New Trademark Case Filed in D RI --- Can Erwin Pearl Stop JC Penney's Internet Keyword Purchases?

Erwin Pearl, Inc. v. J.C. Penney Corp., No. 12-207-S (D.R.I. filed March 20, 2012)

From the complaint, this case appears to be one where Erwin Pearl is complaining about J.C. Penney’s purchase from Google of “Erwin Pearl” as a keyword for a “sponsored link,” when J.C. Penney did not sell that brand of jewelry  This practice caused J.C. Penney’s advertisements to appear at the beginning of the search results page whenever a computer user entered “Erwin Pearl” as a search term.

Even though the courts continue to struggle with how to characterize “keyword” cases, it may be difficult for Erwin Pearl to prevail unless it shows that JC Penney used its trademarks in the text of the ads, or stated that it sold Erwin Pearl branded jewelry when it did not.

According to the Complaint, in 2011 Google “suspended” J.C. Penney’s ability to appear prominently in search results for a period of 90 days.  J.C. Penney allegedly used methods of improving its rankings in search results that Google felt were unfair.  As a result, J.C. Penney turned to purchasing keywords to promote “Sponsored Links.”  The Complaint alleges that in October, November, and December 2011 (Erwin Pearl’s most important selling season), whenever a computer user entered a search term of “Erwin Pearl” or “Erwin Pearl Jewelry”: into Google’s search engine, J.C. Penney’s advertisement showed up in the number one spot on the search results page as a “Sponsored Link.”  The Complaint further alleges that the advertisement referred to prices of “40-60% off” select Erwin Pearl jewelry, and misleadingly suggested that Erwin Pearl’s jewelry was available for purchase at J.C. Penney at prices far less than at the retails stores of Erwin Pearl or its distributors. Unfortunately, a copy of the advertisement was not attached to the Complaint.

Erwin Pearl’s complaint contains claims that J.C. Penney’s actions constitute federal and common law trademark infringement, federal and common law unfair competition, federal and state trademark dilution, and unjust enrichment..  The Complaint seeks an accounting, monetary relief and attorneys’ fees.

The case has been assigned to Judge Smith.

Analysis

The courts have struggled over the years with keyword cases since Google first introduced the practice.  Initially, some courts held that the purchase of a competitor’s trademarks as a keyword was not actionable under trademark law  because the purchase and use of the keyword was not a “use in commerce.”  Since the Second Circuit’s Rescuecom decision, however, [link] most defendants  concede that the use is a use in commerce.  For example, in Hearts on Fire Co., LLC v. Blue Nile, Inc., 603 F. Supp. 2d 274 (D. Mass. 2009), the Court found that “there is little question that the purchase of a trademarked keyword to trigger sponsored links constitutes a “use” within the meaning of the Lanham Act.” 

More recently, courts and defendants have turned to arguments that the purchase of the keyword and its use as a “trigger” for sponsored ads is not an infringement because it creates no likelihood of confusion.  In the Hearts on Fire decision, Judge Gertner examined the traditional likelihood of confusion factors, but found that “likelihood of confusion will ultimately turn on what the consumer saw on the screen and reasonably believed, given the context.”  She identified the following non-exhaustive list of “relevant elements” to showing a likelihood of confusion in the Internet context:  (1) the overall mechanics of web-browsing and Internet navigation, in which a consumer can easily reverse course; (2) the mechanics of the specific consumer search at issue; (3) the content of the search results webpage that was displayed, including the content of the sponsored link itself; (4) downstream content on the defendant’s linked website likely to compound any confusion; (5) the web-savvy and sophistication of the Plaintiff’s potential customers; (6) the specific context of a consumer who has deliberately searched for trademarks [products] only to find a sponsored link to a retailer of that product, and, in light of the foregoing factors, (7) the duration of any resulting confusion. 

The Erwin Pearl Complaint does not attach a copy of the advertisements in question, so it is difficult to undertake an analysis of the strength of Erwin Pearl’s claims.  Plaintiffs have not had much luck in many recent cases, however, as the courts have continued to find that there has been no likelihood of confusion when a potential customer has been momentarily diverted to a competitor’s website but the competitor has not actually used the plaintiff’s trademark publicly, other than to trigger the sponsored advertisement.   Erwin Pearl may have a stronger case if JC Penney used Erwin Pearl's trademarks in the text of the ad, or stated that they sold Erwin Pearl branded jewelry when they did not.

