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180 Solutions

1) How should an FTC action under §5 (unfairness and deception) against 180 and Kazanon be evaluated and resolved? (20 points)

2) Identify five important issues in a consumer class action against 180 and Kazanon under California law, and suggest how they should be resolved. (15 points)

3) Assume that Google is the dominant online advertiser, receiving 70% of all revenue from search and 25% of all revenue from all forms of online advertising. Does Google have any viable claims against 180 and Kazanon? (20 points)

4) Regardless of your answers to (1) & (2) above, assume that the relevant factfinders reject the claims against 180, finding that the respective plaintiffs have not proved their cases. Assume that ZoneAlert continues to give the same messages when it detects 180 Solutions software. Does 180 Solutions have any viable claims against ZoneAlert? (20 points)

Good answers, taken from good final exams:

1. Question 1: FTC

The FTC brings actions under § 5 of the FTCA against companies that engage in

commercial advertising and promotion when their claims are unfair and/or deceptive. To

prevail, the FTC must establish that (1) there was a representation (2) that was likely to

mislead a “not insubstantial” amount of consumers acting reasonably under the

circumstances, and (3) that the representation was material to consumers (i.e., involving

information likely to affect consumer choice of, or conduct regarding a product). When the FTC brings action against 180 and Kazanon, they will identify and evaluate each company’s claims individually. Finally, the FTC will require that both 180 Solutions and Kazanon have substantiation not just for their express statements, but for all reasonable interpretations of their advertisements. What this specifically entails is that the two companies must have a reasonable basis for promulgating such claims before they are disseminated.

180 Solutions

Analysis of Claims

180 Solutions makes the following claims in its pop-up advertisement for its ad

supported software: (1) the adware is “FREE,” (2) the adware is paid for by their advertisers, (3) users will receive on average 2-3 targets ads per day based on the content and frequency of their searches, (4) the adware can be accessed from users’ system tray when running, (5) the adware never collects or shares PII, and (6) users can uninstall it anytime by using the Add or Remove Programs in the Windows Control Panel.

The first claim is a factual claim, and is strictly scrutinized under § 251.1 by the FTC use

of the word “free” in advertising is a highly effective tool to attract customers. Consumers must understand that the word “free” indicates that they are paying “nothing for that article and no more than the regular price for the other,” and that all conditions must be disclosed conspicuously at the outset of the offer. Assuming that the users do not actually pay for any of the ads and are in no way charged for any product or service in connection with the use of the adware, this claim does not present a problem.

The claim that the adware is paid for by the advertisers is a factual claim because it is

“capable of being proved false or of being reasonably interpreted as a statement of objective fact.” Coastal Abstract. Again, this claim does not seem to be a problem because it is the norm in the advertising industry for advertisers to pay the online adware companies for the amount of exposure they receive to Internet users. Furthermore, we know that through its product Zango, 180 Solutions receive revenue from the advertisers when a consumer clicks on an ad in the search engine results.

The 2-3 ads a day on average claim is the most problematic for 180. It is clearly a factual

claim, and is an establishment claim because it conveys an implicit message indicating to

consumers that experimental evidence supports the claim. In order for this statistic to be true in reality, a consumer must only browse the internet for 20 minutes per day. We know, however, that on average internet users spend six times that amount of time on the internet each day. Therefore, the proper statistic should be that use of 180 adware produces anywhere from 12-18 ads per day. Nonetheless, considering the context of the ad as a whole modifies the implicit message. See Avis. The qualifying language stating that these projections are based in part on the frequency of the user’s internet use makes the claim not literally false, and only potentially misleading. Nonetheless, this claim will violate § 5 because the omission that figures are based on a 20-minute use interval is material. This is a total failure by 180 to disclose a necessary fact “to dissipate false assumptions likely to arise in light of the representations actually made.” Tushnet. While many consumers would likely deem it reasonable to receive a few pop-ups per day in return for 180’s services, it is highly probable that receiving at minimum one pop-up per ten minutes would put off a substantial amount of these same consumers.

The factual claim that the adware can be accessed from the tray while running does not

present any analytical difficulties because it can be easily substantiated by 180.

