The Law of Marketing pptx

3Introduction 3 Classifications of the Law 3 Sources of the Law 5 Primary Sources of the Law 5 Secondary Sources of the Law 6 The American Legal System 7 Common Law and Equity 7 Court St

SECOND EDITION

Lynda J Oswald

Professor of Business Law and Michael R and Mary Kay Hallman Fellow

Stephen M Ross School of Business at the University of Michigan

Australia • Brazil • Japan • Korea • Mexico • Singapore • Spain • United Kingdom • United States

Jack W Calhoun

Editor-in-Chief: Rob Dewey

Acquisitions Editor: Vicky True

Developmental Editor: Krista Kellman

Marketing Manager: Jennifer Garamy

Marketing Coordinator: Heather McAuliffe

Associate Marketing Communications

Manager: Suzanne Istvan

Editorial Assistant: Nicole Parsons

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PrePress PMG

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Alexander

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Cover Image: © Siede Pries/Getty Images,

Library of Congress Control Number: 2009936769 ISBN-13: 978-1-4390-7924-9

ISBN-10: 1-4390-7924-2 South-Western Cengage Learning

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1 2 3 4 5 6 7 13 12 11 10 09

Table of Cases xiPreface xviiAbout the Author xxi

CHAPTER 1 Overview of the Legal Environment of Marketing Activities 3

CHAPTER 2 Protection of Intellectual Property Assets: Patent and

Copyright Law 23

CHAPTER 3 Protection of Intellectual Property Assets through

Trade Secret Law, Contractual Agreements andBusiness Strategies 71

CHAPTER 4 Antitrust Law 109

CHAPTER 5 The Franchisor-Franchisee Relationship 155

CHAPTER 6 Trademark Law 191

CHAPTER 7 Commercial Speech and the Regulation of Advertising 231

CHAPTER 8 Consumer Protection Law 275

CHAPTER 9 Contracts and Sales of Goods Law 315

CHAPTER10 Warranties and Products Liability 355

Glossary 393

iv

Table of Cases xiPreface xviiAbout the Author xxi

C H A P T E R 1

Overview of the Legal Environment of Marketing Activities 3Introduction 3

Classifications of the Law 3

Sources of the Law 5

Primary Sources of the Law 5

Secondary Sources of the Law 6

The American Legal System 7

Common Law and Equity 7

Court Structure 8

Jurisdiction 11

Subject Matter Jurisdiction 11

Jurisdiction Over the Parties 12

Jurisdiction on the Internet 12

Discussion Case 1.1 Jurisdiction 13

Discussion Case 1.2 Jurisdiction 17

C H A P T E R 2

Protection of Intellectual Property Assets: Patent and Copyright Law 23Overview 23

Categories of Intellectual Property Law 23

Underlying Policy Considerations 25

Patent Law 25

Standards for Patent Issuance 26

Ownership of Patents 29

Patent Application Procedures 30

Rights Granted by a Patent 31

Infringement 32

Remedies for Patent Infringement 34

Filing for Foreign Patents 35

Copyright Law 37

Sources of Copyright Law 37

Subject Matter of Copyrights 38

Rights Provided by Copyright 40

Ownership of the Copyright 41

v

Copyright Procedures 41 Copyright Infringement 43 Defenses to Copyright Infringement 45 Remedies for Copyright Infringement 47 Copyright Law on the Internet 49 International Copyright Law Issues 50

Discussion Case 2.1 Patent Law —Patentable Subject Matter 51 Discussion Case 2.2 Patents —Novelty, On-Sale Bar 53

Discussion Case 2.3 Copyright —Work for Hire 55 Discussion Case 2.4 Copyright —Infringement, Copyrightable Subject Matter 58 Discussion Case 2.5 Copyright —Fair Use 61

Discussion Questions 65

C H A P T E R 3

Protection of Intellectual Property Assets through Trade SecretLaw, Contractual Agreements and Business Strategies 71Trade Secret Law 71

Definition of “Trade Secret” 71 Patent Protection versus Trade Secret Protection 73 Ownership of Trade Secrets Created by Employees 74 Misappropriation of a Trade Secret 75

Remedies for Trade Secret Misappropriation 77 Protection of Trade Secrets 79

International Aspects of Trade Secret Protection 80 The Law of Unsolicited Ideas 80

From the Inventor’s Perspective 80 From the Company ’s Perspective 81 Business Strategies for Protecting Intellectual Property Assets 82 Contractual Agreements 82

Intellectual Property Audits 86

Discussion Case 3.1 Trade Secrets —Definition 89 Discussion Case 3.2 Trade Secrets —Required Elements 91 Discussion Case 3.3 Noncompete Covenant, Trade Secrets —Required Elements 92 Discussion Case 3.4 Covenants Not to Compete 96

Discussion Case 3.5 Protection of Unsolicited Ideas 100 Discussion Questions 103

C H A P T E R 4

Antitrust Law 109Overview 109

Common Law Contracts in Restraint of Trade 110 The Federal Antitrust Statutes 111

The Sherman Act 111 The Clayton Act 112 The Federal Trade Commission Act 113 The Robinson-Patman Act 114

The Antitrust Statutes Generally 114

The Rule of Reason Versus Per Se Violations 115

Remedies for Antitrust Violations 116

Horizontal Restraints Among Competitors 118

Price-Fixing 121

Group Boycotts and Concerted Refusals to Deal 122

Horizontal Market Allocations 123

Agreements to Restrict Advertising 123

Joint Ventures 123

Vertical Restraints Against Competition 124

Resale Price Maintenance Agreements 124

Nonprice Agreements Between a Manufacturer and a Dealer 127

Tying Arrangements 127

Monopolization and Attempts to Monopolize 128

Monopolization by a Single Firm 128

Antitrust and the Internet 135

State Antitrust Enforcement 135

International Implications of Antitrust Laws 136

Discussion Case 4.1 Horizontal Price-Fixing, Horizontal Market Allocation 137

Discussion Case 4.2 Vertical Price Restraints, Rule of Reason 138

Discussion Case 4.3 Rule of Reason, Vertical Maximum Resale Price Maintenance 142 Discussion Case 4.4 Monopolization, Attempted Monopolization 145

Discussion Case 4.5 Monopolization, Attempted Monopolization, Definition of Market, Essential Facility, State Antitrust Law 148

Legal Issues Arising from the Franchise Relationship 162

Existence of a Franchise Relationship 163

Vicarious Liability of a Franchisor 163

Franchise Antitrust Issues 165

Co-Branding 168

Encroachment 168

Termination Issues 170

Multi-Level Marketing 170

Franchising and the Internet 170

“Offering” Franchises on the Internet 171

Franchisor Control Over Franchise Internet Activities 171

Internet “Encroachment” Issues 172

International Issues in Franchising 172

Discussion Case 5.1 Constitutionality of Local Ordinances Restricting Franchise Location 173

Discussion Case 5.2 Existence of Franchise Relationship 175 Discussion Case 5.3 Existence of Franchise Relationship 177 Discussion Case 5.4 Vicarious Liability of Franchisor 179 Discussion Case 5.5 Franchise Antitrust Issues 182 Discussion Questions 184

C H A P T E R 6

Trademark Law 191Overview 191

Origins of Trademark Law 192 Types of Marks 192

Creating and Protecting a Mark 193 Distinctiveness of the Mark 193 What May Constitute a Mark? 194 Trademark Searches 197

Creation and Ownership of the Mark 199 U.S Customs Service Assistance 202 Trademark Infringement and Dilution 203 Infringement 203

Dilution 209 International Trademark Law Issues 212 Trademarks on the Internet 213 Cybersquatting 213

Typopiracy 214 Portals, Banner Advertising, and Metatags 214 Linking Issues 215

Internet Strategies for Business 215

Discussion Case 6.1 Trademark Protection —Color as a Mark 216 Discussion Case 6.2 Trade Dress Protection —Functionality 218 Discussion Case 6.3 Trademark Infringement, Dilution, Defenses, First Amendment 221 Discussion Case 6.4 Trademarks —Infringement, Metatags, Remedies 224

The National Advertising Division 250

Advertising on the Internet 250

On-line Advertising 251

Privacy Issues 251

International Advertising Law 252

Discussion Case 7.1 Commercial Speech 253

Discussion Case 7.2 Commercial Speech 256

Discussion Case 7.3 Lanham Act —False Advertising 259

Discussion Case 7.4 Commercial Speech: FTC Act —Deceptive Advertising 264

Warranties and Guarantees 283

Labeling and Packaging Regulation 283

“Made in USA” Labeling 284

“Green” Marketing 285

International Labeling Considerations 286

Health and Safety Regulation 287

Food, Drug, and Cosmetic Laws 287

Consumer Product Safety Law 291

Consumer Credit Protection 293

The Truth-in-Lending Act 293

Discussion Case 8.1 First Amendment Challenge to the Do-Not-Call Registry 296 Discussion Case 8.2 CAN-SPAM Preemption 300

Discussion Case 8.3 Home Solicitations 303

Discussion Case 8.4 Fair Debt Collections Practices Act 306

Sources of Contract Law 315

The Common Law of Contracts 316

Uniform Commercial Code 316

Promissory Estoppel 324 The Statute of Frauds 325 Parol Evidence Rule and Contract Interpretation 325 Special UCC Rules 326

Definiteness and the UCC’s “Gap-Filler” Provisions 326 Performance of the Contract 326

Transfer of Title and Risk of Loss 328 Breach of Contract and Contract Remedies 331 Actual and Anticipatory Breach 331

Remedies Generally 331 Remedies in Sales Contracts 332 Contract Law and E-Commerce 335 Contracts in the International Environment 336

Discussion Case 9.1 Advertisements as Offers, Statute of Frauds 337 Discussion Case 9.2 UCC Battle of the Forms 341

Discussion Case 9.3 Promissory Estoppel, Contract Remedies 345 Discussion Case 9.4 Convention on the Sale of Goods 347 Discussion Questions 349

C H A P T E R 1 0

Warranties and Products Liability 355Overview 355

Warranties 356 Warranty of Title 356 Express Warranties 357 Privity 359

Warranty Disclaimers 361 The Buyer’s Obligations in Warranty Actions 363 Remedies and Defenses 363

The Magnuson-Moss Federal Warranty Act 364 Products Liability Law 365

Negligence 365 Strict Products Liability 367

Discussion Case 10.1 Warranties —Express and Implied; Warranties—Remedies 379 Discussion Case 10.2 Warranties —Disclaimers; Magnuson-Moss Federal

Warranty Act 382 Discussion Case 10.3 Products Liability —Negligence, Strict Liability 384 Discussion Case 10.4 Strict Liability —Consumer Expectations; Risk-Utility Test 386 Discussion Questions 389

