New Wireless False Advertising Litigation: A Reminder to Look at "The Big Picture"

The battle that broke out last week over the accuracy of Verizon Wireless’ new cell phone coverage campaign is not focused solely on the language of Verizon’s advertisements. It is focused on the images, and specifically, on two coverage maps and the message they convey. In two television pieces and on its website, Verizon uses side-by-side maps of the US with color coding to show 3G coverage. The maps emphasize what Verizon believes is its overwhelming advantage over AT&T in territorial 3G coverage. The ads parody the popular iPhone advertisements with the refrain that to explain spotty AT&T coverage, “there’s a map for that.”


AT&T, locked in competition in its most important quarter of the year, is not laughing. In a lawsuit filed in federal district court in Atlanta, AT&T claims that the maps mislead its customers “into believing that when they are

in the areas depicted by large swaths of white or blank space in AT&T’s ‘3G’ coverage maps, they have no coverage whatsoever.” The lawsuit, at least at this point, is actually fairly narrow. AT&T is not claiming anything in the ads is actually false but believes the overall piece is still misleading. Even though Verizon added the phrase, in small font, “Voice & data services available outside 3G coverage areas,” and even though the map is based on actual coverage data, AT&T suggests that the maps convey the complete absence of coverage in the white areas. It asks the Court, at least in its initial request for a temporary restraining order, to stop Verizon from displaying the maps.

To obtain an injunction where no statement is literally false, AT&T is required to put forward some evidence of deception. Usually in federal advertising cases, that evidence takes the form of consumer focus group or survey data. Here, AT&T offers a survey it says shows a 23.5% level of confusion among wireless customers: Assuming AT&T’s survey is valid and was conducted in accordance with generally accepted survey principles, that data is more than enough to justify a finding of confusion. Verizon has not yet filed its response, but it will be interesting to see the competing testimony and market research on the effect of the advertisements. And certainly, the district court will be looking at more than just deception in making its decision.
We’ll continue to follow the dispute and report on the first round. Argument is scheduled for later this month – though we’re certain AT&T would have preferred an earlier hearing – so we should have some early insight fairly soon. If AT&T loses its early TRO request, its momentum is gone and much of the steam leaves its suit.

Regardless of the outcome, though, the case provides a good reminder: If your company sells products or services in a competitive market, especially head-to-head using comparative advertising, keep your eye on more than just the accuracy of advertising copy. Also look to the advertising’s overall impact and impression, and ask what messages a reasonable customer will take away. For purposes of this kind of competitive advertising review, marketing-savvy businesses should be aware that federal law prohibits not just false, but misleading advertising. Even if the words themselves literally true, they may imply a false message, especially when the advertising piece is considered as a whole.

--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, http://www.agg.com/.

ICANN's New gTLD Initiative -- A Potential "Top-Level" Problem for Brand Owners

In 2010, the Internet Corporation for Assigned Names and Numbers (ICANN), the non-profit body dedicated to coordinating the Internet’s unique identifier system, will begin accepting applications for new generic top-level domains (gTLDs).

The new gTLD program presents an unprecedented opportunity for brand owners. While individuals and businesses have historically distinguished themselves with second-level domains (e.g., the “icann” in www.icann.org) and shared gTLDs with their “.com” or “.net” competitors and others, ICANN’s new gTLD program provides a mechanism for brand owners to operate and control an entire universe of internet addresses with common domains. To illustrate, a company such as Microsoft may wish to acquire the gTLD “microsoft,” thereby opening the door to the registration of virtually any conceivable second-level domain with a top-level “microsoft” suffix.

However, where there is opportunity for brand owners, there is also potential for danger. Chief among the concerns of brand owners is that individuals or entities will apply for and obtain a gTLD that is identical or confusingly similar to the brand owner’s trademark. While many brand owners have had to contend with identical or confusingly similar second-level domains from time to time, contending an entire set of infringing top-level domains could present a problem of staggering proportions.

In addition, the acquisition of a gTLD will carry with it the ability to control the registration of second-level domains within that gTLD. Thus, brand owners could acquire gTLDs for the generic name of their products (e.g., “.computers,” “.wine,” or “.jeans.”) and freeze out competitors in the same generic product category. Thus, for example, Apple Computers could acquire the gTLD “.computers” and prevent Hewlet-Packard from registering the domain www.hp.computers.

