When Green Advertising May Leave You Black and Blue

Today, many products that target household consumers tout some sort of environmental benefit – that a product is recyclable, biodegradable, or that it has a seal of approval from a third-party organization. These products often command a premium in the market. To win over consumers seeking these “green” products, marketing tactics are becoming more and more creative. On occasion, however, a company may go too far and engage in “greenwashing,” the practice of making a product seem environmentally friendly when, in reality, it is not. Deceptive and unsubstantiated “green” advertising may not only invite an investigation by the Federal Trade Commission (“FTC”), but, as the discussion of two cases below demonstrates, it could also lead to a civil lawsuit and, potentially, monetary liability.

The FTC Green Guides

The FTC Guides for the Use of Environmental Marketing Claims, also known as the “Green Guides,” were last issued in 1998. The Green Guides are not enforceable regulations, but do provide the agency’s view of the application of Section 5 of the FTC Act, which targets unlawful deceptive commercial acts and practices. Following the explosive trend in environmentally friendly products and related marketing in 2007, the FTC issued proposed revisions to the Green Guides in 2010. Among other things, the proposed revisions caution companies not to use unqualified certifications or seals of approval. Two recent cases demonstrate that a company’s product packaging may run afoul of this guidance and invite a deceptive trade practice lawsuit by a consumer.

Koh v. S.C. Johnson & Son, Inc. (N.D. Cal.)

In this federal lawsuit, seeking class certification, the plaintiff asserted various California unfair competition and false advertising claims against S.C. Johnson, alleging that the company’s Windex® and Shout® products prominently display a Greenlist™ label, which is an example of greenwashing – a logo deceptively designed to look like a third party seal of approval and falsely representing that the products are environmentally friendly.

S.C. Johnson moved to dismiss the complaint, arguing primarily that no reasonable consumer could have found the Greenlist™ label misleading because it makes no mention of a third party, describes Greenlist as a “rating system” not a seal of approval, and directs consumers to the company’s own web site for further information. The district court, however, denied the motion to dismiss in an unpublished decision. The court held that the issue was a question of fact, citing a Green Guides example of an environmental seal that could be found deceptive without substantiation.

The suit, along with an identical suit pending in Wisconsin, were recently settled. As part of this settlement, S.C. Johnson agreed to stop using the Greenlist™ logo on its Windex® products, stating in a press release that it did not “want consumers to be confused . . . .”

Hill v. Roll Int’l Corp. (Cal. App. 1 Dist.)

In this lawsuit, also seeking class certification and asserting California false advertising and unfair competition claims identical to those in Koh, the plaintiff alleged that a “Green Drop” logo placed on bottles of Roll’s Fiji® spring water was deceptive greenwashing. The plaintiff asserted that the logo, created by Roll itself, was similar to “seals of approval” used by several, independent third-party organizations, misleading consumers into believing that Fiji® water was environmentally superior to other brands of water.

Unlike the court in Koh, the court in this case dismissed the complaint. Adopting the “reasonable consumer” standard from the Green Guides relied upon by the plaintiff, the appellate court held that the “Green Drop” logo did not convey to a reasonable consumer that the product was endorsed for environmental superiority by a third party. In its analysis, the court noted that the logo bore no name or recognized logo of any group, nor any trademark symbol. The court also noted that the logo was not analogous to the earth environmental seal example in the Green Guides. Rather, the court found that the “Green Drop” was a logical icon for touting the green features of the product being sold – water.

Contrary to Koh, the court found that the www.fijigreen.com web site printed next to the “Green Drop” logo made it clear that the logo was not a third-party seal of approval, but rather the company’s own creation. In distinguishing Koh, the court also noted that the Greenlist™ logo in that case was very different, in that it used a trademarked name and identified a rating system, which suggested that it was plausibly a third-party certification.

