Consumer Law & Policy Blog

Tiffany's Loses Trademark Claim Against eBay

by Greg Beck

In a comprehensive 66-page opinion, a federal district judge today rejected Tiffany's claims that eBay infringed its trademarks by allowing the sale of counterfeit Tiffany's goods on its site.

The court first held that eBay did not infringe Tiffany's trademark by advertising the availability of Tiffany's products. The court noted that there were many authentic pieces of Tiffany's jewelry for sale on eBay and that "the law clearly protects such secondary markets in authentic goods." eBay was entitled to advertise the availability of these pieces under the doctrine of nominative fair use, which holds that a reseller may use a product's trademarked name for the purpose of truthfully identifying that product.

Next, the court held that eBay was not contributorily liable for failing to prevent the sale of counterfeit Tiffany's products. Although eBay had generalized knowledge that counterfeit Tiffany's goods were being sold on its site, it was required only to block those sales that it knew or had reason to know were counterfeit. The court found that eBay made reasonable efforts to detect and terminate sales of counterfeit goods, and promptly terminated any counterfeit sales that Tiffany's brought to its attention.

Some may worry that this decision will hurt consumers by allowing sales of counterfeit products to continue. On the other hand, Tiffany's suit threatened to block the online sale of authentic, as well as counterfeit, products. This suggests that Tiffany's motives for bringing this case may not have been as simple as a desire to prevent counterfeiting. As the court noted, "rights holders such as Tiffany may have obvious economic incentives to curtail the sale of both counterfeit and authentic goods on the Internet -- after all, every sale of Tiffany jewelry on eBay potentially represents a lost sales opportunity via Tiffany's own authorized distribution channels." Not only would blocking online sales funnel more business to Tiffany's, it would force consumers to pay higher prices by reducing supply and eliminating Tiffany's need to compete with the market for its own used products.

eBay will never be able to successfully detect and block all counterfeit products sold through its site. That some fraud exists, however, does not justify blocking all sales, whether authentic or not. To do so would give Tiffany's and other companies a windfall at consumers' expense.

Fed Tightens Subprime Mortgage Rules

By Alan White

While I haven't digested the full rule, it seems that the Fed's final unfair mortgage practices rule (press release with link to Federal Register text) is stricter than initially proposed in at least two key areas. The proposed rule would have prohibited subprime mortgage loans made without regard to repayment ability, but lenders would have faced liability only if their conduct constituted a pattern or practice. The final rule drops the pattern or practice requirement, and requires the lender to evaluate the borrower's ability to make the highest payment scheduled during the first seven years of the mortgage.

The proposed rule had very limited consumer protections regarding prepayment penalties. The final rule will bar prepayment penalties for any loan that permits any change in the scheduled payment during the first four years, and limits prepayment penalties for all subprime loans to the first two years of the loan.

Other aspects of the proposed rule were withdrawn, and generally speaking the message from the Fed seems to be that if and when a subprime mortgage market re-emerges in the U.S. it will be a much more strictly regulated market. Expect industry commentary to be unfavorable, if not apocalyptic.

Seventh Circuit: CAFA Means What It Says About Its Appeal "Deadline"

by Brian Wolfman

For a few weeks now, I've been planning to let you know about the Seventh Circuit's June 11 Class Action Fairness Act (CAFA) decision in Spivey v. Vertrue, Incorporated, No. 08-8009. So, here goes:

In Spivey, Judge Frank Easterbrook broke from all other circuits to have addressed the question and held that 28 U.S.C. § 1453(c)(1) means what it says: A petition for permission to appeal a district court’s remand order under CAFA must be filed with the court of appeals “not less than 7 days after entry of the order.” (emphasis added). Read literally, section 1453(c)(1) means that a petition for permission to appeal a remand order filed during the first six days after the order is entered is untimely. Even the most irrational Congress would not have meant that, so a number of other circuits have held that "less" means "more" -- that is, that a petition for permission to appeal is timely only if it is filed within the first seven days of the remand order. Judge Easterbrook's responds with typical bluntness: "That Congress has written a deadline imprecisely, or even perversely, is not a sufficient reason to disregard the enacted language. ... Turning 'less' into 'more' would be a feat more closely associated with the mutating commandments on the barn’s wall in Animal Farm than with sincere interpretation."