In response to this and other brand owner concerns, ICANN has set forth proposed applicant screening and dispute resolution procedures in its Applicant Guidebook. The current version of the Applicant Guidebook is available at ICANN’s website. Importantly, the Applicant Guidebook has not been finalized, and, in fact, is open for public comment through November 22, 2009.

While the procedures set forth in the Applicant Guidebook likely will filter out obvious trademark conflicts without the brand owner having to intervene (e.g., a company other than Microsoft that attempts to register the gTLD “microsoft”), they may not catch less obvious trademark conflicts. If ICANN does not identify a conflict, it will be up to the band owner to come forward to object to potentially-problematic gTLD applications. Critically, the Applicant handbook provides only a two-week window to make such an objection.

Brand owners should become familiar with ICANN’s new gTLD program, and, specifically, the Applicant Handbook. In addition, even those brand owners who do not wish to apply for a gTLD should closely monitor pending applications, and, if necessary, take prompt action.

-- Tucker Barr

Arnall Golden Gregory LLP 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.

ICANN’s New gTLD Program Presents Opportunities and Risks for Brand Owners

In 2010, the Internet Corporation for Assigned Names and Numbers (ICANN), the non-profit body dedicated to coordinating the Internet’s unique identifier system, will begin accepting applications for new generic top-level domains (gTLDs).

The new gTLD program presents an unprecedented opportunity for brand owners. While individuals and businesses have historically distinguished themselves with second-level domains (e.g., the “icann” in www.icann.org) and shared gTLDs with their “.com” or “.net” competitors and others, ICANN’s new gTLD program provides a mechanism for brand owners to operate and control an entire universe of internet addresses with common domains. To illustrate, a company such as Microsoft may wish to acquire the gTLD “microsoft,” thereby opening the door to the registration of virtually any conceivable second-level domain with a top-level “microsoft” suffix.

However, where there is opportunity for brand owners, there is also potential for danger. Chief among the concerns of brand owners is that individuals or entities will apply for and obtain a gTLD that is identical or confusingly similar to the brand owner’s trademark. While many brand owners have had to contend with identical or confusingly similar second-level domains from time to time, contending an entire set of infringing top-level domains could present a problem of staggering proportions.

In addition, the acquisition of a gTLD will carry with it the ability to control the registration of second-level domains within that gTLD. Thus, brand owners could acquire gTLDs for the generic name of their products (e.g., “.computers,” “.wine,” or “.jeans.”) and freeze out competitors in the same generic product category. Thus, for example, Apple Computers could acquire the gTLD “.computers” and prevent Hewlet-Packard from registering the domain www.hp.computers.

In response to this and other brand owner concerns, ICANN has set forth proposed applicant screening and dispute resolution procedures in its Applicant Handbook. The current version of the Applicant Handbook is available at ICANN’s website. Importantly, the Applicant Handbook has not been finalized, and, in fact, is open for public comment through November 22, 2009.

While the procedures set forth in the Applicant Handbook likely will filter out obvious trademark conflicts without the brand owner having to intervene (e.g., a company other than Microsoft that attempts to register the gTLD “microsoft”), they may not catch less obvious trademark conflicts. If ICANN does not identify a conflict, it will be up to the band owner to come forward to object to potentially-problematic gTLD applications. Critically, the Applicant handbook provides only a two-week window to make such an objection.

Brand owners should become familiar with ICANN’s new gTLD program, and, specifically, the Applicant Handbook. In addition, even those brand owners who do not wish to apply for a gTLD should closely monitor pending applications, and, if necessary, take prompt action.





Arnall Golden Gregory LLP 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, http://www.agg.com/.

False Advertising In The Marketplace: Cautionary Examples

Have you ever scratched your head after seeing an outlandish claim made in an advertisement? Often, businesses, in an effort to “one-up” their competitors, throw caution to the wind and come up with slick marketing campaigns that overstep the boundaries of truth. When that happens, a business could face stiff liability in legal action taken by consumers, competitors, or the government.

As the brief examples below demonstrate, it would be wise to make sure that your company’s marketing checklist includes the step of verifying the veracity of what you advertise to your customers.