What This Means For You

We will likely see more lawsuits like these as companies continue to ramp up their “green” marketing efforts. As these two contrasting decisions demonstrate, however, there is no clarity as to what type of marketing will be found to be non-deceptive. As a result, if your company engages in “green” advertising, it should undertake a thorough review of any related marketing plans and strategies to ensure that they do not run afoul of the Green Guides or applicable federal and state statutes. To minimize the risk of a lawsuit or FTC action, a core principle for any marketing strategy should be to ensure that the message to the consumer is both clear and substantiated.

-- Anuj Desai, Esq.

Not If, But How

Arnall Golden Gregory LLP has significant experience in intellectual property law, including patents, trademarks, and copyright. Do not hesitate to contact us if we can be of help to you.

Please visit our web site for more information: www.agg.com.

Georgia’s New Law On Noncompete and Nonsolicit Agreements

In the past, Georgia employers have had difficulty enforcing all but the most carefully drafted and limited noncompete agreements with their employees. This year, for the first time, companies can take advantage of a dramatic change in the law that expands the protection available not only through noncompete, but also nonsolicit and nondisclosure agreements with employees.

The Impetus for Change

In the past, the Georgia courts, guided by decisional law rather than statute, have defined what constitutes a constitutionally enforceable “restraint on trade,” and thus, what restrictions can and cannot be placed on competitive action by former employees. Because the courts have been bound by existing legal precedent, this case law has been very slow to change, and in the view of many, adjust to modern business realities. The rules and guiding principles were perceived by many to be outdated and to hinder the attraction of new business to Georgia.

Highlights Of The New Law

First, the new law, which is codified at O.C.G.A. § 13-8-50 et seq., is intended to apply to agreements entered into on or after January 1, 2011. Existing agreements will be governed by the same case law as before, even if a company seeks to enforce one of them now or in the future.

Second, in a sea change for Georgia, the new law allows courts to “blue pencil,” or modify, a restrictive covenant that they deem to be overbroad or unreasonable. Although courts in the vast majority of states other than Georgia had long had this power, this aspect of the new law represents a major change in direction for the state. Prior to its enactment, if any portion of a noncompete or nonsolicit provision was found to be unreasonable, the entire covenant would be deemed unenforceable. Now, a court may choose to enforce a provision only to the extent that it is necessary and reasonable to protect the employer’s legitimate business interests.

Third, the new law provides some long-sought-after guidance as to the scope of restrictive covenants that will be deemed enforceable. With respect to true noncompete agreements, the amendment changes the current law concerning the permissible geographic scope of an enforceable agreement. Rather than being tied to the geographic area in which an employee physically worked, a noncompete provision can now extend to the area in which the employer does business (so long as such area is reasonable). In the alternative, a noncompete provision can list specific competitors of an employer for which an employee may not go work. Such changes are significant in today’s business environment, in which an employee may physically sit in one place while conducting business on the other side of the state or the country.

The new law further clarifies that, in addition to or in lieu of a noncompete agreement, an employer may utilize and enforce a customer nonsolicit provision, pursuant to which a former employee is prohibited from soliciting business on behalf of a competitor from customers, or prospective customers, of his former employer with whom the employee had material contact. Such provisions do not require a geographic limitation and are particularly useful in the sales context.

Fourth, the law gives guidance as to the time limitations that will be deemed reasonable, and therefore enforceable, for restrictive covenants. In the employment context, the new law provides a rebuttable presumption that a two-year limitation following the termination of employment will be reasonable with respect to noncompete and nonsolicit agreements. In a significant change from current law, the law further provides that nondisclosure provisions seeking to prevent the disclosure of an employer’s confidential business information or trade secrets need not have a time limitation, but may continue in effect for so long as the information in question remains confidential.

Fifth, the new law does not apply to all employees, but rather only those who have access to the kinds of sensitive business information that warrant protection. Indeed, the definition of “employee” extends only to executives, research and development personnel or other persons in possession of the employer’s confidential information, and employees in possession of selective or specialized skills, learning, or abilities or customer contacts or information. Thus, “rank and file” employees who do not have access to their employer’s proprietary information in some fashion should not be subject to restrictive covenants governed by the new law.