If the case results in a substantive decision, it may be the first in Rhode Island dealing with whether the purchase of keywords by competitor constitutes trademark infringement.

February and March 2012 IP Cases Filed in US District Court of RI

There was 1 new intellectual property (patent, trademark and copyright) case filing in February and March 2012 at the U.S. District Court for Rhode Island. This is the first IP case filing this year, which is a 75% decrease over the IP case filings for the first three months of 2011.

The new filing in March is a trademark case.  This case will be highlighted in an upcoming blog post.

So far there have been no new patent or copyright cases filed in 2012 in Rhode Island

These numbers only include cases that have been designated in the court's database as a patent, trademark or copyright case. There are other cases pending where the complaint may include trademark or other intellectual property claims, or where intellectual property counterclaims may have been asserted. But unless the case is designated as such in the court's database, we are not counting it here

Great White Band Fights Over Name

Russell v. Kendall, No. CV12-02477 (C.D. Cal. complaint filed March 22, 2012).

The Great White band has had its share of notoriety and legal problems over the past decade, largely due to poor decision-making.  According to the Courtroom News Service it looks like another bad decision has led to another legal problem.  This time, the band is fighting over whether its name is owned by the founder and lead singer Jack Russell, or by the members who continued the band when Russell had to leave for a while due to medical issues.

It seems the trouble started in August 2010, when Russell was hospitalized and underwent surgery for a perforated bowel.  While he recuperated, other singers filled in for him during the band's live performances.  Russell claims everyone knew his absence was temporary, and that he would resume singing with the band when he had recovered.  But when he announced he was ready to return in December 2011, the band imposed a series of "unfair requirements" for his return (including abstaining from taking medications), and gave interviews claiming that Russell was also engaging in substance abuse, and that his addiction troubles were the reason for their not letting him return.  The band filed to register the trademark Great White with the Patent and Trademark Office.  After Russell formed a new band called "Jack Russell's Great White," Russell's' complaint claims that the band threatened litigation against any location that booked Russell's band.  The band is also planning to release a new Great White album later this year.

The Complaint alleges federal law claims for  trademark infringement, trademark dilution and unfair competition and state law claims for trademark infringement, unfair competition, injury to business reputation, and interference with prospective economic advantage.  Russell seeks injunctive relief and damages in excess of $500,000.  The defendants have not filed answers or responsive motions yet.

In similar situations we counsel clients to decide up front who is going to own the name, and what happens in various scenarios when band members leave, the band dissolves, etc.  Whether the entity is going to own the name or one of its members, the decision needs to be made and documented.  Then there aren't any disputes in the future over ownership of the name.  Apparently this advice wasn't given to or followed by Great White.  And now it is going to cost a lot in legal fees to sort the matter out.

Courts Struggle With Online Contracting Practices

Fteja v. Facebook, Inc., No. 11 Civ 918(RJH), 2012 WL 183896 (S.D.N.Y. Jan 24, 2012).

Jerez v. JD Closeouts, LLC, No. CV-024727-11, 2012 WL 934390 (N.Y. Civ. Ct. March 20, 2012)

For over a decade I have been advising clients and teaching seminars about strategies for making sure online contracts are enforceable.  It's not rocket science.  You just have to take traditional contract principles and apply them online.  Yet, businesses (and courts) are still struggling with how to do this properly.  Given that the consequences of not being able to enforce a contract can be disastrous for a business, you would think that they would take the time to get things right on their websites. 

Two recent cases illustrate the problems that the courts are having in determining whether a contract was made in the first place.  In one case, the court decided that it would enforce a contract that was accepted when the user clicked a "Sign Up" box, immediately below which was a hyperlink to the terms and conditions.  In the other case, the court refused to enforce an agreement where the terms were accessible only after several clicks through some hard-to-find and less-than-obvious links.

