A New Defense for Brand Owners Against Unwanted Key-Word Advertising

Just came back from the International Trademark Association (INTA) annual meeting in Boston. Being on the Key-word Advertising Working Group of the Internet Committee, I spent quite a bit of time talking to colleagues from around the world about issues surrounding key-word advertising. From these discussions (and some recent developments in the law), it dawned on me that there may be a new way for brand owners to defend themselves against unwanted key-word advertising.

By way of reminder, key-word advertising (in its most traditional sense) is a dynamic form of advertising where search engine's selling (and advertisers buying) the ability to have the advertiser's advertisement displayed automatically when an end user enters that key-word into the search engine.

There are at least two primary things that frustrate brand owners about key-word advertising. First, companies can purchase the brands of their competitors as key-words and thereby use their competitors' trademark (and arguably their good will) to divert Internet traffic to the competitor's website and divert potential buyers to the competitor's products. Second, search engines are making money using the brand owner's trademark.

One of the significant legal developments in the last year in this area is that the majority of US courts seem to have reached a consensus that a search engine's sale of a trademark as a key-word constitutes a use of the trademark in commerce. The unsettled issue is whether and under what circumstances, that use gives rise to a likelihood of confusion so as to constitute infringement. Reflecting on this, it occurred to me; what if a brand owner used its brand not only as its trademark for its goods, but also used its brand for its own key-word advertising?

Bear with me here. Suppose Widgco, Inc. sells widgets under the brand SPARROW. (What's a widget?). Now, ordinarily, a search engine could then sell SPARROW as a key-word to the highest bidder (e.g., perhaps Widgco's competitor). But what if Widgco also had its own search engine and used the word SPARROW as a key-word to trigger its own advertisements on its own search engine. Under the majority of current cases, this should constitute "use in commerce." As such, Widgco would be using the brand SPARROW not only for widgets, but would also be using the word SPARROW for the advertising service of providing the key-word to trigger advertising displays. Now imagine that Widgco registers its SPARROW brand for "advertising services, namely, use as a key-word to trigger advertising displays." Okay, I admit, the description could use some refining, but you get the point. It would potentially be problematic for any search engine that wanted to use the SPARROW brand as a key-word.

Anyone else think this might work as a good defense against use of a trademark by search engines as a keyword? How long do you think it will be before someone tries this out and brings the first case like this? Just a thought ...

Anonymous Internet Defamation

If you have any presence on the Internet, sooner or later you will have to cope with anonymous defamation. So ... what can you do about it? The first thing that everyone wants to know, of course, is the identity of the person who posted or emailed the defamatory statement anonymously. However, the First Amendment to the U.S. Constitution generally protects anonymous speech. A recent New Jersey Appellate Division case (A.Z. (a minor) and B.Z. (on behalf of A.Z., as parent) v. John Doe and Jane Doe, Docket No. A-5060-08T3 (App. Div. March 8, 2010)) laid out two key elements that are required to force someone (typically an Internet Service Provider) to divulge the identity of the anonymous person. As lawyers like to do, let's call the anonymous person "John Doe."

In a nutshell, there are two key requirements you must satisfy if you want to force an ISP to tell you John Doe's identity. First, you need to prove to the court that you have all of the elements necessary to prove your case for defamation. Second, you need to persuade the court that your need for John Doe's identity outweighs John Doe's First Amendment right of anonymous speech.

If you are like me, its easy to quickly get bored reading lengthy articulations of intricate facts of legal cases. So, I'll try to keep it short, but this one is worth reading. The case arose when Jane Doe sent an email to a faculty advisor of a high school honors club. The email attached photos allegedly taken from posts on FaceBook showing various students holding beer cans and bottles and a beer funnel and inhaling what appeared to be an illicit drug. In one of the photos, A.Z. (the plaintiff in the case) is allegedly depicted poised to toss a ping pong ball on a table containing several plastic cups and beer cans. The email also alleged that the students depicted were "breaking their contracts [with the school] and breaking the law." The email was then forwarded to the principal, the school superintendent and the police. The police ultimately chose not to prosecute.