Impact on Your Company

The passage of the new law will allow employers far more latitude than in the past to craft reasonable restrictive covenants for their employees that protect the employer’s legitimate business interests. Because the new law applies only to those agreements executed on or after January 1, 2011, though, companies desiring to take advantage of the new law should consider having their Georgia employees execute new agreements. For companies that do not currently have restrictive covenant agreements in place with their employees, now is a good time to implement such a practice to ensure that the employers’ sensitive business information is not improperly used or disclosed in the event of the departure of a key employee. Given the complexities of the new law, it would be also advisable to have these new agreements reviewed by counsel to ensure that they will have the greatest potential for being fully enforced by the courts.

Correcting a Timing Discrepancy

You may read that legislators have begun the process of reenacting the law again this legislative session. The reason is a timing discrepancy, which arises from the two-part enactment process of the new law – through a bill, which was enacted first, and an amendment to the Georgia constitution, which was approved and voted upon second. When Georgia voters approved the constitutional amendment on November 2, 2010, it triggered the effective date of the bill. To look at the bill itself, it would appear that it was effective immediately. But a constitutional amendment is not effective until January 1 of the following year, leaving a “gap period” from November 3 until December 31 in which the status of the new law could be questioned.

For questions, please contact Andrew B. Flake. Mr. Flake is a partner in the Litigation Group at Arnall Golden Gregory LLP (andrew.flake@agg.com). Our firm serves the business needs of growing public and private companies, helping clients turn legal challenges into business opportunities. We don't just tell you if something is possible, we show you how to make it happen. Please visit our website for more information, www.agg.com.

Abuse Of Process In A Lanham Act Suit May Trigger Award Of Attorneys' Fees

A recent opinion from the Seventh Circuit Court of Appeals (Nightingale Home Healthcare, Inc. v. Andodyne Therapy, LLC) attempts to clarify when the prosecution or defense of a Lanham Act suit renders the case "exceptional," so as to allow for an award of attorneys' fees to the prevailing party. In doing so, the court addressed the increasing trend of businesses in bringing or defending trademark infringement and false advertising lawsuits against competitors solely to obtain a competitive advantage independent of the outcome of the case. The court held that where a party is guilty of such "abuse of process," an award of attorneys' fees would be warranted. This summary further elaborates upon the court's reasoning and why businesses must exercise caution in bringing or defending against intellectual property claims under the Lanham Act.

The Court's Opinion

Anodyne, the seller of a medical device, was the prevailing party in the underlying false advertising lawsuit brought against it by its customer, Nightingale. The trial court awarded Anodyne the attorneys' fees it incurred pursuant to a specific provision of the Lanham Act, which allows for an award to the prevailing party in "exceptional cases." Nightingale appealed this award to the Seventh Circuit Court of Appeals.

In tackling whether the case was exceptional enough to sustain the award of attorneys' fees, the court was perplexed by the varying standards used by the other circuit courts of appeals to make this determination and that those standards were often too vague to be applied objectively.

Taking a step back to find some clarity, the court looked to the policy behind the Lanham Act's provision for attorneys' fees and found that a "practical concern is the potential for businesses to use Lanham Act litigation for strategic purposes -- not to obtain a judgment or defeat a claim but to obtain a competitive advantage independent of the outcome of the case by piling litigation costs on a competitor."

In light of this policy, the court arrived at the following conclusion as to when a case under the Lanham Act is to be deemed exceptional so as to warrant an award of attorneys' fees: (1) If the defendant prevails and the plaintiff was guilty of abuse of process; or (2) If the plaintiff prevails and the defendant had no defense, but persisted in trademark infringement or false advertising to impose costs on the plaintiff.

In further explaining this standard, the court explained that abuse of process is the use of litigation for an improper purpose, whether or not the claim is colorable, often to compel the victim to yield on some matter not involved in the suit. The court found that predatory initiation of a suit is the same as predatory resistance to valid Lanham Act claims. To justify an award, the party seeking it must show that his opponent's claim or defense was "objectively unreasonable." In other words, the claim or defense was pursued not to obtain a favorable judgment, but only to impose disproportionate costs on his opponent or for purposes of extortion.