180’s claim that their adware never collects or shares any PII is also a factual claim due

to its falsifiability. It can be substantiated because 180 as a matter of fact only monitors

consumers through keyword matching. However, the FTC could again deem there to be a

material omission here, as 180 neglects to mention that their monitoring of consumers is

achieved through a downloading of the keyword list onto each users’ computer. If

consumers’ use of the adware hinged on their discomfort with any invasion of privacy they felt in conjunction with an imposition third party files onto their hard drive, 180 should disclaim this downloading process in the next sentence using the same font. This would meet the four Ps of clear and conspicuous disclosure (prominence, presentation, placement, and proximity).

The final claim is also not unfair or deceptive within the meaning of § 5. It is a factual

claim capable of being proved false. Considered alone, or even in the context of the entire ad initially conveyed to consumers, this claim accurately represents that uninstalling the adware does not do anything but remove the adware and its related features. It is only the warning consumers see when attempting to uninstall 180’s products that is likely to mislead consumers into thinking that removing 180’s products risks harm to the functionality of theother software on their computers. Because this warning is not a claim made in the initial ad, and the actual effects of the uninstalling process can substantiate the original claim, the uninstalling claim will pass a court’s scrutiny.

Remedies

Because of the drastic amount of complaints, the FTC will likely require money damages

and an alteration of the 2-3 ads per day claim. Because in itself the ad by 180 is not

extremely violative of § 5, the FTC will probably not seek any kind of injunction. On that

some note the agency will also not try to obtain a fencing in or exclusion order, because of the policy that through 180’s products consumers are receiving valuable information in the marketplace. What probably will result is that the FTC will impose money damages on 180 based on the standard set forth in Direct Marketing Concepts. The FTC will provide a reasonable approximation of damages based on the amount of money that consumers have on average paid consultants to remove the programs. 180 will have an opportunity to demonstrate that this figure is inadequate, based on the number of complainants it has advised on how to remove the software. If 180’s bookkeeping is at all uncertain or unclear, they will not be able to sustain their burden to show inaccuracy. Finally, the FTC will require 180 alter its 2-3 ads per day claim to state 2-3 ads per 20 minutes of use.

Liability for Kazanon

Under People v. Direct Revenue, 180 will not be liable for any actions by Kazanon. This

case stood for the proposition that companies that develop adware and use third party

distributors to install adware on computers will not be liable for actions by that distributorbecause they are an independent contractor. This assumes, however, that 180 did not have knowledge of Kazanon’s deceptive practices.

Liability for Advertisements

Under CDA § 230(c)(1), 180 will not be liable for claims made by their advertisers

assuming that 180 did not contribute “materially…for its alleged unlawfulness.” Goddard.

Kazanon

Analysis of Claims

Kazanon claims that consumers can (1) safely and securely download, swap, and trade

music, movies, software, everything, (2) with their “favorite” program (3) and any P2P

program (including Bittorrent and WinMX), (4) totally anonymously without revealing any PII to anyone.

The first claim is an establishment claim that implies that Kazanon has experimental

evidence that backs the proposition that its software programs do not result in any injury to consumers. The FTC will require that Kazanon have adequate substantiation to back this claim, or else it will violate § 5. It will be unlikely that Kazanon can put forth proper

substantiation that it had before making the claim because sufficient substantiation would

need demonstrate that swapping these files never results in any damage to computer’s

functioning. P2P programs are notorious for impairing the functionality of a computer, and therefore this claim will likely be misleading to a substantial amount of consumers. Finally, this claim will be presumed to be material, as it relates to safety, and an inherent

characteristic of the product. Rexall. The second claim alone walks the line between puffery and fact, yet becomes actionable in conjunction with the third claim. The word “favorite” immediately connotes a general and vague feeling that is unmeasurable, unverifiable, subjective, and not a claim on which consumers would tend to rely. In Pizza Hut, however, the court announced that a claim of such sort may become objectifiable and misleading when utilized in connection with other claims. Here, by specifying that “favorite” includes certain P2P programs, a consumer may specifically rely on the claim to use Kazanon’s software in order to run a specific program, such as Bittorrent. This would also be material to these consumers, because if Kazanon did not work as advertised on every platform, this would undoubtedly deter a substantial mount

of consumers from downloading their software. Therfore, in order to not be deemed unlawful under § 5, Kazanon must have substantiation that their software works as advertised on all P2P platforms.

