• Recalls of Peanut Butter and Car Rentals: Product Liability

    It has been four years since the recall of peanut butter because of salmonella.  In that 2008 recall, one that affected all companies that used the peanut base manufactured by Peanut Corporation of America for their peanut butter cookies and crackers and other products.

    Four people died, Peanut Corporation of America went bankrupt, and the bankruptcy court ordered $12 million in assets distributed to the victims of the poisoning who had filed suit for the poisoning. Following that recall, the Food and Drug Administration passed new standards that require roasting the peanuts at a higher temperature in order to kill the pathogens that result in the salmonella contamination. However, last week, Sunland, Inc., the maker of Valencia Creamy Salted Peanut, had to issue a recall of its peanut butter, sold primarily by Trader Joe’s.  There were 30 people infected with salmonella in 19 states.  The recall has now been expanded by Sunland to include other Sunland products including almond butter, cashew butter, and various peanut products (100 in total) sold by other grocery and specialty stores.

    Recalls are strict tort product liability cases.  The presence of salmonella is a defect in the product and the harm caused is the illness experienced by the product's users. In strict tort liability, the manufacturer cannot defend on the grounds that there was no knowledge or that there was compliance with regulatory standards.  Liability results because the product is defective, and, in the case of Sunland, the product contained salmonella. The private product liability suits are separate from any administrative actions taken by the FDA.  In the Peanut Corporation of America case, the Department of Justice pursued a criminal investigation against the company for allegedly concealing the company's finding of salmonella even as it continued to sell its products.

    Another recall surfaced last week as well.  However, the issue in this recall was that rental car companies were not complying with the recalls by manufacturers of cars that were part of the rental car companies' fleets.  The rental car companies continued to rent the cars without the recall repairs and also allowed them to be part of fleet sales without the repairs. However, Congress has passed a new law that requires rental car companies to pull recalled cars within 48 hours of notification.  Under the legislation, the cars also cannot be sold with the recall fixtures unresolved.

    While the car rental companies would not have product liability (because they are not the manufacturers), there could be a negligence action against them for their failure to take action when they were aware of defects in their vehicles.

    Discussion Starters

    1. What is the liability difference between the peanut butter recall and the car rental recall?

    2.  When does the government take criminal action against a company when there is a recall?


  • Breach of Contract: Penguin Publishing Co. Sues Non-Producing Authors


    A contract is an agreement between two or more people that is enforceable in court. The law requires that each party to the contract do what the terms of the agreement require be done. Failure to perform constitutes breach of contract and can give rise to a lawsuit.  The nonbreaching party is generally  entitled to recover that amount of money that it  lost due to the nonperformance of the other party.  This is basic contract law.


    These rules are illustrated in a recent lawsuit brought by Penguin, a large book publisher, in lawsuits against several authors.  In each case, Penguin had a contract with the writer requiring submission of a manuscript by a specified date.  In return, Penguin agreed to publish the manuscript in book form (and possibly audio CDs, MP3 format, and any other available methods) and pay the author royalties on sales.   A royalty is a specified percentage (often 15%) of the sales price paid to an author for each book sold.  The royalty is the writer’s compensation for preparing the manuscript.  Additionally, each contract entitled the author to an advance against royalties (often called “an advance”) of a designated amount.  An advance is money paid by the publisher when the contract is signed to assist the writer financially during the often year(s) long process of creating the book.  Once the book is published and generates royalties, the publisher repays itself the amount of the advance from the author’s royalties.  Stated differently, once sales begin the author gets no additional money until the advance has been paid off.


    In the lawsuits brought by Penguin, the authors received an advance, failed to submit a manuscript by the deadline or thereafter, and retained the advance.  Penguin seeks return of the advance and interest.


    The authors involved include the writer of Prozac Nation, Elizabeth Wurtzel who received an advance of $33,000 in February, 2003 for a book to help teenagers cope with depression.  The work was due by 2008 but never delivered.  Penguin seeks return of the $33,000 plus $7000 interest.


    The founder of Wonkette, described by Wikipedia as  a “left-leaning American online magazine of topical satire and political gossip,” received an advance in the sizeable amount of $81,200.   The manuscript was due in 2007 but never produced.  A writer for the New Yorker magazine received $20,000 and failed to submit the work.  She too is being sued.


    You might wonder why Penguin is not suing for the profits it would have made on sales of the books.   For a plaintiff to collect damages for breach of contract, the amount lost must be reasonably certain.  How many copies a book would sell is an unknown and not easily predicted.


    As an alternative to an advance, an author can attempt to negotiate a grant.  This is money paid outright to some authors for expenses anticipated in the writing process.  Unlike an advance, a grant is not a payment against royalties, meaning the author is not expected to reimburse the publisher for it.  However, the contract between the parties will likely specify that entitlement to retain the grant is contingent upon completion of the project.

    For additional information, click here.



    1) Why does the law require that damages be proven to a reasonable certainty in amount?



