Consumer Law & Policy Blog

Supreme Court Patent Decision Should Give Some Comfort to Consumers

by Greg Beck

Cross-posted from Citizen Vox

The Supreme Court yesterday issued an important decision involving patents that, although technical in nature, may end up becoming an important victory for consumers. In recent years, companies have increasingly attempted to use their patents on products to limit what people can do with those products after buying them. For example, companies attach "not for resale" labels on products, a practice that allows them to keep prices high by limiting competition from low-priced used goods. The same practice is used by copyright owners to limit the resale of software and music. In Vernor v. Autodesk, Public Citizen recently won an important victory against a software company that attempted to impose just such a limitation on the resale of software. In another case, the Electronic Frontier Foundation is challenging the recording industry's attempt to prohibit resale of promotional CDs by labeling them "promotional use only."

The Supreme Court's decision yesterday in Quanta v. LG Electronics should give some reassurance to consumers who purchase products that come with limited terms of use. The case involved the doctrine of "patent exhaustion," a legal rule providing that patent owners, once they have sold a patented product, have no further right to control what the purchaser does with it. LG had licensed its patented computer chip technology to Intel. The license agreement granted Intel the right to use the chips in its own products, but also provided that anyone who subsequently purchased the chips from Intel did not have the same right. When, in spite of the agreement, Intel sold the chips to Quanta, LG sued, arguing that Quanta had no license to use the patented technology.

The Supreme Court disagreed, holding that once LG had sold the chips to Intel, it had exhausted its rights in the chips and could no longer control what Intel did with them. Although the Court's decision did not rule out the possibility that different sorts of license agreements might be upheld in other cases, the outcome is a step in the right direction. The decision reinforces the principle that patent owners cannot use their rights to interfere with competition and limit what people can do with the things they own.

A court gets one (partly) right, holds truthful use of a competitor's trademarks is not infringement

by Greg Beck

Trademark law was designed to protect consumers from being fooled by products that are passed off as something they are not. Too often, however, it is invoked by companies not to protect consumers, but to interfere with lawful competition. For example, in Australian Gold, Inc. v. Hatfield, 436 F.3d 1228 (10th Cir. 2006), the court found a trademark cause of action for "initial interest confusion" where a website had honestly advertised, using search engine keywords, the fact that it sold its competitor's tanning lotion. Although the defendant had said nothing that was inaccurate or misleading, the Tenth Circuit nevertheless thought that the defendant had “used the goodwill associated with Plaintiffs’ trademarks in such a way that consumers might be lured to the lotions from Plaintiffs’ competitors.” Maybe so, but luring away a competitor's customers is the essence of capitalism. Decisions like Australian Gold turn trademark law away from its consumer-protection function and into a system of corporate welfare.

Occasionally, though, a court will be thoughtful enough to to realize that trademark law is not designed to protect companies from unwanted competition. Ron Coleman of Likelihood of Confusion covers a recent decision where the District of Arizona, in a thoughtful opinion, rejected the Tenth Circuit's Australian Gold decision. The court was not convinced by the plaintiff's argument that truthful advertising infringes its trademark rights, holding that a website could truthfully advertise its sale of the plaintiff's products on the Internet. The court wrote: "[I]f this guileless, informative use of trademarks in metatags and as search-engine keywords constitutes initial interest confusion, then trademark law would be (to the extent it is not already) in the unenviable position of stymying access to the world of goods and services lawfully available on the internet.”

Unfortunately, cases like Australian Gold give companies enough ammunition to scare off competition without even having to go to court. It is the rare defendant that is willing to finance an expensive trademark battle against an aggressive and litigious competitor. Ironically, consumers are the ones who end up paying, in the form of less competition and higher prices.

Update: As other's have mentioned (see here and here), the court allowed an equally anti-competitive copyright claim to go forward. Well, at least the court got it half right.

Public Citizen wins against anti-consumer copyright claim

by Greg Beck

Cross-posted from Citizen Vox

When Seattle resident Tim Vernor put a used copy of software for sale on eBay, the software's maker, Autodesk, demanded that eBay cancel the listing. Although Vernor was selling an authentic, original copy of Autodesk's software, the company pointed to a "license agreement" contained in the software's box that prohibited anyone from selling or giving the software away. Although Vernor had purchased the software at a garage sale and had never agreed to abide by Autodesk's terms, the company argued that violation of the agreement infringed its copyright.

These kinds of abusive licensing terms are increasingly common and are bad for consumers. When a company prohibits resale, it eliminates the secondary market for used copies of the product. And with fewer copies on the market, competition is reduced and prices go up.

Vernor, however, refused to back down, instead repeatedly putting Autodesk's software up for sale on eBay. Each time, Autodesk demanded that the sale be terminated, until its repeated claims of copyright infringement caused eBay to shut down Vernor's account entirely. Vernor then filed suit and, represented by Public Citizen, argued for a ruling that he did not need Autodesk's permission to resell its software.

