Whether attorney-client privilege protects communications among a client, his lawyer, and a public relations consultant was the question before the California Court of Appeal (“Court”) in Behunin v. Superior Court (2017) 9 Cal.App 5th 833, 837.
After acknowledging that the attorney-client privilege may extend to communications with public relations consultants in some circumstances, the Court concluded that Behunin failed to prove communications among him, his lawyers, and a PR firm were “reasonably necessary for his lawyers’ representation of him in a lawsuit.” Thus, the communications were not protected by the attorney-client privilege, and the opposing party could compel their disclosure.
Below is a breakdown of how the Court reached its conclusion, with some TAKE-AWAYS for clients, lawyers, and PR firms.
Nicholas Behunin had filed a lawsuit against Charles R. Schwab and son Michael Schwab over an unsuccessful real estate investment deal. As part of a strategy to induce settlement, Behunin’s attorneys (Steiner) engaged a PR consultant (Levick) to create a website linking Schwab real estate investments to former Indonesian dictator Suharto. [The website can be seen at www.chuck-you.com, though it appears to have been changed since earlier versions (see e.g., Oct. 2014 version).]
Schwab responded by suing Behunin for libel, slander, and invasion of privacy. When Behunin filed an anti-SLAPP motion to have the Schwab case thrown out, Schwab sought discovery of communications among Behunin, his lawyers, and the PR firm concerning the creation of the website. Behunin objected, claiming the communications were protected from disclosure by the attorney-client privilege.
PRIMER: HOW THIS ISSUE GETS TO THE COURT OF APPEAL
Behunin objected to producing the PR documents and filed a motion for a protective order based on the attorney-client privilege.
Schwab filed motions to compel the production of documents from Behunin and Steiner.
The trial court referred the motions to a discovery referee.
The discovery referee found the PR documents were not protected by the attorney-client privilege or work product doctrine, and thus, recommended denying the protective order and granting Schwab’s motions to compel.
Behunin and Steiner filed objections to the discovery referee’s recommendation with the court.
The trial court overruled the objections and adopted the referee’s recommendations as its own order.
Behunin filed a petition for writ of mandate with the Court of Appeal and requested an immediate stay of the trial court’s orders.
The Court of Appeal (“Court”) issued an order to show cause why it should not order the trial court to vacate (i.e., annul or set aside) its orders, and stayed (i.e., stop or put a hold on) all discovery proceedings pending its determination.
After the case was briefed and argued, the Court denied the petition for writ of mandate and vacated its order staying the discovery proceedings in the trial court.
THE COURT OF APPEAL ANALYSIS
The issues presented on appeal were:
(1) whether communications among Behunin, Steiner (lawyers), and Levick (PR consultant) were confidential attorney-client privileged communications; and
(2) whether the attorney-client privilege was waived.
The Court began by identifying and explaining the standard of review. First, it noted that a trial court’s ruling on a motion to compel discovery ordinarily is reviewed for abuse of discretion. However, where the issue concerns a legal privilege, appellate courts will review the trial court’s decision under the substantial evidence standard of review.
PRIMER: APPELLATE COURT REVIEW STANDARDS
Important to any appellate analysis is what standard of review the appellate court applies. Does the Court of Appeal simply decide the issue independently, as if it was the trial court (i.e., de novo or independent review)? Or does the Court of Appeal give some level of deference to what the trial court found as facts and concluded after applying the facts to the applicable law? This is why the “DISCUSSION” section of appellate opinions almost always begins with “Standard of Review.”
The standard of review has a huge effect on (and hugely affects) the likelihood that an appellate court will alter a trial court’s decision. A trial court’s decision reviewed for abuse of discretion is rarely reversed on appeal. A trial court’s decision reviewed for substantial evidence stands a slightly better chance of being reversed. If you are a litigant trying to get a trial court decision reversed on appeal, you want the appellate court to independently review (or to apply a de novo review standard), whereby the appellate court essentially reviews the matter the same way the trial court did, though it is often limited to what is contained in “the record.”
As to the second question, the Court of Appeal explained that “whether a party has waived a privilege, however, is often a mixed question of law and fact.” Where there is a mixed question of law and fact, and the Court’s inquiry requires a critical consideration, in a factual context, of legal principles and their underlying values, the Court views the issues as predominantly legal, and will independently review the trial court’s ruling.
The Court of Appeal explained the attorney-client privilege (Evid. Code § 954), as follows (italics added):
As to the third part, the Court of Appeal noted the definition of confidential communication between client and lawyer from Evidence Code § 952:
A “confidential communication between client and lawyer” means information transmitted between a client and his or her lawyer in the course of that relationship and in confidence by a means which, so far as the client is aware, discloses the information to no third persons other than those who are present to further the interest of the client in the consultation or those to whom disclosure is reasonably necessary for the transmission of the information or the accomplishment of the purpose for which the lawyer is consulted, and includes a legal opinion formed and the advice given by the lawyer in the course of that relationship.
It then noted Evidence Code § 912, which concerns waiver of the privilege: “A disclosure in confidence of a communication that is protected by a privilege provided by Section 954 (lawyer-client privilege) … , when disclosure is reasonably necessary for the accomplishment of the purpose for which the lawyer … was consulted, is not a waiver of the privilege.”
The Court then focused its analysis on the real issue:
Whether the disclosure to Levick (PR consultant) of communications between Behunin and Steiner (Behunin’s lawyers) was reasonably necessary to achieve the ends for which Behunin consulted Steiner.
Ordinarily, once a party establishes the facts necessary to support a claim of privilege (i.e., a communication made in the course of attorney-client relationship), the communication is presumed to have been made in confidence. However, this presumption does not apply when an attorney-client communication is disclosed to a third party. When that occurs, the party claiming the privilege bears the burden of proving the disclosure was reasonably necessary to achieve the ends for which the client consulted the lawyer.
The Court then discussed why Behunin had not proved that the communications were “reasonably necessary” for Steiner’s representation of Behunin. Initially, whether communications among a client, attorney, and a public relations consultant are protected by the attorney-client privilege depends on whether the communications were confidential and whether disclosing them to the consultant was reasonably necessary to accomplish the purpose for which the client consulted the attorney.
The Court identified two ways that disclosure of a privileged communication to a third party may not destroy the privileged nature of a communication:
The Court elaborated, noting the words “other than those who are present to further the interest of the client” means that a communication to a lawyer is confidential even when made in the presence of another person—such as a spouse, parent, business associate, or joint client—who is there to further the interest of the client in the consultation. “Those who are present to further the interest of the client” also applies to persons who may meet with the client and his attorney on a matter of joint concern.
Noting an absence of California case law applying the law of privilege in the context of public relations consultants, the Court reviewed several cases from other jurisdictions before turning to the evidentiary showing by Behunin.
The Court said Behunin provided little evidence explaining how or why communications among Levick, Steiner, and himself were reasonably necessary to assist Steiner in his ability to advise Behunin or to litigate his case. Similarly, Behunin presented no evidence showing why his or Steiner’s communications with Levick were reasonably necessary to develop a litigation strategy or to induce the Schwabs to settle.
Rather, the evidence showed that Steiner had little involvement with Levick, and that all Steiner did was act as a liaison in hiring the public relations firm. Steiner and Behunin merely stated, in conclusory fashion, that they engaged Levick to “develop and deploy” strategy, that they intended their communications with Levick to be confidential, and that the goal of the agreement with Levick was “to develop and deploy strategy and tactics of [Behunin’s] legal complaint” in the lawsuit.
Missing, said the Court, were “evidentiary facts showing or explaining why Steiner needed Levick’s assistance to accomplish the purpose for which Behunin retained him.”
The Court left open the possibility that “[t]here may be situations in which an attorney’s use of a public relations consultant to develop a litigation strategy or a plan for maneuvering a lawsuit into an optimal position for settlement would make communications between the attorney, the client, and the consultant reasonably necessary.” The Court also noted that “maximizing a client’s negotiating position and increasing the prospects for a favorable settlement are important parts of representing a client in litigation.”
But “[w]ithout some explanation of how the communications assisted the attorney in developing a plan for resolving the litigation, Behunin would not be able to show such communications were reasonably necessary to accomplish Steiner’s purpose in representing Behunin.”