Glossary 393Index 409

21st Century Concepts, Inc., Rossi v., 303–306

44 Liquormart, Inc v Rhode Island, 232–233

AAA Abachman Enterprises, Inc v Stanley Steemer

International, Inc., 169

Abbott Laboratories, Sindell v., 372

A.B Dick Co., Henry v., 182

Abood v Detroit Board of Education, 258

Acuff-Rose Music, Inc., Campbell v., 47, 48

A E Staley Mfg Co., FTC v., 135

Akkaoui, Toys“R” Us, Inc v., 211

Albrecht v Herald Co., 14, 144

Al Minor & Associates, Inc v Martin, 89–91

Alpo PetFoods, Inc v Ralston Purina Co., 243

Aluminum Co of America, United States v., 128,

130, 137

Alyeska Pipeline Service, Reeves v., 81

American Automobile Association, Inc v Darba

Anderson v Owens-Corning Fiberglas Corp., 376

Andy’s Sportswear, Inc., Anheuser-Busch, Inc v.,

211

Angus v Shiley, Inc., 372

Anheuser-Busch, Inc v Andy’s Sportswear, Inc., 211

The Antioch Co v Western Trimming Crop., 198

Applied Anagramics, Inc., Futuredontics, Inc v., 215Arnold, Schwinn & Co., United States v., 143Asis Internet Services v Vistaprint USA, Inc., 280Associates Commer Corp., Trailer Leasing Co v., 94Augusta National Inc., Bancroft & Masters, Inc v., 15Auto-By-Tel, LLC, Jerome-Duncan, Inc v., 158A.V v iParadigms, LLC, 61–65

Baby Food Antitrust Litigation, In re, 120–121Baker v Burlington Coat Factory, 362

Bancroft & Masters, Inc v Augusta National Inc., 15Barazzotto v Intelligent Sys., Inc., 383

Baxter Healthcare Corp., Vassallo v., 376Bay State Harness Horse Racing & Breeding Assoc.Inc., Famous Music Corp v., 44

Beech v Outboard Marine Corp., 375Bell Sports, Inc v Yarusso, 365Bilski, In re, 27–28

Blockbuster, Inc., Harris v., 323Bloomfield Motors, Inc., Henningsen v., 359, 360Board of Trustees of State University of New York v.Fox, 232

Boston Duck Tours, LP v Super Duck Tours, LLC,195

Bottling Group, LLC, Green County Food Market, Inc.v., 148–150

BRG of Georgia, Inc., Palmer v., 137–138Brinkman v Shiley, Inc., 372

Bristol-Myers Squibb Co., Strategic Directions Group,Inc v., 91–92

Brooke Group, Ltd v Brown & Williamson TobaccoCorp., 130

Brown & Williamson Tobacco Corp., Brooke Group,Ltd v., 130

Brown Shoe Co v United States, 110

xi

BSH Home Appliances Corp., Detroit Radiant Prods.

Co v., 334–335

Buick Motor Co., MacPherson v., 366

Burck v M Mars, Inc., 235

Burlington Coat Factory, Baker v., 362

By Rite Distributing, Inc v The Coca-Cola Co., 238

Caddy, Pebble Beach Company v., 13–17

CAL Circuit Abco, NEC Electronics v., 207

Campbell Soup Co., In re, 246, 249

Campbell v Acuff-Rose Music, Inc., 47, 48

Campbell v Gala Indus., Inc., 377

Capital Cities/ABC, Inc., Hoffman v., 224

Capital City Foods, United States v., 288

Carson v Here’s Johnny Portable Toilets, Inc., 236

Cascade Auto Glass, Inc., CIM Insurance Corp v., 319

Case, Inc., McAnany v., 368

Casper Corp., Donsco, Inc v., 243

Casper Corp., John Wright, Inc v., 243

Cass County Music Co v Vineyard County Gold

Corp., 44

Central Hudson Gas & Electric Corp v Public Service

Commission of New York, 232–233, 253, 254, 256,

289, 297

Chakrabarty, Diamond v., 27, 51–53

Chiquita Brands Int’l Inc., Del Monte Fresh Produce,

N.A., Inc v., 92–96

Chordiant Software, Inc., Netbula, LLC v., 46

Christy Sports, LLC v Deer Valley Resort Co., Ltd.,

145–147

Ciaramelli, Curran v., 357

CIM Insurance Corp v Cascade Auto Glass, Inc., 319

Clomon v Jackson, 307–308

Clorox Co., S.C Johnson & Son v., 240–241

CMG Worldwide, Inc., Shaw Family Archives Ltd v.,

236

Cohen, Ticor Title Insurance Co v., 96–100

Colgate & Co., United States v., 125

Collins v International Dairy Queen, 167

Columbia Pictures Industries, Inc., Moore v., 60

Community for Creative Non-Violence v Reid,

41, 55–58

Continental Inc Co., Oakley Fertilizer, Inc v.,

341–344

Continental T.V., Inc v GTE Sylvania Inc., 143, 144

Coors Brewing Co., Rubin v., 253–256

Copperweld Corp v Independence Tube Corp., 112,116

Cory Int’l Corp., Kolarik v., 358Country Walkers, Inc., Tour Costa Rica v., 345–347Crinkley v Holiday Inns, Inc., 181

Crossroads Cogeneration Corp v Orange & RocklandUtilities, Inc., 133

Curran v Ciaramelli, 357Curtis 1000 v Suess, 95Daimler Chrysler Corp., Flax v., 377Darba Enterprises Inc., American Automobile Asso-ciation, Inc v., 17–20

Dash, Weil Ceramics & Glass, Inc v., 207Deer Valley Resort Co., Ltd., Christy Sports, LLC v.,145–147

Del Monte Fresh Produce, N.A., Inc v ChiquitaBrands Int’l Inc., 92–96

Deltek, Inc v Iuvo Systems, Inc., 215Detroit Board of Education, Abood v., 258Detroit Radiant Prods Co v BSH Home AppliancesCorp., 334–335

Diamond v Chakrabarty, 27, 51–53DirecTV, Inc., Time Warner Cable, Inc v., 259–264Diversified Prod Industries, SEMA Construction,Inc v., 329–330

Dolphin World, Inc., Snuba International, Inc v., 33Domino’s Pizza, Inc., Queen City Pizza, Inc v., 167Donsco, Inc v Casper Corp., 243

Dr Miles Medical Co v John D Park & Sons Co.,

138, 139, 142, 143Dumex Medical Surgical Products, Inc., MolnlyckeHealth Care A.B v., 13

Dunkin’ Donuts, Inc., Wu v., 164–165Dunleavey v Paris Ceramics USA, Inc., 379–381Dycho Co., Whitehead v., 378

Eastern Tube Co., Nat’l Tube Co v., 89Eastman Kodak Co v Image Technical Services,Inc., 129, 149

Ebay, Inc., Tiffany (NJ) Inc v., 205Edenfield v Fane, 232, 254, 255Emanuel Lutheran, Themins v., 180Estate of Presley v Russen, 235Ezell, The Plantation Shutter Co v., 318Falstaff Brewing Co., United State v., 119Famous Music Corp v Bay State Harness HorseRacing & Breeding Assoc Inc., 44

Fane, Edenfield v., 232, 254, 255Farsian v Pfizer, 372

Feist Publications, Inc v Rural Telephone Service Co.,

39–40, 59

Fenton, Fibreboard Corp v., 376

Fibreboard Corp v Fenton, 376

Flax v Daimler Chrysler Corp., 377

Ford Motor Co., Midler v., 236

Fort Bridger Rendezvous Ass’n., Gregory v., 122–123

Fox, Board of Trustees of State University of

New York v., 232

Francis, In re, 163

Fred Martin Motor Co., Schwarzenegger v., 16

Free Speech Coalition, Inc v Shurtleff, 280

FTC v Global Marketing Group, Inc., 279

FTC v Motion Picture Advertising Service Co., 113

Futuredontics, Inc v Applied Anagramics, Inc., 215

Gaines-Tabb v ICI Explosives, USA, Inc., 384–386

Gala Indus., Inc., Campbell v., 377

Gizzi v Texaco, Inc., 181

Glickman v Wileman Brothers & Elliott, Inc., 256,

257, 258

Global Marketing Group, Inc., FTC v., 279

Gonzalez v Kay, 306–309

Graco Children’s Products, Inc., Thongchoom v., 388

Great Minneapolis Surplus Store, Lefkowitz v.,

339–340

Greco v Trauner, Cohen & Thomas, LLP, 308

Green County Food Market, Inc v Bottling Group,

LLC, 148–150

Gregory v Fort Bridger Rendezvous Ass’n., 122–123

Grinnell Corp., United States v., 129

Grokster, Ltd., MGM Studios, Inc v., 44

GTE Prods Corp., Tasca v., 378

GTE Sylvania Inc., Continental T.V., Inc v., 143, 144

Haelan Labs, Inc v Topps Chewing Gum, Inc., 235

Hamlin v Motel 6, 166

Hanover Insurance Co., Kelley v., 367

Harlow Meyer Savage, Inc., Maltby v., 99–100

Harris, Service Sys Corp v., 100

Harris v Blockbuster, Inc., 323

Hasbro, Inc v Internet Entertainment Group, Ltd.,

211

Heinz W Kirchner, In re, 245

Henningsen v Bloomfield Motors, Inc., 359, 360

Henry v A.B Dick Co., 182

Herald Co., Albrecht v., 14, 144

Here’s Johnny Portable Toilets, Inc., Carson v., 236Higgins v Intex Recreation Corp., 386–389

Hirsch v S C Johnson & Son, Inc., 236Hoffman, Telxon Corp v., 93

Hoffman v Capital Cities/ABC, Inc., 224Hogg Wyld, LTD, Jordache Enterprises, Inc v., 206Holiday Inns, Inc., Crinkley v., 181

Hyatt v Toys "R" Us, Inc., 359ICI Explosives, USA, Inc., Gaines-Tabb v., 384–386Illinois Tool Works, Inc v Independent Ink, 128Image Technical Services, Inc., Eastman Kodak Co.v., 129, 149

Incase, Inc v Timex Corp., 73Independence Tube Corp., Copperweld Corp v.,

112, 116Independent Ink, Illinois Tool Works, Inc v., 128Intelligent Sys., Inc., Barazzotto v., 383

International Dairy Foods Association v Amestoy,289

International Dairy Queen, Collins v., 167Internet Entertainment Group, Ltd., Hasbro, Inc.v., 211

Intex Recreation Corp., Higgins v., 386–389iParadigms, LLC, A.V v., 61–65

Isbell, Mary Kay, Inc v., 177–179Islamorada, Island Silver & Spice, Inc v., 173–175Island Silver & Spice, Inc v Islamorada, 173–175ITSI T.V Prods., Inc v California Auth of RacingFairs, 44

Iuvo Systems, Inc., Deltek, Inc v., 215IWI, Inc., Nettis Environment, Ltd v., 215Jackson, Clomon v., 307–308

Jacobson Products Co., Qualitex Co v., 197, 216–217JCW Investments, Inc v Novelty, Inc., 58–61Jerome-Duncan, Inc v Auto-By-Tel, LLC, 158John D Park & Sons Co., Dr Miles Medical Co v.,

138, 139, 142, 143Johnson, Kamposek v., 281–282John Wright, Inc v Casper Corp., 243Jones, Calder v., 14, 16

Jordache Enterprises, Inc v Hogg Wyld, LTD, 206Joseph E Seagram & Sons, Inc., Kiefer-Stewart Co v.,143

Jostens, Inc v Nat’l Computer Sys., Inc., 92Kamposek v Johnson, 281–282

Kay, Gonzalez v., 306–309Keller v State Bar of California, 258Kelley v Hanover Insurance Co., 367Khan, State Oil Co v., 116, 142–144, 167Kiefer-Stewart Co v Joseph E Seagram & Sons, Inc.,143

KMD Media, LLC, Market Access International, Inc.

