Category: Law School

Notions of the Transformative in Law and the Visual Arts

The National Law Review is proud to announce that Aimée Scala of Brooklyn Law School  is one of our Student Legal Writing Contest Winners for March of 2011.  Aimee’s article focuses on what constitutes a “transformative” work for purposes of fair use under copyright law. 

In January 2011, artist Shepard Fairey and the Associated Press reached a settlement out of court regarding Fairey’s ubiquitous Hope poster (now in the collection of the National Portrait Gallery in Washington, D.C.), created and used during Barack Obama’s presidential campaign. Fairey’s image was based on a photograph of Obama, then an Illinois senator, taken by photographer Manny Garcia for the Associated Press. The A.P. accused him of copyright infringement because of the substantial similarity between the two images. In response, Fairey brought suit seeking a declaration that his use of the photograph was not infringement, but instead a fair use of the copyrighted image, a statutory exception to the exclusive grants given to authors and creators under federal copyright law. Because the parties settled their dispute, the merits of Fairey’s fair use claim were not addressed. Some commentators, however, have argued that the case would have turned primarily on whether Fairey’s use of the photograph was “transformative.” Though this case made headlines, another fair use case, one whose holding has far-reaching implications for artists and others that rely on the doctrine, fell largely under the radar of popular media.

The case of Gaylord v. United Statesi addressed and refined some of the blurry borders surrounding the fair use doctrine, particularly what constitutes a “transformative” work for purposes of fair use. Because the judicial determination of whether use of a copyrighted work in another work is “fair” requires balancing both law and fact, predicting the outcome in a specific set of circumstances is difficult, if not outright impossible. Indeed, the fair use doctrine has been described as “the most troublesome in the whole law of copyright.”ii Accordingly, artists who incorporate copyrighted material into their works often don’t know until a suit arises whether their use will be labeled infringement or protected artistic expression. The uncertainty surrounding the doctrine necessarily increases the risk of using any copyrighted material and artists are beginning to express concern. In Gaylord, the Center for Internet & Society filed an amicus brief on behalf of the Warhol Foundation, the Warhol Museum, Barbara Kruger, Thomas Lawson, Jonathan Monk, Allan Ruppersberg, and eleven law professors urging the court to affirm the lower court’s finding of fair use and reject the standard for “transformative” that it subsequently adopted.

The case involved the Korean War Memorial in Washington DC, in particular a sculpture by artist Frank Gaylord known as The Column, consisting of nineteen stainless steel statues of foot soldiers in staggered formation. Dedicated in 1995, the Memorial was commissioned and funded by the United States and constructed by Cooper-Leckey Architects. Shortly thereafter, amateur photographer and military officer John Alli photographed the monument as a retirement gift for his father, a Korean War veteran. Alli took hundreds of photographs of the sculpture using different angles, lighting, shutter speeds, varying both the time of the year and time of day. The photograph he ultimately chose for his father, which he titled Real Life, captured the monument at dawn during a snowstorm

Alli explained at trial that the he felt the subdued early morning light and falling snow evoked a surreal sensation, drawing the viewer into the photograph and communicating the harsh, freezing conditions soldiers in the Korean conflict were forced to endure. Before Alli began selling prints of his photograph, he reached out to Cooper-Leckey for permission. Though Cooper-Leckey granted a license in exchange for royalties, Gaylord sued him in 2006. Alli settled the dispute by agreeing to give Gaylord 10% of any net sales.

 The photograph was selected in 2002 by the United States Postal Service for use on a stamp to commemorate the Korean War. The Postal Service contacted Alli for the image, and he sold it to them for $1500. Alli suggested that the Postal Service contact both Cooper-Leckey and Gaylord for permission, but they did not contact anyone about licensing. They altered Real Life so as to make it monochromatic and grey, and sold the stamps until 2005 when they decided to retire it.

 In 2006 Gaylord sued the United States for copyright infringement in Federal Claims Court. The court found the United States’ use of the copyrighted material in the stamp qualified as fair use, and Gaylord appealed. The Court of Appeals for the Federal Circuit reversed and remanded the case for an assessment of damages.

 The decision largely turned on whether the Postal Service’s use of the copyrighted sculpture in the stamp was “transformative.” Fair use is determined by balancing four non-exclusive factors that are weighed together with an eye towards the fundamental purposes of copyright.iii The first factor, the purpose and character of the use,iv asks, among other things, whether the second work is “transformative.”vIf it is indeed found to be a transformation of the copyrighted material, the factor will weigh in favor of a finding of fair use.

By ultimately concluding that the Postal Service’s use of Alli’s image of The Column was not fair use, the Court of Appeals narrowed what constitutes a transformative work in the fair use context. The court explained that the use was not transformative because “the stamp did not use The Column as part of a commentary or criticism.”vi This understanding of the meaning of “transformative” poses severe limits on what may now be considered fair use of copyrighted materials. Unlike the Court of Appeals for the Second Circuit in Blanch v. Koonswhich explained that a subsequent work could use copyrighted works as “raw materials” to further creative or communicative objectives and still be considered transformative,vii the Federal Circuit—by narrowing transformative to include only comment or criticism of the copyrighted work—dismisses wholesale a broad range of established artistic practices and ignores the constitutional mandate that grounds U.S. copyright law, namely that exclusive intellectual property rights be granted to authors and inventors for limited times “to promote the progress of science and the useful arts.”viii The intent behind the intellectual property clause is to benefit society and encourage a flourishing of artistic practice by creating incentives. The holding of Gaylord may strangle creative energy and stifle previously protected artistic expression with the ominous threat of legal repercussions while rejecting important and established artistic practices

The idea that by changing context one can radically change the meaning of an object is a well-established notion in modern and contemporary art. Indeed, one landmark work that aptly illustrates the point is Marcel Duchamp’s 1917 workFountain. Probably his most famous readymade, replicas of Fountain (the original was lost) are housed in museum collections the world over. Fountain consists only of a found object the artist installed with no changes apart from his scrawling of “R. Mutt” onto the side. As Duchamp biographer and art critic Calvin Tomkins notes, “it does not take much stretching of the imagination to see in the upside-down urinal’s gently flowing curves the veiled head of a classic Renaissance madonna or a seated Buddha or, perhaps more to the point, one of Brâncuşi’s polished erotic forms.”ix Once the object was placed in an art exhibition, it ceased to be a functional item and was transformed into an object of beauty.

Further, appropriation art, a movement that gained popular ground in the late 1970s, makes broad uses of found images (or photographs of them). Sometimes incorporating images wholesale with little or no alteration, this type of practice again emphasizes that changing the context of an image, from being seen on a billboard to the wall of a gallery, is transformative because the image becomes a work of art. Artist Richard Prince’s work Spiritual America, 1983, appropriated a photograph of a young Brooke Shields, originally the work of commercial photographer Gary Gross, while the work’s title is borrowed from a 1923 photograph by Alfred Stieglitz. The subject of a retrospective at the Guggenheim Museum in 2007, Richard Prince’s influence on art history is undisputed. Unfortunately, because this work and others like it do not explicitly comment on or criticize the incorporated copyrighted material, they could very well be considered infringing under the standard the Federal Circuit has adopted.

Renowned jurist Oliver Wendell Holmes Jr. once stated that:

“[i]t would be a dangerous undertaking for persons trained only to the law to constitute themselves final judges of the worth of pictorial illustrations.”x

Though oft-quoted, his candid and self-aware remark seems to have lost its footing within contemporary copyright jurisprudence. As the boundaries of the copyright “monopoly” continuously expand like a snowball rolling down a mountain, a broad conception of fair use becomes increasingly important to promoting artistic expression. Our contemporary jurists should take heed of Holmes’s remarks as well as consider the constitutional principles on which copyright law is grounded—not exclusively to protect authors and creators, but instead to provide an incentive for individuals to make creative works for the benefit the public.

 This delicate balance requires an interpretation of fair use that allows artists to feel free to “quote” from other works, and it requires judges to acknowledge that perhaps it is the place of art historians, viewers, or artists themselves, to determine whether the intent behind work is transformative. Indeed, art history has long recognized that changing the context of a work changes its meaning: something largely worthless, once altered to become an art object, becomes invaluable. Though no explicit comment or criticism is made about the original work, a new work is created whose transformative nature has been acknowledged by art historians for almost a century. Courts must recognize that people draw creative inspiration from the world around them to make new works that benefit our society, and that world includes other people’s creative endeavors.

i 595 F.3d 1364 (Fed. Cir. 2010).

ii Dellar v. Samuel Goldwyn, Inc., 104 F.2d 661,662 (2nd Cir. 1939).

iii Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 577-78 (1994).

iv 17 U.S.C. § 107 (1) (2006).

v Campbell 510 U.S. at 578-79.

vi Gaylord 595 F.3d at 1373 (Fed. Cir. 2010).

vii Blanch v. Koons 467 F.3d 244, 253 (2nd Cir. 2006) (internal quotation marks and citations omitted).

viii U.S. Const., Art. I, § 8, cl. 8.

ix Calvin Tompkins, Duchamp: A Biography (New York: Henry Holt, 1998). 186

x Bleistein v. Donaldson Lithographing Co. 188 U.S. 239, 251 (1903).

Aimée Scala © Copyright 2011

Defining “Journalist”: Whether and How A Federal Reporter’s Shield Law Should Apply to Bloggers

The National Law Review is proud to announce that  Laura Katherine Layton of  Georgetown University Law Center is one of our Student Legal Writing Contest Winners for March of 2011. Laura’s article focuses on whether there should be a federal reporter’s shield law and whether it should apply to bloggers.

In 2005, New York Times reporter Judith Miller garnered national attention for her refusal to disclose the identity of her source outing Valerie Plame Wilson as an operative of the Central Intelligence Agency. The D.C. Circuit rejected Miller’s claim that the identity of the source was protected by a reporter’s privilege. Her refusal to comply with a grand jury subpoena meant she was in contempt of court, and she spent eighty-five days in jail as a result.[1]

While Miller’s case reignited the public debate of the merits of a reporter’s privilege, the current issue for state and federal courts is defining the scope of the reporter’s shield law. Generally, areporter’s shield law is a “statutory privilege which allows a news gatherer to decline to reveal sources of information”[2] and newsgathering materials. Like the attorney/client and doctor/patient privileges, the reporter’s privilege attempts to foster the flow of information into public discussion.  The aim of the reporter’s privilege is to “increase the flow of information in circumstances in which society wishes to encourage open communication.”[3] The rationale for allowing nondisclosure about a reporter’s confidential source is based on the idea that forcing a reporter to reveal his source will cause  sources to communicate less openly with reporters as a result of  “fear of exposure” and will simultaneously cause “editors and critics to write with more restrained pens” due to “fear of accountability.”[4] The Second Circuit characterized the purpose of shield laws as the “public interest in the maintenance of a vigorous, aggressive and independent press capable of participating in robust, unfettered debate over controversial matters…”[5] To date, thirty-six states and the District of Columbia have enacted reporter shield laws codifying a reporter’s privilege,[6] though the scope of protection varies by state.  Congress has considered adopting a federal shield statute many times in the last forty years but has yet to pass the legislation.[7] Though in Branzburg v. Hayes the Supreme Court refused to recognize a special First Amendment privilege for journalists not to reveal their sources in the grand jury context,[8] it remains unclear whether a reporter’s privilege exists in criminal and civil proceedings.

Most states define the shield law protection by referring to a reporter or traditional news gatherer based on employment with an established media entity.[9] Currently, many courts are grappling with the scope of reporter’s shield laws due to the difficulty of defining who qualifies as a reporter, which is because of the changing nature of journalism—including the rise of internet publication of news by citizen journalists. There is a growing concern on how to define “journalist” so that current, unemployed, or freelance journalists are covered by the shield laws while “pajama-clad bloggers” are not entitled to invoke such a privilege.[10] There must be some limitation on the scope of the privilege; a shield law cannot apply to anyone with the ability to publish a blog on the internet.  As renowned media attorney Floyd Abrams stated, “If everybody’s entitled to the privilege, nobody will get it.”[11] Congress should pass a shield law granting a qualified privilege to persons who gather and disseminate information to the public with a true intent to do so at the outset of the newsgathering process.

If Congress were to draft a federal shield law, the main issue would be centered on how to define journalists. Implicit in that debate would be whether to include bloggers as persons covered by the privilege. Part I examines how state statutes have traditionally defined the privilege and how state courts have determined its scope. Part II analyzes the changing nature of journalism. Part III discusses the arguments in favor of and against including bloggers as journalists for shield law purposes, concluding that bloggers should qualify for protection. Part IV recommends how to appropriately tailor the privilege for citizen journalists publishing online. Part V weighs the costs and benefits of enacting a federal reporter’s shield law. Part VI recommends that Congress adopt a two-part test for a federal shield law for reporters that includes nontraditional journalists.

I.  Defining “Journalist”: Who is covered by Reporter’s Shield Laws

The struggle to define exactly who should be covered by reporter’s shield laws is not new.  Since state shield laws have existed since 1896, few shield laws explicitly include electronic news media. Courts have extended the scope of shield laws beyond only covering reporters working at newspapers to people working in magazines, radio, and television. Because many antiquated state shield laws define the privilege by medium, courts have decided whether publishing electronically meets the statutory definition. For example, California courts had to decide whether a website that conveyed confidential information about new Apple products was protected from divulging its sources by the shield law, which is codified in the state constitution.[12] The appellate court held the online publication constituted a “periodical publication” entitled to protection of the shield law because it published regularly.[13] States have amended their shield laws for advancing technologies of radio, television, and now the internet. Because the medium of communication is constantly changing, the medium of communication should not determine the scope of the privilege.

Instead of defining who qualifies to invoke the reporter’s privilege based upon a particular medium, some states embrace a definition of reporter based on the function of journalism. While some state statutes only provide the reporter’s privilege to persons employed by an established media entity, other states apply to any “person who is or has been directly engaged in the gathering, procuring, compiling, editing, or publishing of information for the purpose of transmission, dissemination, or publication to the public.”[14] State legislatures have rightly extended the privilege to all persons who gather and disseminate news to the public rather than limiting protection to only professional journalists.

Some courts have also embraced an intent standard based upon the function of journalism. In von Bulow, the Second Circuit held the privilege only protected a person who has the intent to disseminate the information to the public at the inception of the newsgathering process.[15] In this case, Andrea Reynolds invoked the reporter’s shield law to cover an unpublished manuscript of a book based on the notes she took as a paralegal to Claus von Bulow, who was charged with murdering his wife. The court rejected the claim that Reynolds’ manuscript and notes were privileged since she had not indicia of a freelance author and did not demonstrate that her intent to use the materials to disseminate the information to the public existed at the beginning of the newsgathering process.[16] The court emphasized a person invoking a journalist’s privileged need not be “associated with the institutionalized press because the ‘informative function asserted by representatives of the organized press is also performed by lecturers, political pollsters, novelists, academic researchers, and dramatists.’”[17] The privilege can be invoked by a novice, according to the Second Circuit; it is not limited to those who have a history of journalism, although “prior experience as a professional journalist may be persuasive evidence of present intent to gather for the purpose of dissemination.”[18]

Other courts have adopted the intent-based test when deciding whether a person protected by a journalist’s privilege. The First Circuit and the Ninth Circuit applied the von Bulow intent test when extending the privilege to a professor[19] and to a non-fiction writer of investigative books. [20] In determining whether the persons invoking the privilege were covered, both circuits analogized the function of an academic or of an author to the reporter’s role—the ultimate purposes are to aid investigative newsgathering. According to the Ninth Circuit: “[t]he journalist’s privilege is designed to protect investigative reporting, regardless of the medium used to report the news to the public. Investigative book authors, like more conventional reporters, have historically played a vital role in bringing to light ‘newsworthy’ facts on topical and controversial matters of great public importance.”[21] Basing its decision on the intent-based inquiry, the First Circuit extended the privilege to academic researchers because they “too are information gatherers and disseminators. Just as a journalist, stripped of sources, would write fewer, less incisive articles, an academician, stripped of sources, would be able to provide fewer, less cogent analyses.”[22]

State courts have also wrestled with whether a reporter’s privilege covers non-traditional journalists, including freelance writers,[23] authors,[24] documentary filmmakers,[25] academics,[26] and independent research consultants.[27] Hawaii is the only state to specifically include whether bloggers are protected by its shield law if certain conditions are met: “Non-traditional news gatherers, e.g., bloggers, are protected if (1) the individual invoking the privilege regularly participates in reporting or publishing news of significant public interest, (2) the person holds a position similar to a traditional journalist or newscaster, and (3) the public interest is served by extending the protection of the statute.” [28]

II.  Defining “Journalist”: The Changing Nature of Journalism

The Supreme’s Courts rejection of the press as the “fourth estate” of government in Branzburg was “remarkably (although unintentionally) prescient. As means of communication become more interactive and accessible to the public the ‘press’ of the twenty-first century is rapidly becoming more difficult to define.”[29] Because of the advent and ubiquity of the Internet, more people are able to contribute to the public discourse. The number of people contributing their ideas and opinions on the Internet has grown exponentially, including the number of blogs and blog-readers. There were over 34.5 million blogs at last count.[30]

While blogs blur the line between online diaries and news reporting, the influence of blogs on the mainstream media and the public dialogue cannot be overemphasized. Matt Drudge, the author of the Drudge Report, is but one example of a person setting the trend of breaking news by blogging.  He does not consider himself a journalist, but his website was the first to break the story of President Clinton’s affair with Monica Lewinsky. His blog also was the first to report that presidential candidate Bob Dole chose Jack Kemp as his running mate in the 1996 election, as well as that CBS fired Connie Chung. Other examples of blogs leading the national discussion include: bloggers recognized Senator Trent Lott’s controversial comments at Strom Thurmond’s one-hundredth birthday celebration, which led Lott’s resignation as Senate Majority Leader; bloggers revealed Dan Rather’s documents about President George W. Bush’s National Guard service were forged;  bloggers uncovered James Frey fictionalized portions of his memoir and also exposed the contents of inappropriate emails sent to House pages by Representative Mark Foley.[31]

Moreover, mainstream media outlets are embracing the changing nature of technology by incorporating the citizen journalism into reporting. Many mainstream media companies support blogs, and many reporters have their own blogs.[32] Most every news website encourages readers to leave comments online, and many mainstream media websites provide links to surveys and responses as well.[33] News organizations encourage members of the public to contribute content for publication by sharing photographs and stories of current events.  CNN promotes citizen journalism by asking viewers to submit pictures and videos of catastrophic weather events such as Hurricane Dennis.[34] Most recently, CNN encouraged people in Egypt to report on the uprisings in the country using Twitter, photographs, or videos.  CNN.com also created iReport, a section of its website “where people take part in the news with CNN. Your voice, together with other iReporters, helps shape how and what CNN covers every day.”[35]When one enters the site, the disclaimer pop-up on the browser declares: “So you know: iReport is the way people like you report the news. The stories in this section are not edited, fact-checked or screened before they post. Only ones marked ‘CNN iReport’ have been vetted by CNN.” [36] As part of a conscious effort to increase its circulation numbers by capitalizing on the popularity of blogs, Gannett, which owns over eighty newspapers around the United States, announced in November 2006 it was preparing to use non-journalists to develop content for its publications.[37]

The nature journalism is evolving; in fact, the notion of an institutional press is diminishing, if not vanishing. The inclusion of citizens as reporters of the news changes the role the mainstream media plays in our democracy.

