure on Basic Facts About Trademarks provides helpful information to those wanting additional information on how to protect their trademarks.

34126235 - copyrightA copyright is an original work of authorship and includes literary, dramatic, musical, and artistic works.  Obvious examples include songs, writings, movies; less obvious examples include computer software and architecture.  Copyrights expire 70 years after death for works created by an individual, but they expire under a different timeframe (the shorter of 95 years from the publication date or 120 years from the creation date) for anonymous works or works made for hire — e.g. a work created by an employee for an employer.  A person/entity may register a copyright with the U.S. Copyright Office and may use the © symbol to indicate copyright protection.  Although a person/entity obtains copyright protection immediately upon the creation (and fixing in a tangible form) of a copyrightable work, that person/entity may not sue another person/entity for copyright infringement until after it has applied for and received a registration for the copyright from the U.S. Copyright Office. (This was previously a disputed issue that the U.S. Supreme Court decided last year.)  The U.S. Copyright Office’s website, particularly its FAQs page, provides helpful information to those wanting additional information on how to protect their copyrights.

A patent protects new and non-obvious inventions and discoveries in the form of a limited duration exclusionary property right.  Examples include processes, machines, articles of manufacture, composition of matter, or any improvement of the foregoing (utility patents) as well as ornamental designs of an article of manufacture (design patent) and asexually reproduced plants varieties (plant patent).  It does not include laws of nature, physical phenomena, or abstract ideas.  It also does not include literary, dramatic, musical, and artistic works, which are instead subject to copyright.  Depending upon the type, a patent is valid for 15 years from issuance (design patents) or 20 years from application date (utility and plant patents).  A person/entity may apply for a patent with the USPTO and may sue another person/entity for patent infringement once that patent has issued.  The USPTO’s website, particularly its FAQs page for patents, provides helpful information to those wanting additional information on patents.

The Federal Trade Commission (“FTC”) recently sent out settlement checks to consumers who were allegedly deceived by UrthBox, Inc. (See https://www.ftc.gov/news-events/press-releases/2019/12/ftc-sending-refund-checks-consumers-allegedly-misled-free-trial.) While the settlement, $100,000, and the amount refunded, around $84,000, were not very high, the case is interesting as it reinforces the need for companies who offer online subscription services or that rely on online reviews to ensure they are adequately disclosing what the law requires.

UrthBox sells a subscription service in which consumers pay for it to send a monthly snack box to their door. In its initial complaint against UrthBox, the FTC alleged that UrthBox deceived consumers in two ways.

First, that UrthBox offered a free box of snacks, but when consumers signed up for that free box, they were automatically enrolled in 6-month subscription service without adequate disclosures. The FTC alleged that many consumers were unaware they were enrolled in the subscription plan until they discovered a charge on their credit cards. The FTC claimed this constituted a “negative option feature,” which is defined as “an offer or agreement to sell or provide any goods or services, a provision under which the customer’s silence or failure to take an affirmative action to reject goods or services or to cancel the agreement is interpreted by the seller as acceptance of the offer.” 15 C.F.R. § 310.2 (w). The FTC further claimed this violated the Restore Online Shoppers’ Confidence Act (“ROSCA”), 15 U.S.C. §§ 8401 et seq., which prohibits sale of goods or services in internet transactions through a negative option feature unless the seller clearly and conspicuously discloses all material terms of the transaction before obtaining the consumer’s billing information, obtains the consumer’s express informed consent before making the charge, and provides an easy mechanism to stop recurring charges. 15 U.S.C. § 8403.

Second, the FTC alleged UrthBox provided free snack boxes for consumers who would post positive reviews / comments on the Better Business Bureau website, TrustPilot.com, and social media websites such as Twitter, Facebook, etc. The FTC alleged that UrthBox failed to disclose that the resulting reviews were not “independent opinions or experiences of ordinary impartial customers.”

The case serves as a good reminder for the numerous companies that now rely on online reviews and/or offer online subscription services that they should ensure they are acting in compliance with the various laws and regulations applicable to those areas, including ROSCA. The FTC has shown that it is willing to bring an enforcement action when companies fail to do so, even when the dollar amount involved is small.

Last month, the Securities and Exchange Commission (SEC) issued a press release describing its proposed changes to the Investment Advisers Act of 1940.  The Act contains various advertising and cash solicitation rules for investment advisers when soliciting clients and investors, which the SEC is proposing to modernize.

According to the SEC, the proposed changes are “intended to update these rules to reflect changes in technology, the expectations of investors seeking advisory services, and the evolution of industry practices.”  On the advertising rule side, the proposed rules broaden the definition of advertising, add principles-based prohibitions on advertising practices, allow testimonials, endorsements, and third-party ratings, prohibit certain types of performance-related advertising, and require internal advertising review and approval.  On the solicitation rule side, the proposed rules broaden the scope of solicitation (e.g. by expanding the forms of compensation for solicitation arrangements covered under the Act), require an adviser compensating a solicitor to enter into a written agreement, and modify the solicitor disclosure requirement to include additional information.