In addressing the facts of the case before it, the court noted that Nightingale had brought a Lanham Act claim that had no merit. The court held that what made the case exceptional, however, was the fact that Nightingale had initiated the claim only to coerce Anodyne into reducing the price of its medical devices sold to Nightingale. The court sustained the award of attorneys' fees to Anodyne.

What This Means For You

Though this opinion is binding only in the Seventh Circuit, other jurisdictions may certainly heed its well reasoned approach. Courts do not look kindly upon businesses that use litigation to improperly gain a market advantage. If your business is faced with the prosecution or defense of Lanham Act claims, it would be prudent to take a step back and carefully examine the merits and reasonableness of each side's respective positions to determine whether the case is merely an abuse of process.

-- Anuj Desai, Esq.

Not If, But How

Arnall Golden Gregory LLP has significant experience in intellectual property law, including patents, trademarks, and copyright. Do not hesitate to contact us if we can be of help to you.

Please visit our web site for more information: www.agg.com.

Think Twice Before Selling Used Copies of Software

Roughly a year ago, I wrote about a couple of federal district court decisions. These cases ruled that a software license could, in certain circumstances, be characterized as a sale. Recently, one of those decisions, Vernor v. Autodesk, Inc., was overruled by the Ninth Circuit. This decision will give software owners some relief and better control in managing the distribution of their software in the marketplace. Nevertheless, software owners must continue to remain vigilant to protect their intellectual property.

The Lawsuit.

Autodesk makes AutoCAD, the popular computer-aided design software. Timothy Vernor purchased several copies of AutoCAD from one of Autodesk's customers, and then listed them at various times for sale on eBay. On each occasion, Autodesk sent Vernor and eBay a takedown notice under the Digital Millennium Copyright Act. Vernor believed that he was authorized to sell the software under the First Sale Doctrine and, therefore, brought suit in federal district court to establish that his resales of AutoCAD copies did not constitute copyright infringement.

The First Sale Doctrine places a limitation on a copyright owner's exclusive right to distribute a copyrighted work: the doctrine allows owners of copies of copyrighted works to resell those copies. This defense, however, is unavailable to mere licensees of copyrighted works. The district court found that Autodesk's customers were owners that could resell copies of AutoCAD under the First Sale Doctrine because Autodesk's license did not require its customers to return unused copies of AutoCAD. After an extensive review of precedent, however, the Ninth Circuit held that Autodesk's customers were merely licensees because the AutoCAD license (1) specifies that the user is granted a license; (2) significantly restricts the user's ability to transfer the software; and (3) imposes notable use restrictions. Hence, both Autodesk's original AutoCAD customers and Vernor were not entitled to resell AutoCAD under the First Sale Doctrine, but rather both had infringed upon Autodesk's exclusive right to distribution under the Copyright Act.

What This Means For You

Although the Ninth Circuit's reversal of the district court decision in Vernor gives software companies better control over the secondary market for their products, this decision is not binding outside of that circuit, and intellectual property law in this area will continue to evolve. Other courts may rule differently. Hence, as I wrote in my previous post: give your software product's license a careful review and determine whether you need to insert end-of-use termination provisions or a clause terminating the license after a particular date.

-- Anuj Desai, Esq.

Not If, But How

Arnall Golden Gregory LLP has significant experience in intellectual property law, including patents, trademarks, and copyright. Do not hesitate to contact us if we can be of help to you.

Please visit our web site for more information: www.agg.com.

Lessons from the Doll Wars: Drafting A Workable Invention Assignment Clause

The blockbuster film Inception describes a seemingly impossible feat of corporate espionage, entering another person’s thoughts and extracting ideas. Considering this kind of appropriation both intrigues and chills us. We consider our private thoughts sacred, and our ideas, our own. So it surprises many business owners that with the right contract language, they can, in effect, claim ownership over the thoughts of employees.