III.  Should Bloggers Be Included as Journalists?

The purpose of a reporter’s shield law indicates that citizen journalists should be able to invoke the privilege. By allowing bloggers who disseminate information to the public to invoke a privilege to keep sources confidential, the purpose of the privilege is served: “to encourage sources to come forward with information for public debate while, at the same time, preventing both professional and non-profession journalists from becoming agents of the government, criminal defendants, or civil litigants.”[38] The purpose of the First Amendment, and thus journalists, is to enhance democracy through open, free debate. Citizen journalists who publish their content for the general public should qualify for the privilege. Because bloggers serve the essential purpose of disseminating news to the public, Mr. Abrams thinks many should be able to invoke privilege of traditional publishers:“I think a blogger…is not less deserving than a journalist who may communicate with a smaller audience through a small-town newspaper.”[39] According to the media attorney, “There should be protection so long as information was obtained for the purpose of dissemination to the public at large in some sort of analogous way to what journalists do.”[40]

In addition, Supreme Court precedent suggests bloggers should qualify for the privilege. Though at the time of Branzburg the Internet did not exist, the Court stated freedom of the press is “not confined to newspapers and periodicals” or “the large metropolitan publisher” but “necessarily embraces pamphlets and leaflets” and “every sort of publication which affords a vehicle of information and opinion.”[41] Indeed, the Court expressed a special concern for the “lonely pamphleteer who uses carbon paper or a mimeograph…”[42] Today’s version of the lonely pamphleteer is the “pajama-clad” blogger expressing his ideas and opinions in an online publication.

Some people argue that bloggers do not actually engage in journalism, but they are the next extension of the expanding categories of non-traditional journalists. State and federal courts have already found that the journalist’s shield law covers student journalists, professors, authors, and freelancers because these professions perform essentially the function as reporters: to gather and disseminate information to the public. Additionally, freedom of the press “is a right which belongs to the public; it is not the private preserve of those possess the implements of publishing.”[43] Moreover, claiming bloggers should not be able to invoke the privilege because they are “not trained,” do not “work as journalists full-time,” and/or are not “sufficiently dedicated to contributing to the public debate,” seems like a empty criticism at a time when “mainstream media organizations have substantially eroded their own credibility” with scandals such as Jayson Blair’s fabrication of sources and Dan Rather’s report based on inaccurate records. [44]

Many people criticize blogs as “opinion without expertise, without resources, without reporting.”[45] Blogs are often criticized as unreliable since bloggers, unlike journalists, do not have to submit their work to editors for approval before publication.  David Shaw, of the Los Angeles Times, complained “[m]any bloggers…don’t seem to worry much about being accurate. Or fair. They just want to get their opinions—and their ‘scoops’—out there as fast as they pop into their brains.”[46] Other critics carp that it is difficult for readers to differentiate between accurate and inaccurate blogs.[47]

Advocates of citizen journalism respond that many bloggers have incentives to report accurately, and mistakes are corrected as soon as they are posted.[48] Bloggers, like journalists, are liable for defamation; the threat of litigation “has a civilizing influence on the Internet communications by improving the quality of the discourse.”[49] In addition, blogs have the advantage of mustering the knowledge of millions of people, drawing upon the “wisdom of the crowds.” [50] Blogs certainly do not have a “monopoly on error”[51] as demonstrated by defamation suits filed against mainstream media companies.  Bloggers, like journalists, are concerned about their reputations with their readers. When interviewed by the Wall Street Journal, blogger Jeff Jarvis said, “[w]hen I make a mistake, people jump on me like white blood cells on a germ. If I don’t correct it, my reputation’s going to suffer.”[52] Additionally, conditioning the protection of a reporter’s shield on the accuracy of the individual claiming the privilege would be contrary to First Amendment principles espoused in New York Times v. Sullivan as “accuracy is relevant only in defamation actions, and even then there is no strict liability for falsehoods.” [53] Requiring accuracy would be “particularly troubling in the context of blogging, where the benefits of the medium do not come from complete accuracy of each posting but rather in its interactive nature with readers and critics.”[54]

Furthermore, blogs are not the only publications that are regarded with differing levels of trust; mainstream media outlets are subject to the same criticism.[55] Many critics object that major media entities are “too close to the corporations and politicians they cover to be trusted as watchdogs.”[56] Ironically, it may be that the escalation in the number and popularity of blogs is due to the public’s lack of confidence in mainstream journalism.[57] While the USA Today may be a more trusted source than the National Enquirer, reporters working for either publication “equally claim the title of ‘journalist.’”[58] Courts have refused “to segregate the media into tiers based on perceived quality or trustworthiness”[59] and should continue to do so when analyzing whether the reporter’s privilege applies to citizen journalists. The O’Grady court recognized the danger of a court evaluating the quality of journalism and thus “decline[d] the implicit invitation to embroil ourselves in questions of what constitutes ‘legitimate journalis[m]. The shield law is intended to protect the gathering and dissemination of news.”[60] Because the court could “think of no workable test or principle that would distinguish ‘legitimate’ from ‘illegitimate’ news,” it rejected “[a]ny attempt by courts to draw such a distinction” and warned that an attempt to draw such a distinction “would imperil a fundamental purpose of the First Amendment, which is to identify the best, most important, and most valuable ideas not by any sociological or economic formula, rule of law, or process of government, but through the rough and tumble competition of the memetic marketplace.”[61]

In its discussion of journalism, the California court also denied limiting the privilege to publications on matters of public concern. Though some have proposed a reporter’s privilege be available only to persons who publish information involving matters of public concern, the “administrative and theoretical difficulties”[62]of this approach are overwhelming. In the context of defamation law, the Supreme Court spent over fifteen years endeavoring to make a legal distinction based on “whether the content is a matter of public concern or newsworthy.”[63] According to Justice Douglas, “‘[P]ublic affairs’ includes a great deal more than merely political affairs. Matters of science, economics, business, art, literature, etc., are all matters of interest to the general public. Indeed, any matter of sufficient general interest to prompt media coverage may be said to be a public affair.”[64]It is imprudent to adopt an amorphous standard to limit the scope of a reporter’s privilege since it has been unworkable in the defamation context.

IV.  Defining “Journalist”: How to Include Bloggers in a Federal Shield Law

Since it is “neither possible nor prudent to limit a reporter’s privilege to professional journalists,”[65] a qualified privilege should be available to persons who disseminate information to the public with a real intent to do so at the inception of the newsgathering process.  Bloggers should be protected by reporter’s shield laws based on the function of journalism. Courts should examine the evidence of a blogger’s intent to publish in the same fact-specific manner as the court in von Bulow when it found no indicia that Andrea Reynolds was a freelance author.

In the 2009 version of a federal shield law, the Senate rightly defined “covered person” as a person

(i) with the primary intent to investigate events and procure material in order to disseminate to the public news or information…or other matters of public interest, [who] regularly gathers, prepares, …writes, edits, reports or publishes on such matters…

(ii) has such intent at the inception of the process of gathering the news or information sought; and

(iii) obtains the news or information sought in order to disseminate the news or information by [any] means…[66]

The “intent to disseminate” test is grounded in the rationale of the privilege— “to provide protection for the unfettered dissemination of information to the public.”[67] Those who contribute to the public discourse should be able to avail the privilege. However, one weakness of the standard is that it “focuses on the intent of the reporter at the time it was received.” [68] Most veteran reporters in the nation would “admit that many of their stories come to them when they are not even looking for them…Reporters often have no idea at the time they are collecting information whether they will in fact share that information with the public.”[69] Using the intent test alone, it is unclear whether a “reporter who has a friendly conversation with an acquaintance and then later decides to pursue a story based on what she learned in that conversation”[70] would be protected by the privilege. Although intended to disqualify a savvy person who “conveniently” characterizes herself as a journalist in order to invoke the privilege,  the von Bulow intent test could also have the “effect of denying the privilege to even the most established and dedicated full-time journalists.”[71]

This is why the federal statute should include a two-part test for the definition of a journalist: the traditional definition and the function test.[72] The first definition of a journalist should be the traditional definition that includes an association with a media entity, which would avoid the aforementioned problem of professional journalists possibly not being able to invoke the privilege. The second definition of journalist should be the intent-based test based on the function of journalism, which would cover bloggers and other non-traditional journalists. The test would be a fact-based inquiry like the close examination of Reynolds’s intent to publish in von Bulow. This tough standard would ensure limitations on the privilege rather than extending it to anyone with a computer and an Internet connection.

The qualified privilege could be overcome by showing three elements: “(1) the desired information is critical to the maintenance of a party’s claim, defense, or proof of an issue; (2) the information sought cannot be obtained by alternative means; and (3) there is a compelling interest in the information that outweighs the public’s interest in the free flow of information.”[73] The Senate essentially created the same parameters for a qualified privilege in its proposed legislation in 2009.[74] A qualified privilege would “soften the blow of an expansive definition of those persons and entities entitled to invoke it.”[75]

The federal reporter’s shield law should also include narrow exceptions to the privilege for “circumstances in which countervailing societal interests outweigh any societal interest in preserving the privilege.” This includes circumstances when a subpoena is “directed to someone who witnessed or participated in a criminal or tortious activity (exclud[ing] ‘leaks’ of classified or national security information).” [76] Another exception would include times when a “direct and imminent threat to national security warrants compelling testimony”[77] or when “reasonably certain death or substantial bodily harm” may occur.[78] These three basic exceptions were also outlined in the Senate’s most recent attempt to pass a federal reporter shield law.[79]

Most courts have held that journalists who participate in a crime are barred from invoking the privilege.[80] Accordingly, this exception does not harm the underlying purpose of the privilege since there is “no value in encouraging sources to commit crimes in front of journalists.”[81] Leaking classified information should not fall under the crime exception since “leaks of government information, whether classified or not, have become an essential means by which the public learns about government activities.” [82] Since current protection is inadequate for whistleblowers, and “as a result, leaking information to the press is often the only realistic means of shedding light on questionable or illegal government practices,”[83] a privilege protecting whistleblowers encourages such persons to come forward serves the public interest. Prosecuting those who leak national security or other classified information is not hindered by a reporter shield law.[84]

Though most fears that a federal shield law would undermine national security are misplaced, there should be an exception to the privilege “if the reporter’s testimony would help prevent a direct and imminent threat to national security.” [85] The Supreme Court recognized an exception  for “imminent threat” to national security in the Pentagon Papers case, which concluded that the “presumption against prior restraints could not be overridden absent an immediate and serious threat to national security.” [86] This is a reasonable standard that should apply to the reporter’s privilege.

Finally, an exception for preventing “death or bodily harm to another human being applies to other testimonial privileges, including the attorney-client privilege.”[87] It is prudent to extend this exception to the reporter’s privilege “because in such cases the public’s interest in the information far outweighs the public’s interest in encouraging anonymous sources from coming forward.”[88]

V.  The Costs and Benefits of a Federal Reporter Shield Law

The most significant cost of any privilege is that it deprives courts of evidence. Critics claim that a privilege closes the courts for individuals harmed as a result of the free press, that a shield creates an exception to courts as a place to redress injury.[89] However, defamatory statements are actionable regardless of the enactment of a shield law.  There is no privilege if the media caused the damage.[90]Moreover, some states “explicitly reject the privilege when a media entity is a party to the litigation, a situation that typically occurs in defamation cases,” while others supply the media with some “protection by requiring a plaintiff to demonstrate that the information is important for her case and that she has attempted to obtain the information through other means.”[91]

According to opponents of the privilege, it benefits the media; enacting a federal shield law would lead to accountability problems if reporters are not forced to reveal anonymous sources.[92] The purpose of the privilege is to help the free flow of information to the public rather than aid the press. The privilege benefits the public and whistleblowers and does not hinder law enforcement. In fact, adopting a reporter’s privilege is viewed “as a necessary component of a larger criminal law reform, based on the hope that with this new protection reporters would be more willing to publish stories revealing criminal activity. The states’ enthusiasm for shield laws suggests that such laws enhance rather than detract from the ability of law enforcement to fight crime.” [93] Not having a federal privilege actually hinders attorneys general. Federal and state privileges should mirror each other since reporters do not know where a subpoena will come from. A federal reporter shield law creates certainty for reporters and attorneys. [94]Thirty-five states with shield laws submitted an amici curiae brief to the Supreme Court of the United States arguing for a grant of certiorari in Judith Miller’s case because the lack of a federal  privilege undermines the judicial and legislative determinations of forty-nine states and the District of Columbia.[95]

The irony of not enacting a federal shield law in an age of Wikileaks means that websites such as Wikileaks are more likely to receive information and documents than a reporter, who would verify the information, edit statements, and redact necessary portions. Without a reporter’s shield law, it is likely that sources will go to Wikileaks, which sends information directly to the public and is not subject to professional ethics. Wikileaks is empowered if reporters are not allowed to protect their sources. [96]

VI.  Conclusion

A federal shield law for reporters and citizen journalists would benefit the public by protecting whistleblowers and encouraging anonymous sources to reveal information to responsible disseminators of the news. Because the purpose of the privilege is to help the flow of information to the public, Congress should pass a federal shield reporter’s shield law that protects traditional and citizen journalists. The privilege should not simply cover members of the traditional press, for “[t]he First Amendment does not guarantee the press a constitutional right… not available to the public generally.”[97] Congress should combine the traditional definition of a reporter associated with a media entity with an intent-based inquiry based on the function of journalism to create a federal reporter’s shield law to enhance the First Amendment and encourage the free flow of information in our democracy.

[1] See In re Grand Jury Subpoena, Judith Miller, 397 F.3d 964, 976-980 (D.C. Cir. 2005); Key Players in the CIA Leak Investigation, http://www.washingtonpost.com/wp-srv/politics/special/plame/Plame_KeyPla…

[2]81 Am. Jur. 2d Witnesses § 526 (2010).

[3] Mary-Rose Papandrea, Citizen Journalism and the Reporter’s Privilege, 91 Minn. L. Rev. 515, 535-36 (2007) (discussing the purpose of the privilege).

[4] Branzburg v. Hayes, 408 U.S. 665, 721 (1972) (Douglas, J., dissenting).

[5] von Bulow v. von Bulow, 811 F.2d 136, 144 (2d Cir. 1987).

[6] David Kohler & Lee Levine, Media and the Law 529 (Matthew Bender 2009).

[7] See, e.g.,Free Flow of Information Act of 2009, S.448, 111th Cong. § 1-11 (2009); Free Flow of Information Act of 2007, S.2035, 110th Cong. § 1-8 (2007).

[8] Branzburg, 408 U.S. at 682.

[9] See, e.g., Ala. Code § 12-21-142 ; 10 Del.C. § 4320 (4).

[10] See In re Grand Jury Subpoena, Judith Miller, 397 F.3d  at  976-980 (Sentelle, J., concurring) (noting the difficulties of determining who qualifies as a reporter and expressing concern about “whether the stereotypical ‘blogger’ sitting in his pajamas at his personal computer posting on the World Wide Web” would be entitled to invoke the privilege).

[11] Floyd Abrams Explains Why He Should Lose, http://www.pajamasmedia.com/instapundit-archive/archives/019677.php

[12] Cal. Const. art. I, § 2(b).

[13] O’Grady v. Superior Court, 44 Cal.Rptr.3d 72 (Cal. Ct. App. 2006).

[14] Minn. Stat. § 595.023 (2004).

[15] von Bulow, 811 F.2d  at 143.

[16] Id. at 145.

[17] Id. at 145 (quoting Branzburg v. Hayes, 408 U.S. 665, 705 (1972)).

[18] Id. at 144.

[19] Cusumano v. Microsoft Corp., 162 F.3d 708, 714 (1st Cir. 1998).

[20] Shoen v. Shoen, 5 F.3d 1289, 1293 (9th Cir. 1993).

[21] Id. at 1293.

[22] Cusumano, 162 F.3d at 714.

[23] See People v. Von Villas, 13 Cal. Rptr. 2d 62, 78-79 (Cal. Ct. App. 1992) (holding California privilege applied to freelance author ).

[24] See e.g., Shoen, 5 F. 3d at 1290-91.

[25] See Silkwood v. Kerr-McGee Corp., 563 F.2d 433, 436-37 (10th Cir. 1977) (holding privilege applied to documentary filmmaker whose “mission…was to carry out investigative reporting for use in the preparation of a documentary film”).

[26] See Cusumano, 162 F.3d at 714.

[27] See Summit Tech., Inc. v. Healthcare Capital Group, Inc., 141 F.R.D. 381, 384 (D. Mass. 1992)(holding independent research consultant was “engaged in the dissemination of investigative information to the investing business community” on “matters of public concern,” and was therefore “entitled to raise the claim of privilege”).