The Court also reviewed cases in which communications with public relations consultants were privileged because the consultants were found to be “functional equivalents” of employees. The functional-equivalent cases, however, “require a detailed factual showing that the consultant was responsible for a key corporate job, had a close working relationship with the company’s principals on matters critical to the company’s position in litigation, and possessed information possessed by no one else at the company.” No such showing was presented by Behunin.
The Court said Behunin also had not presented evidence sufficient to protect the communications on the basis of common or aligned interests. Behunin and Levick apparently argued that they shared an interest in obtaining legal advice as to whether it was permissible to post content on the Internet, and that such advice clearly encompassed questions regarding both Behunin’s and Levick’s potential exposure to legal liability for such statements. However, the argument was not supported by evidence showing that Levick sought legal advice from Steiner or that there was any attorney-client relationship between Steiner and Levick. In fact, Behunin’s own declaration said that Steiner hired Levick on Behunin’s behalf without knowing anything about the content of the website Levick was to create. The law allows “sharing of privileged information when it furthers the attorney-client relationship,” but not simply “when two or more parties might have overlapping interests.” In other words, overlapping interests help, but are not sufficient without additional evidence showing (1) a party’s sharing its confidential information was reasonably necessary to advance the party’s case; or (2) that there was an attorney-client relationship between Steiner and Levick.
Accordingly, the Court of Appeal denied Behunin’s petition and did not disturb the trial court’s rulings ordering disclosure of communications involving the PR consultant.
TAKE-AWAYS FOR PRACTITIONERS AND PARTIES TO LITIGATION
1. When hiring a PR firm, anticipate potential disclosure requests and challenges to attorney-client privilege.
a. Consider limiting the creation of written communications by, to, and from the PR firm, just in case an attorney-client privilege is not found or is found to have been waived. (Note that here, Behunin and Steiner had to produce documents in which Levick participated, but did not have to produce communications solely between Steiner and Behunin.)
b. Consider whether the PR firm should also retain the lawyers, so there is an attorney client relationship between the lawyers and PR firm as well. (Note that here, Behunin and Levick argued that they shared an interest in obtaining legal advice regarding whether it was permissible to post content on the Internet. However, the court said there was no evidence that the PR firm sought legal advice from the lawyer or that there was an attorney-client relationship between the lawyer and the PR firm.)
c. Map out the process for determining whether the privilege applies and the process for determining if there was a waiver. Pay attention to the review standards, noting in particular, that the involvement of a third party (PR consultant) changes the burden of proof in litigating attorney-client privilege issues, and the party claiming the privilege will bear the burden of proving the privilege applies and was not waived.
d. Consider getting appellate counsel involved early. On appeal, review of the trial court’s decision is likely to involve mixed questions of law and fact, to which the Court of Appeal will apply the independent review standard. It is critically important that the record be sufficiently developed, that all potential bases for privilege are covered (see No. 2 below), and that all arguments are supported by evidence in the trial court and are made part of the record on appeal (see No. 3 below).
[For more on standards of review, see California Court of Appeal – Civil Appellate Practices and Procedures for the Self-Represented in the Fourth Appellate District Division One, Chapter 5. Briefing the Case, beginning on page 5-5.]
2. Parties and/or PR firms interested in preserving the attorney-client privilege must be prepared to provide evidence:
a. explaining how or why communications among the PR consultant, lawyer, and client are reasonably necessary to assist the lawyer in his ability to advise the client or litigate his case;
b. showing why the client’s or lawyer’s communications with the PR firm are reasonably necessary to develop a litigation strategy or settlement strategy or other litigation purpose;
c. showing or explaining why the lawyer otherwise needs the PR firm’s assistance to accomplish the purpose for which client retained the lawyer; or
d. showing (in detail) that the consultant was responsible for a key corporate job, had a close working relationship with the company’s principals on matters critical to the company’s position in litigation, and possessed information possessed by no one else at the company (consistent with the analysis in FTC v. GlaxoSmithKline (D.C.Cir. 2002) 352 U.S. App.D.C. 343 [294 F.3d 141, 148], Schaeffer v. Gregory Village Partners, L.P.(N.D.Cal. 2015) 78 F.Supp.3d 1198, 1204, and/or A.H. ex rel. Hadjih v. Evenflo Co., Inc. (D.Colo., May 31, 2012, No. 10-cv-02435-RBJ-KMT) 2012 WL 1957302, pp. *5, *3).
3. Parties and/or PR firms interested in protecting communications from disclosure also should consider the potential applicability of the work product doctrine. See California Code Civ. Proc., § 2018.030. Here, the court noted that Behunin failed to advance any arguments to support the application of the work-product doctrine, noting: “Although Behunin refers to the attorney work product doctrine in his petition and in his reply, he provides no legal argument or authorities to support the application of that doctrine to documents the court ordered produced. There is also no evidence in the record from which we might independently ascertain whether any of the communications to or from Behunin, Steiner, or Levick or any of the documents created by Levick would qualify as “[a] writing that reflects an attorney’s impressions, conclusions, opinions, or legal research or theories” and thus work product.”
 Confidential communication privileges allow a person to resist compulsory disclosure of certain communications. These privileges exist not because of a fear that information provided will be inaccurate, but because there are public policy reasons why the information should not be disclosed. For example, the lawyer-client privilege, marital communications privilege, physician-patient privilege, psychotherapist-patient privilege, clergy-penitent privilege, sexual assault counselor-victim privilege, and domestic violence counselor-victim privilege exist to foster free-flowing communication between persons in what the legislature has determined are socially beneficial relationships.
 The Court explained the substantial evidence standard as follows: “When the facts, or reasonable inferences from the facts, shown in support of or in opposition to the claim of privilege are in conflict, the determination of whether the evidence supports one conclusion or the other is for the trial court, and a reviewing court may not disturb such finding if there is any substantial evidence to support it.” Note that the word substantial can be confusing in this context. It doesn’t mean, “There was a substantial amount of evidence supporting that point.” In common parlance, it’s more like “There was some evidence supporting the point, and that evidence had substance to it.” See more on Standard of Review here (see p. 5-5.)
 The Court of Appeal explained this that works in the context of the Behunin case. Mixed questions of law and fact concern the application of the rule to the facts and the consequent determination whether the rule is satisfied. As the historical facts are undisputed, the question is whether, given those historical facts, a party has waived the attorney-client privilege and attorney work product protection. That inquiry requires a critical consideration, in a factual context, of legal principles and their underlying values. Therefore, the question is predominately legal, and appellate courts independently review the trial court’s decision. (Note: “independent review” is the same as de novo review, and means the Court reviews the issues much in the same way the trial court did, without deference to the trial court’s findings and decision.) See also, IDENTIFYING AND UNDERSTANDING STANDARDS OF REVIEW from the Georgetown Univ. Law Center.
 Examples: when an attorney shares a confidential communication with a physician, appraiser, or other expert in order to obtain that expert’s assistance, so the attorney is better be able to advise his client; or where a translator or an accountant is employed to help clarify communications between an attorney and client.
 This assumes a California state court would find the “functional equivalent of an employee of the client” theory viable.
In Mirmina v. Genpact LLC, plaintiff sought discovery of emails in which the defendant made derogatory statements about plaintiff. Defendant’s attorneys relied upon their client’s review of her own emails (“self-collection”) to locate responsive documents, as shown in this email exchange between counsel:
Defendant’s counsel wrote:
In any event, to be clear, Ms. Saxena provided for our review and processing all emails between her and Mr. Mirmina as well as any other emails and documents relating to her concerns about Mr. Mirmina’s performance, the PIP and/or the termination decision. To the extent these documents were non-privileged and responsive to the initial discovery protocols or your requests for production they were produced.
Plaintiff’s counsel responded:
So, am I to understand that you relied on Ms. Saxena to locate responsive documents? Do you really think if she wrote an email that she thought Mr. Mirmina worked 15 hours a week that she would turn it over to you? We want an objective search done that does not rely upon the “good faith” of the person who made defamatory remarks regarding Mr. Mirmina.
When defendant Genpact disagreed, plaintiff filed a motion to compel, arguing that the discovery rules required something more from counsel than reliance upon the client’s good faith in producing emails. Plaintiff sought an order requiring defendant to conduct an objective search for emails based on search terms agreed upon by both parties.