Leonard v PepsiCo., Inc., 337–341

Lever Bros Co v United States, 208

Lipton v Nature Co., 262

MacPherson v Buick Motor Co., 366

Mailcoups, Inc., Nagrampa v., 159

Mainstream Marketing Services, Inc v FTC, 296–300

Maltby v Harlow Meyer Savage, Inc., 99–100

Marathon Petroleum Co., LLC, Sheridan v., 182–184

Market Access International, Inc v KMD Media,

Mars Snackfood U.S., LLC, Vent v., 100–103

Martin, Al Minor & Associates, Inc v., 89–91

Mary Kay, Inc v Isbell, 177–179

Mathews v University Loft Co., 370–371

Mattel, Inc., In re, 249

Mattel, Inc v MCA Records, Inc., 221–224

McAnany v Case, Inc., 368

MCA Records, Inc., Mattel, Inc v., 221–224

McCance, Venderwerff Implement, Inc v., 333–334

McDonald’s Corp., Miller v., 179–182

McGills Glass Warehouse, Venture Tape Corp v.,

Mecurio v Nissan Motor Corp., 375

Metropolitan Life Insurance Co V Neaves, 15

MGM Studios, Inc v Grokster, Ltd., 44

Michel Co., Rolex Watch, U.S.A v., 209

Micro Center, Thomas v., 382–384

Microflock Textile Group Corp., Zhejiang Shaoxing

Yongli Printing & Dyeing Co., Ltd v., 347–349

Midler v Ford Motor Co., 236

Miller v McDonald’s Corp., 179–182

Monsanto Co v Spray-Rite Service Corp., 126Montana Siversmiths, Inc., Todd v., 47Moore v Columbia Pictures Industries, Inc., 60Motel 6, Hamlin v., 166

Motion Picture Advertising Service Co., FTC v., 113Mummagraphics Inc., Omega World Travel Inc v.,

280, 300–303Nagrampa v Mailcoups, Inc., 159National Computer Sys., Inc., Jostens, Inc v., 92National Football League, American FootballLeague v., 130

Nat’l Tube Co v Eastern Tube Co., 89Nature Co., Lipton v., 262

Neaves, Metropolitan Life Insurance Co v., 15NEC Electronics v CAL Circuit Abco, 207Netbula, LLC v Chordiant Software, Inc., 46Netscape Communications Corp., PlayboyEnterprises v., 215

Nettis Environment, Ltd v IWI, Inc., 215Newspapers of New England, Inc., Union LeaderCorp v., 130

Nissan Motor Corp., Mecurio v., 375Northern Pacific Railway Co v United States, 112,

115, 167Northrup King Co., Widmark v., 92Novartis Corp v FTC, 244

Novelty, Inc., JCW Investments, Inc v., 58–61Oakley Fertilizer, Inc v Continental Inc Co., 341–344Office of Disciplinary Counsel, Zauderer v., 267Ohio Dept of Ins., State ex rel The Plain Dealer v., 90Omega World Travel Inc v Mummagraphics Inc.,

280, 300–303Orange & Rockland Utilities, Inc., CrossroadsCogeneration Corp v., 133

Original Appalachian Artworks, Inc v GranadaElectronics, Inc., 207

Orkin Exterminating Co v FTC, 276Outboard Marine Corp., Beech v., 375Owens-Corning Fiberglas Corp., Anderson v., 376Paine Webber, Inc v wwwpainewebber.com, 214Palmer v BRG of Georgia, Inc., 137–138

Panavision Int’l v Toeppen, 15Paris Ceramics USA, Inc., Dunleavey v., 379–381Pebble Beach Company v Caddy, 13–17

PepsiCo., Inc., Leonard v., 337–341

Perez v Wyeth Laboratories, Inc., 378

Perrin, Landry, deLaunay & Durand, Taylor v.,

307–308

Pfaff v Wells Electronics, Inc., 53–55

Pfizer, Farsian v., 372

Pfizer, Inc., Walus v., 372

The Plain Dealer, State ex rel v Ohio Dept of Ins., 90

The Plantation Shutter Co v Ezell, 318

Playboy Enterprises v Netscape Communications

Corp., 215

The Procter & Gamble Co v Ultreo, Inc., 239–240

PSKS, Inc., Leegin Creative Leather Products v., 116,

125, 135, 138–142, 168

Public Service Commission of New York, Central

Hudson Gas & Electric Corp v., 232–233, 253, 254,

256, 289, 297

Qualitek Int’l, Inc., Roberge v., 93

Qualitex Co v Jacobson Products Co., 197, 216–217

Quality King Distributors, Inc v L’Anza Research

Int’l, Inc., 208

Queen City Pizza, Inc v Domino’s Pizza, Inc., 167

Ralston Purina Co., Alpo PetFoods, Inc v., 243

Reeder-Simco GMC, Inc., Volvo Trucks North Am.,

Inc v., 134

Reeves v Alyeska Pipeline Service, 81

Reid, Community for Creative Non-Violence v., 41,

55–58

Reynolds, Mitchell v., 98

Rhode Island, 44 Liquormart, Inc v., 232–233

Rio Int’l Interlink, Rio Properties, Inc v., 15

Rio Properties, Inc v Rio Int’l Interlink, 15

Roberge v Qualitek Int’l, Inc., 93

Rolex Watch, U.S.A v Michel Co., 209

Rossi v 21st Century Concepts, Inc., 303–306

Ross-Simmons Hardwood Lumber Co., Weyerhaeuser

Co v., 130, 131

Rubin v Coors Brewing Co., 253–256

Rural Telephone Service Co., Feist Publications, Inc

v., 39–40, 59

Russen, Estate of Presley v., 235

Samara Brothers, Inc., Wal-Mart Stores, Inc v., 197

Schultz, Frisby v., 297

Schwarzenegger, Video Software Dealers Ass’n v.,

233–234

Schwarzenegger v Fred Martin Motor Co., 16

S C Johnson & Son, Inc., Hirsch v., 236

S.C Johnson & Son v Clorox Co., 240–241

SEMA Construction, Inc v Diversified Prod

Indus-tries, 329–330

Service Sys Corp v Harris, 100

Shaw Family Archives Ltd v CMG Worldwide, Inc.,236

Sheridan v Marathon Petroleum Co., LLC, 182–184Shiley, Inc., Angus v., 372

Shiley, Inc., Brinkman v., 372Shiley, Inc., Spuhl v., 372Shurtleff, Free Speech Coalition, Inc v., 280Signature Financial Group, Inc., State Street Bank &Trust Co v., 27

Sindell v Abbott Laboratories, 372Snuba International, Inc v Dolphin World, Inc., 33Socony-Vacuum Oil Co., United States v., 121, 137,143

Sony Corp of America v Universal City Studios,

44, 45South Park Cigar, Inc., In re, 199Space Organization Systems, Inc., California Closet

Co v., 172Spray-Rite Service Corp., Monsanto Co v., 126Spuhl v Shiley, Inc., 372

Standard Oil Co of California v United States, 128Standard Oil Co of New Jersey v United States, 112Stanley Steemer International, Inc., AAA AbachmanEnterprises, Inc v., 169

The Stanley Works, United States v., 284State Bar of California, Keller v., 258State ex rel The Plain Dealer v Ohio Dept of Ins., 90State Oil Co v Khan, 116, 142–144, 167

State Street Bank & Trust Co v Signature FinancialGroup, Inc., 27

Staub v Toy Factory, Inc., 374Strategic Directions Group, Inc v Bristol-MyersSquibb Co., 91–92

Suess, Curtis 1000 v., 95Super Duck Tours, LLC, Boston Duck Tours, LP v.,195

Taco Cabana, Inc., Two Pesos, Inc v., 197Tasca v GTE Prods Corp., 378

Taylor v Perrin, Landry, deLaunay & Durand,

307–308Telephone Cases, The, 54–55Telxon Corp v Hoffman, 93Texaco, Inc., Gizzi v., 181

T Harris Young & Associates, Inc v MarquetteElectronics, Inc., 129

The Coca-Cola Co., By Rite Distributing, Inc v.,238

Themins v Emanuel Lutheran, 180Thomas v Micro Center, 382–384Thongchoom v Graco Children’s Products, Inc., 388Ticor Title Insurance Co v Cohen, 96–100

Tiffany (NJ) Inc v Ebay, Inc., 205

Time Warner Cable, Inc v DirecTV, Inc., 259–264

Timex Corp., Incase, Inc v., 73

To-Am Equipment Co., Inc v Mitsubishi Caterpillar

Forklift America, Inc., 175–177

Todd v Montana Siversmiths, Inc., 47

Toeppen, Panavision Int’l v., 15

Topco Assoc., Inc., United States v., 109, 137

Topps Chewing Gum, Inc., Haelan Labs, Inc v., 235

Tour Costa Rica v Country Walkers, Inc., 345–347

Toy Factory, Inc., Staub v., 374

Toys“R” Us, Inc., Hyatt v., 359

Toys“R” Us, Inc v Akkaoui, 211

TrafFix Devices, Inc v Marketing Displays, Inc.,

218–220

Trailer Leasing Co v Associates Commer Corp., 94

Trauner, Cohen & Thomas, LLP, Greco v., 308

Two Pesos, Inc v Taco Cabana, Inc., 197

Ultreo, Inc., The Procter & Gamble Co v., 239–240

Union Leader Corp v Newspapers of New England,

Inc., 130

United Foods, Inc., United States v., 256–259

United States, Brown Shoe Co v., 110

United States, Lever Bros Co v., 208

United States, Northern Pacific Railway Co v., 112,

115, 167

United States, Standard Oil Co of California v., 128

United States, Standard Oil Co of New Jersey v., 112

United States, White Motor Co v., 143

United States v Aluminum Co of America, 128, 130,

137

United States v Arnold, Schwinn & Co., 143

United States v Capital City Foods, 288

United States v Colgate & Co., 125

United States v Grinnell Corp., 129

United States v Socony-Vacuum Oil Co., 121, 137,

143

United States v The Stanley Works, 284

United States v Topco Assoc., Inc., 109, 137

United States v United Foods, Inc., 256–259

United States v Women’s Sportswear Manufacturers

Assoc., 115

United State v Falstaff Brewing Co., 119

Universal City Studios, Sony Corp of America v.,

44, 45

University Loft Co., Mathews v., 370–371Vassallo v Baxter Healthcare Corp., 376Venderwerff Implement, Inc v McCance, 333–334Venture Tape Corp v McGills Glass Warehouse,

224–227Vent v Mars Snackfood U.S., LLC, 100–103Video Software Dealers Ass’n v Schwarzenegger,