  • U.S. Law and Safety Standards Are Not Global

    Grace Weinberg and Harvey Marron, Florida residents, planned an African safari vacation through a Massachusetts travel agent, Overseas Adventure The agent worked through an overseas booking agent, Tourism Services, a Tanzanian company, and an English company, Serengeti Balloon Safaris, LTD, to arrange for, among other things, a hot air balloon trip in Tanzania. No doubt they hopes to see sights as in the photo above.

    The day of the balloon trip, it was windy and some balloon rides were cancelled, but not the one involving Weinberg and Marron. The balloon lacked some safety equipment that would be standard in the U.S., and was flown by a trainee pilot. When the balloon descended, wind caused it to crash into a tree, killing Marron and another passenger, and injuring Weinberg, who waited four hours in a remote area to be rescued.

    Weinberg and the estate of Marron sued all parties involved in the balloon event in federal court in Massachusetts for gross negligence, seeking compensatory and punitive damages.

    The foreign defendants moved for dismissal, arguing that the court did not have personal jurisdiction over them. Plaintiffs argued that the court did have jurisdiction under the Montreal Convention that applies to passengers injured in air carrier accidents. They argued that the Convention applied to balloon flights as well as airline flights.

    The court held that it did not have personal jurisdiction over the foreign defendants because due process requires that a defendant has maintained “certain minimum contacts” with the forum state (Massachusetts). They did not, nor does the Convention apply.

    “A hot air balloon tour within the country of Tanzania that was accidentally swept by wind did not include an ‘agreed stopping place within the territory of another State’ and is therefore not covered by the Montreal Convention.” Hence, the English and Tanzanian defendants are dismissed.

    The suit against the Massachusetts travel agent may proceed. The court noted that the case demonstrates a “lamentable truth – that where personal jurisdiction is limited, the parties most culpable may escape liability, leaving the burden of recovery on defendants close to home – even when they are undoubtedly less culpable.”

    Discussion: Why don’t the plaintiffs sue in Tanzania? Should a travel agent in the U.S. be expected to know of all the possible dangers of adventures around the world? Is it reasonable to expect safety standards in an impoverished African country to be the same as would be expected in the U.S.?

  • Breach of Warranty or Puffing? Long- Wearing Lipstick Claims


    Vibrant-colored  lips are portrayed in pop culture as alluring, sexy, sassy, beautiful  and fun.  You will find no bare-lipped model on the cover of a fashion or lifestyle magazine.   Stand-out lips is a look that many young women seek to emulate. 

    And so it is frustrating when, after primping to go clubbing or wherever else is on your agenda, a woman looks in the mirror an hour or so later and her lipstick has faded or totally disappeared.  It is even more irksome when she was induced to purchase the lipstick by claims from the manufacturer suggesting that the make-up would last  a long time without diminishing in color. 

    Maybelline sells a lipstick titled, “14 HR Lipstick, ”and a gloss named “Super Stay 10HR Stain Gloss.” Promotional materials for the products reference the makeup’s “super staying power” that “won’t fade.”  And the gloss is advertised as staying “vibrant and shiny, yet transparent, and won’t fade” for 10 hours. 

    Some fashion-conscious women who bought the products and were disappointed when the makeup faded quickly have filed a federal lawsuit against Maybelline claiming it falsely represented the staying power.  The  complaint (the pleading issued by plaintiffs) alleges that the supposed long lasting lip covers  “:wear off and fade after only a few hours of wear.”  Said one plaintiff, “You eat breakfast, and there goes your lipstick.” 

    The plaintiffs are suing for breach of warranty (violation of an express or implied claim made by a seller of a product) and violations of various consumer protection laws (laws passed by state legislatures to protect consumers from business fraud.  This genre of laws typically requires truth in advertising and outlaws false or  misleading statements.    

    Plaintiffs seek compensatory and treble damages (three times the actual loss; authorized by some states’ consumer protection statutes), and an injunction  (court order requiring someone to stop doing something; in this case, requiring Maybelline to cease  misrepresenting the capabilities of  its products).  

    Why treble damages?  The states want to protect consumers.  Sometimes the amount of money lost is too small to motivate gypped buyers to sue.  Treble damages can make the difference between a guest bringing a lawsuit and foregoing it upon a cost/benefit analysis.  

    The make-up company issued a statement saying, "Maybelline strongly believes that this lawsuit has no merit and stands proudly behind our products."

    A defense Maybelline will likely assert is puffing, which is an obvious exaggeration that no one would believe as truthful.  By contrast, a warranty is a statement of fact.  If the warranty becomes part of the basis of the bargain (if it was relied upon by buyer when making the decision to purchase) and is untrue, buyer can sue for breach of warranty and will be entitled to compensatory damages. 

    For more information, click here.


    Which of the statements create warranties, and which are puffing?

     a) This lipstick will last 14 hours without facing.

     b) This lipstick will remain vibrant for many hours.

     c) The name of this lip gloss is 10HR lip gloss.

     d) This lipstick has super staying power.

    e) This lipstick is shiny but transparent.