The Lawsuits

In Smith v. Wm Wrigley Jr. Co., a consumer brought a class-action lawsuit against Wrigley, the manufacturer of Eclipse gum. Wrigley advertised Eclipse as scientifically proven to help kill germs that cause bad breath. The plaintiff claims that this is not true and that Wrigley charged consumers a premium for the gum. Unfortunately for Wrigley, the National Advertising Division, an industry-supported advertising watchdog group, had earlier ruled that Eclipse may not actually “kill” germs that cause bad breath. The lawsuit is still pending in a federal district court in Florida.

In Federal Trade Commission v. Improvita Health Products, Inc., the FTC filed a complaint against Improvita, which advertised that its “Germ Defense” lozenges and tablets could, among other things, reduce the risk of or prevent colds and flu. The FTC claims that Improvita has no proof for these claims. Rite Aid Corporation, which marketed and sold Germ Defense, previously settled with the FTC for $500,000 for its role in falsely advertising the product. Improvita has not settled and the case against it is ongoing in a federal district court in Ohio.

In LG Electronics U.S.A., Inc. v. Whirlpool Corp., Whirlpool advertised its clothes dryers as “Steam Dryers.” LG sued complaining that these advertisements were false because Whirlpool dryers do not actually use steam. LG was the innovator of introducing dryers with steam technology, won accolades from Consumer Reports, and is, obviously, looking to protect its dominant market share. The lawsuit is still pending in a federal district court in Illinois.

What This Means For You

Your company should not only be careful in what it represents to the public about its products and services, but it should also be mindful of what its competitors are advertising. Remaining vigilant in the marketplace is necessary to your company’s success, especially in this economy.

-- Anuj Desai, Esq.

Not if, but how

Arnall Golden Gregory, LLP has significant experience in the area of marketing and promotions, including evaluating advertisements and advertising-related disputes. Do not hesitate to contact us if we can be of help to you.

Please visit our website for more information, http://www.agg.com/.

Pay to Delay - Draft Legislation Takes Aim at Reverse Payments Between Branded and Generic Drug Companies

The federal government achieved a significant victory on October 13th in its decade long war against reverse payments between branded and generic drug companies , when the Senate Judiciary Committee voted 12 to 7 to approve its draft legislation, the Preserve Access to Affordable Generics Act of 2009. The bill makes it unlawful for a person, in connection with the sale of a drug product, to be a party to any agreement resolving or settling a patent infringement claim in which: (1) an abbreviated new drug (generic) application filer receives anything of value; and (2) such filer agrees not to research, develop, manufacture, market, or sell the generic product for any period.

The so-called “pay for delay” deals have been increasingly common since 1994, when Bristol-Myers Squibb paid $290 million to delay the sale of a generic anxiety drug. The Federal Trade Commission (FTC) began to challenge such settlements in 1999, and under the leadership of new FTC chairman Jon Leibowitz has made opposing such settlements one of its highest priorities. According to the Department of Justice (DOJ), which did not oppose the settlements during the Bush administration, these deals are considered by the new administration to be straightforward violations of antitrust law, and thus “presumptively unlawful.”

Are Patents True “Property”?

The question at the heart of this issue is whether drug patents are truly property. According to both pharmaceutical companies and the U.S. Court of Appeals for the Eleventh Circuit, less competition and higher prices are the natural result of the “permissible monopoly” created by patents, and thus there is nothing wrong with reverse payments. FTC lawyers disagree, arguing that patents are not true property rights, but rather a right to “try to exclude.” The FTC has thus determined that “collusion by pharmaceutical manufacturers is contrary to free competition, to the interests of consumers, and to the principles underlying antitrust law.”

The Judiciary Committee bill specifically cites the appellate court decision approving reverse payments, and points out that several settlements since that decision have resulted in generic companies receiving compensation to keep cheaper drugs off the market. According to an FTC study released in June, consumers, insurance companies, and the federal government have spent an extra $3.5 billion for prescription drugs every year because of such settlements.

The Senate’s reverse payment legislation is strongly opposed by both generic and branded drug companies. These companies argue that parties need to be able to negotiate such agreements, given the uncertainties of litigation, and that reverse payment legislation will result in more cases going to trial rather than settling. The result, they say, could be less predictable litigation costs, less generic drug filings, and less generic drugs for consumers.

