An update from Kevin Sandoval, one of the firm’s summer associates:

What started as a copyright infringement claim against the California high school that inspired the television series “Glee” has developed into a conflict that could have ramifications for copyright holders and potential copyright infringers everywhere. In 2016, Tresóna Multimedia, LLC filed a suit against Burbank high school’s vocal music director Brett Carroll, the Burbank high school vocal music boosters club, and individual boosters club parents claiming copyright infringement for the use and performance of four songs, including “Magic,” a song originally performed by Olivia Newton-John in a 1980 musical movie. Tresóna claimed at least partial interest in all four songs.

The Central District of California (“District Court”) held that Tresóna did not have standing to bring copyright infringement claims for three of the songs because it received its interests in those songs from individual co-owners of copyright and thus it held only non-exclusive rights in those songs. As to the fourth song, the District Court acknowledged that Tresóna had rights in “Magic,” but held that Carroll was protected from suit because of his qualified immunity as a public employee and that the other defendants could not be held liable for direct or secondary copyright infringement.

34126235 - copyrightOn appeal, in a decision dated March 24, 2020, the Court of Appeals for the Ninth Circuit affirmed the District Court’s holding that Tresóna did not have standing to bring a copyright infringement suit for the three songs, but determined that the merits of Carroll’s fair use defense in regard to “Magic” needed to be evaluated because the question of fair use was applicable to a broader music and teaching community. The Ninth Circuit used the four fair use factors outlined in 17 U.S.C. § 107, and ultimately held the defense of fair use applied to “Magic,” most notably because the use was limited and transformative and was for nonprofit educational purposes.

Further, although the District Court had declined to award Carroll’s attorney’s fees to Tresóna, the Ninth Circuit reversed because it determined that Tresóna pursued groundless claims against a school teacher, boosters club, and parent volunteers. According to the Ninth Circuit, Tresóna was an “overzealous monopolist” that sought to “stamp out the very creativity that the [Copyright] Act seeks to ignite.” Despite the Court’s harsh holding, Tresóna is pushing forward because it sees a larger issue at play than fair use.

On May 21, 2020, Tresóna filed a motion to stay so that it can petition for writ of certiorari to the United States Supreme Court, which it says is due later this summer. In its motion, which the Ninth Circuit just granted on June 26, 2020, Tresóna states that the issue to be presented to the Supreme Court concerns the Ninth’s Circuit’s reading of the word “exclusive” in the Copyright Act, and it argues that a third-party who has received exclusive rights or an assignment of its rights from a copyright co-owner should be able to stand in the shoes of the copyright owner on an infringement claim. If Tresóna ends up in front of the Supreme Court on this issue, it will be an interesting case to watch as it could impact whether copyright infringers could be more susceptible to suit from any number of copyright co-owners or assignees.

An update from Jennifer Madaras, one of the firm’s summer associates:

A California federal judge has ruled that two animal rescue groups can proceed with unfair competition claims against numerous defendants accused of misusing the word “rescues” when advertising dogs they purchased from breeders and puppy mills.

The plaintiffs asserted claims under both state and federal law. The plaintiffs’ federal claim arises under the Lanham Act, which prohibits trademark infringement and false advertising, among other things.  The plaintiffs, PetConnect Rescue Inc. and Lucky Pup Dog Rescue.Com, allege the defendants’ use of an infringing mark has harmed the plaintiffs’ reputation, caused customer confusion, and required plaintiffs to divert resources to correct the confusion.

The plaintiffs’ state claim arises under California’s Unfair Competition Law, which prohibits “any unlawful, unfair or fraudulent business act or practice” and any “unfair, deceptive, untrue, or misleading advertising. . . .” The plaintiffs’ claim is based upon California’s Health and Safety Code, which prevents pet stores from selling a live dog, cat, or rabbit unless the animal comes from a public animal control agency or shelter/rescue group, and which defines a “rescue group” as a non-profit that does not obtain the animals from breeders or brokers for compensation. The plaintiffs allege that the defendants committed unlawful business practices by selling dogs bred for profit in California that they obtained from out-of-state breeders and brokers, and that the defendants fraudulently advertised those dogs as “rescues.”

