Fraud/Misrepresentation – Page 2

February 6, 2009 Fraud/Misrepresentation, Trademarks

Trademark infringement and false designation claims not subject to heightened pleading standard

Court also foreshadows that if all they’re talking about is metatags, there won’t be much of a case.

Indiaweekly.com, LLC v. Nehaflix.com, Inc., 2009 WL 189867 (D. Conn. January 27, 2009)

In moving to dismiss claims brought against it for trademark infringement and false designation of origin under 15 U.S.C. Secs. 1114(1) and 1125(a), Indiaweekly.com, LLC claimed that the counterplaintiff Nehaflix.com had failed to allege sufficient facts to meet the standard of Fed. R. Civ. P. 9(b). That rule requires that “[i]n alleging fraud . . . a party must state with particularity the circumstances constituting fraud . . . .”

Bollywood mudflap

The U.S. District Court for the District of Connecticut rejected Indiaweekly.com’s assertion that such claims were subject to Rule 9’s heightened pleading standard. Nehaflix.com’s allegations that Indiaweekly.com placed Nehaflix’s trademark on Indiaweekly.com to draw in search traffic survived the motion to dismiss. It was plausible that potential Nehaflix customers, when searching for the term “Nehaflix” would, upon being directed to another site containing the term and selling competing goods, conclude that the two businesses were related when in fact they were not.

It is important to note that the court assumed for the sake of the motion to dismiss that the allegations that the Nehaflix mark “appeared” on Indiaweekly.com meant that the mark was visible when viewing the site and not merely in metatags. The court nodded to S&L Vitamins v. Australian Gold, Inc., 521 F.Supp.2d 188 (E.D.N.Y. 2007), which held that mere metatag use was not “use in commerce” for purposes of the Lanham Act.

Photo courtesy Flickr user Meanest Indian under this Creative Commons license.

August 20, 2008 Copyright, DMCA, Fraud/Misrepresentation

Sender of DMCA takedown notice should consider fair use

Lenz v. Universal Music Corp., No. 07-3783 (N.D. Cal. August 20, 2008). [Download the opinion]

Hat tip to Joe Gratz for breaking this story.

One of the things that a person sending a takedown notice under the Digital Millennium Copyright Act (DMCA) has to swear to is that he or she “has a good faith belief that use of the material in the manner complained of is not authorized by the copyright owner, its agent, or the law.” 17 U.S.C. §512(c)(3)(A) (emphasis added). If the sender of the takedown notice makes a knowingly material misrepresentation as to whether the law authorizes the use of the material, the party whose content is taken down can sue under 17 U.S.C. §512(f). This serves as a backstop against DMCA takedown abuses.

Suppose that the complained-of work may be protected by fair use. If the sender is deliberately ignorant of that possibility, can that result in a misrepresentation that runs afoul of 512(f)? That question had not been answered before today, when the U.S. District Court for the Northern District of California said “yes.”

The case is Lenz v. Universal Music Corp., No. 07-3783. You may have heard of this case before, as it’s the one where the mom filmed her daughter dancing to Prince’s “Let’s Go Crazy” and uploaded that to YouTube, only to have it removed after a Universal DMCA takedown notice. Lenz sued under §512(f) and Universal moved to dismiss.

In its motion to dismiss, Universal contended that copyright owners cannot be required to evaluate the question of fair use prior to sending a takedown notice because fair use is merely an excused infringement of a copyright rather than a use authorized by the copyright owner or by law.

But the court disagreed. “[T]he fact remains that fair use is a lawful use of a copyright. Accordingly, in order for a copyright owner to proceed under the DMCA with ‘a good faith belief that use of the material in the manner complained of is not authorized by the copyright owner, its agent, or the law,’ the owner must evaluate whether the material makes fair use of the copyright.” The court went on to say that “[a]n allegation that a copyright owner acted in bad faith by issuing a takedown notice without proper consideration of the fair use doctrine thus is sufficient to state a misrepresentation claim pursuant to Section 512(f) of the DMCA.”

Because Lenz’s complaint contained allegations of this nature, it was detailed enough to pass Twombly muster [Bell Atlantic Corp. v. Twombly, — U.S. —-, 127 S. Ct. 1955, 1964-65 (2007)], and the case moves forward.

The practical effect of this decision is that one sending a DMCA takedown notice without considering whether the person who posted the content is making a fair use, does so at his or her peril. Let’s be clear — the decision does not mean that sending a takedown notice in a situation where it turns out to be a fair use will automatically result in a finding of §512(f) misrepresentation. But it does add another implicit item on the checklist of the takedown notice sender.

April 8, 2008 Fraud/Misrepresentation, Trademarks

Apple vs. the Big Apple charity over apple-shaped logos

Apple, Inc. is seeing red over New York City’s attempts to register a trademark for green-friendly services, and the dispute challenges one of Apple’s trademark registrations for its ubiquitous logo.

