978-0077733711 Chapter 8 Lecture Note Part 2

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Chapter 08 – Intellectual Property and Unfair Competition

6. Note that when the plaintiff elects the statutory damages option alluded to at p. 286

(instead of choosing the basic remedy of actual damages plus infringer’s attributable

profits), the court sets the amount of recovery within certain ranges set by Congress.

Proof of the existence or extent of harm to the copyright owner is not a prerequisite to the

recovery of statutory damages. Currently, statutory damages may range from a minimum

of $750 to a maximum of $30,000. However, if the evidence shows that the

infringement was willful in nature, the statutory damages ceiling is raised to $150,000.

7. Discuss the issues addressed in the Cyberlaw in Action box at p. 292 (the Digital

Millennium Copyright Act’s “safe harbor” provisions and its anticircumvention and

antitrafficking provisions. Note the court’s rejection of the fair use and First Amendment

arguments made by the defendant in the Corley case.

8. Emphasize that many cases hinge on the fair use defense, which involves consideration

of factors whose application and weight vary from case to case. Explain the purposes and

effect of the fair use defense. Note the types of uses singled out by Congress as good

candidates for fair use protection. Introduce the factors courts must apply in deciding

whether a defendant’s use was fair use. Emphasize that fair use cases are highly fact-

specific. Bouchat (a text case discussed later) is a very good example. So is Perfect 10, a

former text case that is now Problem #10. Discussion notes on Perfect 10 are included

later. Campbell v. Acuff-Rose Music, Inc. (a former text case that is discussed and applied

in Bouchat and Perfect 10) remains a leading case and serves as an excellent discussion

vehicle. Although Campbell is no longer included in Chapter 8, we include extensive

comments on it immediately below. Those who plan to use Campbell may wish to

provide students a copy of the decision.

Campbell v. Acuff-Rose Music, Inc.: The U.S. Supreme Court holds that parody of a

copyrighted work is a candidate for the protection of the fair use defense, even when the

parody has a commercial character. The Court, however, stops short of a categorical rule

that parody is always to be considered fair use. (As mentioned earlier, you may want to

provide the class a copy of the Campbell opinion.)

Points for Discussion: Note that each side advanced an extreme position, neither of

which the Court was inclined to adopt. Acuff-Rose, the copyright owner, sought a ruling

that the commercial character of a defendant’s use automatically prevents the defendant

from being able to rely on the fair use defense. The alleged infringer, 2 Live Crew,

sought a ruling that parody is fair use in all instances. Rejecting both of these extreme

positions, the Court steered a middle course by holding that parody may sometimes

constitute fair use, and that the commercial character of a use does not in and of itself

deprive the user of the fair use defense. The Court stressed that parody must work its

way through the four factors that are applied in any case in which fair use protection is

asserted as a defense. After application of the factors, the parody at issue may–or may

not–be classified as fair use. The inquiry is highly-fact-specific.

This case illustrates that whether a use amounts to fair use does not depend upon

whether the copyright owner thinks a license is necessary. Here, Acuff-Rose refused to

grant 2 Live Crew permission to record its parodic version of “Oh, Pretty Woman.” 2

Live Crew recorded the parody anyway. Even though the group proceeded against the

defense.

Note the Court’s discussion of the importance, to the fair use analysis, of

“transformative” uses (see the early portions of the decision). Ask the students how 2

Live Crew’s version of “Oh, Pretty Woman” might be regarded as transformative in

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nature. Also note the emphasis placed by the Court on the Copyright Act’s language that

lists criticism or comment as examples of the types of uses that are candidates for fair use

treatment. Parody, of course, often employs humor as a way of conveying criticism or

commentary. The Court emphasized, however, that in order for a parody to have

potential entitlement to fair use protection, it must contain criticism of, or commentary

on, the substance or style of the copyrighted work–as opposed to reflecting nothing more

than borrowing from the copyrighted work as a means of gaining attention or “avoid[ing]

the drudgery in working up something fresh.” Although the Court considered the call a

close one, it concluded that 2 Live Crew’s parodic version of “Oh, Pretty Woman” did

contain comment on the original version’s substance or style.