The defendants moved to dismiss the claims, arguing the plaintiffs failed to establish standing and provide facts to support their claim. Judge Huff of the Southern District of California declined to dismiss the claims because he found the plaintiffs had sufficiently pled that the defendants sold dogs bred for profit and misrepresented those dogs as “rescues.” He further found standing because the plaintiff “clearly uses their mark to accompany the services it provides.”

Judge Huff also held that the summary judgment phase is better suited to determine whether one plaintiff’s mark, “PetConnect Rescue,” is a protectable trademark.  He did find the mark descriptive – i.e. it describes the qualities or characteristic of the plaintiffs’ goods or services – but noted that descriptive marks are protectable if they acquire secondary meaning and that  whether the mark has gained an association in consumers’ minds is better suited for summary judgment.

Although specific to its facts and involving an advertising term (“rescues”) unlikely to be used in many other contexts, still this case serves as a cautionary reminder that all promotional materials should comply with state and federal law and that sometimes companies are sued by even unlikely plaintiffs.

Something we may never have thought would take off – branded face masks – are now on the rise.  With CDC recommendations and state/local orders recommending or even requiring employees (and sometimes even all citizens outside of their homes) to wear masks, businesses have an unexpected yet significant marketing opportunity to present their brand in a new setting.  This is particularly true for certain types of businesses, such as consumer-facing retail stores, restaurants/bars, and sports team.  Companies specializing in branded t-shirts, uniforms, and the like have certainly expanded their offerings to account for this new sales prospect to the businesses they service.

As a result, many businesses are taking advantage, seeing the increase in face mask use as another chance to present their logo, brand, or other message to the public or even just to their own employees.  Fashion designers are also jumping into the ring in a way that promotes their brands.  But other businesses may be concerned that turning a precautionary device into a walking billboard could make light of the pandemic or face mask requirement.

Whichever camp your business is in, this new and unexpected marketing strategy is on the rise.

Following up on an earlier blog post about the State of Georgia’s ability to copyright the annotations to the Official Code of Georgia Annotated (“OCGA”), the U.S. Supreme Court finally weighed in last month.  Chief Justice Roberts wrote the majority opinion, which applied the government edicts doctrine in rejecting Georgia’s infringement challenge against a non-profit advocacy group that had posted various OCGA volumes and supplements online.

Stated simply, the Supreme Court ruled that government officials cannot copyright the works they create in their official capacity. In this case, that meant that annotations authored by an arm of the Georgia legislature cannot have copyright protection. As the Eleventh Circuit stated in its underlying opinion, “the People are the ultimate authors of the annotations,” which are “inherently public domain material and therefore uncopyrightable.”

The U.S. Copyright Office recently called for changes to the Digital Millennium Copyright Act (“DMCA”). Congress enacted 17 U.S.C. § 512 of the DCMA to balance the threat of liability for copyright infringement on online service providers with “the threat of rampant, low-barrier online infringement.” This was accomplished with the use of “safe harbors” for service providers if, e.g., they quickly take down infringing content upon receiving notification of such infringement by a copyright holder.  While this has allowed service providers to grow without facing debilitating lawsuits it has also created the “‘whack-a-mole’ problem of infringing content reappearing after being taken down.”

Therefore, the Copyright Office conducted a study based on several guiding principles, including that copyright protection online must be meaningful and effective and internet policy in today’s age cannot be one-sized fits all. Based on its own analysis, the Copyright Office concluded that the originally intended balance sought by Congress “has been tilted askew.”

The Copyright Office made several findings and suggestions to try and re-balance the DMCA. For example, to qualify for safe harbor, a service provider must have “adopted and reasonable implemented… a policy that provides for the termination in appropriate circumstances of subscribers and account holders… who are repeat infringers.” Under the current interpretation, compliance with the law may be found if a service provider merely adopts an unwritten policy that is never shared with its users. However, and in an apparent adoption of the Fourth Circuit’s holding that repeat infringer under section 512 means repeat alleged (not repeat adjudicated) infringer, the Copyright Office suggests that service providers must have a “clear, documented, and publicly available repeat infringer policy” to adequately deter repeat infringers.

In addition, the Copyright Office asked Congress to clarify the “knowledge” requirements – including the amount of knowledge of infringement a website must have before it takes down infringing content as well as the knowledge (or lack thereof) required to qualify for the safe harbor provisions. The Copyright Office further suggested that Congress should articulate a reasonableness standard that takes into account differences among the service providers that exist.