Today, a federal court agreed with Public Citizen, rejecting Autodesk's expansive claims of copyright infringement and holding that the company cannot prevent Vernor from reselling authentic copies of its software. The decision is good news for consumers and signals that companies cannot use a form contract to restrict competition and curtail consumers' traditional right to resell products that are lawfully theirs.

The court's decision and other documents in the case are available here.

Times Reports on Prospects for the Housing Bailout Bill, Jingle Mail, and Cell Phone Spam

Yesterday's Times had several articles on consumer law.  First, "Housing Bailout Bill Seems on Shaky Ground" reports on the prospects for the bill the House passed on Thursday.  An excerpt:

The Bush administration on Friday said it would only support legislation that did not require taxpayer funds. The Congressional Budget Office estimates that the House-passed measure would refinance as many as 500,000 homes over the next five years, at a cost to taxpayers of about $2.7 billion. * * *

The measure now goes to the Senate, where it faces opposition among Republicans who have tapped into a broad wave of bailout resentment in states less affected by the crisis. And the failure of the House to adopt it by a veto-proof margin is likely to further embolden recalcitrant Republicans in the Senate who have so far managed to block action, Democratic supporters of the measure said on Friday.

Senator Christopher J. Dodd, the Connecticut Democrat who heads the Banking Committee, said Friday that he was hoping to quickly complete negotiations with the ranking Republican on the committee, Senator Richard C. Shelby of Alabama, and have the committee vote on a measure next week.

A second article, "Mortgage Holders Find it Hard to Walk Away From Their Homes," states that few homeowners who owe more on their homes than the homes are worth have used "jingle mail" and abandoned their homes, contrary to some anecdotal reports (the phrase "jingle mail" refers to the sound keys make when they are mailed to the mortgagee).

A third piece, "Spam Plague is Migrating From Computers to Cellphones" notes that Ferris Research estimates that Americans will receive 1.5 bilion unsolicited text messages this year.  So much for CAN-SPAM.  The many consumers who pay a charge for each text they receive find this particularly annoying.  Many demand refunds from their carrier. Some excerpts on how it is possible and how to stop it:

Most phone spam is actually e-mail that comes through gateways linking the Internet and cellphone networks, industry executives said.

Most wireless phones have a dedicated e-mail address. At AT&T, for example, it is a customer’s cellphone number followed by @text.att.net. Using computers, spammers create millions of possible number combinations, then send messages to those addresses.

* * *

All major communications companies give consumers the ability to thwart spam by changing the easily guessed e-mail addresses for their phones, or completely blocking messages coming from the Internet. They can do this by logging onto the company’s Web site and changing their preferences.

 

The Ninth Circuit Decides Roommates.com -- Is It the Right Decision for Consumers?

by Greg Beck and Paul Alan Levy

The en banc Ninth Circuit yesterday decided an issue of great importance to consumers on the Internet. The issue: In what circumstances can web site operators that pose discriminatory questions that violate anti-discrimination laws be immune from liability when those who sell or rent housing express discriminatory preferences in response? Cutting back on  his own more expansive opinion for a three-judge panel, and largely following the useful amicus brief submitted by the ACLU in support of neither party, Judge Kozinski's opinion walks a careful line and reaches a decision that protects consumers from unlawful discrimination while at the same preserving the broad protections granted web sites that host consumer criticisms against  suits – and threats of suit  – that seek to shut them down.

Paper on Google and Privacy

Omer Tene of the College of Management - School of Law, Israel, has written What Google Knows: Privacy and Internet Search Engines, available at http://ssrn.com/abstract=1021490.  Here's the abstract:

Search engines are the most important phenomenon on the Internet today and Google is the gold standard of search. Google evokes ambivalent feelings. It is adored for its ingenuity, simple, modest-looking interface and superb services offered at no (evident) cost. Yet increasingly, it is feared by privacy advocates who view it as a private sector big brother posing perhaps the biggest privacy problem of all times. Google is an informational gatekeeper harboring previously unimaginable riches of personal data. Billions of search queries stream across Google's servers each month, the aggregate thoughtstream of humankind, online. Google compiles individual search logs, containing information about users' fears and expectations, interests and passions, and ripe with information that is financial, medical, sexual, political, in short - personal in nature. How did Google evolve from being a benevolent giant seeking to do no evil into a privacy menace reviled by human rights advocates worldwide? Are the fears of Google's omniscient presence justified or overstated? What personal data should Google be allowed to retain and for how long? What rules should govern access to Google's database? What are the legal protections currently in place and are they sufficient to quell the emerging privacy crisis? These are the main issues addressed in this article.