Ask the students about the Court’s analysis of the fair use factors. Factor #1 is the

purpose and character of the use, including whether it was for commercial purposes or

for nonprofit educational purposes. The Court stated that even though commercial

character tends to cut against fair use, the court of appeals erred when it made

commercial character a conclusive bar to fair use entitlement. A defendant’s commercial

purpose will often cause factor #1 to be viewed in favor of the copyright owner, but the

other factors must still be examined. Depending on the relevant facts, a commercial use

may still obtain the protection of the fair use doctrine.

Note, also, the Court’s comments that the significance of the commercial character of

the defendant’s use will vary from case to case, and that the use of a parody to help sell

another product might not be viewed as favorably in the fair use analysis as the sale of

the parody itself (the situation in Campbell). Although the Court did not explain these

comments, it appeared to be signaling that the use of a parody in a TV commercial for a

product may not be as good a candidate for the fair use label as the use present in

Campbell, in which the parody itself–2 Live Crew’s version of “Oh, Pretty Woman”–was

the thing being sold. The Court also made it clear that a defendant’s parodic purpose is a

relevant consideration under factor #1. To the extent that the parody is designed to

constitute criticism of the copyrighted work, the parody would have a purpose consistent

with the objectives underlying the fair use defense.

Factor #2 is the nature of the copyrighted work. This factor plays a much more

important role when there has been a borrowing from an unpublished copyrighted work.

In that event, factor #2 tends to cut rather strongly against fair use. Where, as here, the

borrowing was from a published work, factor #2 tends not to have much significance

either way. Moreover, as the Court points out, familiar published works are logical,

typical targets of parodists. Factor #2 is effectively neutral in this case.

Factor #3 considers the amount and substantiality of the portion of the work used, in

relation to the work as a whole. The Court adopts a pro-parody approach to this factor,

stressing that in order make a parody effective, the parodist must be able to borrow

enough from the copyrighted original to be able to “conjure up” the original in the minds

of readers, viewers, or listeners. If the parody’s audience cannot identify what is being

parodied, the humor and point of the parody are likely to be lost. The Court’s approach to

factor #3 means that the parodist is likely to be able to get away with more borrowing

that is the nonparodist borrower. For example, parodists such as the members of 2 Live

Crew, if they succeed with the fair use defense, would not be liable even though they

deliberately borrowed from “Oh, Pretty Woman” what probably was more than what

nonparodist George Harrison subconsciously borrowed from “He’s So Fine.” (See the

earlier discussion of the infringement case in which Harrison was held liable.)

Factor #4 considers the effect of the use on the potential market for, or value of, the

copyrighted work. As a general rule, a parody is not likely to have an adverse effect on

the market for the original, because the parody will not be viewed by the public as a

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substitute for the original. To take an example from an actual case, one who wants to

purchase the sheet music for the copyrighted song “When Sunny Gets Blue” is not likely

to be satisfied with a copy of the parodic version titled “When Sonny Sniffs Glue.”

Parodists thus would generally seem to be in good shape under factor #4. Indeed, in

Campbell, an expert witness for Acuff-Rose conceded on cross-examination that 2 Live

Crew’s version of “Oh, Pretty Woman” would not adversely affect sales of the

copyrighted original. The Supreme Court pointed out something else of importance,

however, about factor #4. Under that factor, courts must also consider the prospect of

harm to markets for derivative uses of the copyrighted work. In Campbell, a relevant

question was whether 2 Live Crew’s parodic version of “Oh, Pretty Woman,” done in the

group’s rap style, would adversely affect potential markets for rap versions of the

copyrighted original. Because the lower courts had not considered this question, the

Supreme Court remanded the case.

Bouchat v. Baltimore Ravens Limited Partnership (p. 287): The Fourth Circuit holds that

the fair use defense protects the NFL against infringement liability for producing videos

that contained game-action shots in which a version of Bouchat’s copyrighted logo was

visible. (The Baltimore Ravens for a time had used the logo.) The Fourth Circuit also

holds that the fair use doctrine protects the Ravens against infringement liability for

displaying images that showed their former logo (which resembled Bouchat’s logo) in the

context of historical exhibits at the team’s stadium. Adopters should be aware that this

case is a different Bouchat case from the one that appeared in the 15th edition. As noted

in the facts summary that appears in the text, the case included in the 16th edition is the

latest in a lengthy series of cases brought by Bouchat against the Ravens and sometimes,

as here, against the NFL.

