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DRTV Powerhouses Take on Amazon in Federal Court

Digital Law Group has been advocating on behalf of its clients and the direct response industry for some time now against Amazon’s unscrupulous business practices of knowingly selling counterfeit products on its marketplace. In fact, when we pitched a panel idea for a recent tradeshow on policing and enforcing intellectual property rights on online marketplaces, the organizer notified us that Amazon could not be included/mentioned in the content of our session.

Naturally, we were concerned by this information and perplexed as to why so many marketers continue to do business with Amazon in spite of the fact that knockoffs and counterfeits were harming their brands’ reputations as well as their profit margins.

However, it seems that the tide has turned, as a few industry leaders – putting their competitive natures aside – banded together to take on what is arguably the largest source of counterfeits, knockoffs, and intellectual property infringement in the country. Here’s a quick synopsis of the lawsuit:

On Dec. 5, Allstar Marketing Group LLC, Ontel Products Corp., and Ideavillage Products Corp. filed a lawsuit against Amazon in the U.S. District Court for the Southern District of New York. Their claims include direct trademark infringement, direct counterfeiting, contributory counterfeiting and trademark infringement, unfair competition and false designation of origin, copyright infringement, and contributory copyright infringement. These claims are based on Amazon’s routine practice of manufacturing, importing, exporting, advertising, marketing, promoting, distributing, displaying, offering for sale and/or selling unlicensed and/or infringing versions of the plaintiffs’ “As Seen on TV” products.

What is noteworthy about this action is that it includes direct infringement rather than just contributory infringement claims, which Amazon has been able to skirt in the past – relying on immunity theories under Section 512(2) of the Digital Millennium Copyright Act, which protects internet service providers who operate third-party vendor platforms.

The complaint calls Amazon out on its well-known practice of commingling products sold by third parties (counterfeits) with inventory supplied by authentic sellers and fulfilled by Amazon. Further, the complaint details how Amazon allows third-party sellers to list their products against a legitimate product’s listing, such that a consumer can see the less expensive option, but believe it to be authentic because it shows up on the primary listing’s page. This particular conduct has been a thorn in marketers’ for some time, as it prevents easy removal of counterfeit listings (and negative reviews) on the platform.

Damages sought by the plaintiffs include profits and treble damages in the amount of a sum equal to three times such profits or damages. Alternatively, the plaintiffs are seeking statutory damages in the amount of not more than $2 million per counterfeit mark infringed. The plaintiffs are also demanding that the court order Amazon to destroy all infringing products along with advertising and promotional materials.

A pretrial hearing has been set for Feb. 15, 2017. If the complaint isn’t thrown out, as was in the case in previous efforts to sue Amazon for infringement, expect to see many other industry players jumping on the bandwagon to have their day in court. If you have concerns about infringing products being sold on third-party marketplaces like Amazon, we’d love to hear your story. Watch this space for updates.

How much is that Hamdog in the (drive-thru) window?

Perhaps the first question should be: “What in the world is a Hamdog?” The Hamdog is a combination of a hamburger and a hot dog. Mark Murray, who lives in Perth, Australia, invented it in 2004. The invention has been granted patent rights in Australia and the United States, and, more importantly, has become a viral phenomenon, spawning hundreds of interviews of the inventor.

Thanks to the attention the product has received, Murray has decided that rather than sell directly in the U.S., he is auctioning the U.S. patent and trademark to the highest bidder, transferring global rights (not including Australia). The auction commenced on Sept. 30, and Murray has suggested the Hamdog patent and trademark is worth – wait for it – $100 million! Although many experts have advised that this estimate is unrealistic, Murray pointed out that if the Hamdog picked up just 1-percent of the U.S. burger market, it would equate to approximately $2.5 billion in sales annually.

Assuming Murray is correct and the Hamdog is successful in the U.S., perhaps selling the patent is not the most lucrative option for him. In some cases, licensing the patent or distributing the product yourself can lead to a bigger payday. For example, if Murray licensed the Hamdog patent and trademark in the U.S. for just a 1-percent royalty, using his figures, he could earn up to $25 million annually. At 2 percent, he’s looking at $50 million annually.

Of course, these numbers are based on sales, rather than adjusted gross revenues, but you get the idea. By licensing the intellectual property, in just a few short years, Murray could make more money than he would by just selling it. Keep in mind, this is based solely on U.S. sales; throw in a few licensing deals in other countries, and he’s looking at several huge royalty checks.