Conclusion

Although courts are reluctant to oppose reverse payments, both Democrats in Congress and the Obama Administration seem eager to score political points by slamming pharmaceutical companies as responsible for the high cost of healthcare. With the DOJ and FTC aligned on the issue, it is increasing likely that the recently approved Senate Judiciary bill will end the era of reverse payments between branded and generic drug companies.

McProblem in Malaysia

Admit it. You have done it. Whether describing the “McMansion” recently purchased by a family member, dreaming of breaking the chains that bind you to your “McJob,” or bemoaning the “McWorld” we live in, we are guilty of tacking on the prefix “Mc” to regular words, for the sake of evoking associations with our favorite fast food restaurant chain. “McWords,” so dubbed by Wikipedia.com, have infiltrated our vernacular, and are now even common place on our favorite television shows – did you see McDreamy and McSteamy in last nights’ season premier of Grey’s Anatomy?

We owe this phenomenon to the outstanding marketing and promotion work done by the McDonald’s Corporation (“McDonald’s”) to build a brand and create a unifying concept that identifies products and services associated with its Company. McDonald’s has invested heavily in a significant portfolio of “Mc” trademarks used by the company to identify products, services and concepts within their organization. We encounter many of these “McTerms” all too often while scanning the menu in the drive-thru -- McNugget, McFlurry, McGriddle, McCafe’ and Big Mac, to name a few. Did you know, however, that McDonald’s has registered the term McMobile for a McDonald’s computer software program used in sales and marketing, McD for an all-purpose cleaning product, and McDTV for use on television programming offered by the company? Clearly, the company is committed to building its “McBrand” through the use of trademarks bearing the “Mc” prefix.

You may or may not know, but creating such a unifying concept has significant implications and potential benefits under trademark law in the United States. It provides a means for obtaining a broader scope of trademark protection than would ordinarily be afforded to a trademark owner. A recent legal decision from Malaysia underscores the significance of this broader scope of protection in the U.S., protections apparently not available to trademark owners in certain other destinations around the world.

Recent Legal Decision in Malaysia

Specifically, McDonald’s recently lost a legal dispute with a restaurant owner in Malaysia who named his restaurant “McCurry.” As the name implies, the restaurant owner adopted a western-style fast-food ambience to serve traditional Indian and Malaysian dishes to its customers. McDonald’s, in an effort to protect their brand, sued the restaurant owner in 2001, and an eight-year battle ensued. In 2006, McDonald’s won its case in the lower court, but the restaurant owner appealed. In April of this year, Malaysia’s highest court overturned the lower court decision. (For more information on McDonald’s Malaysian legal battle, see online.wsj.com/article/SB125240245264591953.html). This decision appears to open the McDonald’s brand to attack, by allowing other companies to utilize the “Mc” prefix on their goods and services in Malaysia. This result demonstrates the importance of the doctrine of a “family of marks” in the United States, and the protection that doctrine provides to business owners and trademark holders alike.

Protection of the McFamily of Marks

In trademark parlance, a portfolio of trademarks that utilize a unifying prefix or common term is known as a “family of marks.” A “family of marks” is a group of marks having a recognizable common characteristic, wherein the marks are composed and used in such a way that the public associates not only the individual marks, but the common characteristic of the family, with the trademark owner. The “family of marks rule” recognizes that a family of marks may have a synergistic quality that is greater than the sum of each mark, considered on an individual basis. Because the consuming public associates the recognizable common characteristic of the family with the trademark user, the trademark user has established secondary meaning in the common feature of its multiple marks, in its respective channels of trade. Thus, they may have the ability to preclude others from using this feature, even if the trademark used by that third party is not otherwise confusingly similar to the trademark owner’s mark. It is this additional scope of protection, in the common feature, only enjoyed by owners of a family of trademarks.

