Category: Fraud/Misrepresentation (page 2 of 2)

Apple vs. the Big Apple charity over apple-shaped logos

Apple, Inc. is seeing red over New York City’s attempts to register a trademark for green-friendly services, and the dispute challenges one of Apple’s trademark registrations for its ubiquitous logo.

Apple comparison

Apple has filed an Opposition (No. 91/181,984) with the United States Patent and Trademark Office’s Trademark Trial and Appeal Board against NYC & Company, Inc.’s attempts to register the “Infinite Loop Apple” design mark (shown above at left). Apple asserts that use of NYC’s mark would likely cause confusion with Apple’s famous logo (shown at right) especially given the presence of Apple’s flagship Manhattan retail location.

NYC’s application states the mark is to be used for, among other things, promoting “education on environmentally friendly policies and practices of the City of New York” (See Application Nos. 77/179,942 and 77/179,968). Apple claims that confusion would be likely because of the similarities in appearance and commercial impression between the marks, and because certain of the goods and services recited by NYC are identical or highly related to goods and services offered under the Apple mark.

NYC answered the Notice of Opposition and filed a Counterclaim seeking to cancel Apple’s registration for the logo as used in connection with “mugs, dishes, drinking glasses, and wine glasses.” NYC claims that Apple procured the registration through fraud, because it knowingly misrepresented that it was using the mark in connection with those goods on its Declaration of Use and Renewal Application under sections 8 & 9 of the Trademark Act, when it fact no such use was being made. If the Board finds such fraud, Apple faces cancellation of its entire registration for those goods. Fraud has been a recurring issue before the TTAB of late, as evidenced by this recent post from John Welch’s TTABlog.

Apple, of course, denies the allegations of fraud. In any event, if the cancellation is successful, Apple’s most important marks (i.e., for computer hardware) would remain intact.

Time will tell whether Apple’s efforts to protect its mark will bear fruit. The company probably feels even more incentive to keep others from trading on its reputation and goodwill after hearing about this recent study, which found that people who see the Apple logo may feel more creative.

Online purchaser not entitled to $1 hard drives

Perez v. Luu, — S.W.3d —-, (Tex. App. November 1, 2007).

Perez sued Luu in Texas state court after Luu refused to fulfill Perez’s order of 100 hard drives that Perez ordered from Luu online. Luu’s website mistakenly listed the price of the hard drives as $1 each, when in reality Luu charged closer to $1,200 apiece.

The matter proceeded to trial and the court entered judgement in favor of Luu. Perez appealed, and the appellate court affirmed. It held that Perez failed to establish a violation of the Texas Deceptive Trade Practices Act.

The court determined that the relevant portions of the statute [Tex. Bus. & Com. Code Sec. 17.41 et seq.] required a showing of intent to misrepresent the price of goods being offered for sale. Luu introduced evidence showing that the $1 pricing was merely a mistake — the website was new and the developer had previously used a $1 quantity for testing purposes. Moreover, there was language on Luu’s website which gave him the right to correct any errors in pricing.

Internet marketer not fraudulent in predicting success of future advertising campaign

Hallmark Institute of Photography, Inc. v. CollegeBound Network, LLC, — F.Supp.2d —-, 2007 WL 3145433 (D. Mass. October 29, 2007).

CollegeBound LLC is an Internet marketing company that gathers “leads” for its customers. These “leads” are people who visit CollegeBound’s websites, express interest in the services provided by CollegeBound’s customers, and provide their contact information. CollegeBound then sells this lead information to its customers on a “cost per lead” basis. The customers then follow up with their own marketing efforts.

One of CollegeBound’s customers was Hallmark Institute of Photography. It signed written agreements with CollegeBound whereby it agreed to pay more than $30 for each lead that CollegeBound provided. When the parties were negotiating the deal, CollegeBound allegedly orally represented that between three and seven percent of the leads would enroll for Hallmark’s photography courses.

Although CollegeBound gathered leads and sent them on to Hallmark, less than one percent of them applied. Hallmark was disappointed in this result, and sued CollegeBound for breach of contract and for fraud and misrepresentation. CollegeBound moved to dismiss, and the court granted the motion.

On the breach of contract claim, the court held that the parol evidence rule precluded it from considering any extrinsic evidence. The alleged representations were made orally, and not included in the written agreement. Although the contract did not contain an “integration clause,” the court found that the agreement was fully integrated, where essentially all the important terms were included, and there was no indication the parties intended there be any additional terms. Since the agreement was not ambiguous, the court could not consider any evidence outside the document’s four corners.