The third claim is likely to be unfair and deceptive under § 5 for the same reasons as in

the prior paragraph.

The fourth and final claim is the most problematic, and is a completely unfair and

deceptive claim in violation of § 5. A reasonable consumer reading this claim will definitely be mislead into thinking that none of their PII, including that which is specifically listed in the claim, will ever be collected by Kazanon, let alone revealed to third parties. The fact that Kazanon in fact does exactly what it advertisers to consumers that it will refrain from doing (collecting personal information and distributing it for profit) is as material to consumers as consumers get. It is obvious that Kazanon will not have substantiation for this claim, as their practices demonstrate that the claim is an outright lie.

Delving a little deeper into the issues with the fourth claim, the FTC could win byarguing that there is a material omission in connection with the claim, and the disclaimer is

entirely inadequate. Again the omission that Kazanon is in fact refusing to keep uses

anonymous at all is a material omission in light of the affirmative representation that users’ identities and PII will be kept a secret. This omissions is especially egregious because it relates to intimate information about consumers, and is central to the advertised quality of Kazanon’s product. Furthermore, while online disclosures generally should be near the triggering claim and when possible on the same screen, hyperlinks can work for lengthy disclosures, as is this one. However, this disclosure still fails to live up to the FTC’s standards, because textual and visual cues must indicate to consumers that they need to review the relevant information. Here, consumers are not prompted or required at all to inspect the terms of service, and even if they did would likely get lost in the details of generic and uniform 12-point font over the course of 20 pages.

Remedies

The FTC will likely move for a temporary and permanent injunction, as well as

corrective advertising. The FTC will show that the claims as understood by consumers are false or misleading, and would not need to rely on a consumer survey to do so because of their expertise. Because they are a public enforcer, the FTC will not have to demonstrate irreparable harm. The balancing of the hardships prong favors the FTC, as Kazanon has no equitable interest in perpetuating false and misleading claims, and the public interest is best promoted by the issuance of an injunction because their safety is at stake due to the blatant falsity and egregiousness of the false claims promulgated by Kazanon.

In the alternative, because Kazanon’s claims are so misleading that they may havecontributed to the public’s misconception that their PII will not be revealed as a result of the use of Kazanon’s product, the FTC will likely be able to force Kazanon to engage in corrective advertising. Listerine. As in , the FTC will likely require specific wording disclaiming that Kazanon does collect and distribute users’ PII to third parties. This would be upheld against any First Amendment challenge by Kazanon, because the FTC and courts can “insure that the stream of commercial information flows cleanly as well as freely.”

Liability for Advertisements

Under CDA § 230(c)(1), 180 will not be liable for claims made by their advertisers

assuming that 180 did not contribute “materially…for its alleged unlawfulness.” Goddard.

Question 2

Consumer class actions, while a valuable tool for redressing wrongs that would be too trivial for consumers to litigate individually, have declined in recent years. The 9th Circuit has made it almost impossible to certify a nation-wide class, and single-state class actions have emerged as the most effective way for aggrieved consumers to litigate. Some companies may try to prevent class actions by including arbitration provisions in their terms of service, but this consideration does not appear to apply to the fact pattern. California, as one of the most prominent states for class action litigation, has implemented several special rules to protect consumers: the Unfair Competition Law (UCL), the False Advertising Law (FAL), and the Consumer Legal Remedies

Act (CLRA). Below are listed five potential “issues” in a class-action claim.