Okay, so now you're thinking that section 1453(c)(1) gives a prospective appellant forever to seek permission to appeal a remand order. Not so, says Judge Easterbrook. He says that 1453(c)(1) is governed by Federal Rule of Appellate Procedure Rule 5(a)(2), which says that a "petition [for permission for to appeal] must be filed within the time specified by the statute or rule authorizing the appeal [see, e.g., 28 U.S.C. 1292(b)], or, if no such limit is specified, within the time provided by Rule 4(a) for filing a notice of appeal." Because that period is 30 days, Judge Easterbrook says that the 30-day period governs CAFA removals. I'm not so sure. Is CAFA really a statute under which "no such time limit is specified?" CAFA is a statute that "authoriz[es] an appeal" of certain class action remand orders, and doesn't section 1453(c)(1) "specif[y]" a time in which the petition "must be filed?" I suppose one could say that "not less than seven days" is so open ended that it is not a time "limit" "specified by the statute," because, read literally, section 1453(c)(1)'s "limit" is limitless. But that may be a stretch. Presumably, FRAP 5(a)(2)'s default rule was aimed at statutes that do not address at all the time period for filing a petition for permission to appeal, not statutes that address it in funky, inelegant ways.

For more on other circuits' rulings on this topic, see an earlier post here.

Will More Banks Fail?

This post yesterday described the failure on Friday of a major U.S. bank. Will more banks fail as a result of the mortgage crisis?  According to this article in today's New York Times, some banking analysts say "yes."

More on Possible Federal Government Measures to Prop Up Fannie and Freddie

This Reuters story has a bit more on government plans to rescue Fannie Mae and Freddie Mac if necessary. Here is Treasury Secretary Paulson's official statement on topic. And U.S. PIRG's Consumer Blog has this to say.

U.S. Plans Rescue of Fannie Mae and Freddie Mac and Backs Off - - for Now

This story in today's Washington Post describes the federal government's emergency plan for the bail out of the huge mortgage backers Fannie Mae and Freddie Mac and that the government backed off after signs that the institutions were stable -- for now. The article also describes the failure of a major California bank. Here's a taste of the story:

Senior government officials prepared emergency steps yesterday to rescue troubled mortgage giants Fannie Mae and Freddie Mac but stopped short after a campaign of public statements eased immediate concerns about the stability of the institutions.

But federal regulators were forced yesterday to seize California-based IndyMac Bancorp after a run by depositors led to the second-largest failure ever of a U.S. financial institution. The bank, which was taken over by the Federal Deposit Insurance Corp., became the first major bank to shutter its doors since the savings and loan crisis of the early 1990s. One of the country's largest home lenders, IndyMac saw its holdings battered by the downturn in the housing market.

ABA IP Section Drops Effort to Attack Comparative Advertising on Search Engines

by Paul Alan Levy

I am pleased to report that the Intellectual Property Section of the American Bar Association has dropped its efforts, decried a few months ago on this blog as well as here and here, to adopt resolutions condemning court decisions holding that keyword advertising using trademarks does not raise trademark concerns because it does not constitute a “use in commerce.”  As I argued in my previous blog post, keyword advertising and similar techniques promote comparative and critical advertising on search engines, and hence can result in important consumer benefits.  Moreover, the legal theories on which trademark complaints are filed against the practice of keyword advertising are largely preposterous and can be defended only when stated in entirely conclusory terms.  However, leaders of the IP section, many of whom represent companies that are suing over keyword advertising, were bound and determined to obtain a resolution condemning court decisions that prevented suits against keyword advertising from moving forward.

In the event, the subcommittee of the IP Section’s Litigation Committee was hopelessly divided over the issue, and not only decided not to adopt a resolution for consideration by the larger committee, but recommended that no resolutions be adopted because there was nothing close to a consensus among the Bar on this issue.  Undeterred, and determined to obtain a resolution that could be adopted at the IP Section’s membership meeting, Section leadership directed the leaders of the Litigation Committee to put forward resolutions on keyword advertising which, whether successful or not, could then be put before the membership of the entire section.  However, this effort failed because not enough members of the Litigation Committee could be persuade to vote on the resolutions (a majority must participate in the vote to reach a quorum).  Consequently, the leadership have announced that during the IP Section’s business meeting during the ABA Annual Meeting in New York next month, there will be a “Member Forum” at which the issue of keywords will be debated, but no resolutions will be adopted.

Do Law Students Get What They Pay For? A Partial Answer (Herein of Faculty Salaries).

Recently I wondered how high law school tuition could go. That raises an issue of whether those paying tuition are getting what they pay for.  One way to think about that question is to look at how law schools use their tuition income (probably a better way to answer the question would be to focus on law school outputs, but I’m not going to address that today).  A major component of law school expenses is salaries, including faculty salaries.  In recent years it has become difficult to learn what faculty salaries are.  Once upon a time, the American Bar Association collected information about faculty salaries and made that information available to law schools.   But the Department of Justice antitrust consent decree put an end to that practice.  The Society of American Law Teachers used to publish some information about salaries on its web site, but it is apparently unable to obtain information about many schools.  A couple of state schools make salaries public, but most do not, and the ones that do are probably not representative, though it is impossible to be certain.  Consequently, those who wish to know about law faculty salaries—which includes law professors themselves, and perhaps law students or the merely curious--have been unable to learn much about those salaries. 