Apple comparison

Apple has filed an Opposition (No. 91/181,984) with the United States Patent and Trademark Office’s Trademark Trial and Appeal Board against NYC & Company, Inc.’s attempts to register the “Infinite Loop Apple” design mark (shown above at left). Apple asserts that use of NYC’s mark would likely cause confusion with Apple’s famous logo (shown at right) especially given the presence of Apple’s flagship Manhattan retail location.

NYC’s application states the mark is to be used for, among other things, promoting “education on environmentally friendly policies and practices of the City of New York” (See Application Nos. 77/179,942 and 77/179,968). Apple claims that confusion would be likely because of the similarities in appearance and commercial impression between the marks, and because certain of the goods and services recited by NYC are identical or highly related to goods and services offered under the Apple mark.

NYC answered the Notice of Opposition and filed a Counterclaim seeking to cancel Apple’s registration for the logo as used in connection with “mugs, dishes, drinking glasses, and wine glasses.” NYC claims that Apple procured the registration through fraud, because it knowingly misrepresented that it was using the mark in connection with those goods on its Declaration of Use and Renewal Application under sections 8 & 9 of the Trademark Act, when it fact no such use was being made. If the Board finds such fraud, Apple faces cancellation of its entire registration for those goods. Fraud has been a recurring issue before the TTAB of late, as evidenced by this recent post from John Welch’s TTABlog.

Apple, of course, denies the allegations of fraud. In any event, if the cancellation is successful, Apple’s most important marks (i.e., for computer hardware) would remain intact.

Time will tell whether Apple’s efforts to protect its mark will bear fruit. The company probably feels even more incentive to keep others from trading on its reputation and goodwill after hearing about this recent study, which found that people who see the Apple logo may feel more creative.

November 28, 2007 Fraud/Misrepresentation

Online purchaser not entitled to $1 hard drives

Perez v. Luu, — S.W.3d —-, (Tex. App. November 1, 2007).

Perez sued Luu in Texas state court after Luu refused to fulfill Perez’s order of 100 hard drives that Perez ordered from Luu online. Luu’s website mistakenly listed the price of the hard drives as $1 each, when in reality Luu charged closer to $1,200 apiece.

The matter proceeded to trial and the court entered judgement in favor of Luu. Perez appealed, and the appellate court affirmed. It held that Perez failed to establish a violation of the Texas Deceptive Trade Practices Act.

The court determined that the relevant portions of the statute [Tex. Bus. & Com. Code Sec. 17.41 et seq.] required a showing of intent to misrepresent the price of goods being offered for sale. Luu introduced evidence showing that the $1 pricing was merely a mistake — the website was new and the developer had previously used a $1 quantity for testing purposes. Moreover, there was language on Luu’s website which gave him the right to correct any errors in pricing.

November 2, 2007 Contracts, Fraud/Misrepresentation

Internet marketer not fraudulent in predicting success of future advertising campaign

Hallmark Institute of Photography, Inc. v. CollegeBound Network, LLC, — F.Supp.2d —-, 2007 WL 3145433 (D. Mass. October 29, 2007).

CollegeBound LLC is an Internet marketing company that gathers “leads” for its customers. These “leads” are people who visit CollegeBound’s websites, express interest in the services provided by CollegeBound’s customers, and provide their contact information. CollegeBound then sells this lead information to its customers on a “cost per lead” basis. The customers then follow up with their own marketing efforts.

One of CollegeBound’s customers was Hallmark Institute of Photography. It signed written agreements with CollegeBound whereby it agreed to pay more than $30 for each lead that CollegeBound provided. When the parties were negotiating the deal, CollegeBound allegedly orally represented that between three and seven percent of the leads would enroll for Hallmark’s photography courses.

Although CollegeBound gathered leads and sent them on to Hallmark, less than one percent of them applied. Hallmark was disappointed in this result, and sued CollegeBound for breach of contract and for fraud and misrepresentation. CollegeBound moved to dismiss, and the court granted the motion.

On the breach of contract claim, the court held that the parol evidence rule precluded it from considering any extrinsic evidence. The alleged representations were made orally, and not included in the written agreement. Although the contract did not contain an “integration clause,” the court found that the agreement was fully integrated, where essentially all the important terms were included, and there was no indication the parties intended there be any additional terms. Since the agreement was not ambiguous, the court could not consider any evidence outside the document’s four corners.

As for the fraud and misrepresentation claims, the court held that CollegeBound’s statements were of a “fundamentally predictive nature,” and “concerned a matter of opinion, estimate or judgment which was not susceptible of actual knowledge at the time of [their] utterance.” For these reasons, the court found that Hallmark could not have reasonably relied on the statements. So the claims failed as a matter of law.