Issue 1: Superiority of Class Action

As a preliminary consideration, consumers hoping to initiate litigation must consider whether a class action is the appropriate format under FRCP 23(b). As established in Algarin v. Maybelline, class actions are proper when (1) prosecuting separate actions creates a risk of inconsistent adjudication, (2) the party opposing the class has refuse to act on generally applicable grounds, or (3) questions of law or fact common to class members predominate. Here, it appears that a class action is the ideal format for litigation. McCrary establishes some of the considerations involved in determining superiority; primarily, courts are concerned with whether a class action will reduce costs and promote efficiency. While 180 has offered help to those few consumers who managed to contact it, it has failed to act in any way sufficient to grant relief to

the whole class, and Kazanon has apparently refused to acknowledge that it is violating its implicit promise that it does not track or share PII. Class members share common concerns about the software, and these issues predominate over any individual class member’s concerns. The number of harmed individuals is large, and their harms are individually likely to be too trivial to litigate. Taken together, a class action is the perfect form for such litigation to take.

Issue 2: Proposition 64

Consumers hoping to engage in a class action lawsuit must ensure that their representative plaintiff suffered an injury-in-fact and lost money or property as a result of 180 and Kazanon’s unfair practices (as required by California Proposition 64). While the trial court in Tobacco II held that all class-action plaintiffs had to prove actual damages, the California Supreme Court reversed, holding that only the representative plaintiff was required to have suffered an injury in fact. Material misrepresentation gives rise to a presumption of reliance. Moreover, Kwikset established that plaintiffs who were deceived by a product’s advertising into “spending money to purchase the product, and would not have purchased it otherwise, have “lost money or property” within the meaning of Proposition 64 and have standing to sue.” Here, the plaintiffs may have some difficulty satisfying this basic standing requirement; 180’s software is “free” apart from the advertising revenue, and Kazanon appears to be free as well (although this is not clear from the facts). However, one of the customers who “paid consultants to remove the programs” could reasonably be said to have suffered injury-in-fact and likely has standing to sue.

Issue 3: Ascertainability of Class

The class should also be “adequately designed and clearly ascertainable” under

California law (Maybelline), which requires that it be “administratively feasible for the court to determine whether a particular individual is a member” of the alleged class. This standard is meant to prevent overbreadth in the litigation, such as including consumers who were never harmed or who already received compensation. However, a lack of ascertainability alone will not kill a class action if the other FRCP 23 requirements are met, and ascertainability can be satisfied as long as the class definition describes common characteristics sufficient to allow a plaintiff to determine whether or not they may recover (McCrary). Here, ascertainability should bereasonably easy to determine. Users’ hard drives and internet histories contain records of downloaded programs and software, and it should be easy for consumers to demonstrate when they downloaded Kazanon or one of 180’s programs.

Issue 4: Class Certification

This consideration is undoubtedly the broadest and most important to any class action

litigation (and its components could reasonably be considered to be four of the five “issues” required by this question). FRCP 23(a), as well as numerous class action cases such as Maybelline and McCrary, establish the four basic requirements for class certification: (1) numerosity, (2) commonality, (3) typicality, and (4) adequacy of representation. The numerosity requirement requires enough plaintiffs that litigating individual claims would be impractical and inefficient, and is easily satisfied here. Several thousand consumers have already complained to the Better Business Bureau, various state attorneys general, and the FTC; individual litigation is completely impractical for a plaintiff base this size.

The commonality requirement is also easily satisfied here. There are several questions of

law and contentions common to all class members, including the difficulty of uninstalling 180 software and the tracking, storage, and sale of PII by Kazanon. The typicality requirement is a bit harder to judge before a representative plaintiff has been selected. However, given the commonality of concerns central to all class members, it is likely that the claims of any plaintiff chosen will be “reasonably co-extensive with those of absent class members.” [Those who paid for uninstallation may be differently situated from those who didn’t.] Finally, the requirement of adequate representation is impossible to judge at this time, but prospective class action plaintiffs would be best served by selecting an attorney who is “qualified, experienced, and able” and ensuring that no conflicts of interest are likely to arise from representation. Taken together, interested plaintiffs should easily be able to certify a class for “individuals harmed bythe download of 180 and Kazanon software.”