[28] See Privilege Compendium, http://www.rcfp.org/privilege/index.php?op=browse&state=HI

[29] Papandrea, supra note 3, at 523.

[30] Id.

[31] See id.

[32] See e.g, Ezra Klein’s blog, Economic Policy, and Lots of It, http://voices.washingtonpost.com/ezra-klein/.

[33] See e.g., http://www.nytimes.com/; http://www.washingtonpost.com/.

[34] See cnn.com/.

[35] http://ireport.cnn.com/.

[36] See id.

[37] See Papandrea, supra note 3, at 532.

[38] Id. at 585.

[39] Floyd Abrams, supra note 13.

[40] Id.

[41] Branzburg, 408 U.S. at 704.

[42] Id.

[43] State v. Buchanan, 436 P.2d 729, 731(Or. 1967).

[44] Papandrea, supra note 3, at 573-74.

[45] See id., at 528.

[46] Id.

[47] Id.

[48] See id.

[49] Id.at 530.

[50] See Papandrea, supra note 3, at 529.

[51] See id. at 530.

[52] See id. at 529.

[53] Id., at 576.

[54] Id.

[55] Id.at 530.

[56] See Papandrea, supra note 3,at 524.

[57] Id.

[58] Id.at 530.

[59] Id.

[60] O’Grady, 44 Cal.Rptr.3d at 97.

[61] Id.

[62] Papandrea, supra note 3, at 578.

[63] Id.

[64] Gertz v. Robert Welch, 418 U.S. 323, 357 (1974) Douglas, J. dissenting).

[65] Papandrea, supra note 3, at 520.

[66] Free Flow of Information Act of 2009, supra note 7.

[67] Papandrea, supra note 3, at 572.

[68] Id.

[69] Id.

[70] Id.

[71] Id.at 573.

[72] Interview with Kurt Wimmer, partner, Covington & Burling, in Washington, D.C. (Dec.17, 2010).

[73]Papandrea, supra note 3,  at 584.

[74] See Free Flow of Information Act of 2009, supra note 7.

[75] Papandrea, supra note 3, at 585.

[76] Id.

[77] Id.at 520-21.

[78] Id. at 588.

[79] See Free Flow of Information Act of 2009, supra note 7.

[80] Papandrea, supra note 3, at 587.

[81] Id.

[82] Id. at 588.

[83] Id.

[84] See id.

[85] Id.at 588-89.

[86] Papandrea, supra note 3, at 589.

[87] Id.

[88] Id.at 589-90.

[89] Interview with Mark Grannis, managing partner, Wiltshire & Grannis, in Washington, D.C. (Dec. 8, 2010).

[90] Interview with Kurt Wimmer, supra note 79.

[91] Papandrea, supra note 3, at 548.

[92] Interview with Mark Grannis, supra note 96.

[93] Papandrea, supra note 3, at 535.

[94] Interview with Kurt Wimmer, supra note 79.

[95] Brief of the States of Oklahoma, et al. as Amici Curiae in Support of the Petitions for Writs of Certiorari, Cooper v. United States, 545 U.S. 1150 (2005), denying cert. to In re Grand Jury Subpoena, Judith Miller, 397 F.3d 964 (D.C. Cir. 2005).

[96]Interview with Kurt Wimmer, supra note 79.

[97] Branzburg, 408 U.S. at  684.

© Copyright 2011 Laura Katherine Layton

The "Initial Interest Confusion" Test – Analysis and Proposal for a Sensible Formulation for Use on the Internet

The National Law Review is proud to announce that Jaclyn Coronado Sitjar of Saint Louis University School of Law is one of our Student Legal Writing Contest Winners for March of 2011. Jaclyn’s article focuses on the element of likelihood of consumer confusion which is the crux of many trademark infringement claims.

Introduction

The Internet facilitates online commerce and provides a wealth of information to consumers by allowing users to search for a product or brand and to receive results, suggestions, and advertisements.  Internet consumers using search engines are familiar with search-based advertising, where advertisements appear next to search results.  Google provides an advertising service, AdWords.[i]AdWords allows advertisers to bid on search terms, called keywords, and then Google links those keywords to the advertiser’s advertisements or hyperlinks.[ii]When an Internet consumer searches for the keyword the advertiser purchased, the sponsored link or advertisement is triggered and appears either above or to the right of the organic search results.[iii] Other search engines including Netscape and Excite use programs similar to Google AdWords to allow advertisers to either bid for or purchase specific search terms.[iv]

During the first half of 2010, U.S. Internet advertising revenue broke a new half-year record with U.S. Internet advertisers spending $12.1 billion.[v] The average American spends more than sixty hours a month online and 55% of American adults use the Internet daily.[vi] With increasing Internet advertising and use, the possibility of consumer confusion exists on the Internet.  Advertisers can buy keywords related to their line of business, which may include buying a competitor’s trademark.  For example, if Advertiser A buys Competitor B’s trademark as a keyword, then an Internet search for Competitor B’s product will trigger Advertiser A’s ads in a list of sponsored links along the search results.  This example presents a possibility of consumer confusion on the Internet.[vii] One way to alleviate Internet consumer confusion is through the court’s regulation of trademarks in metatags, domain names, and keyword-sponsored advertising and the adoption of the initial interest doctrine.[viii]

I.  Background Information

The Lanham Act of 1946 federally regulates trademarks by creating a registration system for marks used in U.S. commerce and providing causes of action for the infringement of both registered and unregistered marks.[ix] Under the Lanham Act, a trademark is “any word, name, symbol, or device, or any combination thereof . . . to identify and distinguish his or her goods, including a unique product, from those manufactured or sold by others and to indicate the source of the goods.”[x]Trademark law serves two primary purposes:  (1) to protect the trademark owner’s private interests of the resources and efforts invested into establishing trademarks and (2) to protect the public by reducing the likelihood of consumer confusion by prohibiting misleading trademark practices.[xi]

Section 43 of the Lanham Act defines trademark infringement of unregistered trademarks, which is a cause of action allowing trademark owners the right to bring a civil suit against anyone who “uses” another’s trademark “in commerce” when such use is likely to confuse or deceive consumers in advertising or promotion.[xii] Section 32 of the Lanham Act is the provision for trademark infringement of a registered trademark.[xiii] Although the Lanham Act provides for protection against infringement of both registered and unregistered marks, courts and litigants tend to look to Section 43, which also protects unfair methods of competition, e.g. false designation of origin, sponsorship, or approval.[xiv] Courts interpret both Section 32 and Section 43 to require a plaintiff to establish three elements for a successful trademark infringement action.[xv] First, the plaintiff shows a valid trademark entitled to protection under the Lanham Act.[xvi] Second, the plaintiff shows the defendant used the plaintiff’s mark or a similar mark in commerce.[xvii] Third, the plaintiff must prove the defendant’s use will create a likelihood of confusion.[xviii]

A.  Use in Commerce

At issue in many online trademark infringement cases is the second element of the infringement analysis, use in commerce.[xix] The Lanham Act defines “use in commerce” as the bona fide use of a mark either on goods or services.[xx] In the offline context, selling a product with another’s trademark affixed to the carton is an example of sufficient use in commerce.[xxi] In the online context without tangible products to affix trademarks to, courts have had to determine Internet-specific issues such as whether domain names including competitor trademarks or using metatags of a competitor’s trademark constitute sufficient use in commerce.[xxii]With the rise in search-based advertising,[xxiii] the most recent issue with online use in commerce is buying and selling trademarks as keywords.  In Rescuecom Corp v. Google Inc., the Second Circuit Court of Appeals recently ruled that buying another’s trademark through Google’s advertising service AdWords constitutes use in commerce.[xxiv] Rescuecom aligned the Second Circuit with the majority of other circuits finding that a defendant’s use of plaintiff’s trademarks to trigger keyword advertising is sufficient use in commerce.[xxv]

B.  Likelihood of Confusion

The final element, likelihood of consumer confusion, forms the crux of most trademark infringement claims.[xxvi] Courts employ a multifactor test to determine the likelihood of confusion by applying a version of the eight factors established by the Ninth Circuit in AMF, Inc. v. Sleekcraft Boats:

(1) similarity of the conflicting marks; (2) proximity of the two companies’ products or services; (3) strength of the plaintiff’s mark; (4) marketing channels used by the two companies; (5) degree of care likely to be exercised by purchasers in selecting goods; (6) defendant’s intent when selecting the mark; (7) evidence of actual consumer confusion; and (8) likelihood of expansion of product lines.[xxvii]

The multifactor test is flexible and other circuits may apply fewer or more factors.[xxviii] Whatever factors a court employs, the ultimate test focuses on whether defendant’s use is likely to confuse or deceive customers into thinking there is some sponsorship between the trademark owner and the infringing mark.[xxix]

Usually courts determine likelihood of confusion at the time the consumer makes the purchase.  However, sometimes circumstances arise where the consumer is actually confused before making the purchase.  For example, an Internet consumer may only be confused into visiting a website, not into actually purchasing a product.  A consumer could click on an ad triggered by a keyword containing the competitor’s trademark.  Since the traditional likelihood of confusion standard does not translate well to such keyword cases, some courts have turned to initial interest confusion.

II.  Initial Interest Confusion

A.  Introduction to Initial Interest Confusion

Initial interest confusion is the temporary, pre-sale confusion that occurs when a consumer is drawn to a product believing it to be affiliated with another company because the product somehow evokes that company’s trademark.[xxx] Initial interest confusion is a judicially created doctrine applied where a product generates initial customer interest by using another’s trademark, even if the customer never actually buys the infringing product.[xxxi] Courts applying initial interest confusion can hold defendants liable based on an unfair “bait-and-switch theory” for practices that “affect the buying decisions of consumers in the market for the goods, effectively allowing the competitor to get its foot in the door by confusing consumers.”[xxxii]

The Second Circuit first developed initial interest confusion in 1975 in Grotrian v. Steinway & Sons after finding the traditional likelihood of confusion analysis insufficient to hold the culpable defendants liable.[xxxiii] In Grotrian, a German corporation sold pianos under the trade name “Grotrian-Steinweg” which competed with the well-known piano manufacturer Steinway & Sons.[xxxiv] The district court applied the traditional likelihood of confusion test with special focus on the “degree of likely consumer care” factor.[xxxv] Although expensive piano consumers have a high sophistication level, this sophistication did not eliminate the possibility of consumer confusion between the similar marks.[xxxvi] The court coined the initial interest confusion theory by noting that a potential Steinway buyer might initially be misled to the less expensive Grotrian-Steinweg, which injures Steinway.[xxxvii] The issue was “not the possibility that a purchaser would buy a Grotrian-Steinweg thinking it was actually a Steinway, but rather that, by virtue of “initial confusion,” the “‘Grotrian-Steinweg’ name … would attract potential customers based on the reputation built up by Steinway in this country for many years.”[xxxviii] The consumer’s confusion occurred before the purchase when a consumer would initially afford Grotrian-Steinweg pianos positive credibility because of the consumer’s mental association with the Steinway & Sons mark, regardless of whether the consumer actually purchased a Grotrian-Steinweg piano or not.[xxxix] Therefore, the Second Circuit found the absence of point-of-sale confusion was irrelevant because harm resulted from the initial interest confusion.[xl]

The Second Circuit used the same rationale twelve years later in Mobil Oil Corp. v. Pegasus Petroleum Corp., holding defendant’s “Pegasus Petroleum” name for an oil trading company infringed on plaintiff’s trademarked flying horse logo.[xli] There was a likelihood of confusion “not in the fact that a third party would do business with Pegasus Petroleum believing it was related to Mobil, but rather in the likelihood that Pegasus Petroleum would gain crucial credibility during the initial phases of a deal.”[xlii]

Since Grotrian and Mobil, other circuits have applied initial interest confusion to trademark infringement cases.[xliii] With the rise of the Internet, courts also apply initial interest confusion in the online context.[xliv] The landmark case on online initial interest confusion is Brookfield Communications, Inc. v. West Coast Entertainment Corp.[xlv] Plaintiff Brookfield Communications offered an Internet software database of the entertainment industry using the trademark “MovieBuff.”[xlvi] Brookfield claimed trademark infringement against defendant West Coast’s use of the domain name “moviebuff.com” and the term “MovieBuff’ in metatags for its own entertainment industry database.[xlvii] Metatags are lines of code in a website’s Hyper Text Mark-Up Language (HTML) invisible to the internet user that older search engine technologies used to compile and order search results lists.[xlviii] The Ninth Circuit held for Brookfield, finding initial interest confusion is likely to result from West Coast Entertainment’s metatag use.[xlix]Internet users searching for Brookfield’s MovieBuff product may discover West Coast’s website and, finding a free database similar to Brookfield’s product, the user may “simply decide to utilize West Coast’s offerings instead.”[l] This is actionable initial interest confusion “in the sense that, by using ‘moviebuff.com’ or ‘MovieBuff’ to divert people looking for ‘MovieBuff’ to its website, West Coast improperly benefits from the goodwill that Brookfield developed in its mark.”[li]

B.  Criticism and Proposal for Courts Applying Initial Interest Confusion

Brookfieldwas a controversial decision that has been criticized by scholars and judges.[lii] In reaching its conclusion, the Ninth Circuit did not employ the eight-factor Sleekcraft test.[liii] Instead, the court stated “the traditional eight-factor test is not well-suited for analyzing the metatags issue,” then considered only whether the metatags caused initial interest confusion.[liv] This departure from the likelihood of confusion test sparked criticism over whether initial interest confusion is a viable theory to find trademark infringement liability.[lv]

Another criticism is that unlike the earlier offline cases ofGrotrian and Mobilinvolving both the presence of confusion and the misappropriation of goodwill in famous marks[lvi], Brookfield found initial interest confusion merely on the potential that West Coast might receive some benefit from Brookfield’s mark.[lvii]Another common criticism of initial interest confusion is there is no real economic justification for its application, especially online where there is only a de minimiscost to consumers to click back and forth between websites.[lviii] However, because the internet affords a plethora of advertising techniques ranging from metatags to keyword advertising, the online consumer may actually be confused more often than the offline consumer.[lix] Furthermore, Rescuecom shows that with courts in agreement that using trademarks in these contexts is actionable trademark use, infringement claims will survive summary judgment, urging some standard of uniformity among courts applying initial interest confusion.[lx]

In response to this criticism, the Second, Third, Sixth, Seventh, Ninth and Tenth Circuits have recognized online initial interest confusion.[lxi] Just as courts apply different variations of the likelihood of consumer confusion tests,[lxii] courts are also applying different variations of initial interest confusion analysis.[lxiii] Circuit courts and district courts within these circuits are even applying different variations of initial interest confusion.[lxiv] This paper organizes the conundrum of initial interest confusion by three different approaches used by the courts:  (1) Engaging in the entire traditional likelihood of confusion analysis and then considering initial interest confusion as a separate factor, (2) Only considering initial interest confusion or giving undue weight to diversion, and (3) Analyzing initial interest confusion within the “evidence of actual confusion” factor or “customer care” factor.

1.  Courts analyzing initial interest confusion separately before or after the traditional likelihood of confusion test

Courts in the Second, Third, Sixth and Ninth Circuits analyze initial interest confusion separately from the traditional likelihood of confusion analysis.[lxv] These courts either assess initial interest confusion before or after the traditional likelihood of confusion factors.  In the Second Circuit, Savin Corp. v. The Savin Group involved a domain name dispute.[lxvi] The Polaroid factors are the eight factors that the Second Circuit applies to determine whether there is a likelihood of confusion in a trademark infringement case.[lxvii] The Savin court considered initial interest confusion separately after the Polaroid analysis because it “does not fall neatly under any of the Polaroid factors.”[lxviii] The Savin court relied on precedent in Bihari v. Gross, which required a showing of intentional deception before finding initial interest confusion.[lxix] Because the plaintiff had failed to raise a triable issue of fact on either a likelihood of confusion or intentional deception, the Second Circuit affirmed the district court’s summary judgment to the defendant.[lxx]

In Checkpoint Systems, Inc. v. Check Point Software Technologies, Inc., the Third Circuit assesses all ten Lapp factors and then analyzes initial interest confusion.[lxxi] The Lapp factors are the Third Circuit’s ten factors used to determine likelihood of confusion in trademark infringement cases.[lxxii] Furthermore, all Lapp factors should be considered whether a plaintiff alleges initial interest confusion, point-of-sale confusion, or both.[lxxiii] Two district courts in the Third Circuit addressed initial interest confusion in keyword advertising cases with the District Court of New Jersey following Checkpoint and the Eastern District of Pennsylvania deviating from Checkpoint.[lxxiv] The District Court of New Jersey in 800-Jr Cigar, Inc. v. Goto.com, Inc. followed Checkpoint by applying all ten Lapp factors and then engaged in a more comprehensive initial interest confusion analysis.  [lxxv] The court looked at (1) product relatedness, (2) the level of care exercised by consumers in making purchasing decisions, (3) the sophistication of the purchaser/consumer; and (4) the intent of the alleged infringer in adopting the mark.[lxxvi] The court ultimately found genuine issues of material fact in four of the ten Lapp factors and the impact, if any, of initial interest confusion and denied both parties’ motions for summary judgment.[lxxvii]

Conversely, the court for the Eastern District of Pennsylvania in the Third Circuit declined to extend initial interest confusion in keyword advertising in JG Wentworth v. Settlement Funding LLC.[lxxviii] JG Wentworth alleged Settlement Funding LLC’s purchase of the keyword “JG Wentworth” from Google AdWords for sponsored link advertisements and using JG Wentworth’s trademarks as metatags in Settlement Funding LLC’s websites caused initial interest confusion.[lxxix] Instead of applying the Lapp factors, the court hastily decided there was no likelihood of confusion and no trademark infringement because Settlement Funding LLC’s website link was “separate and distinct” from JG Wentworth’s website link, therefore eliminating potential consumers from the “opportunity to confuse defendant’s services, goods, advertisements, links or websites for those of JG Wentworth’s.”[lxxx]