In the case of McDonald’s, courts have recognized, acknowledged and enforced the “McFamily” of marks against others who have attempted to usurp the goodwill and brand recognition built by the company. McDonald’s has successfully opposed registration and use of the trademarks “McPretzel” and “McDugal’s McPretzels” by a company in the business of selling frozen pretzel products, and they have obtained a judgment for trademark infringement and an injunction against a restaurant going by the name “McBagel.” J & J Snack Foods Corp. v. McDonald’s Corp., 932 F.2d 1460 (Fed. Cir. 1991); McDonald’s Corp. v. McBagels, Inc., 649 F.Supp. 1268 (S.D.N.Y. 1986). Even on non-food items and services, in wholly unrelated channels of trade, McDonald’s has successfully protected their family of marks. McDonald’s obtained an injunction preventing a dentist’s use of the term “McDental” for his practice, and they successfully defended a case whereby a large hotel conglomerate sought a declaratory judgment stating that the use of the term “McSleep Inn” for a hotel chain did not constitute trademark infringement. McDonald’s Corp. v. Druck and Gerner, D.D.S., P.C., 814 F. Supp. 1127 (N.D.N.Y 1993); Quality Inns International, Inc. v. McDonald’s Corp., 695 F.Supp. 198 (D. Mar. 1988). Trademarks such as “McDental” and “McSleep” were not necessarily similar to any mark registered by McDonald’s, but the court nonetheless held that use of these marks constituted trademark infringement on account of their use of the well-known “Mc” prefix.

While these cases make it clear that McDonald’s enjoys a significant scope of trademark protection in the United States, beyond the protections enjoyed on each individual mark, the recent Malaysia outcome demonstrates that this does not appear to be the case in other parts of the world.

What this Means for Trademark Holders

If you or your company is building a portfolio of trademarks, and is considering the adoption of additional marks, it may be beneficial to consider use of a unifying characteristic for each and every one of your marks. Successful use of a common characteristic could lead to the development of a “family of marks,” thereby providing an increased scope of trademark protection in the marketplace, not necessarily enjoyed by your competitors. And, you may just become the next household phenomenon in the process.

- Devin Gordon, devin.gordon@agg.com

Arnall Golden Gregory LLP 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, http://www.agg.com/.

Trade Secret Licensing Arrangements Require Vigilance

A technology license agreement can link competitors in unexpected, and, from the standpoint of technology protection, potentially dangerous ways. Whether your company licenses its technology to a direct competitor, licenses to a supplier who may integrate back into your industry, or licenses to a company who may decides to expand its market, a written agreement should define the trade secrets and critically, should protect them for so long as they have value. A recently decided dispute between plastics manufacturers illustrates the point.

Industrial concern NOVA Chemical took a license on a Styrofoam-type manufacturing process, Piocelan, from Japanese plastics company Sekisui. After extensive negotiation and the exchange of multiple drafts, the two companies hammered out a licensing agreement for the Piocelan process. Except for an Asian markets carve-out, the agreement gave NOVA an exclusive right to use the process and provided for NOVA to Sekisui’s secret technical information and certain patent rights for time periods that NOVA would elect.

When, in 2002, NOVA rolled out a competing product in Asia, Sekisui cried foul. NOVA filed suit to clarify that the agreement had been terminated and that it was entitled not only to sell in Asia, but to use any information that Sekisui had disclosed to it under the agreement. Sekisui argued that the actual term of the license was perpetual, because its subject matter concerned trade secrets, which have no fixed life. The agreement, however, contained no restriction on use of the supposedly secret information beyond the term of the license.

Alert readers will see the red flag waving – as did the trial court. Despite Sekisui’s claims that disclosure would harm it, the court saw no intent to extend the term of the agreement past either five or ten years, and saw no provision in the agreement requiring NOVA to keep the information secret past the term. How, wondered the Court, could Sekisui claim trade secret protection when it did not restrict the use of the Piocelan information in any manner after ten years?

Under NOVA’s reading of the Agreement, with which a trial court and now the court of appeals have agreed, NOVA was obligated not to disclose the Sekisui information only for the length of the license, either a five- or ten-year period, depending on what license term NOVA chose. Sekisui lost out, and NOVA can sell the product anywhere in the world, and use as much of the information provided to it under the expired license as it may wish.

The lesson? In negotiating technology license arrangements, assume the worst case scenario: direct competition by your contract partner. With this forethought, Sekisui’s result should absolutely have been avoided. The law of trade secrets is commercially practical, recognizing the need for such licensing arrangements. Simply because a license expires, the underlying trade secrets do not necessarily expire as well. But in order for the trade secret owner to maintain ownership, with the licensee obtaining rights only to temporary use, and for the trade secrets to survive, appropriate drafting is necessary. A specific commitment to maintain the trade secrets in confidence, enforceable through injunctive relief, must form part of the consideration. It must also be spelled out in the agreement’s terms.


--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.