233–234Vineyard County Gold Corp., Cass County Music

Co v., 44Virginia Citizens Consumer Council, Inc., VirginiaState Board of Pharmacy v., 232, 254

Virginia State Board of Pharmacy v Virginia CitizensConsumer Council, Inc., 232, 254

Vistaprint USA, Inc., Asis Internet Services v., 280Volvo Trucks North Am., Inc v Reeder-Simco GMC,Inc., 134

Waits v Frito-Lay, Inc., 236Walker-Davis Publications, Ames Publishing Co v.,243

Wal-Mart Stores, Inc v Samara Brothers, Inc., 197Walus v Pfizer, Inc., 372

Warner-Lambert Co v F.T.C., 243Weil Ceramics & Glass, Inc v Dash, 207Wells Electronics, Inc., Pfaff v., 53–55Western Trimming Crop., The Antioch Co v., 198Weyerhaeuser Co v Ross-Simmons HardwoodLumber Co., 130, 131

Whitehead v Dycho Co., 378White Motor Co v United States, 143Widmark v Northrup King Co., 92Wileman Brothers & Elliott, Inc., Glickman v., 256,

257, 258Wilson v Mobil Oil Corp., 167Women’s Sportswear Manufacturers Assoc., UnitedStates v., 115

Wu v Dunkin’ Donuts, Inc., 164–165wwwpainewebber.com, Paine Webber, Inc v., 214Wyeth Laboratories, Inc., Perez v., 378

Yarusso, Bell Sports, Inc v., 365Zauderer v Office of Disciplinary Counsel, 267Zhejiang Shaoxing Yongli Printing & Dyeing Co.,Ltd v Microflock Textile Group Corp., 347–349

Instructors want to educate their students to become knowledgeable consumers of legal vices Students want to become successful managers, capable of planning to avoid legal pro-blems and of making more informed decisions when confronted with legal issues regardingthe marketing of goods and services This textbook is designed for both audiences.Experienced marketing managers know that the law affects marketing activities in a multi-tude of ways In the course of carrying out marketing duties, a manager may deal with suchdiverse issues as intellectual property, antitrust, franchise agreements, health and safety reg-ulation, and products liability Business students benefit immeasurably from a course that fo-cuses on the many areas in which law and marketing intersect The Law of Marketing is thebook that will help you achieve your educational goals in a marketing law course.

ser-Business students cannot assume that a single book or course on marketing law willmake them an expert in the legal issues that might arise in their careers; nor can they as-sume that a single lawyer will be able to fully address all the legal concerns that they mightencounter However, by developing an understanding of the complexity and relevance ofthe various types of law that impact the marketing function, the informed student canmeet these challenges head-on and be better prepared to meet his or her career challenges.Through a unique design that intertwines marketing principles, legal cases, and cur-rent business examples, The Law of Marketing focuses specifically and in detail on thoselegal principles of particular relevance to marketing activities It addresses the pivotal to-pics necessary for understanding the impact that law has upon marketing activities andhow law affects current marketing trends The book also highlights the personal liabilityissues that students, as future managers, might face

Subject Matter and Organization of the Book

This textbook is designed to take the student through the legal aspects of the marketingfunction It covers the initial legal issues related to product development, such as protec-tion of intellectual property assets, legal issues relating to distribution and promotion ofthe product or service, and ultimately legal issues pertaining to the sale of the product orservice, including attendant issues such as products liability and warranties Structuringthe book according to these marketing practices and functions creates a logical progres-sion for students to use as a framework for real-life experiences

This book is designed for both those students who have had a legal environment quisite and those who are new to the study of business law Thus, each individual chaptercan stand alone Students already possessing an understanding of the legal environment orwho have previously taken courses addressing specialized legal topics will benefit frombeing able to jump almost immediately into the various marketing law topics covered inChapters 2 through 10 For students who are new to the study of business law, Chapter 1provides a very brief overview of the legal environment of marketing law

prere-The book covers the following marketing law topics:

• Part Two: Legal Issues Relating to Product Development

• Chapter 2: Protection of Intellectual Property Assets through Patent and right Law:This chapter examines two of the four areas of law that protect intellec-tual property assets: patent law and copyright law

Copy-xvii

• Chapter 3: Protection of Intellectual Property Assets through Trade Secret Law,Contractual Agreements, and Business Strategies: This chapter addresses thethird area of intellectual property law—trade secrets—as well as the law relating

to the protection of unsolicited ideas, and business strategies for protecting andmaximizing the value of intellectual property assets, including the use of contrac-tual agreements

• Part Three: Legal Issues Relating to Product Distribution

• Chapter 4: Antitrust Law: This chapter addresses the major federal antitrust tutes, horizontal and vertical restraints of trade, monopolization, price discrimina-tion, and the international implications of antitrust laws

sta-• Chapter 5: The Franchisor-Franchisee Relationship: This chapter provides anoverview of typical franchise agreements, the types of legal issues that commonlyarise in franchise relationships, and state and federal regulation of franchises

• Part Four: Legal Issues Relating to Product Promotion

• Chapter 6: Trademark Law: This chapter covers trademark law, including issuespertaining to international protection of marks and to the use of marks on theInternet

• Chapter 7: Commercial Speech and Regulation of Advertising: This chapter cuses on First Amendment restrictions on advertising and other forms of commercialspeech, common law actions for deceptive or false advertising, and statutory causes ofaction for deceptive or false advertising arising under the Lanham Act and the Fed-eral Trade Commission Act

fo-• Chapter 8: Consumer Protection Law: This chapter addresses the regulation ofdirect marketing activities, labeling and packaging regulation, health and safetyregulation, and consumer credit protection statutes

• Part Five: Legal Issues Relating to Product Sale

• Chapter 9: Contracts and Sales of Goods Law: This chapter focuses on thefundamental common law contract principles, the basic provisions of UCC lawpertaining to the sale of goods, and the Convention on the International Sale ofGoods

• Chapter 10: Warranties and Products Liability: This chapter examines the lawpertaining to warranties on sales of goods and to products liability

Key Features

The chapters consist of textual discussion of the relevant issues and rules of law, withcases and problems for discussion

Cases

Several tools are used to convey the ideas of each chapter Each chapter contains two types

of cases:“Case Illustrations” and “Discussion Cases.” The Case Illustrations are short maries of cases that illustrate a particular legal point discussed in the text These cases aremostly paraphrased When the original language of the court is used, it is indicated throughquotation marks or through block quotes

sum-At the end of each chapter there are several“Discussion Cases.” These cases have beenedited for length, but the language appearing on the page is entirely that of the court El-lipses (…) have been used to indicate where a portion of a sentence has been omitted.Three asterisks (* * *) are used to indicate where a complete sentence or more has beenomitted from a paragraph or where a complete paragraph or more has been omitted.The Discussion Cases are somewhat longer than the cases found in most legal envir-onment texts Depending upon how the course is structured and how the text is used,instructors may assign all or just some of the cases, picking and choosing those that aremost relevant to their own teaching objectives

Why the long cases? In my two decades of teaching, I have noticed a trend towardcases being more and more heavily edited, often with the facts, issue, legal rule, and ana-lysis being specifically labeled for the students I am a firm believer in developing thestudent’s ability to “brief” cases, which enables the student to acquire the skill of analyz-ing a court’s reasoning process and to hone his or her own reasoning skills There is areal value in a student seeing the factual background of a case and the court’s reasoningprocess and to working through the language used by the court The longer cases pro-vided within this textbook allow the students to engage in this process.

The Case Illustrations and the Discussion Cases have been selected based upon theirrelevance to the function of marketing, their appeal to business students, and their effec-tiveness in highlighting key legal ideas Recent cases, including In re Bilski, A.V v iPar-adigms, LLC; Leegin Creative Leather Products v PSKS, Inc.; and Time Warner Cable,Inc v DirecTV, Inc., have been incorporated to address current legal issues

Internet and International Coverage

Coverage of international and Internet legal issues are integrated into chapters, as priate Scattered throughout the text are numerous Web addresses to websites of particu-lar relevance to the topics being discussed throughout the book These sites can bevisited for additional background on topics of particular interest to the reader

Text Companion Website

a new textbook Please be sure to let your sales representative know if you would liketemporary access to demo this product, which offers a total of over 65 clips with instruc-tor resources (such as discussion questions)

Court Case Updates

www.cengage.com/blaw/cases

South-Western’s Court Case Updates provide monthly summaries of the most importantlegal cases happening around the country

Business Law Case Databasewww.textchoice.com

Wondering what happened to your favorite case? The Business Law Case Database is a bust case library that houses over 700 cases You can now hand-pick the cases you want,making it easy to create customizable casebook Start by searching the Business LawCustom Case Database by state or topic for a complete list of offerings

ro-Westlaw®Accesswww.westlaw.comWestlaw®, West Group’s vast online source of value-added legal and business information,contains over 15,000 databases of information spanning a variety of jurisdictions, practiceareas, and disciplines Qualified instructors may receive 10 complimentary hours of West-law®for their course (certain restrictions apply; contact your South-Western sales repre-sentative for details)

Business Law Community Websitewww.cengage.com/community/blawVisit South-Western’s Community website for a wealth of resources to help you deliverthe most effective course possible, including our“Great Ideas in Teaching Business Law”section Our Community website offers teaching tips and ideas for making the subjectinteresting and appealing to your students Ideas include class presentations, discussiontopics, research projects, and more

Acknowledgments

The second edition of The Law of Marketing reflects many comments from colleagues, all ofwhich are deeply appreciated In particular, the author would like to thank the following:Malcolm Abel

Western Carolina UniversityCraig Andrews

Marquette UniversityRobert C BirdUniversity of Connecticut

Dr William N BockanicJohn Carroll UniversityJudy Gedge

Quinnipiac UniversityJoseph GordonDavis Applied Technology CollegeJames Gould

Pace UniversityPatricia GreerBerkeley CollegeNorman HawkerWestern Michigan University

Silvia HodgesEmerson CollegeJack E KarnsEast Carolina UniversityArlen Langvardt

Indiana UniversityTim LemperIndiana University, BloomingtonRoss D Petty

Babson CollegeKiana Pierre-Louis, Esq

Bentley University

Dr Joanie SompayracUniversity of Tennessee, ChattanoogaGregory L Young

California State University, Northridge

And special thanks to Vicky True and Krista Kellman of South-Western Legal Studies inBusiness/Cengage Learning for their invaluable assistance and support in the preparation

of this edition

Lynda J Oswald is a Professor of Business Law and Michael R and Mary Kay HallmanFellow at the Stephen M Ross School of Business at the University of Michigan She re-ceived her A.B., M.B.A., and J.D degrees from the University of Michigan While at theMichigan Law School, she served on the editorial board of the Michigan Law Review.She clerked for the Honorable Cornelia G Kennedy of the U.S Court of Appeals for theSixth Circuit before joining the faculty of the Ross School of Business in 1988 ProfessorOswald is also a Past President of the Academy of Legal Studies in Business, and served onits Executive Committee from 2003 to 2008.