Defendant’s opposition began by acknowledging that:
(1) a litigation hold was the first step (preservation);
(2) compliance with the hold must be monitored;
(3) attorneys and clients must work together to ensure that both understand how and where electronic documents, records and emails are maintained and to determine how best to locate, review, and produce responsive documents; and
(4) attorneys must take responsibility for ensuring that their clients conduct a comprehensive and appropriate document search.
Defendant argued it satisfied these requirements by submitting (1) a declaration of Genpact’s in-house counsel that he properly issued a litigation hold upon receiving the charge of discrimination by plaintiff; and (2) a verification that he had coordinated a thorough search of all emails and documents relating to, concerning, or reflecting Genpact’s decision to terminate Mirmina and provided them to outside counsel for production.
Defendant then argued that plaintiff’s motion was based entirely on supposition that Genpact had concealed phantom “smoking gun” documents, without any evidence supporting the allegation.
THE COURT’S ANALYSIS
The court began its analysis by setting forth today’s standards:
A party’s discovery obligations do not end with the implementation of a “litigation hold” — to the contrary, that’s only the beginning.
Counsel must oversee compliance with the litigation hold, monitoring the party’s efforts to retain and produce the relevant documents.
Proper communication between a party and her lawyer will ensure (1) that all relevant information (or at least all sources of relevant information) is discovered, (2) that relevant information is retained on a continuing basis; and (3) that relevant non-privileged material is produced to the opposing party.
“Responsibility for adherence to the duty to preserve lies not only with the parties but also, to a significant extent, with their counsel.”
Indeed, for the current “good faith” discovery system to function in the electronic age, attorneys and clients must work together to ensure that both understand how and where electronic documents, records and emails are maintained and to determine how best to locate, review, and produce responsive documents.
Attorneys must take responsibility for ensuring that their clients conduct a comprehensive and appropriate document search.
The court found that the steps taken by the company’s in-house counsel and litigation counsel to coordinate and supervise the search for electronically stored information (ESI) were proper and sufficient for ensuring a comprehensive search was conducted. Since plaintiff submitted no evidence supporting the contention that defendant had withheld communications, the defendant was not required to conduct an additional search for ESI.
THE TAKE-AWAY FOR IN-HOUSE COUNSEL AND THEIR LITIGATION COUNSEL
Here are the steps the court found proper and sufficient in Mirmina v. Genpact LLC:
(A) The company’s in-house counsel—
(1) issued a timely and detailed litigation hold to potential custodians of ESI, directing the preservation of any records and documents that might pertain to plaintiff’s claims;
(2) gave instructions to the ESI custodians regarding searches and specific search parameters;
(3) explained the importance of a thorough search to the ESI custodians; and
(4) provided guidance when questions arose during the search.
(B) The company’s in-house counsel then affirmed that he forwarded the results of the searches to outside counsel, who in turn conducted a review for processing and production.
(C) The company’s outside counsel represented that a comprehensive search was conducted for all documents subject to production under the Initial Discovery Protocols, and that all responsive documents were disclosed to the plaintiff.
THE TAKE-AWAY FOR PARTIES SEEKING TO COMPEL A SEARCH OF ELECTRONIC DOCUMENTS
A party seeking to compel a search in the face of representations that all documents have been produced must support the motion with evidence, and not simply surmise.
 Mirmina v. Genpact LLC (D.Conn. July 27, 2017, No. 3:16CV00614(AWT)) 2017 U.S.Dist.LEXIS 117412.
 Bagley v. Yale University, 318 F.R.D. 234, 239 (D. Conn. 2016), and Friedman v. SThree PLC, No. 3:14cv278, 2016 WL 7374546, at *3 (D. Conn. Oct. 24, 2016); see also citing Richard Green (Fine Paintings) v. McClendon, 262 F.R.D. 284, 290 (S.D.N.Y. 2009) (quotation marks and citation omitted), and Fed. R. Civ. P. 26(g) (requiring that counsel make a “reasonable inquiry” before certifying that a discovery response is “is complete and correct as of the time it is made”).
 Vaigasi v. Solow Mgm’t Corn., No. 11 Civ. 5088, 2016 WL 616386, at *16 (S.D.N.Y. Feb. 16, 2016
 Mirmina v. Genpact LLC (D.Conn. July 27, 2017, No. 3:16CV00614(AWT)) 2017 U.S.Dist.LEXIS 117412, at *3-4, citing Zubulake v. UBS Warburg LLC, 229 F.R.D. 422, 432 (S.D.N.Y. 2004).
 Mirmina, supra, quoting from Electrified Discounters, Inc. v. MI Techs., Inc., No. 3:13CV1332(RNC), 2015 U.S. Dist. LEXIS 64950, 2015 WL 2383618, at *2 (D. Conn. May 19, 2015).
 Orbit One Commc’ns, Inc. v. Numerex Corp., 271 F.R.D. 429, 437-38 (S.D.N.Y. 2010); see also Fed. R. Civ. P. 26(g) (requiring that counsel make a “reasonable inquiry” prior to certifying that a discovery response is “complete and correct as of the time it is made”).
It sounds like something you might put on your lawn to kill weeds. But in the world of brands and marketing, genericide is a killer of trademarks. It is what happens when a trademark becomes the common (generic) word for a product or service itself and is no longer protectable under trademark law.
Countless articles tell the stories of how trademarks lost their ability to distinguish the source of goods because they became generic. Examples include CELLOPHANE, LANOLIN, ESCALATOR, THERMOS, and ASPIRIN. See INTA’s Practical Tips on Avoiding Genericide.
Genericide is one reason companies police how others use their trademarks. It is also a reason that companies create branding and trademark usage guidelines, like these for Intel, Apple, and Symantec. See also, A Guide to Proper Trademark Use.
Some guidelines, like those of Symantec, go beyond what to do, and explain why:
Proper usage aids consumers who depend upon Symantec’s goods and services and helps prevent Symantec Trademarks from losing their distinctiveness and becoming generic.
They may even explain what not to do:
Trademarks are adjectives and should be followed by the generic term they modify, such as “software” or “product”. Never use a trademark as a noun, a verb, or in the possessive form.
With all of this focus on how marks lose their distinctiveness by becoming generic, you may be thinking:
People seldom say, “Try searching for [whatever] using the Google search engine.” People instinctively shorten things and say, “Try googling it.” But shouldn’t that lead to Google becoming generic and incapable of serving as a trademark?
Not necessarily, said the Ninth Circuit Court of Appeal in Elliott v. Google, Inc., No. 15-15809, 2017 U.S. App. LEXIS 8583 (9th Cir. May 16, 2017). There is more to it. You have to ask the right question, and that is the TAKE-AWAY at the end of this article.
Initially, explained the court, the mere fact that the public sometimes uses a trademark as the name for a unique product does not immediately render the mark generic. Rather, a trademark only becomes generic when the “primary significance of the registered mark to the relevant public” is as the name for a particular type of good or service irrespective of its source.
Courts make that determination by applying the “who-are-you/what-are-you” test:
If the relevant public primarily understands a mark as describing “who” a particular good or service is, or where it comes from, then the mark is still valid. But if the relevant public primarily understands a mark as describing “what” the particular good or service is, then the mark has become generic. In sum, we ask whether “the primary significance of the term in the minds of the consuming public is [now] the product [and not] the producer.”
In Elliott v. Google, seeking show that Google had become generic, Elliott focused on how google often is used as a verb. [Well-known dictionaries define google as a verb.] The Ninth Circuit court, however, found Elliott’s claim to be flawed for two reasons: (1) a claim of genericide must always relate to a particular type of good or service; and (2) use as a verb does not automatically constitute generic use.
Genericide Must Relate to a Particular Type of Good or Service
Relation to a particular type of good or service, the court said, is infused throughout several sections of the Lanham Act (federal trademark law). A mark can be canceled if it “becomes the generic name for the goods or services . . . for which it is registered.” “If the registered mark becomes the generic name for less than all of the goods or services for which it is registered, a petition to cancel the registration for only those goods or services may be filed.” The relevant question under the primary significance test is “whether the registered mark has become the generic name of [certain] goods or services.” 15 U.S.C. § 1064(3).
The court then added that such a relation requirement is necessary to maintain the viability of arbitrary marks as a protectable trademark category. In other words:
If there were no requirement that a claim of genericide relate to a particular type of good, then a mark like IVORY, which is “arbitrary as applied to soap,” could be cancelled outright because it is “generic when used to describe a product made from the tusks of elephants.”