Points for Discussion: Ask a student to summarize the general history of Bouchat’s

ongoing disputes with the Ravens, as well as the basic facts. Note that as with many

constituted fair use. Note the nature of the fair use defense and the fact that there isn’t a

magic list of uses that are fair or, as the case may be, unfair. Rather, each case in which

fair use is argued must involve application, weighing, and balancing of the four fair use

factors. The cases therefore become highly fact-specific.

Separate out the two uses at issue in this case (the use in the NFL videos and the use

in the historical exhibits at the stadium.) Identify the four fair use factors and work

through each one in regard to each of the uses. Ask students what the court concluded

with regard to each factor. What were the major reasons why the court determined that

the use in the NFL videos was fair use? Do the students’ agree with the court’s

conclusions? What was the major reason why the court determined that the use in the

historical exhibits at the stadium was fair use? Do the students agree? Work in

discussion of Campbell and of how the Fourth Circuit applied Campbell’s emphasis on

whether a use is transformative (a matter relevant to the first fair use factor). On what

else does the Fourth Circuit place importance in applying the first and fourth fair use

factors to each of the uses at issue in the case? Do you suppose the court has become a

bit frustrated with Bouchat and his repeated lawsuits over uses of the logo? Might that

have been an unstated factor here?

Perfect 10, Inc, v. Amazon.com, Inc. (formerly a text case; now Problem #10): The 9th

Circuit vacated the lower court’s preliminary injunction against Google’s posting

thumbnailed images from Perfect10.com‘s “members only” section on Google Image

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Search. The court held that Perfect 10 had made out a prima facie case that Google had

violated its display right by using the thumbnails, but that Google did not violate Perfect

10’s rights by linking to other sites where full-size images of Perfect 10’s photos could be

seen. The court also held that Google would have a valid fair use defense to Perfect 10’s

prima facie showing of a violation of Perfect 10’s display right.

Points for Discussion: The court characterizes Google’s use of the thumbnails as

“transformative” because the thumbnails on Google’s service serve a different “purpose”

than the ones on Perfect 10’s website—namely, to aid users in their Internet searches.

The purpose of Perfect 10’s images, of course, was “artistic expression.” Is that a helpful

distinction? The court also holds Google’s service has no market effect, even though it

no doubt directs millions of users to unauthorized full-size Perfect 10 images they could

never have found otherwise. Finally, though Google used the entire image, albeit scaled

down, the court regarded the substantiality factor as a wash. It seems pretty likely the

court recognized the larger stakes, and just declined to slow down the Google

phenomenon. Was the court concerned about the implications for the public interest if

search engines such as Google were held liable in cases such as this one.

Further fair use examples: Problems #2, #3, and #13.

D. Trademarks

1. Discuss the reasons why the law protects trademarks. After noting the various kinds of

marks protected by the Lanham Act, mention that the chapter mainly concerns itself

with trademarks and service marks.

a. Also note that the chapter focuses on protection of marks under the federal

Lanham Act (the most desirable and most expansive trademark protection

available), though the common law and state statutes also provide legal

protection for trademarks.

2. Discuss the requirement that to merit protection, a mark must be distinctive. Discuss the

hierarchy of types of marks in terms of distinctiveness (or nondistinctiveness). Also

suggest why some kinds of marks merit more protection than others. Descriptive and

generic marks, for example, are not apt to remain in the consumer’s mind and become

associated with a particular product. Also, how effectively can a competitor of the

trademark owner carry on business if such marks are protected? How, that is, can he

describe his products without risking liability? In this connection, be sure to discuss the

concept of secondary meaning and why it affords protection to descriptive marks,

deceptively misdescriptive marks, geographically descriptive marks, and marks that are

primarily a surname. Note that some terms are said to be so inherently generic that they

can never acquire secondary meaning. “Cereal” is an example.

3. Discuss the requirements for registration of a mark on the federal Principal Register.

Note that those requirements relate closely to the categories of distinctiveness just

discussed. Also note the situations when secondary meaning is and is not required as a

prerequisite to registration on the Principal Register.

a. Emphasize that registration is not required in order for one to use a trademark.