Professor Oswald has received numerous awards for her research, including the HoeberMemorial Award and the Holmes-Cardozo Award for Research Excellence from the Amer-ican Business Law Journal Her work has been cited by numerous courts, including theU.S Supreme Court in United States v Bestfoods

Professor Oswald is currently the Editor of the Michigan Real Property Review She hasserved as the Louis and Myrtle Moskowitz Research Professor of Law and Business and

as a Contributing Editor to the Real Estate Law Journal, as well as serving as a special tor for the American Business Law Journal and the Journal of Legal Studies Education Shehas also served as a Contributing Editor of Environmental Law for the Real Estate LawJournal

edi-Professor Oswald has taught at the University of Florida Law School and the University

of Michigan Law School She was a visiting scholar at China University of Political Scienceand Law in Beijing, PRC, and at Lviv State University in Lviv, Ukraine; a visiting professor

at the University of Sydney in Sydney, Australia; and a Visiting Professor of Law at theHopkins-Nanjing Center in Nanjing, PRC

xxi

Introduction to Marketing Law

Chapter 1

Overview of the Legal Environment of Marketing Activities

1

Overview of the Legal

This chapter provides you with a framework within which you can start to analyzethe various legal issues discussed in the following chapters The topics touched uponbriefly here appear in specific contexts throughout the book In many respects, then,this chapter is a preview of coming attractions and is intended to help orient you asyou begin your study of the law of marketing

In light of this goal, this chapter begins by providing several classifications of the law sothat you can understand the larger picture of the various types of law that exist within theAmerican legal system It then discusses the primary and secondary sources of the law anddescribes the American legal system, including the structure of the state and federal courtsystems Finally, the chapter concludes with a short discussion of jurisdiction issues.Classifications of the Law

The law has two main purposes: (1) it provides guidelines for decision making, and (2) itcreates and enforces legal rights and duties When we start to classify the law, we can seethese two objectives come into play Classifications also provide snapshots of the organi-zation of the legal system and provide a sense of the wide variety of interests and activi-ties that the law affects

Law can be classified in many different ways The first classification provided here isbased upon the type of law involved (See Exhibit 1.1.) The broad category of“law” can bedivided into two basic areas: criminal law and civil law Criminal law deals with a violation

of the public order; i.e., it involves a wrong against the whole community The purpose of a

3

criminal prosecution is to punish the wrongdoer and to deter the wrongdoer and othersfrom committing similar acts in the future Civil law, on the other hand, deals with privaterelations between individuals or between individuals and the government and establishes therights and responsibilities arising out of those relationships The objective of a civil lawsuit is

to obtain relief for the injured party, most commonly in the form of monetary damages and/

or an injunction Most of the law discussed in this book is civil law

Each of these two basic categories can be further divided into procedural and tive law Substantive law actually defines, creates, and governs legal rights and duties Pro-cedural law, by contrast, defines the method by which people can enforce the rights given

substan-to them by the substantive law For example, procedural law tells us the steps that must betaken to move a lawsuit through the legal system from its initial filing to its final judgment.Substantive law can be further classified into public and private law Public law dealswith the relationship between the government as a sovereign and the individual and istypically enacted or created by a governmental body Criminal law, for example, is publiclaw, as is constitutional and administrative law Private law deals with the rights and du-ties that arise as the result of a relationship between individuals, including legal entitiessuch as corporations Private law encompasses a wide variety of topics, including tortlaw, contract law, property law, and the law of business organizations

Law can also be classified based upon political jurisdictions In the United States, thereare essentially three levels of political and legal jurisdictions: (1) federal; (2) state; and(3) local All three jurisdictions can affect marketing activities, although our discussion inthis book focuses primarily on federal and state regulation of these activities

The federal government is the national government and is comprised of the tive, executive, and judicial branches Each of these has the ability to create law Within itssphere, the federal government is superior to the state and local governments Under theU.S Constitution, however, the federal government is a government of limited powers.The federal government has no power to act in areas not granted to it under the Constitu-tion In the specific areas in which the federal government is authorized to act, such as pa-tents and copyrights, the federal government is superior to the state and local governments

legisla-E X H I B I T 1 1 Classification of the Law

LAW

CIVIL

Substantive Procedural

The state governments also have legislative, executive, and judicial branches The statesretain all of the governmental power not explicitly granted to the federal government un-der the U.S Constitution This means that the states retain authority to regulate in a num-ber of areas that implicate marketing activities, including trade secrets, contracts,warranties, and products liability Some areas of the law—such as trademark law, which

is discussed in Chapter 6—are regulated by both the federal and state governments.Each state has the power to create its own state law Thus, state laws can vary sub-stantially from state to state Marketers engaged in interstate or national marketingefforts need to be aware of the ramifications of differences in state laws In some areas,such as sales of goods, the states have undertaken measures to foster uniformity amongstate laws, thus easing the burden on interstate businesses These efforts are discussed atvarious points throughout the book

Local governments, such as cities, towns, villages, and counties, can also regulate businessactivities, including marketing activities The powers of local governments are delegated tothem by their state legislatures and may be limited or modified by the states To the extentthat they are authorized to act, local governments can create local laws, such as municipalordinances and regulations Although local regulations can impact certain types of market-ing activities (for example, issues relating to consumer protection), local regulation is ofconsiderably less significance than federal or state regulation in the marketing law arena.Finally, law can be classified based upon the branch of government that created it Atboth the state and federal levels, each of the three branches can create law The legislativebranch enacts statutes; the judicial branch creates common law through its opinions; andthe executive branch creates administrative rules and regulations through its power overadministrative agencies Numerous examples of all three types of law are found through-out this book

Sources of the Law

The “law” can be found in many places We look to primary sources when we want tofind out what the legal rules “really are.” We look to secondary sources when we wantassistance in finding and interpreting the“law.” There are numerous references to bothprimary and secondary sources throughout the book, both in the chapter discussions and

in the judicial opinions

Primary Sources of the Law

As already noted, there are two parallel legal systems in the United States: the federal systemand the state systems (And, in fact, there are 50 separate state systems, plus a system for theDistrict of Columbia, making a total of 52 legal systems in the United States.)

Primary Sources of Federal Law At the federal level, there are a number of primarysources of law: the U.S Constitution, treaties, federal statutes, federal court opinions, andadministrative rules and regulations

The U.S Constitution is said to be the “supreme law of the land.” It establishes thethree branches of the federal government—legislative, judicial, and executive—and ad-dresses the powers and limitations of each of those branches It restricts the power ofthe federal government and guarantees the rights and liberties of the people

No law—whether created by the legislative, judicial, or executive branch or by the federal

or a state government—is permitted to conflict with the U.S Constitution In addition,under the Constitution, federal statutes and treaties are superior to state constitutionsand statutes The U.S Supreme Court, by virtue of its power of judicial review, hasthe authority to determine the constitutionality of all laws, federal or state

A treaty is an agreement between or among nations Under the U.S Constitution, thePresident, with the advice and consent of the Senate, has sole authority to enter into

treaties A valid treaty has the legal force of a federal statute If a treaty and a federalstatute conflict, the last to have been adopted prevails.

In addition, as noted earlier, each of the three federal governmental branches can ate law First, Congress can enact statutes We look at a number of such statutes in laterchapters, including the Patent Act, the Copyright Act, the Sherman and Clayton Anti-trust Acts, the Federal Trade Commission (FTC) Act, and the Lanham Act Second, thecourts can create common law through their judicial opinions We examine many fed-eral court opinions throughout the book Third, administrative agencies are part of theexecutive branch and have the power to enact administrative agency rules and regula-tions Later chapters examine the regulatory activities of several federal administrativeagencies, such as the FTC and the Consumer Product Safety Commission

cre-Primary Sources of State Law To a large extent, the primary sources of state lawparallel those found at the federal level The major exception is that treaties are foundonly at the federal, and never the state, level Similarly, local government regulation isfound only at the state, and never the federal, level

Each state has its own constitution Although often patterned upon the language of thefederal Constitution, state constitutions are frequently more detailed than the federal Con-stitution State constitutions cannot deprive individuals of federal constitutional rights, butthey can give individuals additional rights beyond those found in the federal Constitution.Each of the three branches of the state governments can create law, just as with thethree branches of the federal government The state legislatures can enact state statutes.Trade secrets and the right of publicity, for example, are governed by statute in manystates, as are sales of goods The executive branches of the state governments can enactstate administrative agency rules and regulations For example, state administrativeagencies have undertaken several measures to protect consumers from unscrupulous mar-keting practices Finally, the state courts can create common law through their opinions.Contract and tort law, for example, are still largely matters of state common law, whichmeans that judicial opinions are an important primary source of state law in these areas

Secondary Sources of the Law

Numerous secondary sources of the law exist Among the most influential of these are theRestatements of the Law compiled by the American Law Institute (ALI).1 The ALI wasformed in 1923 and consists of a group of distinguished lawyers, judges, and professorswho compile authoritative statements of the common law in particular areas, includingcontracts, torts, and unfair competition While the Restatements are not law themselves,the courts frequently look to and adopt the Restatements’ positions on various points.Once adopted by a court, the Restatement language becomes a part of the common law ofthat jurisdiction We will see numerous references to various Restatements in later chapters

As noted earlier, each state creates its own legal rules Historically, the growth of terstate businesses was hampered by the fact that the laws could differ substantially fromstate to state, making planning and compliance difficult for businesses operating acrossstate lines In an effort to reduce some of the variation in state laws, the National Con-ference of Commissioners on Uniform State Laws (NCCUSL) was created in 1892 toprepare uniform state legislation for presentation to and possible adoption by the statelegislatures.2 Until adopted by a state legislature, these model laws have no binding legaleffect and so are considered secondary sources of the law Once adopted by a state legis-lature, of course, the model statute becomes a state statute and hence a primary source of

in-1 For general information on the ALI, see www.ali.org

2 For general information on the NCC, see www.nccusl.org

law The most widely adopted of the uniform laws is the Uniform Commercial Code(UCC), which was jointly created by the NCCUSL and the ALI and which provides uni-form rules regarding commercial transactions The UCC has been adopted by all of the

50 states (although Louisiana has adopted only part of it) and the District of Columbia.The UCC is discussed in Chapter 9 and Chapter 10 in the context of sales of goods andwarranties The NCCUSL is still active in drafting model uniform laws

The courts may refer to legal encyclopedias, legal dictionaries, treatises, law reviewarticles, and other secondary sources when trying to identify and interpret the legal rulescontained within the primary sources of the law Numerous examples of such secondarysources appear in the cases presented throughout this book

The American Legal System

Common Law and Equity

The American legal system is a common law, or Anglo-American, legal system Thistype of legal system is also found in other English-speaking countries, such as England,Canada (with the exception of Quebec), and Australia In a common law system, much

of the law is created by the judiciary and is found within court opinions By contrast,much of the world, including Western Europe, Quebec, Scotland, Latin America, andparts of Africa and Asia, has a civil law system, in which the bulk of the law is foundwithin legislative codes