Fjeta v. Facebook

In the  Fjeta case, Fteja brought a lawsuit against Facebook, claiming that Facebook discriminated against him and disabled his account improperly because he is a Muslim.  Although Facebook's Terms of Use require that lawsuits be brought in a state or federal court located in Santa Clara County, California, Mr. Fteja brought the suit in the New York state courts. Facebook removed the suit to the federal district court in Manhattan, and then  moved to transfer the case to California, arguing that the Terms of Use constitute a binding and enforceable contract. 

One would expect that Facebook has a good sign-up process in place, although the process described by the court is different from the one currently in place on its website.  According to the court, the user is asked to fill out several fields containing personal and contact information, then click a button that reads "Sign Up."  After clicking this initial "sign up" button, the user sees another page entitled "Security Check" that requires the user to re-enter a series of letters and numbers displayed on the page.  Below the box where the user enters the information, the page displays a second "Sign Up" button similar to the button the user clicked on the initial page.  The following sentence appears immediately below that button:  "By clicking Sign Up, you are indicating that you have read and agree to the "Terms of Service."  The phrase "Terms of Service" is underlined and is linked to another page with the Terms. [John's Note:  Facebook may have changed its Sign Up protocol in the interim.  Now, the initial "Sign Up" button is immediately below the following sentence:  "By clicking Sign Up, you agree to our Terms and that you have read and understand our Data Use Policy."  The phrases "Terms" and "Data Use Policy" are linked to the applicable provisions.] 

Although this method of obtaining assent has been upheld in a number of cases, the hyperlink to the Terms of Use gave  Judge Holwell reason to pause.  Because the terms of use were not displayed on the same page as the "Sign Up" button, but were only available through the link, the judge likened Facebook's Terms of Use to a "browsewrap" agreement, where the terms and conditions are posted on the website as a hyperlink at the bottom of the screen.  But then he reasoned that the terms of use were still more like a "click-wrap" agreement, because the user had to "Sign Up" and affirmatively click the button to manifest agreement to the Terms of Use.  Eventually, the judge concluded that the link to the terms of use is no different than having terms and conditions printed on the reverse side of a cruise ticket or a paper contract, found that Facebook's terms were enforceable, and ordered the case transferred to California.  But he took a long, meandering and unneccesary route to get there . . . he would have been better off sticking to traditional contract principles and following the analysis below.

Jerez v. JD Closeouts

This case involves a dispute over the purchase of 50,000 pairs of white tube socks.  Mr. Jerez, a New York resident, apparantly was unhappy with his $7,146 purchase of the tube socks, and sought a refund in the New York courts.  JD Closeouts argued that the suit should have been brought in Florida, because of the forum selection clause in its Terms of Sale.  According to the decision, the website's "Terms of Sale" containing the forum selection clause were found by clicking a link on its "About Us" page. 

Here, the court refused to enforce the forum selection clause.  After reviewing a number of cases enforcing and refusing to enforce online terms and conditions (including the Fjeta case above), the court found that this case was more like the situation in Specht v. Netscape Communications Corp. , "where 'submerged' website provisions were found insufficient to bind the company's customers."  The court found that in this case the existence of the forum selection clause was not "reasonably communicated" to the buyer through a printed contract, a confirming letter agreement incorporating the terms by reference, or a "click-through" acceptance of hyperlinked terms and conditions.  Because the forum selection clause was buried and submerged on a webpage that could only be found by clicking on an inconspicuous link on the seller's "About Us" page, the court refused to enforce the forum selection clause.

Analysis

Both courts seem to have reached the correct result.  Facebook could have been a little safer by having the terms and conditions on the same page as the "Sign Up" button rather than a hyperlink.  But the practice of disclosing the terms through a hyperlink is not uncommon, and so long as the hyperlink reasonably lets the purchaser know that there are terms and conditions that he or she should read, then courts will generally find an enforceable contract in this situation.  The terms in the Jerez case were just too obscure and hard to find.  Even a seasoned Internet contract attorney like me would not necessarily think to look on the "About Us' page for terms and conditions if they are not otherwise mentioned on a website. 

The judge in the Facebook case seemed to have a hard time classifying the contract as a "click-wrap," a "browse-wrap," or a hybrid.  In actuality, he need not have spent so much time, because the same contract formation rules apply no matter the classification.