Issue 5: Remedy

A final issue in a consumer class action against 180 and Kazanon under California law is the question of remedy. If a class is certified it is highly likely to settle, and the plaintiffs would be advised to do so here. The In re M3 Power Razor System Marketing case allowed refunds and rebates for harmed individuals, but the privacy harms here are of such a nature that monetary compensation is less likely to satisfy the interests of the class action members or pass muster in court. It would be better for the plaintiffs to seek injunctive relief and ask that 180 and Kazanon be barred from future misrepresentations and deception. Moreover, they may seek recompense for the privacy harms created by Kazanon’s deceptive terms of service, although their relief may be limited by the terms of JetBlue Airways.

Question 3

CDA § 230(c)(1)

It should be noted up front that Google could not sue 180 or Kazanon for any of the

advertisements in their adware software. CDA § 230(c)(1) serves as complete immunization for online publishers for claims based on third-party content as long as the claims do not relate to (1) federal criminal prosecutions, (2) IP claims (outside of 9th Cir state law IP claims are not preempted), or (3) the Electronic Communications Privacy Act (anti wiretapping laws).

Joint Liability

Both 180 Solutions and Kazanon distribute 180 Search Assistant and Zango. 180 will be

strictly liable for the effects of its two products, because they are the manufacturer. By

analogizing Kazanon as a distributor to an ad agency, Google could hold Kazanon jointly

liable for all of the transgressions of 180’s software. Under Doherty, ad agencies areprobably liable for ad copy for which they are heavily involved in preparation and help disseminate. Furthermore, though this was an FTC case, Chapman stands for the proposition that there is duty of inquiry for those providing substantial assistance in distributing content to the consuming public. Furthermore, under Wells Fargo v. , the court ruled that defendants who substantially and knowingly contribute to infringement can be held liable as infringers under the contributory liability theory. Here, given the special knowledge and expertise in the software and adware arena, they should have actual knowledge of the effects of the software that it is distributing to consumers. Therefore, in each of its possible claims discussed below, Google could name 180 and Kazanon as co-defendants.

Trademark Infringement & Dilution

Due to the effects of Zango, Google could successfully sue both 180 and Kazanon for

using their mark in commerce. Zango functions to transform the entire Google search engine into ad space for 180, Kazanon, and their advertisers. We know that Google’s mark remains on the top of the search results page, and the page even has the same “look and feel” of Google. In order for Google to meet its prima facie case for trademark infringement, it must prove that it has (1) valid and protectable trademark rights, (2) priority over the defendants, (3) defendants have used the mark in commerce, and (4) defendants’ usage creates a likelihood of consumer confusion about the product’s source, sponsorship, or affiliation. The first two elements are easily satisfied. The defendants have in fact used the mark in commerce, because they have actively, as opposed to passively kept it in place while showing ads put in place by Zango. Howard Johnson. This is different from behind the scene association of a plaintiff’s domain name with advertising categories such as contactlenses. . Furthermore, there is evidence of substantial consumer confusion.

MasterCard v. Nader and Advanced Systems require a balancing of the Polaroid factors to determine the likelihood of consumer confusion. Google will win because their mark is

extremely strong, it is the exact mark used by the defendants, the defendants’ ads are placed as the top give “organic” results closest to the mark at the top of the page, the page has the same “look and feel” of Google, the defendants have clearly tried to “palm off their ads” for those of Google, the general consuming public searching Google is not sophisticated, and many consumers have put forth complaints of actual confusion, saying they didn’t know how the programs got on their computer.

Google may also have a cause of action for trademark dilution. Federal trademark law

provides additional protection for “famous marks,” and does not require any consumer

confusion regarding the product source in these instances. There are two types of trademark dilution: blurring and tarnishment. Blurring impairs the distinctiveness of the famous mark through unauthorized use by others relating to dissimilar products, and tarnishment harms the reputation of the famous mark. The standard under Deere that Google must meet is to demonstrate that their mark is either of truly or distinctive quality, or has acquired secondary meaning, and that there is a likelihood of dilution. First, the entire world regards the Google mark as indicative of the premier provider of search inquiries online. In fact, the mark has even taken on the form of a verb that is used to signal that a consumer is conducting an internet search. 180 and Kazanon’s actions through Zango in this case constitute complete tarnishment of the Google mark. By replacing the first five “organic’ results with ads, the defendants transforms what is potentially the most valuable real estate on the internet into ad space completely disassociated with Google. It results in Google’ product being linked tosomething of a “shoddy quality,” and is likely to evoke “unflattering thoughts” about the

Google product. Deere. Accordingly, Google would likely be able to sue 180 and Kazanon for trademark dilution.