December 14, 2006 Fraud/Misrepresentation

Atkins diet website gets First Amendment protection from negligent misrepresentation claim

In the Spring of 2001, Plaintiff Gorran decided to go on the wildly popular low-carbohydrate Atkins Diet. His cholesterol skyrocketed by almost a hundred points within the first two months, but he stayed on the diet anyway until 2003. After he experienced chest pains, he underwent an angioplasty to unclog an artery.

So Gorran sued Atkins Nutritionals and some other parties, claiming, among other things, that the information on the Atkins website about the diet constituted negligent misrepresentation. The defendants moved for judgment on the pleadings, and the U.S. District Court for the Southern District of New York granted the motion.

The court held that the content on the Atkins website that Gorran complained of could not be the source of any negligent misrepresentation, as it was fully protected by the First Amendment. Gorran had argued that the website functioned “as an electronic store to promote various [D]iet-related food products” and contained, therefore, commercial speech.

The court saw it differently. Indeed the site contained some commercial content (e.g., products for sale). But the content that Gorran alleged was negligent misrepresentations was merely general advice pertaining to the diet. That content was non-commercial. Accordingly, the information was “afforded full First Amendment protection,” and the claim was dismissed.

Gorran v. Atkins Nutritionals, Inc., — F.Supp.2d —-, 2006 WL 3586267 (S.D.N.Y., December 11, 2006).

June 23, 2006 Computer Crime, Copyright, Fraud/Misrepresentation

Selling fake software on Amazon.com can get you five years in prison

[Thanks to Tech Law Advisor for alerting me to this case.]

Defendant Banks devised a scheme where he would make copies of various Microsoft products and sell them through Amazon.com to buyers who purchased them cash-on-delivery. After getting orders for at least $300,000 worth of software in this way, the plan began to collapse. Dissatisfied customers turned Banks into the FBI, and a federal grand jury indicted him on several counts, including mail fraud, possessing false securities, and criminal copyright infringement. A jury convicted him, and he got five years in prison.

Banks appealed his conviction and sentence, but the Third Circuit affirmed. On the criminal copyright infringement claim, Banks argued that the government had not introduced sufficient evidence to show that the Microsoft software was protected by copyright.

The criminal provisions of the Copyright Act, at 17 U.S.C. §506 state that

Any person who willfully infringes a copyright shall be punished as provided under [18 U.S.C. §2319], if the infringement was committed– (A) for purposes of commercial advantage or private financial gain; (B) by the reproduction or distribution, including by electronic means, during any 180-day period, of 1 or more copies or phonorecords of 1 or more copyrighted works, which have a total retail value of more than $1,000…. (Emphasis added.)

The court held that evidence introduced at trial through an “antipiracy specialist associated with the Microsoft company” was sufficient to show Microsoft’s ownership of the copyrights in the works. In the specialist’s unrebutted testimony, she stated her “belief” that Microsoft copyrights covered the works at issue. Further, the specialist had testified that Microsoft sent Banks the same type of cease and desist letter as it did to others who were suspected of violating Microsoft’s copyrights.

One is left to wonder why the government did not introduce any of Microsoft’s copyright registration certificates in the course of proving the element of copyright ownership. One would think that that would be the best practice for making such proof. In any event, the question before the court was whether the jury correctly concluded that Microsoft owned the copyrights in the works. The antipiracy specialist’s testimony — even if a bit weak on this point — apparently was enough.

United States v. Vampire Nation, (Slip Op.) — F.3d —, 2006 WL 1679385 (3d Cir., June 20, 2006).

November 22, 2005 Fraud/Misrepresentation

State consumer fraud action unavailable to nonresident website user

Plaintiff Shaw, a U.S. citizen but resident of London, used Hyatt International Corporation’s website to make a reservation for three nights in the Ararat Park Hyatt in Moscow, Russia. On the website, Hyatt quoted Shaw a rate of $502 USD per night. When checking out of the hotel, however, Shaw was charged some 15% more than the quoted price, allegedly because of an inflated exchange rate Hyatt used to convert between dollars and rubles.

Shaw filed suit against Hyatt in federal court in Chicago, alleging two causes of action under Illinois law: (1) violation of the Illinois Consumer Fraud and Deceptive Business Practices Act 815 ILCS 505/1 et seq. (“ICFA”), and (2) common law unjust enrichment. Hyatt moved to dismiss pursuant to Fed. R. Civ. P. 12(b)(6). The court granted the motion and dismissed the complaint.

In dismissing Shaw’s ICFA claim, the court applied the test set forth in the recent Illinois Supreme Court decision of Avery v. State Farm Mut. Auto Ins. Co., 835 N.E.2d 801 (Ill., 2005) which held that a nonresident plaintiff may sue under the ICFA only if the fraudulent transaction occurred “primarily and substantially” within Illinois. In the present case, the court found that:

[T]he overwhelming majority of the circumstances relating to the transaction between Plaintiff and Hyatt concern events outside of Illinois. Even assuming, as the Court must for purposes of a motion to dismiss, that Hyatt’s currency inflation scheme originated in its principal place of business in Illinois, Avery makes clear that this fact alone does not warrant application of the ICFA.