  • Algorithms, Your Personality, Your Job Interview, and EEOC Discrimination

    The Wall Street Journal reports that Xerox was basing its hiring decisions for its call centers on experience, but that hiring model resulted in high attrition rates.  Often, the call center employees did not stay long enough for Xerox to recoup the $5,000 it costs the company for training.

    To fix the problem, Xerox ran personality tests on the call center employees who stuck around and discovered that the most important factor in retaining these employees was their personalities. For example, inquisitive personality types do not last in the job, but creative individuals do stick around.  Xerox now uses sophisticated computer models to screen potential employees using personality tests.  For example, candidates for the job who choose this personality trait description, “People who know you think of you as thoughtful,” are well suited for the call center. Someone who chooses the option of just liking to dive into a job without a great deal of planning fit the profile for sales positions. You can take the test above to see how you would fit for certain jobs.

    These personality screens can also help companies with other issues, such as the number of worker compensation plans.  For example, potential employees are asked to rate how strongly the agree or disagree with the statement, “I’m only concerned with how well I can do financially in my job.”  Their scores on rating these types of statements are used for screening.  Since one company began using the screening, its worker compensation claims have dropped 68% because Exemplar Research Group has been able to screen out applicants who will be a burden with excessive claims.

    One problem that has resulted from these sophisticated computer models is that those who are not chosen for the jobs are asking why and alleging discrimination.  As the Wall Street Journal notes, “Bigger data sets can raise the risks of violating the law by increasing the number of statistical relationships that could unwittingly screen out protected groups.” Joseph Walker, "Meet the New Boss:  Big Data," Wall Street Journal, September 20, 2012, p. B1.

    The Equal Employment Opportunity Act and other federal laws prohibit discrimination on the basis of race, sex, national origin, age, and religion. Discrimination can be intentional such as not hiring someone for a job because she is pregnant.  However, discrimination can also result from disparate impact, which means that the screening processes an employer uses results in screening out by gender or race.  An applicant who is denied a job could allege discrimination and would then have access to the data from the tests that would reveal the impact on the protected categories. For example, one company had its test for potential employees invalidated for entry-level workers because the math questions tested for a skill that was not necessary and there was a disparate impact on certain applicants.

    The computers and algorithms may be correct in predicting job success, but they cannot, however unwittingly, screen out those who are qualified and would do the job but who are anomalies according to the diagnostic tests.

    Discussion Starters

    1.      Why are the tests used?

    2.     What problems can companies run into when using questions based on data bases?  

  • Fix Prices: Go to Jail, Do Not Pass Go

    One of the largest fines in antitrust history was imposed on the Taiwanese company, AU Optronics, a large maker of liquid crystal display (LCD) screens used in televisions, computers, and other electronic devices. Rather than plea bargain, the company and its executives gambled and went to trial. It did not go well.

    The firm was fined $500 million and two top executives were each sentenced to three years in prison for masterminding a price fixing scheme for screens. (The average time in prison for antitrust violations is two years.) Since 2008 other firms involved in the scheme, including LG and Sharp, have pleaded guilty and paid $900 million in fines to settle the complaint. The company must also publicize the result of the verdict in industry trade journals.

    Since the Department of Justice hit the antitrust jackpot, private parties and state attorneys general are piling on with complaints in an effort to extract payments.

    They may have to wait in line as the company does not have enough cash to pay the fine and may face liquidity problems as customers bail out and billions in loans to the company are being called because such corporate loans contain “adverse change” clauses that allow the lender to demand payment early because of problems such as this one.

    Discussion: Why would a large group of people think they can execute a conspiracy without the word getting out or someone breaking ranks and going to the government to rat out the conspiracy?

  • LuluLemon vs Calvin Klein: Yoga Pants Infringement

    Lululemon Athletica has filed suit against Calvin Klein for infringement of its design patents on its $98 yoga Astro Pant.  Calvin Klein is selling its own yoga pant, one that looks very similar to the Lululemon pant, for $19.99.

    Lululemon has obtained two patents for its pant’s distinctive waistband with overlapping panels of fabric. The diagrams below appear in Lululemon's complaint, which was filed in federal district court in Delaware, and the diagrams were used to obtain a patent for the unique waistband.

    Clothing designers and manufacturers have been successful in obtaining intellectual property protection for unique aspects of their products, such as logos and, as noted in the blog here on September 8, 2012, shoes with red soles. Lululemon has been very successful, with sales topping $1 billion last year. The company, which is Canadian and begun in 1998, has captured the upscale young professional market with its high-priced fitness wear.  Its share price is at 46 times earnings. Ashby Jones, "Downward Docket:  The Yoga Pants War," Wall Street Journal, September 12, 2012, p. B1.

    In addition, design patents are on the increase.  In 2005, there were 12,951 patents issued.  In 2011, there were 21,356 patent issued. an active area of litigation, with some success, with Apple’s victory over Samsung (see the September 7, 2012 blog entry). This growing area of law has the attention of companies and lawyers, and the Lululemon case is one they will be watching because the courts will be offering some clarification of what is or is not patentable. The focus of the case will be on whether the pant design is something unique enough to be protected.