Since Brookfield, the Ninth Circuit has encountered a variety of cases alleging initial interest confusion on the Internet.[lxxxi] In the Internet context, the Ninth Circuit has applied its Sleekcraft factors before addressing initial interest confusion in trademark infringement cases involving a domain name, keyword advertising, and most recently with Google’s AdWords program.[lxxxii] However, the Ninth Circuit has also held that in the Internet context, the three most importantSleekcraft factors are (1) the similarity of the marks, (2) the relatedness of the goods or services, and (3) the parties’ simultaneous use of the Web as a marketing channel.[lxxxiii] These three factors have been dubbed the “controlling troika” or the “internet trinity.”[lxxxiv] When the Internet trinity factors suggest likely confusion, the other factors must “weigh strongly” against a likelihood of confusion to avoid finding infringement.[lxxxv]

For example, in Interstellar Starship Services, Ltd. v. Epix, Inc., the plaintiff alleged that the defendant’s domain name caused a likelihood of initial interest confusion.[lxxxvi] The Ninth Circuit affirmed the district court’s holding of no likelihood of initial interest confusion, explicitly stating that the district court correctly applied all Sleekcraft factors instead of just the internet trinity factors.[lxxxvii] However, courts have interpreted Interstellar to engage in a type of burden-shifting analysis between the internet trinity factors and the rest of theSleekcraft factors.[lxxxviii] After finding the internet trinity factors favor a plaintiff, the burden shifts to the defendant to prove the remaining factors “weigh strongly against a likelihood of confusion.”[lxxxix] This was seen in Perfumebay.com Inc. v. eBay Inc. with Perfumebay.com seeking declaratory judgment that its various forms of the mark “Perfumebay” did not infringe eBay’s trademark.[xc] The Ninth Circuit affirmed the district court’s holding that a likelihood of consumer confusion and initial interest confusion existed.[xci] There was a likelihood of consumer confusion because the trinity factors (strong similarity between the marks “Perfumebay” and “eBay,” both parties used the internet as a marketing channel, and both parties sold similar products) weighed strongly in eBay’s favor and the plaintiff could not outweigh this showing with any of the other Sleekcraftfactors.[xcii]

The Sixth Circuit, like the Ninth Circuit, applies the Internet trinity factors and the other remaining five factors from its traditional likelihood of confusion test.[xciii] InPaccar Inc. v. TeleScan Technologies, L.L.C., the trucking company Paccar claimed trademark infringement against TeleScan Technologies, the owner of a used truck locator website, based on Paccar’s trademarks in its domain names and meta tags.[xciv] After the district court granted a preliminary injunction against the defendants, Sixth Circuit affirmed the preliminary injunction due to Paccar’s demonstration of “a likelihood of confusion and, thus, a strong likelihood of success on the merits of its trademark infringement claim.”[xcv] Central to its holding, the court relied on the internet factors of mark similarity, relatedness of goods or services, simultaneous use of the Internet as a marketing channel, without relying much on the other likelihood of confusion factors.[xcvi]

2.  Courts analyzing only initial interest confusion or giving undue weight to diversion

Some courts found a likelihood of confusion because of initial interest confusion without engaging in the traditional multi-factor analysis or give undue weight to diversion in finding a likelihood of ocnfusion exists.[xcvii] At least one district court is not applying any of the factors tests and instead is relying solely on the initial interest doctrine.[xcviii] In Morningware, Inc. v. Hearthware Home Products, Inc., the court for the Northern District of Illinois found the plaintiff had sufficiently alleged evidence of initial interest confusion to deny the defendant’s Rule 12(b)(6) Motion to Dismiss.[xcix] The defendant had purchased plaintiff’s trademark and variations of plaintiff’s trademark as a keyword from Google’s AdWords program.[c] In finding a likelihood of confusion, the Morningware court relied on a previous Seventh Circuit ruling in Promatek Indus., Ltd. v. Equitrac Corp.[ci]

Promatek involved analogous facts to Morningware, finding a likelihood of confusion when the defendant used the plaintiff’s trademarks in the defendant’s website metatags.[cii] In Promatek, the Seventh Circuit recognized that initial interest confusion can arise even if consumers who are misled to a website are only briefly confused.[ciii] Under Promatek, “What is important is not the duration of the confusion, it is the misappropriation of Promatek’s goodwill.”[civ] InMorningware, “Hearthware’s advertisement does not mention Hearthware and the consumer who views the Hearthware advertisement searched for the term ‘Morningware,’ the advertisement could mislead consumer to believe that the link is associated with Hearthware.”[cv] Following Promatek, Morningware had sufficiently alleged initial interest confusion.[cvi] In reaching this conclusion, the court did not engage in any likelihood of confusion analysis.  The court cited seven factors to assess for the likelihood of consumer confusion, but then spent the rest of the likelihood of confusion discussion only on Promatek.[cvii]

The Tenth Circuit in Australian Gold, Inc. v. Hatfield is an example of a court giving undue weight to diversion.[cviii] Defendant Hatfield sold plaintiff Australian Gold’s (“AG”) tanning products over the internet without AG’s authorization.[cix] Hatfield used AG’s trademarks in website metatags and paid a search engine for search result priority.[cx] The Tenth Circuit affirmed the district court’s finding Hatfield liable for trademark infringement for using AG’s trademark within Hatfield’s metatags.[cxi] The court found that the defendant’s intent in using the marks, similarity of products and manner of marketing, the degree of care consumers were likely to exercise, and mark strength all weighed in plaintiff’s favor.[cxii] However, the court went a step further and found that diversion was inherently damaging even though the plaintiffs did not offer any evidence of actual confusion.[cxiii] The court found that “the original diversion of the prospective customer’s interest to a source that he or she erroneously believes is authorized” is a harm caused by initial interest confusion.[cxiv]

Additionally, the court’s treatment of Hatfield’s website disclaimers bolstered the court’s belief that diversion is inherently damaging.  Hatfield’s disclaimers disavowed any connection with plaintiffs and clarified the true source of the website.[cxv] Adhering to its belief that damage had already been done once consumers were diverted to defendant’s websites, the court found defendant’s disclaimers to be irrelevant.[cxvi] The purpose of Hatfield’s disclaimers were to clear up any consumer confusion, but the court found the damage from the original diversion was sufficiently actionable.  Australian Gold suggests that diversion is inherently damaging and even absent a defendant’s use of disclaimers or plaintiff’s evidence of actual confusion, the Tenth Circuit will still find actionable trademark infringement based on initial interest confusion.[cxvii]

3.  Courts analyzing initial interest confusion within the “evidence of confusion” or “customer care” factor of the traditional likelihood of confusion test

The last formulation is courts analyzing initial interest confusion within the “evidence of confusion” factor or the “customer care” factor.  Including this analysis as part of the traditional likelihood of confusion factors adheres to the Lanham Act standard for trademark infringement, “likely to cause confusion.”[cxviii] Subsuming initial interest confusion within the complete factors test also reconciles criticism that initial interest confusion is inappropriately expanding trademark infringement to include diversion.[cxix]

The Fifth Circuit applied initial interest confusion in the “evidence of actual confusion” factor based on witness testimony in Elvis Presley Enterprises, Inc. v. Capece.[cxx] Elvis Presley Enterprises (“EPE”) claimed trademark infringement against Capece for using the service mark “The Velvet Elvis” for his nightclub and for using Elvis Presley’s image and likeness in advertising and promoting.[cxxi] Within its seven-factor analysis, the court discussed initial interest confusion within evidence of actual confusion because customers were lured into “The Velvet Elvis” thinking it was associated with the “Elvis Presley” trademark name.[cxxii] The court reasoned there was initial interest confusion even if the customers realized there was no association with “The Velvet Elvis” and “Elvis Presley” upon entering the nightclub.[cxxiii] According to the court, “Despite the confusion being dissipated, this initial-interest confusion is beneficial to the Defendants because it brings patrons in the door; indeed, it brought at least one of EPE’s witnesses into the bar.  Once in the door, the confusion has succeeded because some patrons may stay, despite realizing that the bar has no relationship with EPE.”[cxxiv] The court found this initial interest confusion coupled with actual confusion from Capece’s advertising practices weighed “evidence of actual confusion” in EPE’s favor.[cxxv] Although the Fifth Circuit has not ruled specifically on initial interest confusion and keyword advertising cases, one scholar hypothesizes that based on Elvis Presley Enterprises, Inc., the Fifth Circuit may apply initial interest confusion because a sponsored link advertisement luring online customers into a website based on the use of a trademark is analogous to the luring rationale between “The Velvet Elvis” and “Elvis Presley.”[cxxvi]

As Elvis Presley Enterprises, Inc. found a likelihood of confusion based on both actual confusion and initial interest confusion,[cxxvii] courts have also reached similar conclusions even in the absence of actual confusion.[cxxviii] The Sixth Circuit has even gone so far to state that, “evidence of initial-interest confusion comes into the eight factor Frisch test as a substitute for evidence of actual confusion.”[cxxix] The court for the Southern District of Ohio adopted this approach in Tdata Inc. v. Aircraft Technical Publishers.[cxxx] In Tdata Inc., the plaintiff alleged that the defendant’s website metatags containing plaintiff’s trademarks constituted trademark infringement.[cxxxi] Before applying the eight factor Frischtest, the court decided to apply initial interest confusion, reasoning that, “use of the company’s mark in metatags constitutes infringing use of the mark to pull consumers to Tdata’s website and the products it features, even if the consumers later realize the confusion.”[cxxxii] Instead of just stopping there and concluding a likelihood of confusion, the court went through the eight factor Frisch test.[cxxxiii] The previous finding of initial interest confusion was substituted into the “actual confusion” factor, even without evidence of actual confusion.[cxxxiv] Tdata Inc.exemplifies the benefit of applying all of the factors instead of prematurely resting solely on initial interest confusion.  This case also shows that absent actual confusion, a court can properly assess the other factors and find a likelihood of confusion.[cxxxv]

The Second Circuit and the Seventh Circuit have also incorporated initial interest into the “consumer care” factor.[cxxxvi] In Mobil, the Second Circuit affirmed the district court’s finding of initial confusion based on “the probability that potential purchasers would be misled into an initial interest in Pegasus Petroleum.”[cxxxvii] In Promatek, the Seventh Circuit placed importance on consumer care, explicitly stating, “The degree of care exercised by consumers could lead to initial interest confusion,” before finding a likelihood of confusion existed.[cxxxviii]

A recent example of courts including initial interest analysis into the factors test isBabyage.com, Inc. v. Leachco, Inc. from the District Court of the Middle District of Pennsylvania.[cxxxix] BabyAge.com’s baby product website includes “featured brand” manufacturers, including Leachco.[cxl] The “featured brand” webpage displayed Leachco’s trademark and included a section entitled “Pregnancy Pillows.”[cxli] The webpage also contained hyperlinks that would take the viewer to webpages containing non-Leachco products.[cxlii] Leachco argued under a “bait and switch theory” that “prospective customers are ‘baited’ by Leachco’s brand into visiting the Leachco “featured brand” webpage on the Baby-Age Website, baited into pursuing a Leachco pregnancy pillow, and then “switched” to non-Leachco pregnancy pillows by the hyperlinks.[cxliii] The court applied theLapp factors and analyzed initial interest confusion within both the customer care and the actual confusion factors.[cxliv] Under customer care, the court found that low price alone was insufficient to make an appropriate conclusion on the level of customer care.[cxlv] Under actual confusion, Leachco sought more information on point of sale and internet traffic that may be probative of initial interest confusion.[cxlvi] The court ultimately denied Leachco’s motion for summary judgment because more development was needed for the customer care and actual confusion factors.[cxlvii]

III.  Criticism of Tests 1 and 2 and Proposal for Courts to Adopt Test 3

A.  Criticism of Tests 1 and 2

The strongest argument against Test 1, courts analyzing initial interest confusion separately before or after the traditional likelihood of confusion, is that this approach is inefficient and more time-consuming.  Instead, courts should include the initial interest analysis within one of the factors as proposed in Part III(B).  Separating the initial interest analysis from the likelihood of confusion factors is also problematic because it could run the risk of turning into the formulation in Part II(B)(2), just applying the initial interest analysis.

Analyzing initial interest confusion as a separate doctrine without engaging in the traditional likelihood of confusion test in Test 2 is problematic because it acts as a shortcut to finding trademark infringement.[cxlviii] Completely discarding the multi-factor test makes it easier for a plaintiff to prove trademark infringement if only initial interest confusion is needed.[cxlix] Lowering the bar for plaintiffs to bring trademark infringement would not only strain the judicial system with increased cases, but would also adversely harm consumers and defendant trademark owners.  If trademark owners were more susceptible to trademark infringement cases, they would have to reallocate resources to defend themselves in court.  Instead of using resources to improve product quality and create new products, trademark owners would have to resources to defend trademark infringement suits, thereby depriving consumers.

Finding a likelihood of confusion solely on initial interest confusion in the Internet is dangerous and threatens to undermine the purposes of trademark law.  For example, a plaintiff could allege initial interest confusion based on diversion resulting from a defendant’s use of the plaintiff’s trademark in keyword advertising or metatags.  Suppose plaintiff and defendant compete in completely unrelated markets, have dissimilar marks, and both have high levels of consumer sophistication.  Under a traditional likelihood of confusion test, it is unlikely a court would find a likelihood of confusion under these circumstances.  However, a court choosing to solely apply initial interest confusion could focus on the defendant’s use of the plaintiff’s mark to divert consumers and find a likelihood of initial interest confusion.  Although no cases have gone to this extreme of finding initial interest confusion, some courts are inappropriately expanding the scope of initial interest confusion by giving undue weight to the misappropriation of goodwill.[cl]

Another statutory argument against courts just using initial interest confusion is this formulation conflates the trademark infringement test by using misappropriation of goodwill to satisfy both threshold use and likelihood of confusion.[cli] Such a construction is doctrinally inappropriate because likelihood of confusion, not the misappropriation of goodwill, is the “hallmark” of analyzing trademark infringement.[clii] Conflating the trademark infringement test would make it much easier for plaintiffs to bring trademark infringement cases, which would negatively affect the trademark owners who would have to expend time and resources to defend these cases.

The greatest danger of applying solely initial interest confusion is that this approach disregards the Lanham Act.  The Lanham Act does not expressly state that trademark infringement is actionable based on initial interest confusion.  Instead, the only analysis within the Lanham Act is the likelihood of confusion test, so therefore the likelihood of confusion doctrine should be the only analysis applied to trademark infringement claims.[cliii] One scholar likened initial interest confusion on the Internet to judicial activism.[cliv] The argument was that since the Lanham Act does not include pre-sale confusion as actionable trademark infringement, courts could erroneously extend initial interest confusion to cover consumers searching on the Internet who become initially confused and interested in a competitor’s product.[clv] Without the traditional likelihood of confusion factors test, courts could just apply initial interest confusion to almost any alleged defendant’s use of a sponsored link advertisement, which would frustrate consumers’ intent and interest.[clvi]

As this section demonstrates, courts should not base a finding of consumer confusion solely on initial interest confusion because this formulation contravenes the trademark goals of protecting the trademark owner’s interests and benefiting consumers.

B.  Proposal for Test 3

The District Court of the Middle District of Pennsylvania in Babyage.com, Inc.demonstrates a trend in the right direction of courts applying initial interest confusion within the factors test.  For the reasons stated above, courts should continue to apply the traditional likelihood of confusion factors and incorporate initial interest confusion within either the “evidence of actual confusion” or “customer care” factors.  Analyzing initial interest confusion within the likelihood of confusion test has already garnered support from some courts and scholars and the remaining courts should follow.[clvii]

This approach is preferable for three reasons:  (1) Maintaining the Lanham Act standard for finding a likelihood of confusion instead of giving undue weight to diversion, (2) Serving trademark goals of protecting trademark owner’s interests and benefit consumers, and (3) Incorporating the factors into the traditional likelihood of confusion test is efficient and easily applicable.

Firstly, analyzing initial interest confusion within the factors test maintains the Lanham Act standard because the court will still engage in the likelihood of confusion analysis without the risk of using initial interest as a shortcut to find trademark infringement.  Courts should still retain the power to decide whether or not some factors should be given more weight than others depending on the particular facts.  Secondly, this approach will satisfy the trademark goals because it will keep the focus on consumer confusion instead of consumer diversion.  Lastly, incorporating the factors is a timely solution for courts that are already familiar with their respective likelihood of confusion tests.  This approach is not drastically different nor does it change the standard, so judges can easily transition into analyzing initial interest confusion within one of their pre-existing factors during the routine likelihood of confusion test.

IV.  Conclusion

Post-Rescuecom recognition that use of another’s trademark to trigger keyword advertising is actionable trademark use will allow more Internet trademark infringement claims to pass summary judgment.[clviii] In response, courts need a streamlined test for how to apply initial interest confusion in the Internet.  Among the confusing variations of the initial interest confusion doctrine, courts should incorporate the initial interest confusion analysis within the “evidence of actual confusion” factor or the “customer care” factor and continue to apply the traditional likelihood of confusion factors test.  This formulation of the initial interest confusion doctrine will promote trademark law’s dual purpose of protecting trademark owners’ interest in the mark and protecting consumers.

[i][i]1.1 Overview of AdWords – AdWords Help,http://adwords.google.com/support/aw/bin/static.py?hl=en&guide=23611&pag…(last visited Oct. 3. 2010).

[ii]Id.

[iii]Id.

[iv][iv]See, e.g. Playboy Enters., Inc. v. Netscape Commc’ns Corp., 354 F.3d 1020, 1022-23 (9th Cir. 2004) (involving Netscape and Excite); Gov’t Employees Ins. Co. v. Google, Inc., 330 F.Supp.2d 700, 701-02 (E.D. Va. 2004) (involving Overture Services, Inc.).

[v]Search Ad Revenues Strong in Record-Breaking Half Year, IAB Reports #SEWatch, http://blog.searchenginewatch.com/101013-130544 (last visited Oct. 31, 2010).

[vi]How The World Spends Its Time Online – VisualEconomics.com,http://www.visualeconomics.com/how-the-world-spends-its-time-online_2010…(last visited Oct. 3, 2010).

