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Trademark Infringement In The Wild | RSS.comTrademark Infringement In The Wild
John Di Giacomo:
Hey everyone, this is John Di Giacomo. You are listening to the Revision Legal, May It Please the Internet podcast. And today I am joined as always by Eric Misterovich. Hello, Eric.
Eric Misterovich:
Hey John. How are you?
John Di Giacomo:
I’m good. Had some friends in from Japan and they remarked about my Midwestern accent. So if you are listening to this and you hear a Midwestern accent, tell me because I don’t hear anything. So I’m now very conscious of the fact that I sound like I’m from the Midwest. And today-
Eric Misterovich:
We definitely have an accent. I remember my wife got called out when she was at a Subway one time. She said, “Black olives,” and everyone started laughing at her. I think we were in South when she did that.
John Di Giacomo:
My wife definitely has one and I give her a hard time about it. I don’t allow anyone to say pop in my house. They have to say soda and she hates it. She just absolutely despises it. And it’s all because I was on a rooftop in LA once having drinks with some dentist that I had met at the bar and he said, “Where are you from, Michigan?” And I was like, “Yeah, how can you tell?” And he said, “Because of your accent.” I was like, “What? This is pure generic American. Come on, bro.”
Eric Misterovich:
It’s bad. I mean the Saturday Night Live does it with Governor Whitmer pretty well. They nail it pretty good.
John Di Giacomo:
Yeah, but you and I lived in East Lansing. No one in East Lansing talks Whitmer. I think she’s putting it on.
Eric Misterovich:
Yeah, that’s true. There’s a little folksiness added on to it. Sure.
John Di Giacomo:
Well, today we’re talking about trademark infringement in the wild, and this is a discussion about trademark infringement cases that have been recently filed that we find to be funny or interesting. And today we’re going to start with one from Seattle, which is Pike Place Market Preservation and Development Authority, the Pike Place Fish Market. And Eric, have you been to Seattle?
Eric Misterovich:
I have, yeah.
John Di Giacomo:
Did you go to the Pike Place Market?
Eric Misterovich:
Of course. Definitely. You have to.
John Di Giacomo:
Yeah, it’s pretty cool, really cool city. But tell us what happened in this case.
Eric Misterovich:
Yeah, so trademark cases in general have a way of being entertaining in a way that a lot of other lawsuits aren’t and it usually comes down to, and I think all of these cases are really good examples of it, but this one has an interesting real property lease component to it that I don’t think I’ve ever seen before.
So we all know that there is the market in Seattle and within that market there’s the Pike Place Fish Market, and that fish market has to lease that space from the overall market. There’s now a fight over whether or not the fish market can use the name or the mark Pike Place Market on their goods. This is stemming from a lease agreement that’s been in place between the parties for, I want to say over 20 years now, where the landlord has a contractual restriction in there saying the fish market cannot sell its products bearing the name Pike Place Market outside of the market without their permission.
And what happened is the fish market changed hands, new ownership came in, and of course they want to expand the business and grow it. And so they want to sell goods in retail stores throughout the country. They went to the landlord and said, “Hey, we see this contractual provision, we’re intending to sell outside of the market.” Allegedly the market said, “Okay, tell us what you want to do.” But the fish market never really responded and just started selling goods. And so now they’re in a lawsuit. The market has filed a federal court lawsuit for trademark infringement. The fish market is trying to cancel the market’s trademark registration and it’s a big messy fight. So Johnny, here are these facts, initial thoughts, what do you think about this case?
John Di Giacomo:
Well, outside of the legal context, it sounds like somebody walked into a new business that they didn’t do a whole lot of due diligence on, didn’t review the lease agreement, probably bought it at a premium, thought they were going to grow the business, realized that there was a contractual restriction that prevented them from growing the business and got scared. This seems like that’s the first factual thing because if they’re trying to sell outside of the market itself, they probably should have looked at that before they bought the business.
Eric Misterovich:
Yeah. I mean this seems like a real mess up if they were not aware of this because it seems like the restriction was pretty clear. It is a funny kind of intersection between a lease agreement and trademark rights that you don’t see very often. But I mean, I understand the market’s position, their name is Pike Place Market, and now you have Pike Place Fish Market selling these pre-packaged smoked salmon products all over the United States. And man, it’s kind of hard to separate these two, but I certainly understand the market’s position.
John Di Giacomo:
Yeah, it seems like there’s a license solution where the development authority that runs the market gets to control the name, but the fish market gets to use it because I’m looking at the trademark first use and commerce dates and it looks like the fish market was 1975 and then the actual market was 1987. So the fish market has a prior date of use. But thinking through this, it sat on its rights from 1987 when the Pike Place Market apparently opened or started using Pike Place Market as the name till now. That seems like a big problem.
Eric Misterovich:
Yeah, I find myself saying this to clients all the time when they call with a trademark issue is, “Trademark problems that exist now will continue to exist forever unless something changes.” And that is exactly what happened here where there was a problem on day one and effectively no one did anything and just operated business as usual. And now it’s 25, 30 years later and you have this very difficult web to try to untangle. And I mean the license agreement seems like an obvious way to solve it. Terms of that of course are the devil’s in the details there, but it’s a mess. And it’s one of these where it was always a mess, but it was always fine because they were working together and now the fish market’s making money without the larger market and they want a piece.
John Di Giacomo:
It seems like the fish market could pay 20 cents a package of smoked salmon. Who are these people that buy smoked salmon? I’m just disgusted right now. Our producer Mark is looking at me like, “That’s me.”
Eric Misterovich:
What do you have against smoked salmon?
John Di Giacomo:
I don’t know. It’s just of the fish that I would smoke. Salmon is the lowest of them. I mean, look, I’m not opposed to some smoked white fish but smoked salmon. I don’t know, man, just not my thing.
Eric Misterovich:
I mean, I like it. I don’t know that it’s my favorite in the world, but it’s pretty good. And if I saw it in the store and “Oh, it’s Pike Place, that would certainly get my attention. And that’s part of what trademarks are intended to do.
John Di Giacomo:
Yeah, that’s a great segue because it is exactly what trademarks are supposed to do. I would believe that it had a higher quality or a higher level of freshness because if you’ve been to the market, you see them throwing fresh fish and you realize this is about as good as it gets. So for sure there’s value there. And I think you’re right. I think a license does make sense.
Eric Misterovich:
I think so. Hopefully they can work it out. It’s a bummer to see. Everyone loves the Pike Place Fish Market and it’s a bummer to see this happening. It seems like there’s plenty of money to go around. They just got to figure out a fair way to split it up.
John Di Giacomo:
Yeah, definitely. So the next one we have is Rolls-Royce, the HexClad. Rolls-Royce obviously is the car company. Car company. There’s that Midwest accent. Again, HexClad is a new maker of cookware. Eric, do you own any HexClad products?
Eric Misterovich:
I don’t, but I have been looking into it.
John Di Giacomo:
We have a few HexClad pans and they’re pretty good. They’re cool because they’re like a mix between cast iron and non-stick aluminum. It’s an interesting setup. They have this little matrix system in the bottom of the pan that actually works really well. I think it’s one of the only products that I bought off a Facebook ad that actually works the way it was intended to. So both interesting companies, HexClad obviously has become very popular in the last few years. They scored an endorsement or got Gordon Ramsey to recommend their products, so they’re obviously doing relatively well. Tell us about this case.
Eric Misterovich:
That’s what it stems from is Gordon Ramsey apparently called it the Rolls-Royce of pans, of cookware, and the complaint details and I have screenshots of social media posts after post after post and advertisement where they are just repeatedly using that line where they are the Rolls-Royce of pans. And I think we all know exactly what they mean when they say that. And Rolls-Royce is saying, “Well, why are we brought into this? We don’t have anything to do with it. You’re not Rolls-Royce. We don’t know if you’re up to a Rolls-Royce level of quality or not.” So they filed suit in New Jersey. They’re alleging trademark infringement, unfair competition, trademark dilution, the usual suspects here.
One thing I thought that was interesting when going through the complaint is Rolls Royce actually does sell cookware and you can actually buy a car that has a built-in cookware set essentially where a spare tire would go, which I’m sure their attorneys were like, “Well that’s perfect. That helps us go from just cross the line of this is a silly lawsuit to a very useful fact for them,” even though I’m sure nobody really knows Rolls Royce based on their cookware, but it is a very useful fact for them in this case. And so this one, it feels like this one could have been resolved without a lawsuit. I’m sure they tried. And my guess is HexClad just said, “You’re not really going to sue us over this.” Well, they did. This one’s an interesting one. Trademark dilution certainly comes to play. John, can you help everybody understand what these major brands and these famous marks, that elevated protection they have under trademark law?
John Di Giacomo:
Yeah. So even before I talk about that, I want to make two comments. One is the first thing that came to mind when you said Rolls Royce cookware in the back of the car. I thought of Arthur. Do you remember the movie Arthur?
Eric Misterovich:
Yeah.
John Di Giacomo:
Oh, man, it’s so good. I just imagine Arthur with, he has a wine set that he just rolls out of his Rolls Royce. And then the second is I also thought of Will Smith and Will Smith being the embodiment of Rolls-Royce slapping HexClad and saying, “Keep our damn name out of your mouth.”
Eric Misterovich:
We need to find a way to get a Gray Poupon mixed into this whole…
John Di Giacomo:
Yeah, we do. But trademark infringement extends to the use of a mark and association with some goods or services. So a good example is Delta Air Lines versus Delta Faucets. They are the same mark used in association with different goods and services, so there typically will not be overlap or a claim for infringement between the two of them. But there is a larger breadth of infringement analysis when it comes to famous marks and famous marks are marks that have become so ingrained in the public eye that anyone knows who they are, everyone knows who they point to.
Under the umbrella of famous marks, there are two claims that can be made by somebody who holds a famous mark. One is dilution by blurring and the other is dilution by tarnishment. And dilution by blurring is this idea that if you use our mark on a product that is maybe not the same thing that we sell, it dilutes our brand. And people may be either confusing into believing it originates from us or the quality is poor and they believe that we’re responsible for the poor quality. So I’m assuming that’s probably what happened here.
Or alternatively, there’s dilution by tarnishment where a famous brand is infringed upon allegedly by someone who tarnishes their brand even though they’re using the mark in association with different goods or services by casting the brand into some kind of disrepute. And a good example of that would be Microsoft for cannabis products or something along those lines where there’s a real risk that the use of that mark in association with some typically non-infringing product would otherwise tarnish a famous brand’s brand. So Eric, do you know whether it’s dilution or tarnishment in this case?
Eric Misterovich:
It looks like blurring.
John Di Giacomo:
Yeah, that seems right.
Eric Misterovich:
Well, it’s both.
John Di Giacomo:
When I said dilution, I meant blurring of things.
Eric Misterovich:
They allege both, you’d expect. But yeah, and I’ve always thought the expanded rights for famous marks feel wrong. They just feel wrong. I think I remember, isn’t there a case about Tiffany’s and a breakfast place or something like that and the jewelry company won on a claim for tarnishment or blurring? Something like that. It just feels unfair because no one’s really thinks of breakfast place is selling diamonds, but they have these very strong rights and they can enforce them. And it’s a difficult defense I think for HexClad, even though it doesn’t feel like they’re doing anything wrong. It feels like they’re trying to paint Rolls Royce in a positive light. The dilution claim is going to have legs.
John Di Giacomo:
Yeah, I think you’re right. There was another case, Louis Vuitton v. Chewy Vuitton. Chewy Vuitton was a dog toy company. That’s one of the cases you read in law school when you talk about dilution. And every conversation in law school is exactly about the thing you mentioned, which is that why are we giving these brands so much power that they’re able to go after smaller brands that don’t cause confusion within the same categories of goods or services. So there’s definitely a debate there, I think to be had.
This particular case, on the way the law is currently written, I think HexClad’s got some problems. In trademark law there’s this idea of nominative fair use. Nominative fair use is referencing another’s trademark for the purposes of specifically raising it to say something about it. But in doing that, you can’t imply endorsement or sponsorship. You can only use so much of the mark as necessary for the purposes of the use. There’s also some classic fair use defenses relating to comparative advertising. This is neither of those. It just feels intuitively like you are evoking one of the largest brands in the world for the purposes of saying that your products are really high quality. I wouldn’t want to be in the shoes of HexClad’s attorneys right now.
Eric Misterovich:
Yeah, I think my take on it is they probably started the slogan and then it just, they doubled down and it grew and it grew and it grew and they’re just using it more and more and more. And Rolls-Royce is like, “Okay, enough. You can’t have your entire business model be based on comparing yourself to us.” They could obviously say the gold standard or the ultimate, best in class. There’s a lot of ways to describe being the best without saying Rolls-Royce. So it’s maybe is this innocent slogan that morphed into, “Wow, they’re really depending on this,” and at some point Rolls-Royce has got to enforce their own rights.
John Di Giacomo:
Yeah, I don’t know that I would’ve chosen a British car company either. If you’re going to talk about quality and reliability, British car companies is not where I’d start.
Eric Misterovich:
Burn. Burn on British car companies.
John Di Giacomo:
Sorry, all you Range Rover fans. Well, we got another one. So Trader Joe’s v. Trader Joe’s United, what is this one about?
Eric Misterovich:
Trader Joe’s has sued a labor union that represents Trader Joe’s employees. And the main reason is because the union sells merch that has the Trader Joe’s logo-ish on it. It’s not their exact logo, it’s more like they use a similar font that Trader Joe’s uses. They have the same circle, Trader Joe’s logo. It certainly doesn’t look identical when I’m looking at, we have the pictures we’re looking at, they’re not identical, they’re somewhat similar. Trader Joe’s in Red.
Anyways, the problem here is the grocery store says, “Why are you using this in a commercial manner? You are making money off of merchandise that is effectively our trademark.” So I understand where they’re coming from. The complaint in this case goes to pretty great lengths to say what they do not consider to be infringement. So reference to Trader Joe’s, they are very expressed that this is not infringement. They of course are allowed to use the words Trader Joe’s. They also pointed out some of the other merchandise the union sells that has nothing to do with Trader Joe’s but is more related to labor union rights and collective bargaining and employee rights. And they say, of course, “None of this is infringing.” So it does feel, I don’t know, what’s your take on it? What was your initial reaction?
John Di Giacomo:
It sounds like Trader Joe’s being fairly reasonable. I mean the idea that they allow them to use the Trader Joe’s mark for the union seems to be a pretty large concession, although maybe it’s some form of fair use. I’m not quite sure which form it would be. I guess it might be nominative fair use. I’d have to think about it more, but that seems like a pretty reasonable concession. What’s the basis for selling the merch? Is it fundraising purposes? Do you have any idea?
Eric Misterovich:
That’s my guess. I don’t know. Some kind of revenue creation. Yeah, on the one hand it’s like, well, would you expect the Trader Joe’s union to look completely different than the Trader Joe’s actual logo? Certainly it could, but I think one would also expect it to have some similarity. And I don’t know, when I look at the pictures, they’re just not that similar. It’s just Trader Joe’s is in red writing and the font, not identical, but it’s close, I would say.
John Di Giacomo:
Yeah, I agree. The font is definitely close-ish. It’s not identical at all. There’s, I don’t know, a Romanesque script to the Trader Joe’s font and the Trader Joe’s United font is more like Arial or I don’t know. My font knowledge is terrible, but that’s what it looks like. It looks a little bit blockier. That seems like a tough one. Why name the union Trader Joe’s United. Why not name it some other term? You can get more members, you can avoid these claims. I don’t know. It just seems like a poor choice. And then it seems like an equally poor choice to sell products that could… I mean, these are bad. There essentially like grocery bags. So you do seem to be stepping right into the market that Trader Joe’s is selling in.
But I can also see it from their side where the uses are not that similar. There’s no copyright claim because there’s not a font copyright claim from what I can see from the complaint. Yeah, I don’t know. This is a tough one. It intuitively feels like fair use, but at the same time it doesn’t fit on all fours with any of the traditional fair use doctrines.
Eric Misterovich:
Yeah, I think it’s a tough one to reconcile and figure out who do I like, what side do I like more? I think ultimately the problem for the union is they pick all of these things for a reason. They picked that font for a reason. They picked the color for a reason, they sell that certain bag for a reason, and it’s because Trader Joe’s is really popular and has a very popular brand and their stuff looks similar to it. It’s not identical, it’s different-ish. But if you want to talk playing off the goodwill of someone else, that’s definitely what’s happening here. And just because you’re the union that represents Trader Joe’s people, doesn’t give you the right to do that.
John Di Giacomo:
It reminds me of the difference between litigating trademark cases in the ninth circuit, which is California and Washington state versus litigating trademark cases in the sixth circuit. In the sixth circuit, we don’t have the idea of nominative fair use. We just have the likelihood of a confusion analysis, which nominative fair use in the ninth Circuit is basically, again, the ability to use someone else’s trademark to reference that company, to compare it to your own, but you can only use so much as necessary. This seems to step over that line a bit because it is, as you said, similar enough to make me question why didn’t they do something completely dissimilar and maybe they went over the line a bit, but if we were to analyze this here in the sixth circuit, is there likelihood of confusion? I don’t know. I don’t think so. I mean, somebody seeing Trader Joe’s union probably isn’t going to think that that bag comes from Trader Joe’s, right?
Eric Misterovich:
Yeah, I agree. I mean they’re very clear and the imagery they use is, it’s this fist, it’s holding a box cutter. It’s clear it’s intended to be this labor force thing where it doesn’t look like a Trader Joe’s logo. It’s different. And they’ve added changes consistent with their purpose, I guess. And so that would weigh against a likelihood of confusion. It’s a tough one. I mean it’s one where overall it’s like, hey, here’s a real parent corner answer. It’s disciplining this is a lawsuit. That’s the overall feeling I have. Can’t you guys figure this one out without it being a lawsuit?
John Di Giacomo:
Yeah, it seems like this should have been resolved way earlier, although there’s probably just some bad blood between the two of them because obviously they’re on separate sides. It’s an interesting case that’s more complex than I intended to think about today. We have another one, Wrigley v. Turpogs, llc. All right, what is this one?
Eric Misterovich:
Turpogs is about terpenes and cannabis. And so Turpogs, it sells cannabis infused products. And they had a mark. I don’t know how they pronounced it. It looks like Skittles to me. It’s just the S’s are Z’s. So instead of an S at the front and the end of Skittles, it’s a Z at the front and the end. And they use slogans such as “Taste The Z Train,” “Taste the Strain, Bro.” And Skittles of course, was not real happy with this. And they filed a lawsuit to stop them claiming it’s obviously too close to the Skittles trademark. And the slogan “Taste the Strain, Bro,” was too close to “Taste the Rainbow.” See, this is why you love Trademark Law. You don’t get to say that in creditor’s rights cases.
John Di Giacomo:
No, not at all.
Eric Misterovich:
That’s why I love working in this niche of laws. You can’t make this stuff up. It’s amazing. So my takeaway from this one is obviously the Turpog company was in the wrong. This is very clearly infringement. It’s almost definitely dilution by tarnishment. There’s not really a valid defense at all changing an S to a Z. It’s not nearly enough to mitigate against the likelihood of confusion. I didn’t see any pictures, but I’m guessing the actual products also look like Skittles. So in terms of what was this cannabis company doing? My takeaway is they didn’t really care. They’re going for it. And now people are talking about them, which ends up being a good thing.
John Di Giacomo:
Yeah, we had a case like this for a client that’s famous in Michigan, and I had to send a demand letter to a cannabis company that was using their trademark for cannabis. And at the time we discussed, when you have this conversation with the client, you’re like, “Well, do you want to grant them a license?” And our clients were not interested in that. They were like, “We don’t want to be associated with cannabis.”
I wonder how long it takes until you start to see Skittles or any of these other larger companies licensing to cannabis brands. Obviously it’s probably not going to be something that might be tailored to kids also being sold in association with cannabis. But stranger things have happened. I mean, we see crossovers between alcohol and different flavors in the marketplace and food products, Apple Pucker, these types of things. I wonder if it’ll ever happen.
Eric Misterovich:
It could. I mean, I know Michigan actually has a law that prevents cannabis infused products from coming in packages or being shaped in a manner that looks like kids’ candy. So this would not be allowed under Michigan law related to cannabis, although I will say that law is not strictly enforced.
John Di Giacomo:
Yeah, I was going to say, I’ve seen PotDots in Michigan, which are like little Skittles that have, I mean, geez, I just said Skittles. They do look like Skittles though, but they’re Skittles that have cannabis in them.
Eric Misterovich:
Yep. I’ve seen peanut butter cups, I’ve seen Hot Rocks like Pop Rocks. So there is a rule. I think it is a good rule, but it’s not really being enforced the way you would expect. So here, this was a no-brainer, I think. I can’t imagine this litigation lasted very long, but they made the news and I’m sure that ended up working out for them and they probably got some publicity out of it.
John Di Giacomo:
Yeah, that’s probably right. So the next one is Real v. Amazon or is it Wreal? I’m not quite sure. What’s this case about?
Eric Misterovich:
This company had a streaming service called Fyre TV that was called the Netflix of porn. And it existed. It existed apparently before Amazon came out with Fire TV. And so this was what’s called a reverse confusion case, which is somewhat rare in the trademark world, but it’s interesting. John, you want to give an overview of reverse confusion?
John Di Giacomo:
I mean, it’s basically the opposite of confusion in the sense that the opposite of likelihood of confusion where someone is likely to be confused into believing that your product is associated with theirs. Reverse confusion is where in this case Amazon is such a powerful brand that people believe that the original mark holder or the person with priority is associated with Amazon. So they’re saying, “We don’t want to be associated with Amazon, but the Fire TV brand has gotten so large that now we are, and that’s a problem.”
Eric Misterovich:
Yeah, no one thinks they are Fyre TV promoted by Amazon. But Amazon’s Fire TV is so big it engulfs the plaintiff here. And so the plaintiff, the Netflix of porn, filed suit and the case was decided on summary judgment in favor of Amazon. Amazon Fire TV, I’m sorry, the plaintiff, Netflix of porn appealed the 11th circuit, which ruled in favor of the plaintiff and sent the case back to district court where it is now settled. My takeaway here is Amazon should have settled this one on day one. I’m sure they have the money to do so. They would’ve avoided all the news on it. I can’t imagine they wanted this news to come out. It takes two to settle, so maybe the plaintiff was unwilling unless they got a certain dollar figure. And then once the case went on so long and through an appeal, everyone calms down and settlement becomes much easier to find.
John Di Giacomo:
So Fyre TV, I am a tech person. So one of the first streaming devices was Roku. I had a Roku, I think the first generation of Roku and Fyre TV was actually one of the apps on the first generation of Roku. So that existed way prior to the Fire TV stick that Amazon sells, et cetera. You’d think that Amazon would’ve by proxy, just silently bought the company and shelved it. Something along those lines. This seems like a really bad idea on the part of Amazon’s attorneys, and they’re not stupid. I mean, Davis, Wright and Tremaine, typically. Some of the best attorneys in the country, you would’ve thought that they would’ve done this trademark search and advise them correctly. But again, trademark law is oftentimes a crapshoot. You take risk, sometimes you win, sometimes you lose. It’s never always one thing or the other.