As for the fraud and misrepresentation claims, the court held that CollegeBound’s statements were of a “fundamentally predictive nature,” and “concerned a matter of opinion, estimate or judgment which was not susceptible of actual knowledge at the time of [their] utterance.” For these reasons, the court found that Hallmark could not have reasonably relied on the statements. So the claims failed as a matter of law.

Atkins diet website gets First Amendment protection from negligent misrepresentation claim

In the Spring of 2001, Plaintiff Gorran decided to go on the wildly popular low-carbohydrate Atkins Diet. His cholesterol skyrocketed by almost a hundred points within the first two months, but he stayed on the diet anyway until 2003. After he experienced chest pains, he underwent an angioplasty to unclog an artery.

So Gorran sued Atkins Nutritionals and some other parties, claiming, among other things, that the information on the Atkins website about the diet constituted negligent misrepresentation. The defendants moved for judgment on the pleadings, and the U.S. District Court for the Southern District of New York granted the motion.

The court held that the content on the Atkins website that Gorran complained of could not be the source of any negligent misrepresentation, as it was fully protected by the First Amendment. Gorran had argued that the website functioned “as an electronic store to promote various [D]iet-related food products” and contained, therefore, commercial speech.

The court saw it differently. Indeed the site contained some commercial content (e.g., products for sale). But the content that Gorran alleged was negligent misrepresentations was merely general advice pertaining to the diet. That content was non-commercial. Accordingly, the information was “afforded full First Amendment protection,” and the claim was dismissed.

Gorran v. Atkins Nutritionals, Inc., — F.Supp.2d —-, 2006 WL 3586267 (S.D.N.Y., December 11, 2006).

Selling fake software on can get you five years in prison

[Thanks to Tech Law Advisor for alerting me to this case.]

Defendant Banks devised a scheme where he would make copies of various Microsoft products and sell them through to buyers who purchased them cash-on-delivery. After getting orders for at least $300,000 worth of software in this way, the plan began to collapse. Dissatisfied customers turned Banks into the FBI, and a federal grand jury indicted him on several counts, including mail fraud, possessing false securities, and criminal copyright infringement. A jury convicted him, and he got five years in prison.

Banks appealed his conviction and sentence, but the Third Circuit affirmed. On the criminal copyright infringement claim, Banks argued that the government had not introduced sufficient evidence to show that the Microsoft software was protected by copyright.

The criminal provisions of the Copyright Act, at 17 U.S.C. §506 state that

Any person who willfully infringes a copyright shall be punished as provided under [18 U.S.C. §2319], if the infringement was committed– (A) for purposes of commercial advantage or private financial gain; (B) by the reproduction or distribution, including by electronic means, during any 180-day period, of 1 or more copies or phonorecords of 1 or more copyrighted works, which have a total retail value of more than $1,000…. (Emphasis added.)

The court held that evidence introduced at trial through an “antipiracy specialist associated with the Microsoft company” was sufficient to show Microsoft’s ownership of the copyrights in the works. In the specialist’s unrebutted testimony, she stated her “belief” that Microsoft copyrights covered the works at issue. Further, the specialist had testified that Microsoft sent Banks the same type of cease and desist letter as it did to others who were suspected of violating Microsoft’s copyrights.

One is left to wonder why the government did not introduce any of Microsoft’s copyright registration certificates in the course of proving the element of copyright ownership. One would think that that would be the best practice for making such proof. In any event, the question before the court was whether the jury correctly concluded that Microsoft owned the copyrights in the works. The antipiracy specialist’s testimony — even if a bit weak on this point — apparently was enough.

United States v. Vampire Nation, (Slip Op.) — F.3d —, 2006 WL 1679385 (3d Cir., June 20, 2006).

State consumer fraud action unavailable to nonresident website user

Plaintiff Shaw, a U.S. citizen but resident of London, used Hyatt International Corporation’s website to make a reservation for three nights in the Ararat Park Hyatt in Moscow, Russia. On the website, Hyatt quoted Shaw a rate of $502 USD per night. When checking out of the hotel, however, Shaw was charged some 15% more than the quoted price, allegedly because of an inflated exchange rate Hyatt used to convert between dollars and rubles.

Shaw filed suit against Hyatt in federal court in Chicago, alleging two causes of action under Illinois law: (1) violation of the Illinois Consumer Fraud and Deceptive Business Practices Act 815 ILCS 505/1 et seq. (“ICFA”), and (2) common law unjust enrichment. Hyatt moved to dismiss pursuant to Fed. R. Civ. P. 12(b)(6). The court granted the motion and dismissed the complaint.

