Justin Leonard, the owner of InfomercialScams.com, has had his share of legal troubles over the past several months. First, he was sued in Florida by the infomercial company GlobalTec, which sells day-trading software. GlobalTec alleged that, by posting reviews of GlobalTec products that turned up in Google searches, Leonard was infringing the company's trademark. With the assistance of Public Citizen, Leonard filed a motion to dismiss, pointing out that, among many other problems with the lawsuit, he lived in Arizona and had no connection with the state where he had been sued. Last month, the court accepted Public Citizen's arguments and dismissed the case for lack of jurisdiction.

Next, Leonard received a subpoena from Video Professor, an infomercial company that sells video-based courses, demanding that Leonard turn over IP addresses and other personally identifying information about everyone who posted reviews of the company's products. Leonard objected, again with the help of Public Citizen, and yesterday Video Professor withdrew its subpoena, although it did not drop its lawsuit and is apparently still pursuing another subpoena to discover the identity of a Wikipedia user, who the company claims defamed it in the online encyclopedia.

So it came as no surprise to Leonard when he learned of yet another lawsuit against him, this time in Michigan, brought by the Infomercial company Lifestyle Lift, which performs a facelift procedure that it claims takes only about an hour. Predictably, negative reviews of the company began showing up on the Internet, and Lifestyle Lift was not happy. So the company sued Leonard, claiming as others had claimed before that the negative reviews infringed its trademark. Public Citizen again filed a motion to dismiss on Leonard's behalf, asking the court to dismiss the complaint because the First Amendment protects the mention of the company’s trademark on Leonard’s Web site, because Leonard has not violated trademark laws, and because the court has no jurisdiction over Leonard in Michigan.

In addition to the lawsuits, Leonard has received a steady stream of legal threats from other companies demanding that negative reviews be taken offline. Many of these threats are totally without legal basis and seem designed only to bully Leonard into submission. Public Citizen has now defended Leonard on several occasions because, we believe, the Internet's potential as a source for consumer information cannot be realized if website operators are too afraid to post negative reviews. Unfortunately, however, most people don't have access to pro bono trademark lawyers, and defending against a lawsuit or subpoena will often be impossibly expensive for a small website operator.

Unless companies start facing penalties, like judicial sanctions, for lawsuits that are filed for the purpose of squelching negative opinions, they will keep bringing these lawsuits until websites like InfomercialScams.com are no more. And that, you can bet, is exactly what they want.

ConsumerAffairs.com has an interesting article on Video Professor and its lawsuit against 100 anonymous critics.

In a recently unsealed order, entered back in June, the Western District of Wisconsin rejected a grand jury's effort to subpoena customer records from Amazon.com in an effort to determine whether a bookseller had been paying taxes. Although the book purchasers were not the target of the investigation, the court worried that the subpoena would "permit[] the government to peek into the reading habits of specific individuals without their prior knowledge or permission." To avoid any unnecessary breach of privacy, the court devised an opt-in system, where the book purchasers would be notified of the prosecution and agree particular buyers could agree to cooperate with the prosecution. Although the state's interest in prosecuting crimes is high, and it seems like some of this information might have to eventually be made public, the court's decision here seems sensible. As long as the state's purpose can be accomplished in a way that does not infringe on people's reading habits, there is no reason to allow an unnecessarily broad subpoena to proceed. The court carefully fashioned a remedy that hopefully will both allow the prosecution to go forward and preserve the privacy of Amazon's customers.

Professor Ian Gallacher of Syracuse posted this article on SSRN, recommending that "law schools band together in a consortium in order to publish and freely disseminate American common law on the internet." It seems like momentum is gathering to use the Internet to break the Wexis duopoly.

Bill Patry weighs in on the Vernor v. Autodesk case.

In Matrix Essentials v. Quality King Distributors, the Eastern District of New York recognized that trademark law is designed to protect consumers from confusion, not to preserve corporate distribution schemes and minimum prices. 

L'Oreal sued a competitor (and tried to interest the U.S. Attorney in starting a criminal prosecution) for "diverting" (i.e., reselling) L'Oreal's hair care products outside of L'Oreal's authorized distribution system. Although L'Oreal characterized the shampoo as "counterfeit," the court didn't buy it:

Under the "first sale" doctrine, long a basic premise of trademark law, a trademark owner cannot control distribution of a trademarked item beyond its first sale. The re-sale of such genuine goods does not create consumer confusion and supports neither a claim of infringement nor unfair competition.

Far from protecting consumers, penalizing resellers for selling authentic products raises prices by halting legitimate competition. Nevertheless, some courts have bought into the argument that resellers are liable for selling less expensive products without permission of the manufacturer. This court, at least, appears to have gotten it right.

via Likelihood of Confusion

Public Citizen: Public Citizen Defends eBay Vendor Against Anti-Consumer Copyright Claim.