Trademark law recognizes that a term may be unprotectable with regard to one type of good, and protectable with regard to another type of good. Thus, the court said the very existence of arbitrary marks as a valid trademark category supports the conclusion that a claim of genericide must relate to a particular type of good or service.
Use as a Verb Does Not Automatically Constitute Generic Use
Moving to the second point, the court said a trademark may be used as a verb, or even as a noun, without becoming generic. In connection with Lanham Act amendments, the court noted the following from a Senate Report:
A trademark can serve a dual function—that of [naming] a product while at the same time indicating its source. Admittedly, if a product is unique, it is more likely that the trademark adopted and used to identify that product will be used as if it were the identifying name of that product. But this is not conclusive of whether the mark is generic.
In this way, the court said Congress has “instructed us that a speaker might use a trademark as a noun and still use the term in a source-identifying trademark sense.” That was the case in Coca-Cola Co. v. Overland, Inc., 692 F.2d 1250 (9th Cir. 1982), where Coca-Cola had sued a restaurant (Overland) for trademark infringement, and Overland countered that COKE was generic, claiming that customers ordered “coke” only in a generic (“soda”) sense. The court rejected that argument, noting that the mere fact customers ordered “a coke,” i.e., used the mark as a noun, failed to show “what . . . customers [were] thinking,” or whether they had a particular source in mind.
To accept Elliott’s argument, the court said, would require “evidence regarding the customers’ inner thought processes.” The court explained further in a footnote:
We acknowledge that if a trademark is used as an adjective, it will typically be easier to prove that the trademark is performing a source-identifying function. If a speaker asks for “a Kleenex tissue,” it is quite clear that the speaker has a particular brand in mind. But we will not assume that a speaker has no brand in mind simply because he or she uses the trademark as a noun and asks for “a Kleenex.” Instead, the party bearing the burden of proof must offer evidence to support a finding of generic use.
Relating it to Google, the court said that just as a customer might use the noun “coke” with no particular cola beverage in mind, or with a Coca-Cola beverage in mind, an internet user might use the verb “google” with no particular search engine in mind, or with the Google search engine in mind.
While Elliott had amassed a mountain of evidence ranging from expert surveys to dictionaries, it all focused on the public using “google” as a verb, and did not show evidence of “google” being a generic name for internet search engines.
Elliott also argued there is no efficient alternative for the word “google” as a name for “the act” of searching the internet regardless of the search engine used. But the court convincingly disposed of that argument:
Elliott must show that there is no way to describe “internet search engines” without calling them “googles.” Because not a single competitor calls its search engine “a google,” and because members of the consuming public recognize and refer to different “internet search engines,” Elliott has not shown that there is no available substitute for the word “google” as a generic term.
Ultimately, Elliott lost by focusing on the wrong question. Elliott focused on whether the relevant public primarily uses the word “google” as a verb, when the real question was:
…whether the primary significance of the word “google” to the relevant public is as a generic name for internet search engines or as a mark identifying the Google search engine in particular.
The opinion includes analysis of several consumer surveys offered by Elliott. The court noted that consumer surveys may be used to support a claim of genericide “so long as they are conducted according to accepted principles.”
Two of Elliott’s consumer surveys, however, were excluded because they were not conducted according to accepted principles:
Specifically, these surveys were designed and conducted by Elliott’s counsel, who is not qualified to design or interpret surveys… [and, even] if the surveys were admitted, Elliott’s counsel would need to withdraw in order to offer testimony on the survey results.
For the latter point, the court cited Ariz. R. Sup. Ct. 42, E.R. 3.7 (“A lawyer shall not act as advocate at a trial in which the lawyer is likely to be a necessary witness . . . .”); see also Model Rules of Professional Conduct 3.7.
In California, see Rule of Professional Conduct 5-210 Member as Witness; but also see proposed California Rule 3.7 Lawyer as Witness (On March 30, 2017, the State Bar submitted the proposed rules to the California Supreme Court).
Nice post by Eric Ostroff on a case involving pleading requirements (Iqbal/Twombly) under the federal Defend Trade Secrets Act.
As more plaintiffs bring claims under the shiny new Defend Trade Secrets Act, we continue to learn about how courts are interpreting this statute. On Tuesday, the District of New Jersey answered an open question: whether the statute, in conjunction with Twombly/Iqbal, requires a heightened pleading standard for misappropriation. In Chubb INA Holdings, Inc. v. Chang, the DNJ declined to apply such a standard. A copy of the opinion can be downloaded below.
In this case, Chubb sued its former employee and its competitor Endurance, alleging that the former employee worked with Endurance to solicit a large number of employees from Chubb’s real estate and hospitality division. The goal was to hire enough Chubb employees to create a “turnkey” operation for Endurance. In the process, Chubb alleges, the former employees took Chubb’s confidential information. Chubb sued for, among other things, violations of the Defend Trade Secrets Act.
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On December 7, 2016, Eric Ball & William Pierog of Fenwick & West published a very useful and well-researched article, “Can Internet Comments and Search Results Prove Trademark Infringement?”
The article explores what types of comments will and will not help prove confusion, backed by citations to particular cases in which the issues have arisen.
[O]nline comments… are not hearsay if they… are not offered for the truth of the matter asserted… [and instead…[are] offered to show assumed association between the parties.
…evidence that does show confusion about product source may only suggest that the internet user “appears to be someone so easily confused that even trademark law cannot protect her.”
…inattentiveness during purchasing decisions is relevant…[but] consumer inattentiveness at other times may not suggest product source confusion.
[Concerning search results as evidence of confusion]…Consumers expect a search to return unrelated products.
…evidence should be from relevant purchasers rather than vendors or third-party businesses.
There’s an old saying: “A business with no sign is a sign of no business.”
In a recent dismissal order, the Northern District of California provided insight into the requirements for assigning an Intent-to-Use (ITU) trademark application when the assignment occurs before proof of actual use of the mark is filed with the USPTO.
Some use of a mark, sufficient to accrue some goodwill, is required before an Intent-to-Use trademark application may be assigned to another.
This is a very important concept, because it can arise in many contexts, including:
Common law trademark rights arise from actual use of a mark on goods or in connection with services. USPTO registration of a mark (providing nationwide rights) can occur only after a mark is used in interstate commerce.
If a mark is already in use when a trademark application is filed, the first use date is stated in the application, and the mark, specimen, description, and classes are reviewed by the trademark examiner. Upon approval, the mark is published to see if anyone objects. Barring a successful objection, the USTPO issues a registration certificate.
U.S. law also allows a trademark application to be filed based on Intent-to-Use (ITU), effectively allowing a mark to be reserved. However, the USPTO will register a mark only after the ITU applicant shows actual use of the mark by filing an “allegation of use” — either an Amendment to Allege Use (before publication of the mark) or a Statement of Use (after publication). If the mark ultimately is registered, the filing date of the ITU application becomes the constructive first use date. This gives the ITU applicant priority over others who started using the mark after the ITU application filing date (even though the ITU applicant had not actually used the mark in commerce at that time). See why this matters here.
An ITU trademark application may be assigned to another before a registration issues if the requirements of 15 U.S.C. § 1060(a)(1) are met. The requirements differ, however, depending on whether the assignment occurs before or after the ITU applicant files an allegation of use.
If the assignment occurs after the applicant has filed an allegation of use, the ITU application must be assigned in writing together with the goodwill of the business in which the mark is used, just as if the assignment occurred after the mark already had been registered.
If the assignment occurs before the applicant files an allegation of use, the law will allow an assignment only “to a successor to the business of the applicant, or portion thereof, to which the mark pertains, if that business is ongoing and existing.”
Stated another way, an ITU application may not be assigned before an allegation of use is filed, unless the ITU application is transferred with at least part of the applicant’s “ongoing and existing” business to which the mark pertains. This prevents the trafficking or profiting from the sale of ITU applications, i.e., the buying and selling of “inchoate” marks which as of yet, have no real existence.
What does it mean to assign an ITU application “to a successor to the business of the applicant, or portion thereof, to which the mark pertains, if that business is ongoing and existing”?