    Discussion Starters

    1.  What does Lululemon have a patent for?

    2.  Is it possible to patent features of clothing?

  • Football Referees Locked Out by NFL; Replacement Workers Blunder


     The national football referees have been locked out of work since June.  A lockout is refusal by an employer to permit employees to work during a labor dispute with management.  Laborers receive no pay during a lockout  and so it is often an effective tool for management to convince employees to settle quickly.  

      During the NFL lockout, the league has replaced the referees with others whose skills  have been seriously challenged.  Coaches, players and spectators are not happy.  Meanwhile the referees and owners remain at odds on important provisions being negotiated for the collective bargaining agreement. 

    A collective bargaining agreement is a contract between management and unionized workers that addresses conditions of employment, such as hours of work, required tasks, wages, days off, health insurance, etc.   The agreement is the product of negotiations during which  the union typically seeks enhanced pay and benefits, while management tries to minimize increases and thus contain costs. Unions are based on the concept that numerous employees  banning together have a stronger voice when addressing work issues with management than if any individual employee a benefit from management acting alone. 

    The issues that the referees and team owners have not agreed upon include hiring of additional referees, pay, and pension (retirement) plan.  Concerning the number of workers, management wants to increase the referee staff while the union objects saying that will result in decreased pay for existing referees.  The arrangement currently provides that management gives the union a sum of money for wages that is divided among the refs. Thus, the more workers, the less pay per person.  Concerning pensions, management wants to discontinue them as currently configured and adopt instead a less favorable plan.  Rather than traditional pensions now in place, team owners  want to utilize a plan known as 401(k), which refers to the section number  of the internal  Revenue Code where the plan is referenced.  Whereas  traditional pension plans are typically funded entirely by employer contributions, 401(k)  plans are funded largely by workers.     

    Bad calls are not the only problems created by the substitutes,   One of them, assigned to begin a game between the New Orleans Saints and Carolina Panthers, failed to disclose that he was a fan of the Saints.  Like judges, referees should be unbiased.   When the information was disclosed shortly before kick-off, the referee was removed from the game. 

    For more information, click here.


     1)  Why do striking workers not like replacement workers? 

    2) What would prompt an employer to lockout workers?





  • Twitter Avoids Contempt Charges; Submits Customer's Tweets to Court


    Twitter teetered on the brink of contempt, having resisted a judge’s order to produce three months of tweets issued by a protestor of the Occupy Wall Street (OWS) movement.  The OWS participant is charged with disorderly conduct based on his participation in a mass march across the Brooklyn  Bridge in New York City.   The protestor, Malcolm Harris, claims that the police led the marchers onto the highway and then began arresting people because they were impeding traffic. The prosecution disputes the allegation that police misled the protestors.  700 others were arrested in the same incident.

    A subpoena  (a court order requiring either that someone appear in court or that specified documents be delivered to court) seeking Harris’ tweets was necessary because they are no longer public.  Although they once were, they have either been deleted or have passed beyond the finite number of old tweets that is publicly available.

    Twitter contested the right of the prosecution to obtain the tweets.  The district attorney’s office challenged Twitter and a judge ordered on June 30th, 2012 that Twitter must produce the tweets.  The judge gave Twitter had 73 days in which to comply. 

    Disregard of a court order is contempt of court.  Contempt can be both civil and criminal.  You may recall cases involving reporters who refuse to reveal their sources.  Such refusals have landed some reporters in jail for criminal contempt. The penalty for a corporation is a fine.  The trial judge announced that if Twitter failed to comply, he would review the company’s earnings statements for the last two quarters to determine an appropriate monetary penalty. 

    Twitter, believing its users have privacy rights to past tweets, is appealing the decision requiring the tweets be produced.  Recognizing that the appeal would take longer than the 73 days in which Twitter was ordered to comply, it sought a stay, which is a temporary hault to enforcement of a court order until the appeals court has ruled.  The judge denied the request  for the stay. Twitter’s 73 days expired on September 14th; it had to release the tweets or face punishment for contempt.

    The big day came and Twitter was creative. It first asked the court to reconsider the refusal to grant a stay but the court declined.  Twitter then offered the judge a sealed envelope with the sought tweets enclosed and requested that the seal remain until the appeals court rules. The judge agreed to keep the records sealed at least until the next court proceeding in the case.

    Harris had sought to assert his own claim to privacy in an effort to keep the tweets private.  However the trial judge ruled that he lacked standing to contest their release because the tweets belong to Twitter, not the tweeter.   Standing means that a would-be party to a lawsuit has a sufficient personal interest in the outcome to qualify as a plaintiff.