Eric Misterovich:
Yeah, that’s true. That’s a good point. And we have a lot of clients sometimes and they get frustrated if we’re telling them the risks associated with the marks they really want to use. And it’s like, listen, you have the biggest company in the world here, Amazon, losing a trademark infringement lawsuit that I don’t know, it was fairly obvious was going to happen if they went with Fire TV and they chose to do so. So sometimes you just take it and take the risk and see what happens and let the chips fall where they fall. And in this case, Amazon did that and lost.
John Di Giacomo:
Yeah, I think it’s also worth mentioning because this case and the last one involving Zkittlez or Z Kittle Z, whatever we’re describing this as, both involve changes to the lettering of the words. So in the case of Fyre, it’s the use of a Y as opposed to an I. In the case of Skittles, it’s the addition of Zs instead of Ss. In trademark law, we don’t just look at the strict textual representation in the mark. You look at sight, sound, meaning, commercial impression, et cetera. So if you’re thinking about a trademark and you think you can just change the lettering, even though it sounds like something else, that’s probably a no-go. And it’s worth keeping that in mind. And these two cases are really good examples of that.
Eric Misterovich:
Yeah, that’s a great point. I mean that’s something that I think is a common misconception. “Oh, I used a Z where the S is.” No, it’s not this scientific test, it’s a much more flexible test and small changes like that just aren’t enough.
John Di Giacomo:
So the next case involves the Isley Brothers. Let’s talk about this one. What happened here?
Eric Misterovich:
This is one more of the long history of band name trademark cases. And the question is, who owns the trademark registration for the Isley Brothers? And this band started in 1954. We have two brothers now suing each other. It seems like one brother basically made the claim that the band was no longer in existence once a third brother passed away. And the court’s opinion literally said, “Band name trademark cases are very difficult. And I’m not going to dismiss this case right now.” And this has happened, John, you probably, I can’t think of one right now, but I know there’s a few other cases and bands that have fought about this.
John Di Giacomo:
Grand Funk Railroad, Flint band. Mark Farner from Grand Funk Railroad got in a lawsuit with his former bandmates. And this happened in Michigan. They filed a motion for preliminary injunction against his use of, I think The American Band or something like that. And he ended up winning. And I think the case settled. But yeah, this is pretty common in bands. So if you are in a band, get everything in writing. You should have entities shown on the trademark, there should be shares allocated to each member, et cetera.
Eric Misterovich:
And of course, bands maybe not the most organized in terms of legal matters. So of course no one is thinking about who owns the trademark registration to our new band name when everyone’s starting out. And then next thing you know, it becomes a real question. So this one is just one of the many band name cases that it really shouldn’t get to this point. They’re family. It’s a valuable trademark registration. Why don’t you guys figure out how to get along?
John Di Giacomo:
Yeah, You guys should just fight each other like we Italians do.
Okay, the last one, Michigan lawsuit. This is one that we are handling that we can’t talk specifics on, but it’s interesting fact pattern. So let’s talk through this.
Eric Misterovich:
I think we’re going to have Drew come on the next pod and dive into this. We have filed a notice of appeal regarding the denial of a Michigan trademark registration. And short story is that Michigan has a, I don’t know if it’s a law or an administrative rule or exactly how they have this grounding, but they don’t allow a trademark to be registered if there is a business entity name with that exact name. So for example, if we are Revision Legal, you have Revision Legal, PLLC registered as a business entity. If we tried to file Revision Legal, a state trademark application for Revision Legal, it would be rejected. And we’d think that rejection doesn’t really make sense.
John Di Giacomo:
And the distinction here is that an entity name is what we would call a trade name and a trademark is something different. So if you’ve ever owned a business or know of someone who owned a business that had a entity name that didn’t match the brand name, which is pretty common, that’s the distinction. The brand name is the trademark. The entity name is the entity name that’s called a trade name. So it does seem like this admin reg or whatever it might be, doesn’t make a whole lot of sense and it hasn’t caught up to the law on trademarks at all.
Eric Misterovich:
Yeah, it seems very bizarre. I mean, it’s black letter law that registering and business entity is not a use in commerce. And so trademark rights only exist with a use in commerce. So to prevent a trademark registration based on a use that is something other than a use in commerce just really stands out as being inconsistent with traditional trademark law.
John Di Giacomo:
Yeah, it’ll be interesting to see how this goes and we’ll have to have Drew on to have a conversation about it since he’s handling the case. Well, that’s all we have for this week. Thanks again. Again, this is John Di Giacomo and I’m joined by Eric Misterovich. This is the May It Please The Internet podcast and we will see you later.
The post May It Please The Internet: Trademark Infringement In The Wild appeared first on Revision Legal.
Amazon Aggregator Troubles Continue | RSS.comAmazon Aggregator Troubles Continue
John Di Giacomo:
Hey everyone, you are listening to the May It Please the internet podcast, which is a podcast brought to you by Revision Legal. And today, I’m joined, as always, by my business partner, Eric Misterovich. Hey, Eric.
Eric Misterovich:
Hey, John. How are you?
John Di Giacomo:
I’m good. It’s been a long time. I’m ready to get back into the swing of things. It’s been a short but fun summer. What about you?
Eric Misterovich:
Yeah, absolutely. School is starting back up and couldn’t be happier to have the kids back in school. So summer was fun. It’s over, and that’s a good thing, I think.
John Di Giacomo:
I don’t know. It sounds like you took on some new responsibilities. You’re coaching football now?
Eric Misterovich:
Coaching flag football. I’m very excited. I’ve been drawing up plays, getting the playbook together, but man, herding seven year old boys into running a play is a lot more difficult than I imagined.
John Di Giacomo:
So you’re not going to be running like a West Coast offense? You’re going to run the ball the full time?
Eric Misterovich:
No, it’s going to be a lot of running, and hopefully, we can get some misdirection and some reverses going.
John Di Giacomo:
Well, today, we’re going to talk about some plays that went bad. We’re going to talk about Amazon aggregators and the troubles that continue to plague them. And Eric, do you want to lay the background on this one and get us started?
Eric Misterovich:
Yeah, so we’ve been involved in helping people buy and sell online businesses for almost a decade now. And a few years ago, roughly 2020-ish, there was just an absolute boom of money that came into this space, really headlined by Thrasio, I think, who came in as the biggest aggregator and had this plan of buying a hundred Amazon businesses and rolling them up and hopefully, achieving some kind of economies of scale with operations. And that business model proved to be attractive to a lot of other people. And next thing you know, there’s 15, 20 of these companies that are playing with, frankly, other people’s money and going around scooping up all of these Amazon stores, paying pretty high multiples at that time. And it was a boom. We were as busy as could be.
Eric Misterovich:
I know there’s a New York Times article that came out around that time, explaining how they’re minting millionaires overnight and people are selling their Amazon businesses for astronomical amounts of money. I just remember a new deal would come in. I’d say, “Okay, what do you sell?” They’re like, “Glass jars.” It’s like, “Okay, what’s the purchase price?” “Four and a half million dollars.” It’s like, “Good for you. Let’s get this thing closed. That’s amazing.” So there was this boom in 2020, everyone’s buying Amazon businesses, and there’s free money out there for all these aggregators to play with. But John, of course, all good things come to an end.
John Di Giacomo:
They really do. And it’s quite unfortunate, because a lot of these companies really worked hard and did a lot of due diligence on some of the purchases that they made. However, the multiples were just crazy. Do you recall the highest multiple that you saw during this time period?
Eric Misterovich:
That’s a good question. It’s got to be, if we’re doing monthly multiples, I think it was getting above, man, maybe like 50 months times revenue, something like that. Something way too high.
John Di Giacomo:
Yeah, I remember seeing 12X EBITDA on some deals and just thinking to myself like, “That is crazy. I don’t know how you would ever pay that back.” But there was this big boom, partially due to COVID and other related things happening in the broader macro economy, that made e-commerce extremely lucrative for a period of two or three years. And I think everyone expected those things to continue. And of course, money started to dry up, because interest rates went up. And like you said, all things come to an end, but there’s these ongoing problems with these aggregators. And one of those problems arises out of the fact that they use deferred payment. Can you explain that structure, Eric?
Eric Misterovich:
Yeah. So every deal is different, but most deals involve some kind of upfront component for cash at closing and then, some kind of deferred payment. And that could come in the form of just a holdback amount, where there was no triggers to it, it was just maybe 10% of the purchase price would be paid a year after closing. That’s a pretty common term that protects the buyer. If there’s any indemnification issues, they have a little bit of money to play with. Some were performance-based, so there was earnout periods. Some of these had earnout periods that are lasting three, four, or five years down the road, where, if the business hit certain targets, they would receive a certain percentage of revenue above EBITDA or baseline EBITDA or things like that.
Eric Misterovich:
So sellers got into these positions where they’re owed quite a bit of money several years down the road, with, at the time, it looks like you’re selling to a very trusted company, someone who has a lot of money and backing, but that doesn’t necessarily mean they know what they’re doing. And that’s what came to be pretty clear. Once that first round of deferred payments hit, maybe 18 months after this boom period, we started hearing a lot of complaints.
John Di Giacomo:
And part of those complaints arise out of the fact that the deferred payments were often either
unsecured, meaning that there were no assets secured to protect against nonpayment, or they were secured by assets that were held by a special purpose vehicle, an SPV, that was a subsidiary of the parent company. So as the market collapsed and as the parent companies, the aggregators themselves, were unable to pay back the deferred payments, ultimately, there was no, or there appears to be, no recourse for some of the sellers for these deferred payments, because there’s nothing to take back. There’s only security at that SPV level. And so, about late 2022, maybe mid 2022, our phones started ringing. And a lot of these sellers, who we’ve represented a number of sellers and a number of aggregators, started to ask questions about “What do I do? I’m not getting paid.”
Eric Misterovich:
And it’s a real tough conversation when a seller comes to us and says, “I had this great business. This aggregator that I trusted took it over. They did a terrible job running it. However, we still hit our targets, but now, there’s no money. They’re saying there’s no money.” And then, we have to explain what their options are. And like you said, if they didn’t find some way to secure that earnout payment through the acquisition process, it’s too late now. And they’re in for a tough realization of, even though there’s a very clear breach by the buyer, the remedies that are available to the seller are extremely limited.
John Di Giacomo:
Yeah, we’ve had a number of tough conversations with sellers asking us, “What are the remedies?” And when you have security in an SPV, typically, that security is going to be second in time, meaning that there’s somebody who’s going to have priority over you. And that priority is typically given to the lender that provided the financing for the purchase of your business. So then, you’re left with some pretty tough choices. Do you file suit, which could be costly? Do you try to work out some kind of payment plan that extends the time to get paid? And a lot of our clients have started to opt for extended payment plans. And in having those conversations with the aggregators, the extended payment plans, we’ve pushed to get some additional form of security. We’ve asked for apparent security, we’ve asked for some other security that would provide some level of leverage for the seller. And in all those cases, the aggregators just say, no, they can’t do it, because they’re already overleveraged and their loans are being called in.
Eric Misterovich:
Yeah, that’s exactly right. What happens is, when everyone got that free money, it came with a lot of strings, and those strings are that those senior creditors have superior rights to all of the assets of the aggregator. And so, if you, as the seller, say, “Hey, I have a clear breach of contract, they didn’t pay me.” The answer is, you are completely right and you can sue them and you can get a judgment, but in order to collect on that judgment, you have to get around the senior creditor. And you’re probably not going to be able to do so. And so, you’re left in this situation of working something out. And the reality is that kind of has to be the solution, because even for the senior creditors, the contracts with the senior creditors have probably been breached as well.
Eric Misterovich:
They’re probably behind on payments owed to them as well. But the only way for that senior creditor to really get paid is for that business to succeed. And the business to succeed, it has to continue. It doesn’t really make sense for the senior creditor to sue these companies into non-existence, because they’re never going to get the money. So it ends up being the situation where everyone is mad. Everyone is kind of taking a hit on the original plan, but the best way to get money is for that business to continue. And that becomes a tough pill to swallow when you’re the seller.
John Di Giacomo:
Yeah, I completely agree. I want to pause here to make a mention of something, which is that, during this period of time, we had a number of sellers who would come to us and they would want really just partial work. They’d say something along the lines of, “I just want you to review this agreement and make edits to it. I’ll handle everything else.” And what we’re finding is that those sellers are in the worst position, because for example, two of the sellers who have approached us about not being paid by an aggregator failed to file financing statements. So if you don’t file a UCC financing statement immediately after getting security and assets and someone files before you, then you’re immediately second in time. So they had these opportunities to become first in time, but they failed to take them, because they were
DIYing the work, which is another reason why we always tell clients, “If you want to do this correctly, let us do it.”
John Di Giacomo:
And it just so happens that it didn’t work out in two cases that we’ve recently seen. In the cases where sellers have held back assets that could be grabbed, so physical assets, like domain names or trademarks or patents, in those cases, they’ve been in a better position to negotiate payment plans, where perhaps, someone in a worse position gets paid back over a five-year period, where those clients who have held back something, some physical asset or intellectual property, get paid back more quickly. So good news for them, bad news for people who didn’t do that. But let’s talk about the money. Where did the money come from for these aggregators? And why do you think it dried up?
Eric Misterovich:
Yeah, everyone’s got a boss, even these aggregators, and their bosses are private equity. And private equity injects this money, and they expect return. And like I said, they have the rights on all of those aggregator assets. So just to back up for a second, we’re talking about financing statements and all this stuff. It’s essentially like a mortgage on a property. You take a UCC financing statement, and you record it with the Secretary of State. That effectively puts a lien on all of the assets. And if the aggregator fails to pay back the private equity firms, then they can foreclose on those assets. So it’s very similar to a mortgage. And when we say the sellers are second in line, it means whatever rights you have to collect against the buyer, the aggregator, they’re always going to be subordinate to the senior creditor.
Eric Misterovich:
So that is where the kind of interplay comes in, where the technical aspects of what we’re talking about is you’re always second in line and you can’t seize assets. And a lot of times, you’re forced to sign express subordination agreements, which say you can’t even collect the money. It might put long limits on when you can file lawsuits or anything like this. So the aggregators are all funded by private equity, who are going to have extremely strong terms in their favor to get their money back. And once things started going wrong, it was really a compounding effect, where you remember the supply chain issues, nothing was showing up, inventory wasn’t there, they weren’t able to complete sales, the cost of shipment went sky high. So now, the margins that these companies were working on, they were out the window, because the cost of shipping went so high.
Eric Misterovich:
And we’ve had a lot of people in our circles look at this aggregator thing from day one and say, “This is not going to work. They’re hiring all these MIT and Ivy League grads to run Amazon businesses, that were operated by one person from their house and some virtual assistants, and now, they got all this overhead.” So it was just a confluence of problems that all kind of came at the same time with supply chain issues, rising shipping costs, overhead in the businesses, and not hitting their targets, which caused them to default or be on the verge of default with their lenders. And the lenders really putting the screws to them, in terms of not giving them more money to play with. And that’s where everything’s starting to tighten up.
John Di Giacomo:
And I think it’s important to talk about the really two types of financing that these aggregators received. One is private equity firms would provide credit facilities, and a credit facility is basically like a big line of credit. And credit facilities were provided with very little due diligence, and in large amounts, with no personal guarantees, because the market was so good, everybody’s making money. And in credit facilities, there typically will be an arrangement where there’s a period of just interest only payments. So a lot of these aggregators were taking advantage of the fact that they could buy a business now and pay interest only payments for a period of five years, for example, and take that five-year period, where there was no real movement on the actual underlying debt, to increase the value of the business, in the hopes that they would have enough funds to pay back the debt, when the interest only payments ended.
John Di Giacomo:
And unfortunately, that didn’t happen, because of all the things that you already mentioned, Eric. And then, in combination with that, interest rates went up. So historically, interest rates were lower. So people who were investing in private equity found that it was a good deal for them, so they wouldn’t put their money elsewhere in the market. But now, you can get a treasury bond or even a CD now and get a reasonable return, where historically, you weren’t able to do that. So that money has now dried up. So it’s created a perfect storm for the credit facility financing scenario.
John Di Giacomo:
And then, there was the other scenario, which was debt financing. So traditional venture capital, where a VC firm comes in and they provide cash in exchange for some level of… Excuse me, I said debt. I meant equity financing, where they provide some level of cash for equity, but no one wants to invest in exchange for equity in a business that is upside down. And so, you’ve seen leaks on Twitter, you probably saw this, Eric, of not just down rounds for these aggregators, where they’ve gone out and tried to raise again and there’s not enough money, but also almost complete evisceration of their private market share price.
Eric Misterovich:
Yeah, absolutely. We’ve seen those go around, and who knows what’s exactly true, but it makes sense. We have just seen these big aggregators, that were extremely active in buying, go down to almost nothing. And then, you hear all of the operational issues. The perfect storm really is the right way to think about this, because so many things went wrong. And they really all compounded, from operations to supply chain to interest rates. And it all kind of hit at the same time and has not put it at a complete standstill, but just such a dramatic change from the boom time in 2020.
John Di Giacomo:
Yeah, so now, we’re seeing a lot of restructuring. So many of the private equity firms, who invested in some of the large aggregators, invested in the other large aggregators. So there was a lot of playing within the same market, so that, now that there have been defaults, the shadowy figures behind the scenes are starting to consolidate the good assets and discard the bad assets. And decisions are being made about who gets paid back and who doesn’t get paid back. So we will see a lot more cutthroat activity in this market, I think, moving forward. But with all these bad things said, there are some aggregators still purchasing. There is still money being lent to aggregators. It’s just a different world. And before we jumped on here, Eric, you said that you know of at least one or two aggregators in the FBA space that are still working, right?
Eric Misterovich:
Some of them still exist and some are still buying. I think it’s a much more focused effort now. John, you had always questioned, “Well, what’s the point of buying an Amazon business that sells a knee brace and then, a coffee frother? How are those two things helping each other sell?” And I think, now, what you’re seeing is more focused aggregators on specific products, building out a real brand around them, rather than, I don’t know, drunkenly spending money on basically any business that’s turning a profit on Amazon. And so, aggregators still exist. You can certainly still sell your businesses. Multiples have come back down to reality, but it’s not completely over. It’s just this kind of boom time, where, as long as you were breathing, you were going to sell, that’s gone. And it’s probably a good thing, overall, for everyone to kind of get back to a baseline here of having a more structured plan, a more structured kind of space that you’re going to operate in.
Eric Misterovich:
Because I think the operations part of this, I’m guessing, turned out to be a lot more difficult to buyers than they originally imagined. When you have one seller and they’re completely in control of this business and you try to hand that off to a team of executives and a team of kind of underlings, things get lost and they don’t pay attention and the businesses don’t get the same amount of attention that one person poured their heart and soul into. So businesses are still selling. It’s not the same. Now, we’re starting to see aggregators selling themselves, when they get to a point of no return, which is an interesting twist on things.
John Di Giacomo:
Yeah, I think, in the SaaS space, definitely, there’s still a lot of activity. There’s a lot of activity in the Amazon, Walmart, Shopify adjacent services business. So we’re seeing a lot of M&A work there. And I think of the, let’s say, FBA or physical products aggregators, the ones that seemed to stay and are remaining are the ones that, like you said, had really competent operators and good teams, people who could really understand the businesses that they were acquiring, did good due diligence, didn’t buy from a lot of Chinese sellers. No, I’m not making a comment about Chinese sellers, but a lot of the problems that we saw with aggregators arose out of just jurisdictional issues, because somebody doesn’t disclose something. What’s your remedy? It’s nothing. It’s effectively… You can’t go over to People’s Republic of China and enforce a rep warrant and get any kind of reasonable result.
John Di Giacomo:
So that was a high risk choice, and it didn’t pay off in a lot of cases. But in the case of the underlying private equity firms, we’re definitely seeing tighter leverage ratios. So they want to see that the multiple is lower, that there’s sufficient cash on hand from the buying party, the aggregator, a lot more reporting requirements. So historically, aggregators didn’t report anything. They just wanted to know that you were still operating. And now, it’s monthly, quarterly deep dive reports, and in many cases, actual traditional audits, which is great, of finances. Whatever comes out of this, I think, will be a bit stronger, but it still remains to be seen what the future of these businesses are. And yes, I still think, if you’re going to do this, build a Sears. Don’t build five consonant Amazon brands. It’s just insane. Build a brand that matters. Build a Hexclad, build a Solo Stove. Don’t build random consonant laden Amazon brands.
Eric Misterovich:
Yeah, I agree. And if you’re a seller and you’re in this situation, where you have missed payments or missed payments that are on the horizon, yes, your options are limited, but that doesn’t mean rollover. You have the ability to really put some pressure on the buyer. You do have the opportunity to get some leverage, in terms of more communication, more reporting. There’s a chance they’re making mistakes, that maybe you can help them see. The point is don’t give up, and I would be a squeaky wheel the whole time. You maybe don’t decide to sue them right away, but don’t give up and really push them and make sure that you are being heard and you’re there and they understand it. It doesn’t mean you’re going to get a windfall, they’re just going to pay you. But there’s things that can be done. You’re probably going to have to look at some kind of restructuring. Not always, but maybe. And maybe that’s the best thing overall. But if you’re in that situation, certainly talk to an attorney, get your documents ready, and start that line of communication.
John Di Giacomo:
Yeah, I think that’s absolutely right. Well, do you have anything else to say, Eric?
Eric Misterovich:
No. Good luck to all the Amazon sellers out there. Stay on your buyers. Talk to an attorney before you sell. Understand what’s going on. Ask questions, because everything seems awesome when you’re going through the closing process. 18 months later, it’s a completely different story. Hire an attorney.
John Di Giacomo:
Yeah, hire an attorney, who will help you walk through this process. It’s something we do on a regular basis. Also, I just want to raise that somebody called me out on Twitter and said that Amazon aggregators were fine, nothing was wrong. Sup now, bro?
Eric Misterovich:
Twitter, it’s just a gold mine, isn’t it?
John Di Giacomo:
Everyone’s an expert. All right, well, thanks, Eric. I appreciate it. Again, this is may it please the internet. We’re glad to be back. Glad to be talking to you. We will see you next time.
The post May It Please The Internet: Amazon Aggregator Troubles Continue appeared first on Revision Legal.
Legal Considerations For Video Game Development | RSS.comLegal Considerations For Video Game Development
John Di Giacomo:
Hey everyone, this is John Di Giacomo and you are listening to the May It Please The Internet podcast. And I’m joined as always by my business partner, Eric Misterovich. Hey Eric, how are you?
Eric Misterovich:
I’m doing fantastic. How are you?
John Di Giacomo:
I’m good. Today, we are talking about a favorite topic of mine, which is video games and interactive media, and we’re particularly talking about legal considerations for game developers. Eric, did you grow up with Nintendo? What was your video game history?
Eric Misterovich:
I never had a Nintendo, only my friends had it, but I did eventually get a Sega Genesis. So I was a big Sonic guy and then sports, so I was always playing Madden and NHL and the old NBA games, stuff like that.