Neither is registration required in order for some legal rights over the trademark to be

triggered (e.g., rights under the common law). Only if registration on the Principal

protection associated with a federally registered mark.

b. For consideration of whether color may quality for registration as a trademark, see

Problem #4.

4. Emphasize how and why the transfer of trademark rights is relatively difficult. Contrast

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this with the transfer of copyrights and patents.

a. The Global Business Environment box at pp. 296-97 outlines some basic concepts

regarding the acquisition and protection of trademark, patent, trade secret, and

too, the piracy problem addressed in the Global Business Environment box at p. 294.

5. The registration duration rule mentioned in the text (10 years, plus successive 10-year

renewals) applies to marks first registered on November 16, 1989 or thereafter.

Registrations first granted prior to that date carried–and still carry–a 20-year duration,

with renewals of those registrations continuing to be for successive 20-year periods. As

was the case with the “old” rule governing copyright duration, we will be dealing with the

“old” rule on trademark duration for many years to come.

6. Discuss the various ways that trademark protection may be lost before the duration of the

registration expires. Emphasize, in particular, the problem of a mark’s becoming generic.

If a mark is held by the Patent & Trademark Office (PTO) or a court to be generic, the

mark’s registered status and the mark owner’s exclusive rights are lost. Other examples of

this (besides the ones in the text) include Shredded Wheat, Toll House (for cookies), and

Gold Card.

a. Ask your students for examples of current trademarks that could be in danger of a

ruling that they have become generic (if a proper proceeding were initiated in the

PTO or a court). Possible examples include Kleenex, Jell-O, Band-Aid, and Xerox.

Neither a court nor the PTO has been presented with a cancellation request regarding

Kleenex, Jell-O, Band-Aid, or Xerox, however.

b. Note, also, that a trademark registration can be cancelled in an appropriate legal

proceeding if it is determined to be disparaging to individuals or groups. The text

discusses a current example: the PTO’s cancellation of the registration for the

Redskins name (used for several decades by the Washington Redskins football team).

Note what this cancellation means and does not mean. See pp. 294-95.

7. When discussing trademark infringement, note that there are two required elements of

infringement: (1) sameness or substantial similarity; and (2) likelihood of confusion in

one or more of the senses mentioned in the text. The first element is fairly easy to satisfy

if the infringement claim is at all plausible. The second element is often much more

difficult to satisfy. In fact, the vast majority of trademark infringement cases hinge on the

likelihood of confusion question. For discussion of the factors courts take into account in

deciding whether there was likelihood of confusion, see Louis Vuitton (a former text case)

and Starbucks (a text case). Both cases present trademark infringement issues and

trademark dilution issues. Discussion of the two cases appears after the discussion of

dilution (see below). In addition, see Problem #5.

8. Trademark dilution is both a relatively new and an old doctrine in trademark law. It is

relatively new as a matter of federal law, by virtue of the Federal Trademark Dilution Act

of 1996 (FTDA) and the Trademark Dilution Revision Act of 2006 (TDRA), a set of

amendments to the FTDA. (The TDRA receives extensive discussion at pp. 295-96 of the

text.) Dilution is an old doctrine in the sense that for many years, states have had dilution

statutes (though they were seldom invoked by trademark owners until relatively recent

years). Roughly half of the states have such statutes. Until the enactment of the FTDA,

Congress had resisted trademark owners’ pleas for federal recognition of the dilution

doctrine.

a. A dilution claim is attractive to trademark owners because it does not require proof of

likelihood of confusion. Note the alternative ways in which dilution may be

established under state statutes or the FTDA (as amended by the TDRA): (1) through

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Chapter 08 – Intellectual Property and Unfair Competition

proof of a likely blurring of (or a “whittling away” at) the distinctiveness of the

plaintiff’s trademark; or (2) through proof of likely tarnishment of the plaintiff’s

trademark. Under the FTDA and the TDRA amendments, the plaintiff’s trademark

must be “famous” and the defendant’s use must have been commercial in nature.

State statutes do not necessarily contain the requirements mentioned in the previous

sentence.

1. A good example of the “blurring” or “whittling away” type of dilution may be

found in a case that involved Polaroid and arose under the Illinois dilution

statute. The Polaroid trademark had long been used in connection with cameras

by the company of the same name. Another (and much smaller) firm began using

the name “Polaroid” for its heating and air conditioning business. The court

agreed with Polaroid that if the heating and air conditioning firm continued to use

the Polaroid name for its business, consumers who had been exposed to uses of

Polaroid and Polaroid would then think, whenever they saw the Polaroid mark,

not only of the camera company but also of the heating and air conditioning firm.