    The ultimate decision on disclosure requirements of twitter will have far reaching effects for free speech given the expanded circumstances in today’s ever-evolving technological world in which digital commentary is stored on the servers of third parties.  When can those third parties be forced to disclose information users store? Likewise unclear is the application in the digital world of the Constitutional right against unreasonable searches and seizures which requires probable cause before police can search private spaces.  Is internet storage space a private place?

    This case illustrates yet another interesting aspect of the law.  When society evolves into new terrain, often the law is not yet developed.  Rather, it is created as need dictates.  Thus, the first case to address an issue often is frustrated by the lack of applicable law.  Case in point:  The first time someone sent out a computer virus there was no statute that specifically prohibited it because the concept of a computer virus was unknown in the law. 

    Stay tuned for the development of more law, courtesy of Twitter and Mr. Holmes.

    For more information, click here.


    1) What prompted Twitter to resist the request of the prosecutor for the tweets?

    2) What do you think will be the decision on appeal?  Why?

  • Cruising for Liability

    Carnival Cruise is a large company, which, like many, operates numerous subsidiaries. When problems arise at sea, the company can fall under maritime or admiralty law, which has a number of provisions different from familiar domestic land-based law. For example, an American employee of an American ship, if injured on the job, must look to admiralty law, not workers compensation, for resolution.

    If a passenger is injured on a cruise ship, the passenger must prove negligence much as in regular tort law, but terms of ticket purchase can control, and usually require suits to be brought more quickly than may be the case under tort statute of limitations.

    As with other businesses, the question can arise of how far liability for injury to clients can extend? For instance, in 2010, Liz Marie Perez Chaparro, age 14, was killed when on a bus ride in St. Thomas, Virgin Islands. She was on a Carnival Cruise with her parents. When the ship docked in St. Thomas, the family took an open-air bus to see Coki Beach. While on the bus, a fight broke out among rival gangs and Chaparro was killed as bullets were fired.

    Her parents contended Carnival was negligent as an unknown ship employee suggested the visit to Coki Beach. The company should have warned passengers of the such dangers on St. Thomas. Carnival argues that it did not encourage such a visit and had no control over what some employee said. Further, under maritime law, it should not be responsible for what happens to passengers when they visit islands while on a cruise. The gang shooting was unforeseeable.

    The federal district court dismissed the suit, but the Eleventh Circuit Court of Appeals reinstated that case noting that “The facts alleged in the complaint are plausible and raise a reasonable expectation that discovery could supply additional proof of Carnival’s liability. …Carnival’s argument on foreseeability is more appropriate after discovery at the summary judgment stage or at trial.”

    Carnival is also being sued deaths and injuries suffered when an Italian subsidiary cruise ship struck rocks off the coast of Italy. Plaintiffs want the case brought in U.S. court; Carnival argues that suit should be in Italy against the Italian subsidiary.

    Discussion: Cruise line passengers usually disembark on various islands. How far should the liability of the company extend once passengers head off on an excursion provided by another company or if the passengers are on their own?

  • Chris Brown and Drake Sued by Nightclub Owners for Costs of Their Brawl


    It appears that feelings for singer Rihanna launched a battle between rappers Chris Brown and Drake.  On June 14, 2012, Brown and Drake, who have both dated Rihanna, were at the WiP nightclub.  Trouble began when Brown sent a bottle of champagne over to Drake’s table.  Drake sent the bottle back to Brown. Some say the artists then clashed and harsh words were spoken. Others say no such thing happened.  Be that as it may, the entourages of the respective artists got a little testy and initially battled by tossing ice cubes at each other.  The battle escalated to tossing glasses, bottles, and then to brawling.  WiP’s  security was unable to manage the melee, which then spread into an adjoining nightclub, the upstairs nightclub, the Greenhouse Club. 

    Seven people were injured, including basketball player Tony Parker who suffered an eye injury when broken glass struck him in one eye. Mr. Parker has sued WiP for $20 million.  Another injured patron, a model, has sued both Greenhouse and WiP alleging that both were negligent for not having sufficient security and for continuing to provide patrons with alcoholic beverages when they were clearly intoxicated. No charges were filed.

    Both clubs lost their liquor licenses for a time. Both were reopened after agreeing to pay a fine and have more security. Greenhouse lost a national $4 million licensing deal that was pending at the time of the brawl.  As a result, WiP and Greenhouse have filed suit against Brown and Drake seeking damages for their loss of reputation, property damage, and their tarnished name because the clubs are now associated with “the kind of violent, life-threatening riot engaged in by Brown and Drake.” The suit alleges that the clubs’ names and brand are now worthless. Greenhouse has had earlier fines from the State Liquor Authority for other fights and bad behaviors at their club. Among the allegations in the suit are the following:

    “Each ordered his security personnel, bodyguards, friends and entourage to joint the fight, which erupted into a violent brawl on a massive scale.”

    [Those participating] “fashioned deadly weapons out of whatever materials they could find, including glasses, alcohol, bottles and furniture.”