In dismissing Shaw’s ICFA claim, the court applied the test set forth in the recent Illinois Supreme Court decision of Avery v. State Farm Mut. Auto Ins. Co., 835 N.E.2d 801 (Ill., 2005) which held that a nonresident plaintiff may sue under the ICFA only if the fraudulent transaction occurred “primarily and substantially” within Illinois. In the present case, the court found that:

[T]he overwhelming majority of the circumstances relating to the transaction between Plaintiff and Hyatt concern events outside of Illinois. Even assuming, as the Court must for purposes of a motion to dismiss, that Hyatt’s currency inflation scheme originated in its principal place of business in Illinois, Avery makes clear that this fact alone does not warrant application of the ICFA.

The court went on to dismiss Shaw’s unjust enrichment claim, because the “Terms and Conditions” displayed on the Hyatt website at the time of the reservation were an express agreement between Shaw and Hyatt. Because the specific transaction giving rise to the dispute was governed by an express agreement, the extra-contractual claim for unjust enrichment was unavailable.

Shaw v. Hyatt International Corp. 2005 WL 3088438 (N.D.Ill., November 15, 2005).

Earthlink off the hook in phishing-alert case

The well-known Internet service provider Earthlink offered its customers a free service to protect from “phishing” scams by alerting users to potentially fraudulent websites. The service redirected users who are attempting to visit a suspicious site to a Scam Alert page, asking the user to “not continue to this potentially risky site.”

Plaintiff Associated Bank-Corp operated an online banking site which mistakenly ended up on Earthlink’s list of potentially fraudulent sites. Although Associated Bank’s site was legitimate, visitors using Earthlink were presented with the Scam Alert page. Associated Bank filed suit in federal court against Earthlink alleging various tort and fraud claims.

Earthlink filed a motion for summary judgment, arguing that Section 230(c)(1) of the Communications Decency Act shielded it from liability. This portion of the Act provides immunity for interactive computer services that publish information received from third party information providers. The court granted Earthlink’s motion for summary judgment.

It held that a reasonable trier of fact could not infer that Earthlink, by providing the alert service, was an information content provider. Instead, the evidence before the court demonstrated that third-party vendors identified potentially fraudulent sites, and that such information was directly input into a database without any alteration by Earthlink. Accordingly, because the information came from another provider, Earthlink could not be liable for the republication of untrue statements about Associated bank.

Associated Bank-Corp. v. Earthlink, Inc., 2005 WL 2240952 (W.D. Wis., September 13, 2005)(Not selected for official publication).

More coverage at Professor Goldman’s blog.

Court allows false advertising suit over calling take-out pizza restaurant “fast-casual”

Marketing firms take note: what you say about one client on your website will get noticed by other clients, and they may sue.

Plaintiff San Francisco Oven hired defendant Fransmart to market San Francisco Oven’s “fast-casual brick-oven” pizza restaurant to potential franchisees. After San Francisco Oven and Fransmart entered into an agreement, Fransmart changed its website to describe another pizza restaurant, Z-Pizza, as also employing the “fast-casual brick oven” concept.

San Francisco Oven believed that this information about Z-Pizza was false, and that Fransmart had changed the description to steer potential franchisees away from San Francisco Oven and to Z-Pizza. Before San Francisco Oven hired Fransmart, the Fransmart website had listed Z-Pizza as having merely “take-out and delivery and limited in-restaurant dining.”

After learning of the changed information on the website, San Francisco Oven sued Fransmart for false advertising under Section 43(a) of the Lanham Act, 15 U.S.C. §1125(a). Fransmart moved to dismiss, arguing that San Francisco Oven’s complaint did not allege sufficient facts upon which subject matter jurisdiction could be based. The court disagreed, and denied Fransmart’s motion.

In its analysis, the court looked to the case of Scotts Co. v. United Indus. Corp., 315 F.3d 264 (4th Cir. 2002) to recast the elements of a 43(a) claim as follows: (1) the defendant made a false or misleading description of fact or representation of fact in a commercial advertisement about his own or another’s [goods or services]; (2) the misrepresentation is material, in that it is likely to influence the purchasing decision; (3) the misrepresentation actually deceives or has the tendency to deceive a substantial segment of its audience; (4) the defendant placed the false or misleading statement in interstate commerce; and (5) the plaintiff has been or is likely to be injured as a result of the misrepresentation, either by direct diversion of sales or by a lessening of goodwill associated with its [goods or services].