The trial court was persuaded that A.Z. had established a prima facie case for defamation (the first requirement), but did not feel that A.Z.'s need for John Doe's identity outweighed John Doe's First Amendment right of anonymous speech (the second requirement). The appeals court disagreed and found that A.Z. had not established a prima facie case for defamation.

In order to establish a case for defamation, one needs to prove that: (1) the defendant made a defamatory statement of fact about the plaintiff, (2) the statement was false, (3) the statement was communicated to a third party, and (4) the defendant knew the statement was false or faild to exercise due care in ascertaining its truth or falsity. In this case, the appeals court was not persuaded that the defendant's statements (i.e., that the students depicted were "breaking their contracts [with the school] and breaking the law") were false. Oddly enough, according to the appeals court decision, A.Z. never provided any evidence that the statements were false; not even a sworn affidavit. Having found this, the appellate court did not bother analyzing the other factors.

Long story short ... if you want to find out who is defaming you on the internet, you had better be prepared to swear under oath that the defamatory statements are false.

To Defense Contractors, Al Frankin Amendment is No Laughing Matter

Prime contractors who want to be eligible for Department of Defense government contract awards will have to comply with a new law banning arbitration with employees for claims. Compliance with the new law will likely require defense contractors to review, revise and renegotiating existing agreements with many of their independent contractors and subcontractors. On December 19, 2009, President Obama signed a new spending bill into law which implemented this requirement. The amendment to the bill providing for the arbitration ban was originally offerred by Sen. Al Frankin (D- Miss).

Under the new law (Sec. 8118 of HR 3326 ), prime contractors under DOD contracts will have to agree not to "enter into any agreement with any of its employees or independent contractors that requires, as a condition of employment, that the employee or independent contractor agree to resolve through arbitration any claim under title VII of the Civil Rights Act of 1964 (prohibiting employer descrimination on the basis of race, color, religion, sex or national origin) or any tort related to or arising out of sexual assault or harassment, including assault and battery, intentional infliction of emotional distress, false imprisonment, or negligent hiring, supervision, or retention." The new law goes further to require that such prime contractors will also have to agree not to take any action to enforce any provision of an existing agreement which would require such arbitration. This provision applies only to government contracts in excess of $1,000,000 awarded more than 60 days after the effective date of the Act.

It is not entirely clear what is intended to be covered by phrase "independent contractors." Perhaps it is intended to cover temporary help staffing who are not technically employees. However, does it apply to subcontractors?

A second provision of the new law expressly deals with and uses the word "subcontractors." The fact that the new law uses the phrase "independent contractors" in one section and "subcontractors" in another, might suggest that the phrases were intended to apply to different groups of non-employee workers.

The second provision dealing with subcontractors requires the prime contractor to certify that it requires each "covered subcontractor" (a subcontractor with a subcontract in excess of $1,000,000) to abide by the first provision applicable to prime contractors. This second provision applies to contracts awarded more than 180 days after the effective date.

Prime contractors and subcontractor who have agreements with their employees, independent contractors or subcontractors which contain these types of arbitration provisions may very well have to revise their contracts. Contracts which have general arbitration provisions, will have to be revised to exclude these particular types of claims. This provision has already been construed to apply to all employees, not merely those working on the government contract.

Who Owns the Rights to Santa Claus?

I was recently asked this question and fell in to the common quasi-misperception that the common Americanized image of of the "jolly old elf" was a creation of the Coca Cola company cut from whole cloth. Well, I was partly correct, but, as it turns out, the history of the image of Santa Claus is a little richer than I had originally appreciated.

Fortunately, you don't have to look far to get some pretty good triangulation of the "modern" history of the Americanized image of Santa Claus. Here is what I found.