    The suit is one for negligence and the defense is likely to raise these issues:  Did WiP and Greenclub have adequate security?  Did the two clubs serve already intoxicated patrons?  In other words, what caused the melee, the behavior of the two artists and their groups or the inaction and actions of the clubs' management? The case will focus on what happened and whether there was any way the fight could have been prevented or stopped prior to the injuries to the seven people. The suit notes that the two artists should have realized their fame would result in the type of widespread violence that overtook the clubs, calling what happened on the part of the artists, foreseeable.

    Discussion Starters

    1.  Was the conduct of Drake and Brown intentional?  Are you liable for damages from intentional conduct that results in injury?

    2. Can they be held liable for the actions of their entourages?  Or is there liability of the principal for the acts of an agent that are unauthorzied?  Or did they authorize it by saying nothing?


  • Obama HOPE Poster Artist Settles Copyright Case; Sentenced for Criminal Contempt


    Shepard Fairey is an artist and designer who has been featured on the covers of Time and Esquire magazines.  His poster (shown above on the right), portraying then candidate Barak Obama with the word “Hope,” was a prominent image of the 2008 election.    

    The Associated Press (AP) claimed the drawing on the poster was copied from a photograph taken by the company’s photographer, Mannie Garcia (shown above on the left).  The AP thus claimed that Fairey infringed its copyright and demanded payment for the photo’s use,   The AP also sought a portion of the money Fairey made from the poster.   

    A copyright gives the creator of certain works the exclusive right to use and reproduce the work.  Other people cannot  use or copy the work without the permission of the copyright owner.  The following can be copyrighted: art work including photography, writings of all types, software, movies and performances, and music.  

    In this case Fairey did not copy the original photograph exactly but instead used it to inspire his poster.  Does that constitute copyright infringement?.  The answer is yes, because one of the exclusive rights associated with copyright ownership is the right to make derivative works.  A derivative work is a new, original product that includes aspects of a preexisting, already copyrighted work.   Absent perrmission from the copyright owner to use aspects of the copyrighted work, the creator of a derivative work infringes the owner's copyight.

     In response to AP’s demand for payment for infringement, Fairey refused and sued the Associated Press claiming his use was protected by the fair-use doctrine.  That rule allows certain, restricted uses of copyrighted material without the copyright owner’s permission for such purposes as teaching, news reporting, commentary, and scholarship, provided the user does not profit from the use.  Fairey claimed in the lawsuit that he used the photograph only as a reference and transformed it into a “stunning, abstracted and idealized visual image that created powerful new meaning and conveys a radically different message” from that of Garcia’s photo.  Eventually Fairey and the AP settled the case with Fairey paying $1.6 million. 

    In addition to the civil case, Fairey was charged with the crime of criminal contempt for destroying documents and fabricating others in an attempt to hide his use of the copyrighted photograph.  The crime of criminal contempt  covers a variety of conduct, much of which has in common that it violates a court order or rules of the court designed to achieve an orderly process for the resolution of disputes. Fairey  ultimately pled guilty saying he altered evidence because he was “embarrassed and scared.”  In a statement he  said that “violating the court’s trust . . . was the worst thing I’ve ever done in my life.”  He apologized to the art world saying, “I let down artists and advocates for artists’ rights by distracting from the core Fair Use discussion with my misdeeds.” 

    The prosecution sought jail time as the sentence for Fairey’s criminal contempt. He faced a maximum of six months.   The judge instead sentenced him to two years of probation, a fine of $25,000 and 300 hours of community service.  One reason for excluding a jail sentence is that Fairley suffers from Type 1 diabetes which has necessitated two eye surgeries and could not be properly treated in custody.  When a judge sentences a defendant, numerous factors are considered including his health. 

    Probation means that in lieu of jail Fairley will be supervised by a probation officer to ensure compliance with the law henceforth.  Fairey will need to report to the officer with whatever frequency the officer determines (weekly, monthly, etc)..  Additionally Fairey will be subject to certain terms of probation such as attending any mandated treatment and avoiding further arrests.

     The community service component of his sentence will require that he perform volunteer work for a not-for-profit agency.  Often the work involves maintenance tasks, filing, or other routine work.  Given Fairey’s position in the art world, his community service might better involve teaching art to Underprivileged children or working for an organization that assists under-employed artists.

    For more information, click here.


    1) Should Fairey's use of the AP's copyrighted photo have been protected by fair use?  Why or why not?



  • Who Likes Who? Not Always the State's Business

    The Eighth Circuit Court of Appeals, in a 6-4-1 ruling, reversed the denial of a preliminary injunction on reporting requirements under Minnesota law for associations that are not PACs (political action committees). The court remanded the case to the district court for further proceedings, but noted that major parts of Minnesota’s political campaign finance reporting requirements are “most likely unconstitutional.”

    Under the law, companies that wish to make election-related expenditures can contribute to an existing political fund or create their own such fund. Such funds must make disclosures to the state about their source of funds and activities. Opponents claimed the law violates the right to make contributions to political parties, campaigns, or candidates.