The proposed amendments are still under a 60-day period for public comment and investor feedback.

The federal Food and Drug Administration (FDA) recently issued a consumer update regarding products containing cannabis or cannabis-derived compounds, including cannabidiol (CBD).  Although aimed at consumers, the update contains important reminders for businesses marketing or selling these types of products.  The FDA’s website also includes lengthy Q&A guidance about its regulation of them.  A prior blog post details the Federal Trade Commission’s (FTC) separate efforts to warn companies that advertise their CBD products as having health benefits without proper substantiation.

The FDA’s update starts with five bullet point reminders, repeated below:

  • The FDA has approved only one CBD product, a prescription drug product to treat two rare, severe forms of epilepsy.
  • It is currently illegal to market CBD by adding it to a food or labeling it as a dietary supplement.
  • The FDA has seen only limited data about CBD safety and these data point to real risks that need to be considered before taking CBD for any reason.
  • Some CBD products are being marketed with unproven medical claims and are of unknown quality.
  • The FDA will continue to update the public as it learns more about CBD.

Like the FTC, the FDA is concerned about companies marketing CBD products illegally or without substantiation.  But the FDA is also concerned about safety risks for consumers and believes that misleading, unproven, or false claims may lead consumers to avoid medical care.  The FDA states that is continuing to evaluate the regulatory frameworks applicable to cannabis and cannabis-derived products, including the lawful marketing of these products.

All companies, including those that sell products containing cannabis or cannabis-derived compounds, should make sure they comply with both the FTC’s and the FDA’s requirements and guidelines.

Last week, the Federal Trade Commission (FTC) issued guidance titled “Disclosures 101 for Social Media Influencers.”  The guidance consists of a short, easy-to-read document aimed directly at those who work with brands to recommend or endorse products.  It is intended to give those influencers tips on when and how to make good disclosures about their relationship with a brand, in particular to disclose when the influencer has a material connection in the form of a personal, family, employment, or financial relationship.  However, it also serves as a good reminder to brands and advertisers themselves as to the FTC’s rules surrounding use of influences to increase brand awareness and promotion.

Specific advice from the FTC includes:

  • A financial relationship is not limited to an exchange of money and includes receipt of anything of value.
  • Tags, likes, and pins constitute endorsements of a brand.
  • Disclosures should be placed so that they are hard to miss.  The FTC provides specific ideas for pictures, videos, and live streams.
  • Simple and clear language should be used.
  • Influencers should not talk about a product they haven’t tried.
  • Influencers cannot say a product is terrific if they thought it was terrible.
  • Influencers cannot make claims for which the brand does not have substantiation.

(See Disclosures 101 for Social Media Influencers, November 5, 2019, available at  https://www.ftc.gov/system/files/documents/plain-language/1001a-influencer-guide-508_1.pdf.)

This month, two self-regulatory bodies that are administered by Better Business Bureau National Programs, Inc. (BBB), referred two different companies to the Federal Trade Commission (FTC) for investigation.

First, on October 3, 2019, the Direct Selling Self-Regulatory Council (DSSRC) referred Aloe Veritas, Inc. (a multi-level direct selling company that offers wellness and skincare products) to the FTC.   The DSSRC is a new-as-of-2019 national advertising self-regulation program that independently monitors advertising and marketing claims in the direct selling industry. The DSSRC identified several claims made by Aloe Veritas that it considered problematic: first, claims that Aloe Veritas Lifestyle Coaches made on social media relating to the efficacy of Aloe Veritas’s products (including that the products could prevent or cure diseases or illnesses); second, claims that appeared on Aloe Veritas’s website relating to the health benefits of its NuDerma MD product and that product being “Physician Recommended”; and finally, claims Aloe Veritas made on its website relating to the success a consumer would have in selling its products. The DSSRC ultimately determined that the first set of claims should be taken down, the second was not based on competent and reliable scientific evidence, and the third should be supplemented with disclosures showing what typical earners would make in selling Aloe Veritas’s products. While Aloe Veritas initially responded to DSSRC’s inquiries, it apparently did not provide a statement responding to whether it would comply with DSSRC’s recommendations. As a result, DSSRC referred the matter to FTC for review and possible law enforcement action. The DSSRC’s decision can be found here.

Then, on October 8, 2019, the Digital Advertising Accountability Program (DAAP) referred PlantSnap, Inc., a mobile app developer, to the FTC as well. DAAP stated that the decision came about when PlantSnap did not participate in a self-regulatory review process looking into data privacy practices related to geolocation data and advertising.  (See the press release here.) DAAP works with a division of the Association of National Advertisers to monitor and enforce compliance with Self-Regulatory Principles established by the Digital Advertising Alliance. More information relating to those Principles can be reviewed here.