The court held that San Francisco Oven’s allegations of Fransmart’s statements about Z-Pizza satisfied these elements. The statements on the website described goods and services of another company. The representations were material in that they dealt with the actual subject about which Fransmart was hired (i.e., the franchise concept). The representations had the tendency to deceive, due to the alleged mischaracterization of Z-Pizza’s concept. By posting the statements online, Fransmart placed them into interstate commerce. Finally, San Francisco Oven had properly alleged that diverted franchisees to Z-Pizza would cause damage.

San Francisco Oven, LLC v. Fransmart, LLC, 2005 WL 1838125 (E.D.Va., July 27, 2005).

Lost? Don’t bother suing if your GPS fails.

Amiel Dabush was 40 minutes late to a business meeting in Aberdeen, New Jersey, and he blamed his tardiness on the failure of the GPS system in his $70,000 Mercedes S-Class to show him the way. Although he didn’t lose any money or business from being late to the meeting, Dabush must have been pretty ticked-off, because he filed a class action lawsuit against Mercedes under New Jersey’s Consumer Fraud Act.

Dabush claimed that Mercedes misrepresented the quality of the GPS system in its marketing brochure which claimed, among other things, that “[i]f there’s a road that goes there, the S-Class can show you the way.”

The New Jersey Court of Appeals affirmed the trial court’s dismissal of the lawsuit on summary judgment, finding that Dabush’s “asserted loss was based on an unreasonable expectation of what was ‘promised’ in the brochure – a perfect navigation system that would include data of all locations and provide directions no matter where he happened to be at a particular point.” Such an asserted loss, the court held, was not an “ascertainable loss” required to sustain a cause of action under the state’s Consumer Fraud Act.

Dabush v. Mercedes-Benz USA, Inc., 2005 WL 1240196 (N.J.Super.A.D., May 26, 2005).

Web developer was only “puffing” when it represented the quality of its services

The First Circuit has upheld the U.S. District Court for the District of Maine’s determination that a web developer’s litany of self-laudatory statements to its client did not give rise to actionable misrepresentation. The client was sophisticated enough to distinguish mere “puffery” from real factual assertions about the web developer’s services and abilities.

The case of Uncle Henry’s Inc. v. Plaut Consulting Co., Inc. arose out of “an agreement to create a website that went awry.” After Plaut’s Edgewing division failed to satisfactorily complete the complex auction website for which Uncle Henry’s had paid over a half million dollars, Uncle Harry’s sued, alleging breach of contract and fraud.

The proceedings quickly became complicated, as Plaut counterclaimed for breach of contract and quantum meruit. The hodgepodge of issues raised in the various claims and counterclaims and appeals and cross-appeals makes this case a good read for an insomniac practitioner in the First Circuit. There is too much detail to cover here in full, and in any event most of the issues are simply brick-and-mortar, that is, not unique to the law of the Internet.

One aspect of the case, however, may be of particular interest to web developers and the lawyers who represent them. This has to do with that dialect of commercial language known as “puffing.”

In the District Court, Uncle Henry’s had claimed that numerous statements that Plaut made about the quality of its work were fraudulently misrepresentative. Among these statements were that the developer would “provide Uncle Henry’s a total solution unsurpassed in the industry,” and that the developer “was a proven company with a long track record and many years’ experience.” The court granted summary judgment, holding that the statements constituted nothing more than “puffing” or “trade talk” upon which no reasonable person would rely. Citing to previous authority, the court poetically explained that “dealers talk” is “that picturesque and laudatory style affected by nearly every trader in setting forth the attractive qualities of the goods he offers for sale.”

On appeal, Uncle Henry’s argued that an exception to the rule that puffery should not be believed applies to it. Such exception provides that “puffing” statements are actionable if the hearer of them is so unsophisticated or lacking in information as to be “at the mercy” of the speaker. The Court of Appeals did not buy this argument, however, and affirmed the District Court on this point. As support for the conclusion that Uncle Henry’s was not merely at the mercy of Plaut, the court noted both that counsel for Uncle Henry’s had aggressively investigated and negotiated the contract before signing it, and that Uncle Henry’s had experience in web development before its dealings with Plaut.

Alas, I cannot resist. Isn’t it a coincidence that this puffing case comes from Maine, well known for its puffins?

puffin image

Uncle Henry’s Inc. v. Plaut Consulting Co., 2005 WL 407394 (1st Cir. Feb. 22, 2005).

Puffin photo used courtesy of a Creative Commons license from Martin Burns.

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