The Northern District of California recently addressed this in an order granting a motion to dismiss in Sebastian Brown Productions LLC v. Muzooka Inc. (N.D. Cal., Mar. 14, 2016, No. 15-CV-01720-LHK) 2016 WL 949004, at *8.
Plaintiff Sebastian Brown Productions (SBP) operates a digital media storefront MuZook at muzook.com. SBP’s sole owner, Miller, in his individual capacity, had applied for the MUZOOK trademark under an ITU application. A few weeks after filing, Miller assigned the ITU trademark application to SBP, “together with that part of [Miller’s] business to which the Marks pertain, which business is ongoing and existing, the goodwill of the business symbolized by the Marks, and all registrations and applications therefor.”
In 2014, SBP sued competitor Muzooka, Inc. While the facts are more complex than stated here, in order to prevail, SBP needed to establish constructive-use priority over Muzooka, Inc., based on the date Miller filed the MUZOOK ITU application.
Since Miller had assigned the MUZOOK ITU application to SBP before filing an allegation of use, the dispute focused on whether SBP was truly a successor to an “ongoing and existing” business to which the MUZOOK mark pertained, for purposes of § 1060(a)(1). Turning to precedent from the Trademark Trial and Appeal Board, the court discussed various cases applying this language, and distilled a few principles:
Ultimately, the court determined that some use of a mark, sufficient to accrue some goodwill, is required before an ITU application may be assigned. It is not enough to simply restate the language of § 1060(a)(1) in an assignment — there must be some goodwill or ongoing and existing business to transfer.
“Goodwill” generally has been described as “the advantage or benefit, which is acquired by an establishment, beyond the mere value of the capital, stock, funds, or property employed therein, in consequence of the general public patronage and encouragement which it receives from constant or habitual customers,” which accrues only through use of the mark. As the court noted in citing Pfizer, Inc. v. Hamerschlag, 2001 WL 1182865, at *4 (TTAB Sept. 27, 2001) (non-precedential): “Unwittingly or not, a party who has no business except obtaining a trademark on the basis of intent to use and who prior to starting a business assigns that application to another falls squarely into the trademark trafficking activity that [§ 1060(a)(1)] is intended to preclude.”
Although Miller used sufficient language to transfer an ITU trademark application before the filing of an allegation of use, Miller had nothing to transfer — no goodwill or ongoing and existing business. SBP did not allege that Miller had provided any services under the MUZOOK mark; invested money in the development of the MUZOOK mark; publicly displayed the MUZOOK mark; had any business assets; or engaged in any business activities. There was nothing alleging that Miller had used the MUZOOK mark, prior to the assignment, in a manner that established goodwill or any ongoing and existing business. Thus, since no allegations could establish transfer of goodwill or an ongoing and existing business as required by § 1060(a)(1), SBP could not establish the constructive-use date needed to demonstrate priority over Mazooka, Inc., and the case was dismissed.
While this assignment issue is important in many contexts, counsel and DIY trademark applicants should use caution when assigning an individual’s ITU trademark application to his/her business entity before an Amendment to Allege Use or a Statement of Use has been filed with the USPTO.
10-22-2016 Addition: For further application and analysis of these concepts, see Sorry, Apple, Assignment of ITU Applications Isn’t MAGIC by Wes Anderson at DuetsBlog (http://www.duetsblog.com/2016/10/articles/advertising/sorry-apple-assignment-of-itu-applications-isnt-magic/)
1. Conduct professionally-assisted trademark searches before adopting new marks. Choose distinctive protectable marks. Make sure domain names are available for the marks before choosing them. Register marks with the USPTO. Consider registering the marks in other countries as well. Ensure the marks are applied for and registered in the name of your organization and not individuals within the organization. Comply with the requirements to maintain those marks. Adopt a system to ensure all of the organization’s marks remain continuously in use.
2. Register important domain names. Don’t let the organization’s important domain name registrations lapse for failure to renew or re-register.
3. Register important social media account names on Facebook, Twitter, Instagram, etc. Develop policies and rules for social media posts made on behalf of the organization.
4. Learn the basics about trademarks and train employees, volunteers, members, chapters, licensees, affiliates, sponsors etc., about the proper use of the organization’s marks. Use the proper symbols (TM, SM, or ®) next to the organization’s marks. Consider creating a Style Guide showing how to use the organization’s marks consistently and in the proper form. Every nonprofit organization should at least have a simple Style Guide.
5. Don’t allow employees, volunteers, members, chapters, licensees, affiliates, sponsors, etc., to register the organization’s marks (or confusingly similar marks).
6. Monitor USPTO filings, social media channels, and the internet (set Google Alerts, do periodic searches, check for domain names, etc.) for use of the organization’s marks (and confusingly similar marks). Develop an internal system for handling issues of potential infringement. Listen and watch for diversion of donations or confusion as shown by misdirected email, mail, complaints, donor communications, and donor patterns. Identify and train personnel to recognize signs of potential confusion.
7. Educate donors, potential anonymous donors, and those who advise them (estate planning attorneys etc.) about the organization’s correct name, so donors don’t write checks to or leave bequests to the “Animal Shelter” – thus creating ambiguity and exposing the organization to contested claims. Create and disseminate materials that help planned-giving participants correctly name the organization in their estate planning documents. Make it easy for donors and their advisors.
8. Require written signed licenses from affiliates and other third parties who will use the organization’s marks. Ensure the licenses put appropriate limits on how the marks can and cannot be used. Include terms under which the license can be terminated. Inspect and monitor the quality of goods and/or services provided under the marks.
9. Consult with knowledgeable nonprofit entity counsel to assure licensing, sponsorship, co-ventures, cause marketing, and related activities fit within recognized exemptions and do not give rise to undesired tax consequences or jeopardize the organization’s exempt status.
10. If the organization receives a cease-and-desist letter alleging trademark infringement or other claims, contact an attorney before responding. Priority of use, registration, public relations, confusion factors, and other issues must be reviewed and considered before responding. Disputes often can be resolved short of a lawsuit.
Sedlik’s Multiplier – an acceptable use of a multiplier as part of calculating fair market value to account for factors such as exclusivity or rarity when determining actual damages under the Copyright Act.
Using an electron microscope, in the mid-1990s, photographer Andrew Paul Leonard created colorized stem cell images from cell samples he obtained from doctors, scientists, and researchers. Leonard built a profitable business licensing rare stem cell images, and received a range of fees for different types of licenses. One appeared on the cover of TIME.
Defendant Stemtech sells nutritional supplements through thousands of distributors. Stemtech contacted Leonard about licensing his stem cell images, because as Stemtech employees explained, “using these images was important to Stemtech’s business.” Stemtech declined to license Leonard’s image for website use because “the price was too high,” but chose to license an image for use twice in its internal magazine.
Leonard sued Stemtech for copyright infringement in Delaware federal district court when he discovered that Stemtech had vastly exceeded the scope of the license. Because Leonard had not registered his copyright sufficiently in advance to seek statutory damages, he had to prove actual damages under the Copyright statute. See 17 U.S.C. §504 Remedies for infringement: Damages and profits. At trial, the jury awarded Leonard $1.6 million in actual damages.
Stemtech appealed to the Third Circuit Court of Appeals, arguing among other things, that the award of actual damages was grossly excessive and that the district court improperly allowed the testimony of Leonard’s damages expert, Jeff Sedlik. The Third Circuit rejected Stemtech’s arguments, and sent the case back to the district court to determine whether interest should be added as well. See Leonard v. Stemtech, __ F.3d ___, 2016 WL 4446560, at *1 (3d Cir. Aug. 24, 2016).
[There is some good discussion of secondary infringement, including application of and distinctions between contributory infringement liability and vicarious liability.]
This post focuses on the Third Circuit’s discussion of methods for calculating actual damages under the Copyright Act, its review the District Court’s decision to permit Leonard’s damages expert to testify, and its evaluation of whether the $1.6 million dollar award was grossly excessive.
Methods for Calculating Actual Damages under the Copyright Act [§ 504(b)]
The Copyright Act allows a copyright owner to recover actual damages resulting from infringement. It usually involves determining the loss in fair market value of the copyright, measured by the profits lost due to the infringement or by the value of the use of the copyrighted work to the infringer. The primary measure is the injury to the market value of the copyrighted work at the time of the infringement. Case law describes two permissible methods for determining damages:
(1) calculating the fair market value of the licensing fees the owner was entitled to charge for such use;
(2) calculating damages based on the plaintiff’s own past licensing fees.