The Copyright Office also found that several provisions have been expanded to cover activities not contemplated over 20 years ago when enacted by Congress and that some terms could and should be further clarified to achieve the required balance.

It remains to be seen if Congress is inclined to adopt these (and other suggested) proposals but it certainly serves as a good first step in meaningfully protecting copyright owner’s rights online.

Fellow Fox attorney Melissa E. Scott recently published an alert discussing newly proposed trademark legislation. The proposed legislation, titled the Trademark Modernization Act of 2020, could lead to a number of changes to the Lanham Act, and would seek to combat fraudulent trademark filings and better protect the public from confusing a product’s source.

For a comprehensive breakdown of the Act’s potential changes and effects, read the full alert here.

Nearly every week it seems as though the Federal Trade Commission (FTC) is sending out a new round of warning letters to companies marketing products and therapies as effectively treating or preventing COVID-19.  We previously wrote blog posts here and here about sets of such letters, and our colleague, Marissa Koblitz Kingman, recently wrote an alert about the Department of Justice (DOJ) and Food & Drug Administration (FDA) closely monitoring such conduct as well.  In that alert, Marissa discusses a DOJ complaint against a Utah man and two companies for allegedly selling a fake cure for COVID-19 and the DOJ’s plan to work closely with the FDA to shut down schemes to promote and sell COVID such products.

These federal agency actions serve as a cautionary reminder for any company contemplating the sale of products or the use of promotional materials that connect products to COVID-19. If doing so, or intending to do so, legal counsel should be consulted.

This week, the United States Supreme Court may have made it considerably easier for a trademark owner to recover lost profits from a trademark infringer. Specifically, the Court answered the question, posed in Romag Fasteners, Inc. v. Fossil Grp., Inc., of whether the Lanham Act requires a “categorical” rule that only a willful infringer must disgorge its “ill-gotten profits.” In a unanimous 9-0 decision, the Justices determined that the Lanham Act includes no such requirement, and a trademark owner need not show that a trademark infringer willfully infringed on the plaintiff’s trademark in order to recover profits from the infringer.

In a short seven-page decision written by Justice Gorsuch, the Court analyzed whether a showing of willful trademark infringement is a precondition to recovering profits under section 1117(a), the provision governing remedies for trademark violations, for violations of section 1125(a) of the Lanham Act, the provision governing false or misleading use of trademarks. In its opinion, the Court relied on the text of the Lanham Act. Specifically, the Court pointed out that while the Lanham Act specifically requires willfulness to recover profits in trademark dilution cases, “the statutory language has never required a showing of willfulness to win a defendant’s profits” in claims of false or misleading use of trademarks. All the more telling, the Court said, is that the “Lanham Act speaks often and expressly about mental states,” including multiple adjustments in remedies for willful violations, but the remedies provision at issue, section 1117(a), includes no reference to willfulness or a mental state of any kind for recovering remedies from violations of section 1125(a). Noteworthy as well, the Court rejected Fossil’s argument that the purported willfulness requirement was required by “principles of equity,” historical trademark law, and public policy. Ultimately, the Court acknowledged that its “limited role is to read and apply the law those policymakers have ordained,” and in doing so held that the text of the Lanham Act, and as a result Federal Trademark law, does not require willfulness to recover profits for the false or misleading use of trademarks.

On the other hand, although willfulness is not expressly required for such claims,  the Court made clear that an alleged infringer’s state of mind is still important in assessing violations and potential trademark remedies. For instance, in his opening paragraph, Justice Gorsuch expressed: “Without question, a defendant’s state of mind may have a bearing on what relief a plaintiff should receive. An innocent trademark violator often stands in very different shoes than an intentional one.” Likewise, his opinion notes that “a defendant’s mental state is relevant to assigning an appropriate remedy” and “a trademark defendant’s mental state is a highly important consideration in determining whether an award of profits is appropriate.” Similarly, in his concurrence, Justice Alito, joined by Justice Breyer and Justice Kagan, acknowledged the distinction that willfulness remains important, but not a prerequisite, in awarding profits. Thus, trademark owners should be aware that, although willfulness is not required to obtain profits, it is still appears to be an immensely important factor courts may consider.

In a break from issues relating to the coronavirus, the Better Business Bureau’s National Advertising Division (NAD) has recently instituted a quicker dispute resolution process, called Fast-Track SWIFT, with SWIFT standing for “Single Well-defined Issue Fast Track”.