It is less Orwellian than it sounds. An invention assignment provision allows a business to assert ownership over valuable ideas and conceptions by its employees, even ones that arise while the employee is away from the workplace. Yes, these are intangible “thoughts,” but the good news for those skeptical about the thought control implications is that courts have established limits on the scope of such provisions. A company cannot claim protection over concepts that are already public, or ideas that are so general they have no value. In one Georgia case, for example, an appeals court invalidated as too broad language that prohibited an employee from disclosing “any information concerning any matters affecting or relating to the business of employer.”

Precise drafting and work choice is critical. Otherwise, courts will not enforce these clauses. That means language appropriate to the industry, individual business and jurisdiction is critical. It also means that a business must give thought to what it wants to protect, define those parameters precisely, and make sure a defensible business interest in that scope of protection exists. In another Georgia case, a different appeals court upheld an assignment by the employee of non-public “discoveries, inventions, patents and application for patents.”

Very recently, we saw the point about draftsmanship driven home again. In federal court in California, toymaker Mattel has been battling with competitor MGA over who owns the rights to the “urban, multi-ethnic and trendy” line of dolls sold by MGA, the “Bratz.” Mattel claimed its former employee came up with the idea for the Bratz on company time and then took the idea to MGA. The employee’s contract assigned to Mattel “inventions” he may have “conceived or reduced to practice” at Mattel, which “includes, but is not limited to, all discoveries, improvements, processes, developments, designs, [and] know-how.” The trial court decided that the agreement included “ideas,” and a jury found against MGA, concluding that one of these ideas was for dolls named “Bratz.” After the verdict, the trial court entered an order that basically gave Mattel rights to the whole line of dolls and derivative properties, including spin-off films, and hundreds of millions in actual and potential profits.

About two weeks ago, the federal court of appeals reversed the trial court and sent the case back. The appeals court disagreed that the Mattel agreement covered “ideas,” pointing out that the clause might cover ideas, but did not have to. If the evidence conflicts, a jury will need to resolve what the parties meant. As another example, the designer’s agreement covered inventions conceived “at any time during my employment by the Company.” The federal appeals court decided this language, and the concept of company time, was also not particularly clear. The phrase “at any time during my employment” could refer to the whole calendar week, but it could also refer only to inventions that the employee came up with during work hours. Getting clarity on the meaning of this language formed part of the rationale for reversing a sizeable trial verdict and substantial injunction.

The lesson is not to eschew these agreements, but just to be thoughtful about how they are drafted and used. Although Mattel’s agreement was ambiguity in places, the appeals court did acknowledge, as have other courts, that a business can claim contract-based ownership over employee “ideas” – a much broader set than “inventions” alone. With the right language and balancing of its interests against the employee’s right to seek employment elsewhere, the business may own those inventions even if the employee conceived of them on his or her “personal” time.

For businesses with proprietary and evolving technology, these agreements are essential. For all businesses, they are key competitive tools, providing a valuable means of prohibiting competition by employees the business trained and exposed to confidential information.

--Andrew Flake

Andrew B. Flake is a partner in the Litigation Group at Arnall Golden Gregory LLP (andrew.flake@agg.com). Our firm serves the business needs of growing public and private companies, helping clients turn legal challenges into business opportunities. We don't just tell you if something is possible, we show you how to make it happen. Please visit our website for more information, www.agg.com.

Does Your Web Site Violate The Copyright Act?

Like many businesses, your business probably has an eye-catching web site managed by a hosting or IT services company. This company may have even added slick pictures or graphics to make your web site stand out. If this sounds familiar, you may want to consider the hypothetical tale below to ensure that your web site hosting company has secured copyright permissions on your behalf to display third-party pictures and other copyrighted material. Otherwise, you may be accused of infringement by the copyright owners, which, if true, could end up costing you a tidy sum of money.