While the historical roots of the origin of Santa Clause have been traced to the 4th Century Greek Saint Nicholas of Myra (apparently a resident of what is now Turkey (yes, the food irony is not lost on me)) that was not what I was looking for. I was more interested in the origins of the American iconic image.

The commonly found explanation seems to trace the origins of the American image to Washington Irving who (influenced by Dutch and, quite likely, early British images) first described an image of Saint Nicholas in his History of New York (1809) as "equipped with a low, broad brimmed hat, a huge pair of Flemish trunk hose, and a [long] pipe." This image was greatly enhanced in Clement C. Moore's 1823 poem A Visit from St. Nicholas (aka Twas the Night Before Christmas).

However, the first Americanized visual image of our familiar Saint Nick (which appears to incorporate the narrative attributes provided by both Irving and Moore) is attributed to illustrator Thomas Nast who drew an image of Santa for Harpers Weekly magazine in 1863.

This image is in the public domain and is available from Wikipedia and the Library of Congress. Another Santa image (which starts to look more like our familiar Santa Claus) attributed to Nast can be seen below (also from the Library of Congress) titled "Merry old Santa Claus" from 1889.

So far so good. As long as I am using Washington Irving, Clement C. Moore or Nast as my basis for creating my own image of Santa, I'm pretty safe, right? Not so fast.

The modern version (which would appear to draw significantly from the attributes of those images that came before, especially Nast) that most of us (well ... at least me anyway) think of when we think of Santa Claus is largely attributable to the handy work of one Haddon Sundblom who painted Santa images for the Coca Cola company in the 1930s. The Coca Cola company actual has their own accounting of the history of the Santa image on the Coke website. They state that Sundblom's inspiration came largely from the the Clement C. Moore poem. That said, there are clearly similarities between the 1889 Nast image and the Sundblom images.

So, who owns the rights to Santa Claus? Well, while the Sundblom images are owned by the Coca Cola company (I suspect), the Nast images appear to be in the public domain. Does that help? .... I didn't think so.

The better question is who owns the spirit of Saint Nicholas. Hopefully, the answer to that question is all of us.

Thanksgiving is Dead

That's right. You read it correctly. According to the U.S. Patent & Trademark Office, Thanksgiving is listed as dead. Officially, it is listed as having died three days before Christmas in 1988. On December 22, 1998, the THANKSGIVING trademark officially died after Alterman Foods, Inc. had failed to file a Section 8 affidavit continuing the mark. The mark was registered for Cooked Fruits, Cooked Vegetables, Hamburger Patties, Ground Pepper and Tea and, according to its owner, had been in use since September 1912. So the rest of it I can understand, but hamburger patties? Please let me know if you or anyone you know has a tradition of eating hamburger patties at Thanksgiving. I'm not offended, just curious.

On a more upbeat note, however, I am happy to report, that THANKSGIVING has been given new life by Hidden Wineries, Inc. who recently applied for the mark in August of this year for one of my favorite beverages: wine.

You'll also be glad to know that Macy's THANKSGIVING DAY PARADE is alive and well on the USPTO trademark roster, although with a claimed date of first use dataing back to 1924, I was surprised to see that it was only recently registered in 1998.

Finally, of all things, HAPPY THANKSGIVING is currently registered to Mattel. Go figure. Fortunately, it is only registered for toys and not bloging services. So hopefully Mattel will not be offended if I wish you all a HAPPY THANKSGIVING!!!

New FTC Guidelines to Address "Astroturfing"

Ever wonder whether the reviews allegedly posted online by consumers about a product were actually written by independent consumers or by the people on behalf of the company itself? Me too. Apparently, so does the Federal Trade Commission. On October 5, the FTC released its new “Guides Concerning the Use of Endorsements and Testimonials in Advertising.”

The previous guides (which were almost 3 decades old) did not expressly address internet based consumer endorsements sometimes referred to as "astroturfing." The new Guides clearly do, by expressly providing that where bloggers, paid by the advertiser, post product reviews, such reviews will be treated as endorsements. As such, the new Guides apply the previous rule (that the “material connections” between the endorser and the advertiser must be disclosed), at least in part, because these are connections that consumers would not expect.