On the other hand, Murray could have opened Hamdog restaurants in the U.S. and franchised the business. Although this could have also been a great option, it requires startup capital along with all of the responsibilities and expenses that come with running a business.

Compared to a $100 million sale and walking away from any potential liabilities, or licensing the intellectual property for millions of dollars a year, franchising is probably the least profitable option – in the short term, that is. However, there is no way to know for sure until the results of the auction are made public and the product is rolled out in the states.

Like Murray, inventors have a lot to consider when deciding what to do with their intellectual property. In addition to the financial side of things (i.e., out-of-pocket expenses and potential profits), there are pros and cons to both licensing a product and manufacturing/distributing the product. See below for some examples.

Licensing

Pros

Cons

Do not have to run a company Lack of control over product
Limited financial risk Not easy to get in front of big companies
Royalty payments Royalties can result in the inventor getting less than what the distributors are making

Distributing/Manufacturing

Pros

Cons

Products can get to market faster Inventory can be expensive
Higher profit margins Need capital
Control over product direction Manufacturing process can be logistically challenging

Selling/Auctioning

Pros

Cons

Big payday potential No long-term payouts
Don’t have to worry about actual product success Product could generate more money than originally contemplated

When an invention has a high probability of success, having to weigh the pros and cons of how to proceed should be a great problem to have. On the other hand, when the financial benefits are largely unpredictable, choosing whether to license, sell, or distribute the product can be quite challenging and risky, and should also factor in personal and professional goals. Either way, inventors should always consult with trusted industry professionals to determine how best to proceed with a product.

Open for Comment: Proposed Revisions to the 1995 Antitrust Guidelines for Licensing Intellectual Property

The Federal Trade Commission (FTC) and the Department of Justice (DOJ) recently released proposed revisions to the 1995 Antitrust Guidelines for Licensing Intellectual Property, and they have invited the public to comment on the proposed changes.

The guidelines provide direction on antitrust issues that may arise when licensing intellectual property. The proposed updates to the guidelines embrace three general principles:

  1. “For the purpose of antitrust analysis, the Agencies apply the same analysis to conduct involving intellectual property as to conduct involving other forms of property, taking into account the specific characteristics of a particular property right.”
  2. “The Agencies do not presume that intellectual property creates market power in the antitrust context.”
  3. “The Agencies recognize that intellectual property licensing allows firms to combine complementary factors of production and is generally pro-competitive.”

 

With those principles in mind, the guidelines remain largely unchanged. Below is a summary of two areas that underwent a great deal of redlining, whether changing or affirming the rules due to recent developments.

Intellectual Property and Market Power

The agencies have reiterated in the revised guidelines – including in the principles above – that intellectual property ownership does not create a presumption of market power. Section 2.2 states “market power (or even a monopoly) that is solely ‘a consequence of a superior product, business acumen, or historic accident’ does not violate the antitrust laws.”

This reflects the 2006 U.S. Supreme Court ruling in Illinois Tool Works Inc. v. Independent Ink Inc., in which the court held that a patent does not necessarily confer market power on the patentee, and is good news for intellectual property owners. For example, you can own a great deal of patents in – let’s say – kitchen products, but without a showing of more, such as anticompetitive behavior, there is no presumption of market power and thus no prima facie case for antitrust violations.

Section 3.2 goes on to address market power and licensing agreements. As stated in the guidelines, licensing arrangements still raise anticompetitive concerns if they are likely to have an adverse effect on product prices and quality, for example. The proposed revisions add that if a licensing agreement appears to have anticompetitive effects, the FTC and DOJ normally will identify the effected markets and will typically analyze the competitive effects within the relevant market(s).

So, unlike above where mere ownership of intellectual property does not create a presumption of market power, it appears that a licensing arrangement for all of those patents in kitchen products may more quickly garner the attention and scrutiny of the agencies.

Resale Price Maintenance

The most notable change, perhaps, comes in the area of resale price maintenance. Minimum resale price maintenance usually refers to a pricing arrangement whereby a manufacturer requires resellers to sell at or above a certain price point. The same principle applies to intellectual property licensing agreements when the property owner conditions the license on a particular minimum resale price. The 1995 Guidelines stipulate that it is, per se, illegal for a licensor of intellectual property to fix a licensee’s resale price. However, due to a 2007 Supreme Court ruling in Leegin Creative Leather Products Inc. v. PSKS Inc. rejecting the per se analysis, the proposed guidelines now apply a rule of reason analysis to be applied on a case-by-case basis to weigh the competitive benefits against the harms of the agreement.