Even if consumers were not likely to think that Polaroid had gone into the

heating and air conditioning business (i.e., even if consumers were not likely to

be confused), there would be dilution of the distinctive quality of Polaroid’s

trademark. This would be so because the mark that once conjured up thoughts of

one source (the camera company) would instead conjure up thoughts of two

different sources (the camera company and the heating and air conditioning

firm). The court therefore enjoined the heating and air conditioning firm’s use of

Polaroid.

2. Dilution of the mark’s distinctive quality should not be an automatic conclusion

every time two marks are quite similar, however. For example, after winning a

short-lived victory in the district court, Mead Data Central, which owned the

“Lexis” trademark and used it in connection with its computerized legal research

database, lost a dilution claim against Toyota, which had chosen the name

“Lexus” for its luxury car and luxury car division. The federal court of appeals

was not convinced that the distinctive quality of Lexis would be diluted. (The

case was decided under a state dilution statute.)

3. In explaining the alternative dilution theory of tarnishment, stress the

unwholesome context requirement courts generally impose. Absent illicit sexual

or drug-use connotations, an unwholesome context normally does not exist. In

other words, the context of the defendant’s use is not rendered unwholesome by

the mere fact that the trademark owner does not like the defendant’s use. You

may also wish to note that some courts allow tarnishment claims to be made out

through proof of the defendant’s use of a substantially similar version of the

plaintiff’s trademark in connection with goods that are less prestigious or of lower

quality than the goods as to which the trademark owner uses the mark.

b. As the text suggests, the FTDA and the TDRA amendments contain various

provisions whose meanings are less than clear. This has led to a considerable amount

of litigation in very recent years, as parties have disagreed over the meaning and

applicability of the statute’s terms. A cynic might be inclined to assert that the FTDA

should have been subtitled “The Trademark Lawyers’ Full Employment Act of 1996.”

c. Louis Vuitton Malletier, SA v. Haute Diggity Dog, LLC (formerly a text case; now

Problem #8): Haute Diggity Dog manufactured dog chew toys designed to look

comically like Louis Vuitton bags. Louis Vuitton alleged the toys diluted and

infringed its trademarks and infringed its copyrights. The 4th Circuit affirmed a grant

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of summary judgment for the defendant.

Points for Discussion: Note that the basis for the parody “defense”—namely, that

Haute Diggity literally throws Vuitton’s mark to the dogs—is exactly what inspires

Vuitton’s lawsuit. In other words, what made Vuitton mad enough to sue serves as a

big reason why Vuitton loses the case. Given the obvious parody, consumers simply

aren’t likely to be confused here. The court applies the likelihood of confusion factors

in a way that reflects the clear influence of the parody context on what consumers

probably would or would not think. Turning to the dilution claim, ask students why

neither dilution by blurring nor dilution by tarnishment is present here. Note, too,

that even though the court interprets the parodist-protection language added by the

TDRA amendments as not strictly applicable to Haute Diggity’s actions, the court

effectively gives Haute Diggity’s parody the same degree of indulgence contemplated

by the supposedly inapplicable TDRA language.

d. Starbucks Corp. v. Wolfe’s Borough Coffee, Inc. (p. 297): The Second Circuit affirms

the trial court’s decision in favor of the defendant (referred to here as Black Bear) on

Starbucks’ trademark infringement and dilution by tarnishment claims, but vacates

the decision in favor of Black Bear on Starbucks’ dilution by blurring claim. The

Second Circuit therefore remands for reconsideration of the dilution by blurring

claim.

Points for Discussion: This case provides a nice vehicle for examining the factors

courts take into account in determining whether there was likelihood of confusion

(the critical element in trademark infringement cases. After asking a student to

summarize the basic facts, work through the likelihood of confusion factors and ask

students how the court applied each factor. Which factors in the weighing and

balancing process seemed most significant to the court’s determination that Black

Bear did not commit infringement? Ask students why the Second Circuit vacated the

trial court’s ruling against Starbucks on the dilution by blurring claim. (The trial

court concluded that substantial similarity was required for such a claim, but the

Second Circuit said that similarity—regardless of whether it was substantial in

nature–was enough under the Trademark Dilution Revision Act. That error by the

trial court may have affected its application of other factors relevant to a dilution by

blurring claim, so reconsideration of that claim was necessary.) As for the dilution by

tarnishment claim, why was there neither tarnishment nor likelihood thereof?