John Di Giacomo:
Man, I used to have Team USA Basketball for the Genesis. That was amazing.
Eric Misterovich:
Was Genesis the Celtics versus Lakers, do you remember that?
John Di Giacomo:
Yeah.
Eric Misterovich:
Bulls versus… Yeah.
John Di Giacomo:
I think that was it, yeah. With Larry and Magic, right?
Eric Misterovich:
Probably, yeah.
John Di Giacomo:
That was probably that era.
Eric Misterovich:
Yeah, definitely.
John Di Giacomo:
Well, today we’re talking about the modern era, which is much different. Video games and interactive media is a massive industry. We’ve done a bunch of work in this industry and I wanted to kind of talk through some of the stuff that we’ve done and what we’ve seen and how we think about this process. And I think it’s interesting because you have a whole slew, a whole range of different types of people in this industry. And we’ve worked with three guys who met on a message board, built a team, and created a really interesting successful product. We’ve worked with large indie development houses overseas. We’ve done negotiations with EA, for example, on behalf of a creator. So we’ve kind of seen the gamut. And now it’s particularly easy to build games because of great tools like Unity and Unreal Engine and kind of all of the existing assets that are out there that allow you to quickly solve programming and design problems that you used to not be able to. And there’s just a burgeoning industry where you can sell stuff quickly on Steam or on the Nintendo Switch store or on Xbox Game Pass. And I thought it would be helpful for us to discuss just what we think about when we think about video game development. So let’s start with entity formation and kind of corporate governance and investment. So Eric, we’re starting a game studio, what’s step one? What do we do?
Eric Misterovich:
The first step is to figure out who is going to own what and get a formal entity created and document that ownership. Listen, the reality is a lot of projects start without this step being completed. And sometimes it ends up working out fine and everyone sticks to the plan and it’s all great. Sometimes that doesn’t happen. So I don’t think this should be a step that slows people down, but get it in writing. At the very least, get your ownership in writing. Now, what you really should do is get that entity formed, have a formal operating agreement, and if you’re taking on investment, get all of this done by a professional. Because if this turns out to be a success, this part of it, if it’s not done right, is going to create huge problems down the road.
John Di Giacomo:
Yeah, I think it cannot be stressed enough. We had a case a few years ago, so relatively recently, where a indie developer was formed by three partners and they wrote this kind of napkin agreement that didn’t really specify who owned what. And our client had designed all of the graphics for the game. He was the lead illustrator and artist. And the game started selling. They had entered into an agreement with a publisher, it was selling very well on Steam. And our client came to us and said, “Hey, I’m not getting paid. I haven’t seen a single dime.” So we looked at the issue and we realized that copyright rights had not been assigned to the entity and that our client was not an employee of the company, he was just an independent contractor. So we were able to get the game down from Steam overnight, which stopped sales, pushed the entire discussion to a head and got our client paid when he wasn’t being paid, because otherwise that game wasn’t going to go back up and sell.
So in that situation, it would’ve been better to get all the rights in the right place, get all the corporate documents in the right place, and really ensure that you had adequate rights to sell that game and that there were no issues that would disrupt the sale in the future. So it’s very important to get this done at the outset.
Eric Misterovich:
Yeah, that’s a huge… So many issues flow from the failure to do this first step. What we’re talking about is entity formation and an operating agreement. Okay, most people probably think that’s boring, whatever, we all like each other. But when you don’t do that and it’s not tied up in who owns what and where are the rights held, now it defaults into a copyright infringement issue where one developer owns the copyright to what he created, and if he pulls the plug, it’s over. He has the rights to do that. He created that work. It doesn’t belong to anybody else. And I don’t think people would expect that outcome from failing to get an LLC in place.
John Di Giacomo:
They never see it coming. And the same is true for investment. Not getting that LLC or corporate paperwork in order makes investment really difficult because a sophisticated provider of capital is going to come to a deal and want to see that information. They want to see what is the current capital structure? What is the cap table? Where’s this investment money going? Is there any risk to us because there’s not adequate paperwork or there’s some underlying liability that we haven’t thought about? So getting this stuff done is obviously very important for that reason as well.
So next we’re going to talk about publishing, licensing, and distribution. So the games business, it’s a lot like the movie business where you’ve got creators, you’ve got publishers. But there’s a lot of smaller indie publishers who are just there to help with marketing and getting your stuff on Steam or on some other store. What do you think developers should be thinking about when they talk about getting into a publishing deal or starting to distribute their product?
Eric Misterovich:
They should be thinking about what kind of control they’re going to have and are they giving up the farm here. What we often find are people come to us with problems that are somewhat self-inflicted, and then they ask us, “How do we correct it?” And it’s the vitamins versus the medicine, and taking those vitamins will prevent the problems, and the medicine, you might be in for surgery to correct what went wrong here. But understanding what they’re giving away, how much they’re getting paid, how long this contract lasts, what are the obligations of the publisher, are they even forced to hit any targets, is there any kind of obligations on them to do a good job? And sometimes people won’t take the step to bring in an attorney. I also think people think somehow lawyering it up is wrong, it’s not what they’re about, they don’t want to be like that, things like that. And man, that frustrates me so much, because this is normal, this is how it’s done. And to do it without taking that step, you’re just taking a risk that things are going to go to shit, and that it is a self-inflicted wound at that point.
John Di Giacomo:
Yeah, I think that’s absolutely right. I remember a specific incident where we represented a very famous game developer who had created a very addictive, well sold mobile game that became very famous, was published by one of the AAA studios. And the developer came to me and he said, “Hey, I’ve got this agreement with this huge publisher, and I have this reversion of rights that allows me to self-publish the sequel to this game.” And I looked at the agreement and I said, “No, you don’t. You literally do not have that right. This agreement says that they have the right to make a sequel to the game. They can sit on that right for as long as they want to and it doesn’t revert to you.” And he was very upset with me. He said, “Look, this was what I was supposed to get,” sent me a number of emails where that was what he was promised. And then I had to explain to him, “Look, this is what the publishing agreement says. There is an integration clause that says that any external communication doesn’t modify the terms of the agreement. It’s the sole source of the terms of the agreement between the parties.” And he was very upset with me. So yeah, not having an attorney present or working on that negotiation with you can be fatal to your ability to make money on some IP that you may have created.
Eric Misterovich:
Yeah, it’s taking that step. It’s an added expense. Yeah, it’s going to slow things down a little bit. But man, if you have a good relationship with an attorney and stress the importance of timing, I think that’s something that we are particularly sensitive to is speed. And if your attorney isn’t sensitive to that, then you got to find a new one. It’s not unreasonable to come to an attorney and say, “This is really important. I really need this done quickly. Tell me how quickly you can do this.” Sometimes it is unreasonable to expect an enormous project to be done overnight. It’s certainly not unreasonable to have a conversation about how quickly can you get this done realistically? And I usually tell people, anytime we have a new project, “Give me your timetable. I assume the timetable is as soon as possible, but let me know if there’s hard deadlines.” And people, it’s okay to have these kinds of conversations with your attorneys. We want to do whatever you need. And we have to have an open communication about that.
I just say that because I think sometimes people… The attorney-client relationship sometimes is weird and people may feel uneasy raising that concern or making that demand. Now other people don’t feel any concern at all about making that demand and really push us. That’s fine, I’d rather all be on the same page. So get things done. Don’t let the fear of this is going to take too long just set you up for failure later.
John Di Giacomo:
Yeah, I agree entirely. And the publisher is certainly going to have representation. So they have a whole legal department that’s set up to ensure that they have what they need to publish games. So it’s important for you to have that type of representation on your side as well. Next, let’s talk about legal compliance and regulation. There’s a push in recent years to better regulate the games industry with respect to things like micro transactions and privacy law, age rating, loot boxes, sweepstakes, gambling laws, those types of things. And I think it’s important to make sure that you understand your obligations as a developer or as a publisher to comply with these laws, and where the line is drawn between games of skill, games of chance, what you can do with respect to biometric information or collecting information from your users to be used in game or facial recognition or whatever it might be. And it’s kind of an open world currently. So I suspect we’ll see more regulation within this category soon.
Eric Misterovich:
Yeah, what comes to my mind here is the old saying of you know you’ve made it when you’ve been sued, because if you’ve made it and you’re popular and you have some noncompliance with certain laws or regulations, you have a class action lawsuit staring at you. Because plaintiffs’ attorneys, that’s what they want to find, and if you’re making money, you’re going to need to settle that case because it may impact your ability to be distributed on platforms and things like this. So you need to be in compliance and get in compliance without the demand from a class action lawsuit.
John Di Giacomo:
Yeah, so let’s talk about employment because I think it’s another area of concern that developers never really think about. And we talked a little bit earlier about assigning copyright rights and independent contractors versus employees. But just simple things like getting agreements in place, making sure that if you are using external developers to produce assets for you, that you have adequate rights to those. Or if you are working with employees, having adequate employment policies and human resource policies and helping you resolve employment disputes, those are the areas where I think you should be looking for legal advice and legal help.
And a lot of developers just do a terrible job at this. And it’s quite frankly why you see a lot of controversy, like there was gamergate and there’s a lot of allegations of sexual harassment or sexually charged workplaces within game development studios, or allegations about crunch time or being overworked or managers being disrespectful to developers. All that stuff carries with it legal consequences, which could bet the business legal consequences. So it’s very important to ensure that you’ve had somebody look at your employment practices, understand it, and then provide you with advice on it.
Eric Misterovich:
Yeah, and this is growing up as a business in terms of making sure these T’s are crossed and I’s are dotted and that this is under control. Employment law can be tough, especially in a regulatory area where benefits and things like this, it gets burdensome quickly if you’re growing. And yeah, you got to pay attention to it, got to take care of it.
John Di Giacomo:
So let’s talk a little bit about IP and then disputes and litigation in general. IP, I just love in this industry because sometimes you just get to work with super fun IP. And we have been very fortunate to work with some really cool developers. One of the developers that we’ve worked with has an IP that I was in love with when I was a kid, and I just feel so fortunate that I had an opportunity to work with them. They were able to produce a really cool game based on this IP, brought it back to life. So again, this is an area where an attorney can really help you. You have to identify what you have and then protect it. And it’s just that simple. So things like trademark registration, international trademark registration, copyright registration of main characters, storylines, creative assets, scripts, etc., those are places where we can really help. And it’s an area that obviously if you are building a business based around IP, you really have to take seriously and you just have to get it done right at the outset.
Eric Misterovich:
Yeah, and I think it’s a good idea in this kind of setting to really have a good relationship with your attorney where you can have conversations about IP and get a little bit of understanding of how things work. Because when you’re able to just kind of diagnose, oh, this is the time to talk to someone a little bit faster and a little bit better, this is a protectable asset, this is kind of going too far or is this going to far? Having those ability just to have dinner, have some drinks with your attorney or whatever, and understand how this whole thing works, it gives you that little bit of an advantage in knowing kind of what buttons to press and how to build this business. Like you said, it’s almost entirely dependent on this IP and having a comfortable understanding, not saying you need to be an expert, but a comfortable understanding of the basics of how this stuff works, I think we’re really give you an advantage going forward.
John Di Giacomo:
Yeah, completely agree. And also, it’s really important to ensure that your attorney understands your IP and your industry. Because when it comes to litigation, you are going to have to have somebody with deep knowledge of not just how your industry works, but how IP problems arise within your industry. So a great example is Bungee’s lawsuit against cheaters. Eric, you looked at this recently. But if you don’t understand how cheating works within a Bungee game like Destiny 2, then how are you going to prosecute an IP case about it? You need somebody that can dig into the details and understand what is a cheat look like? Where is it sold? Where does the revenue go? How do I freeze the revenue? How do I ensure that this doesn’t happen again? How do I chase it down quickly? Whether it’s cheats or a leak, whether it’s source code leak or just general like BitTorrent piracy, you’re going to need somebody who can quickly and efficiently solve those problems for you and not somebody that has no relationship to that industry and doesn’t really get how those things work.
Eric Misterovich:
Yeah, yeah, that’s a good point. The getting to know each other really is a two-way street, and I want to learn, and whoever your attorney should be genuinely interested in your business and how it works. And that’s not just putting on the charm at dinner. That is what you said, we want to know these things because it helps us give you better advice to truly know how the product works, how it comes to be, all the moving pieces that get to that end product. That’s when we can provide the best advice.
John Di Giacomo:
And I think the final category that we should talk about is M & A. M & A is very rampant in this industry. There’s been a lot of acquisitions recently, though they were AAA acquisitions, with Microsoft talking about buying Activision Blizzard and acquisition of the Call of Duty franchise, and there’s a lot of antitrust activity around these acquisitions recently. What do you think these clients, these smaller developers should know about M & A work?
Eric Misterovich:
Yeah, M & A, I think most, not most, but listen, if you plan on selling a business one day, then you should have this conversational talk about what is this process? And you should have that early. And so you should know, well, here’s where I need to get my house in order for it to be ready for due diligence. And then time goes on, then you have a more discussion of what is due diligence. And then you get into, well, how is this agreement actually structured? What am I on the hook for? It doesn’t all have to come at once, but that baseline of I roughly know what is coming, will allow you to keep things in order, especially for due diligence, because there’s due diligence, all the topics we just discussed, is going to deep dive into each one of them. And having your ducks in a row of these are the documents regarding regulatory issues, here is our cap table and our investment contracts, getting all of that together and keeping it organized, you’re a more attractive asset to buy. Of course, the numbers are the most important part, but if someone lifts the hood and it’s a complete shit show, you’re going to have a problem selling your business.
John Di Giacomo:
Yeah, the same is true for IP. If you don’t have your IP protected, registered, cleared, you’re going to have a hell of a time selling a game business. Because that’s what they’re looking for. You can replace a developer, you can replace a hundred percent of a studio and immediately sub in, in most cases, a successful studio in its place. Although, now I’m saying this, I’m thinking of examples where that didn’t work, but you could do that theoretically. But if you don’t have the IP, you’re just not worth anything. Your business is not worth anything at all to a acquiring company. So securing that IP is just absolutely key, and I cannot stress enough how seriously you should take it early on in your business.
Eric Misterovich:
Absolutely.
John Di Giacomo:
Well, thanks Eric. I think that’s somewhat helpful. Again, this is the May It Please The Internet podcast. That’s all we have for today, and we look forward to you listening next time.
The post May It Please The Internet: Legal Considerations For Video Game Development appeared first on Revision Legal.
The Federal Trade Commission Comes Calling | RSS.comFederal Trade Commission
John Di Giacomo:
Hey everyone, this is John Di Giacomo, and I’m joined as always, by my business partner, Eric Misterovich. Eric, how are you?
Eric Misterovich:
I’m doing great, John. How are you?
John Di Giacomo:
You are listening to the May It Please The Internet podcast, and we’re talking about the Federal Trade Commission and enforcement actions that have been recently taken by the Federal Trade Commission. And Eric, I’ll let you get us started. Why don’t you tell us about the FTC and what it does?
Eric Misterovich:
Yeah, so the stuff comes into play when you’re talking about actions that your business is taking online to maybe convince people to buy your good or service. And there is a line that you can’t cross in terms of how you are portraying your good or your service, or the benefits it may have or certain features it may have. And when you cross this line into unfair or deceptive acts, the FTC is this government watchdog that exists out there that can really enforce its rules and really hit you with some strong monetary fines and other injunctive relief to shut down your business and really stop you from whatever you’re doing that they think is wrong.
So the FTC, it’s here to protect consumers, it’s here to stop some of the deceptive acts that happen. And I think people don’t really think they can be in the crosshairs of this kind of enforcement action, but no matter the size of your business, you’re not immune from it. And I thought it would be helpful for people to see what the FTC actually does and the things that people are getting in trouble for.
John Di Giacomo:
Yeah, that’s a great summary. So the FTC is this federal regulatory body that prevents against unfair competition in the marketplace. And there’s section five of the FTC Act, which is really what applies in most cases to internet businesses or businesses that would be kind of interested in this podcast. And it’s pretty broad regulatory and enforcement authority, so it is authority to prohibit unfair methods of competition that affect commerce or unfair and deceptive acts or practices that affect commerce. And the FTCs authority is limited by this idea of administrative law called the Chevron doctrine, which in short, gives the FTC this kind of broad authority to prosecute civilly violations that are viewed to be of unfair competition or cause displacement in the marketplace.
So where you see this in the internet context quite a bit is there will be larger cases where there’s a merger or acquisition that the FTC has concerns with because it will limit competition. It will go after businesses for violations of the Sherman Act, for collusion or price fixing or some other anti-competitive behavior. It goes after businesses for false advertising, it goes after businesses for … well, this week I dealt with the case involving agreements to not bid on competitor’s keywords, which would be potentially an FTC issue if they were aware of it, because it’s considered anti-competitive, and there’s a whole line of cases involving keyword bidding and agreements between competitors to not bid on each other’s keywords.
So again, the FTC is this large regulatory authority, it also has some pretty interesting powers when it comes to actually enforcing that authority. So it has the power to subpoena, it has these powers to perform these pre-suit investigations or civil investigative demands, that’s typically in the antitrust area. So if you get a letter from the FTC, it’s not a pleasant day, let’s just start there.
Eric Misterovich:
Things have gone wrong, definitely, if you’re getting that kind of letter. But the things that the FTC is looking at are also things that we look at when we have clients calling us about really bad actors online, or if they have a problem. You see this a lot in Amazon, where our client has a problem with a competitor, maybe it has to do with copyright or trademark or something. But the first thing, one of the things we’re going to do right away is look at the competitor’s site and see what kind of claims they’re making. So things like BPA free or organic materials or made in the USA even, those kinds of claims, if they’re not true, are what can lead to the FTC to take action against you. And if we are representing someone, we would take those kinds of misstatements or false statements and try to really enforce them ourselves through either false advertising or unfair competition cause of action.
John Di Giacomo:
Yeah, that’s a great explanation and I want to put a pin here just to note that the FTC will handle very large cases, but again, we’ve seen very large cases where the FTC gets involved in online issues, for lack of a better word, but where you think, well, why is the FTC treading into this territory? And it’s really specifically because they see this as a problem that could affect the entire marketplace. But there are also state level issues that we’re not going to address in this podcast, but for example, recently I saw a demand letter from a prosecuting attorney in Southern California over false advertising claims over a consumer product. So just because you fall outside of the target of the FTC, these are still things that you should be concerned about. You may not be big enough for FTC action, but the same rules apply at the state level. So this is important not just for larger businesses, but also smaller businesses as well.
Eric Misterovich:
And I think it’s important to also just take a step back and think about this is government action. And of course government action can be political in nature. But I think when you see what people are doing wrong, to me it makes sense that there is someone out there watching for these kinds of actions, because in a lot of these cases, it’s difficult for a plaintiff or even a class action of plaintiffs to pursue these kinds of claims because sometimes there may not be that much money in damages available to entice a plaintiff’s attorney, but there’s still deceptive acts happening. And I don’t know, just everything about the government is so toxic right now, that to me, I like seeing this kind of stuff. I think most of these enforcement actions make sense. Some of the fines are surprisingly large or small in some cases, which maybe that has political connotations or not. But I don’t know, just with government and everything political being so toxic, I kind of like seeing some policing that help people, help everyone. These enforcement actions help everyone equally.
John Di Giacomo:
Yeah. And they’re often things that you’re not even paying attention to. So there are very sharp, vigilant people that work within these governmental bodies that yeah, I agree, that do extremely important work, both at the FTC level and at the attorney general level within the individual states. But let’s talk-
Eric Misterovich:
Yeah, let’s talk about some of these. And one of them, when we see, like you had mentioned, maybe there’s new developments in the law or new developments in the economy and the government’s paying attention. One area that I noticed in some of these recent enforcement actions is the gig economy, the Uber drivers or the DoorDash delivery people. Basically anyone that’s being paid on a 1099 through some kind of larger platform, and there’s two enforcement actions that relate to this. And the first one is home advisor or Angie’s List. I think we all remember Angie’s List, been around for a while, eventually it changed names, and I think it’s business model has evolved throughout time, but most recently their business model was primarily based on lead generation. People come to Angie’s List looking for a contractor and contractors pay Angie’s List for those leads. Well, it turns out the way that Angie’s List was classifying these customers was deceptive.
They would have them tick a box or classify them as ready to hire, not window shopping and have all of these promises that these leads are valuable leads of people that are ready to make a purchasing decision. And it turned out that was not the case at all, and that they had really no substantive reason to claim these people were able to make these purchases. Home advisor also somewhat tricked contractors and thinking certain services or products by home advisor, Angie’s List was free and they were not free, there were upcharges. And the FTC was able to get a $7.2 million fine against Angie’s List home advisor for these lead generation services. And this was primarily intended to help these small independent contractors that are getting paid from homeowners, like on a 1099 basis.
John Di Giacomo:
7.2 million, that’s quite a bit. How was that fine assessed, was that like a consent judgment?
Eric Misterovich:
Yeah, I believe it was a consent judgment. The case, if I’m remembering correctly, lasted quite some time, but I think it ultimately ended in that consent judgment. The fine was broken up into two sections, depending on what they did wrong, but pretty hefty fine there. And so the takeaway from that is they were making a killing lying to the neighborhood contractor and the people were paying these monthly fees, 30, 45 bucks a month in hopes of getting these leads, and the leads were all garbage.
John Di Giacomo:
Yeah. And I think it’s helpful to explain, there are a number of ways that the FTC can enforce these types of regulations against you, one of which is a consent order or a commission order or a consent judgment. A lot of times that’s the best outcome, and that is simply because there’s some level of negotiation between you and the FTC over how much you’re going to pay and you’re not going to bet the farm on the outcome. So in a lot of these cases, it’s going to be a very painful amount of money, but there’s going to be some level of discussion that allows you to avoid losing everything, filing for bankruptcy, whatever it might be, allows you to continue operating provided you fix the initial problem and pay a pretty hefty fine. And so in a lot of these cases, as we’ll see as we talk through them, you’re going to see hefty fines, but they’re going to be a commensurate to the ability to pay because a lot of times smart attorneys will negotiate these as deals,` as opposed to going full bore into litigation with the FTC.
Eric Misterovich:
Yeah, I think ability to pay is probably one of the biggest factors here, because there’s some that the actions are really egregious and bad and the fines are small, but I think it’s just that entity is never going to have $7.2 million to pay that fine, but the FTC can still make an example out of them, even if the fine is smaller, which would hopefully deter other people.
But another gig economy in enforcement action had to do with Turbo Tax. We all know Turbo Tax, and I think the first thing you think about of Turbo Tax is the word free. It’s free. It’s free to use. You can file your tax return for free with Turbo Tax. Turns out you can’t, at least the vast majority of people can’t. And one of the big findings here was again, gig economy workers who are paid on 1099 are not eligible for a free tax return through Turbo Tax. So the government said two thirds of all taxpayers would not qualify for a free tax return through Turbo Tax, so it has a pending lawsuit against Turbo Tax right now, still in litigation, but they really hammered on how often Turbo Tax uses the word free in its advertising. And that rings true to me, that’s what I remember when I think about Turbo Tax.