    The court held: “By subjecting political funds to the same regulatory burdens as PACs, Minnesota has, in effect, substantially extended the reach of PAC-like regulation to all associations that ever make independent expenditures.” Such a requirement would “chill political speech.” The requirement that all associations, business or not, make expenditures through an independent political fund that must report to the state is likely to be stricken by the lower court on remand. The law applies to every expenditure of $100 or more. Hence, if the owners of two barber shops wish to contribute $60 each for a political sign, they would face numerous regulatory reporting requirements as a political association.

    The decision is in line with the Supreme Court’s Citizens United v. Federal Election Commission decision that prevents the government from barring restriction on corporations’ and unions’ independent political expenditures. Details of the decision remain to be determined at district court, but the expectation is that much of the law will be stricken.

    Discussion: Why would the state want to know all the details of who is spending what on campaign support?

  • The Red Shoe and the Red Sole: A Battle Between Designers


    In a case that has been bouncing about the federal court system, an appellate court has made a ruling on red-soled shoe that carries significance for its interpretation of the Lanham Act (trademarks) and for designers and their distinctive trademarks. Christian Louboutin v. YvesSaint Laurent America Holding, Inc. et al., --- F.3d ----, 2012 WL 3832285 (2nd Cir.)

    French footwear designer, Christian Louboutin, brought action against designer Yves Saint Laurent (YSL), alleging that YSL violated the Lanham Act by producing “high fashion” shoes with Louboutin's trademarked, signature lacquered red outsoles. Louboutin claimed trademark diluation. YSL counter–claimed in the suit for cancellation of designer's trademark registration. Although the companies tried to settle the suit, the result was an intellectual property battle over the exclusivity of the colored sole. The federal district court denied Louboutin's 2011 motion for preliminary injunction, and Louboutin appealed.

    The appellate court held that Louboutin’s red soles had acquired a secondary meaning.  That is, the presence of the red lacquered outsole was significant to customers – the red sole was a signal that it was a Louboutin shoe.

    Generally, color is protectable as a trademark only if has become a symbol that distinguishes a firm's goods and identifies their source, without serving any other significant function. However, it is possible for a color to be a trademark if the company seeking protection can establish that the color/trademark is distinctive.  And a mark is distinctive if it serves to identify a particular source for the product. Even a mark that is not inherently distinctive may nonetheless “acquire” distinctiveness if it acquires a secondary meaning in the public eye. The best way to explain whether this occurs is to ask whether the public uses a product feature to identify the source of the product rather than the product itself. For example, the public, looking at the shoe picture above would not say, “That’s a women’s pump,” but would say, “That’s a Louboutin shoe.”

    Once “distinctiveness” is established then the court must determine whether the use of that mark by a competitor is likely to cause confusion. The court found that another company using the different color soles on shoes would cause confusion.

    One of the significant issues in the case was the fact that YSL was developing a line of red shoes with red soles, yellow shoes with yellow soles, purple shoes with purple soles, and so on.  Louboutin wished to stop the use of lacquered colored soles in this fashion.  However, the court held that the distinctiveness came from the outsoles' color contrast with the different color of the shoes. As a result, the court granted an injunction for Louboutin that protects its distinctive red outsole, but was unwilling to stop the line of YSL shoes with soles colored to match the shoe color (its monochromatic line).

    Discussion Starters

    1. What lessons are there for brand owners from this case? Read more here: http://www.managingip.com/Article/3086205/Managing-Trade-Marks-Archive/Lessons-for-brand-owners-from-Louboutin-v-YSL.html

    2.  How does a trademark acquire secondary meaning?

    3.  How can a color be trademarked?





  • Many Smartphone Patent Lawsuits Worldwide; Apple and Samsung Talking Truce


    As discussed in an earlier post, Apple won its patent jury trial against Samsung  in this country, and was awarded the sizeable judgment of $1 billion.  The verdict was an important victory for Apple in the smartpone and tablet businesses, both of which are lucrative and competitive.  But the markets for those products are global, and this decision is not binding worldwide.  Indeed, a Japanese court  has rejected similar patent claims, dismissing Apple’s case there.  Apple has several other patent infringement cases still pending in Japan against Samsung.  Among the technology involved in those cases is the bounce-back effect , applicable when a user scrolls to the end of a list on the iPhone or iPad.  Tit for tat.  Samsung has sued Apple in Japan, claiming both the iPhone and iPad infringe on Samsung’s patents. 

     A judge in South Korea,  Samsung’s home base, issued a split decision.  It found that Samsung violated Apple’s patents on the bounce-back feature, and banned in South Korea sales of Samsung products using that technology, including the popular  Galaxy S2 phone. That same court also ruled that Apple violated Samsung’s patents on  telecommunications technology, and ordered that Apple cease sales in that country of the iPhone 3GS, iPhone 4, iPad 1 and iPad 2. 

    Courts in some European countries, including Netherlands, France, Italy and Germany, have ruled that Samsung did not violate Apple’s wireless patents.  