For more information on the proposed changes to the guidelines, see the redline copy, which can be found here. The deadline for public comment is September 26.

Fembots, opiates and federal prison – the latest on FTC consumer protection

Ashley Madison

The website whose tagline used to be “Life is short, have an affair” saw many of its users exposed last summer when hackers leaked personal information related to more than 30 million users.  Now, amidst the company’s efforts to rebrand, its parent company, Avid Life Media, is facing an FTC probe due to the website’s former use of “fembots.”

The thrust of the investigation is that the company used fake female profiles (fembots) to lure in male customers and artificially inflate the number of female users on the site.  This is not the first time a dating website has been accused of using fake profiles to grow its customer base; JDI Dating paid $616,165 for similar practices in a 2014 settlement with the FTC.

The FTC has yet to comment on the investigation.

Sunrise Nutraceuticals

Last year the supplement company was sued by the FTC due to its claims that its product, Elimidrol, would help opiate addicts “permanently overcome withdrawal – the first time.”  However, according to the FTC, Sunrise had no human clinical trials to substantiate any of the product claims.

A final stipulated order was entered into July 6, 2016.  In addition to requiring Sunrise to have scientific evidence before making future claims, the order includes a judgment of almost $1.4 million – with $235,000 to be paid up front and the remainder suspended based on the company’s financial situation.

Kevin Trudeau

Last month, the FTC issued refund checks totaling approximately $6.3 million to consumers who had purchased Trudeau’s book, The Weight Loss Cure “They” Don’t Want You to Know About.  Trudeau advertised the book as an eat anything you want type of plan, but in reality, the book called for daily injections of prescription drugs and a minimalist diet.

Trudeau’s history of fraudulent practices and run ins with the FTC dates back to 1998; and, due to his repetitive and fraudulent actions, and attempts to escape paying millions of dollars in fines, Trudeau is serving 10 years in federal prison for criminal contempt.

When selling products or services directly to consumers, consult an attorney to ensure the company’s sales and marketing practices stay above board; otherwise, you may end up as the subject of one of our articles…

Antitrust vs. Anti-Trump: The Donald’s Feud With Amazon

Amazon is the largest internet-based retailer in the United States, and it is growing exponentially. Consumers have come to rely on the retailer — and what’s not to love about Amazon Prime — to the tune of more than $107 billion in net sales in 2015. It kicked off the summer by hitting an all-time high of more than $724 per share, leaving Facebook and other high valued companies in the dust. And though Amazon is showing no signs of slowing down (it’s looking to become a multi-trillion dollar company in the next 10 years), due to some of its practices — and failures — it may soon be facing a difficult fight from product distributors, and maybe even … Donald Trump?

Those of us in the consumer products industry are either directly or indirectly aware of the problems Amazon poses to brand integrity and consumer protection. It is impossible to prevent counterfeit products from being sold on the platform, and, perhaps even more frustrating, Amazon is making it exceedingly difficult to remove those counterfeit listings and stop repeat offenders. In many cases, before Amazon will remove a listing, the product owner is required to purchase the knockoff and prove to Amazon, via photos, that the goods are fake. And, of course, Amazon takes its percentage on that sale. Outrageous, right?

Not only do counterfeit goods sold on Amazon harm the product owner in the way of lost sales, but brand integrity suffers as well. Because the infringer can get away with using product copyrights and trademarks to sell counterfeit goods, the consumer believes she is ordering the real deal. In turn, when the consumer receives the product and it breaks, or does not perform as advertised, that consumer leaves a poor review, which the product owner then cannot remove from Amazon. It’s a nasty cycle that, as many product owners can attest to, Amazon seems to have no interest in remedying. And honestly, why would it? The courts have held, including most recently in Milo & Gabby, that Amazon is not liable for the infringement of third-party sellers on its platform. What’s the possible solution for product owners (and ultimately, consumers)? Enter, Donald Trump.