Any defenses of descriptive fair use or nominative fair use would fail. Descriptive fair

use fails because neither 180 nor Kazanon have used the Google mark to describe their own product, likely in bad faith to add credibility to their advertisements, and they have not decided to talk about Google, thus they cannot claim nominative fair use. Furthermore, nominative fair use would fail under Smith v. Chanel, because use of the Google mark here would create a reasonable likelihood that consumers would be mistakenly think that the advertisements were affiliate with Google as opposed to 180 and Kazanon. The small disclosure at the bottom of the screen stating “results enhanced by Zango” is completely insufficient. In order for a disclaimer to be adequate, it must be sufficient to correct the problem it was designed to counteract. As a general rule, common small-type disclosures at the bottom of a pull page will not be sufficient to disclose material information. Tushnet. In light of the thousands of complaints that result from Zango, it is likely that a court would rule the altering of search results by Zango to be highly material.

Tortious Interference

Google’s may attempt to make a claim against 180 and Kazanon is for tortious

interference with a prospective economic advantage. In Google v. American Blind, the court announced that in order to find tortious interference with a prospective business advantage, Google must show (1) economic relationship between plaintiff and some third party, with the probability of future economic benefit to plaintiff (2) defendant’s knowledge of therelationship, (3) intentional acts on the part of the defendant designed to disrupts the relationship, which are acts wrongful by some legal measure other than the fact of interference itself, (4) actual disruption of the relationship, and (5) economic harm to the plaintiff proximately caused by the defendant’s acts.

Here, it is extremely likely that there is some overlap between the advertisers that

advertise through 180, and those whom advertise through Google. As Google is the

dominant online advertiser receiving 70% of all revenue from search and 25% of all total

online advertising revenue, there is certain to be a future lucrative economic relationship

between Google and a company that 180 is aware of. There is also likely disruption of the

relationship between Google and such advertiser as use of 180 instead of Google would offer unparalleled placement on Google’s search results page at almost definitely a lower price than Google is willing to offer. Google would be directly harmed by this interference, because many of its advertisers would be likely to immediately jump ship to use 180’s more effective and cheaper services.

Nonetheless, Google’s ability to prevail in this suit turns entirely on the third element. If

the court finds that Zengo’s conduct amounts to trademark infringement, or some legally

wrongful act, Google will likely also be able to hold the co-defendants jointly liable for

tortious interference. However, if the effect of Zengo is simply to frustrate Google’s

dominant market share and is not independently wrongful, then Google will fail to state a

claim upon which relief can be granted.

Copyright

Google could prevail on a copyright claim under Wells Fargo v. . Becauseof Google’s size and prominence, it is safe to assume that their copyright is registered and

they own the copyright. The only remaining inquiry to determine whether 180 and Kazanon infringed Google’s copyright is whether the two defendants copied or engaged in other unauthorized use of a substantial, legally protectable portion of the work. Through Zango, they did. In WhenU, the defendant supplied adware to consumers that generated pop-up ads based on the data about the websites that the consumers visited, and these pop-ups at times obscured the website. The court held that the ads did not appear “on” the plaintiff’s website, and therefore there was no interference with, change to, or modification of the content on the plaintiff’s site. Furthermore, the court ruled that WhenU did not violate Wells Fargo’s exclusive right to prepare derivative works because WhenU did not incorporate their content into Wells Fargo’s cite, but rather merely provided a software product consumers. For this reason, 180 Solutions and Kazanon cannot be liable for the effects of 180 Search Assistant.