[vii]See Brookfield Commc’ns, Inc. v. West Coast Entm’t Corp., 174 F.3d 1036 (9th Cir. 1999).

[viii]See, e.g., Rescuecom Corp. v. Google Inc., 562 F.3d 123, 127-31 (2d Cir. 2009) (involving keyword-based advertising); PACCAR Inc. v. TeleScan Techs., L.L.C., 319 F.3d 243, 247-48 (6th Cir. 2003) (involving both unlawful domain name and metatag use).

[ix]15 U.S.C. §§ 1051, 1051-1072, 1091-1096, 1111-1127 (2009).

[x]Id. at §1125.

[xi]See also Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763, 782 at n.15 (Scalia, J., concurring) (quoting S. Rep. No. 1333, 79th Cong., 2d Sess., 3, 4 (1946)); See Graeme B. Dinwoodie & Mark D. Janis, Trademarks and Unfair Competition:  Law and Policy 15 (2d ed. 2007) (introducing the “two primary justifications … traditionally … offered in support of trademark protection”).

[xii]15 U.S.C. § 1125.

[xiii]15 U.S.C. § 1114(1).

[xiv]15 U.S.C. § 1125.

[xv]DeCosta v. Viacom Int’l, Inc., 981 F.2d 602, 605 (1st Cir. 1992); Checkpoint Sys., Inc. v. Check Point Software Tech., Inc., 269 F.3d 270, 279 (3d Cir. 2001).

[xvi]Id.

[xvii]Id.

[xviii]Id.

[xix]See Brookfield Commc’ns, Inc., 174 F.3d 1036 (using competitor’s mark as a metatag is actionable trademark use); Merck & Co., Inc. v. Mediplan Health Consulting, Inc., 425 F. Supp. 2d 402 (S.D.N.Y. 2006) (using plaintiff’s trademark for keyword advertising on Google’s AdWords is not actionable trademark use).

[xx]15 U.S.C. §1127.

[xxi]Mark Bartholomew, Article, Making a Mark in the Internet Economy:  A Trademark Analysis of Search Engine Advertising, 58 Okla. L. Rev. 179, 187 (2005).

[xxii]PACCAR Inc. v. TeleScan Techs., L.L.C., 319 F.3d 243, 247-48 (6th Cir. 2003).

[xxiii]See supra note 5 (Search advertising is the largest form of online advertising, accounting for 47% of first-half spending at $5.7 billion in 2010, an increase of 11.6% compared to the first half of 2009 at$5.1 billion).

[xxiv]Rescuecom Corp. v. Google Inc., 562 F.3d 123, 129 (2d Cir. 2009).

[xxv] See, e.g., N. Am. Med. Corp. v. Axiom Worldwide, Inc.,522 F.3d 1211, 1220 (11th Cir. 2008) (“[A]xiom’s use of NAM’s trademarks as meta tags constitutes a ‘use in commerce…”); Google Inc. v. Am. Blind & Wallpaper, No. C 03-5340 JF (RS), 2007 WL 1159950, at *6 (N.D. Cal. Apr. 18, 2007) (“[T]he sale of trademarked terms in the AdWords program is a use in commerce for the purposes of the Lanham Act.”); Boston Duck Tours, LP v. Super Duck Tours, LLC, 527 F. Supp. 2d 205, 207 (D. Mass. 2007) (“Because sponsored linking necessarily entails the ‘use’ of the plaintiff’s mark as part of a mechanism of advertising, it is ‘use’ for Lanham Act purposes.”); Edina Realty Inc. v. TheMLSOnline.com, No. 04-4371JRTFLN, 2006 WL 737064, at *3 (D. Minn. Mar. 20, 2006) (“Based on the plain meaning of the Lanham Act, the purchase of search terms is a use in commerce.”); J.G. Wentworth, S.S.C. LP v. Settlement Funding LLC, No. 06-0597, 2007 WL 30115, at *6 (E.D. Pa. 2007); (“By establishing an opportunity to reach consumers via alleged purchase and/or use of a protected trademark, defendant has crossed the line from internal use to use in commerce under the Lanham Act.”).

[xxvi]See, e.g. Allard Enters. v. Advanced Programming Res., Inc., 146 F.3d 350, 355 (6th Cir. 1998) (internal quotations omitted) (describing the likelihood of confusion as the “touchstone of liability”); Thomas McCarthy, McCarthy on Trademarks and Unfair Competition § 23:1 (4th ed. 2009) (noting that “the test of likelihood of confusion is the touchstone of trademark infringement”).

[xxvii]AMF Inc. v. Sleekcraft Boats, 599 F.2d 341, 346 (9th Cir. 1979).

[xxviii]Interpace Corp. v. Lapp, Inc., 721 F.2d 460, 463 (3d Cir. 1983) employing theLapp factors:  (1) degree of similarity between owner’s mark and alleged infringing mark; (2) strength of owner’s mark; (3) price of goods and other factors indicative of the care and attention expected of consumers when making a purchase; (4) the length of time the defendant has used the mark without evidence of actual confusion; (5) the intent of the defendant in adopting the mark; (6) the evidence of actual confusion; (7) whether the goods are marketed through the same channels of trade and advertised through the same media; (8) the extent to which the targets of the parties’ sales efforts are the same; (9) the relationship of the goods in the minds of consumers because of the similarity of functions; and (10) other facts suggesting that the consuming public might expect the prior owner to manufacture a product in the defendant’s market or that he is likely to expand into that market.

[xxix]McCarthy, supra 26, at 23-29.

[xxx]See, e.g., Eli Lilly & Co. v. Natural Answers, Inc., 233 F.3d 456, 464 (7th Cir. 2000) (“Such confusion, which is actionable under the Lanham Act, occurs when a consumer is lured to a product by its similarity to a known mark, even though the consumer realizes the true identity and origin of the product before consummating a purchase.”); Playboy Enters., Inc. v. Netscape Commc’ns Corp., 354 F.3d 1020, 1025 (9th Cir. 2004) (“Initial interest confusion is customer confusion that creates initial interest in a competitor’s product.  Although dispelled before an actual sale occurs, initial interest confusion impermissibly capitalizes on the goodwill associated with a mark and is therefore an actionable trademark infringement.”).

[xxxi]McCarthy, supra 26, at 23-28.

[xxxii]Dorr-Oliver, Inc. v. Fluid-Quip, Inc., 94 F.3d 376, 382 (7th Cir. 1996).

[xxxiii]Grotrian, Helfferich, Schulz, Th. Steinweg Nachf. v. Steinway & Sons (Grotrian II), 523 F.2d 1331, 1342 (2d Cir. 1975).

[xxxiv]Id. at 1333-34.

[xxxv]Id. at 716-17.

[xxxvi]Id. at 717.

[xxxvii]Id.

[xxxviii]Grotrian II, 523 F.2d 1331 at 1342.

[xxxix]Id.

[xl]Id.

[xli]Mobil Oil Corp. v. Pegasus Petroleum Corp., 818 F.2d 254 (2d Cir. 1987).

[xlii]Id. at 259.

[xliii]See Elvis Presley Enters, Inc. v. Capece, 141 F.3d 188, 203 (5thCir. 1998) (applying initial interest confusion to the name of a night club); Dorr-Oliver, Inc. v. Fluid-Quip, Inc., 94 F.3d 376, 382-83 (7th Cir. 1996) (applying initial interest confusion to trade dress infringement).

[xliv]See Promatek Indus., Ltd. v. Equitrac Corp., 300 F.3d 808, 812-13, (7th Cir. 2002) (applying initial interest confusion to metatags); Perfumebay.com Inc. v. eBay Inc., 506 F.3d 1165, 1176 (9th Cir. 2007) (applying initial interest confusion comparing two websites); PACCAR Inc., 319 F.3d at 253-54 (applying initial interest to domain name and meta tags); Gov’t Employees Ins. Co. v. Google, Inc., No. 1:04CV507, 2005 WL 1903128 at *4, (E.D. Va. Aug. 8, 2005). (recognizing initial interest confusion as a viable theory for keyed advertising).

[xlv]Brookfield Commc’ns, Inc. v. West Coast Entm’t Corp., 174 F.3d 1036 (9th Cir. 1999).

[xlvi]Id. at 1042.

[xlvii]Id. at 1041-43.

[xlviii]See Ira S. Nathenson, Note, Internet Infoglut and Invisible Ink:  Spamdexing Search Engines with Metatags, 12 Harv. J. Law & Tech. 43, 62-63 (1998).

[xlix]Brookfield, 174 F.3d at 1062.

[l]Id.

[li]Id.

[lii]See J.G. Wentworth, S.S.C. LP v. Settlement Funding LLC, No. 06-0597, 2007 WL 30115 at *7 (E.D. Pa. 2007) (After discussing Brookfield, Judge J. O’Neill of the Eastern District of Pennsylvania states, “I respectfully disagree with the Ninth Circuit’s conclusion in Brookfield,” and refuses to apply initial interest confusion),and Bryce J. Maynard, Note, The Initial Interest Confusion Doctrine and Trademark Infringement on the Internet, 57 Wash. & Lee L. Rev. 1303, 1336-43 (2000) (Brookfield (1) does not protect consumer interests because Ninth Circuit failed to understand search engine mechanics and (2) does not protect trademark owners interests because initial interest confusion does not work when companies are not direct competitors).

[liii]Brookfield, 174 F.3d 1036 at 1062.

[liv]Id. at 1062 n. 24.

[lv]See Niki R. Woods, Note, Initial Interest Confusion in Metatag Cases:  The Move from Confusion to Diversion, 22 Berkeley Tech. L.J. 393 (2007) (arguing against broad application of initial interest confusion in the Internet).

[lvi]Grotrian, Helfferich, Schulz, Th. Steinweg Nachf. v. Steinway & Sons (Grotrian II), 523 F.2d 1331, 1340 (2d Cir. 1975) and Mobil Oil Corp. v. Pegasus Petroleum Corp., 818 F.2d 254 at 259 (2d Cir. 1987).

[lvii]Brookfield, 174 F.3d at 1062.

[lviii]Zachary J. Zweihorn, Note, Searching for Confusion:  The Initial Interest Confusion Doctrine and Its Misapplication to Search Engine Sponsored Links, 91 Cornell L. Rev. 1343, 1355-56 (2006) (“Because any time wasted would be de minimis, users interested in Brookfield’s product would be unlikely to feel that they had wasted so much time by clicking a link that seeking out the correct Web site would unacceptably raise their search costs.”).

[lix]See Note, Confusion in Cyberspace:  Defending and Recalibrating the Initial Interest Confusion Doctrine, 117 Harv. L. Rev. 2387 (2004) (arguing that initial interest should apply in the Internet because under a cost-benefit analysis, the big cost of decrease in producers’ incentives to conduct business online and to provide consumers with high-quality online services does not outweigh the benefit to producers of cheap advertising from online trademark use).

[lx]Rachel R. Friedman, Note, No Confusion Here:  Proposing a New Paradigm for the Litigation of Keyword Advertising Trademark Infringement Cases, 12 Vand. J. Ent. & Tech. L. 355, 379 (2010).

[lxi]PACCAR Inc. v. TeleScan Techs., L.L.C., 319 F.3d 243, 255-58 (6th Cir. 2003); Promatek Indus., Ltd. v. Equitrac Corp., 300 F.3d 808, 812-13, (7th Cir. 2002); Brookfield Commc’ns, Inc. v. West Coast Entm’t Corp., 174 F.3d 1036, 1062 (9th Cir. 1999); Australian Gold, Inc. v. Hatfield, 436 F.3d 1228, 1239-40 (10th Cir. 2006); Savin Corp. v. The Savin Group, 391 F.3d 439, 462 (2d Cir. 2004); 800-Jr Cigar, Inc. v. Goto.Com, Inc., 437 F.Supp.2d 273, 290 (D. New Jersey 2006).

[lxii]See supra note 28.

[lxiii]See discussion infra Parts II.B.1, II.B.2, II.B.3.

[lxiv]CompareHasbro, Inc. v. Clue Computing, Inc., 231 F.3d 1, 2 (1st Cir. 2000) (refusing to apply initial interest confusion) with Perfumebay.com Inc. v. eBay Inc., 506 F.3d 1165, 1176 (9th Cir. 2007) (applying initial interest confusion); CompareMorningware, Inc. v. Hearthware Home Products, Inc., 673 F.Supp.2d 630, 636-38 (N.D. Il. 2009) (no likelihood of confusion factor analysis) with Trans Union LLC v. Credit Research, Inc., 142 F.Supp.2d 1029, 1043-44 (N.D. Il. 2001) (analyzing initial interest confusion within “evidence of actual confusion” factor).

[lxv]Savin Corp. v. The Savin Group, 391 F.3d 439, 462 (2d Cir. 2004); Checkpoint Systems, Inc. v. Check Point Software Technologies, Inc., 269 F.3d 270, 297-98 (3d Cir. 2001); Interstellar Starship Servs., Ltd. v. Epix, Inc., 304 F.3d 936, 945 (9th Cir. 2002).

[lxvi]Savin Corp., 319 F.3d 439 at 446.

[lxvii]Id. at 456.

[lxviii]Savin Corp. v. The Savin Group, No. 02 Civ.9377 SAS, 2003 WL 22451731 at *12 (S.D.N.Y. Oct. 24, 2003).

[lxix]Id. at *12, *13.

[lxx]Savin Corp. v. The Savin Group, 391 F.3d 439, 462 (2d Cir. 2004).

[lxxi]Checkpoint Systems, Inc. v. Check Point Software Technologies, Inc., 269 F.3d 270, 297-98 (3d Cir. 2001).

[lxxii]Id. at 280.

[lxxiii]Id.at 297.

[lxxiv]800-Jr Cigar, Inc. v. Goto.com, Inc., 437 F.Supp.2d 273, 290 (D. N.J. 2006); JG Wentworth v. Settlement Funding LLC, No. 06-0597, 2007 WL 30115 at *7 (E.D. Pa. Jan. 4, 2007).

[lxxv]800-JR Cigar, Inc., 437 F.Supp.2d at 290.

[lxxvi]Id.

[lxxvii]Id. at 292.

[lxxviii]JG Wentworth, No. 06-0597, 2007 WL 30115, at *7.

[lxxix]Id. at *2.

[lxxx]Id. at *8.

[lxxxi]Perfumebay.com Inc. v. eBay Inc., 506 F.3d 1165, 1176 (9th Cir. 2007); Interstellar Starship Servs., Ltd. v. Epix, Inc., 304 F.3d 936, 942-46 (9th Cir. 2002); Storus Corp. v. Aroa Marketing, Inc., No. C-06-2454 MMC, 2008 WL 449835 at *4-5 (N.D. Cal. 2008); Google Inc. v. Am. Blind & Wallpaper, No. C 03-5340 JF (RS), 2007 WL 1159950 at *9-10 (N.D. Cal. 2007); Soilworks, LLC v. Midwest Industrial Supply, Inc., 575 F.Supp.2d 1118, 1130-33 (D. Ariz. 2008).

[lxxxii]Perfumebay.com Inc., 506 F.3d 1165 (9th Cir. 2007) (keyword advertising);Interstellar Starship Servs., Ltd., 304 F.3d 936 (9th Cir. 2002) (domain name);Storus Corp., No. C-06-2454 MMC, 2008 WL 449835 (N.D. Cal. 2008) (Google AdWords); Google Inc., No. C 03-5340 JF (RS), 2007 WL 1159950 (Google AdWords).

[lxxxiii]GoTo.com v. Walt Disney Co., 202 F.3d 1199, 1204 (9th Cir. 2000).

[lxxxiv]Id. at 1207.

[lxxxv]Brookfield Commc’ns, Inc. v. West Coast Entm’t Corp., 174 F.3d 1036, 1058 (9th Cir. 1999).

[lxxxvi]Interstellar Starship Servs., Ltd., 304 F.3d at 938.

[lxxxvii]Id. at 942-43.

[lxxxviii]Perfumebay.com Inc v. eBay Inc., 506 F.3d 1165, 1173-74 (9th Cir. 2007); Storus Corp. v. Aroa Marketing, Inc., No. C05-2454 MMC, 2008 WL 449835 at *5 (N.D. Cal. 2008).

[lxxxix]Perfumebay.com Inc., 506 F.3d at 1174-75.

[xc]Id. at 1168.

[xci]Id. at 1176.

[xcii]Id.

[xciii]Paccar Inc. v. TeleScan Technologies, L.L.C., 319 F.3d 243, 255-258 (6th Cir. 2003).

[xciv]Id. at 248-49.

[xcv]Id. at 248-49, 255, 258.

[xcvi]Id. at 255.

[xcvii]Australian Gold, Inc. v. Hatfield, 436 F.3d 1228, 1239-40 (10th Cir. 2006); Morningware, Inc.v. Hearthware Home Products, Inc., 673 F. Supp.2d 630, 636-38 (N.D. Ill. 2009); Gov’t Employees Ins. Co., No. 1:04CV507, 2005 WL 1903128 at *4 (E.D. Va. Aug. 8, 2005).

[xcviii]Morningware, 673 F.Supp.2d 630.

[xcix]Id. at 636-38.

[c]Id. at 633.

[ci]Id. at 636-7.

[cii]Promatek Industries, Ltd. v. Equitrac Corp., 300 F.3d 808, 812-13 (7th Cir. 2002).

[ciii]Id.

[civ]Id. at 813.

[cv]Morningware, Inc. v. Hearthware Home Products, Inc., 673 F.Supp.2d 630, 638 (N.D. Ill. 2009).

[cvi]Id.

[cvii]Id. at 636-38.

[cviii]Australian Gold, Inc. v. Hatfield, 436 F.3d 1228, 1239-40 (10th Cir. 2006) (Although the Tenth Circuit seems to base its decision on the fact that diversion is inherently damaging, it was also affirming the district court’s analysis under a six-prong factor test for likelihood of confusion, so it is not a complete departure from the likelihood of confusion test. In fact, the court briefly analyzed the factors and then discussed the inherently damaging effect of diversion after stating the plaintiffs did not offer any direct evidence of actual confusion. This suggests that the court did not even need initial interest confusion to find a likelihood of confusion and that stating diversion as inherently damaging was just a broad application of initial interest confusion.).

