Those Bright Ideas Will Cost You!

A little more than a year ago, Taco Bell was ordered to pay $30.1 million to two men who convinced a court they conceived the talking Chihuahua. Lest you think this is an aberration or that these men were opportunists trying to make a quick buck, you would be wrong on both counts. Outside suggestions are a source of potential ideas and potential liability. Companies would be well-served to learn a lesson from these cases.

Smart marketing companies have policies—even outside suggestion “units”—to handle those suggestions company strategists, executives and marketing professionals all say they welcome to better understand what customers want. This is not the place to belabor legal distinctions between market research, focus groups, customer satisfaction surveys and unsolicited outside suggestions, but these distinctions highlight the need to pay attention to potentially dangerous legal landmines at the intersection of intellectual property law and product development.

Imagine that a customer of a bank suggests to the branch manager that the bank issue travelers checks with dual signatures (they exist, so don’t you get any bright ideas) so vacationing couples can use them interchangeably. Now fast forward six months—the bank proudly launches its latest new product, the dual-signature travelers check. Guess the rest. Lawyers, letters, demands, assertions of ownership, misappropriated proprietary information—the suggestion was not an “idea” but a specific product development concept with specific implementation details. Talking Chihuahuas anyone?

Of course, if the company can prove its product was independently developed or in development before the suggestion came in, or that the branch manager threw the suggestion in the trash without telling anyone, showing it to anyone or keeping a copy—yes, the company may win the lawsuit. But do you really want to risk all those lawsuits and the cost of litigation to prove you are right? Settle or fight: each can be costly.

Dealing with outside suggestions should be a part of a company’s product development, brand management and marketing risk management strategy—optimizing the company’s ability to gather meaningful information while minimizing potential exposure to litigation liability and damages. Rimon has lawyers who have developed and managed these functions, counseled clients, conducted seminars, and drafted policies and procedures to do just that. Contact me at joseph.rosenbaum@rimonlaw.com. We are happy to help.

Pop Goes the Lawsuit

This past June, we reported L.L. Bean filed suit against Nordstrom, J.C. Penney, Atkins and Gevalia alleging copyright and trademark infringement in connection with pop-up advertising. Bean has now settled with Gevalia and Atkins, who have agreed to damage payments (i.e., for trademark infringement), as well as agreeing not to authorize pop-up advertisements of their products on Bean’s website. Spyware has been the subject of significant controversy, and anti-spyware legislation has passed in Utah and is pending in Congress and in California, although the Utah statute is being challenged by spyware maker WhenU. It is likely lawsuits such as Bean’s will continue to be filed based on theories that not only are consumers annoyed by pop-up ads, but that they become confused by the advertisements as well.

It’s Often the Little Things that Count – Here are Two

Last month, we brought you information about outsourcing—a topic making news daily. This month, we bring you smaller news with potentially bigger implications.

In the biblical prophecy of Isaiah, the wolf lives with the lamb, the leopard lies down with the kid and a little child shall lead them. You can draw your own conclusions as to who are lions, lambs and the little child, but a few days ago, the unthinkable occurred. Sun Microsystems and Microsoft reached peace by dropping most claims, cross-claims and the vitriolic debate raging since 1997 when Sun sued Microsoft alleging violations of its Java license terms. With a trail of litigation which includes U.S. and European antitrust regulators, the announcement is nothing short of astounding. Yes, it remains to be seen whether years of mistrust will dissipate and lead to true cooperation, but this is not simply a truce between two rivals. The Wall Street Journal quotes Tony Scott, Chief Technology Officer for General Motors, as saying “What we try to do is educate them on the real pain customers go through when you have multiple incompatible standards and technologies.” Instead of customers being forced to figure out (and pay for) solutions to interoperability and compatibility problems, vendors are now being pressured to do so. Is this the beginning of a trend? Too soon to tell, but this truce is a big deal—Mr. Scott represents a customer!