Just like the pop-ups in WhenU, 180 Search Assistant simply generates pop-ups that do not alter the content of Google’s website, but merely impose a smaller window over Google’s webpage. The defendants, therefore, have not created a derivative work through 180 Search Assistant. Nonetheless, based on the same reasoning, 180 and Kazanon will be liable for the effects of Zango. Unlike pop-ups the Zango acts to substantially modify and interfere with the content of Google’s website. 180 and Kazanon have icorproated their own advertisments into Google’s website, thus creating a derivative work.

Neither merger, scenes a faire, nor fair use will help 180 or Kazanon here. Merger is not a

viable defense because there are many less offensive ways to incorporate adware into a user’s experience, such as through pop-ups. Scenes a faire would fail because consumers would notexpect adware only to be used in conjunction with Google. Fair use would not insulate the codefendants. In analyzing fair use, courts consider the purpose and character of the use, including whether such use is of a commercial nature or for nonprofit educational purposes, the nature of the copyrighted work, the amount and substantiality of the portion used in relation to the copyrighted work as a whole, and the effect of the use upon the potential market for or value of the copyrighted work. Here, the purpose of the use weighs in Google’s favor, because it is commercial in nature. The nature of the copyrighted work also weighs in Google’s favor because again the nature is related to advertising. Almost the entirety of Google is used, as is evidenced by the maintenance of the Google mark and the same “look and feel” of a Google search results webpage. The most important factor, effect of the use, weighs most heavily in Google’s favor. The accused work here not only offers a complete market substitute for the original, it is the original.

Question 4

Lanham & California Law False Advertising Claim: 180 may wish to bring a claim underthe Lanham Act and California’s Unfair Competition statute and allege that ZoneAlarm’s claims are false and misleading. This claim, however, is unlikely to succeed because the alerts created by the ZoneAlarm software are not advertising – they are the product of a functional tool meant to warn users of problems on their computers. They thus do not fall under Central Hudson’s definitions of commercial speech, which require either “speech proposing a commercial transaction,” or “an expression relates solely to the economic interest of the speaker and its audience.” They also would not satisfy the Kasky court’s three part test for a commercial speaker, namely: 1) that the speaker (at the time of speech) be engaged in the production, distribution, or sale of goods; 2) that the speaker be addressing an audience of actual or potential customers; and, 3) that the speaker be making representations of fact for the purpose of promoting sales or other commercial transactions in the speaker’s products or services. Because Kasky was decided by the California Supreme Court, it will be particularly important for California claims which are relevant here. To the extent that ZoneAlarm makes any statements of fact, it is not for the purpose of promoting its own goods. The user of the program is not a prospective consumer, but an actual client. ZoneAlarm is providing a service, not making a pitch. Per Gordon & Breach, the Lanham Act cause of action for commercial advertising and promotion requires commercial speech for the purpose of influencing consumers to buy the defendant’s goods or services. The Lexmark case raises some new uncertainty as to the kind of suits that can be brought under §43(a)(1)(B), given that the proximate cause prong of the analysis does not require direct commercial competition between the defendant and aggrieved plaintiff. As the facts point out, ZoneAlarm has a vested interest in stoking consumer fear of spyware (“the more consumers fear spyware and the more programs it identifies as spyware, the more valuable itsprogram is.”). However, the fact that ZoneAlarm has some form of commercial interest in its

business model should not be enough to convert a product classification into commercial

speech. Lexmark does not appear to upset the traditional requirement of commercial speech, and a court would likely conclude that 180 cannot bring any claims for false advertising in this case.

Assuming, for the purposes of argument, that 180 can overcome the commercial speech

requirement under the Lanham Act or Kasky, it would still face an uphill battle to prove that ZoneAlert’s allegation that it constitutes “spyware” is false or misleading. To the extent that “spyware” does not have known and defined meaning, as in the Gelatin case or in Bruton v. Gerber (“healthy as fresh”), were governmental regulation provided a definition or set of standards on which consumers could rely, 180 will need to provide survey evidence showing that consumers hold a particular view of what constitutes spyware, and that this view is not in accord with ZoneAlarm’s claims. Where “spyware” is a vague and undefined or ambiguous term like “natural,” per Huggies, a court may treat it as puffery or a term that depends on individual opinion. 180 may be able to invoke Avery v. State Farm for the proposition that industry standards can supply a defined meaning of “spyware,” and that Symantec’s approach confirms this definition, given its position as an industry leader in antivirus systems. 180 may also be able to rely on Fedex for the proposition that the term must be viewed against industry norms. However, Symantec’s practices and 180’s own claimed definition of spyware are likely to be insufficient to overcome the requirement that 180 supply empirical evidence of implicit falsity or misleadingness. Such proof may be required at any rate, given that ZoneAlarm’s overall claim – that 180’s program tracks browsing, is

literally true, or is at least equally open to true or false interpretations, per Coors