As put by the NAD, Fast-Track SWIFT is an “expedited process for resolving simple, single-issue advertising disputes” that the NAD developed to address “industry concerns that the timeline for standard track cases can be too long to adequately address highly repeatable but simple issues.”  The NAD has stated the claims that are appropriate for a Fast-Track SWIFT challenge, at least for now, fall into three categories:

  1. The prominence or sufficiency of disclosures, including disclosure issues in influencer marketing, native advertising, and incentivized reviews
  2. Misleading pricing and sales claims
  3. Misleading express claims that do not require review of complex evidence or substantiation such as a review of clinical or technical testing or consumer perception evidence

For all matters that qualify for Fast-Track SWIFT, the NAD has indicated that its decision will be issued in around a month, far faster than the standard NAD process which takes around 4-6 months.  Additional information relating to the Fast-Track SWIFT process can be found in NAD’s FAQs on the topic here as well as in the rules of procedure that apply to NAD’s proceedings, which can be downloaded here.

The NAD is a non-governmental, voluntary self-regulatory body that considers challenges to advertising from competing advertisers and consumers and will issue recommendations to advertisers. If an advertiser does not engage in the NAD process or declines to follow NAD’s recommendation, the NAD will often refer the matter to the relevant government agencies, usually the Federal Trade Commission (FTC).  And as previously noted on this blog, NAD has stated that the majority of cases it refers to the FTC result in a FTC investigation, or the advertiser ultimately returning to NAD’s regulatory process.

 

On April 2, 2020, the Alcohol and Tobacco Tax and Trade Bureau (“TTB”) issued a final rule, Modernization of the Labeling and Advertising Regulations for Wine, Distilled Spirits, and Malt Beverages.  While it does not require any current labels or advertisements to be changed, the rule is intended to give more flexibility to industry members and provide clarity to existing requirements.  The final rule will be effective May 4, 2020.

There are a variety of interesting proposals adopted in the final rule:

  • The final rule removes previous vodka classification requirements such that Vodka products are no longer prohibited from having a “distinctive character, aroma, taste, or color.”
  • The final rule no longer prohibits malt beverage labels and advertisements from using the term “strong” and other indications of alcohol strength.
  • The TTB removed a limitation on the way distilled spirits producers may count the distillations when making optional “multiple distillation” claims on their labels.
  • The final rule creates a new class within the standards of identity called “agave spirits,” which encompasses two classes: “Tequila” and “Mezcal.”
  • The TTB has established an approval process for creation of personalized labels (think weddings, promotional events) that do not require individualized submission and approval by TTB.
  • The final rule increases the tolerance for the alcohol content of distilled spirits products to plus or minus 0.3 percentage points above or below the labeled alcohol content.
  • The final rule clarifies that all imported alcoholic beverages (distilled spirits, malt beverages, and wine) must display a country of origin statement if the beverage is the product of a country other than the U.S.
  • The final rule clarifies which wine and malt beverages meet the statutory definitions under the Federal Alcohol Administration Act. Products not meeting the definitions are not subject to the TTB labeling regulations and are instead subject to FDA labelling regulations.
  • The final rule allows advertisements for wine, distilled spirits, and malt beverages to bear the advertisers phone number, website, or email address rather than currently-required city and state.

The TTB also declined to adopt certain proposals.  The TTB rejected a proposal to incorporate a definition of an “oak barrel,” which would have limited it to a “cylindrical oak drum of approximately 50 gallons capacity used to age bulk spirits.”  The TTB received a large amount of opposition to the proposal, with many arguing that the definition conflicts with innovative industry practices of using oak containers of various shapes and/or sizes to age bulk spirits.  The TTB likewise rejected a proposal that would have required whiskey be designated with a name where it meets the standard for one type of whisky.  For example, a whisky that meets the standard for “bourbon” would have been required to be designated a bourbon.  The TTB received opposition by many who stated that this change would require many current labels to change.  The TTB rejected the proposal and distillers will continue to have the option of using the general class “whisky” or one of the type designations that applies.

To see more information on all the adopted and rejected proposals, see here.  The TTB is still considering many regulatory changes that may be addressed in the future—including a proposal to establish a new section of the alcohol beverage regulations relating to advertising.