John Di Giacomo:
Yeah, I always remember seeing the big standup display in the store that said free on it, and so that makes complete sense. What about Fashion Nova? I read about this Fashion Nova case and like many other sites, they accept user-generated content, user-generated reviews. What do they do there? I mean, they were blocking negative reviews, is that what happened?
Eric Misterovich:
Yeah, so they sell apparel, I believe the complaint was saying they’re adding thousands of listings a week through their website. I’m on it right now. And under each product, they had a section for a review of each product. And I’m looking at it right now, of course the one I’m looking at has one five star review. They had a software system established such that anything that was negative was not automatically posted and would go in to be manually reviewed before it was able to be shown on the website. So of course it was never shown on the website. And so there was all of these negative reviews that were attempted to be posted to the website, that they blocked from ever appearing. And this one did settle in a consent order at a $4.2 million fine. So hefty fine for a review manipulation type issue. So we don’t have all the details, but you can just imagine this was done at a pretty amazing scale to reach that big of a fine.
John Di Giacomo:
Yeah. And again, that’s a great outcome because who is going to attack review manipulation? I mean, as you know, and we have clients that contact us and they tell us that their competitors are manipulating reviews on Amazon, for example, we quote them a fee to file litigation against their competitor, and then they typically say, “Well, I’m not going to act as a private attorney general and sue my competitor over this, but it still makes me upset.” So again-
Eric Misterovich:
Yeah, yeah.
John Di Giacomo:
This is a place where these types of agencies really do great work.
Eric Misterovich:
And I’m looking at an item right now, it looks like a brand new item because there’s only three reviews, two five star reviews, but one one star review. And that really changes, I mean, I rely on reviews all the time, I know that it maybe carries too much weight and I know personally how many games can be played with reviews, but I still rely on them. And so people that don’t have our experience of all the black hat tactics people use to manipulate these things, they’re going to rely on these reviews, and when they see only five star reviews, they’re going to be tricked, it’s as simple as that.
John Di Giacomo:
Yeah, I can’t shop on Amazon anymore. I try to buy things and I look at the reviews and all I see are the cases that we’ve handled over the years. I just fall into a hole of disinformation, I’m like, “Is this real? Can I research this person that’s left this review? Who knows?”
Eric Misterovich:
Well, let’s talk about Amazon, this one really hits home to me. This is a company called DK Automation. They also went by 10 or 15 other business names, but this one just, they are playing the hits of deceptive advertising, deceptive practices and just snake oil salesman here. So they promised that they would build you a turnkey Amazon Empire that would generate passive income on autopilot.
John Di Giacomo:
Oh, passive income is a huge red flag. I mean, that alone should have told people no.
Eric Misterovich:
Yeah, well, and it gets a lot worse. So they had different tiers that you could subscribe to. One of them was a quote, “Amazon done for you package,” that promised 50 to 80% annual returns.
John Di Giacomo:
Was this run by Income Store?
Eric Misterovich:
Yeah, Income Store, famously a Ponzi scheme that basically did exactly this, where they took on investment and said they would build a store that would promise a certain amount of returns. Anytime you see anyone promising a return, it’s a scam. I mean, it’s as simple as that. No one should be making those kinds of promises. This was primarily operated by two main guys that claimed they were Amazon experts and had eight figure Amazon stores, the lingo we’re all used to. Of course, they implemented a crypto program that had a, I think they called it a fully automated algorithm crypto trading bot that would make you money while you sleep. The complaint noted that they promised that even while crypto was crashing in value, and they promised there the returns were even better, 65 to 84% was what they promised in their crypto returns. I don’t know where they got those numbers from and I think they made them up.
Doesn’t stop there, they had a program called That Lifestyle Ninja Training Program, which-
John Di Giacomo:
Sick.
Eric Misterovich:
… purported, it’s disgusting, purported to teach you how you can start a passive income business so that you can quit your day job. Of course there was a very small disclaimer after pages and pages of examples of how they’ve changed people’s lives, there’s a small disclaimer that these were for illustrative purposes only or something to that effect. The FTC thought that was deceptive. DK Automation accidentally emailed all of their clients, and one of the people that received the email replied all and basically said, “This sucks. I’m not making any money at all. I’ve lost all my money. This is a complete scam.” And a lot of people started responding and saying the same things. And then in response to that, they amended their terms of use agreement to prevent and prohibit any disparaging comments about the company.
John Di Giacomo:
That was poor lawyering. That’s a terrible idea.
Eric Misterovich:
Which we get this question a lot, not a lot, we get this question occasionally of can I include a non-disparagement clause in my terms of use to prevent negative reviews?
John Di Giacomo:
You could.
Eric Misterovich:
You could, not sure you should. And yeah, that’s one where you got to take a deep breath and say, “Okay, there’s a lot to get through to fully explain this answer, but this is why you don’t do it because it’s unfair, it’s deceptive. People should really never be prevented from telling the truth. And if you have to do that, it’s a real bad sign about your business, I think.” So I was surprised on this one because somewhere in the complaint it was alleged that they’ve made $52 million from this scam. And it looked like, and I think this was a consent order, that the fine was under three million, I think it was 2.6, where they were going to agree to pay. Which maybe that 52 number was, I don’t know, maybe that was inflated or something, because it seems like a small fine if they really made $52 million for, to me, this is again, just textbook lying to make money.
John Di Giacomo:
Yeah, I have a lot of problems with these types of businesses. I mean, anyone who says or leads with they’re an eight figure seller and then tries to tell you to listen to them in some authority or fashion, like sure, maybe you are an eight figure seller, but if your margins are 10%, then you’re a small business. Eight figure seller is not an impressive thing to me at all. And then promises to get guaranteed returns, definite red flag, passive income, always a red flag. Anyone who tells you that you can make money off drop shipping on Amazon, huge red flag, big problems there. So yeah, I’m not surprised that the FTC chose to pursue this one. Unfortunately, they probably were so big that that’s the one that the FTC decided to go after, but there are 1,000 more like them. So watch out for them, if you are listening to this podcast.
Eric Misterovich:
Yeah, I’ve had people come to me with these, they’re essentially coaches and communities that help people grow Amazon businesses and then they’re buying up their clients Amazon businesses, but they buy them on these crazy terms where they’re not going to pay you anything for the first six months because they’re like, “Well, we’re going to invest that money back into the business and we’re going to grow it and blah, blah blah.” And it’s just like, in what world do you sell a business and you don’t get anything for six months, a profitable business, these are real businesses that are making money and you’re just going to give it to them in the hopes that they do better? Crazy room for people to do bad things here. But here’s a couple that I think are maybe the most egregious just in terms of, I don’t know, ickiness factor, I’ll call it.
One is a company called Legacy Cremation, which offered cremation services. However, it lied about where it was actually located, lied about its prices and it both threatened and failed to return cremated remains to its customers. And I found out, I didn’t even know this was a rule, FTC has a funeral rule that applies to anyone that provides funeral services, that the consumers have a right to receive, basically just a price list, without any selling tactics. There should just be a piece of paper or a website that has the entire lists of prices for those services, without the kind of pressure or sales mini tactics that can come into play. This entity violated all of these things, but I think it’s a relatively small place, it was a $275,000 fine. Seems incredibly low given what they did. And I believe this one was broken up into several installment payments.
John Di Giacomo:
Yeah. That’s particularly egregious. I remember when my mom died and I was sitting in the room and we were buying a casket and the guy was like, I mean it’s that hard sell where he says, “Well, you wouldn’t want your loved one in this one, you’d want him in this one with the pearl handle.” And you’re getting that pitch right at the worst moment, so it makes complete sense that the FTC would want to treat those as special cases.
Eric Misterovich:
Yeah, I mean, that’s disgusting and wrong in every possible way. Another one that’s wrong, BetterHelp. If you listen to any podcasts, you’ve probably heard commercials about BetterHelp and getting counseling services provided online, supposedly this great new innovation in providing mental health services to the world, and an easier way of receiving them. Except they were selling all your data to Facebook, which they didn’t tell you they were doing, and that’s completely effed up and the FTC is taking action against them.
John Di Giacomo:
Yeah. That seems like a no-brainer. So in this field, FTC has authority to go after you for making misstatements within your privacy policy. So if you have somebody draft a privacy policy for you, it’s very important to ensure that it adequately reflects your business practices and that any use of personal or personally identifiable information is conspicuously disclosed to the user. And I’m sure in this case that’s not what happened, they probably used a form or a template and wasn’t built out very well, and then there was obviously transfers of third parties, which probably wasn’t disclosed. So yeah, that’s pretty hideous.
Eric Misterovich:
Yeah, I don’t know all the details on this one. Basically the summary was that they promised to keep this data private and then sold it to Facebook and Snapchat. It looks like BetterHelp is complying to some extent, there has been a consent order reached, but it doesn’t look like the case is over. I think this has to do with they have to provide basically all the evidence of what they did. So I’m sure in the next, I don’t know, months or years, we’ll hear about a big fine that they get hit with. Another one that’s bad, which I got to say I take a little joy in seeing this one, some distributors of essential oils were subject to FTC enforcement for making claims that the essential oils could treat, prevent or cure COVID.
John Di Giacomo:
Oh man, that’s awesome.
Eric Misterovich:
Yeah, that’s great. I love this.
John Di Giacomo:
What?
Eric Misterovich:
People in my life like essential oils and I smile and nod and snicker behind my back, I guess. Sometimes I will bring it up and just say, “This is crazy.” But yeah, I mean, this is right, they shouldn’t be doing that. And of course it doesn’t cure COVID and you shouldn’t be allowed to say it does.
John Di Giacomo:
Seems pretty straightforward. Other areas where I’ve seen FTC action are claims about hair regrowth. So that’s a particularly sensitive area where making claims about products restoring hair or limiting hair loss, those types of things, is very, like you said earlier, you gain a competitive advantage if you can say we grow hair back or people within this group, this cohort didn’t lose hair. And in many cases those types of statements are false, so it is an area of high regulation, high interest to the FTC. And herbal supplements, like herbal supplements, essential oils, anything that falls within an FDA exception, definitely is an area rife for FTC enforcement. So if you’re making any kind of health claim, you should be concerned, yes, 100%, yeah.
Eric Misterovich:
Yeah, absolutely. And then the last one here, it’s not all that exciting, it just goes to show that no one is kind of out of reach, it’s a mattress company, DreamCloud mattresses, they claim their products were 100% made in the USA and they weren’t. It said that all of their products were finished overseas and some of their products were entirely made overseas. And I think this is one where I could see people making this claim thinking, who’s ever going to know? Who would ever find out? And this will help me, people like American made. And if you’re lying, it can really come back to bite you. This one’s still pending, but these are the kind of tactics I think people don’t realize the kind of hot water they can end up in by what they think is little, maybe a white lie.
And in this case, some of their products largely were made in the US but they were finished overseas. And so when they said 100% US made, it was false even though parts of it were US made. And I think that just goes to show people are watching, and competitors too, if they know your product, if you’re lying, they’re the ones submitting these tips. The FTC may not find you alone, but if you’re doing bad things and you’re competing against people, they have a vested interest in shutting you down and they can make those kinds of complaints and get that attention brought onto you.
John Di Giacomo:
Yeah, that’s where I typically see it is in any textiles. So textiles, there are specific labeling requirements, T-shirts, clothing. If you make a claim about the origin of it, you should have an attorney look at it because there’s very specific things that you need to say, depending on whether it’s made, printed, finished in the US, outside of the US, et cetera. And we’ve had our clients come to us and say, “Our competitors say that their products are made in the US. Our costs are much higher. Obviously they’re not being made in the US. We can see their container ships coming over so we know that they’re not made in the US. What do we do?” And outside of filing an unfair competition lawsuit or some false designation of origin or some other related claim, the answer is talk to the attorney general, talk to the FTC, see if they’ll take that enforcement action for you.
Eric Misterovich:
Yeah. And we’ve tried to pursue those kinds of claims. Our product’s flammable, we’ve had that tested, our product’s truly organic, we’ve had silicone grade and health grade silicone claims, we’ve had those kinds of things tested. And yeah, I mean, the competitors are going to go to pretty great lengths when you are making false claims or they’re going to test your claims and make sure they’re not false. And so don’t think you’re too small for this kind of action, to fall in the crosshairs of this kind of investigation.
John Di Giacomo:
Yeah, you’re never too small and it can come from the strangest places. Well, thanks, Eric, I appreciate it, and that’s all we have for today. So until next time, again, this is the May It Please The Internet podcast, and we’ll talk to you soon.
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Liability and Accountability in AI | RSS.comThis podcast episode discusses the law applicable to artificial intelligence (AI), which is increasingly being used in various industries and applications. ChatGPT, a large language model, is introduced as an example of a neural network that can generate text, but sometimes produces false information. Other examples of AI discussed are Dall-E 2, Stable Diffusion, and Midjourney, which can create images from textual descriptions. The podcast also covers the legal frameworks that apply to AI, including intellectual property law, contract law, tort law, and criminal law. The issues surrounding intellectual property protection for AI, liability of AI systems for harm caused, and the current state of regulation of AI in different jurisdictions are also discussed. The importance of understanding the legal landscape surrounding AI is emphasized given its increasing use and potential impact on various aspects of society. May It Please The Internet is a podcast by RevisionLegal.com
Introduction:
This is May It Please The Internet, a podcast brought to you by Revision Legal. Lawyers who represent businesses that make money online.
John:
Hey everyone, this is John di Giacomo and you’re listening to the Revision Legal May It Please The Internet podcast. And I’m joined today by my partner Eric Misterovich. Hey, Eric.
Eric:
Hey, John. How are you?
John:
I’m good. And we are talking today about accountability and liability for artificial intelligence, which is the hot topic these days.
Eric:
AI is everywhere. Seems like every Twitter post I read, if it’s taking a cold plunge, it’s about how AI is changing someone’s business from coming up with blog posts ideas to writing the posts, to seemingly taking over the entire legal industry.
John:
Have you seen these debates? Maybe you don’t get to feed the same stuff that I do, but have you seen these debates about artificial general intelligence and whether or not we should pause development because it’s going to take over the world? Have you seen this stuff?
Eric:
I’ve seen that. I’ve listened to some podcasts about it and the people working on it, and I think I heard something like one in 10 people that are actively involved in the AI industry think that’s possible, which is absolutely crazy.
John:
It’s pretty interesting. There’s a great Sam Harris podcast where he interviews this guy, and I cannot remember his name right now. It’s a Russian name, but he’s an American citizen, obviously, but he’s kind of at the forefront of this idea that AI or artificial intelligence is extremely dangerous. And I follow him on Twitter and he’s just going crazy because people are giving him a very, very hard time saying his ideas are insane and that he is going to stop progress. And then there’s this whole other crew that agree with him. So it’s very interesting to watch this debate and it all stems from ChatGPT. And Eric, what is ChatGPT?
Eric:
ChatGPT, so it’s a large language model. It’s taken over absolutely everything. And John, you’ve provided a great outline of this about how it is a neural network. I’d like to hear you explain exactly what that means.
John:
You want me to… This explanation will sound extremely intelligent to unintelligent people and extremely stupid to intelligent people. So ChatGPT is now a LM. It’s a large language model. It’s a type of neural network. If you’re interested in this stuff, there’s a great book that I actually brought with me that I have in front of me called Numsense! Data Science for the Layman: No Math Added. It’s a really good explanation of the underlying algorithms that go into data science and particularly artificial intelligence. But ChatGPT is a neural network, and basically the way it works is each neuron in the network calculates an output based on input. So whatever the input is, it calculates an output based on that input. And then each neuron is then connected to other neurons. So if you think of neurons, like pieces of a sentence is a really good way to think about ChatGPT.
And then each neuron is assigned a weight, like a value of, predictive value likelihood of it being the correct value. And then the output that ChatGPT provides is based on that predictive value. So what it does is it really predicts what word should follow in a sentence based on the previous word. And that’s a really, really simplified explanation, but it produces really interesting results. And we’ll discuss more about the input, where the data comes from, but it also has a lot of false output. So the false output in AI is called a hallucination. And a hallucination is a sentence that whether based on semantics or syntax is plausible, meaning it reads correctly to a human, but it’s false, objectively false so it provides false information. And so ChatGPT provides a lot of accurate information and it provides a lot of false information based on these hallucinations.
Good example is I asked it who I am, and it did a really good job of saying, John di Giacomo is the founder of Revision Legal. He holds a degree, a Juris doctor from Michigan State University College of Law. And then it goes on to say he also holds an LLM from University of New Hampshire, which obviously is not correct. So it’ll be interesting to see how some of these things get solved for over time. And then the second category, other than ChatGPT, is these image-based neural networks or artificial intelligences. Those are things like Dall-E 2, Stable Diffusion and Midjourney. And these create images from textual descriptions, text descriptions that are captions of photos. And this is, again, a neural network and it synthesizes a photo based on the input of the user and its knowledge of those captions and text descriptions.
So it outputs a photo that is really a synthesis of what it knows and the connections in that neural network and the probabilities of whether it’s the right outcome based on the input of the user. So that’s the landscape for AI. All of that was probably wrong, so feel free to send me an email and complain. But Eric, hopefully-
Eric:
That all sound right.
John:
…that gets us started.
Eric:
That all sound right to me. I mean, I think the best way to understand this, I think if you’ve played around with it at all, I think your technical explanation of it makes sense. You can tell how things are coming together, and it’s, at the one hand, incredible that it’s able to pull this information together and produce a response that is accurate and then it’s also terrible in that it’s completely wrong. Or the image stuff just ends up looking either amazing or completely ridiculous. And it is just, where is this technology
and what is it going to be in five years? That’s where you start to get these questions of, is this a good thing or a bad thing? And it’s pretty hard to tell right now, I think, I mean, there’s obviously so many ways you can look at this as being good, but you can also see this being, I don’t know, weaponized or used the wrong way or in a way that is causing more confusion to the kind of inability of our country to tell the difference between fact and opinion already.
John:
We already see some of this in things like big data, like Cambridge Analytica was an example, where big data is being used for these kinds of arguably nefarious purposes. We see it in things like creating false images of celebrities or creating synthesized voice records of celebrities to make them say things that they aren’t actually saying. I’ve actually stopped allowing clients to record consults for this reason. I’m actually a little concerned about it, particularly because I don’t want to get sued from malpractice. This is now a real potential issue. And then we also see it in areas like data privacy, where there’s a question of, should a algorithm or should artificial intelligence be used to make, for example, credit decisions or decisions about health or decisions about judicial outcomes as a new area of concern?
But today we want to talk about really accountability and liability with respect to intellectual property law, contract law, and a little bit of tort law. And I think, Eric, we should start with IP law. And there’s one glaring category of IP law that really kind of stands out when it comes to these two particular applications of AI ChatGPT, and the image based AIs, and that’s copyright infringement. And why do you think that is?
Eric:
The internet is already one big example of copyright infringement, but this is a whole new level of infringement because there is this kind of non-human actor involved. And copyright, it’s this foundational law of if you create a work, you own all the rights in it, meaning you have the sole ability to share that work, to reproduce it, to distribute it. And AI has just taken all of that data out in the world, whether it’s text or images, and then can use that to teach it to create similar answers to prompts. And the most obvious case of this so far has been Getty Images. Everyone’s probably familiar with Getty Images maybe received a demand letter from Getty Images for using one of their images without permission. Well, now Getty is going after Stability AI, which is behind Stable Diffusion, and alleging that essentially 12 million images have been infringed.
It’s a pretty fascinating case, it’s in its infancy. We just checked the docket, an amended complaint was just filed, so this is a long way to go. But I think in the complaint, they allege about 8,000 registered copyrights are subject to the lawsuit, and they are alleging that Stable Diffusion through some other independent contractors essentially took their entire dataset of images, and now are using those same images to reproduce either identical or substantially similar images in response to prompts.
John:
That’s really interesting. So how did Stability AI get access to Getty’s images?
Eric: I mean, this will probably be sorted out a bit, but in the complaint, they allege that Stable Diffusion was working with this German contractor and that the German contractor created this dataset that included content from all over the internet, including Getty Images. That dataset then was provided to Stability
AI, who essentially used that dataset to visit those links and scrape all of that data, which of course seems like a huge problem for Stability AI.
John:
That’s what I was wondering is there a claim for a breach of the terms of use agreement of Getty Images? And it sounds like there probably is. So for those who are listening, terms of use agreements are important. We’ve discussed this a thousand times on our podcast. In this particular case, Getty Images, which is a sophisticated company with lots of experience in litigation, probably has a pretty good terms of use agreement that prohibits scraping. And whatever script that was written to mine this data allegedly probably scraped and violated that terms of use agreement. So this is another-
Eric:
It’s not a separate cause of action, but it’s certainly the foundational element of access to the works that came through that scraping, and they certainly allege within the complaint that it violated their terms of use, although they’re not asserting it as a separate cause of action.
John:
Interesting. I wonder why they made that choice. I wonder if they just feel like it’s not strong enough. And I also wonder why they chose a German company to do this data collection. When you were reviewing the bleedings, was there any connection between Stability and the German company? Did they share ownership or anything of that sort?
Eric:
They alleged that the German company is completely funded by Stability AI. So there’s some kind of connection there. We don’t know everything, but it seems like they’re almost one and the same.
John:
I wonder if there’s some piece of German law that provides a better legal environment for scraping those images or collecting that data set. That seems like that would be a smart decision to make.
Eric:
If that’s the case, certainly seems like there’s some plan to it, you would think, because it would have to anticipate this is going to happen.
John:
So this an interesting problem because you and I were talking on a phone call today. We had read this journal article written by a colleague. I got extremely emotionally upset by the article because I think it’s just a wrong take on the law. And my complaint was that we came into the internet age with this dream that the internet would solve all these problems. Information would be free, it would be a Democratic way to distribute knowledge, but we didn’t do it at the cost of small artists and people who are trying to make a living from their art and their work and their creativity and their ingenuity. And this is yet another example where really the first to market gets to take all of that collective work and knowledge and creativity and monetize it, right?
Eric:
It seems like they’re taking work done by other people and creating this new method of access to that work. Instead of paying an artist a license fee, you insert a prompt into Midjourney and you get that image without ever communicating with anyone. And the artist who is helping produce that underlying content that teaches these AI models, they’re left out.
John:
It’s a lot like the other service providers out there, but it does feel fundamentally different. What do you think the difference is between what OpenAI or Stable Diffusion or Dall-E are doing in comparison to, let’s say, for example, Google as a search engine? I mean, Google scrapes webpages, it takes those results, it frames them within its own system. It monetizes them by placing pay per click ads at the top of the page. It shows image results. What is the analytical difference between what Google does and what ChatGPT, for example, does from an IP perspective? Or is there one?
Eric:
I think there’s a couple different ways you can think about it. I heard someone else smarter than me explain the differences. Google is, you are a research librarian when you are using Google. You’re conducting research, you’re getting the ability to find multiple answers to your question. You can read those answers. You can make your own decisions on what you believe is the most accurate. Where AI models, you’re almost like an engineer where you’re prompting this machine to give you a certain output. And the differences that come from that are, you don’t really know where that output came from in the AI part. Whereas with Google, you literally could cite to where you got that information. You’re not going to be able to do that with, at least right now, typing in questions into ChatGPT and trying to get an answer.