    Why the different outcomes?  Patent laws are not the same from country to country.  Further , the US is the only major country where patent disputes are tried before juries.  Foreign companies often face a higher risk of losing cases in such settings, perhaps because of a preference by  jurors for the hometown company.    

    Lawsuits are costly, both financially and time-wise.  Outcomes are unpredictable given the various laws and legal systems of different countries.  Further, as one analyst commented, “Mobile devices are very complex.  No one company owns all the intellectual property that goes into making a mobile phone.”  Indeed, whereas Apple owns many patents on design and user-interface features, Google, which  provides the operating system for Samsung (Android) , owns numerous communications and network-related patents. 

    A wise business decision in such circumstances is to consider a negotiated resolution of the disputes to avoid the expense and unpredictability of the various courts.  It appears Apple and Samsun are attempting exactly that.  They are meeting to discuss patent issues, and have plans to continue the dialogue.  

    For more information on the Japanese case, click here. 

    For more information on the South Korean case, click here.

    For more information on the settlement discussions between Apple and Samsung, click here.


    1) What do you think was the primary motivation for the two companies to enter discussions to resolve their patent issues?

    2) What bargaining power does each side have?

  • Twitter, the First Amendment, & Making Money


    It’s a tight-rope task.  The task is dealing with what account holders post on Twitter even as Twitter tries to make money as well as deal with governments in other countries that are not as tolerant of criticism and dissent as our First Amendment allows.  For example, during the London Olympics, a Twitter account holder and British journalist, Guy Adams, was tweeting criticisms of NBC’s coverage of the games.  However, NBC is a Twitter partner.  Mr. Adams’ account was suspended after a Twitter employee working in the partnerships area of the company told NBC to file a complaint.

    Hell hath no fury like those who wish to preserve their unalienable right to tweet.  Their outrage caused Twitter’s general counsel to apologize, restore the account, and explain that Mr. Adams’ account was suspended because he had included an NBC executive’s email address in his tweet, something that violates Twitter user policies. You can read more at Somini Sengupta, "Twitter's Free Speech Defender," New York Times, September 3, 2012, p. B1.

    Twitter’s general counsel, Alexander Macgillivray, works diligently to balance Twitter’s basic policy of not scrutinizing tweets along with the need to work with other country’s government, and continue to make money through its partnerships, such as the one with NBC.

    The basics of its international policy are that it does not remove any tweets unless someone asks and only if the tweet violates a country’s laws. In addition, Twitter has some universal rules such as suspending the accounts of those who pretend to tweet as someone else.  In one case this summer, several accounts were suspended because the tweeters pretended to be the prime minister of India.

    In the United States, Twitter does not experience government censorship, which leaves the tweeters to post what they wish, within user guidelines.  However, the concern is that with its corporate partnerships, Twitter is beholden to those partners who may, as NBC did, request review of posts or even suspension of accounts for posting negative thoughts about those partners.   

    The other legal issues Twitter faces relate to, for example, defamation (libel) in the written posts.  Posts often contain defamatory information and Twitter enjoys a sort of quasi privilege that allows it to escape liability if it removes the post upon request.

    Discussion Starters

    1.  What are the Twitter policies on censorship?  When and why?

    2.  Why is Twitter protected when there are defamatory remarks posted?

  • Full Moon at Work Costs $2 Million

    Jason Selch, an investment analyst, went to work for Wagner Asset Management in 1994. The company went through several changes of ownership and was finally owned by Bank of America (BOA).

    Selch had an employment contract that, at the time of his being fired in 2005, would have allowed him to collect $2 million in case of termination, unless the termination was for cause as stated in the contract.

    Selch learned that a friend of his had been fired by BOA. Being upset, he went into a conference room in which several executives involved in the firing were meeting. Selch made a few comments and “proceeded to unbuckle his pants, pull them down, and ‘moon’” the executives. He pulled up his pants and stated that he hoped the most senior executive, who was visiting the Chicago office from New York, would never come back to Chicago.

    After Selch departed, the executives wrote up the incident and met with company counsel. There was no question that Selch was a valued employee. The human resources manager drafted a “Formal Warning” noting to Selch that he could be terminated for cause. Selch signed the warning without comment.

    When a more senior executive at BOA learned of the incident, he said Selch should have been fired on the spot and proceeded with termination proceedings. BOA declared that Selch’s actions violated his employment contract, fired him, and refused to pay him the $2 million separation payment that would have been due otherwise. Selch sued; the trial court held for BOA; Selch appealed.

    Selch claimed he was not fired for “cause” so was due the payment. The appeals court disagreed. Selch contended that “misconduct that injured the company,” as noted in the contract, did not include mooning his superiors. Not so found the court. His action constituted insubordination and improper, abusive conduct that violated his duty as an employee. As such, the company was within its rights under the contract.

    Discussion: Where should the line be drawn in such matters? Suppose Selch had not mooned the executives but told them they were wrong to fire the other employee and he did not want to see the executives from New York in Chicago again. Would that have been adequate grounds for termination that would allow non-payment?