Brewing. Product Disparagement Claim: Because the tort of disparagement covers all speech, and not merely commercial, 180 may have a valid claim against ZoneLabs for its suspicious behavior warnings about Zango. In order to prove disparagement, 180 must show that the statement casts doubt upon the quality of 180’s goods and services, and that this statement is one of fact and is untrue, or if it is a statement of opinion, that the opinion is incorrect. Blue Cross (reciting Pennsylvania standard for product disparagement). It must further show that no privilege attaches to the statement, and that the plaintiff has suffered pecuniary loss as a result. Id. 180 may have difficulty making its case under several of these requirements, particularly the untrue-fact or incorrect-opinion prong, given the absence of any clear definition of what the term “spyware” means. Although 180 does not track the user’s activity extensively or record a history of the activity, the program does track browsing to match keywords with advertisements. The alert language is a fairly accurate representation of what 180’s program actually does. Disparagement, unlike, false advertising, does not appear to extend to misleading claims or claims that are likely to be misconstrued by consumers. Per Blue Cross, the statement must either be untrue or incorrect. The statement that the program has “no known usefulness” is more problematic, however, given that the program is useful to the extent that it supplies the user with relevant advertising as he or she searches. 180 may thus be able to argue that this claim is technically untrue, or if it is an opinion, is incorrect.

180 will be able to show pecuniary loss, as required by Blue Cross, because ZoneAlarm’s

actual lost relationships with advertisers. Finally, because a court is not likely to classify this speech as properly commercial, ZoneAlarm’s classification will be likely accorded a

heightened standard of protection, requiring that 1 80 show actual malice in making the

statement, or at least reckless disregard, per Kinetic Concepts. This case is dissimilar from the facts in Blue Cross, which involved commercial competitors in the insurance industry, and Boule v. Hutton, which involved commercial competition over gallery showing opportunities. Here, the fact that ZoneAlarm may have a tangential interest in stoking consumer fear about spyware is probably not enough, as discussed above, to render the speech commercial. Given the ambiguity of the term “spyware,” and the fact that ZoneAlarm’s description of the 180 program is technically accurate, 180 is unlikely to satisfy the requirement of either actual malice or reckless disregard. The fact that 180 has spoken with representatives at ZoneAlert and informed them that it does not reveal personal information is likely also not enough to show either malice or recklessness; in its

communications with ZoneAlert, 180 did not dispute that it tracks some aspects of user

activity.

Defamation Claim: 180 may also attempt to allege that ZoneAlarm’s statements are

defamatory, because they are such that the harm 180’s reputation beyond mere

disparagement of its products and services. To show defamation, 180 must successfully

argue, per Blue Cross, that the statement imputes fraud, deceit, or reprehensible conduct on 180 in its business relations. Allegations of spying and surreptitious tracking could

potentially cross the line from disparagement into defamation territory, however

ZoneAlarm’s description of the tracking activity is accurate in a number of regards, and its directed not to the moral character of the business, but rather to its tactics. As above, in order to allege defamation, 180 would also need to show either malice or reckless disregard.

Tortious Interference: 180 has a stronger claim under the heading of tortious interference, if it can show that the ZoneAlarm’s practice of warning consumers about 180’s adware was geared to interfere with existing economic relationships. 180 can already prove interruptionof such relationships because it has lost advertising accounts due to ZoneAlarm. It would need to show, based on ZoneAlarm’s desire to create fear about adware, that it intentionally targeted 180 to disrupt those relationships, per American Blind and Wallpaper.

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