Paper Comparing US and European E-Commerce Protections

Michael L. Rustad of Suffolk has an article titled Circles of E-Consumer Trust: Old E-America v. New E-Europe in the Michigan State University College of Law Journal of International Law, available at http://ssrn.com/abstract=1023659.  Here's the abstract:

Robert Kagan's article in The Economist entitled, Old America v. New Europe, obliterates the American assumption that Europe is a clapped-out old continent while America is the young teenager. For example, Kagan notes how America's political system is old in comparison to the upstart European Community. The transnational divide in consumer rights in electronic commerce is yet another example of Old America and New Europe. The American free market approach to consumer e-commerce relies largely upon private ordering generally taking the form of one-sided clickwrap license agreements that disclaim all warranties, meaningful remedies, and require consumers to litigate in the functional equivalent of Siberia. U.S. courts have been inclined to enforce mass-market license agreements so long as consumers have a right to manifest assent after reviewing the terms. European courts will not enforce these adhesive contracts because of mandatory consumer protection rules such as the Unfair Contract Terms Directive and the Distance Selling Directive. As a result, there is a chasm between U.S. and European consumer protection rules in cyberspace. The U.S. is from Mars and Europe from Venus when it comes to mandatory consumer protection rules in e-commerce transactions.

Part I of this Article introduces New Europe's substantive consumer rules governing e-commerce (as well as the bricks and mortar world). Part II explores, compares and contrasts U.S. style cyberspace jurisdiction with the mandatory consumer rules of the Brussels Regulation. Part III compares U.S. conflict of law to the mandatory private international law of Europe. In each of these areas, the twenty-seven countries of the European Community have promulgated minimum adequate consumer remedies. In contrast, U.S. consumers have, in effect, anti-warranties and remedies in e-commerce transactions. The Old America and New Europe must harmonize their radically different approaches to build circles of consumer trust in cyberspace.

Times Articles on Subprime Crisis, Debt Collection, the CPSC Bills, Reverse Mortgages, and Online Privacy

I've accumulated a huge backlog of recent Times articles on consumer law issues, so here goes an attempt to reduce the backlog.

Many of the articles involve the mortgage crisis and plans to do something about it.  For example, the lead article in today's Times is headlined "White House Offers Plan to Ward Off Credit Crisis."  Here's an excerpt:

The plan, which relies primarily on state regulators and private industry to tighten their oversight of financial markets, calls on states to issue nationwide licensing standards for mortgage brokers.

The plan would also require lenders to make more complete disclosures about payment terms to home buyers. And it would curtail possible conflicts of interest at companies that assign levels of risk to packages of mortgages that are sold to investors.

* * *

But in many ways, the plan relies on the same market participants — from mortgage brokers to credit-rating agencies and Wall Street firms — that government officials and other experts blame for the current crisis.

ISP's Standing Up for Their Customers -- or Not

by Paul Alan Levy

Last week I posted about the problem of an Internet Provider, Dynadot, that rolled over when the target of postings on the web site of one of its clients filed suit (in the now-notorious Wikileaks case).  Several readers have asked, including one public comment, so where do we go to find the right ISP?

Last year, Declan McCullagh published a survey of ISP answers to questions that he posed to them about the circumstances in which they would consider suspending domain names in the absence of a court order.  This is not precisely responsive to the question here given that Dynadot suspended only after a court order -- a court order to which it consented!  Moreover, policies are one thing but actual practices may be something else.  Still the survey may provide some useful information.

On a related issue, I noted in last week's post that Go Daddy and Domains by Proxy are a mixed bag with respect to protecting their customers' anonymity.  Over the course of defending against subpoenas over the years, I have noticed that Yahoo! and Google have consistently insisted on the opportunity to give notice to their customers and to allow customers some amount of time to seek to quash the subpoena, although neither ISP is generally willing to oppose subpoenas on the merits (they leave it to the customer to find counsel and move to quash if they desire to do so).  Cable providers may be a good choice for this purpose because they are under a statutory duty to provide notice before disclosing.  There are occasional ISP's that have felt so strongly about protecting their users that they have gone out and found counsel to protect their users -- that is how we came to represent Network 54 in opposing a subpoena to identify posters on one of its message boards, and to represent infomercialscams.com in opposing a subpoena from Video Professor.  But these cases may be sui generis.

Of course, "past performance is no guarantee of future results."  :-)

Victory in Wikileaks Case!

  On Wednesday, Paul Levy posted about some of the consumer law implications of the Wikileaks controversy, a case in which a California federal judge issued an order shutting down a website for leaked documents exposing corporate and governmental misconduct.  Paul was in San Francisco today to argue the case on behalf of Public Citizen and the California First Amendment Coalition.  I spoke with Paul by phone and he was very pleased to report that after listening to several hours of argument, the judge has reversed himself and decided to lift the injunction.  Needless to say, this is a big victory for Internet free speech.  You can read the documents related to the case here.  And here's a detailed report on today's argument at CNET news.