10. Note the 1999 enactment of the Anticybersquatting Consumer Protection Act

(ACPA), in which Congress sought to pay special attention to a problem that simply

did not exist two decades ago. Stress the importance of the “bad faith intent to profit”

element discussed in the text. Some cases of cybersquatting may also raise

infringement or dilution issues. The ACPA, however, attempts to meet the

cybersquatting concern head-on and with appropriately targeted remedies. The

ACPA is discussed in the Cyberlaw in Action box that appears at p.302.

E. Trade Secrets

1. Emphasize what a trade secret is and discuss the purposes of trade secrets law.

2. Be sure to mention that trade secrets law sometimes provides an alternative to the other

means of protection (mainly patent law) available to those desirous of protecting valuable

inventions.

3. Note from the section’s introduction that the main justification for providing a remedy for

the misappropriation of trade secrets is to uphold certain standards of commercial ethics,

and not to stimulate innovation. The main reason is the apparent view that the innovation

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stimulated by protecting trade secrets does not outweigh the disadvantages–mainly, the

harm to competition and the inability of others to further develop the secret–resulting

from secrecy.

4. Stress the text’s statement that in order to receive protection, owners need not adopt

extreme measures to block every ingenious form of espionage.

5. Go through the three major forms of misappropriation discussed in the text. See the

Coleman case (discussed below) and Problem #6.

6. Cover the basics regarding noncompetition agreements (see p. 303), though it should be

noted that such agreements sometimes go beyond being attempts to protect trade secrets.

Note the competing interests at stake in connection with noncompetition agreements.

Stress what courts tend to focus on when determining whether a noncompetition

agreement is enforceable or, instead, too broad to be enforceable.

7. Coleman v. Retina Consultants, P.C. (p. 303): The Georgia Supreme Court holds that a

noncompetition clause in a contract was unenforceable insofar as it went beyond the

former’s employer’s interest in protecting its trade secrets, where the noncompetition

provision contained no duration and purported to limit the former employee’s ability to

use even material that he had developed and that was not his former employer’s trade

secret.

Points for Discussion: Ask a student to summarize the basic facts. By virtue of its

decision here, is the court effectively granting Coleman permission to use his former

employer’s trade secrets? (No.) After this decision, what can Coleman lawfully do?

What can’t he lawfully do? Ask students questions that get at the problems with this

noncompetition agreement. What’s wrong with it, according to the court? Did the former

employer get anything out of this agreement over and above what it would have had

under the law even without this agreement? (No. Even without a noncompetition

agreement, Coleman would have had a common law duty not to use his former

employer’s trade secrets.)

F. Injurious Falsehood

1. A successful claim of injurious falsehood involves proof of the following: a) the

defendant’s communication, to a third party, of a false statement, b) that disparages

another’s business or property broadly conceived and thus causes harm to another’s

economic interests, c) with this harm taking the form of “special damages” (some fairly

tangible and provable form of economic loss), and d) some kind of fault or culpability on

the part of the defendant (see below).

2. The most common types of harm to the economic interests of another are comprehended

by the traditional torts of trade libel and slander of title discussed in the text. Other harm-

causing statements that do not involve attacks on the plaintiff’s property usually qualify

as well, however. Example: D falsely tells T that P has died, causing T to buy goods from

someone other than P. Or, suppose that D falsely tells T that P does not deal in certain

goods, thus deflecting a possible sale.

3. Note that the special damages discussed in the text are part of the cause of action for

injurious falsehood. For this reason, a plaintiff who cannot prove special damages also

cannot recover nominal damages, punitive damages, or injunctive relief.