The District Court’s Decision to Permit Leonard’s Damages Expert to Testify
Leonard hired a photography expert, Jeff Sedlik, to provide testimony regarding Leonard’s actual damages. Stemtech filed a motion to exclude Sedlik’s testimony (a Daubert motion). The district court, denied Stemtech’s motion because: (1) Sedlik’s method for calculating actual damages using fair market value, as opposed to past licensing history, was reliable; (2) there was a sufficient factual basis for his calculation; and (3) there was a fit between the facts of the case and Sedlik’s damages calculation.
The Third Circuit agreed. Sedlik had adopted a recognized method – the fair market value approach. Stemtech’s disagreements with Sedlik’s calculation methodology and assumptions about which images and uses were similar to those of Leonard, went to the weight the jury may give Sedlik’s expert testimony, but were not reasons to keep the information from the jury.
Excessiveness of the $1.6 Million Damage Award by the Jury
The Third Circuit noted that courts will respect a jury verdict unless it is so grossly excessive that it shocks the judicial conscience, or it relies on an impermissible basis.
The Third Circuit examined Sedlik’s expert damages opinion, breaking it down as follows:
Stemtech argued that Sedlik’s use of multipliers effectively resulted in a jury award that included punitive damages. Since punitive damages are not an available remedy under the Copyright Act (i.e., an impermissible basis), Stemtech argued, the jury’s award was excessive.
In rejecting Stemtech’s argument, the Third Circuit distinguished Sedlik’s multiplier from case law finding multipliers to be impermissibly punitive.
The Third Circuit first recognized case law rejecting punitive multipliers because “[t]he value of what was illegally taken is not determined by multiplying it,” and where a multiplier amounts to a “fee for unauthorized usage” over and above what “would otherwise represent a fair and reasonable licensing fee for the infringed material.”
Sedlik’s multiplier, the court held, was different. It was not related to unauthorized use of the images (it was not an “infringer’s penalty”). Rather, it was part of calculating fair market value. The sum calculated from the stock photo agency rates did not represent a full calculation of the fair market value of Leonard’s images because the stock agency rates yielded a benchmark that did not account for scarcity and exclusivity. Sedlik’s multipliers reflected a premium that, according to Sedlik, the market would find acceptable given the scarcity and exclusivity of the images as compared to the images for which he had secured rates for comparative purposes. The fair market value calculation was complete only after those additional factors (scarcity and exclusivity) were applied.
Because “Stemtech presented no evidence or methodology to cast doubt on the use of multipliers to account for factors relevant to a final fair market value,” neither the district court nor the jury had any basis to discount Sedlik’s testimony. And without evidence that the scarcity and exclusivity multipliers were punitive as opposed to being valid factors for calculating fair market value, the Third Circuit could not say the jury’s verdict was based on an improper consideration.
Nor could the Third Circuit conclude that the jury’s verdict was grossly excessive. Unrebutted expert testimony provided a basis for a fair market value that included a benchmark for similar but less unique images, and a range for a premium reflecting the rarity of Leonard’s image and its unusually widespread use in Stemtech’s materials. Sedlik provided a multiplier of three to five times the benchmark for scarcity and 3.75 to 8.75 times for exclusivity, and jury returned a verdict of $1.6 million, which was at the lower end of Sedlik’s range.
Accordingly, because the jury’s damages award was tethered to the record, and Stemtech presented no alternative calculations, the damages award could not be reversed as excessive.
A damages expert may use multiplier as part of calculating fair market value to account for factors such as exclusivity or rarity, as long as it is not essentially a “fee for unauthorized usage.”
Whether the stock agency rates were truly comparable to Leonard’s images, whether the stock photos were actually licensed by paid customers at those rates, whether taking an average of selected licensing rates was reliable, whether issues like scarcity and exclusivity (or either of them) were already taken into account in the stock photo rates, or whether the market would find premiums for scarcity and exclusivity acceptable – those were all issues Stemtech was free explore when cross-examining Sedlik, or with Stemtech’s own expert (if it had one). Yet, Sedlik’s testimony went largely unrebutted. Stemtech did not cross-examine Sedlik about his use of these premiums and Stemtech did not present its own expert to rebut Sedlik’s opinions.
Stemtech instead relied heavily on its ability to exclude Sedlik’s expert damages testimony. As a back-up, it sought to convince the court (and jury) that license fees Leonard actually charged his clients over fifteen years and the fees that Leonard quoted Stemtech were the only viable measures of Leonard’s actual damages.
According to the Third Circuit, however, Stemtech had cited “no authority requiring the use of this method as opposed to the fair market value approach, and case law on this subject supports using the fair market value.”
Ultimately, Stemtech made three key decisions: (1) to rely on its ability to have the Sedlik expert opinions excluded, (2) to rely on Leonard’s past licensing history as the only method of calculating Leonard’s actual damages, and (3) to proceed without its own damages expert to counter Sedlik’s methodology and opinions.
Combined, these decisions amounted to an all-or-nothing damages strategy, which proved perilous when the jury chose “all.”
Here’s a collection of links to “Top” articles discussing tips, benefits, traps, warnings, distinctions, myths, and explanations of copyrights and trademarks:
In a recent copyright infringement case about making and distributing copies of a painting, the Seventh Circuit Court of Appeals in Ali v. Final Call, Inc. (7th Cir., Aug. 10, 2016, No. 15-2963) held that the district court misstated the elements of a prima facie copyright infringement claim and erroneously shifted to plaintiff the burden of proving that copies made and distributed by the defendant were unauthorized. The opinion identifies some important pitfalls for copyright litigators, and offers some preventative guidance for those who make copies of or distribute the creative works of others. [See THE TAKE-AWAYS below.]
Here are the basic facts:
Plaintiff Ali is an artist. In 1983, Ali painted a portrait of Minister Louis Farrakhan (“Minister Farrakhan painting”), for which Farrakhan paid Ali $5,000. Ali registered his copyright in the painting in 1997. Defendant The Final Call (a newspaper for the Nation of Islam) sells various posters and prints. The Final Call sold lithographs titled Allah’s Star of Guidance that featured a reproduction of Ali’s Minister Farrakhan painting.
Ali sued The Final Call for copyright infringement, alleging he never authorized The Final Call to create or distribute the Star of Guidance prints or lithographs. The Final Call argued that Ali’s commission with Louis Farrakhan included permission to make copies, which in turn, authorized creation and distribution of the Star of Guidance lithographs.
The parties waived a jury, and the case was tried to the court. The district court identified the key issue as “whether in agreeing to the commission with Minister Farrakhan back in 1983, Ali agreed to give the right to create and distribute the Star of Guidance prints.” It found that Ali had authorized the creation and distribution of the Star of Guidance prints/lithographs, based primarily on a letter Ali had sent in 2008 that said, in part, “The commission awarded by the minister for his oil and litho entitled The Star of Guidance…” Noted the district court, “That very plainly says in Mr. Ali’s own letter that the commission with Minister Farrakhan included lithographs and prints.” Ali tried to explain that the letter was taken out of context, but the court discounted his explanations.
On appeal, Ali argued that the district court had misstated the elements of a prima facie copyright infringement claim and erroneously shifted to him the burden of proving that the copies were unauthorized. The Seventh Circuit agreed, and reversed the district court’s judgment.
In summary, the Seventh Circuit Court of Appeal reasoned as follows:
To establish a prima facie case of copyright infringement, Ali only had to prove two things: (1) ownership of a valid copyright, and (2) copying of constituent elements of the work that are original. The district court, however, also required Ali to prove that the copying was unauthorized. That was error, because the defendant (The Final Call) has the burden of proving affirmative defenses like authorization (e.g., license). Therefore, unless The Final Call could prove an affirmative defense (e.g., authorization to make and distribute copies), it was liable for copyright infringement.
[For more on establishing a prima facie case and burdens of proof, see Allocation of the Burdens of Proof – Burden of Producing Evidence.]