Several colleagues and I wrote a paper a few years ago entitled “Browse-Wrap Agreements: Validity of Implied Assent in Electronic Form Agreements” (59 Business Lawyer 279 (2003)), in which we set forth a four-part test for courts to use in determining whether a user has validly assented to the terms of a browse-wrap agreement: (1) the user is provided with adequate notice of the existence of the proposed terms; (2) the user has a meaningful opportunity to review the terms; (3) the User is provided with adequate notice that the taking of a specified action manifests assent to the terms; and (4) the user takes the action specified in the notice. Subsequently, we have determined that the test applies not only to browse-wrap agreements, but is applicable to determining valid assent for ALL agreements, whether on-line or in the physical world.

While the two court decisions discussed above did not cite our article or explicitly use our test, maybe they will do so in the future if the decisions are appealed.

These cases and others like it remind us of the importance of certainty in business transactions.  It is not difficult to set up Terms and Conditions that are enforceable.  Because JD Closeouts did not take the time to make sure the notice of its terms of sale were prominent, the company now is forced to defend a lawsuit in New York instead of in Florida.

Update:  Added WL cite for the Jerez decision.

Madonna Accused of Infringing Brazilian Song Writer's Copyright

News out of Brazil in the last few days reports that Joao Brasil, a Brazilian songwriter, is accusing Madonna of copyright infringment.  Brasil claims that the chorus of  Madonna's new hit single "Give Me All Your Luvin'" copies from his "Love Banana" song.

To prove copyright infringement, Brasil does not have to show that the two songs are identical.  But he will have to show that the infringing portion of Madonna's song is "substantially similar" to his, not just confusing or that her song is reminiscent of his. In some courts, the test is whether the similarity between the two songs is so striking or substantial that the similarity could only have been caused by copying, and not, for example, through coincidence or independent creation

While Madonna has had some similar problems in the past, frankly I do not see this claim being successful.  If anything, Brasil's song reminds me more of Gwen Stefani's "Hollaback Girl" than Madonna's song. But you be the judge:

Love Banana
Give Me All Your Luvin'
Hollaback Girl

Good Week for RI Economic Development

We had two pieces of good news this week from the RI Economic Development Corporation.

On Tuesday, the RIEDC Board announced that it had approved a $500,000 loan to attract PCS UtiliData, of Spokane, Washington, to relocate to Rhode Island. PCS UtiliData is a control system integrator providing automation,  consulting, engineering, design, integration, control, automated energy conservation and energy management solutions to the electric utility industry.  The company will initially bring 8 to 15 jobs to Rhode Island by the end of 2012, and plans to expand to 47 full time employees in Rhode Island by 2015.  The average annual wage for these positions is expected to be about $91,000.

The other piece of good news was the release on Tuesday by Providence-based 38 Studios , owned by former Red Sox pitcher Curt Schilling, of its first video game, Kingdoms of Amalur: Reckoning.  Reckoning is a single-player role playing action game that introduces players to the fantasy Kingdom of Amalur.  38 Studios was the subject of a controversial $75 million loan guarantee in 2010 by the State of Rhode Island.  In exchange for an arrangement where the State does not loan any money directly to 38 Studios, but guarantees the repayment of a $75 million loan by banks and other investors, 38 Studios agreed to relocate its headquarters to Providence and create up to 450 jobs here by 2013.  (In a loan guarantee, the State is only obligated to pay the lenders if 38 Studios defaults on the loan).  The State's guarantee is secured by 38 Studio's second project, currently called "Copernicus," which is being developed in Rhode Island.  The successful release of the first game makes it more likely that the second game will also be successfully released, in which case the State's loan guarantee will be cancelled, and the deal will be considered a "home run" in economic development circles.

Jobs are jobs.  Economic development is a slow but steady way to increase jobs.  Let's hope the EDC can continue its progress.

January 2012 IP Cases Filed in US District Court of RI

There were no new intellectual property (patent, trademark and copyright) case filings in January 2012 at the U.S. District Court for Rhode Island. This matched January 2011, when no intellectual property cases were filed.

These numbers only include cases that have been designated in the court's database as a patent, trademark or copyright case. There are other cases pending where the complaint may include trademark or other intellectual property claims. But unless the case is designated as such, we are not counting it here.