As he does with so many, the Donald has been spatting with Amazon owner Jeff Bezos via Twitter and on the campaign trail. Trump claims that Bezos is concerned that if he wins the election, Trump will go after Amazon for its “huge antitrust problem.” According to Trump, it is for this reason that Bezos, who also owns the Washington Post, has 20 staffers digging for dirt on the presidential candidate. While many others are also doing their best to prevent a Trump presidency for various reasons, could Trump be right about Bezos’ motivation?

Antitrust laws promote competition and protect consumers from predatory business practices. Seth Bloom, former general counsel of the U.S. Senate’s Antitrust subcommittee, recently stated that because there needs to be some illegal behavior and not just a large market share, “The test … is whether the conduct of Amazon is benefiting or harming consumers.” He went on to say that he hasn’t heard anything said about how Amazon is harming consumers. Well, apparently Bloom has not ordered a counterfeit food chopper that arrives broken, or counterfeit skin care products that cause severe allergic reactions. If he had, he would know that consumers are being harmed and that Amazon’s brand protection department is well aware of it.

These practices could spell trouble for Amazon should the Federal Trade Commission or Department of Justice start poking around. So, perhaps being called out by Trump — and (hopefully) other high profile individuals/companies — will put some pressure on Amazon to come to the table and address some of these issues in order to … err … make Amazon great again.

Jessica M. Pfau is a partner at Phillips & Pfau LLP. She can be reached via e-mail at 

Jessica@DigitalLawGroup.com

‘Tis the season to be knocked off…

Holiday shopping is getting into full swing as we are only days away from Black Friday, and perhaps more importantly, Cyber Monday.  This season, Digital Law Group wants to make sure consumers are buying YOUR products, and not counterfeits or knockoffs from third party sellers on e-commerce and auction websites.

Sales platforms such as Amazon, eBay and Alibaba are great channels to sell products to the masses; however, unless monitored on a regular basis, these sites enable third-party sellers to capitalize on counterfeit, and in some cases, damaged or expired goods, leaving your profits and reputation on the chopping block.

The Alibaba platform should be of particular concern for many distributors because counterfeit goods are sold on such a colossal scale.  For example, consumer electronic sellers easily have tens of thousands of counterfeit listings on Alibaba.  This not only makes it difficult for consumers to identify who the underlying seller is and whether the product is legitimate, but it also makes it difficult for you to know whether your authorized distributor is responsible for the listings.

Policing the sale of your goods online can be a daunting and time consuming task if your product is being heavily infringed upon. It also doesn’t help that each marketplace has a different system (some more user friendly than others) for reporting and ultimately removing counterfeit goods and storefronts.

Don’t be a turkey this holiday season; make certain consumers are buying from you or your authorized sellers.  Digital Law Group has extensive take-down experience and knows how to most efficiently navigate each platform’s reporting system.  Gobble, gobble.

Copyright: The Key To Revealing The Identity Of Infringers On Amazon and eBay

Most product marketers and distributors have likely had to deal with counterfeit products being sold on e-commerce platforms such as Amazon and eBay, among others.  Although some counterfeit goods and knockoffs are obviously fake, others use the original product’s copyrighted images and trademarks, making it hard for consumers to distinguish a fake from the original. As a result, the product owner can suffer serious economic harm, as many consumers turn to these sites to purchase products.  The good news is, most of them, including Amazon and eBay, have systems in place for reporting and subsequently removing infringing listings.  The bad news is, these systems are somewhat ineffective for permanently removing serious, repeat infringers.

When dealing with infringement on Amazon and eBay, the process usually goes something like this: you search for your product on the platform and find an unauthorized listing (or oftentimes, several) that displays your trademark and images from your product website. You (or your attorney) fill out the infringement report provided by the platform, and typically within 48 hours you receive the notice that a reported listing has been removed.

Unfortunately, in many instances, the listing goes right back up because the seller is not prohibited from relisting a product after being reported and removed for infringement.  Thus, takedowns become a frustrating game of whack-a-mole until it ultimately becomes apparent that the infringer is not giving up.

In these situations, copyrights become the product owner’s greatest intellectual property asset.  If the infringer is using images, videos or text from the product website or infomercial, you can request a subpoena from the clerk of any United States district court for the identification of the infringer, without filing a civil action.  Although this may seem like a tedious process, it can be much more efficient than continuously reporting the same infringers.

Digital Law Group has takedown experience on Amazon, eBay and Alibaba, and has issued subpoenas for seller information.

Please Email us if you have any questions or concerns regarding the content above.