The Final Call did assert affirmative defenses of implied license (authorization) and laches [albeit late, as discussed in THE TAKE-AWAYS below]. However, believing that it was plaintiff’s burden to show that the copies were unauthorized, The Final Call decided to withdraw its affirmative defenses at the pretrial conference. Because defenses had been waived, the Seventh Circuit held the district court had improperly relied on a waived implied license defense and an unasserted first-sale defense when the district court ruled in favor of The Final Call at trial.
Even if the defenses could properly be considered, the Seventh Circuit found that The Final Call failed to carry the burden of proving the elements of either defense at trial.
An implied license defense requires the defendant to prove that: (1) a person (the licensee) requested the creation of a work, (2) the creator (the licensor) made that particular work and delivered it to the licensee who requested it, and (3) the licensor intended that the licensee-requestor copy and distribute his work. The Final Call did not prove an implied license because (1) Farrakhan commissioned the portrait, not The Final Call, (2) Ali made the work Farrakhan requested and delivered it to Farrakhan, not The Final Call, and (3) no evidence showed that Ali intended for The Final Call to copy and distribute his work. And even assuming Farrakhan may have had an implied license, no evidence showed that Farrakhan ever attempted to transfer a license to The Final Call.
Under the first sale doctrine, “once a given copy has been sold, its owner may do with it as he pleases (provided that he does not create another copy or a derivative work).” The Final Call’s evidence, however, failed to prove that the lithographs at issue were from a batch of authorized copies.
While there are many sub-issues throughout the Seventh Circuit’s opinion, here are some important take-aways from Ali v. Final Call, Inc.:
As the first take-away, the burdens should now be clear:
To establish a prima facie case of copyright infringement, the plaintiff must prove two things: (1) ownership of a valid copyright (registered) in the work, and (2) copying of constituent elements of the work that are original.
If the plaintiff presents a prima facie case, the defendant has the burden to prove the elements of its affirmative defenses, such as the first sale doctrine, or authorization to make or sell another’s work, whether by express or implied license (or otherwise).
Another take-away concerns jury instructions. While this was a court trial and didn’t involve a jury, lawyers and judges sometimes consult jury instructions as fairly solid statements of current law. Interestingly here, the Seventh Circuit traced the district court’s error, in part, to the Seventh Circuit’s pattern jury instructions. Instruction No. 12.2.1 states:
To succeed on his claim, Plaintiff must prove the following things:
1. [Describe the work] is the subject of a valid copyright;
2. Plaintiff owns the copyright; and
3. Defendant copied protected expression in Plaintiff’s copyrighted work.
I will explain what these terms mean…
Instruction No. 12.5.1 COPYING, appears to explain what “copied protected expression” means, and includes this bracketed language:
[In determining whether Plaintiff has proved copying, you may consider evidence that … Defendant had authority from Plaintiff to copy Plaintiff’s work.]
That bracketed language in Instruction No. 12.5.1 COPYING created confusion for the district court as to whether plaintiff Ali had to disprove authorization as part of his burden of proving there was “copying,” or whether authorization was solely an affirmative defense that The Final Call had the burden of proving.
[It is worth noting that the comments for use of Instruction No. 12.5.1 COPYING state, “This instruction should be used only when the plaintiff seeks to prove copying inferentially. If the plaintiff offers only direct evidence of copying, then this instruction is unnecessary.” Here, Ali and The Final Call had stipulated that the “Star of Guidance” contained the protected expression from the “Minister Farrakhan painting.” In other words, Ali was not seeking to prove copying by inference.]
Nevertheless, the Ali v. Final Call opinion should prompt an evaluation of pattern jury instructions for copyright cases in all of the federal circuits. For instance, one conceivably could make the same mistake based on certain portions of the Ninth Circuit’s Jury Instructions. Instruction No. 17.0 includes “without authority” within its statement on LIABILITY FOR INFRINGEMENT, as follows:
One who [reproduces] [distributes] [performs] [displays] [uses] [prepares derivative works from] a copyrighted work without authority from the copyright owner during the term of the copyright infringes the copyright.
Similarly, in Instruction 17.4 COPYRIGHT INFRINGEMENT—ELEMENTS—OWNERSHIP AND COPYING, the first sentence references “without the owner’s permission”:
Anyone who copies original elements of a copyrighted work during the term of the copyright without the owner’s permission infringes the copyright.
The Ninth Circuit jury instructions, however, do have separate and distinct instructions for the defenses of implied license [No. 17.24 COPYRIGHT—AFFIRMATIVE DEFENSE – IMPLIED LICENSE] and the first sale doctrine [No. 17.25 COPYRIGHT—AFFIRMATIVE DEFENSE—FIRST SALE], which should make it clear that those are affirmative defenses that the defendant has the burden of proving.
Other take-aways from this case concern the importance of the pretrial conference and pretrial order.
As explained in DeliverMed Holdings, LLC v. Schaltenbrand (7th Cir. 2013) 734 F.3d 616, 628, the parties rely on the pretrial conference to inform them precisely what is in controversy, the pretrial order is treated as superseding the pleadings and establishes the issues to be considered at trial. In order to preserve the pretrial order’s usefulness in focusing the parties’ efforts, a claim or theory not raised in the pretrial order should not be considered by the fact-finder (i.e., the judge in a bench trial or the jury in a jury trial).
The U.S. Supreme Court also has emphasized the importance of the pretrial order. As stated in Rockwell Intern. Corp. v. U.S. (2007) 549 U.S. 457, 474, “[C]laims, issues, defenses, or theories of damages not included in the pretrial order are waived even if they appeared in the complaint and, conversely, the inclusion of a claim in the pretrial order is deemed to amend any previous pleadings which did not include that claim.” Thus, even an entirely new claim or defense in a pretrial order will be deemed to amend the previous pleadings to state the new claim or defense.
Here, The Final Call did not assert any affirmative defenses in response to the original Complaint or the First Amended Complaint. And when plaintiff Ali filed a Second Amended Complaint, The Final Call did not file an answer asserting the defenses of implied license and laches until many months later. By then, The Final Call’s answer was untimely, fact discovery had long-since closed, and Ali had filed a summary judgment motion that was fully briefed for decision by the court. That prompted Ali to file a motion to strike The Final Call’s newly asserted affirmative defenses as untimely and prejudicial.
The district court never ruled on Ali’s motion to strike, however, because The Final Call withdrew the affirmative defenses (implied license and laches) at the pretrial conference. The Final Call argued that it was Ali’s burden to prove the copies were unauthorized. And it did not seem to matter, because at the Pretrial Conference, the district court judge said, “[I]f it turns out that lack of authorization is the plaintiff’s burden, then…the defendant can certainly — regardless of whether the defendant has waived irrevocably the ability to assert affirmative defenses, he can certainly make that argument against one of the elements of your claim.”
When the Seventh Circuit ultimately determined that the defendant has the burden of proving defenses such as implied license and the first sale doctrine, The Final Call’s withdrawal of its affirmative defenses at the pretrial conference turned out to be the “nail in the coffin.”
Nevertheless, the Seventh Circuit’s opinion went on to analyze and explain how The Final Call had not proved the elements of implied license or first sale. That analysis (in the final paragraphs of the opinion) highlights another key take-away:
By not clarifying whether it has the burden of proving a particular defense early in a case, a defendant may miss out on the opportunity to discover facts, and to identify, prepare, and call witnesses at trial that can establish facts supporting each element of its affirmative defenses.
As a final take-away from Ali v. Final Call, those who make or distribute copies of other’s works should be prepared to prove their right to do so by creating and maintaining records that show authorization or other defenses – even if it was many years ago. As the Seventh Circuit noted, “if there is evidence of a license, it is most likely to be in the possession of the purported licensee.”
A family of marks is a group of marks (e.g., MCNUGGETS, MCSKILLET, MCCAFE, MCGRIDDLES) having a recognizable formative common characteristic (e.g., MC), wherein the marks are composed and used in such a way that the public associates not only the individual marks, but the common characteristic of the family, with the trademark owner (e.g., McDonalds Corp).
Simply using a series of similar marks, however, does not of itself establish the existence of a family of marks. Courts and the USPTO consider the use, advertisement, and distinctiveness of the marks, as well as how the common feature contributes to the purchasing public’s recognition of the marks as being of common origin. To demonstrate such recognition, an owner must show that the marks comprising the family have been advertised or used in everyday sales activities in such a way so as to create common exposure and recognition of common ownership based on the common feature.