4. It seems generally agreed among the states that some form of fault on the part of the

defendant is a necessary element of an injurious falsehood cause of action. In addition, it

seems generally agreed that negligence is not enough. Beyond these points, however,

there is variation from one state to another. The Restatement test stated in the text

(knowledge of falsity or recklessness in that regard) is probably your best alternative for

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class use, because it appears to represent a trend among the states. (This is the actual

malice concept–borrowed from defamation law. See Chapter 6.) Some states, however,

require proof of common law malice (ill will, spite motives, etc.). Other states require

proof of specific intent to cause economic harm.

5. Note the possible–and partial–overlap with defamation discussed in the text.

6. Note that all or almost all of defamation law’s absolute or conditional privileges apply in

injurious falsehood cases. On these privileges, see Chapter 6.

G. Interference with Contractual Relations

1. Probably the best way to break down the material in this section is to discuss: a) the

“threshold requirements” for liability, and b) the variety of factors relevant to

determinations of impropriety or privilege.

2. With respect to these threshold requirements:

a. Note that some hindrance to an existing contractual relation is needed. Most often,

this means that the third party breaches his contract with the plaintiff. However, the

tort almost certainly applies to any kind of interference that reduces the value of the

third party’s performance as well.

b. Note the wide variety of types of behavior that constitute interference. Refusals to

deal, however, are a problem area. (E.g., D says to T: “I won’t deal with you so long

as you continue your dealings with P.”) In view of the law’s general tendency to

respect a party’s freedom to deal, or not to deal, with whomever he chooses, courts

hesitate to make refusals to deal automatically unlawful. Such cases, however, fall

close to the line. Their outcomes depend upon the particular facts and circumstances

at issue. See Lewis-Gale, a text case discussed below.

c. Note the different types of existing contracts whose frustration will result in liability.

This probably includes oral contracts subject to the statute of frauds, contracts for

which a condition precedent has not been fulfilled, and unconscionable contracts.

Note also the types of “contracts” that can safely be interfered with. One example is a

“yellow dog” contract (which is forbidden by federal labor law). Finally, although

liability may result from interference with a terminable-at-will contract, liability is

less likely in such situations. See Lewis-Gale, a text case discussed below.

d. Finally, note that the interference with the contract must be intentional. There is no

liability for negligent interference with a contract.

3. The text’s discussion of “privilege” situations probably provides enough examples for

classroom use. The Carey Station Village case (a former text case now serving as

Problem #9) deals with this subject.

Lewis-Gale Medical Center, LLC v. Alldredge (p. 307): The Supreme Court of Virginia

overturns a jury verdict in favor of the plaintiff (Dr. Alldredge) in an interference with

contractual relations case. The court holds that the defendant (Lewis-Gale Medical

Center) did not employ improper methods and, in any event, the employment contract

allegedly interfered with was terminable at will.

Points for Discussion: Have a student summarize the basic facts. Note the terminable-at-

will nature of the employment contract between Alldredge and SWEP (the contract with

which Lewis-Gale allegedly interfered). Didn’t Lewis-Gale use some harsh tactics here?

Wasn’t calling Alldredge an “organizational terrrorist” pretty extreme? Why wasn’t that

improper? (Court says it wasn’t independently tortious, which is probably true.) Would

such a statement give rise to a good defamation claim? (Probably not. Given the

opinion-oriented, hyperbolic nature of the statement, it probably wouldn’t be seen as a

false statement of supposed fact.) But what good is an interference with contractual

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Chapter 08 – Intellectual Property and Unfair Competition

relations claim if the plaintiff effectively has to establish the defendant’s commission of

some other tort? How far should we let parties such as Lewis-Gale go in what the court

calls a “rough-and-tumble’ world? How big a factor in the court’s decision was the fact

that the contract between Alldredge and SWEP was terminable at will? (It was

significant. Although it did not expressly say so, the court suggested that less latitude

might have been extended to Lewis-Gale if the contract had not been terminable at will.)

One other consideration is worth noting here: the court’s indication that in using

aggressive tactics here, Lewis-Gale was looking out for its own legitimate interests.

H. Interference with Prospective Advantage

1. Emphasize how this tort differs from interference with contractual relations. Here, we are

concerned with hoped-for or likely business relations, not existing contractual relations.

Possible examples of interference with prospective advantage include: interferences with

the prospect of hiring employees; interferences with the prospect of obtaining

employment; interferences with the prospect of buying or selling products, land, or

intangibles; and even interferences with a business relation that does not involve an

actual contract.