The new Guides also require advertisers who rely on research findings to disclose material connections between the advertiser and the research organization. Similarly, with few exceptions, celebrity endorsers are also required to disclose any material connection between them and the advertiser.

Another key change under the new guide is that the FTC has gotten rid of the safe harbor that had previously existed for product endorsements. Under the old guidance, an advertiser could simply include a statement to the effect that “your results may vary” as a guard against a claim of false advertising if an endorser’s statements were not generally representative consumers’ experience with the product. Not any more. Now, advertisers and their endorsers are required to clearly disclose the results that consumers should generally expect.

Finally, the new Guides expressly provide that the endorser (not merely the advertiser) can be held liable for unsubstantiated claims made in the endorsement.

Much of the new Guides focus on the FTC’s opinion as to what a consumer is likely to perceive with respect to the relationship between the advertiser and the endorser. Unfortunately, there are not a lot of bright line tests that can be used by advertisers to know what is in the mind of the average consumer. It will be interesting to see how advertisers (especially those focusing on advertising in online social media) react to this new guidance.

Software Licensing & Bankruptcy

Given the state of the economy, companies are more and more focused on bankruptcy issues. In software licensing transactions where the software is a mission critical application for the licensee, it is not uncommon for the licensee to require that the source code be placed in escrow. Typically, the purpose of the escrow is to provide the licensee with a comfort level that the source code will be available for the licensee’s use if certain events occur. These events are typically referred to as “release events.” One release event that is commonly negotiated in technology escrow agreements is the bankruptcy of the licensor. For more on this issue you can listen to my podcast on this topic.

The licensee’s fear arises (at least in part), from the generally accepted perception that bankruptcy is a bad thing. And, as a licensee, if a bad thing happens to my mission critical application licensor, I want a back up plan. On the other hand, licensor’s carefully guard the confidentiality of their source code. Accordingly, they generally resist release events which would allow the source code to be released while the licensor is still in business. In the abstract, however, the bankruptcy of the licensor does not always spell disaster for the licensee.

In an involuntary bankruptcy of a licensor, the licensor can always get out of bankruptcy by paying off or settling with the creditors that put the licensor into the bankruptcy. Of course if the licensor does not or cannot do so, then the bankruptcy will continue. If the bankruptcy continues as a chapter 7 liquidation, then there is an expectation that the licensor will eventually go out of business. In this case, the licensee would be rightfully concerned about the ability of the licensor to continue to support the software. However, if the involuntary bankruptcy is either filed as a chapter 11 reorganization or the licensor converts it to a chapter 11 reorganization, then the expectation is that the licensor will reorganize its financial position and will not go out of business.

In a voluntary bankruptcy, the key risk for the licensee turns on whether the case will proceed as a chapter 7 liquidation or a chapter 11 reorganization. If the licensor voluntarily files for a chapter 7 liquidation, then, as mentioned above, the licensee has good reason to be concerned. If, however, the licensor files for a chapter 11 reorganization, then, as long as the licensor does not otherwise breach it support and maintenance obligations, there is no need for the licensee to have access to the source code (other than the licensee’s general insecurity). Filing for bankruptcy under chapter 11 does not mean that the licensor will go out of business. It is quite possible that the licensor could file for bankruptcy under chapter 11 and “come out of bankruptcy” with a reorganized and stronger financial position, and, without a "hic up" in the performance of its support and maintenance obligations during the bankruptcy.

From the licensor’s perspective, the risk of compromising the confidentiality of its source code (the company’s key asset) can be terribly problematic. This is especially important where the software and source code will perform a pivotal role in the ability of the licensor to reorganize itself in the context of the bankruptcy. When considering bankruptcy as a release event under a source code escrow, analyzing the pros and cons of the possible scenarios may not be as straight forward as it otherwise seems.