The American legal system is also an adversary system, which means that the parties,not the court, initiate and conduct litigation and gather evidence The parties presenttheir dispute to a neutral fact finder, the court The theory behind the adversary system

is that the two interested parties are most likely to vigorously litigate a case Civil lawsystems, by contrast, often depend upon an inquisitorial system, in which the judiciaryassists in initiating litigation, investigating facts, and presenting the evidence

Because of the way that the common law developed in England historically, the mary form of legal relief available is monetary damages Because money is not necessar-ily an appropriate form of relief in all cases, an additional system of judicial reliefevolved that was known as equity A court of chancery, sitting in equity, could awardnonmonetary relief in instances where the monetary remedy available at law was inade-quate Among the primary forms of equitable relief found today are injunctions, whichare court orders requiring a party to undertake an act or refrain from an act, and specificperformance, which is an order to a party to fulfill its contractual obligations

pri-Today, virtually all jurisdictions in the United States have merged their courts of uity and law so that a single court can administer both forms of justice Nonetheless,important distinctions remain While a jury may be available in cases at law, only judgesdecide equity cases In addition, equitable relief is available only at the discretion of thejudge In order to obtain equitable relief, the party seeking such relief must typicallyshow that he or she has “clean hands,” i.e., that he or she acted fairly and honorablytoward the other party There are numerous examples of courts acting in equity through-out this book Preliminary injunctions, for example, are a commonly requested form ofequitable relief in disputes involving marketers

eq-Within the American legal system, the operative doctrine is stare decisis, also known

as the doctrine of precedent Stare decisis is a Latin term that means “to stand by adecision.” Essentially, this doctrine tells us that each court is bound by its own “prece-dents,” i.e., that each court must decide subsequent cases in the same way that it or asuperior court decided earlier cases with similar facts A court can overrule its own pre-cedents, however, if it determines that a precedent was wrongly decided or that social ortechnological advances have rendered the precedent obsolete

A court is not bound by every case that was decided earlier As noted earlier, there are

52 court systems within the United States—the federal system, 50 state systems, and asystem for the District of Columbia In general, decisions of one court are binding only

on that court and on lower courts within the same system Thus, a Michigan trial court isbound by a decision of the Michigan Supreme Court but not by a decision of the TexasSupreme Court, which is outside its system Similarly, the Michigan Supreme Court isnot bound by a decision of the Michigan trial court, which is a lower court within itssystem A decision of the U.S Supreme Court on a federal question (i.e., a question in-volving the U.S Constitution, a federal statute, or a treaty) is binding on all state andfederal courts Within the federal system, however, a decision of a specific circuit court

of appeals is binding on that court and on all district (lower) courts within that circuit,but not on other circuit courts or upon the district courts outside its circuit

Court Structure

The doctrine of precedent means that it is important to understand how the court tems are arranged All courts fulfill one of two basic types of judicial functions First,some courts exercise trial functions and are said to have original jurisdiction Casesoriginate in these courts, and the judges or juries (in appropriate cases) in these courtsdetermine the facts of the case and take the first stab at applying the law to those facts

sys-In the American legal system, the person who starts a civil lawsuit is known as theplaintiff The person who is being sued is known as the defendant The plaintiff hasthe burden of proof, which means that the plaintiff must show, usually by a preponder-ance of evidence, that it should prevail The most common remedies for a civil action aremonetary damages and/or an injunction

In a criminal case, the government, in its role as prosecutor, prosecutes an individual,known as the defendant, for a wrong that the individual allegedly committed against thewhole community The government bears the burden of proving that the defendant isguilty beyond a reasonable doubt The punishment for crimes usually consists of im-prisonment and/or fines

The second type of court is said to have appellate jurisdiction Appellate courts erally review only the lower court’s theory and application of the law, not the trial court’sfindings of fact Appellate courts do not conduct trials, hear evidence or testimony, ordetermine facts Rather, appellate courts must accept the facts as determined by the trialcourt unless the trial court’s decision is “clearly erroneous,” which is a very difficult stan-dard to meet An appellate court reviews the factual record created by the trial court(e.g., the trial transcript and physical evidence introduced at trial) The appellate court’sjob is to resolve questions of law, i.e., to determine whether the trial was conducted in aprocedurally proper manner and whether the appropriate law was applied correctly tothe facts as determined by the trial court

gen-At the appellate level, the person who lost below and who is bringing the appeal isknown as the appellant or the petitioner The person who won below and who is defendingthe appeal is known as the appellee or the respondent If the appellate court finds no prej-udicial error in the lower court’s determination, it will affirm the decision If the courtfinds a prejudicial error, it will either reverse or modify the decision If necessary, the ap-pellate court can also remand the case back to the lower court for further proceedings

We first examine the typical state court structure; then we examine the federal courtstructure

State Court Structure As already noted, each state has its own court system There isgreat variety in state court systems The most common state court structure is a four-tier

judicial system, although some states use a three- or even two-tier system (See Exhibit 1.2.)The first, or lowest, tier consists of trial courts of limited jurisdiction These courts have ju-risdiction over specific subject matters, such as minor criminal offenses and civil cases up to

a specified sum (e.g., $10,000) Small claims courts are found at this level These are courts thathear civil cases involving relatively small sums of money In most small claims courts, neitherside is represented by an attorney, there is no jury, and the legal procedures are relaxed.The second tier consists of trial courts of general jurisdiction These courts conductthe trials on all cases not heard by the first tier courts, such as major crimes and civilcases involving larger sums of money Juries are available in these courts in appropriatetypes of cases

The third tier consists of intermediate appellate courts Generally, the losing party in acase before the trial court is entitled to appeal to the intermediate appellate court pro-vided that it can point to an alleged error of law (e.g., that the judge allowed evidence

in that should have been excluded, that the jury instructions were incorrect, or that thewrong legal rule was applied) This is known as an appeal of right because if the losingparty can point to an alleged error of law, the appellate court must hear the appeal Gen-erally, a panel of three judges hears appeals at this level and a party must persuade two

of the three in order to prevail

Finally, the fourth tier consists of the appellate court of last resort, generally known asthe supreme court in most (but not all) states Usually, there are five to nine judgesfound on this court (they are generally referred to as justices) and all of them hear anddecide each case In most instances, the appealing party must ask the court’s permission

to appeal; there is usually no appeal of right at this level as there is with the intermediateappellate court A party generally must persuade a majority of the justices in order toprevail The decision of this court is usually final A very few types of cases can be ap-pealed from this court to the U.S Supreme Court, but those cases must involve a federalquestion as discussed below For the most part, cases that reach this level stop here

Federal Court Structure The federal court structure parallels the state court system

in many ways (See Exhibit 1.3.) The main distinction between the two is that federal

E X H I B I T 1 2 Structure of State Courts

U.S

SupremeCourt

State Court of Last Resort

State Intermediate Appellate Court

State Trial Court

of GeneralJurisdiction

State Trial Courts ofLimited Jurisdiction

courts are courts of limited jurisdiction They can hear cases only in areas granted tothem under the U.S Constitution All other cases must go to state court.

The first tier in the federal court system consists of the trial courts These courts includespecialty tribunals, such as the Patent and Trademark Office (PTO), which we discuss inChapter 2 and Chapter 6 These tribunals have very limited jurisdiction over specific sub-ject matter The trial courts also include the U.S District Courts The district courts hear allcases not heard by the specialty tribunals, including general civil and criminal courts Gen-erally, one judge hears the case and juries are available in appropriate cases

The second tier consists of the U.S Courts of Appeals These are reviewing courts withappellate jurisdiction, like the intermediate appellate courts in the states Parties who canpoint to an alleged error of law have an appeal of right to these courts Typically, a panel ofthree judges hears each case (and a party must convince two of the three in order to prevail),although in some instances all of the judges of the circuit may sit en banc to hear a case.There are 12 judicial circuits (the First through Eleventh Circuits, plus the D.C.Circuit) (See Exhibit 1.4.) They hear appeals from the district courts as well as decisions

of certain administrative agencies, the Tax Court, and the Bankruptcy Court Certainappeals, including those from the Court of Federal Claims, the PTO, the United StatesCourt of International Trade, and patent cases decided by a U.S District Court, areheard by the Court of Appeals for the Federal Circuit (CAFC)

The final tier consists of the U.S Supreme Court Nine Justices sit on the SupremeCourt, and typically all of them hear each case The U.S Supreme Court typically reviewsfederal appellate decisions, although the Court does have original jurisdiction in a veryfew specific types of cases In addition, a state court case can end up before the SupremeCourt if it raises a federal question (i.e., if it contains an issue involving a federal statute,

a treaty, or the federal Constitution)

For all practical purposes, there is no appeal of right to the U.S Supreme Court.Rather, a party wishing to have its case heard by the Supreme Court must file a petitionfor a writ of certiorari The Court may either grant the writ and agree to hear the case

or, more likely, deny the writ, which means that the lower court’s decision stands TheCourt typically hears only a very small percentage of the cases presented to it each year.Usually, the Court selects cases that involve a federal question of significant importance

or a conflict among the U.S Circuit Courts of Appeal

E X H I B I T 1 3 Structure of Federal Courts

U.S Court of Appeals for the Federal Circuit

U.S Supreme Court

U.S Court of Appeals for the 1st– 11th and D.C Circuits

U.S.

Court of Federal Claims

U.S.

Tax Court

U.S.

District Court

Certain U.S.

Administrative Agencies

U.S.

Bankruptcy Court

U.S.

Court of International Trade

Jurisdiction refers to the power or right of a court to hear or decide a case The courtmust have two types of jurisdiction in order to have the power to resolve a case: (1) sub-ject matter jurisdiction and (2) jurisdiction over the parties

Subject Matter Jurisdiction

Subject matter jurisdiction refers to the power of a court to resolve a lawsuit involving aparticular type of issue The federal courts have limited subject matter jurisdiction, as setforth in Article III, Section 2 of the U.S Constitution That means that the federal courtscan hear cases only where Congress or the Constitution has granted them the power to

do so The state courts have exclusive jurisdiction over all remaining cases

The federal courts have exclusive jurisdiction over those areas where Congress has plicitly or implicitly so provided These areas include certain admiralty issues, antitrust,bankruptcy, copyright and patent, federal criminal prosecutions, and suits against theUnited States

ex-The federal and state courts have concurrent jurisdiction in two instances rent jurisdiction means that both the state and the federal courts have jurisdiction tohear the case (although ultimately the case will be heard by one court or the other, notboth) First, the state and federal courts have concurrent jurisdiction over federal ques-tions in which the federal courts have not been given exclusive jurisdiction

Concur-Second, the state and federal courts have concurrent jurisdiction in diversity cases Bydefinition, diversity cases involve state law issues that nonetheless are heard in federalcourt Diversity jurisdiction arises where there is: (1) “diversity of citizenship” betweenthe two parties (e.g., when all of the plaintiffs are residents of a state or states differentfrom the state or states of residence of all of the defendants or when the lawsuit is be-tween citizens of the United States and citizens of a foreign country), and (2) the amount

in controversy is more than $75,000 A party’s place of residence is the state in which itresides or is domiciled A corporation, however, is a resident of both the state in which it

is incorporated and the state in which it has its principal place of business

E X H I B I T 1 4 The Federal Circuit Courts of Appeals

If a federal court hears a diversity case, it must apply state substantive law (Conflict oflaws rules determine which state’s law applies.) The federal court generally applies federalprocedural law, however.