2. Also emphasize that most of the “privilege” factors discussed previously apply in this

context as well. The exception is that interferences undertaken by competitors are much

less likely to produce liability where prospective advantages are involved. Recall that

such conduct often results in liability for intentional interference with contractual

relations if the defendant disrupts an existing contract.

I. Lanham Act § 43(a)

1. Section 43(a) appears at 15 U.S.C. § 1125(a).

2. Go through the text’s five applications of § 43(a)’s broad language. Example of a false

advertising claim that involves an omission and an ad that is not clearly false on its face:

a seller of artificial fur coats calls one of its brands “Normink” and does not disclose the

coat’s true nature. Problem # 11 deals with the type of statement that may violate § 43(a).

Time Warner Cable v. DIRECTV, Inc. (p. 310):

On a false advertising claim, the Second Circuit upheld the lower court’s preliminary

injunction against DIRECTV ads implying, falsely, that high-definition picture quality

could not be had on “basic cable.” It vacated a preliminary injunction against Internet ads

that depicted unrealistically poor “other tv” picture quality; this was puffery.

Points for Discussion: Should there be a puffery defense? Why is a nonspecific

misrepresentation worse than a specific one? The idea is that a competent, media-literate

consumer won’t fall for it. Is this an appropriate setting for another appearance by the

“reasonable person?” It is easy to see the sense in applying the reasonable person

standard to an allegedly negligent defendant. Such standards also serve to keep

“ultrasensitive” litigants from holding up the normal flow of adult society. But what

value is there in an ad that is designed to fool the gullible through puffery? Probably

none. But not all puffery is actually designed to fool somebody. In this case, it probably

would have been difficult to advertise the distinction between 720p and 1080i resolution

through anything less than puffery. The difference is subtle unless it is viewed on an

enormous screen. Ask the class how to market high-definition television effectively

without puffery. Is it even possible? How would you distinguish the name-brand paper

towel from the leading brand without puffery?

3. Note that when false advertising is present, it will be enjoined. A corrective advertising

order is also among the court’s arsenal of remedies for false advertising. If the party

alleging false advertising wants money damages, however, that party must adduce proof

of resulting economic harm. A commonly awarded item of damages is the plaintiff’s

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Chapter 08 – Intellectual Property and Unfair Competition

increased costs in countering the defendant’s false ads.

IV. RECOMMENDED REFERENCES

A. J.T. MCCARTHY, MCCARTHY‘S DESK ENCYCLOPEDIA OF INTELLECTUAL PROPERTY.

B. A. MILLER & M. DAVIS, INTELLECTUAL PROPERTY: PATENTS, TRADEMARKS, AND

COPYRIGHTS IN A NUTSHELL.

C. M. EPSTEIN, EPSTEIN ON INTELLECTUAL PROPERTY.

D. R. BROWN & R. DENICOLA, COPYRIGHT.

E. S. FISHMAN, THE COPYRIGHT HANDBOOK: HOW TO PROTECT AND USE WRITTEN WORKS.

F. S. KANE, TRADEMARK LAW.

G. K. MCGRATH & S. ELIAS, TRADEMARK: LEGAL CARE FOR YOUR BUSINESS & PRODUCT

NAME.

H. K. STUCKEY, INTERNET AND ONLINE LAW.

I. K. NORWICK AND J. CHASEN, THE RIGHTS OF AUTHORS, ARTISTS, AND OTHER CREATIVE

PEOPLE.

J. D. DOBBS, THE LAW OF TORTS.

K. Arlen W. Langvardt, Section 43(a), Commercial Falsehood, and the First Amendment: A

Proposed Framework, 78 MINNESOTA LAW REVIEW 309 (1993).

L. Arlen W. Langvardt and Kyle T. Langvardt, Unwise or Unconstitutional? The Copyright

Term Extension Act, the Eldred Decision, and the Freezing of the Public Domain for Private

Benefit, 5 MINNESOTA INTELLECTUAL PROPERTY REVIEW 193 (2004).

M. Arlen W. Langvardt and Tara E. Langvardt, Caught in the Copyright Rye: Freeing First

Amendment Interests from the Constraints of the Traditional View, 2 HARVARD JOURNAL OF

SPORTS & ENTERTAINMENT LAW 99 (2011).

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