You’re not entirely sure where that’s from. So there’s a kind of hidden level of knowledge and sourcing that makes it difficult for a rights’ holder to kind of wrap their hands around. If someone wants to write a blog post, they insert a prompt into ChatGPT, they get an answer and they write a blog post with, they copy and paste that. But that underlying content infringes someone else’s original work. There’s this step that’s missing of, well, is the person using GPT really attempting to copy someone? Not the same way as if you went to a Google search result, found a link and copied and pasted the text yourself. There is a difference between the two.
John:
I want to mention something that the copyright office did recently because I think it frames one of the problems that I see. The copyright office recently said that the output of AI might not be copyrightable or in some cases is not copyrightable because works that are created by AI without human intervention fail to meet the authorship requirement. The authorship requirement for creativity under the Copyright Act requires human authorship. And then ultimately, the copyright office said that whether an AI produced or outputted work will be copyrightable depends on the level of human authorship involved. So how is it used? How does it operate? What level of human intervention was required to produce that result? And it’s interesting because if AI can’t be an author from the perspective of copyright ability, can it also not be an infringer from the perspective of copyright ability? Because the infringement requires the creation of a derivative work by an author. So I wonder how does a judicial system solve for this issue? Because it seems like in the case of Google, it’s not as clear whether the results of a Google search are a derivative work. Because Google takes those results, it frames them on its website. But like you said, you can see where the original work comes from. Same with the images, but in the case of ChatGPT, it’s
hiding it and it really truly is synthesizing it and creating a derivative work. But if we get a ruling that says that isn’t a derivative work because it’s not subject to copyright protection or Getty loses its lawsuit, it seems like a fundamental problem for rights holders that would have to be solved by some kind of congressional action.
Eric:
It seems like an enormous problem if there’s not a way to use copyright law to prevent the infringement hearing. I mean, it seems like this is completely ripe for rampant infringement and the guardrails to help creators, even just help the AI industry. There probably does need to be laws about it. This is going to be one of the many areas I think that’s going to need regulation. But right now, it does present that strange question of, well, if there’s not a human involved essentially, and it’s not a protectable work, how can it be infringing? But at the same time, it’s clearly infringing.
John:
The other layer of this that’s interesting is that when we do fair use in the US, we look at, one of the questions is the work transformative? That’s one of the questions that you have to answer to determine whether the use of someone else’s work constitutes fair use. And synthesizing that information to produce a new work seems to be highly transformative. So it’ll be interesting to see how the output of something like ChatGPT is analyzed from that perspective. And then the other side of that is facts are not copyrightable. So what actually is something like ChatGPT using? Is it using the creative work? In the case of Dall-E or Stable Diffusion or any of the other image based Ais, it’s pretty clear that they’re working from copyrightable work, but you can’t take facts and then rearrange them with your own expression. You can do this. I mean, you can take facts and rearrange them with your own expression without a follow of copyright law. So it’ll be interesting to see how courts treat it from that perspective as well.
Eric:
The facts aren’t copyrightable is always something I like to explain to clients because it’s a little bit difficult to draw the distinction in what that really means. But I always explain it in the terms of a cookbook, a recipe is not copyrightable in how to make a chocolate chip cookie. Copyright is not about ideas. It’s about works. And so if you’re writing a book, that’s work that’s subject to copyright. Now is the exact measurements and directions on how to make the cookie, you can’t stop other people from having the same recipe. But how you arrange that recipe and how you describe it, and especially if that’s in a book of a series of descriptions and explanations in specific recipes, then that whole book becomes subject to copyright. But you can’t just stop someone from writing about the exact same way to make a cookie.
John:
Do you remember the Game Genie for Nintendo?
Eric:
The cheat code?
John:
The Cheat Code. So this reminds me of the Game Genie. It was a case about the Game Genie back in the day. You can tell I’m not that old. There was a case about the Game Genie back in the day where the question was, was there a derivative work being made when the Game Genie changed the code of the underlying Nintendo game? And what the court looked at was whether the code had been fixed in a tangible medium of expression. So was there fixation when the code was placed into RAM? And I might be misremembering this case, but I remember it being somewhat analytically similar to this. I wonder if courts are going to look at ChatGPT and say either the input is fixed in a tangible medium of expression and use in a way when it’s training AI models, that it is copyright infringement or say it’s used for such a transitory and short period of time to give it this knowledge that it just doesn’t matter.
It’s not actually copyright infringement. It just seems like there’s so many complex issues to unpack with the way that this data gets to a researcher or a company gets used and then gets outputted that we’re going to be litigating these cases for years to come.
Eric:
Absolutely. I mean, the Getty Images one seems like low hanging fruit in a relatively new technology. I mean, they still are reproducing the watermark in some of the images. The watermarks distorted in some of the images. Some of the images just look absolutely terrible but the watermark looks good. I mean, there’s all kinds of problems. Now we’re getting into trademark issues as well. So that case certainly is not going to solve every problem about AI and copyright, but it’s going to be the start of it, and we’re going to have a long way to go. It’s going to keep attorneys and judges busy for a while.
John:
Well, let’s talk about the final category that I think is worth talking about. We already talked about contract law briefly about scraping and the importance of a terms of use agreement, but tort law has a little place to play as well. There’s this case that’s similar to Getty in some ways against Prisma Labs, which makes the Lensa. Lensa is this app that produces AI generated, best way to describe is profile pictures based on geometric face data that you provide through your cell phone. You may have seen people posting these on social media sites. There’s fantasy versions and sci-fi versions, et cetera. And they were sued for a violation of using facial geometry, which under statutes like the Illinois Biometric Information Protection Act, BIPA, you have to get express written consent for. So Eric, what do you think about this area? Do you think we’re going to see more work here as well?
Eric:
A hundred percent. The people pushing this industry forward, I really wonder how much they’re really thinking about these kinds of lawsuits.
John:
My answer to that is zero.
Eric:
I mean, it’s a cost of doing business, and they’re going to go and go, go, go and just not worry about this. But I think there’s definite risk of liability and facing class action lawsuits that they’re going to have a hard time getting out of.
John:
I downloaded Lensa and I played with it when everybody else was going on Facebook and posting 10 images of themselves. I never paid for it because I just felt weird because my wife is going to ask me why I paid $10 for profile pictures. It’s not explainable in my household. But I did look at the way that they asked for consent because I was aware at the time, obviously, that BIPA was a potential concern, and I thought the way that they did it was correct. But there’s this kind of open question under Illinois law as to whether or not it needs to be signed written consent and not just a clickwrap or a browsewrap. So I think we’ll see some things there as well. But I was playing MLB The Show 2023 this weekend. Got it for free on Xbox Game Pass.
This is what they call it, I think. And it’s got this biometric feature where you upload a scan of your face and it’ll actually input you into the game. It takes your facial geometry, takes the scan of your face, and then puts you on your own baseball player that you can then play through a career, which my career, by the way, is not going very well. I haven’t made it out of the minors. But the way that they did consent was a lot more onerous than what I think a lot of these other companies do. So there does seem to be some level of knowledge that this is an emerging area of law that they have to take seriously. If I recall correctly you needed to consent on two devices, the phone and the actual console, which I thought was interesting. And then there was another lawsuit recently over voice data where TikTok had used some, apparently allegedly used some woman’s voice for its robot voice. I don’t use TikTok, Eric. I know you do, or at least did. Is that like a feature? How does the voice work on TikTok? [inaudible 00:27:03]
Eric:
You can have it read whatever text you put on, and you can pick what voice you want to have it read in. It’s very surprising that, I mean, it seems a pretty simple thing to actually get the rights to the voice that you’re going to use for this. So that’s pretty dumb that they didn’t do that. But they’re moving fast, I guess.
John:
I just asked that question solely because I wanted you to admit that you actually use TikTok. Eric:
I do. TikTok is, I’ll say, I mean, I know there’s talk about banning it and probably should be banned. I mean, it is unbelievably addicting. I’ll use it for a while and then I just delete it because I find myself looking at it and why am I even doing this? I do it before I even realize it, and then I just delete it. And eventually I’ll find my way back because I want to find some recipe or something that I saw on there. But my mine is all golf and cooking stuff.
John:
Well, I make fun of you, but I used Facebook Reels for exactly the same reason. I was sitting at the pool yesterday while my daughter was at swim practice, and I realized that I had flipped through like 20 reels and she could be drowning. And I looked up and I’m like, “Oh, she’s still alive. That’s probably good.”
Eric:
So it’s dangerous.
John:
It is very dangerous. And I wanted, before we go, that’s really all we had this week. But before we go, I wanted to say that earlier in this episode I mentioned that there is a skeptic of artificial general intelligence. His name is Eliezer Yudkowsky. I’d forgotten what his name was. And so if you get a chance to look him up, but interesting skeptic, great podcast with him and Sam Harris. Lots of people disagree with him, but I thought the podcast was great.
Eric:
The podcast I listen to is called Plain English, Derek Thompson. He has got an episode about AI, which was really good.
John:
That’s the one where the engineer analogy came from.
Eric:
Yeah. (affirmative).
John:
Cool. I’ll have to check that out too. Well, that’s all we have. Thanks Eric. Anything else you want to add? Eric:
Nope, that’s it. Looking forward to seeing AI either solves the world’s problems or completely blows it up.
John:
We’ll see. It’s going to keep us busy, that’s all I know. I don’t think it’s going to replace us anytime soon, I think. Or maybe we won’t let it. Maybe we’ll just keep, all the lawyers are just going to keep suing AI companies to make sure it never replaces us. Who knows?
Eric:
That sounds right.
John:
It does sound right. Well, thanks everyone. Again, this is the May It Please The Internet podcast. I am John di Giacomo joined by Eric Misterovich as always, and we appreciate you listening.
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Stolen Digital Assets! Opening: general chat about digital assets, how they can move, how they can be stolen, people forgetting bitcoin wallet passwords, etc. This used to be about domain name Revision Legal past experience in litigating stolen domain name issues ACPA/CFAA/UDRP Damages Procedure/Jurisdiction Continuing the NFT train – stolen NFT is the newest rage... READ MORE
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In this weeks episode, Eric and John break down the fundamentals of Asset Purchase Agreements (APA). The basics: What is it, who signs it, and what are you selling. What is an APA, how is different than equity Why APA over equity Exceptions Structure/format of an APA/length How to review, where to start? The Parties... READ MORE
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John Di Giacomo and Eric Misterovich open the Revision Legal Podcast: May It Please The Internet series with a discussion about getting your business ready for sale. They dive into eCommerce, economies of scale and large roll-up funds.Show Outline:a. Take a hard look at your business, what is sloppy?b. Getting books in orderi. Knowing your... READ MORE
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In this episode of the Asked and Answered podcast, we discuss what you should expect when being deposed. We also discuss politicians and their domain names, and the new federal Defend Trade Secrets Act. Eric: Hello and welcome to Asked and Answered, Revision Legal Podcast where we discuss law, technology, and the news, and how... READ MORE
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In this episode, we discuss recent celebrity sex tapes, including the Erin Andrews and Hulk Hogan sex tapes. Speaker 1: Hello and welcome to Asked and Answered, Revision Legal’s podcast where we talk about today’s topics in internet law and privacy issues and we’re here today to talk about some sex tapes. Speaker 2: Yeah,... READ MORE
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In today’s episode of Revision Legal’s Asked and Answered podcast, we interview Tina Schuett, co-owner of Rare Bird Brewpub, to find out what it takes to start a microbrewery. Music: “Drink Beer Til the Day That I Die” by Dazie Mae; “Friday Night” by Cheap. Transcript: John: Hello everyone! This is John DiGiacomo and this... READ MORE
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Ratings websites like Yelp and TripAdvisor are changing the way people choose where to eat, where to shop, where to travel and where to lodge. According to its website, TripAdvisor alone is home to over 250 million reviews made by people wi...
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In this episode our Asked and Answered podcast, we discuss the Netflix documentary series “Making a Murder,” its aftermath, and its effect on Internet law. Show notes: Don’t talk to police: https://www.youtube.com/watch?v=6wXkI4t7nuc The right to be forgotten: http://m.independent.ie/business/technology/bankers-and-convicts-among-2300-irish-right-to-be-forgotten-requests-31182796.html Ken Kratz’s law firm’s Yelp reviews: http://www.yelp.com/biz/kratz-law-firm-west-bend Len Kachinsky’s new job: http://www.town-menasha.com/departments/municipal-court/ The Streisand effect: https://en.wikipedia.org/wiki/Streisand_effect Music: Big Blood – “Endless... READ MORE
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In this episode, we celebrate the 4th of July holiday by discussing the US’s new trade agreement, the Trans-Pacific Partnership. Music: The Underscore Orkestra – “Americana Jam” The Willing – “America” Cletus Got Shot – “American Dream” Transcript: Hello everyone. You’re listening to “Asked and Answered,” number 7. I am John Di Giacomo. I’m internet... READ MORE
The post Asked and Answered #7: America. F$%@ Yeah! appeared first on Revision Legal.
In this episode, we provide tips on selecting a business or product name and registering it as a trademark.
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Music: “Dueling Duality” and “Where Do You Belong” by Cullah.
Transcript:
Eric: Hello and welcome to Ask and Answered! Revision Legal’s Podcast that provides legal tips, insight and answers for people and businesses that make a living online. It’s another Friday. I’m joined by my partner John Di Giacomo.
John: Happy Friday. I am wearing a suit today which is–
Eric: Really?
John: Yeah, unusual. I’m in court. No jeans and t-shirt though it’s jeans and t-shirt weather here. It’s actually pretty beautiful. It looks like summer has arrived which is awesome.
Eric: Yeah. I forgot to introduce myself, I’m Eric Misterovich. I am wearing jeans and buttoned down and a hat right now. I got my Brewery Vivant hat on, rockin’ it.
John: Yeah. I saw the Wallonia rooster. I thought that’s what it was.
Eric: Yeah, exactly. I love it. I wear it all the time. I get a lot of compliments on it. Burberry Bavant’s a great Burberry in Grand Rapids. They’re very smart about how they handle their trademarks.
John: Yeah, which is a good subject, really, how to pick a name. Because when you’re a company like [Burberry 00:01:24] Bavant or really any company for that matter, picking a name is one of the more important things that you can do in your business.
Eric: Exactly. Yeah. Today’s episode will all be centered around how to pick a name, how to pick a name that can be protected, how to protect that name not only in trademark sense but in a domain setting, things to think about when you’re picking around those ideas. It’s a tough process to name a product. I was just thinking about naming a baby and the process that goes into that. That’s a lot of same things come up, when you’re trying to name a business or a product or a service. You’re assigning this arbitrary name to a thing and you want that to fit.
You don’t really know how it’s all going to come together. There are so many options and you just rack your brain, thinking about this stuff and making lists and cross some things out. Hopefully, this episode will provide you some way to narrow that list and to think about only include names that are going to be protectible in the long run.
John: Yeah, it’s a really good point. We want to make life easier for you. Although they didn’t have to think about “Am I going to get made fun of for this name?”, which is one of the primary considerations when you’re naming a kid, which is why my name is John and not Rocco, as my mom had some say in the matter because my dad wanted to name me Rocco, we’re here to steer you in the right direction to, not only help you pick out a good name but also pick out a name that really helps you keep the good will in your business through your trademark protection.
Eric: If you’re going to go through all this trouble to build something and spend all of these hours and sweat, building a business, building a product or service, you want to be able to protect your name. So many times, we get calls from people after the fact they’ve been doing two years and like, “Hey, I want to get a trademark”, and we’d them all the problems. Maybe it’s a problem just, well maybe you won’t obtain a registered trademark right now, that’s a problem but it’s on the smaller scale. You could run into a problem where you’re infringing on someone else’s trademark. Now, you’re really running a risk of potential litigation over this.”
John: Yeah, absolutely. That’s the biggest problem, is that it’s very expensive to re-brand. This process, though it’s painful for a lot of people and a lot of time they lose their favored names because they come to us and say, “Hey, is this clear? Hey, can I register this as a trademark?” Then we have to tell them, “Sorry, no, it’s not clear. I know you can’t register it.” That process, it’s important and it’s cheaper at the outset than it is to re-brand in the future. Re-branding in the future is a vastly expensive proposition.
Eric: It’s just such a headache. A good example of this is if you listen to the startup podcast. They went through a name, there’s one episode about how they pick their name. It was really funny to hear just the struggles that these guys were going through trying to pick a name for, essentially, a podcast broadcasting company. They ran into a bunch of trademark issues and had their favorite names rejected by their attorneys. They eventually came up with a pretty unique name, but it’s an interesting process. If you’re going through that or starting a business, you should really listen to that startup podcast. It’s pretty entertaining.
John: Yeah, I haven’t heard that yet, I’ll have to check that out this weekend.
Eric: Yeah. It’s definitely worth a listen. Let’s get into how to pick a name. Before we start though, I do want to tell everybody we have a trademark e-book now. It will be available on the website by the time you’re listening to this podcast. It’s free. You join our mailing list, you get this e-book that you can save and use as a reference for trade mark issues that come up along the way. It’s a handy guide that should answer some of your basic questions about trademarks, about how they’re used, how they’re protected and maybe, we’ll save you some time instead of searching around the internet to try to answer your question. Hopefully, we’ll have a book that you can turn to.
Go to revisionlegal.com, download that free e-book and then you also get our… We’ll send out weekly newsletters and give you some more tips and advice on things that we think are important for people that make a living online. Getting right into it, branding. We’ve talked about how important it is, how hard it is to pick a name. But I think we also know what this idea of branding is just ubiquitous now. It’s everywhere. Everyone has a personal brand.
John: Yeah, they really do. A brand is important. Without a brand, I guess I’m going to get really philosophical because that’s what I do, branding is important because of a psychological concept called lowering cognitive search cost. With distinctive brands, the ability for the consumer to recall that good or service, that product that they’re looking for is easier. It’s just easier for them to find you.
That’s really what it’s all about. People like to interact with brands as well. They also like to feel. I guess there’s a very emotional response to a brand, that’s what I’m trying to say. That plays into the goodwill calculus as well. It’s important to select a mark that, from a legal perspective, is protectible, but also from a really practical perspective, serves that purposes that you want it to serve when you’re creating that brand.
Eric: Yeah. I know, that’s exactly right. You wanted people to be able to recall that, you want them to be second nature to link your brand with your good or service. It’s a difficult thing to do but that brand identity is usually established, not just by the company name or slogan or logo, but in over-all, impression of the business. I think the trademark, the perks of that over-all impression are the trademark aspects of this. It goes into everything of how you build your brand like type of copy put on your website. We’re seeing the more playful language used almost everywhere now. What was once almost like a male chimp type way of talking to its consumers is now used by almost everyone.
That goes into the brand and your logo and your trademark and all that kind of ties together to form this impression. Like I said, at the heart of it is this trademark, this mark of your business. These trademarks are everything you’re working for for your business are embodied in this mark. Most people don’t understand the very basic ways trademarks are analyzed. Why would you unless you went to law school? There’s certain levels of strength associated with marks.
John: It’s basically a scale. Think of the rope tied across two points. At one end of that rope are generic names and those are names that point to a specific class of goods or services. For example, smartphone is a generic term that point to a class of goods which are smartphones. Those are not capable of achieving trademark registration. You’ve got, next to those, descriptive trademarks, trademarks that directly describe the goods or services or characteristic of the goods or services sold under the trademark.
For example, if you’re selling apple pie and you name your pie ‘apple pie’, it’s descriptive. It, basically, is describing a quality or characteristic of that pie. Good example as well is ‘apple pie for candles’. When you use ‘apple pie’ in association with candles, that’s also descriptive because the candles likely have an apple pie scent.
Eric: Yeah. I think, the fact that descriptive marks are weak from a trademark view, it’s maybe not apparent to most people because a lot of people want to pick a name that describes what they do to their potential customers. When they look at that name, they don’t have to think about anything. They don’t have to make a connection. It just says, ‘apple pie candles’.
John: Right. The biggest problem is that ‘apple pie candles’ doesn’t point to you, it points to the candle. Another reason why we don’t allow or we make it difficult to allow registration of descriptive trademarks, is basically a free speech issue. It’s that, we don’t want to pull these common terms out of the daily usage and create a limited monopoly around them.
Eric: Yeah, exactly. It makes sense when you think about it that way. But it is one of those things where I think a lot of people make their first call of, “what are going to name this business?” We’re going to include what we do in the business name. There’s ways of doing that without exactly describing the good itself.
John: Yeah, that’s the suggestive mark, the elusive suggestive mark. I always say elusive because, what is it? No one really knows this is the line where we always like to argue. Suggestive marks are intended to indicate the nature, quality, or characteristic of the goods or services that are offered under that mark. An example that I always is the term “greyhound”. The term “greyhound” is suggestive of bus services because it requires an extra step in the thinking process to equate greyhound with the speed of that bus service.
Suggestive marks have that extra cognitive step. Again, I say we like to argue over this because extra-cognitive step, what does that mean? That’s really a question. What does it mean? That’s why suggestive marks are difficult to identify.
Eric: Yeah. It’s certainly different than speedy bus service.
John: Yeah. It’s [inaudible 00:12:30] different.
Eric: Yeah. Speedy bus service would certainly describe exactly what you’re providing instead of the source of those goods or services. I think greyhound is a great example of that because it does call that characteristic out but it’s not the same as the next level of stronger mark which is an arbitrary mark. These arbitrary marks are when you use a common term in association with goods that are dissimilar for that term. Apple to sell computers, Amazon to sell books, these are common words that have absolutely no suggestive nature as to the underlying good or service. While that may sound strange from a business naming standpoint, it’s really strong from a trademark standpoint.
John: All the best brands are, typically, arbitrary or what we call fanciful marks. That’s exactly why. It’s because, when you build good will into that brand, this magical thing happens. The signal-to-noise ratio drops. All of a sudden, Apple becomes Apple. It’s not microprocessing computer corporation, it’s Apple. You know Apple, everyone knows Apple, same of Amazon. This little magical thing happens where people arrange around the brand because there is no association and these brands are able to rise to the top of the commercial market because there’s nothing else like them.
Eric: Yeah, exactly. In the highest level of trademark strength, that’s one step removed from this arbitrary mark is the fanciful mark which is just a made up word, essentially. A common example of this is Kodak which is now becoming a little bit of an outdated reference. I don’t know if Kodak is even in business anymore.
John: I don’t either.
Eric: I was just thinking of this. We use a service called Trello. I think that’s a made up word, TRELLO. It’s a project management system. Made-up words, these are the strongest possible marks you can have. While it may be a little bit more difficult to first announce that as a brand name from your internal thinking, you should be certainly looking to fall into the fanciful or arbitrary mark category when coming up with a name. When you’re kicking around these ideas and you have this long list, cross out anything that is descriptive or generic. Suggestive is okay. But arbitrary fanciful are really where you want to fall into.