The Demand Letter

ABC Company receives a demand letter from an international firm that serves as a licensing clearinghouse for photographers. The firm claims that ABC's web site displays photographs that are only available for license through the firm, and that the firm has no record of ABC ever obtaining a license for those photographs. Hence, the firm claims that ABC has committed copyright infringement. The firm demands that ABC remove the photographs from the web site and that it pay several thousand dollars to settle the matter.

ABC balks at this demand. It is confident that its web site hosting company has used legitimate, licensed photographs on the web site. Upon investigation, however, the hosting company cannot produce any records of where the photographs came from or how they were purchased. The licensing firm has no record of the photographs being purchased by the web site hosting company either.

While ABC may be of the opinion that this dispute is between its hosting company and the licensing firm, the Copyright Act holds the entity publicly displaying or distributing the photographs, i.e, ABC, liable for infringement. Moreover, ABC's lack of knowledge as to whether the images were or were not licensed does not serve as an excuse under the Copyright Act. Ultimately, ABC's web site displayed the photographs at issue, and, therefore, ABC is solely responsible under the Copyright Act to ensure that those photographs were licensed.

Lesson Learned

ABC ultimately removed the photographs from its web site and settled the licensing firm’s demand for a significant sum. This illustration should caution you to audit your own web site, whether it is hosted in-house or by a third party, to ensure that all of the imagery and text on the web site is validly licensed or owned by your business. Otherwise, you may also be an unfortunate recipient of a similar demand letter.

-- Anuj Desai, Esq.

Not if, but how

Arnall Golden Gregory, LLP has significant experience in the area of copyright licensing and disputes. Do not hesitate to contact us if we can be of help to you.

Please visit our web site for more information, www.agg.com.

1-800 Contacts Seeing Red Over Alleged Trademark Infringement

Can a company purchase a competitor’s trademark as a keyword to help its Internet search results? These are murky legal waters, and contact lens distributor 1-800 Contacts has waded into them again. A frequent litigant over use of its trademarks, 1-800 Contacts just sued the Walgreen drugstore chain in federal district court in Utah. 1-800 Contacts believes consumers are confused when they run a search on variants of 1-800 contacts, and in their results they see a link for Walgreen’s website and contact lens offerings. As of today, I confirmed that Walgreen’s website appeared on the right of the screen in search results for searches under “1-800 Contacts,” and “1-800Contacts” but not under “1 800 Contacts.” When it did appear, it was as a sponsored link.

Whether 1-800 Contacts succeeds will have a lot to do with what viewers of these results think about Walgreen’s relationship to 1-800 Contacts. The law is still not settled when it comes to how trademarks work in the context of Internet search engines, but the major premise of trademark law is that it protects a company’s goodwill and brand identity against competitive confusion. Even though 1-800 Contacts has filed suit in Utah, where the governing case law is favorable and allows a claim based on purchase of a competitor’s trademark, 1-800 Contacts still has to show that consumers are being confused. If the sponsored link is the only basis for confusion, 1-800 Contacts has some problems. I suspect most Internet users are now aware of the difference between organic search results, based upon a search engine’s algorithm, and sponsored links, for which a competitor pays.

There’s another interesting twist. The Complaint implies that though Walgreen itself may have stopped purchasing 1-800 Contact’s trademarks, Walgreen has an obligation to go further and affirmatively purchase “negative keywords” to make sure that its website does not come up in searches for 1-800 Contacts. In effect, that means paying Google not to display the Walgreen’s site when someone searches on certain terms. But Walgreen does not have any control over the algorithm used by Google or other search engines. In responding to 1-800 Contact’s claim, then, it can fairly pose the question: Should a business be required to handicap itself in the market, and in the process, restrict the information that consumers have about an alternative source of products?

--Andrew Flake

Andrew B. Flake is a partner in the Litigation Group at Arnall Golden Gregory LLP (andrew.flake@agg.com). Our firm serves the business needs of growing public and private companies, helping clients turn legal challenges into business opportunities. We don't just tell you if something is possible, we show you how to make it happen. Please visit our website for more information, www.agg.com.