[cix]Id. at 1232.

[cx]Id. at 1233.

[cxi]Id.

[cxii]Id. at 1239-40.

[cxiii]Id. at 1239.

[cxiv]Id.

[cxv]Id. at 1240.

[cxvi]Id.

[cxvii]Woods, supra note 55, at 406-7.

[cxviii]15 U.S.C. § 1125.

[cxix]Woods, supra note 55, at 411-13 (arguing that courts are broadening the scope of initial interest by (1) giving goodwill too much importance in protecting trademarks’ goodwill rather than looking for confusion and (2) allowing misappropriation of goodwill to constitute use).

[cxx]Elvis Presley Enters., Inc. v. Capece, 141 F.3d 188, 203-4 (5th Cir. 1998).

[cxxi]Id. at 191, 193.

[cxxii]Id. at 204.

[cxxiii]Id.

[cxxiv]Id.

[cxxv]Id.

[cxxvi]Patrick Ryan Barry, Comment, The Lanham Act’s Applicability to the Internet and Keyword Advertising:  Likelihood of Confusion v. Initial Interest Confusion, 47 Duq. L. Rev. 355, 366 (2009) (“If the court would find that a sponsored link advertisement lured an online customer into a website based on the use of a trademarked name, that court might be inclined to rule that there was initial interest confusion and trademark infringement even if the customer knew the true source of the website and its products before making a purchase.”).

[cxxvii]Elvis Presley Enters., Inc. v. Capece, 141 F.3d 188, 204 (5th Cir. 1998).

[cxxviii]Trans Union LLC v. Credit Research, Inc., 142 F. Supp.2d 1029, 1043-44 (N.D. Ill. 2001); Tdata Inc. v. Aircraft Technical Publishers, 411 F.Supp.2d 901, 908 (S.D. Oh. 2006).

[cxxix]Gibson Guitar Corp. v. Paul Reed Smith Guitars, LP, 423 F.3d 539, 550 (6th Cir. 2005).

[cxxx]Tdata Inc., 411 F.Supp.2d at 908 (“[T]he initial interest confusion doctrine is applicable as but one part of a relevant eight-factor inquiry.”).

[cxxxi]Id. at 904.

[cxxxii]Id. at 907.

[cxxxiii]Id. at 908-12.

[cxxxiv]Id. at 909.

[cxxxv]Id. at 908-12.

[cxxxvi]Promatek Indus., Ltd. v. Equitrac Corp., 300 F.3d 808, 812 (7th Cir. 2002); Mobil Oil Corp. v. Pegasus Petroleum Corp., 818 F.2d 254, 260 (2d Cir. 1987).

[cxxxvii]Mobil Oil Corp., 818 F.2d 254 at 260.

[cxxxviii]Id. at 812-14.

[cxxxix]BabyAge.com, Inc. v. Leachco, Inc., No. 3:08-cv-1600, 2009 WL 82552 at *8-12 (M.D. Pa. Jan. 12, 2009).

[cxl]Id.

[cxli]Id.

[cxlii]Id. at *6.

[cxliii]Id.

[cxliv]Id. at *10.

[cxlv]Id.

[cxlvi]Id.

[cxlvii]Id. at *12-13.

[cxlviii]Woods, supra note 55, at 405-6.

[cxlix]Id.

[cl]Australian Gold, Inc. v. Hatfield, 436 F.3d 1228, 1239 (10th Cir. 2006); Promatek Indus., Ltd. v. Equitrac Corp., 300 F.3d 808, 812-13 (7th Cir. 2002); See alsoWoods, supra note lxxiii at 411-12 (arguing against broadening initial interest confusion to protect trademarks’ goodwill rather than looking for confusion).

[cli]Woods, supra note 55, at 412.

[clii]Lamparello v. Falwell, 420 F.3d 309, 314 (4th Cir. 2005).

[cliii]15 U.S.C. § 1125.

[cliv]Barry, supra note 126, at 370.

[clv]Id.

[clvi]Id. at 371.

[clvii]See infra part II.B.3; see also Gregory R. Shoemaker, Comment, Don’t Blame Google:  Allowing Trademark Infringement Actions Against Competitors Who Purchase Sponsored Links on Internet Search Engines Under the Initial Interest Confusion Doctrine, 58 Cath. U. L. Rev. 535, 564 (2009).

[clviii]See Note, supra note 59.

Jaclyn Sitjar © Copyright 2011

 

Feb. 25th Deadline Approaching for March Publication for the National Law Review Student Legal Writing Contest

Everybody’s talking about how abysmal the job market is for law students – why not build your resume while still in school?  Young lawyers are under increasing pressure to start thinking about business development activities earlier than ever in their careers.  One tried and true way of building one’s professional reputation is by publishing.  One sure way to get noticed and to help others is to write  in a style which is helpful and educational to prospective clients.  The National Law Review is one of the nation’s premier resources for secondary legal analysis for businesses and in the Spring & Fall we offer students the opportunity to submit consumer-friendly articles for publication. 

The winning articles will be published online starting March. The top article(s) chosen will be featured on the NLR home page and will remain in our searchable database for up to two years. 

Please note that although students are encouraged to submit articles addressing Intellectual Property Law for the March publication, you  may also submit entries covering current issues related to other areas of the law.  Please spread the word !!! Thanks!

Should Jurors Use the Internet?

The National Law Review would like to congratulate Gareth Lacy of the University of Washington School of Law as one of our Fall 2010 Law Student Legal Writing Contest Winners! 

During trials jurors are increasingly using cell phones and other devices capable of accessing the Internet. Courts are responding by amending court rules to explicitly ban these devices. This Article points out problems with these new court rules. This Article also reviews scientific literature on the effect of pre-trial publicity on jury decision-making to conclude some concerns about outside Internet research may be unwarranted. This Article exposes weaknesses in the arguments against allowing jurors to conduct outside Internet research.

Introduction

“Jurors are rarely brilliant and rarely stupid, but they are treated as both at once.” – Judge Warren K. Urbom[i]

“When lawyers speak about courtroom technology, they are typically debating the merits of making their presentations in Powerpoint.”[ii]

2010 is the year of mobile Internet. One quarter of all Americans get news via their cell phones.[iii] Amazon’s Kindle e-reader allows readers to carry thousands of novels and access the Internet with a single notepad-sized device. As jurors bring these devices into the courtroom, they are causing quite a commotion. Last year several courts ordered mistrials after discovering jurors had accessed Wikipedia or became Facebook friends with their fellow jurors during trial.[iv] Following a case in Florida that ended in mistrial, counsel told the New York Times that courts have been unprepared for this new technology in the courthouse: “It’s the first time modern tech­nology struck us in that fashion, and it hit us right over the head.”[v]Now that 22 million U.S. cell phone users access the mobile Internet on a daily basis, courts must respond quickly and effect-tively.[vi]

This article will first explain why the recent response to increasing use of outside information—“just say no”—will be inadequate. Second, it will ques­tion the underlying assumption that access to outside information is always harmful. Third, it will argue that denying useful tools and information is unwise in the face of increasingly complex trials.

I. Judicial Response: “Just Say No”

Courts and commentators fear that access to the Internet could introduce bias into trial proceedings.[vii] The court rules and jury instructions are apparently designed to ensure jurors only consider evidence admitted at the appropriate time.[viii] But the underlying rationale for these rules is not made clear to jurors. Jurors are therefore likely to feel—rightly so—information is being hidden from them.

Courts have recently responded by drafting new jury instructions and admonitions. New York’s criminal jury instruction, for example, explains that basing opinions on news reports, rather than trial testimony, would be unfair to both parties:

Finally, our law requires that you not read or listen to any news accounts of the case, and that you not attempt to research any fact, issue, or law related to the case. Your decision must be based solely on the testimony and other evidence presented in this courtroom. It would not be fair to the parties for you to base your decision on some reporter’s view or opinion, or upon information you acquire outside the courtroom.[ix]

This is a slightly persuasive effort to explain the reasoning behind the court’s rule. An instruction in Oregon goes a bit further by explaining the rule in the context of everyday experience:

In our daily lives we may be used to looking for information on-line and to “Google” something as a matter of routine. Also, in a trial it can be very tempting for jurors to do their own research to make sure they are making the correct decision. You must resist that temptation for our system of justice to work as it should. I specifically instruct that you must decide the case only on the evidence received here in court.[x]

Again this instruction is better than nothing, but it still fails to explain why the “system of justice” requires restricting access to outside information. Any-thing short of transparent explanations will likely continue to feed jury—and public—mistrust for the legal system.

In February 2010, the U.S. Judicial Conference suggested jury instruc­tions on the use of “electronic communication technologies.[xi] The instruc­tions ban a laundry list of devices and resources—“blogs, websites such as Facebook, MySpace, LinkedIn, YouTube or Twitter, to communicate to anyone any information about this case or to conduct any research”—but fail to explain why jurors should not, for example, look up the definition of “lividity.”[xii] Again, if courts want to convince jurors not to “google” on their cell phones, they must give concrete explanations for the court rules.

Failure to explain the reason for a ban can create mistrust for the judicial system. A recent New York Times article on jurors’ use of the Internet gathered 300 comments in one hour,[xiii] some of which expressed belief in a “systemic effort to keep jurors from learning the truth . . . [in which] jurors, therefore, needed to dig deeper to uncover the truth.”[xiv] What can ease this mistrust? Clear and convincing explanations of judicial policies will help. Furthermore, giving jurors the tools and information in court that they need to make informed decisions in court will make them less likely to look out of court for answers.

II. Does Outside Research Really Bias Jurors?

After commentators raise concerns about jurors turning to extrinsic information, their most common recommendation is for courts to issue stronger admonitions to juries.[xv] Other suggestions include more vigorous voir dire or banning cell phones in the courthouse.[xvi] The problem with these recommen-dations is that courts are already doing most of these things. Juries are already told not to conduct outside research. Voir dire is about as vigorous as it can get.[xvii] Cell phone bans might help for one-day trials, but they will have no effect—and maybe even adverse effects—on multiday litiga­tion. In short, commentators have offered few new suggestions for how to respond to juries using the Internet.

The reason these suggestions have been minimal is because they contain an underlying assumption that external information biases jurors. This assumption therefore restricts the judiciary’s options; if external information is always harmful, cell phone and Internet policies should not be liberalized. One California legislator who adopts this view introduced a bill imposing criminal penalties on jurors who access the Internet.[xviii] This assumption behind the restrictive policies—that external information is always harmful—should be questioned.

Courts and commentators have generally not given balanced appraisals of the scientific research on the effect of outside information on jury decision-making.[xix]For example, a recent article on jury Internet usage states confi­dently: “[j]urors may feel their searching is harmless and will not bias them, something that research has demonstrated is untrue.”[xx] But has scientific research really demonstrated outside research is always harmful? Indeed some research suggests jurors are influenced by pretrial publicity or negative information.[xxi] But the majority of these studies were laboratory simulations, not field studies of actual jury behavior.[xxii]Moreover, a close examination of the scientific evidence reveals more nuanced data than most courts and commentators have acknowledged.[xxiii]

Researchers have found, for example, that in federal criminal cases “it does not appear that highly publicized defendants are treated much differently in terms of ultimate conviction rates than defendants who receive no publicity at all.”[xxiv]Moreover, it was low levels of publicity that resulted in greater probability of conviction.[xxv] Other research found evidence that pretrial publicity did not influence trials outcomes.[xxvi] These results suggest that courts ought to focus on the content and quantity of the information jurors receive, rather than on outright bans.

Researchers have also found that when juries learn substantial and contrary information from evidence and judicial instructions during trial, they are capable of displacing information received before trial.[xxvii] In other words, prior beliefs are diluted by new, relevant information.[xxviii] When trial evidence is strong, this can reduce the effect of bias and external information: “the effect of irrelevant, inadmissible, or biasing information is reduced in its effect to the degree that relevant, probative evidence is available for the jurors’ considera-tion.”[xxix] Again, this suggests that courts should manage the flow of information rather than make unrealistic efforts to weed out all juror expo­sure to the Internet.

III. Giving The Internet A Second Chance

“A major question is whether the protective cocoon we want to preserve of the courtroom trial, where jurors calmly and dispassionately receive only relevant and reliable information based on evidentiary rules . . . can viably be maintained in the face of the informational tsunami pressing against it.”[xxx]

For decades, various groups of judges and scholars have called for better tools in the courtroom. They have argued for engaging jurors in the legal process by providing trial notebooks summarizing key information, allowing jurors to take notes, granting access to dictionaries, and allowing jurors to ask questions.[xxxi]These calls for juror engagement have met with vocal approval but have led to few concrete changes.[xxxii]

Jurors are not going to stop looking at outside information. The best way to keep jurors away from Wikipedia would be to sequester them. But seques­tration is rarely practical on a large scale because it is prohibitively expensive and tends to promote mistrust for the jury system.[xxxiii] A more realistic response would be for attorneys and courts to conduct advance Internet research to identify what information about their case is available online, analyze that information, and then deal with it during trial. Another realistic response would be to give jurors the tools they need to make informed decisions in court so they do not need to conduct outside research.

Jurors want to know everything they can about a case so they can make informed decisions. But rather than promote the jury’s interest in Truth and Justice, courts tend to discourage curiosity and obscure information. For example, some courts still debate the “fairly recent innovation” of “allowing jurors to take notes during trial.”[xxxiv] Note-taking! And while some evidence shows judicial resistance to note-taking may be waning, individual judges still have the final say.

Juries were not always this sheltered. For four-hundred years after William the Conqueror’s reign, jurors were expected to investigate facts and “declare the truth” on the basis of personal knowledge.[xxxv] Even after sworn testimony became common in the sixteenth century, jurors were still permitted to ask questions. It was only when lawyers began to assert the func­tion of law-making and law-finding that “[t]struggle for control over the jury came to a head.”[xxxvi] Rules of evidence then emerged to limit the information available to juries and to control how the information was received.[xxxvii] Jury power was ultimately curbed by strong demands from bankers, merchants, and industrialists for a more predictable—and sympathetic—legal system.[xxxviii] As for the prohibition against note-taking? That arose at a time when most jurors were illiterate.[xxxix]

Today the legal profession may be justified in exercising caution in some circumstances, but it is absurd to continue many of these traditional prac­tices. Trials can involve hundreds of witnesses and thousands of exhibits. No juror can store all that information in his or her head. Even in shorter trials, jurors would be well-served by note-taking. Psychologists (and law students) have known for some time that the dual process of hearing and writing enhances retention.[xl] And lest there be any concern about the law: Trial judges are well within their authority to allow note-taking during trials.[xli]

In the early 1990s, one-hundred law professors, attorneys, judges, researchers, and representatives of business, insurance, and various interest groups met in North Carolina to consider the workings of the jury system and to recommend improvements. The participants did not agree about everything, but the overwhelming proportion strongly supported making jurors more active during trials:

Jurors need not and should not be merely passive listeners in trials, but instead should be given the tools to become more active participants in the search for just results. To that end, trial procedures and evidentiary rules should take greater advantage of modern methods of communica­tion and recognize modern understanding of how people learn and make decisions.[xlii]

Jurors want answers to their questions. Some judges have begun to allow jurors to submit questions to the court and to allow attorneys to provide answers. This is a good start. But courts are competing with pocket-sized encyclopedias inside every cell phone, so they will need to explain to juries exactly why the court rules exist. And of course lawyers must be permitted to deliver useful information to reduce the desire to turn to outside sources.

Conclusion

“Once a new technology rolls over you, if you’re not a part of the steam­roller, you’re part of the road.” – Stewart Brand

It is still quite fashionable to attack the jury system as moribund. Indeed jury participation is at an all-time low. Jurors report feeling unengaged. But it is not correct to blame the jury for the judicial system’s failures. Alexis de Tocqueville found a key purpose of the American jury was to be a “gratuitous public school” that empowers citizens with information about how to take charge of social affairs.[xliii] It is simply time to add some technology to this civics classroom. It is time to give jurors the tools they need to do their job.

 

[i]Warren K. Urbom, Toward Better Treatment of Jurors by Judges, 61 Neb. L. Rev. 409, 425 (1982).

[ii]Nancy S. Marder, Juries and Technology: Equipping Jurors for the Twenty-First Century, 66 Brook. L. Rev. 1257, 1273. (2001).

[iii] Kristen Purcell, et al., Understanding the Participatory News Consumer, Pew Research  Center 5 (Mar. 1, 2010), available at http://www.pewinternet.org/~/media//Files/Reports/ 2010/PIP_Understanding_the_Participatory_News_Consumer.pdf.

[iv]John Schwartz, As Jurors Turn to Web, Mistrials Are Popping Up, N.Y. Times, Mar. 18, 2009, available at http://www.floridasupremecourt.org/decisions/probin/sc10-51_AppendixD.pdf.

[v] Id.

[vi]Enid Burns, Mobile Internet Usage Becomes the Norm for Many in U.S., Search Engine Watch, Mar 17, 2009, http://searchenginewatch.com/3633213.

[vii]Hillary Hylton, Tweeting in the Jury Box: A Danger to Fair Trials?, Time, Dec. 29, 2009, http://www.time.com/time/nation/article/0,8599,1948971,00.html.

[viii]Evan Brown, Some thoughts on jurors doing internet research – keep the process clamped down,  Internet Cases, Jan. 2, 2010, http://blog.internetcases.com/2010/01/02/some-thoughts-on-jurors-doing-internet-research-keep-the-process-clamped-down/.

[ix] Jury Admonitions In Preliminary Instructions, May 5, 2009, www.nycourts.gov/cji/1-General/CJI2d.Jury_Admonitions.pdf.

[x]Gregory S. Hurley, Cell Phone Policies/Instructions for Jurors, Jur-E Bulletin, May 1, 2009, http://view.exacttarget.com/?j=fe4f1579726d04747313&m=ff3417737561&ls=fe03 13707667047d74147970&l=feee117976630d&s=fdf015757d6006757d127377&jb=ffcf14& ju=fe2116727c6d0778771377.