John: Yeah, it’s possible definitely. You can get a trademark for a descriptive trademark but the problem is that it takes, it’s presumed to take 5 years. In order to get trademark protection in a descriptive trademark, you have to acquire what’s called secondary meaning, which means that the average person comes to see that descriptive term as being exclusively associated with you.
That takes a long time. It might not take 5 years. It might take 10 years. It’s easier at the outside to pick one of these more distinctive trademark types, suggestive, arbitrary or fanciful, to not only protect your brand, to get trademark registration, but also to make sure that consumers get to you.
Eric: Yeah. That’s a good point the secondary meaning. If you’re listening to this and you have a business and you’re concerned that it falls within this descriptive category, it doesn’t mean you can never obtain a trademark registration. Like John said, it’s going to take longer because you have to establish the secondary meaning. That’s a complex question of when do you have secondary meaning, how do you establish it. There’s no one answer to that. It can be complex but you have to use it for at least five years, like you said.
If you’re sitting there wondering, “Oh! Did I already mess this up?” The answer is probably no, probably not. You can probably still obtain registration, just maybe not right now.
John: Yeah, absolutely. I always talk to an attorney about these types of things but it’s likely that you’ve chosen a pretty decent name. If you’ve used it of long enough, there’s a possibility that you’ll be able to obtain trademark registration. Frankly, if you don’t know, then you should contact an attorney because you might be facing some hidden liability for trademark infringement. If you can catch that before it becomes an actual problem, then you could really mitigate your risk and figure out an exit plan, which is really, it’s a lot better than getting sued, obviously.
Eric: Yeah. Trademark infringement is … You may think that is something that’s reserved for big companies to fight about, it’s not. Picking these names and avoiding trademark infringement should be near the top of your list, in factors when deciding a name. Because, it can happen to anyone, it’s expensive. Why don’t you just cut that step out by being probably-active and not having to worry about, “Oh, someone’s going to come writing me cease and desist letter sometime because I didn’t look into this issue.” Definitely, it’s something to think about and really not ignore no matter what size of business you are.
John: Yeah, absolutely. It’s good for us, it’s bad businesses.
Eric: Yeah, exactly. We’ve gone over… Here’s the general overview of marks that are, how they’re weighed according to trademark law. We have this scale of descriptive, bad, fanciful, good. Okay. Now, there’s other factors that trademark law has in place that can help you narrow this list. Specifically, there’s a section of the [inaudible 00:18:58] Act, that says what things, what marks are not capable of being registered?
John: Yeah, there’s a couple of categories of marks that are not capable of being registered. There are some that just serve to be bad marks. Laudatory terms for example tend to be, they might be registerable but they tend to be bad marks. Laudatory term is a puffery term like, super or exquisite or something along those lines. Those tend to be considered descriptive and they tend to be bad marks or bad components of marks.
Another one is surnames like last names. Last names tend to be pretty bad because we don’t want to preclude people from registering or using their own last names. There’s a lot of little areas that play in the surname selection. You’ve done a little bit of work in this area recently. Do you want to discuss that?
Eric: Yeah, definitely. The surname issue, if you’re not describing the good or product itself, I think the next most common name is to include your last name. Again, that’s maybe good for you to try to connect and build a brand in your head but it’s probably bad from a trademark standpoint. Trademark losses, marks that are merely a surname, cannot be registered.
This falls into the same grounds of the descriptive mark meaning they can be registered after they obtained secondary meaning, but they’re not going to be able to be registered initially. It’s probably best to avoid it, if at all possible. There’s a bunch of factors that go into this now. Is it “merely” a surname? Is it connected with other words? What are those other words? If those other words are descriptive or generic then the mark as a whole, it’s really weak. If those other words are, maybe, fanciful or arbitrary, then it becomes a little stronger.
There’s questions about how popular is that surname. Is it truly a surname that a lot of people have? If it’s a relatively rare surname, then there exceptions exists and you may be able together et by and achieve registration. There’s also questions of, does that surname have any other meanings? A lot of last names may fall into that category where it actually has some type of other meaning. These are all factors that make this element a little messy.
John: What you’re saying basically is that, I’ve got a chance to register my last name as my rap name but really, I should stick to the DJ sanctions.
Eric: Yes. You took the words out of my mouth.
John: There are other categories too. Geographic term is terrible, I think. Mostly because they’ll be refused for geographic descriptiveness. We’ve got a client locally, who used a local name for the region and then tied that too a descriptive name that describes their services. I don’t want to say who they are because they might not be happy about the way that I’m discussing their mark but it’s going to take them a very long period of time to get trademark registration because they chose this geographically descriptive term and they combined it with a descriptive term, which ultimately makes it a less distinctive mark.
Eric: Yeah. I think that again, this is a really, really common way for people to come up with a name. They want to describe the goods, they want to put their last name in it or they want to put in the location. All three of those are terrible from a trademark standpoint. You can maybe protect all of those at some point down the road but if you’re looking to see you come up with a great name in a trademark setting, avoid all three of those.
John: Absolutely.
Eric: There’s other ones I think that are a little less common, immoral or deceptive material. This is in the news right now because of the Washington Red Skins issue.
John: Yeah, it’s really interesting. I wonder how that will play out because immoral and deceptive is so rarely used now as a means to reject a mark. It’s almost like it fell by the wayside for a while. With this Red skins issue, I wonder how they’ll treat it because immoral and deceptive, both of those terms tend to change over time. It’s interesting to see how this will play out.
Eric: Yeah, exactly. Who is determining what’s immoral? I suppose the TTAB or the courts will be looking at the purchasing public as to their common belief of what’s immoral. In coming up with the answer to that is something I wouldn’t want to be involved in because that’s incredibly difficult. This is one where I think, if you probably, if you’re towing the line here, and you’re a little concerned whether or not it’s immoral, you might want to think about something else just to avoid the problem.
John: Yeah. I think the only other area where we’re seeing more of this type of rejection is in marijuana-based marks or marijuana-based applications. They’re probably not going to be refused on in immoral basis, but they’ll probably be refused based on what’s called an unlawful use in commerce. Because, marijuana is obviously still illegal under federal law. But this area clearly is going to develop more. It’s just an interesting time to be a trademark lawyer for sure.
Eric: Yeah. One other area that I just thought of that I didn’t put in our show notes today, or outline today. It was a doctrine that comes up with the doctrine of foreign equivalence. This one is another one where people want to use a different language for a mark. A lot of times they may be want to use a Latin term or a Spanish term or some different way of saying what may be a common saying, they think that are going to set them apart or make it distinctive by using a different language. That may not work because the trademark office will essentially translate that term into its English equivalent and see if there’s already a mark registered.
John: Yeah, or they’ll refuse based on descriptiveness or any of the other traditional refusal [inaudible 00:25:52]. Another one that’s interesting is all these flags and coats of arms. You don’t see too many of these but the USPTO says basically that you can’t register flags or coats of arms. That’s a pretty limited class of items.
For exactly, we’ve seen trademark registrations with the Statue of Liberty, some derivations of state flags. But the USPTO here is really looking out for any registrations that contain national flags, things like, the rising sun of Japan, for example. They’ll likely reject the trademark containing that element. It really depends. It’s a tough, tough call but it’s another basis for rejection that interesting.
Eric: Yup. Certainly something to stay away from from a design perspective. If you’re thinking about using some flag, that should be a red flag for you to, maybe, stay away from because it might not be protectible. Names of living persons, this is another one that comes up on a somewhat regular basis. Can be registered as long as you have that person’s consent. If you’re trying to use the name of someone particularly famous, then you’re going to run into issues. This is a little confusing because of the difference between surname and name of a living person. But you can register names of living persons as long as you have the consent but you’re not going to be able to try to make some connection to someone that doesn’t want to be connected to you.
John: Yeah, there’s definitely a prohibition on the false suggestion of a connection. There’s also common law prohibitions on that type of thing as well under the right of publicity.
Eric: Exactly. The big one though, the big problem with picking a name and the one that we get the most questions about is, the likelihood of confusion. This is the one we’re seeing, “Well, is my mark too close to their mark?” This is a very common question, most people run into it at some point along the way. It’s a very complex question. It’s not easily answered. I think what we’re going to do is answer this one in connection with what we think your next step should be in naming a business.
John: Yeah, that’s a good call.
Eric: Just to recap, how are you going to name your business? How are you going to narrow down this list of names? Well, you’re going to compare that list to the strength of trademarks. You’re going to avoid descriptive terms. You’re going to avoid generic terms. You’re going to try to find suggestive, arbitrary or fanciful terms. You’re going to make sure you’re avoiding laudatory terms, surnames, geographic descriptiveness, immoral material, flags, names of living persons without their consent, foreign equivalents in different languages. You’re going to, maybe try to avoid these things.
Next thing you do when you narrow down this list is, you can search the United States patent trademark offices database. We’ll put a link to that in the show notes. It’s called the Tess database, TESS. Here, you’ll be able to find all of the registered and expired marks on record.
If you want to figure out, does someone have… I’ve narrowed my list to these three names, let’s figure out if someone else has them. This is where you go. This is where you go to figure that out. You type that in to the TESS database. You type in your mark and it’s going to give you its results. It will tell you if there’s anything that contains those marks.
But this is not exactly cut and dry because–
John: No, not even close.
Eric: There may be… Maybe you spell your mark with two SourceSeek but someone else uses an “X” at the end. Or, maybe you type in the mark you want in association with, say software service, and someone else has the exact same mark for a restaurant.
John: Or software is good which are two different international classes [inaudible 00:30:33] hit on the same.
Eric: Yeah. Exactly. Searching the TESS database, you can certainly get an idea of what’s out there. Unless you hire an attorney, you’re probably not going to get a comprehensive view of what’s out there but it’s certainly a good thing that you can do to start. You mentioned that term, “International Class”, when people are looking through this TESS database, they’re going to see marks and they’re going to see that they’re associated with this IC number. Why don’t you help us understand what that is?
John: Sure. An international class is a class of goods, I sounds like a dictionary, “an international class”. An international class is a class of goods or services that a trademark is registered in association with. Trademarks are registered in association with some class of goods or services. The first section, I think it goes until 31 or 32, I can’t remember but the first few numbers are goods and then the last are service categories.
When you’re doing a trademark search, it’s important to not only do a broad search but also do a class-based search. These classes are somewhat standardized. They’re also standardized across multiple nations under the NICE, I think that’s how you say it, Treaty. You have these nice classes that are the same and through the World Intellectual Property Organization, they cover the same goods or services with some exceptions.
But the general idea is, when you register a trademark, you register it in association with something and this is a really good way to categorize it. There is classes that are pre-defined for you by the US Patent and Trademark office. Those are listed in a manual called the Trademark Acceptable Goods and Services manual. Or, you can make a freeform class if you understand how those classes work. If you’re good or service is not contained within that manual, you can basically make up a new class to register your trademark under.
Eric: Yeah. If you’re to the point where you’re registering for trademark, you’re applying for trademark registration and you’re not finding a class that fits your goods or services, probably time to call an attorney.
John: Yeah, even before then but yeah, definitely a time to call an attorney.
Eric: Yeah, if you’re going to go out and try to do this on your own, you certainly can but this can get a little confusing. It’s complex. It’s really important because this is going to be the goods associated with your mark forever under those marks. You want to get it right and you want to give the right balance of describing the goods, narrowly enough to pick a specific good or service but also to, at the same time, make it a little bit broader to cover more. It’s this balancing thing. You want it to be narrow and broad at the same time, it’s difficult. If you have to write it yourself, it’s money well spent to hire an attorney to do it.
John: Absolutely. It’s money well spent to hire an attorney because when the examining attorney on the other side, who is also an attorney where you’ve used your application, his or her sole job is typically to reject the application, to find a reason to reject the application. Nine times out of ten, you’re probably going to get some office action. Actually it’s probably not that high but it’s pretty close.
If you’re very good at office action, that office action is going to reject the application. Then, you have to submit some reason to overcome that rejection. The most common rejection that poses the most difficulty is a likelihood of confusion rejection, which we discussed before. When you analyze likelihood of confusion, there is really nine factors that the examining attorney looks at. Those are all factors that have their own factual circumstances. If you’re not an attorney, you probably not going to be able to respond accurately or substantively to those types of rejections.
Eric: Yeah, exactly. If you are searching through the database and you see marks that are close to your mark in terms of spelling, close to your mark in terms of the addition or omission of an extra word, the same mark or similar but in a different international class. These are all times when the likelihood of confusion issue is triggered and you’re going then probably need some help to get around it.
Just because the goods are not in the same international class, doesn’t mean there can still be a likelihood of confusion. The international class isn’t the only question that needs to be answered. It’s one of the elements that goes into the test. But this likelihood of confusion is an important part of this because if you start to use this mark, even if you don’t register it, and there is another registered mark out there, you’re opening yourself up to trademark infringement.
John: Absolutely.
Eric: This is the big one you have to avoid here is, trying to reduce the risk possible. If you’re close to someone else’s mark, you either need to have an attorney provide you with a name clearance opinion on that, or you need to pick a different mark.
John: Yeah. I think it’s important to stress, look, our audience is sophisticated. Our clients are sophisticated. They’re all typically tech companies or related. They’re smart people. We realize that the trademark market has been disrupted and that attorneys have been replaced by form filing services and that’s great. We don’t have a problem with that.
When we have a problem is when those types of services create almost impossible work to solve. That’s really the issue. It’s that I’d be glad to have you hire me after you tried to file your trademark through legal zoom because I’m going to have to clean up the mess and it’s going to cost you a lot of money. It makes my life great because I make a bunch of money off of you. That’s not a good thing.
I like to make a bunch of money off of you but I’d rather have a successful business and then come back to us. Hiring an attorney at the outset to do these types of things is smarter. It seems like it’s better to be cheap but this is an area where it’s not good to be cheap. I don’t say that because I care about doing $295 trademark filing because I don’t want to mess with $295 trademark filings. But, you don’t want to mess with those either.
Eric: Yeah. There’s no doubt. If you’re looking for a service to help you register a trademark, you’re going to find one very cheap. The cheapest route is not always the best route. They’re going to provide very limited services, typically. They’re certainly not going to counsel you along the way, which I think is what you need. Because, a lot of times, these things are back and forth. We need to understand what’s important to your company. How much do you have invested in this? How important is this mark to you?
Then we can weigh that in the risk analysis to give you an idea of everything you should be thinking about. Sometimes we can say, “Well, there is risk but it’s relatively low. You are very invested in this mark. Because of that, if you’re going to proceed, you just need to know that you have this risk that’s out there, but it’s not the worst risk in the world. There’s other times you’re safe. You’re walking into a firestorm if you use this mark.
I don’t care what you have protected or invested. You’re not going to be able to use this mark. We can also reach out to the other trademarks out there and try to enter into some concurrent use agreements where essentially, both parties agree to use a similar mark under defined limits as to how they’ll be used in association with what products they’ll be used. All of these things are just services and counselling that a mass warehouse of trademark filings which likely will not provide.
John: Another really important point is that, a mass warehouse of trademark filings is not going to provide you with a reasonable clearance opinion that’s based on something that’s going to hold up in a infringement lawsuit to support an innocent infringement defense. A clearance opinion that’s well-drafted, that’s well thought out, that’s done by an attorney is going to provide you with the ability to at least point back to that opinion if you want to later claim that you didn’t willfully infringe someone else’s mark. Really is a really helpful tool in litigation. These types of form-filing services aren’t going to provide you with that type of opinion or at least, not that I have seen so far. They’re not going to represent you in litigation. They’re not going to know what to do. You’re not going to want to work with them. It’s just not a time to be cheap as I said before.
Eric: Yup, exactly. Let’s recap where we’re at. We have these trademark strength scale. I think we’ve been over that, you know what’s wrong, you know what’s weak. We have these specific marks to avoid being surnames and geographic names and a laudatory terms and things like that. We’ve talked about the TESS database and how you can go through that and find whether similar marks have been registered. We’ve touched on this idea, is there a likelihood of confusion between two marks?
Again, if you find yourself asking, “Well, is there a likelihood of confusion between these two marks?” Then it’s time to call an attorney. Because if you’re asking it, then it should be, you should get a real answer to them. I think those are our overview of the steps we think are important to pick this name or at least help you narrow down that list of names that can be protected. When you’ve decided on that name and you want to move forward with protecting it, that’s when you apply for trademark registration as John said. You get what you pay for.
We are certainly looking to form, we think a lasting relationship with clients and understanding their needs is important and it is beneficial to everyone. But that trademark registration is an important step no matter who you use to get that. Because, trademark registration brings a number of specific benefits. I always think that most important benefit is that nationwide priority to use your mark.
John: Yeah, absolutely.
Eric: If you don’t have a registered trademark, you only can use your mark where you are using it. If that sounds confusing and you’re wondering where you’re using your mark, that’s the problem with not having a registered mark. Because it’s going to lead to a messy fight at some point down the road if there’s ever a claim of infringement. You get the registered trademark, you lock out the competition on a nationwide scale from using your mark in connection with your goods or services, it’s an extremely valuable intellectual property asset.
A small modern pop store owns has the same amount of power as a big corporation’s mark. Owning that is an asset granted to you by the government. It is really worth something. It’s a piece of but it can be worth a lot of money if your business goes the way you hope it does.
John: Yeah, absolutely. Another important thing to think about is domain names, using a trademark in a domain name. It’s something that we do pretty frequently. It’s almost as difficult as picking a trademark or picking a product name. You’re running out of space now. The selection of a domain should probably factor into that analysis, don’t you think?
Eric: Certainly. Yes, you’re right. You probably should, one of the steps after you get into this TESS database and narrow it down, what domain names can I get that contain my mark or close to my mark? Yeah, you’re right, domain names are running out. It’s important to pick one that you want to be your face because everyone does business online especially the people that are listening to this. You make a living online, your domain is of utmost importance. You need to have one that you can protect and not infringe on anyone else’s mark. Because if you do that, you could run into issues that could cause you to lose that domain. That’s what this whole domain disputes are about.
These are typically done in arbitration proceedings called UDRP proceedings. It’s essentially, a mini-lawsuit about who should own a domain name? You don’t want to be in these. You want to avoid them especially when you’re just starting out with a business. You don’t want this problem.
John: No, you definitely don’t. Then there’s even worse problem which is a lawsuit. There’s a federal statute called the Anti-CyberSquatting Consumer Protection Act, which basically says that if somebody registers a domain name with a bad faith and intent to profit that’s identical or confusingly similar to a mark in which somebody has rights that the mark owner can seek up to $100,000 perspective domain name. There’s a real big stick that people can hit you with if you don’t choose the right domain name, if you don’t get a trademark clearance and it can cause a lot of problems for businesses.
We litigate a lot of these ACPA cases. It’s important to factor in these domain name issues in your analysis. There’s a really great site. I met the owners before. It’s called domain tools. We use it on a pretty irregular basis. Through domain tools, you can really find out a lot about a domain name. You can find out the owner. If you find out the owner, you can buy the domain or make an offer to buy the domain from that person. If you think that it’s going to fit your business name, you can check to see whether or not there are people who are trying to use typographical errors to siphon off traffic from your domain name. There’s a whole set of tools that are incredibly valuable. Definitely check them out as you go through this analysis. But definitely keep domain names in mind when you’re going through this process.
Eric: Yeah, it’s an important part of it. I think everyone understands that. But you may not understand the implications that could come from picking a domain name that contains someone else’s mark. It’s really a problem and it’s certainly a reason to… If you have this likelihood of confusion issue coming up, it’s time to get some help because it can really, really be a problem.
I hope that helped. I think we’ve provided some decent help on how to pick a name. It’s a hard thing to do, to finally come up with the one that fits. But I think if you keep these rules in mind, it will help you narrow down that list.
John: Yeah. Absolutely. Again, always contact an attorney, blah, blah, blah. But understand how to do this stuff so you save yourself money on the long run. We want to see successful businesses. We don’t want to interact with you when you’re distraught. We want to interact with you at the outset. We want to interact with you when you’re excited about what you do because that’s where we’re at our best, that’s when you’re at your best. Take these comments to heart and make sure you understand this process before you get into it. Go to our website, download the trademark e-book. Eric spent a bunch of time on it. I can’t lay claim to it.
I’ve just been lazy lately. I appreciate you writing that.
Eric: No, I think it’s useful. I think it’s helpful. I think people, like I said, revisionlegal.com, download the e-book, just give us your email address, we’re not going to overload you. Were going to give you a little bit of information every week about things we think are important. I think there’s issues that are coming across our desks. It’s something. It’s a tool to hang on to and to refer back to if any questions come up. It talks about everything we’ve talked about today and more. If you have any questions that you’d like us to address on Ask and Answered, feel free to email us at contact@revisionlegal.com. Until next week, I think we’ll leave it here.
John: Yeah, this is DJ sanctions signing off.
Eric: All right everyone, have a good weekend.
The post Asked and Answered #6 appeared first on Revision Legal.
In this episode, we discuss online privacy, privacy policies, and we answer the question, “Where is the new Tool album?”
Music: Cullah, “Rhythm of the Funk;” Cloudkicker, “Digital Lightning.”
Transcript:
Eric: Hello and welcome to Asked and Answered, Episode 5, brought to you by Revision Legal and Intellectual Property Law and Internet Law Firm.
I’m Eric Misterovich and I’m here with my partner John DiGiacomo.
John: Hello and happy Friday.
Today I’m excited to talk about two of my favorite things; privacy and Tool.
Eric: Yeah, you … I love seeing the Facebook updates of drafting to Tool in the background. Must get you pumped up to write some briefs.
John: Yeah, there’s nothing more 90’s than being … There’s nothing more adult than drafting to Tool. [inaudible 00:01:06] privacy policy especially.
Eric: Oh, that’s great. Well, let’s … I agree. I think those are two good topics. The first one, the privacy policy, the issue came up because we ran across this cool tool by the University of Texas to talk about privacy policies and help consumers digest them easier.
Why don’t we talk a little bit about just privacy in general. It’s a hot topic right now. The NSA … There was just a federal ruling about NSA’s tactics being invalid and outside the scope of their authority. This issue of privacy is just everywhere in our face right now.
John: It really is and it’s a really fundamental issue that goes back to the Bill of Rights. In the United States, we don’t have a statement about privacy that is explicit in the Bill of Rights.
We have these amendments to the U.S. Constitution that create, what are called, a conumbra of privacy rights. They typically arise out of Roe v. Wade and these other cases on contraceptives that created this little shadow of privacy rights that isn’t really that explicit.
So because there is no stated privacy amendment to the U.S. Constitution and because there isn’t really a federal statute addressing a lot of these things. We just go by common law. That is in complete contrast to the EU. EU has this data protection directive and now Canada has a similar piece of legislation that says that the EU and Canada now are opt in societies.
In order to collect personal or personally identifiable information from an EU resident, or now a Canadian resident, you have to take … You have to get explicit consent. You have to do something more than just display a privacy policy on a website. That’s way different from the U.S.
Eric: Yeah, that opt in/opt out choice … It may seem like a small difference but it can cause major, major changes in society. You know, everything from opting in to say like, organ donation, is an opt in thing.