The Eastern District of New York's recent decision in S&L Vitamins v. Australian Gold is another troubling case for consumers who shop online. The case involves one of a series of claims by Australian Gold, which makes tanning lotions, against those who sell its products for discounted prices on the Internet. Australian Gold sells its lotions to distributors, who contractually promise to resell the products only to retailers that offer a "salon environment." According to Australian Gold, this contract term is designed to ensure that retailers receive adequate training on how to use the products. Although I can't say whether Australian Gold's tanning lotion really requires a lot of training to use, a more likely explanation for the provision comes from the fact that the company's products are sold by third parties on the Internet at prices far below the prices available at salons. By cutting out low-priced Web resellers, the company can keep its products priced at a level that the market could not otherwise support.

S&L Vitamins bypassed Australian Gold's business model by purchasing the lotions from salons in bulk and reselling it online at half the retail price. Australian Gold claimed that S&L's conduct gave rise to several causes of action, including copyright and trademark infringement, unfair competition, tortious interference with contract, and false advertising.

On a positive note, the court granted summary judgment to S&L on most of Australian Gold's claims. Among other things, the court held that posting thumbnail images of Australian Gold's products for purposes of selling the product online did not infringe Australian Gold's copyright in the design of the product's label, a holding that is plainly correct. However, the court allowed Australian Gold's trademark and tortious interference with contract theories to proceed. That's the part that's not good for consumers.

The court correctly recognized that merely reselling a product under its trade name cannot by itself constitute trademark infringement. Nevertheless, the court was persuaded by Australian Gold's argument that, by posting thumbnail pictures of the tanning products on S&L's website next to S&L's own trademarked name and logo, and by including the phrase "All Rights Reserved" beneath the thumbnail pictures, S&L had "gone beyond merely stocking and displaying" the products. Despite a disclaimer on S&L's site that it was "not affiliated with ANY Tanning Lotion manufacturer," the court concluded based on these facts that consumers might be confused into believing that Australian Gold had authorized or endorsed sale of its products on the S&L site.

Consumers, however, surely understand that everything they buy online is not manufactured by the website where they buy it. Nobody thinks Amazon.com makes the books or eBay.com makes the collectibles that can be purchased on those sites. Nor would any consumer believe that the phrase "All Rights Reserved" implies some sort of authorization by Australian Gold. Moreover, it's not at all clear that the question of whether consumers would think that Australian Gold authorized S&L to sell its products is even relevant to the trademark infringement issue. S&L doesn't need Australian Gold's authorization to sell its products, so whether consumers believe that S&L has authorization or not seems beside the point. Consumers cannot be said to have been misled or otherwise harmed when they purchase an authentic product from an unauthorized source at a reduced price.

Also troubling was the court's resolution of the interference with contract claim. The court found that Australian Gold's contracts with its distributors prohibited sales to anyone other than tanning salons and that there was at least some evidence that S&L knew of these agreements when it resold the products on the Internet. Although S&L bought its lotion from salons rather than from the distributors who had contracted with Australian Gold, the court thought that even such "circuitous conduct" could constitute interference with contract. Even assuming this holding is correct, the court seems to have missed a key element of the tort of interference with contract: the requirement of wrongfulness. Buying products off the shelf and reselling them at a discount is an example of capitalism at work, not of the sort of wrongful conduct that gives rise to tort liability. After all, S&L never agreed that it would not sell Australian Gold products on the Internet, and it should not be bound against its will to follow the anticompetitive agreements of others.

As Ron Coleman wrote in his brief in defense of S&L: "Trademark law is designed to protect consumers by preventing customer confusion, not to protect a manufacturer's inflated price structure and network of distributors by preventing truthful, accurate advertising." By vigorously pushing expansive claims of infringement, however, companies like Australian Gold are using the trademark laws to protect their own profits instead of consumers.

In Ticketmaster LLC v. RMG Technologies, 2007 WL 2988403 (C.D. Cal. Oct. 16, 2007), the Central District of California granted Ticketmaster's motion for a preliminary injunction against a company offering software that could quickly buy large quantities of tickets from Ticketmaster's website. The court held that the defendant was bound by the website's "Terms of Use," which prohibited commercial use of the site and limited the number of tickets that could be purchased at one time. The court concluded that, by merely browsing Ticketmaster's website in violation of these terms, RMG had infringed Ticketmaster's copyright in the site.

Although it's difficult to feel sorry for this defendant, who was basically allowing people to cut in Ticketmaster's virtual ticket line, the case raises troubling implications for consumers. The case gives more ammunition to companies that claim to bind consumers with contractual terms placed on a website. Moreover, the case assumes that merely viewing a website in an unauthorized manner can be copyright infringement. Reading a website, however, shouldn't be considered copyright infringement any more than reading a book is. Even though the website is copied into the computer's memory before it is displayed on the screen, the copy in memory is purely incidental to the process of reading the website, disappears when the user navigates to a different site, and has no adverse commercial effect on the copyright owner. Even if this is technically a "copy" under the Copyright Act, it seems like an easy example of fair use.

At the Technology & Marketing Law Blog, Eric Goldman concludes that the decision is "anything but consumer-friendly."

A Dramatic Chipmunk derivative I made to promote a class action settlement.