As parenthetically indicated above, a well-known example is the McDonald’s Corporation family of “MC” marks, which include MCNUGGETS, MCSKILLET, MCCAFE, MCGRIDDLES and so on. McDonald’s has successfully opposed attempts by others to register “MC” marks over the years and it actively pursues perceived infringers of its family of “MC” marks. See McDonald’s Corp. v. McSweet, LLC, 112 USPQ2d 1268 (TTAB 2014) (59-page TTAB decision sustaining McDonald’s opposition to MCSWEET for pickled gourmet vegetables based on dilution and likelihood of confusion with the “MC” family of marks).
A trademark owner does not need to own trademark rights in the formative common feature itself (e.g., “MC”) in order to establish rights to a family based on the common feature. J & J Snack Foods Corp. v. McDonald’s Corp., 932 F.2d 1460, 1463 (Fed. Cir. 1991).
The common feature, however, must be distinctive and not generic or “merely descriptive” of the goods or services. Note that a descriptive term is not “merely descriptive” if it has acquired distinctiveness (aka “secondary meaning”) through extensive use and advertising. Thus, a descriptive term can serve as a common feature for a mark family if there is a strong showing of secondary meaning (acquired distinctiveness) in the descriptive common feature. See, e.g., Spraying Systems Co. v. Delavan, Inc., 975 F.2d 387, 395 (7th Cir. 1992) (refusing to recognize a family of “–JET” marks for agricultural spray nozzles); see also, Miller’s Ale House, Inc. v. Boynton Carolina Ale House, LLC, 745 F. Supp. 2d 1359 (S.D. Fla. 2010) (“To the extent Miller’s is claiming trademark rights in a family of marks with “ALE HOUSE” as a common surname, a determination that the “ALE HOUSE” surname is generic would be fatal to the entire mark.”)
Finally, for a good resource on arguing family of marks in the context of USPTO trademark registration or Trademark Trial and Appeal Board proceedings, go here.
(photo: Thank you William A. Ling for permission to use his zebra-family photo.)
My insurance company paid to have it repaired, but now it is not worth nearly as much!
That’s the subject of Baldwin v. AAA Northern California, Nevada & Utah Ins. Exch. (2016) — Cal.App.4th —, 2016 WL 3398446 (filed 6/13/16, modified and certified for publication on 7/6/16)
Plaintiff Baldwin had an almost-new Toyota Tundra (pickup). Baldwin’s parked pickup suffered structural damage when it was hit following a collision between two other cars (driven by Hollandsworth and Sebastian). Baldwin had his own insurance with AAA. Hollandsworth was also insured by AAA – for property damage caused by his negligence.
AAA refused to consider Baldwin’s pickup a “total loss,” and instead had the pickup repaired for $8,196.06. Following repairs, the pickup’s future resale value was decreased by more than $17,100 (aka “diminution in value” “diminished value” “lower resale value”).
Baldwin sued the drivers Hollandsworth and Sebastian for negligence, and sued AAA for breach of contract and bad faith. The appeal involves the Baldwin’s claims against AAA.
Baldwin contended that AAA was obligated either to pay him the entire pre-accident value of the pickup or to repair the pickup to its original pre-accident condition. Baldwin alleged that the repaired pickup did not match its pre-accident condition “with respect to safety, reliability, mechanics, cosmetics and performance” and with respect to future resale value (decreased $17,000).
AAA filed a demurrer, contending that diminished resale value of Baldwin’s pickup was specifically excluded under the AAA auto insurance policy. The trial court agreed, and ordered a final judgment of dismissal with prejudice for AAA.
As to breach of contract, the Court of Appeal said the policy language was clear and explicit, stating that AAA “may pay the loss in money or repair … damaged … property.” The policy’s use of the term “may” suggests AAA had the discretion to choose between the two options. This suggestion was supported by the statement (in the same section of the policy), under “LIMITS OF LIABILITY,” that AAA’s coverage responsibility for car damage would “not exceed” “the lesser of” those two options, namely, paying “the actual cash value of the … damaged property” or “the amount necessary to repair … the property with similar kind and quality.”
As to Baldwin’s claim that it was not possible to restore his almost-new pickup to its pre-accident condition, the Court of Appeal said that Baldwin had not alleged any flaws, unrepaired damage or performance issues with the pickup. He only alleged lower future resale value. Baldwin’s general allegation that the pickup was not restored to its pre-accident condition “with respect to safety, reliability, mechanics, cosmetics and performance” was too conclusory. “Facts alleging a breach…must be pleaded with specificity.”
The Court of Appeal noted the similarity to Ray v. Farmers Ins. Exchange (1988) 200 Cal.App.3d 1411, where the policy gave the insurer the right to elect repair of the insured’s vehicle to a similar condition if cost to repair would be less than the actual cash value of the vehicle at the time of the loss. The court held that the insurer’s election to make repairs was conclusive if the repairs put the vehicle “substantially in its pre-accident condition.” It specifically rejected the notion that repairing the vehicle meant “to both its pre-accident condition and market value.” Rather, the policy language gave the insurer the right to elect the most economical method of paying claims.
Further, citing Carson v. Mercury Ins. Co. (2012) 210 Cal.App.4th 409, the court in Baldwin noted that repairing a car to its pre-accident condition did not mean restoring it to its condition “when it left the factory or showroom floor,” reasoning that “no repair can ever restore a vehicle to its pristine factory condition,” and applying such a standard would mean “no vehicle could be adequately repaired.”
Because the AAA policy defined its repair obligation as not including “diminution in value,” the Court of Appeal agreed that Baldwin failed to allege breach of contract against AAA.
Baldwin also argued it was against public policy to give “AAA an incentive to attempt superficial repairs to cars sustaining structural damage, returning unsafe cars to the roads, rather than declare them a total loss and pay out their actual (greater) pre-accident cash value.” The Court of Appeal, however, noted two countervailing incentives: (1) that the insurer would be financially responsible under the same policy for any damages resulting from future accidents of an insufficiently repaired vehicle (Baldwin did not contend that AAA canceled his policy after the accident); and (2) insurers would be liable for tort damages if, in bad faith, they directed cosmetic or superficial repairs to an insured vehicle.
While acknowledging that public policy concerns would come into play if an insurer “refused to acknowledge the vehicle was nonrepairable but nevertheless proceeded with a purely cosmetic restoration,” the court noted that Baldwin did not contend that the resulting repairs were purely cosmetic or that the pickup returned to him actually was unsafe. Nor did he allege that his pickup type or vehicles generally are incapable of being restored to a safe condition once having sustained structural damage. Absent those types of allegations, it was clear that Baldwin’s claim rested solely on the insurer’s failure to take into account the vehicle’s depreciation in value when opting to repair the vehicle, which the court said is not against public policy.
The court also upheld the demurrer to Baldwin’s claim for breach of the implied covenant of good faith and fair dealing, because Baldwin alleged that AAA performed as promised under the insurance policy by directing the repair of his pickup following the accident and providing him a rental car. Absent allegations that AAA unreasonably delayed repairs, or that the pickup was returned to him defective in some specific way other than diminished resale value, Baldwin had failed to state a cause of action against AAA for breach of the implied covenant under his insurance policy.
As to Baldwin’s claim under the other driver Hollandworth’s AAA policy, the Court of Appeal held that Baldwin stood in the shoes of a third party claimant. And under Moradi–Shalal v. Fireman’s Fund Ins. Companies (1988) 46 Cal.3d 287, a third party claimant—an individual who is injured by the alleged negligence of an insured party—does not have a private right of action against the insurer for unfair settlement practices.
Finally, the Court of Appeal addressed whether Baldwin should have been allowed to amend his Complaint. The Court of Appeal noted that a plaintiff “must show in what manner he can amend his complaint and how that amendment will change the legal effect of his pleading.” Since Baldwin argued only that he would add allegations that the express terms of the insurance policy are ambiguous “considering the implied terms and representation to the public that the insurance policy covers ‘losses’ to the insured’s property,” the Court of Appeal found that denial of his request to amend the Complaint was proper.
There are plenty of take-aways on this one, and I am sure I’ll miss some, so please add your own in the comments. But here are some:
Nice analysis from James D. Crosby of a recent CA Opinion addressing the standard for sanctions under CCP Section 128.5 for frivolous claims or unnecessary delay tactics in litigation.