I read a book about this in how much difference can happen in a society from the opt in/opt out. The way that we treat privacy … Maybe it’s going to change at some point. I think people are certainly getting tired of being spied on almost. It’s not really spying on because you’re consenting to it by using these websites or anything, but it feels wrong at some level.
John: Yeah it really does. It’s interesting that in light of the growing public concern about both surveillance in the private sector and in the public sector, courts are starting to treat privacy a little bit differently. I think, as of yesterday, a court … I believe it was at … No, excuse me, it was a second circuit. The second circuit said that the mass surveillance of U.S. citizen’s phone records is unconstitutional.
In the past we would have said “No, it’s okay because of terrorism”. [crosstalk 00:04:23] That’s really the default position. [crosstalk 00:04:24] Now courts are saying “I don’t know about that”.
Eric: Yeah.
I’ll put this in the show notes if I can find it. I remember watching a video one time … It was, I think, a Swedish video. It was about privacy and privacy policies and it had people coming into a bakery. They would buy, you know, whatever … a bagel, muffin, and the cashier would say “Where do you live? What’s your address”? and start asking them all these really personal questions and the consumer was just like, “I’m not answering that”. Then they would leave and the person would just follow them out the store and following people, following them down the street because that’s what happens online.
It’s shocking when you actually see it in real life, if you want to call it that. It feels completely wrong and it’s completely normal online.
John: It is and, unfortunately, no one has really taken on the task of getting a federal data policy law. I think that’s probably the next step and it’s probably going to take a very serious data breach, even more serious than the ones that we’re seeing now which are incredibly serious because it’s millions of people, to get there.
In the meantime, we have to make sure that we take care of our users by making them aware of what their rights are when they interact with our websites. That’s what we do as attorneys. We draft these website agreements, Terms of Use agreements and a privacy policy to ensure that the user understands what the relationship is between the parties.
Eric: Right. Those are complex agreements that can be long, they can be confusing. We certainly try to make them as easy and adjustable as possible but that’s not always the case. That’s why I thought this idea from the University of Texas was really interesting.
They have a Chrome extension called “Privacy Check”. It’s available now. You can download it and what it does is … You go to a website, you find their privacy policy, you hit the privacy check extension and it immediately reviews the privacy policy. It has these 8 icons, 8 or 10 icons that pop up and tell you “What is this website currently doing”? It’s certainly a fast, quick and easy way of digesting a privacy policy which is a good start.
I’ve played around with it a little bit and it seems to work. I haven’t really checked it for accuracy. I think these privacy policies can be pretty complex sometimes. I think it’s a really good start, I’m almost surprised this is one of the first times I’ve heard of something like this.
John: Yeah, it almost seems like you would have some kind of independent agency that helped consumers understand what information is being collected and that agency would then standardize that information across websites.
That would be kind of a cool tool. This seems more of a syntax based tool, so the accuracy is probably not going to be the greatest but it’s a really good start. Kudos to Texas for taking this on.
Eric: Yeah and your idea of standardizing it kind of reminds me of, I think, the recent changes and what happens with credit card bills. I think they made those … I think there was legislation passed that attempted to standardize those and make those more easily digestible. It seems like maybe that’s the kind of model to help websites explain how they are collecting or what they’re collecting and what they do with the information that they collect from you.
John: Yeah and I think that some states have tried to do that. California is the most notable example and we’ll talk about that later.
If it’s not at a federal level, all of a sudden, it becomes very burdensome to comply with. It really does have to be at the federal level so everybody is on the same page, every consumer knows exactly what they’re getting. Like I said, this is a great start.
Eric: Yeah, it’s cool. I’d check it out, it’s called “Privacy Check” on Google Chrome extension. It’s an interesting little tool.
Why don’t we talk about this world of website agreements that we’re often tasked with drafting? We know that these are important and we spend a considerable amount of time getting these right for our clients but I’m not sure the rest of the world understands why these things are important.
John: No, I don’t think they do and I think a lot of times they skimp on them or they decide to copy and paste them from somebody else’s site and that’s really not a great idea.
A Terms of Use agreement; let’s start there. Terms of Use agreement is the primary contract between the website and the end user or, in some cases, depending on the business model, it will be a contract between the website and its advertisers or any other third party.
So the Terms of Use or Terms of Service agreement covers the … It discloses the purpose of the the website, it’s licences, the use of that website to the end user for specifically enumerated purposes and nothing more than those purposes. It also takes a license from the end user for certain purposes.
So, for example, if it’s a social media website, it will take a non exclusive license so that the website operator has accurate rights to display the content that the user is submitting to the website.
Eric: Right, yeah, user generated content. [crosstalk 00:10:13] You know, who, under traditional copyright law … I’m the author of this comment or this idea or this image or anything that you’re posting to a website, that website operator needs to have the permission to display that. That’s all done in the Terms of Use agreement.
You know, this is one time where it’s really the website operator’s chance to set the rules. This is your website, this is your business. It’s time for you to set your rules of how people are going to use this website. People should take advantage of that and set rules that they want and that protect their interests.It’s one of the few times you really get to layout … This is the rules of the business. You don’t really get that option too many times in life and I think people should take care of that and take advantage of it.
John: They definitely should and one thing the consumer should know is that these things are enforceable. It’s not like the old days when they weren’t enforceable. They are enforceable under two theories; one is the Browser App theory, which is that once you browse the website and interact with it, you ascend to the terms. The other is the standard “I Agree” click grab theory, which is that once you click an “I Agree” button to accept those terms, you ascend to them.
Understanding those terms is very important. For the website owner, it’s especially important because if you don’t have a custom drafted Terms of Use agreement for your specific purposes, you can run into a bunch of problems.
Personally, in our practice, I’ve seen a website owner of an eCommerce store not adopt a Terms of Use agreement that was tailored towards his business model and he was sued in California for copyright infringement even though he has no relationship to California. Lo and behold, the basis for jurisdiction was that he had forgotten to change the choice of law clause that said that jurisdiction was proper in California. So, he had represented in his Terms of Use agreement that this was a proper place for him to be hauled into court and he had never even been to the state.
It’s important to understand what, as a business owner and as a consumer, what you’re getting into when you’re interacting with one of these websites.
Eric: Yeah, yeah, they’re important, they’re enforceable, they’re the chance to protect your business and, like you said, they are not something that should be copied and pasted. It’s, you know … There’s no doubt that you can look at other sites and understand what they did, get an idea but you want to craft these to how you operate. You don’t want to have provisions in there that don’t apply to you. You want to have these provisions tailored to what you do and how you respond to it. Not just shove this off, copy and paste and get on with your life.
You’re really missing out and really opening yourself up to, like you said, that example. A real pain in the ass if you don’t take care of these.
John: Yeah, huge pain in the ass. One of the biggest pains in the asses that I’ve ever seen was that a large, large company that we represent has a tool on its website that provides some specific data. So, lo and behold, it finds that its competitor is taking …Excuse me, has written a script to scrape the data associated with that tool and replicate that tool on its own website.
Well, our client, you know … Because it didn’t listen to our advice, didn’t adopt a Terms of Use agreement. Had it adopted one, we could have sued for breach of contract because the Terms of Use agreement would’ve said “Look, you cannot come to this website and scrape data. By agreeing to use this website, you agreed to these terms, etc … Therefore that would be a breach of contract”, and they didn’t do it. So they were left without a proper cause of action. There are some real serious consequences to not doing this correctly.
Eric: Yep, yeah, and one area that often comes up in the online space is the issue of copyright infringement. You know, this doesn’t apply to every website and that’s the point here is if you are a social media site, you’re going to have specific concerns. If you’re an eCommerce store you’re going to have specific concerns. If you’re basically just an informational website about your business and there’s not a lot of interaction, you’re probably going to have less concerns. If you’re a crowd funding portal, you’re gonna have even more concerns. Anytime there are users interacting with your site and posting content, there becomes an issue with copyright and copyright infringement.
There’s a federal law, called the Digital Millennium Copyright Act, that applies in these settings. It’s a very useful tool for copyright owners. It provides a notice and take down procedure by which copyright owners can have infringing images, songs, movies, words, websites removed quickly. Because the internet is what it is and it’s so easy to copy and reproduce content, this has been a very valuable tool for copyright owners.
For website owners, there’s different levels of concern, different actions they should take to take advantage of what the DMCA offers. That’s typically by registering or designating an agent, right?
John: Right. A lot of people think “Well, I’ll just respond to DMCA notices and it’s cool, nothing is going to happen as long as I content down”. Well, that’s not actually the case. If you, for example, are a service provider and you receive a DMCA notice and you do not have a registered agent with the U.S. copyright office, you don’t qualify for the safe harbor. You can be sued directly for direct liability or secondary liability for the republication of that copyrighted content.
There’s a lot of little pitfalls within this process of adopting a Terms of Use agreement. Ensuring that you comply with the copyright regulations, et cetera, that really need to be navigated successfully in order for you to protect yourself and to protect your business.
Eric: Yeah and we’re talking about designating a copyright agent … It’s a one page form, its a relatively small fee and what do you get for that? You get immunity from copyright infringement lawsuit. It’s a huge, huge benefit and it’s something that if you’re copying and pasting, you’re not going to understand the importance of this. If you’re not dealing with an attorney who understands what they are doing, you’re going to be left out of this protection.
John: Yeah and it’s really not smart to be left out of the protection.
So let’s talk a little bit about privacy policies now. Privacy policies … Well, you tell me, what do you think privacy policies are for?
Eric: Well, they are intended, in my opinion, they’re a chance for the business and the website to explain to the user what information is being collected about them and what you are doing with that information. I think some … Again, this is a spot where I think website owners, operators, this is the last thing they’re really concerned about but it is important to get this stuff right and it is important because the data you are collecting can be valuable. What you do with that data is going to be governed by this privacy policy. If you don’t get it right and if you don’t do it correctly, if you don’t leave yourself wiggle room to do what you want to do with that data, you’re hindering yourself.
I know an example of this came up, I think recently in the Radio Shack bankers …
John: Yeah, I was just going to say that, absolutely.
Eric: Yeah, they have all of this customer data but then you go back and look at their privacy policy and they said they’ll never sell it. Well, it’s an asset and now they’re in bankruptcy and it’s being sold. I think they were … I don’t know exactly how that worked out. I think they were able to somehow get around that.
John: Yeah, I can’t really remember either but let’s assume that they didn’t. Let’s assume that the privacy policy, as it was enacted then, said that they couldn’t sell that information. Well, now you’re left without one of the most valuable assets that you have and had you just had some proper drafting at the outset, you would’ve been able to sell that asset.
Eric: Yeah, it’s really shocking that they did not … I mean, it’s a pretty standard provision to include in a privacy policy that, you know, you’re not going to sell it but if the entire business is sold, then that’s part of the business and that will be sold.
John: Yes, it’s really sticky too because even if you … Let’s say had a merger or an acquisition. If that provision is not in the privacy policy, the successor company cannot acquire that information.
Eric: Right.
John: Effectively, you can’t do anything. You’re just stuck there without violating that privacy policy and potentially subjecting yourself to a class action lawsuit.
Eric: Yeah and I think companies, because of the role that privacy is playing in everyone’s lives right now and because everyone is really concerned with it or aware of the NSA or aware of what’s happening, I think a lot of these companies look at these privacy policies and they go “I don’t want take their data” or “I don’t want to sell it, I’m not going to share it. I don’t want to do any of this” and they think it will scare consumers off to even talk about it.
I think that is probably a mistake because you can draft a privacy policy to reserve the ability to sell it if there is this kind of merger acquisition bankruptcy sale of the business. You want to preserve the ability to do that. It doesn’t necessarily mean you’re mining data and selling it to third parties. So when people … You got to weigh that balance of informing the consumer and protecting yourself about what you can do with the data that you get from your consumers.
John: Absolutely. Like everything in life, while most things in life, the answer is somewhere in the middle. It’s not this “Well, we’re not going to collect any information” and it’s not “Well, we’re going to collect all information, we’re going to sell it to whoever wants it”. It’s more about transparency. If the company is transparent with it’s customers and it specifically identifies, in a transparent way, the information that it’s collecting and using, then customers are going to feel okay in interacting with that company. That’s all there is to it.
Consumers aren’t as stupid as we think they are.
Eric: Yeah and I think we know that our data is being collected. Everyone knows that now. Exactly what everyone is doing with that, we don’t always know and that’s where it gets a little hairy but I think if you’re in the business and you’re drafting this or you’re wondering what should be in your privacy policy, you got to think a long way down the road. You’re not just thinking about scaring off customers now. This is about your business, this is a part of your asset and this interaction means you should be transparent and trust the consumer and they’ll make the decision to trust you if you’re honest with them.
John: Absolutely. I just got a notification in my email from my thermostat that sent me my April home report telling me my energy usage.
Eric: Mm-hmm (affirmative).
John: Why do I need them to collect this information? As I privacy lawyer I should probably be opting out of this one.
Eric: Yeah.
John: I just thought that was timely and relevant.
Eric: Yeah. It is. I … So, I cook a lot at home and half the time I’m cooking from a recipe and foodnetwork.com or something and I do it on my phone while I’m trying to cook and watch a baby and all this stuff and it’s a real pain because every time I go there, they ask me if they can track my location. I always wonder, “What the hell does food network need to know”? You can’t have my information of where I am. Just give me the recipe.
It is, you know … To give the consumers the ability to opt out like that is important but how a company manages all of these interesting questions of interacting with consumers and setting themselves up to be best protected. It’s a really interesting issue and one that you need to talk to an attorney that is experienced in this area.
John: Yeah and it’s really interesting now because we live in this federalist system. There is no federal law on point but yet there’s a bunch of state laws that need to be navigated. The most interesting of all of them right now is California.
California is just a ridiculously large state. It is the home of Silicon Valley. They have adopted this California, what’s called “Shine the Light” law, that is an online privacy protection act that covers the collection and disclosure of the collection of personal and personally identifiable information.
Eric: Yeah, California. It’s always California. They usually are on the cutting edge of these kinds of laws and yeah, they have these California privacy rights and California Online Privacy Protection Act and these are specific state law rules about privacy policies.
The privacy rights provision allows consumers to reach out to a website and have the summary of the information collected and dispersed by a website given to them. They can do that once a year. This is a provision that we include in our privacy policies and it takes people by surprise usually when they read those and they say “What is this? Why am I subject to this”? Most time people aren’t going to use it, but it is the law in California and it is … You should comply with it.
It’s usually not too difficult to comply with and a lot of companies won’t even be triggered by it depending on what you are doing with the data but it is the law in California. I think it’s useful … I’m not … I need to see some stats on who actually evokes this.
John: Yeah, that would be really interesting to know. I suspect that it is very few people.
Eric: Yeah. Yeah, but California also lays out … You know how we were talking about this standardized form of privacy policies and how that would help consumers. California has attempted to do that to some extent with their California Online Privacy Protection Act, which requires certain things that the privacy policy needs to disclose, including, you know, the categories of information collected, how does someone opt in or opt out?, the effective date, these “do not track” signals and how those are handled.
It’s certainly a good start, I guess, to provide some form of guidelines to drafting these. The real issue is if anyone reads a privacy policy, it’s going to take it 25 minutes to figure out this information. It’s just not easily digestible.
John: Yeah, absolutely.
A lot of our clients come to us and say “Look, I want a privacy policy that’s easy to read”.
Eric: Yeah.
John: You and I both love to write, that’s what we do for a living so it’s always fun to be able to try to write something that is coherent and yet, at the same time, legally effective and a good attorney should be able to do that.
Eric: Yeah definitely and that’s just the difference of interests at hand. From the consumer standpoint you want to say “Let’s make these things easier to digest”. From the owner standpoint you’re saying, “Let’s protect me”. At the same time, I think most, like you said, a lot of people say “Let’s talk like human beings as much as possible in this privacy policy” and that is refreshing and it is nice to do that.
John: I like to talk like robot, so I don’t know what you’re talking about.
Well, let’s answer today’s … Usually during this time, we answer a question from a user and today we’re going to pretend Maynard James Keenan from Tool has sent us a question, so let’s discuss the new Tool album which is … It’s been 8 years since the last Tool album which was called “Ten Thousand Days”. I’m a huge Tool fan. I have probably seen them live about 8 or 9 times and, in fact, last year, Maynard James Keenan walked through the alley behind my office and I was the only one in town who recognized who he was and I got a really creepy picture of him from my window. Which, subsequently, I posted on Facebook and Twitter, so go out and check that out.
Eric: That’s hilarious.
John: So Tool has not had an album in 8 years and why have they not had an album? It’s because they’ve been involved in this copyright infringement related lawsuit.
Eric: Yeah, it was … John, you’re more familiar with this, but I know it was about some artwork, right? Is that how it started?
John: Yeah. So, in 2007, Adam Jones, who is this guitarist for Tool, incredibly talented guy, but also an artist and typically does the art for their music videos and a lot of their album cover art, had hired a friend to do some work, creative work, for the album.At this time in 2007, this friend said “Hey, you didn’t pay me for this. I own copyright rights to this content and therefore I’m going to sue you”.
Well, Tool, like a lot of other businesses, had a general commercial liability policy and once it got sued, its insurance carrier, Clarendon Insurance Company, paid about $450,000 to settle the case. Well, once the case was settled, Clarendon turned around and sued Tool for a breach of contract. The reason they did that was because they claimed that Tool was liable to indemnify the insurance company for the amount paid to settle the case because the exclusions that were contained within the intellectual property … Excuse me, not the intellectual property but a commercial general liability policy, excluded this type of claim. The payment for this type of claim, so, basically, Tool was on the hook.
Eric: Yeah and this comes down to … It seems like there was an easy fix in this situation if there was some planning done ahead of time.
John: Yeah, I mean, this is a huge deal. This is what we always tell clients and that’s why I said the question should’ve come from Maynard James Keenan. The question is, “What do I do when I work with a contractor”? What’s the answer to that question?
Eric: Have a work-for-hire provision in the contract.
John: Yeah, it’s so basic and clients never really understand this. You have to have work made for hire contract in the agreement with your contractor or if you didn’t have one at the outset, you need to have an assignment after the fact because a work made for hire provision is not enough if the work was created previously or, excuse me, prior to the execution of the contract.
Eric: Yep and just as background, this is a function of copyright law. When the author creates a work that is fixed in a tangible medium, they are the owner of that copyright right.
A common example of this is wedding photographers. You hire this photographer, they charge you triple the normal cost because it’s a wedding and they take all these pictures and then they edit them all, they make them available in an online gallery that’s marked with a watermark. If you want any of these pictures, you got to buy them from the photographer. Why do I have to do that? I already paid you an enormous amount of money to come take the photos. Well, it’s because they are the owner of the photo. You are not, unless you had a work-for-hire agreement between you and the photographer. That way, all of the copyright rights would vest in you as the owner instead of the photographer.
It’s an enormously important provision that, I would say, wildly overlooked by most people.
John: Yeah and I would agree. I think there’s one other aspect of this case that’s really instructive. That is that you need to read your insurance policy. If you are an online business and you’ve just adopted a general commercial liability policy, you probably should find out what is and is not included in that policy. Typically those policies will cover what is called “Advertising injury”, which is an injury related to defamation or a claim for the right of publicity, invasion of the right of publicity, but it doesn’t usually cover intellectual property infringement. Intellectual property infringement policies are very expensive but, in a lot of cases, they’re really important. So you should work with both your insurance agent and your attorney to kind of understand “How can I best ensure the risk that is associated with my business”?
It sounds like Clarendon didn’t have a very well drafted contract here.
Eric: Yeah, certainly. To be in 7, 8 years litigation … Yeah, someone failed at their job here because there’s no way that should be that difficult of an issue.
John: Yeah, so, thankfully … Well, at least from my perspective, thankfully, in January of this year, Tool prevailed at trial which means there’s a new Tool album coming and for you that clicked on this because we’re talking about Tool; I’m sorry I don’t have any information. Wish I did.
Eric: So you don’t know when it’s coming out?
John: No, I have no clue. In fact, when I … I’ve actually met Maynard James Keenan and when I did, I went out of my way not to ask him that question because I read up before interacting with him that he might slap the shit out of me.
Eric: Yeah, I’m sure he’s tired of answering that question.
John: So, that’s all we’ve got this week. You have anything else?
Eric: No, I think that was a great show. I think, you know, privacy policies and terms of use agreements … Not usually the most exciting thing in the world but they are really important and I think people … I hope people learn why they’re important today.
John: Yeah, I hope so too and again, this isn’t legal advice. You should always contact an attorney about this stuff and thanks for listening.
Eric: Yeah, go check us out on Facebook and Twitter. Drop us a line if you have any questions that you’d like us to discuss and we will see you next week.
The post Asked and Answered #5: Online Privacy and Privacy Policies appeared first on Revision Legal.
https://revisionlegal.com/wp-content/uploads/2015/04/AA4-42515-8.19-PM.mp3 In Episode 4 of Asked and Answered, we class up the joint by speaking with fashion law blogger Greta Hogan. We discuss fashion and intellectual property and answer the question, “How should fashion startups think about legal issues?”
Music: Jackit, “Questions Answered;” Mouthguard, “Miami Corrector”
Transcript:
Eric: Hello and welcome to Ask and Answered Revision Legal’s podcast about intellectual property and Internet law issues. This is episode 4, and we’ll be talking about fashion law. My partner John DiGiacomo is here today. John how are you?
John: I’m good. I’m the most unfashionable person in the world so this should be an educational experience for me.
Eric: Me too. I’m Eric Misterovich by the way, and yeah, fashion is not a strong suit for me either. My wife, I think, cleaned me up a little bit, but not a strong fashion sense in our firm I don’t think.
John: No, I don’t think so. Maybe Jessica. I think she’s got it down, and she’s good where she’ll tell me that I look terrible and I appreciate that. I’m glad we hired honest people.
Eric: Yeah, I’ve had that with my wife certainly. I get dressed and she looks at me and goes, “No. Nope. That’s not going to work today.” Yeah, we need people watching over us. Someone that can help us on the legal aspects of fashion law is with us today and that’s Greta Hogan. Greta, how are you?
Greta: Good. How are you?
Eric: We’re doing great. We’re glad you’re hear with us.
Greta: Thank you for having me.
Eric: Greta you are a law student at Michigan State College of Law, right?
Greta: Yes, I am.
Eric: That’s awesome. That’s both of or alma maters so we’re proud that you’re carrying the torch for MSU.
Greta: Oh, definitely.
John: Yeah, and I think we’re especially proud to see somebody like you stepping out and making a name for yourself, even in law school with this site that you’ve created. Can you tell us a little bit about your background, and about your website?
Greta: Sure. Right now I am a second year law student and I’m from Youngstown, Ohio an I’ve always had experience in fashion. Hopefully I’d like to think I know what I’m doing, but I’ve worked at a boutique and really enjoyed what I did there, and it’s always been a part of me. When I came to law school I decided I wanted to pair up 2 things that I’m very passionate about. Combining fashion with the law. My first year I did not think it existed. I was trying to figure out what I wanted to do or how I could create this area of fashion law, and that’s when I found Fordham’s Fashion Law Institute, and that’s given me a path to start this website and create a brand for myself.