And now, number 2. Perhaps we have become less concerned about providing information to “friendly sites,” but Yahoo! has introduced a “paid inclusion” product which allows advertisers to guarantee their sites will show up in searches—although payments do not change the order in which results are displayed. Not to be outdone, Google’s new “G-mail” will have context-based advertising derived from—are you ready—a scan of key words in G-mail received by subscribers, which customizes advertising based on information in the e-mail. G-mail a friend about bowling and you may see a pop-up coupon for a local bowling alley. Marketing professionals and advertisers point to the fact that G-mail is an opt-in service and consumers have shown they are willing to give up privacy to obtain greater levels of convenience.

For the record, cookies were invented to allow you to have a shopping cart and accumulate items when going web shopping. Fast-forward past cookies to
spammers, phishing, pop-ups, invisible GIFs, web bugs, intelligent bots and spyware to this latest announcement. Google can now accumulate a detailed
dossier of individual consumer preferences and the contents of e-mails. No one is suggesting Google would abuse such information or that subscribing is not
truly voluntary, but not only do we know what you did last summer, soon we may also be able to tell you what you are planning next summer.

CAN-SPAM: It’s Not Phat!

Federal Commercial E-Mail Legislation Takes Effect A major change in the law that affects privacy and commercial e-mail on the Internet took effect on January 1, 2004. The CAN-SPAM Act of 2003 doesn’t simply establish an “opt-out” framework for commercial e-mail, it completely pre-empts state law. Although an individual consumer doesn’t have the right to sue an offender under the Act, the Federal Trade Commission, along with the Attorneys General of each state, do. So what should you know?

First, the Act only applies to commercial e-mail—an e-mail whose primary purpose is promoting a commercial product or service. Although the FTC has not yet promulgated any regulations under the Act, simply because an e-mail has a URL link to a commercial website or refers to product or service doesn’t make it commercial e-mail. There are, of course, certain obvious exemptions built into the law. Product safety recall information or e-mails notifying you about changes or important notices concerning your subscriptions, memberships, purchase confirmations, accounts or e-mail related to your employment—all of these are so-called “transactional relationship messages” where the main purpose is communication related to a commercial transaction, rather than promotion or advertising.

Second, what does the law require. Starting January 1, 2004, all commercial e-mail (even if an existing business relationship exists and whether or not the e-mail was solicited or not) must contain a clear and conspicuous notice that a consumer can opt out of future e-mails and provide a web-based means to do so. A consumer’s request to opt out must be honored within 10 business days and marketers can’t sell or share the e-mail addresses of those who have opted out. The e-mail must also clearly identify itself as an advertisement—unless a consumer has specifically asked to receive commercial e-mail from a particular commercial entity. Third, the e-mail must contain a postal, physical address of the sender. Although it is not yet clear if a post office box is enough, the less-risky approach is to have a street address.

The Act has a number of other requirements related to labeling—for example, the subject (header) must accurately reflect the body or content of the message and the sender (the sponsor of the promotion) must be identified. Although the Act preempts state commercial e-mail laws, beware of the fact that state fraud, trespass and certain consumer protection laws can still apply.

Violations of the CAN-SPAM Act are criminal offenses and involve both fines and potential jail time upon conviction. As with most Federal crimes, aggravating factors increase the penalties and implementing good faith and reasonable measures to attempt to comply with the Act can lessen them. These penalties can be serious—jail-time of up to five years, $250 per e-mail up to $2 million in fines (which can be tripled up to $6 million if aggravating factors are present) and all computers and software used in the commission of the crime can be forfeit.

Although the primary purpose of Legal Bytes is to enlighten and inform you, it obviously does promote Rimon and encourages you to call us when you need legal support. Accordingly we will always give you the opportunity to opt out of receiving our publication by email and when we send you an e-mail, it will be clear as to what it is and who is sending it. This is not just the law, it’s good practice.