The court went on to dismiss Shaw’s unjust enrichment claim, because the “Terms and Conditions” displayed on the Hyatt website at the time of the reservation were an express agreement between Shaw and Hyatt. Because the specific transaction giving rise to the dispute was governed by an express agreement, the extra-contractual claim for unjust enrichment was unavailable.

Shaw v. Hyatt International Corp. 2005 WL 3088438 (N.D.Ill., November 15, 2005).

September 22, 2005 Fraud/Misrepresentation

Earthlink off the hook in phishing-alert case

The well-known Internet service provider Earthlink offered its customers a free service to protect from “phishing” scams by alerting users to potentially fraudulent websites. The service redirected users who are attempting to visit a suspicious site to a Scam Alert page, asking the user to “not continue to this potentially risky site.”

Plaintiff Associated Bank-Corp operated an online banking site which mistakenly ended up on Earthlink’s list of potentially fraudulent sites. Although Associated Bank’s site was legitimate, visitors using Earthlink were presented with the Scam Alert page. Associated Bank filed suit in federal court against Earthlink alleging various tort and fraud claims.

Earthlink filed a motion for summary judgment, arguing that Section 230(c)(1) of the Communications Decency Act shielded it from liability. This portion of the Act provides immunity for interactive computer services that publish information received from third party information providers. The court granted Earthlink’s motion for summary judgment.

It held that a reasonable trier of fact could not infer that Earthlink, by providing the alert service, was an information content provider. Instead, the evidence before the court demonstrated that third-party vendors identified potentially fraudulent sites, and that such information was directly input into a database without any alteration by Earthlink. Accordingly, because the information came from another provider, Earthlink could not be liable for the republication of untrue statements about Associated bank.

Associated Bank-Corp. v. Earthlink, Inc., 2005 WL 2240952 (W.D. Wis., September 13, 2005)(Not selected for official publication).

More coverage at Professor Goldman’s blog.

August 5, 2005 Fraud/Misrepresentation

Court allows false advertising suit over calling take-out pizza restaurant “fast-casual”

Marketing firms take note: what you say about one client on your website will get noticed by other clients, and they may sue.

Plaintiff San Francisco Oven hired defendant Fransmart to market San Francisco Oven’s “fast-casual brick-oven” pizza restaurant to potential franchisees. After San Francisco Oven and Fransmart entered into an agreement, Fransmart changed its website to describe another pizza restaurant, Z-Pizza, as also employing the “fast-casual brick oven” concept.

San Francisco Oven believed that this information about Z-Pizza was false, and that Fransmart had changed the description to steer potential franchisees away from San Francisco Oven and to Z-Pizza. Before San Francisco Oven hired Fransmart, the Fransmart website had listed Z-Pizza as having merely “take-out and delivery and limited in-restaurant dining.”

After learning of the changed information on the website, San Francisco Oven sued Fransmart for false advertising under Section 43(a) of the Lanham Act, 15 U.S.C. §1125(a). Fransmart moved to dismiss, arguing that San Francisco Oven’s complaint did not allege sufficient facts upon which subject matter jurisdiction could be based. The court disagreed, and denied Fransmart’s motion.

In its analysis, the court looked to the case of Scotts Co. v. United Indus. Corp., 315 F.3d 264 (4th Cir. 2002) to recast the elements of a 43(a) claim as follows: (1) the defendant made a false or misleading description of fact or representation of fact in a commercial advertisement about his own or another’s [goods or services]; (2) the misrepresentation is material, in that it is likely to influence the purchasing decision; (3) the misrepresentation actually deceives or has the tendency to deceive a substantial segment of its audience; (4) the defendant placed the false or misleading statement in interstate commerce; and (5) the plaintiff has been or is likely to be injured as a result of the misrepresentation, either by direct diversion of sales or by a lessening of goodwill associated with its [goods or services].

The court held that San Francisco Oven’s allegations of Fransmart’s statements about Z-Pizza satisfied these elements. The statements on the website described goods and services of another company. The representations were material in that they dealt with the actual subject about which Fransmart was hired (i.e., the franchise concept). The representations had the tendency to deceive, due to the alleged mischaracterization of Z-Pizza’s concept. By posting the statements online, Fransmart placed them into interstate commerce. Finally, San Francisco Oven had properly alleged that diverted franchisees to Z-Pizza would cause damage.

San Francisco Oven, LLC v. Fransmart, LLC, 2005 WL 1838125 (E.D.Va., July 27, 2005).