Eric: Yeah, it’s really great. It’s fashiondocket.com for everyone out there listening and go check it out. It’s really interesting. It’s a beautiful site, and I think you do a great job running it. Like John says, really smart idea to go and start doing it because you never know what happens once you start something. This is really cool.
Greta: Thank you. Actually the Business of Fashion announced that fashion is now a trillion dollar industry, 1.5 trillion to be exact, so it hopefully is really going to be up and coming, and I’m excited to see where it can take me.
Eric: Yeah, the niche areas of law that you can carve out and get some experience and become an expert in. It’s only going to help you in the future. I think it’s a great idea and even better executed, so that’s probably the more important thing.
Greta: Thank you.
Eric: All right. Why don’t we jump into fashion law, we provide … One of the main areas we work in is Internet law. I think there’s probably some relation in that there’s really nothing exists as Internet law. Nothing exists as fashion law. It’s a mix of traditional areas of legal practice with a certain focus on 1 industry. That’s how it is for Internet law. What kind of areas of law come into, or makeup your fashion law?
Greta: The way I like to explain it is really fashion law is just like the law, except it’s dealing with fashion brands, retailers, designers, and things like that, but it really encompasses everything from contract law, criminal law, intellectual property law, Internet law, whatever that might be, but there is a lot of problems especially now that retailers are using Internet to sell their goods, and there are sites like Etsy that are primarily online. It can also have a range of issues in environmental and animal law, and employment and labor issues. A little bit of everything.
Eric: Yeah, it certainly sounds like it. When you are looking at the news in fashion law issues are there things that are right now that are news stories that people may not know about?
Greta: Yeah, there’s a couple different issues going on. I know I have some on my blog, but as far as employment issues, there’s been an employment issue with Abercrombie and Fitch and it’s actually made it’s way all the way to the Supreme Court, so that was dealing with the regulations for their workers and what they could wear while they were working. There’s also disputes between Adidas and Marc Jacobs and that has to deal with the signature 3 stripe mark of Adidas, their trademark, and they’re trying to protect that. I think there’s definitely issues. I don’t know if everyone might look at them as fashion news, but they definitely intertwine with the law.
Eric: Yeah, that Adidas law suit is pretty interesting. I’m certainly familiar and I think most people are familiar with the 3 stripes of Adidas. What’s that case about? What’s going on in that case?
Greta: Sure, Marc Jacobs came out with, I believe it was a part of his collection for the Autumn Winter 2014, and 1 of the sweaters that he had, had the stripes going down the arm, so Adidas filed suit for a trademark to protect their mark because they’re alleging that the 3 stripes going down the arm can be recognized as their symbol, their mark in the area of fashion. If you saw it on the shoes, or on the sweater, or on a t-shirt, you would identify it with the Adidas name.
Eric: Yeah, and the 3 stripe are, I think, a famous mark for Adidas.
Greta: [inaudible 07:18].
Eric: At the same time it’s 3 stripes, right? That’s not the most creative mark in the world and it’s certainly not going to be uncommon I would assume in fashion designs.
Greta: Yeah, actually this is the big problem is because you can’t copyright a useful article. Usually you would have a copyright protection for some sort of design that you have, except because it’s on clothing and useful articles like shoes and things like that, you can’t have a copyright. Now designers are trying protect their mark by using their trademark. You see the MK for Michael Kors on his handbags, and you see the LV for Louis Vuitton. Now we’re venturing into what to do when you have these symbols that aren’t necessarily words or phrases, but like the red soul and the 3 stripes. Can it be recognized by consumers to be identified for that retailer, or the brand. Really I guess it would help to say why people are using trademarks.
These designers want to use the trademark because it’s a sign for consumers. Consumers can see a good, and see the mark the good, and know that it has a certain type of quality, so they know what to expect when they pay x amount of money to get that product.
John: Yeah, that’s a great point. It’s worth elaborating on that. The idea behind trademark and trade dress, which a lot of these clothing items may fall under is that it lowers what we call cognitive search cost, and that’s really a fancy way to say that when people want a really quality item they want to be able to reach Adidas and know that they’re getting that quality item. That’s especially important in today’s word because we have a lot of counterfeits coming from foreign countries. With trade dress and copyright I think you made the point that copyright may not extend to these kind of useful articles, and it also may not extend to items, or patters that are common. For example if they fail to meet the originality, or the spark of creation requirement associated with copyright, they may not be copyrightable.
A lot of these designers are probably looking to trade dress because it doesn’t have that requirement, but trade dress also has the requirement just like copyright that if it is a useful article there has to be … It has to acquire what’s called secondary meaning. Eric if you want to discuss what secondary meaning is, it’d probably be helpful.
Eric: Yeah. Secondary meaning is it’s not easy for everyone to accomplish. It basically is that the consumers see that mark, they see the shape of the Coke bottle and they immediately identify that as Coca-Cola. That is a tough burden. It’s not easy for, especially relating to fashion law, new designers to obtain trade dress rights. It’s going to take a while, and it’s going to take some recognition, advertising in the marketplace for someone to obtain that kind of connection between the consumers and their marks. Famous brands like Adidas probably will be able to do that.
John: Yeah, that’s really the thing. It’s that Adidas is famous, and when we see those 3 stripes the consumer has made that connection which is why Adidas is so protective in protecting that mark for lack of a better word. They really take that mark seriously because they want consumers to reach for their products. They want to ensure that they’re getting the same quality product every time, and they don’t want somebody like Marc Jacobs to trade off of the idea that, “Oh, hey. We can funnel consumers to buy Marc Jacob products who actually think that the Adidas design, or the Adidas mark is an indicator of quality.”
Eric: I’ll put a link to this … An article about this lawsuit in the show notes. They have an image of the article in question, and it looks … It has 3 stripes. I don’t know. You look at it and it looks like Adidas.
Greta: Well and I think especially because Adidas is known for their track jackets, so to me when I look at it, I think it’s similar. Putting it on a sweater is so, so close to the track jacket.
John: Yeah, that’s a great point because the test for trademark infringement, or trade dress infringement, or whatever the case may be here is likelihood of confusion, so in determining whether or not there’s a likelihood of confusion a court is going to look at the similarity of the goods or services, and it’s also going to look at the similarity of the trade channels, so if Marc Jacobs is selling in the same channels as Adidas is, and it’s likely … They’re probably selling at different price points, but maybe not. Those are the types of things that play into that likelihood of confusion analysis. You’re right that this really does look like … It looks like an Adidas track jacket. It looks like something that Korn would have worn in the ’90s.
Eric: It does. If this was, I don’t know, a purse, or something that maybe is different, but this is a track jacket. It has the 3 stripes. It is very Adidas reminiscent to me.
Greta: I think especially we were talking about what channel they’re in, and especially now because Adidas is trying to match up with its competitor. Nike, they’re doing all these collaborations with these famous artists. The question then becomes are they getting up to that Marc Jacobs status? Marc Jacobs is actually closing one of his collections, or his brands, so is Marc Jacobs coming down and Adidas going up so they’re meeting at that point where they are selling to the same people.
Eric: Yeah, true. That’s a very good point. What about for smaller companies, or new fashion designers? Do you think it’s a good idea to start at having a mark process. Fashion is so wide ranging that you may not want to always come back to the same mark in your different designs. Do you think that something that aspiring designer should think about?
Greta: Yes, I think a couple things. I guess it depends on what type of fashion are you going into. Who are you selling to? Who are you consumers that you’re trying to reach out to, and what are you selling? Are you selling handbags, or clothing? Shoes? That’s something to consider, but with me I think even putting a brand to my blog. A lot of people ask me why I don’t use my name and it’s almost like I want to create a brand. That’s the purpose of why I have my blog, whereas some people might just want to create a clothing line to sell at Nordstrom’s and they don’t necessarily want their name all over it.
The other way to look at that is, if you want to protect your designs, a good way to do it, at least in the United States is to put a trademark on it. It might not have to be your initials, or your name, but some type of symbol, I guess, that you can put on your collection so that people recognize that it is your work, and if you’re doing a deal with someone else they can recognize that it is your work.
Eric: Sure that strikes true to us in terms of Revision Legal. People ask that all the time. Why are you called Revision Legal. Usually my answer is because DiGiacomo and Misterovich is a nightmare to say, but that brand recognition was the main motivating factor.
John: Yeah, the key factor was obviously it’s very difficult to spell our names, but also that if we’re going to be a trademark, or an intellectual property law firm, then we should take trademark and brand building seriously. We should provide something … We should indicate to the consumer who’s buying our legal services that we actually understand what the hell we’re selling. What we are selling is very important. Yeah, you’re right. The idea that if you select a name, and you stand by it, then you will build good will and people will continue to reach for that good is very important. I think in fashion the way that people have done it in the past is they have a house mark.
The classic example would be somebody like Louis Vuitton, who has the house mark of Louis Vuitton, but then you also have these sub-marks where this is Louis Vuitton, but this is the … Again, I don’t know fashion that well, but this is the sub-brand. This is the … It has a certain price point. It has a certain quality. Those things are important. I think if you’re starting a business, and you’re starting a fashion based business, it’s important to identify, “What is my house brand?” “Do I have a plan for expanding into the future with other sub-brand, or how are those sub-brands going to interact with my house brand?” Maybe Greta, I don’t know if you agree with me on that, but maybe you can elaborate on what your perspective on creating a brand … A fashion brand is.
Greta: No, I mean I agree with you. I think a lot of designers do it to cover their grounds. It’s important that a lot of people are talking about Michael Kors now that he’s diluting his brand because he’s reaching out to so many different markets, whereas I think if you do it in the right way, in moderation, you could do it right. When I talked about Marc Jacobs I believe he’s now closing down the mark “By Marc Jacobs,” so he has, like you were saying, the different brand names, and they all have the different markets that they appeal to. I guess if you do it properly it can be beneficial. You have to be careful that you’re not diluting your brand because you’re trying to reach out too broadly.
John: That’s great point. We have a client locally who has a t-shirt company. When you think of a t-shirt company you don’t think of high fashion, but often it can be.
Greta: Yeah.
John: When you select a t-shirt it’s quality of the materials, it’s the cut of the t-shirt, and really also it’s also the brand. The brand is the key element. Their perspective is, “Look. We’re going to price high. We’re going to acquire high quality goods to put on marks onto that t-shirt. We’re not going to sell this in low quality stores. We’re going to have license agreements with distributors that meet our brand quality guidelines.” You’re right. If you don’t do that, if you’re not taking that level of control through contract, or otherwise, you’re really going to dilute your brand, and it almost becomes meaningless. If your brand is diluted in that way the signal to noise ratio, for lack of a better term, is high and no one’s going to be able to know who you are, and frankly they’re probably not going to care who you are.
Greta: Yeah, that’s a good point. Even with Louis Vuitton. A lot of brands have been changing their price points, and trying to appeal to the economy that we’re in, and Louis Vuitton has not swayed. They have left their product to be valued high because that’s what they’re known for. Someone like Louis Vuitton if you’re valuing $29 billion dollars, then it makes sense for you to stay in that high market and not branch out and make low end products. It really depends I think on number 1 the product, and the brand.
Eric: Yeah, that’s all very good points. One thing I’m hearing that’s coming to mind is the use of your name in association with the line of products you sell. Obviously, it’s very apparent in fashion. That’s not always the best from a trademark perspective to be only using a surname in connection with your goods or services. You probably won’t obtain trademark registration right away. It’s not a very distinctive mark. The idea of … I think this is something for young, or new fashion designers, take some time to figure out if your brand can really be protected. If you’re going to spend all this time following your dream and creating this product, talk to an attorney, get an idea of how to best select a name, a brand, a logo to go along with what you’re going to build, right?
Greta: Yeah.
John: Yeah, I think that’s great advice. I’m sorry Greta. I didn’t mean to interrupt you.
Greta: No, go ahead.
John: I think that’s great advice because, you’re right. Louis Vuitton. Is it Louis Vuitton?
Greta: It’s Louis.
John: I’m terrible with this. Louis Vuitton, obviously, they’ve been around forever. Same with Chanel. Those types of brands. They do use surnames, but they’ve built this longstanding goodwill into those surnames. It was probably more difficult for them to get a mark, but they have marks now. It’s a lot easier for a younger company to get a mark not in a surname. It’s always a trade off. If you want the brand to be you if you are that designer, maybe you do select a surname. If you don’t want the brand to be you, if you want to protect the brand early, maybe you don’t select a surname. Those are things that should be addressed right at the outset I would think.
Eric: Yeah, I completely agree. I think most people assume, “Hey, it’s me. It’s my name. This is great. I’ll call it my name. Who else can have a mark in my name?” Well, there’s probably other people that have your same name, and trademark law doesn’t like to give out exclusive ability to use a surname. A last name. I think it’s a word to the wise. Whether you’re starting a fashion business, or the next brewery. Last names are traditionally weak marks. It might be your first inclination to incorporate that, but the more distinctive your mark, the more arbitrary … The classic example of Amazon to sell books, or Apple to sell computers. Those are better marks. Those are stronger marks. For anyone listening thinking about starting a brand, or business of any kind. You should take some time to really think about that. Include that analysis into selecting your name.
John: Let’s talk a little bit about how designers actually protect their works, and protect them against infringement and counterfeit copies. Greta can you give us an idea … You know this area well. How do designers, ranging from large and small protect against infringement, counterfeit works, and protect their works in general?
Greta: One thing that is becoming big now is these larger brands are having brand protectors. Attorneys who are actually going out there and trying to shut down these websites, because now a lot of the counterfeits are being sold on websites. I now there was even something on Facebook where advertisements were coming up and everyone truly thought they were the real purses, or handbags. It turned out to be a counterfeit site. I think a lot of consumers aren’t sure what to trust, or if it’s a fake or not. They think they’re getting a really good deal on something. I think definitely attacking the Internet sources of these counterfeits is becoming a big issue. There isn’t any laws to protect fashion designs in the United States, so it’s definitely becoming an international battle, because there are different laws in different countries. Is fashion design protected? Yes, maybe not. I think it really depends.
John: I think we’ve seen these kind of programs instituted. A good example is eBay’s VeRO. VeRO is this program instituted by eBay where if you are a designer and you believe that your rights are going to be widescale … You’re going to face widescale infringement. You can contact eBay, and eBay will setup a program where you can notify them and have these items removed on an expedited bases. That works sometimes. Other times it doesn’t. There are a lot of other sites that have programs like that Etsy being one of them, but I think designers probably face a really threat from Chinese counterfeiting. It’s the elephant in the room with regard to American brands, or even European brands because stuff’s made a lot cheaper there. I have seen actually some attempts to stop the importation of what are seen as counterfeit goods through the US Custom’s Bureau. Again, it really depends on whether or not somebody catches it at the Custom’s Bureau. It’s a really-
Greta: I was going to say that. Yeah.
John: It’s a really tough problem to solve.
Greta: I think now a lot of … Okay, with the handbags. If they get imported, and it’s just the bag, what they’re doing is they’re separately taking these little trademarks of Prada with them, and then putting them on the bag once they are already imported in the States. Really could you tell that’s a knock off when it’s coming through customs? Maybe not. People are getting smart about how they’re doing it, and I think it’s harder to catch.
John: That’s a great point. My brother-in-law actually lives in … Ex-brother-in-law now, lives in China, and he would come home for Christmas and he would bring me shirts. One year he brought me a Polo shirt. The Polo … He said, “This Polo shirt was made in the same factory as Polo. It’s not actually real.” Of course my first reaction was, “You’re giving a trademark attorney a fake Polo shirt? This is the stupidest thing you’ve ever done. You’re right. They’re doing all these sophisticated things where they’re bringing things in and then they’re sewing them on after the fact. These customs and border patrol guys are getting boxes of labels, and they’re saying, “Okay, we can stop these labels from coming in, but it’s not like they’re not just going to ship more labels.” It’s not expensive to ship labels. It’s expensive to ship product. It’s a weird problem. It’s kind of an interesting time to live in a time of globalism, and see all these brand industry problems associated with that world.
Eric: Yeah, it seems like one of those problems where the bad actors are always going to be a step ahead of enforcement.
John: Yeah.
Eric: No matter what you do. I guess the only silver lining in there is if your good are being counterfeited by Chinese manufacturer, I guess it’s a sign you’ve made it to some extent.
John: Well, that’s right-
Greta: That’s the-
John: Go ahead. I’m sorry Great go ahead.
Greta: No, I was going to say I was at the symposium at the Fashion Law Instituted in New York last weekend, and that’s what a lot of us were saying, “Oh, you’ve made it. People are copying you,” and the designers didn’t like that very much, because it is such a huge industry for these counterfeiters. If they weren’t making so much money off of it, it might not be a big concern of the designers, but unfortunately it is, and they are making money off of it.
Eric: It seems like it’s going to be a problem that will continue on. Why don’t you tell us a little bit more about that symposium you attended. That was at Fordham?
Greta: Yes. That’s how I got started in the fashion law thing. I was searching online and I found that there is a Fordham Fashion Law Institute. Professor Susan Scafidi has created this institute that combines fashion and law. I believe there’s 7 course, but they do offer a summer program. It’s offered to people internationally. It’s a 2 week program. It’s in New York City. I believe it was 8 days. When I went it was only Tuesday to Friday, Tuesday to Friday, so you had some time off in the city. You go to class and you learn about the different topics in fashion law, and what’s going on now. You also have the opportunity to do day trips. It’s voluntary, but it is included in the costs that you pay for the course. For instance, the places they will take you are amazing. The connections that Susan has. We went to the Met and we met with in house counsel to the museum. We also went to visit sustainable jewelry designer Melissa Joy Manning, and we saw her studio, we saw how her jewelry is made. We also went to the design studio of fashion designer Nanette Lepore, and she’s from my hometown so I was so excited to go there. It was just amazing. We got to see them making the garments. We got to go to her showroom, so the same place that Nordstrom’s would come when they want to decide what pieces from the collection that they want to purchase. It was awesome.
Eric: That sounds amazing. It sounds like a great experience. It’s always nice to see your clients, or potential clients actually working. Where we work somewhat up in the clouds sometimes with the issues we face, and it’s always fun to go visit and see the actual production, and see the beer being made, or the clothes being made. It’s fun that see that and know that you’re helping them do that to some extent.
Greta: Well and I think it gives clients an appreciation for the work that we do. I think a lot of times attorneys are seen as the bad guys. If they bring you different options for a trademark, and you shoot down everyone that they really like, they think that you’re the bad guy and you don’t want them to succeed, but really being there with the consumers and the designers being able to see that I really care about the fashion industry. I care about the products that they’re making, the collections that they have, so what better person to represent them then someone who understands and appreciates what they’re doing.
Eric: Certainly. That makes a lot of sense. Is that an annual conference at Fordham?
Greta: Yes I believe. Well the symposium is annually, and then I think the bootcamp is every summer it’s offered.
Eric: You’ll be going back next year I take it?
Greta: Well, I guess I won’t be going back to the bootcamp. I think it’s offered annually, but it’s more of a 1 time thing. I’m sure I would love to go again next year but it’s so expensive.
Eric: I bet. Being in New York for the weekend’s expensive to if you’re used to East Lansing.
Greta: Yeah. That’s true.
John: New York is obviously a fashion capital just like Paris and Milan. What else is going on out there. We make fun of East Lansing for not being a fashion capital, but it kind of is isn’t it? There’s stuff going on in East Lansing isn’t there?
Greta: Well, yeah actually. There was just a fashion incubator that was opened in Lansing. It’s called The Runway. They do have a website. You can go and look at their designers and contact them. I believe they actually do have a retail shop at the bottom floor of their incubator that you can go and purchase the products from the designers themselves. Basically, what the fashion incubator is it’s an office space and a showroom space for a set of designers. They might have 10 to 12 designers and they provide work space to create their designs at a lower cost. They offer different types of expertise. They might get business advice, or financial advice, or legal advice. It’s really a great place for them to work together, but then have a showroom for themselves so that if someone wanted to come and purchase their brand, or come and look at it and see how it’s made, they can have a professional space rather than working out of their home.
John: Very cool. I’m sure that opens up a lot of opportunities for people who otherwise would not have the ability to scale. They get that mentorship that they need at the most important part at which they need it, and then they also I’m sure, are energized by being around other like-minded individuals.
Greta: Exactly.
Eric: Well Greta we like to end these podcasts with giving a tip to listeners on some legal advice that may be useful in their industry. We thought we’d give you the floor. If you’re giving 1 piece of advice to a young fashion designer, or a small fashion company, what would it be if you had 1 thing to tell them?
Greta: I think if I had 1 thing to tell a fashion designer, especially if they’re on the smaller scale is be careful about what you agree to if you have a contract, or someone approaches you and they really are interested in your collection, and they want to do some type of deal with you. It’s great and I’m sure something can come out of it, but you should be cautious about the terms and conditions of that agreement. Make sure you really do look at what you’re signing before you sign it because you could be entering into an agreement that might bind you to something that you didn’t know you agreed to. Or maybe you don’t have an agreement at all. You don’t have a written agreement. I think it’s best to have something in writing, or at least get some legal advice prior to making a decision like that.
John: That’s a great point. A lot of times people will use these manufacturers, and even online manufacturers where they’ll be behind the scenes as a graphic designer and then they’ll upload a patter, for example to a website, and the website will then print the good and send them to them, or they’ll send them to a wholesaler, or whatever. A lot of times those people don’t read the terms of use agreement, and the terms of use agreement will say things like, “You’re giving us a non-exclusive license that’s perpetual,” or whatever it might be, so that’s great advice. Definitely talk to an attorney, read everything. Make sure you understand exactly what’s going on.
Eric: Yeah, get it in writing. That’s always a good piece of advice. I think it’s true. Don’t get too far ahead of yourselves when you get a new opportunity. Opportunities are great, but they also come with risks, and you’ve got to understand what you’re getting yourself into because it may have lasting impacts on you. I certainly think that’s a good piece of advice Greta.
Greta: I think if you do your research you should be good. You can find things on everyone on the Internet now, so at least look into who you’re getting into a relationship with.
Eric: Yep. That makes perfect sense. Well, I think this has been a really great podcast. I know I learned a lot about it. Greta, I want to really thank you for being here today. We really appreciate it.
Greta: Thank you for having me. It’s been wonderful, and I’m glad I got to talk about fashion law and at least explain what it is, and it seems like it is a hot topic, and it can definitely intertwine with a lot of things that are currently going on.
John: Yeah, we certainly appreciate it and I want to say that I’m proud to be a graduate of Michigan State Law because if they keep producing people like you then I will never have to worry about the value of my degree. I think that somebody would be very lucky to hire you.
Greta: Wow. Thank you very much.
John: I think it’s great.
Eric: I agree. Definitely. Great job. Just the initiative to go for it I think means so much. Congratulations. I think you’re doing a great job. Keep it up, and we’ll have you back sometime.
Greta: Sounds good thank you.
Eric: Thank you.
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