[xi]Proposed Model Jury Instructions The Use of Electronic Technology to Conduct Research on or Communicate about a Case (Jan. 28, 2010), http://www.wired.com/images_ blogs/threatlevel/2010/02/juryinstructions.pdf.

[xii]A Maryland appeals court threw out a first degree murder conviction after a juror, confused by the word “lividity” during a murder trial, looked up the term on Wikipedia. Del Quentin Wilber, Social networking among jurors is trying judges’ patience, Wash. Post, Jan. 9, 2010 at C01.

[xiii]John Schwartz, As Jurors Turn to Web, Mistrials Are Popping Up, N.Y. Times, Mar. 18, 2009, available at www.nytimes.com/2009/03/18/us/18juries.html.

[xiv]Douglas L. Keene & Rita R. Handrich, Online and Wired for Justice: Why Jurors Turn to the Internet, The Jury Expert 14 (Nov. 2009) http://www.astcweb.org/public/publication /article.cfm/1/21/6/Why-Jurors-Turn-to-the-Internet.

[xv]See,e.g., Ellen Brickman, et al., How Juror Internet Use Has Changed the American Jury Trial, 1 J. Ct. Innovation 297 (2008).

[xvi] See e.g., Anita Ramasastry, Why Courts Need to Ban Jurors’ Electronic Communications  Devices, Findlaw, Aug. 11, 2009, http://writ.news.findlaw.com/ramasastry/20090811.html.

[xvii]Ironically some commentators have recommended doing background checks on jurors by using the very resources, for example Facebook, they seek to ban.

[xviii]Paul Elias, Courts finally catching up to texting jurors, Associated Press, Mar. 6, 2010, http://abcnews.go.com/US/wireStory?id=10028507.

[xix]Ellen Brickman, et al., How Juror Internet Use Has Changed the American Jury Trial, 1 J. Ct. Innovation 287 (2008).

[xx]Id. (emphasis added).

[xxi]See Brickman, et al., supra, note 19, at 290 nn. 2-8 (citing Amy L. Otto et al., The Biasing Impact of Pretrial Publicity on Juror Judgments, 18 Law & Hum. Behav. 453 (1994)); Christina A. Studebaker & Steven D. Penrod, Pretrial Publicity: The Media, the Law, and Common Sense,
3 Pscyhol. Pub. Pol’y & L. 428 (1997); Studebaker, et al., Assessing pretrial publicity effects: Integrating content analytic results, 24 Law & Hum. Behav. 317 (2000); Neil Vidmar, Case Studies of Pre- and Midtrial Prejudice in Criminal and Civil Litigation,26 Law & Hum. Behav. 73 (2002). None of these studies offer full support for Brickman et al.’s assertion that research on pretrial publicity is definitive. Otto et al., found negative information about a defendant’s character can influence initial judgments about the defendant’s guilt, but this bias is weakened by trial evidence. Otto et al., supra, at 453. Studebaker and Penrod assessed pretrial publicity effects reported in previous studies, but did not offer new evidence; they merely “propose[] a multimethod research approach by which meditational mechanisms can be assessed.” Studebaker & Penrod, supra, at 428. Studebaker et al., did not study juries per se, but instead conducted a content analysis of media coverage of the Oklahoma City bombing. Studebaker et al.,supra, at 317. Vidmar points out deficiencies in research on prejudicial publicity and explains how courts have rejected research based on laboratory simulations rather than actual case studies. Vidmar, supra, at 73.

[xxii]See Studebaker, et al., supra note 21, at 317.

[xxiii]SeeJon Bruschke & William E. Loges, Free Press vs. Fair Trials: Examining Publicity’s Roles in Trial Outcomes(2004).

[xxiv] Jon Bruschke & William E. Loges, Relationship Between Pretrial Publicity and Trial Outcomes, 49 J. of Comm. 104, 115 (1999).

[xxv]Id. at 114.

[xxvi]See e.g., J. L. Freedman & T. M. Burke, The Effect of Pretrial Publicity: The Bernardo Case, 38 Can. J. Criminology 253 (1996); John S. Carroll, et al., Free Press and Fair Trial: The Role of Behavioral Research, 10 Law & Hum. Behav. 187 (1986); D. R. Pember, Does Pretrial Publicity Really Hurt? 23(3) Colum. Journalism Rev. 16 (1984); H. E. Rollings & J. Blascovich, The Case of Patricia Hearst: Pretrial Publicity and Opinion, 27 J. of Comm. 58 (1977).

[xxvii]Rita J. Simon, Does the Court’s decision in Nebraska Press Association fit the research evidence on the impact on jurors of news coverage?, 29 Stan. L. Rev. 515 (1977); accord Martin F. Kaplan, Cognitive Processes in the Individual Juror, in The Psychology of the Courtroom 197 (1982); but see Geoffrey P. Kramer et al., Pretrial Publicity, Judicial Remedies, and Jury Bias, 14 Law & Hum. Behav. 409 (1990) (finding judicial admonition had no effect and deliberations exacerbated negative effects of factual or emotional information).

[xxviii]Martin F. Kaplan & Lynn E. Miller, Reducing the Effects of Juror Bias, 36 J. Personality & Soc. Pscyhol. 1443 (1978).

[xxix]Michael J. Saks, What Do Jury Experiments Tell Us About How Juries (Should) Make Decisions?, 6 S. Cal. Interdisc. L.J. 1, 28 (1997).

[xxx]Michael Hoenig, Juror misconduct on the Internet, N.Y. L.J., Oct. 8, 2009.

[xxxi]Interview by Donald C. Dilworth with Judge B. Michael Dann, Arizona Superior Court, Waking up Jurors, Shaking Up Courts, Trial, July 1, 1997, at 20, available athttp://www. thefreelibrary.com/_/print/PrintArticle.aspx?id=19634468; The Honorable B. Michael Dann, “Learning Lessons” and “Speaking Rights”: Creating Educated and Democratic Juries, 68 Ind. L.J. 1229, 1241 (1993); William W. Schwarzer, Reforming Jury Trials, 1990 U. Chi. Legal F. 199, 137 (1990); Warren K. Urbom, Toward Better Treatment of Jurors by Judges, 61 Neb. L. Rev. 409, 425 (1982).

[xxxii]ABA/Brookings Symposium, Charting a Future for the Civil Jury System 16 (1992).

[xxxiii]James P. Levine, The impact of sequestration on juries, 79 Judicature 266 (1995).

[xxxiv]Nancy S. Marder, Juries and Technology: Equipping Jurors for the Twenty-First Century, 66 Brook. L. Rev. 1257, 1276. (2001). Believe it or not, the merits of note-taking is still subject to some scholarly debate. See e.g., Victor E. Flango,Would Jurors Do a Better Job if They Could Take Notes?, 63 Judicature 436 (1979-1980); Steven D. Penrod & Larry Heuer, Tweaking Commonsense: Assessing Aids to Jury Decision Making, 3 Psychol., Pub. Pol’y & L. 259, 271 (1997); Irwin A. Horowitz & Lynee ForsterLee, The Effects of Note-Taking and Trial Transcript Access on Mock Jury Decisions in Complex Civil Trial, 25 Law & Hum. Behav. 373 (Aug. 2001).

[xxxv]Blackstone’s Commentaries on the Law 673-77 (Bernard C. Gavit ed., 1941).

[xxxvi]Morris S. Arnold, Law and Fact in the Medieval Jury Trial: Out of Sight, Out of Mind, 18 Am. J. Legal Hist. 267, 279 (1974).

[xxxvii]Lawrence M. Friedman, A History of American Law 101 (3rd ed. 2005).

[xxxviii]Morton J. Horwitz, The Transformation of American Law 1780-1860 140-41 (1977).

[xxxix]Nancy S. Marder, Juries and Technology: Equipping Jurors for the Twenty-First Century, 66 Brook. L. Rev. 1257 (2001).

[xl]Elizabeth F. Loftus, Memory 19-20 (1980).

[xli]See e.g., Johnson v. State 887 S.W. 2d 957 (Tex Crim. 1994); Sonja Larsen,Taking and use of trial notes by jury, 36 A.L.R. 5th 255 (1996).

[xlii]ABA/Brookings Symposium, supra note32, at16.

[xliii]Alexis De Tocqueville, 1 Democracy in America 266 (Henry Reeve trans., George Adlard 2d ed. 1838) (1830).

Copyright © 2010 Gareth Lacy

 

Time to Retire the ESOP from the 401k: Assessing the Liabilities of KSOP Structures in Light of ERISA Fiduciary Duties and Modern Alternatives

The National Law Review would like to congratulate Adam Dominic Kielich of  Texas Wesleyan University School of Law as one of our 2010 Fall Student Legal Writing Contest Winners !!! 

I. Introduction

401k plans represent the most common employer-sponsored retirement plans for employees of private employers. They have replaced defined benefit pension plans, as well as less flexible vehicles (such as ESOPs) as the primary retirement plan.1 However; some of these plan models have continued their legacy through 401ks through structures that tie the two together or place one inside the other. A very common and notable example is the Employee Stock Ownership Plan (ESOP). ESOPs are frequently offered by companies as an investment vehicle within 401ks that allow participants to invest in the employer’s stock as an alternative to the standard fund offerings that are pooled investments (e.g. mutual funds or institutional funds). Participants may be unaware that the company stock option in their 401k is a plan within a plan. These combination plans are sometimes referred to as KSOPs.2

Although this investment vehicle seems innocuous, KSOPs generate considerable risk to both participants and sponsors that warrants serious consideration in favor of abandoning the ESOP option. Participants face additional exposure in their retirement savings when they invest in a single company, rather than diversified investment vehicles that spread risk across many underlying investments. They may lack the necessary resources to determine the quality of this investment and invest beyond an appropriate risk level. Moreover, sponsors face substantial financial (and legal) risk by converting their plan participants into stockholders within the strict protections of ERISA.3 The risk is magnified by participant litigation driven by the two market downturns of the last decade. Given the growing risk, sponsors may best find themselves avoiding the risks of KSOPs by adopting a brokerage window feature (sometimes labeled self-directed brokerage accounts) following the decision in Hecker.4

II.  Overview and History of ESOPs

A.  ESOP Overview

ESOPs are employer-sponsored retirement plans that allow the employee to invest in company stock, often unitized, on a tax-deferred basis. They are qualified defined contribution plans under ERISA. As a standalone plan, ESOPs take tax deferred payroll contributions from employees to purchase shares in the ESOP, which in turn owns shares of the employer’s stock. That indirect ownership through the ESOP coverts participants into shareholders, which gives them shareholder rights and creates liabilities to the participants both as shareholders and as participants in an ERISA-protected plan. They may receive dividends, may have the option to reinvest dividends into the plan, and may be able to receive distributions of vested assets in cash or in-kind, dependent upon plan rules.5

ESOPs offer employers financial benefits: they create a way to add to employee benefit packages in a manner that is tax-advantaged while providing a vehicle to keep company stock in friendly hands – employees – and away from the hands of parties that may seek to take over the company or influence it through voting. Additionally, ESOPs create a consistent flow of stock periodically drawn out of the market, reducing supply and cushioning prices. Moreover, with those shares in the hands of employees, who tend to support their employer, there are fewer shares likely to vote against the company’s decision-makers or engage in shareholder activism.6

B.  Brief Relevant History of ESOPs

ESOPs are generally less flexible and less advantageous to employees than 401ks. ESOPs lack loan options, offer a single investment option, typically lack a hardship or in-service distribution scheme and most importantly, lack diversification opportunities. Individual plans may adopt more restrictive rules to maintain funds within the plan as long as possible, as long as it is ERISA-compliant. Perhaps the most important consequence of that lack of diversity is that it necessarily ties retirement savings to the value of the company. If the company becomes insolvent or the share price declines without recovery, employees lose their retirement savings in the plan, and likely at least some of the pension benefits funded by the employer. The uneven distribution of benefits to employees helped pave the way for ERISA in 1974.7

C.  Current State of Law on ESOPs

1.  ESOPs Within 401k Plans

After the ERISA regulatory regime paved the way for 401k plans, employers began folding their ESOPs and other company stock offerings into the 401ks. For decades employers could mandate at least some plan assets had to be held in company stock. When corporate scandals and the dot com bubble burst in 2001, it evaporated significant retirement savings of participants heavily invested in their employer’s stock, often without their choice. Congress responded by including in the Pension Protection Act of 2006 (PPA) by eliminating or severely restricting several permissible plan rules that require 401k assets in any company stock investment within 401k plans.8

2. ERISA Litigation of the 2000s

Participants who saw their 401k assets in company stock vehicles disappear with the stock price had difficulty recovering under ERISA until recent litigation changed how ERISA is construed for 401k plans. ERISA was largely written with defined benefit plans in mind. Defined benefit plans hold assets collectively in trust for the entire plan. Participants may have hypothetical individual accounts in some plan models, but they do not have actual individual accounts. ERISA required that suits brought by participants against the plan (or the sponsor, trust, or other agent of the plan) for negligence or malfeasance would represent claims for losses to the plan collectively for all participants, so any monetary damages would be awarded to the plan to benefit the participants collectively, similar to the shareholder derivative suit model. Damages were not paid to participants or used to increase the benefits payable under the plan.

Defined contribution plans with individual participant accounts, such as 401k plans and ESOPs, were grafted onto those rules. Therefore, any suit arising from an issue with the company stock in one of these plans meant participants could not be credited in their individual accounts relative to injuries sustained. It rendered participant suits meaningless in most cases because the likelihood of recovery was suspect at best.9

The Supreme Court affirmed this view in 1985 in Russell, and courts have consistently held that individual participants could not individually benefit from participant suits. Participants owning company stock through the plan could take part separately in suits as shareholders against the company, but these are distinguished from suits under ERISA. In 2008, the Supreme Court revisedRussell in LaRue and held that Russell only applied to defined benefit plans. Defined contribution plan participants could now bring claims individually or as a class and receive individual awards as participants. This shift represented new risks to sponsors that immediately arose with the market crash in 2007.10

III.  Risks to Employees

The primary risk to employees is financial; a significant component of employee financial risk is the investment risk. 401k sponsors are required to select investments that are prudent for participant retirement accounts. This is why 401k plans typically include pooled investments; diversified investment options spread risk. ESOPs are accepted investments within 401k plans, although they are not diversified.11 This increases the risk, and profit potential, participants can expose themselves to within their accounts. While added risk can be exponentially profitable to participants when the employer has rising stock prices or a bull market is present, the downside can also be significantly disastrous when the company fails to meet analyst expectations or the bears take over the markets.

Moreover, employees may be more inclined to invest in the employer’s stock than an independent investor would. Employees tend to be bullish about their employer for two reasons.12 First, employees are inundated with positive comments from management while typically negative information is not disclosed or is given a positive spin. This commentary arises in an area not covered by ERISA, SEC, or FINRA regulations. This commentary is not treated as statements to shareholders; they arise strictly from the employment relationship. This removes much of the accountability and standards that otherwise are related to comments from the company to participants and shareholders. Management can, and should, seek to motivate its employees to perform as well as possible. While the merit of misleading employees about the quality of operations may be debatable, the ability to be positive to such an end is not.

Second, employees tend to believe in the quality of their employer, even if they espouse otherwise. They tend to believe the company is run by experienced professionals who are leading the company to long term success. Going to work each day, seeing the company operating and producing for its customers encourages belief that the company must be doing well. It can even develop into a belief that the employee has the inside edge on knowing how great the company is, although this belief is likely formed with little or no knowledge of the financial health of the company. The product of the internal and external pressures is a strong likelihood employees will invest in an ESOP over other investment options for ephemeral, rather than financial, reasons.13

Additionally, participants may have greater exposure to the volatility of company stock over other shareholders due to 401k plan restrictions. While some plans are liberally constructed to give participants more freedom and choice, some plans conversely allow participants few options. This is particularly relevant to the investment activity within participant accounts. Participants may be limited to a certain number of investment transfers per period (e.g. quarterly or annually), may be subject to excessive trade restrictions, or may even find themselves exposed to company stock through repayment of a loan that originated in whole or in part from assets in the ESOP. Additionally, the ESOP may have periodic windows that restrict when purchases or redemptions can occur. While a regular shareholder can trade in and out of a stock in seconds in an after-tax brokerage account, ESOP shareholders may find themselves hung out to dry by either the ESOP or 401k plan rules. These restrictions are not penal; they represent administrative decisions on behalf of the sponsor to avoid the added expense generally associated with more liberal rules.

Although employees take notable risk to their retirement savings portfolio by investing in ESOPs within their 401k plans, it can add up to a tremendous financial risk when viewed in the bigger picture of an employee’s overall financial picture. Employees absorb the biggest source of financial risk by nature of employment through the company because it is the major, if not sole, income stream during an employee’s working years. This risk increases if the employer is also the primary source of retirement assets or provides health insurance. The employee’s present and future financial well being is inherently tied directly to the employer’s financial well being. This risk is compounded if the employee also has stock grants, stock options, or other stock plans that keep assets solely tied to the value of the company stock. If the employee is fortunate enough to have a defined benefit plan (not withstanding PBGC coverage) or retirement health benefits through the company, then that will further tie the long term success of the company to the financial well being of the employee. Adding diversification in the retirement portfolio may be a worthwhile venture when those other factors are considered in a holistic fashion.