In a concurrent jurisdiction case, the plaintiff has the option of bringing the case ineither state or federal court If the plaintiff files in state court, however, the defendantmay usually have the case removed to federal court

Jurisdiction over the Parties

In addition to subject matter jurisdiction, a court must also have jurisdiction over theparties to the lawsuit, that is, the court must have the power to bind the parties involved

in the dispute This jurisdictional requirement can be satisfied in one of several ways.First, the court has jurisdiction over a person who voluntarily comes before it andsubjects himself to the court’s jurisdiction In a contract, for example, one party mayagree that in the event of a lawsuit, the courts of the state of residence of the other partywill have jurisdiction over the dispute

Second, the court can exercise in personam jurisdiction, or personal jurisdiction, eitherover parties located within the state or over parties located outside the state to whom a

“long-arm statute” applies A long-arm statute is a state statute that allows a state court

to exercise jurisdiction over nonresident defendants who have sufficient contacts (known

as minimum contacts) with the state such that the exercise of jurisdiction does not offend

“traditional notions of fair play and substantial justice.”3

Long-arm statutes typicallyapply to defendants who: (1) have committed a tort within the state and the tort is thesubject matter of the lawsuit; (2) own property within the state and the property is thesubject matter of the lawsuit; (3) have entered into a contract within the state andthe contract is the subject matter of the lawsuit; or (4) have transacted business withinthe state and the lawsuit involves that transaction

Finally, the court can exercise in rem jurisdiction, which refers to the power of a statecourt to hear cases involving property situated within the state

Jurisdiction on the Internet

The Internet raises special types of jurisdiction issues Does a marketer located in Maine,for example, subject itself to the jurisdiction of the Hawaii courts simply because it has awebsite that is accessible to Hawaii residents? Or, must the marketer undertake moredirect activities in Hawaii, such as selling to Hawaiian residents or shipping goods toHawaii, before it becomes subject to such jurisdiction?

The law is not yet settled regarding jurisdiction on the Internet Courts generally haveheld that merely having a website that is accessible by residents in another state is insuffi-cient to subject a defendant to the jurisdiction of that other state Rather, courts generallylook to see whether a defendant website owner has“purposefully availed” itself of the priv-ilege of doing business in that state Often, the courts have found this requirement is satis-fied where a resident of the state has accessed the contents of the site or purchased goods

or services offered on it A recent court decision summarized the law thus:

The likelihood that personal jurisdiction can be constitutionally exercised is directly portionate to the nature and quality of commercial activity that an entity conducts overthe Internet.… At one end of the spectrum are situations where a defendant clearly doesbusiness over the Internet If the defendant enters into contracts with residents of a for-eign jurisdiction that involve the knowing and repeated transmission of computer filesover the Internet, personal jurisdiction is proper At the opposite end are situations

pro-3 International Shoe Co v Washington, 326 U.S 310, 316 (1945).

where a defendant has simply posted information on an Internet Web site which is cessible to users in foreign jurisdictions A passive Web site that does little more thanmake information available to those who are interested in it is not grounds for the exer-cise [of] personal jurisdiction The middle ground is occupied by interactive Web siteswhere a user can exchange information with the host computer In these cases, the exer-cise of jurisdiction is determined by examining the level of interactivity and commercialnature of the exchange of information that occurs on the Web site.4

ac-Several state courts have held that successful solicitation of local residents is also cient to establish personal jurisdiction over the website owner Websites that are purelylocal in nature, however, generally do not support exercise of jurisdiction, especiallywhere the website contains conspicuous disclaimers to that effect

suffi-D I S C U S S I O N C A S E S

1.1 Jurisdiction

Pebble Beach Company v Caddy, 453 F.3d 1151

(9th Cir 2006)

Pebble Beach Company (“Pebble Beach”), a golf course

resort in California, appeals the dismissal for lack of

jurisdiction of its complaint against Michael Caddy

(“Caddy”), a small-business owner located in southern

England * * * Because Caddy did not expressly aim his

conduct at California or the United States, we hold that

the district court determined correctly that it lacked

personal jurisdiction * * * Thus, we affirm

I

Pebble Beach is a well-known golf course and resort

located in Monterey County, California The golf resort

has used“Pebble Beach” as its trade name for 50 years

Pebble Beach contends that the trade name has

ac-quired secondary meaning in the United States and

the United Kingdom Pebble Beach operates a website

located at www.pebblebeach.com

Caddy, a dual citizen of the United States and the

United Kingdom, occupies and runs a three-room bed

and breakfast, restaurant, and bar located in southern

England Caddy’s business operation is located on a

cliff overlooking the pebbly beaches of England’s south

shore, in a town called Barton-on-Sea The name of

Caddy’s operation is “Pebble Beach,” which, given itslocation, is no surprise Caddy advertises his services,which do not include a golf course, at his website,www.pebblebeach-uk.com Caddy’s website includesgeneral information about the accommodations heprovides, including lodging rates in pounds sterling, amenu, and a wine list The website is not interactive.Visitors to the website who have questions aboutCaddy’s services may fill out an on-line inquiry form.However, the website does not have a reservation sys-tem, nor does it allow potential guests to book rooms

or pay for services on-line

Except for a brief time when Caddy worked at arestaurant in Carmel, California, his domicile hasbeen in the United Kingdom

On October 8, 2003, Pebble Beach sued Caddyunder the Lanham Act and the California Businessand Professions Code for intentional infringementand dilution of its “Pebble Beach” mark Caddymoved to dismiss the complaint for lack of personaljurisdiction … On March 1, 2004, the district courtgranted Caddy’s motion on personal jurisdictiongrounds … * * * Pebble Beach timely appealed to theNinth Circuit

4 Molnlycke Health Care A.B v Dumex Medical Surgical Products, Inc., 64 F Supp 2d 448, 451 (E.D Pa 1999) (quoting Zippo Mfg Co v Zippo Dot Com, Inc., 952 F Supp 1119, 1124 (W.D Pa 1977)).

* * *

A Personal Jurisdiction

The arguments are straightforward Caddy contends that

the district court may not assert personal jurisdiction

over him, and, consequently, that the complaint against

him was properly dismissed Pebble Beach argues in

re-turn that Caddy is subject to specific personal

jurisdic-tion in California, or, alternatively, in any forum in the

United States, because he has expressly aimed tortious

conduct at California and the United States * * *

* * *

The general rule is that personal jurisdiction over a

defendant is proper if it is permitted by a long-arm

statute and if the exercise of that jurisdiction does not

violate federal due process Here, both the California

long-arm statute and Rule 4(k)(2)—what is often

re-ferred to as the federal long-arm statute—require

com-pliance with due process requirements Consequently,

under both arguments presented by Pebble Beach,

res-olution turns on due process

For due process to be satisfied, a defendant, if not

present in the forum, must have“minimum contacts”

with the forum state such that the assertion of

jurisdic-tion “does not offend traditional notions of fair play

and substantial justice.”

In this circuit, we employ the following three-part

test to analyze whether a party’s “minimum contacts”

meet the Supreme Court’s directive This “minimum

contacts” test is satisfied when,

(1) the defendant has performed some act or

con-summated some transaction within the forum or

otherwise purposefully availed himself of the

privi-leges of conducting activities in the forum, (2) the

claim arises out of or results from the defendant’s

forum-related activities, and (3) the exercise of

juris-diction is reasonable

“If any of the three requirements is not satisfied,

juris-diction in the forum would deprive the defendant of

due process of law.” * * * Here, Pebble Beach’s

argu-ments fail under the first prong Accordingly, we need

not address whether the claim arose out of or resulted

from Caddy’s forum-related activities or whether an

exercise of jurisdiction is reasonable …

Under the first prong of the “minimum contacts”

test, Pebble Beach has the burden of establishing that

Caddy“has performed some act or consummated sometransaction within the forum or otherwise purposefullyavailed himself of the privileges of conducting activities

in the forum.” We have refined this to mean whetherCaddy has either (1) “purposefully availed” himself ofthe privilege of conducting activities in the forum, or(2) “purposefully directed” his activities toward theforum * * *

Thus, in order to satisfy the first prong of theimum contacts” test, Pebble Beach must establish eitherthat Caddy (1) purposefully availed himself of the priv-ilege of conducting activities in California, or theUnited States as a whole, or (2) that he purposefullydirected its activities toward one of those two forums

“min-1 Purposeful Availment

Pebble Beach fails to identify any conduct by Caddythat took place in California or in the United Statesthat adequately supports the availment concept Evi-dence of availment is typically action taking place inthe forum that invokes the benefits and protections ofthe laws in the forum All of Caddy’s action identified

by Pebble Beach is action taking place outside the rum * * * Accordingly, we reject Pebble Beach’s asser-tion that Caddy has availed himself of the jurisdiction

fo-of the district court and proceed only to determinewhether Caddy has purposefully directed his actiontoward one of two applicable forums

2 Purposeful Direction: California

In Calder v Jones, [465 U.S 783 (1984)], the SupremeCourt held that a foreign act that is both aimed at andhas effect in the forum satisfies the first prong of thespecific jurisdiction analysis We have commonly re-ferred to this holding as the “Calder effects test.” Tosatisfy this test the defendant“must have (1) commit-ted an intentional act, which was (2) expressly aimed atthe forum state, and (3) caused harm, the brunt ofwhich is suffered and which the defendant knows islikely to be suffered in the forum state.” However, re-ferring to the Calder test as an “effects” test can bemisleading For this reason, we have warned courtsnot to focus too narrowly on the test’s third prong—the effects prong—holding that “something more” isneeded in addition to a mere foreseeable effect Specifi-cally we have stated,

Subsequent cases have struggled somewhat withCalder’s import, recognizing that the case cannotstand for the broad proposition that a foreign actwith foreseeable effects in the forum state will

always give rise to specific jurisdiction We have said

that there must be “something more” … We now

conclude that“something more” is what the Supreme

Court described as“express aiming” at the forum state

Thus, the determinative question here is whether

Caddy’s actions were “something more”—precisely,

whether his conduct was expressly aimed at California

or alternatively the United States

We conclude that Caddy’s actions were not

ex-pressly aimed at California The only acts identified

by Pebble Beach as being directed at California are

the website and the use of the name “Pebble Beach”

in the domain name These acts were not aimed at

California and, regardless of foreseeable effect, are

in-sufficient to establish jurisdiction

In support of its contention that Caddy has expressly

aimed conduct at California, Pebble Beach identifies a

list of cases where we have found that a defendant’s

ac-tions have been expressly aimed at the forum state

suffi-cient to establish jurisdiction over the defendant Pebble

Beach asserts that these cases show that Caddy’s website

and domain name, coupled by his knowledge of the golf

resort as a result of his working in California, are

suffi-cient to satisfy the express aiming standard that it is

re-quired to meet We disagree If anything, these cases

establish that “something more”—the express aiming

requirement—has not been met by Pebble Beach

In Panavision [Int’l v Toeppen, 141 F.3d 1316 (9th

Cir 1998)], the defendant, a cybersquatter, registered

the plaintiff’s trademark as part of a domain name

The use of the domain name by the defendant

pre-vented the plaintiff from registering its own domain

name and was part of a plan to obtain money from

the plaintiff in exchange for the rights to the domain

name The court found personal jurisdiction, not

merely because of the domain name use, but because

the plan was expressly aimed at the plaintiff:

[The Defendant] did considerably more than simply

register Panavision’s trademarks as his domain

names on the Internet He registered those names

as part of a scheme to obtain money from

Panavi-sion Pursuant to that scheme, he demanded

$13,000 from Panavision to release the domain

names to it His acts were aimed at Panavision in

California, and caused it to suffer injury there

Here, Caddy has hatched no such plan directed at

Pebble Beach He is not a cybersquatter trying to obtain

money from Pebble Beach His operation is legitimate

and his website relates directly to that end

In Metropolitan Life Insurance Co v Neaves, [912F.2d 1062 (9thCir 1990)], the defendant’s alleged plan

to defraud the insurance company involved direct teraction with the forum state We held that the action

in-at issue sin-atisfied Calder’s “effects test” because the fendant sent a letter to the forum state addressed to theplaintiff, thereby defrauding a forum state entity

de-In Bancroft & Masters, de-Inc v Augusta National de-Inc.,[223 F.3d 1082 (9thCir 2000)], a dispute over the do-main name www.masters.org was triggered by a lettersent by Augusta that required Bancroft & Masters, acomputer corporation in California, to sue or lose thedomain name We stated that the “expressly aiming”standard was satisfied when “individualized targetingwas present.” We reasoned that specific jurisdiction wasproper and that the expressly aiming requirement wassatisfied because the letter sent by Augusta constituted

“individualized targeting.”

The defendant in both Bancroft and MetropolitanLife did “something more” than commit a “foreign actwith foreseeable effects in the forum state.” In bothcases this“individualized targeting” was correspondencethat was a clear attempt to force the plaintiff to act.Here, Caddy engaged in no “individualized targeting.”There is no letter written by Caddy forcing PebbleBeach to act The only substantial action is a domainname and non-interactive informative website alongwith the extraneous fact that Caddy had worked, atsome point in his past, in California This does not con-stitute“individualized targeting.” Indeed, to hold other-wise would be contrary to what we have suggested inearlier case law

In Rio Properties, Inc v Rio Int’l Interlink, 284 F.3d

1007 (9thCir 2000), we [stated] that when a“website vertiser [does] nothing other than register a domain nameand post an essentially passive website” and nothing else isdone“to encourage residents of the forum state,” there is

ad-no personal jurisdiction Similarly, in Panavision westated,“We agree that simply registering someone else’strademark as a domain name and posting a website on theInternet is not sufficient to subject a party domiciled inone state to jurisdiction in another.” Why? Because “theobjectionable webpage simply was not aimed inten-tionally at the [forum state] knowing that harm was likely

to be caused there,” and “[u]nder the effects doctrine,

‘something more’ was required to indicate that the dant purposefully directed its activity in a substantial way

defen-to the forum state.”

These cases establish two salient points First, therecan be no doubt that we still require“something more”than just a foreseeable effect to conclude that personal

jurisdiction is proper Second, an internet domain

name and passive website alone are not “something

more,” and, therefore, alone are not enough to subject

a party to jurisdiction

In contrast to those cases where jurisdiction was

proper because“something more” existed, the

circum-stances here are more analogous to Schwarzenegger v

Fred Martin Motor Co., 374 F.3d 797 (9thCir 2004) In

Schwarzenegger, we determined that personal

jurisdic-tion based solely on a non-interactive print

advertise-ment would be improper In Schwarzenegger, the

former movie star and current California governor,

brought an action in California alleging that an Ohio

car dealership used impermissibly his “Terminator”

image in a newspaper advertisement in Akron, Ohio

The federal district court in California dismissed the

complaint for lack of personal jurisdiction Applying

the Calder “effects test,” we affirmed, concluding that

even though the advertisement might lead to eventual

harm in California this“foreseeable effect” was not

en-ough because the advertisement was expressly aimed at

Ohio rather than California We concluded that,

with-out “something more” than possible effect, there was

simply no individualized targeting of California, or

the type of wrongful conduct, that could be construed

as being directed at the forum state We held that

Schwarzenegger had not established jurisdiction over

the car dealership

Pebble Beach, like Schwarzenegger, relies almost

exclusively on the possible foreseeable effects Like

Schwarzenegger, Pebble Beach’s arguments depend on

the possible effects of a non-interactive advertisement

here, Caddy’s passive website Notably absent in both

circumstances is action that can be construed as being

expressly aimed at California The fact that Caddy once

lived in California and therefore has knowledge of the

Pebble Beach golf resort goes to the foreseeable effect

prong of the“effects test” and is not an independent act

that can be interpreted as being expressly aimed at

California [W]e reject also any contention that a

pas-sive website constitutes expressed aiming * * * As

with the print advertisement in Schwarzenegger, the

fact that Caddy’s website is not directed at California

is controlling

3 Purposeful Direction: United States

Even if Pebble Beach is unable to show purposeful

di-rection as to California, Pebble Beach can still establish

jurisdiction if Caddy purposefully directed his action at

the United States This ability to look to the aggregate

contacts of a defendant with the United States as awhole instead of a particular state forum is a product

of Rule 4(k)(2) Thus, Rule 4(k)(2) is commonly ferred to as the federal long-arm statute

re-The exercise of Rule 4(k)(2) as a federal long-armstatute requires the plaintiff to prove three factors.First, the claim against the defendant must arise underfederal law Second, the defendant must not be subject

to the personal jurisdiction of any state court of generaljurisdiction Third, the federal court’s exercise of per-sonal jurisdiction must comport with due process.Here, the first factor is satisfied because Pebble Beach’sclaims arise under the Lanham Act And, as establishedabove, the second factor is satisfied as Caddy is notsubject to personal jurisdiction of California, or anystate court

That leaves the third factor—due process The dueprocess analysis is identical to the one discussed abovewhen the forum was California, except here the rele-vant forum is the entire United States And, as with theforegoing analysis, our resolution here depends onwhether Caddy’s actions were purposefully directed atthe United States Pebble Beach contends that the“pur-poseful direction” requirement is satisfied under theCalder “effects test” because Caddy’s operation is ex-pressly aimed at the United States Pebble Beach makesfour arguments

First, Pebble Beach claims that because Caddy lected a“.com” domain name it shows that the UnitedStates was his“primary” market and that he is directlyadvertising his services to the United States Second,Pebble Beach asserts that his selection of the name

se-“Pebble Beach” shows the United States is his primarytarget because“Pebble Beach” is a famous United Statestrademark Third, Pebble Beach asserts that Caddy’sintent to advertise to the United States is bolstered bythe fact that Caddy’s facilities are located in a resorttown that caters to foreigners, particularly Americans.Finally, Pebble Beach asserts that a majority of Caddy’sbusiness in the past has been with Americans

As before, Pebble Beach’s arguments focus toomuch on the effects prong and not enough on the

“something more” requirement First, … we concludethat the selection of a particular domain name is insuf-ficient by itself to confer jurisdiction over a non-resident defendant, even under Rule 4(k)(2), wherethe forum is the United States The fact that thename“Pebble Beach” is a famous mark known world-wide is of little practical consequence when decidingwhether action is directed at a particular forum viathe world wide web Also of minimal importance is

Caddy’s selection of a “.com” domain name instead of a

more specific United Kingdom or European Union

do-main To suggest that“.com” is an indicator of express

aiming at the United States is even weaker than the

counter assertion that having “U.K.” in the domain

name, which is the case here, is indicative that Caddy

was only targeting his services to the United Kingdom

Neither provides much more than a slight indication of

where a website may be located and does not establish

to whom the website is directed Accordingly, we reject

these arguments

This leaves Pebble Beach’s arguments that because

Caddy’s business is located in an area frequented by

Americans, and because he occasionally services

Amer-icans, jurisdiction is proper These arguments fail for

the same reasons; they go to effects rather than express

aiming Pebble Beach’s arguments do have intuitive

appeal—they suggest a real effect on Americans

How-ever, as reiterated throughout this opinion, showing

“effect” satisfies only the third prong of the Calder

test—it is not the “something more” that is required

The “something more” additional requirement is

im-portant simply because the effects cited may not have

been caused by the defendant’s actions of which the

plaintiff complains Here, although Caddy may serve

vacationing Americans, there is not a scintilla of

evidence indicating that this patronage is related toeither Caddy’s choice of a domain name or the posting

of a passive website Accordingly, we find no action onthe part of Caddy expressly directed at the UnitedStates and conclude that an exercise of personal juris-diction over Caddy would offend due process

* * *

III

Caddy did not expressly aim his conduct at California

or the United States and therefore is not subject to thepersonal jurisdiction of the district court A passivewebsite and domain name alone do not satisfy theCalder effects test and there is no other action expresslyaimed at California or the United States that wouldjustify personal jurisdiction * * *

AFFIRMED

QUESTIONS FOR DISCUSSION FOR CASE 1.1

1 Why is it necessary for Pebble Beach to try to assertthe long-arm statutes in this case?

2 The court analyzes only one part of the three-parttest for minimum contacts Why?

3 How does the court apply precedent in deciding thiscase?

1.2 Jurisdiction

The American Automobile Association, Inc v Darba

Enterprises Inc., 2009 U.S Dist LEXIS 37564 (N.D Cal 2009)

* * *

Background

This case arises out of the allegedly infringing use by

de-fendants Darba Enterprises, Inc and Darren Bagnuolo of

plaintiff American Automobile Association’s (“AAA”)

trademarks AAA is a non-profit corporation that

pro-vides services and products to consumers, such as

road-side assistance packages, auto insurance and health

insurance AAA has used its “famous and distinctive”

AAA trademarks (the“AAA Marks”) for over 100 years,

and has registered more than 70 of these marks with the

United States Patent and Trademark Office Defendant

Darba Enterprises is a corporation that operates several

websites that purport to match consumers seeking auto

insurance quotes with third-party insurers Defendant

Darren Bagnuolo is the President, Secretary, Treasurer,and Director of Darba Enterprises

Plaintiff alleges that defendants’ websites, including

“aaa-insurance-website.com” and “insurance-website.com” displayed the AAA Marks without authorizationfor the purpose of tricking internet users into believingthat the site was affiliated with AAA Plaintiff also al-leges that defendants have used the AAA Marks in pay-per-click advertisements hosted by search engines such

as Google and Yahoo!, and have used those marks toact as “keywords” when typed into these search en-gines When an internet user clicks on one of defen-dants’ web pages, the user is invited to enter her zipcode to get an auto insurance quote Once the userclicks through several screens and enters informationabout her car and driving record, the user comes to ascreen that asks her to enter her contact information,