But another source for faculty salary information exists, though it has significant limits.  Non-profit institutions are required by federal law to file a form with the IRS, called Form 990.  These forms are posted on the web at www.guidestar.org (free registration required).  The Form 990s oblige institutions to list their five highest paid employees.  That list includes law professors and deans at many schools—typically standalone law schools and universities without medical schools (medical schools usually have personnel whose salaries far exceed that of law professors, which means that at most elite law schools the Form 990 doesn’t include law professors).  Even in schools where few or no faculty members are listed, the Form 990 tells you the ceiling for the remaining employees (that is, they make no more than the fifth highest-paid person listed). The forms are usually filed well after the year to which they pertain, so for most institutions the most recent forms available are for the 2005-2006 fiscal year, or about two years ago.

If you want to know who the highest-paid employees of a particular institution were back then, go to Guidestar, search for the institution, click your way to the report, and then click on the Form 990 that you wish to examine.  Income information is usually somewhere between pages seven and fifteen. 

So are the salary numbers too high (at the schools about which we have information)?  My own biased view is that they are not, at least at the schools whose numbers I’ve looked at (my view is biased because even though my salary is, unfortunately, nowhere near the top five at my institution, I obviously have an interest in arguing for higher faculty salaries).  The Form 990s report the pay for the highest-paid employees, a list which presumably is dominated by those who would be most likely to be of interest to the considerably higher-paid private sector.  Yes, the life of a lawyer in private practice is different from the life of a law professor, but many law professors have opportunities to consult for substantial sums while still living the life of a law professor.  Professors choosing between devoting their time to law school pursuits or consulting, say, will have an easier time foregoing the substantial remuneration for consulting if they feel they are earning a comfortable enough living writing.  If schools value the activities faculty members engage in, they have to give them an incentive to choose those activities (all of this ignores the question of whether the activities law professors pursue actually benefit those who are paying tuition (typically, students and their families), a question as to which there is considerable debate (e.g., do students benefit when professors write papers on esoteric subjects not covered in the classroom)).

Even if you think the salary numbers are high, it would probably be a mistake to assume that increases in salaries are driving soaring tuition.  My impression, based on incomplete information, is that law school salaries have risen much more slowly than tuition.  It appears that law schools have used much of the increased tuition to fund scholarships, smaller classes (especially as the number of clinics has increased), computer technology, and the like---and all those expenditures benefit students.  I’m told that the cost of library materials has also increased dramatically. If faculty salaries were lower, law schools could certainly charge lower tuitions (which is not the same thing as saying that they would—they might simply use the money for other purposes), but tuition would still be higher than it once was.

Looming Alt-A Bank Failure

By Alan White

IndyMac Bancorp is a bit like Northern Rock, the UK bank that was nationalized a few months ago. Unlike many leading mortgage lenders, it is an actual bank with actual depositors, whose deposits are insured by the FDIC. Unlike the large national bank holding companies who participated in the subprime frenzy, like Wells Fargo and Citigroup, IndyMac had a relatively small deposit base and relied on brokered deposits and aggresive marketing of CDs to raise capital. For those banking law geeks who remember the savings and loan crisis of the 1980s, these are familiar. Brokered deposits are deposits obtained from outside the bank's service area, attracted by above-market interest rates. Paying these higher rates squeezes the bank's yield spread, and more importantly, brokered deposits are short-term and can evaporate quickly when a bank gets in trouble.

IndyMac was not really a subprime lender; it specialized more in Alt-A loans, which had interest rates more akin to prime mortgages, but were either jumbo loans, no-doc loans, interest-only loans or some combination of these. The Alt-A portion of the mortgage market grew at an astonishing rate to become a major sector in 2006 and 2007, and represents the next wave of defaults and foreclosures.

IndyMac's stock has plummetted over the past 12 months as a result of the steady increase in mortgage defaults and the general unease about the mortgage market, and the company now trades at less than $1 per share. Its capital has eroded to well below required levels, and it has now fallen victim to a classic run on the bank. Depositors are lining up daily and the bank is rapidly losing cash. The Implode-o-Meter declared it imploded as of about a week ago.

California Foreclosure Law Passed

California has joined New York in passing legislation (full text of bill here) to address the foreclosure crisis. The thrust of the law is to require mortgage servicers to exhaust all avenues in order to contact borrowers and negotiate modified terms before foreclosing. It also provides limited protections for tenants affected by landlords' foreclosures and imposes duties on foreclosing servicers to maintain properties. Similar legislation has been proposed in a number of other states.