Both of these referrals serve as good reminders that companies that do not comply with or respond to inquiries from acronym-heavy, self-regulatory bodies such as the DSSRC or DAAP can find themselves facing a referral to the FTC.  And as an article from the BBB’s National Advertising Division (NAD) states, “[w]hen companies take the chance that a referral to the FTC will not result in an investigation of their advertising [NAD’s] statistics show that the gamble is unlikely to pay off . . . . [because] [m]ost gamblers will face an early choice between either undergoing an FTC investigation” or returning to the regulatory process.

Happy Halloween! It is the day (or week, for some) of the year where we venture out pretending to be something we are not. Some may choose to go for a classic costume like a ghost or witch. However, others want to dress up as their favorite character from a TV or movie. But these characters are likely subject to copyright and trademark protection. If you buy a costume of your favorite superhero from the store, you likely have an implied license to use the costume. But what if you make your own Wonder Woman outfit or have your own Aunt May who makes you an amazing Spiderman suit? Should you be worried?

Given most uses on Halloween are not to sell or advertise goods, do not involve an intent to deceive, and would not confuse the public as to the source of goods, any infringement case would be unlikely. In addition, the damages (think – your candy haul) is probably not worth a suit. While lawyers certainly have many tricks, it is probably safe to enjoy your treats.

Enjoy the night and stay safe everyone!

As predicted, the United States Patent and Trademark Office (“USPTO”) has now extended its inquiry on the impact of artificial intelligence (“AI”) technologies to copyright, trademark, and other intellectual property rights. Last month’s blog post on this topic explained that the USPTO had filed a Notice in the Federal Register seeking comments as to whether AI can be considered an inventor on a patent. This led us to wonder whether the same could be asked for trademarks and copyrights, and now that is exactly what the USPTO’s newest Notice covers.

Specifically, the USPTO seeks comments on how AI might impact these other types of intellectual property protection, including with respect to registration and liability issues, using thirteen enumerated questions set forth verbatim below:

1. Should a work produced by an AI algorithm or process, without the involvement of a natural person contributing expression to the resulting work, qualify as a work of authorship protectable under U.S. copyright law? Why or why not?

2. Assuming involvement by a natural person is or should be required, what kind of involvement would or should be sufficient so that the work qualifies for copyright protection? For example, should it be sufficient if a person (i) designed the AI algorithm or process that created the work; (ii) contributed to the design of the algorithm or process; (iii) chose data used by the algorithm for training or otherwise; (iv) caused the AI algorithm or process to be used to yield the work; or (v) engaged in some specific combination of the foregoing activities? Are there other contributions a person could make in a potentially copyrightable AI-generated work in order to be considered an “author”?

3. To the extent an AI algorithm or process learns its function(s) by ingesting large volumes of copyrighted material, does the existing statutory language (e.g., the fair use doctrine) and related case law adequately address the legality of making such use? Should authors be recognized for this type of use of their works? If so, how?

4. Are current laws for assigning liability for copyright infringement adequate to address a situation in which an AI process creates a work that infringes a copyrighted work?

5. Should an entity or entities other than a natural person, or company to which a natural person assigns a copyrighted work, be able to own the copyright on the AI work? For example: Should a company who trains the artificial intelligence process that creates the work be able to be an owner?

6. Are there other copyright issues that need to be addressed to promote the goals of copyright law in connection with the use of AI?

7. Would the use of AI in trademark searching impact the registrablity of trademarks? If so, how?

8. How, if at all, does AI impact trademark law? Is the existing statutory language in the Lanham Act adequate to address the use of AI in the marketplace?

9. How, if at all, does AI impact the need to protect databases and data sets? Are existing laws adequate to protect such data?

10. How, if at all, does AI impact trade secret law? Is the Defend Trade Secrets Act (DTSA), 18 U.S.C. 1836 et seq., adequate to address the use of AI in the marketplace?

11. Do any laws, policies, or practices need to change in order to ensure an appropriate balance between maintaining trade secrets on the one hand and obtaining patents, copyrights, or other forms of intellectual property protection related to AI on the other?

12. Are there any other AI-related issues pertinent to intellectual property rights (other than those related to patent rights) that the USPTO should examine?

13. Are there any relevant policies or practices from intellectual property agencies or legal systems in other countries that may help inform USPTO’s policies and practices regarding intellectual property rights (other than those related to patent rights)?

(See A Notice by the Patent and Trademark Office, October 30, 2019, available at https://www.federalregister.gov/documents/2019/10/30/2019-23638/request-for-comments-on-intellectual-property-protection-for-artificial-intelligence-innovation.)