Trimming The Fat

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Right about now you are likely feeling a bit plumper after indulging on a Thanksgiving feast and all of those beloved leftovers. If, like some of us, you are looking for a way to shed a few pounds prior to the next wave of holiday goodies, we recommend the traditional methods of diet and exercise rather than “miracle” weight loss supplements, as many of these companies are feeling the burn after getting their gooses cooked by the FTC.

Some businesses involved in the “Pure Green Coffee” scheme have reached multimillion dollar settlements with the FTC after making false claims regarding the effectiveness of the product.  The defendants marketed the dietary supplement using fake news sites, footage from The Dr. Oz Show, supposed consumer endorsements, and “clinical proof” that dieters could quickly lose weight without diet and exercise.

Additionally, the FTC recently sent out warning letters to 20 unnamed sellers and marketers of weight loss supplements.  The letters warn that Commission staff has reviewed their weight-loss claims and that they could be misleading. They also detail what type of scientific evidence the FTC says is needed before making weight-loss claims and using consumer testimonials.  Despite the warning, if the products are making money, some of the letter recipients may ignore the warning.

While some companies can afford to lay it on thick when it comes to their product claims, others cannot risk an FTC investigation and potential monetary judgments against them.  If you are selling a nutraceutical, we recommend doing your research before you blur the line between clever and deceptive advertising.

Digital Law Group has experience in reviewing product claims as well as representing companies in governmental investigations.

Please Email us if you have any questions or concerns regarding the content above.

What’s in your customers’ shopping cart?

Holiday shopping is getting into full swing as we are only a few days away from Black Friday, and perhaps more importantly, Cyber Monday.  This season, Digital Law Group wants to make sure consumers are buying your products, and not counterfeits or knock offs from third party websites.

Sales platforms such as Amazon, eBay and Alibaba are great channels to sell products to the masses; however, unless monitored on a regular basis, these sites enable third-party sellers of counterfeit, and in some cases, damaged or expired goods, to cut into your profits.

Alibaba should be of particular concern for many sellers because counterfeit goods are sold on a colossal scale.  For example, consumer electronic sellers (e.g., Bose, Beats by Dre) can easily have tens of thousands of counterfeit listings on Alibaba.  This not only makes it difficult for consumers to identify who the underlying seller is and whether the product is legitimate, but it also makes it difficult for you to know whether your authorized distributor is behind the listings.

Policing the sale of your goods online can be daunting and time consuming if your product is being heavily infringed upon. It also doesn’t help that each marketplace has a different system, some more user friendly than others, for reporting and ultimately removing counterfeit goods, and at times, storefronts.

This holiday season, make sure your customers are buying from you or your authorized sellers.  Digital Law Group has extensive takedown experience and knows how to most efficiently navigate each platform’s reporting system.

Love and deception

Online dating has become such the norm these days that meeting a potential partner through a friend or at a bar almost seems old fashioned.  However, the online dating game comes with certain risks; most commonly, perhaps, is misrepresentation – e.g., profile pictures are outdated and profiles misleading.  While this may be frustrating to someone who is looking to find Mr. or Ms. Right, it is not illegal.  However, when JDI Dating (UK based operator of 18 dating sites) created fake, computer generated profiles and then messaged users from those accounts, a line was certainly crossed.  Many users signed up for the paid membership so that they could respond to the messages.  Then, as if that wasn’t bad enough, without informing users, JDI immediately began charging monthly subscription fees.

JDI Dating has entered into a settlement order that prohibits them from selling or benefiting from customers’ personal information, and to refund fees to the duped daters.

This case highlights two important issues that the FTC does not hesitate to prosecute: negative option marketing and violation of privacy policies.

Negative Option Marketing is where a seller automatically signs the consumer up for a product or service with a recurring fee, unless the consumer chooses not to receive the offer. The law states that before charging a consumer for any goods or services sold in an internet transaction via a negative option feature, the person/company must:

-provide text that clearly discloses all material terms of the transaction before obtaining the consumer’s billing information;

-obtain a consumer’s express informed consent before charging the consumer; and

-provide a simple method for a consumer to stop recurring charges.

Privacy:  JDI’s practices make us question whether its use of consumer information was disclosed in its privacy policy.  It is necessary to accurately disclose to consumers how you will use their information and whether it will be shared with third parties.

Contact Digital Law Group if you need assistance with your billing and privacy practices.