IV.  Risks to the Sponsor

ERISA litigation is a serious risk and concern to sponsors. Although there is exposure in other areas related to participants as stockholders, ERISA establishes higher standards towards participants than companies otherwise have towards shareholders. Sponsors once were able to protect themselves under ERISA but since LaRue participants have an open door to reach the sponsor to recover losses related to the administration of the plan.14 ERISA requires sponsors to make available investment options that are prudent for 401k plans. The dormant side of that rule requires sponsors to remove investment options that have fallen below the prudent standard. Company stock is not excluded from this requirement.15

Any time the market value of the stock declines, the sponsor is at risk for participant losses for failure to remove the ESOP (or other company stock investment option) as an imprudent investment within the plan. Participants are enticed to indemnify losses through the sponsor. Such a suit is unlikely to succeed when the loss is short term and negligible, or the value declined in a market-wide downturn. However, as prior market downturns indicate, investors look to all possible avenues to indemnify their losses by bringing suits against brokers, advisors, fund companies, and issuers of their devalued assets. There is no reason to believe that participants would not be enticed to try this route; LaRuewas born out of the downturn in the early 2000s.16

The exposure for sponsors runs from additional costs to mount a defense to massive monetary awards to indemnify participants for losses. In cases where participants are unlikely to recover, sponsors still must finance the defense against what often turns into expensive, class action litigation or a long serious of suits. However, there is a serious risk of sponsors having to pay damages, or settle, cases where events have led to a unique loss in share value. Participants have filed suit under the theory that the sponsor failed to remove imprudent investment options in a timely fashion. BP 401k participants filed suit following the gulf oil leak under a similar theory that the sponsor failed to remove the company stock investment option from the plan, knowing that it would have to pay clean up costs and settlements. While it remains to be seen if these participants will be successful, they surely will not the last to try.17

Sponsors should take a good, long look at the ESOP to determine whether the sponsor receives more reward than risk – particularly future risk – from its inclusion. The risk to a company does not have as severe as the situation BP faced this year. Even bankruptcy or mismanagement that results in serious stock decline can merit suit when the sponsor fails to immediately withdraw the ESOP, since it has prior knowledge of the bankruptcy or mismanagement prior to any public release.

To hedge these risks, sponsors can adopt several options. First, sponsors may limit the percentage of any account that may be held in company stock. This is easily justified as the sponsor taking a position in favor of diversification and responsible execution of fiduciary duties. While this may not completely absolve the sponsor of the duty to remove imprudent investment options, it does act as a limit on liability. Although it does provide some protection against risk, it is an imperfect solution.

Second, ESOP plans can adopt pricing structures to discourage holding large positions of company stock for the purpose of day trading. Some 401k plans allow participants to trade between company stock and cash equivalents without restraint. When the ESOP determines share pricing based on the closing price of the underlying stock, it creates a window where participants can play the company stock very differently than the constraints of most 401k investment options.

It is a very alluring reason to take advantage of the plan structure by taking an oversized position in company stock. Add the possibility to indemnify losses in court and it becomes even more desirable. The process is simple: participants can check the trading price minutes before the market closes. If the stock price is higher than the basis, they sell and net profit. If it is below, they hold the stock and try against each day until the sale is profitable. They will then buy back into the ESOP on a dip and repeat the process. This is distinguishable from the standard diversified fund options in 401k plans, where ignorance of the underlying investments preempts the ability to game closing prices. Funds generally discourage day trading – and may even carry redemption fees to penalize it – and encourage long term investing strategies more consistent with the objective of retirement accounts.

Available solutions are directly tied to the cause of the problem; changing the ESOP pricing scheme can eliminate gaming closing prices. ESOPs can adopt other pricing schemes such as average weighted pricing and next day order fulfillment. Average weighted pricing gives participants the average weighted prices of all transactions in the stock, executed that day, by a given entity. For example, if the ESOP is held with Broker X as the trustee, it may rely upon Broker X to provide the prices and volumes of all of its executed orders that day in the stock, which is used to determine the average weighted price participants will receive that day. Alternately, participants could be required to place orders on one day and have the order fulfilled on the following day’s closing with that day’s closing price. Both of these pricing schemes introduce some mystery into the price that diminishes gaming the closing price. This is also an imperfect solution, even if combined with the first option, because it maintains the risks of the ESOP.

Sponsors may also take advantage of brokerage windows to expand employee investment options, including company stock, without the risks afforded to ESOPs. Brokerage windows create brokerage accounts within 401k plans. The brokerage window is not an investment in itself; it is a shell that allows employees to reach through the window to access other investments. Sponsors found good reason to be suspicious of brokerage windows, seeing it as liability for all the available investments that could be deemed imprudent for retirement accounts. A minute minority of participants saw it as a way to have their cake and eat it too during the last rise and fall of the markets; they could invest more aggressively within their 401ks and then demand sponsors indemnify their losses when the markets gave up years of gains on the basis of sponsor failure to review the available contents of the window under the prudence standard.

However, in Deere the court handed down a critcal decision: sponsors could not be responsible for the choices made by participants within brokerage windows. InDeere, several Deere & Co. (John Deere) employees sued the company for making available investments that were imprudent for 401k accounts that caused substantial losses in the 2007 market downturn. John Deere had not reviewed the thousands of available options under the ERISA prudence standard. Although the plaintiffs’ theory was a compelling interpretation of ERISA duties, the court rejected the theory on two grounds. First, it would be impossible for any sponsor to review every investment available through the window. Second, participants had taken ownership of the responsibility to review their investment decisions by choosing to invest through the window.18

Following the court’s decision in Deere, brokerage windows gained new life as a means for sponsors to expand investment availability at less risk. Rather than having to review a menu of funds and company stock for prudence under ERISA, sponsors can justifiably limit the fund selection directly offered through the plan and leave the rest of the options to the brokerage window. Importantly, this includes offering company stock in the window. By utilizing the brokerage window, sponsors allow access to the company stock without the liabilities of offering an ESOP through the plan. The sponsor will likely lose out on any benefits received from the ESOP, although for most established employers ESOPs are likely more of a convenience factor and a legacy offering rooted in the history of employer-sponsored plans.

Although Deere foreclosed participant abuse of brokerage windows, this option is not without its own negative aspects. Future litigation may reestablish some liability upon the sponsor for the brokerage link. Sponsors may face alternate liability under ERISA for selecting a brokerage window with excessive commissions or fees, similar to requirements for funds under ERISA.19 Given the flurry of awareness brought to 401k management fees and revenue sharing agreements between sponsors and fund providers following the market crash in 2007, it is likely that brokerage windows will be the hot ticket for participants in the next market crash. Therefore, sponsors should preemptively guard against future litigation by reviewing available brokerage window options to make sure any fees or commissions are reasonable and the categories of investment options are reasonable (even if specific investments in those categories are not).

Perhaps a lesser concern, sponsors need to consider overall plan operation and any negative impacts that may arise from shifting to a brokerage window-based investment offering. These concerns may be less of a legal risk issue than a risk of participant discontent and dealing with those effects. There are primarily two areas that brokerage windows can create discontent. First, when participants want to move from a fund to the brokerage window, they must wait for the sale to settle from the fund and transfer to the window, which generally makes the money available in the window the day after the fund processes the order. Conversely, selling investments in the window may delay transferring money into plan funds because of settlement periods and the added delay of settlement with the fund once the funds are available to move out of the window. Additionally, the settlement periods within the window may frustrate participants, although the plan has no control over those timeframes. Those natural delays in processing the movement of money may create discontent, especially for those participants trying to invest based upon short term market conditions.

Second, those same processes and delays can negatively affect plan distributions. Many plans offer loans and withdrawal schemes, and while sponsors may have their own reasons for making those options available, participants often use those offerings to finance emergency financial needs. Brokerage windows can complicate and delay releasing money to participants. Settlement periods will create delays; if money has to be transferred out of the window to another investment to make those funds available for a distribution that will add at least one more day before money can be released. If participants find themselves in illiquid investments, the money may not be able to move for a distribution at all. Although these issues may not be of legal significance but they will be significant to the people responsible for absorbing participant complaints and there may be additional expenses created in handling those issues.

An additional concern is that the Department of Labor (DOL) is still fleshing out several requirements surrounding brokerage windows and how they relate to ERISA requirements. For example, the DOL October 2010 modification of 401k disclosure rules affects plans as a whole, but it leaves open several areas of ambiguity around the specific effects on brokerage windows. Sponsors may face continuing financial costs complying and determining how to comply with DOL requirements. Future changes in the regulations may negatively affect plans that rely heavily on brokerage windows to provide access to a greater range of investment options.20

These considerations are not exhaustive to the benefits or risks of either ESOPs or brokerage windows, they merely highlight some of the more salient points as they relate generally to the legal and significant financial benefits and risks to sponsors. There may be additional concerns equally salient to sponsors given their particular situation, such as participant suspicion of the removal of the ESOP or unwillingness at the executive level to retire the ESOP.

V.  Conclusion

Although brokerage windows may open the door to some new liabilities, it closes the door to the risks of ESOPs, for both participants and sponsors. Sponsor diligence in administering retirement plans will always be the most successful method of checking liability; however, as discussed ESOPs risk putting sponsors in an unwinnable position. Removing the company stock option may not be the most beneficial option in all cases but it may be time for sponsors to consider retiring the ESOP from the 401k in light of the current regulatory regime. A brokerage window option is well suited to take advantage of participant ownership of the employer’s stock, as well as other investment opportunities, while limiting the risk that normally accompanies that ownership. Ultimately, sponsors must consider what is best for the plan and its participants over both the short term and the long term.

Endnotes.

1. Chris Farrell, The 401(k) Turns Thirty Years Old, Bloomberg Businessweek Special Report, Mar. 15, 2010,http://www.businessweek.com/investor/content/mar2010/pi20100312_874138.htm.

2. National Center for Employee Ownership401(k) Plans as Employee Ownership Vehicles, Alone and in Combination with ESOPs, (no date provided),http://www.nceo.org/main/article.php/id/15/.

3. Id.; 29 U.S.C. § 1104 (2010); the term “sponsor” can be used interchangeably with “employer” for purposes of this discussion, however there are some situations where the employer is not the sponsor, such as union plans, or the employer is not the sole sponsor in the case of multi-employer plans. This discussion relates to KSOPs where the sponsor is the employer. Different rules and different liability may apply to other plan structures.

4. Hecker v. Deere & Co., 556 F.3d 575, 590 (7th Cir. 2009), cert. denied, 130 S. Ct. 1141 (2010).

5. Todd S. Snyder, Employee Stock Ownership Plans (ESOPs): Legislative History, Congressional Research Service, May 20, 2003.

6. William N. Pugh et al. The Effect of ESOP Adoptions on Corporate Performance: Are There Really Performance Changes?, 21Managerial & Decision Econ., 167, 167-180 (2000).

7. Supra note 5.

8. Pension Protection Act of 2006 § 901, 29 U.S.C. 401 (2010).

9. LaRue v. DeWitt, Boberg & Assocs., Inc., 552 U.S. 248, 254-55 (2008).

10. Id. at 255-56.

11. Shlomo Benartzi et al., The Law and Economic of Company Stock in 401(k) Plans, 50 J.L. & Econ. 45, 45-79 (2007).

12. Id.

13. Id.

14. LaRue, 552 U.S. at 254-55.

15.  § 1104.

16. LaRue, 552 U.S. at 250-51.

17. E.g., In Re: BP P.L.C. Securities Litigation, MDL No. 2185, 2010 WL 3238321 (J.P.M.L. Aug. 10, 2010).

18. Hecker, 556 F.3dat 590.

19. §1104.

20. 29 C.F.R. § 2550 (2010).

© Copyright 2010 Adam Dominic Kielich

 

Alternatives to International Criminal Justice – Restorative Justice and Peace Through Peaceful Means

The National Law Review would like to congratulate Heejung Park of Washington University in St. Louis as one of our Fall 2010 Law Student Legal Writing Contest Winners! 

“Out of timber so crooked as that from which man is made nothing entirely straight can be carved.” -Immanuel Kant-

Individuals live their own lives, and have their own goals.  An entity may be an individual, a group, or a nation.  The purposes of two parties may be in harmony with each other and without conflict, or may not.  Such purposes may be good, or evil.  Essentially, problems occur when the purposes of two or more parties do not coincide.  The basic position of the traditional criminal justice system is to address problems simply by punishing the perpetrators.  However, over the last several decades, there have been new studies in the area of peace and human rights, and in this environment, new institutions may be welcome.  This is inspiring changes from the perspective of human integrity and the right to peace, which pursues harmonious coexistence.

If the criminal justice system, which aims to punish perpetrators, takes an interest in the perpetrators as well as the victims by enabling the perpetrators to truly repent for their offenses and voluntarily make restitution to their victims, while allowing the victims to accept the restitution based on a principle of forgiveness and tolerance, a foundation for peace and respect of others in the community will be formed. As such, it is very significant to prepare for a system wherein the pepetrator and the victim can remediatetheir hurt,and recover.  If we are working from a principle that values life above all, and values human rights to the extent that they carry more weight than the earth itself, such an approach must be inspiring.  It is not that easy to buildasociety that is better and more peaceful, in which everyone can live together harmoniously.  When criminals are punished, this does not mean that everything has been resolved.  Often,the root causesof a crime can be foundin the community, or even in the victim himself or herself.  On this basis, victims and communities also have a responsibility to take an interest in the perpetrators of crimes.  The intent must be to identify the fundamental causes of crimes, and by addressing these causes, to create a better society and a better country, byseeking an alternative to the international criminal justice system based on peaceful means.

To achieve this, one or more of the following three approaches may be effective.  The first is to constitute a truth commission to pursue truth and reconciliation. This approach has been successful in South Africa, as well as in some Latin American and Asian countries.  Truth will be identified, and reconciliation will be made based on investigations into violations of human rights and provisions concerning ethical and legal responsibilities and duties.  The Report of the Truth and Reconciliation Commission that was prepared by the government of South Africa in 2003 also addressed this issue.  Through the Truth and Reconciliation Commission, violations of human rights relating to apartheid have been addressed.[i] The second is to hold public inquiries.  This is closely related to post-conflict management.  “Bloody Sunday[ii]” in the UK is a representative sample.  In this event, 13 people were shot to death and several were injured on January 30, 1972, a Sunday. A high-profile public inquiry, it was led by English Supreme Court Justice Mark Saville together with a judge from New Zealand and a judge from Canada, and was established on April 3, 1998.  The last is “Community-based Restorative Justice”, which is the most important and is addressed intensively herein.  This is a mechanism that focuses on the post-conflict environment, and is deeply related to the peaceful coexistence of a community.  In this area, new justice systems have emerged, called “gacaca” and restorative justice.[iii]  Gacaca is a new court system that was launched by the Rwandese government on June 18, 2002.  This new court system follows the customary system for community hearings, which have been used whenever a conflict occurs in the community.  Begun at a Canadian church in the 1970s, restorative justice is a crime-fighting approach for victim-sensitive victim-offender mediation.

Criminal prosecution is not always the right solution.  It is a good method only when it can benefit society and nation.  If we acknowledge that unexpected pitfalls exist for everyone, then people should be given one more chance, even if they have committed a crime. The proposition of the “restoration of offenders” is not suitable for all conflicts.  Nonetheless, it is a new approach to consensus, and aims at facilitating mutual understanding.  The Bible features an approach similar to this restorative justice.[iv]  It also refers to accountability for healing that goes through discipline to move toward a peaceful environment, which is different from the existing criminal justice system.[v]   The Bible considers every individual a sinner.  It says that an individual can receive forgiveness when he/she sincerely repents, surrenders to God, and produces the fruit of repentance.[vi]  It further says that reconciliation will take place when one makes restitution and reparation for the harm, and this action bears fruit.[vii]  When this is done, the offender is able to commit himself/herself to the community and the nation by producing the fruit of the Spirit[viii], through his/her indebtedness and freedom from being forgiven. Curing offenders, allowing them to repent for their wrongdoings and to voluntarily make restitution and reparation, a win-win situation for perpetrator and victim, is possible in the love of God through the remediation of hurt, restoration, forgiveness, and tolerance.  Through this, the community can seek peace through social justice and tolerance.  Both perpetrators and victims have fundamental rights as human beings.  In this area, the roles of national reconciliation/mediation agencies, protection agencies, and NGOs are important.

These approaches may equally be applied to international criminal justice.  As demonstrated above, post-conflict management should be approached peacefully.   Disputes occur when the purposes of parties do not coincide with each other. This discord emerges in the form of conflict.  A conflict is a polarization of opinions or powers.  Ultimately, such polarization may reach the level of violence, which leaves residual trauma.  This process repeats itself, continuously.  The ring of this vicious circle should be peacefully severed.  Such an approach to peaceful means advocates solving problems through mediation (this is directed toward the future, and it is better than “victory”) at the stage of conflict; through the positive involvement of peace-building at the stage of polarization; and through nonviolence rather than violence, and reconciliation and conciliation (which is against the past, and requires healing) instead of trauma.

[i]Mark Freeman, Truth Commissions and Procedural Fairness, Part 1:‘Introduction’ 3 (Cambridge University Press, 2007).

[ii]Angela Hegarty, “Truth, Law and Official Denial: The Case of Bloody Sunday”15Criminal Law Forum 199 (2004).

[iii]Phil Clark, “Hybridity, Holism and ‘Traditional’ Justice: The Case of the Gacaca Community Courts in Post- Genocide Rwanda”, 39 Geroge Washinton International Law Review 4 20 (2007).

[iv]Tony F. Marshall, Restorative Justice An Overview 6 (Research Development and Statistics, 1998).

[v]Edward Bouverie Pusey, The Confessions Of Saint Augustine 5-6 (Kessinger Publishing, 2004).

[vi]Matthew, New International Version Bible,The New Testament: Matthew 2 (Word Of Life Press, 2009).

[vii]Jeremiah, New International Version Bible, The Old Testament: Jeremiah 706 (Word Of Life Press, 2009).

[viii]Paul, New International Version Bible, The New Testament: Galatians 185 (Word Of Life Press, 2009).

© Copyright 2010 Heejung Park

How the Supreme Court Skirted ADEA Issues During Reductions in Force and What Must be Done to Fix It

Congratulations to the Fall 2010 National Law Review Student Legal Writing Contest Winners Charles “Chip” William Hinnant III and John Erwin Barton of  the  Charlotte School of Law. 

Jack Gross was born in 1948, and grew up in Mt. Ayr, Iowa.[i] His father was an Iowa Highway Patrolman and his mother was a 3rd grade teacher.[ii] Throughout his childhood and into his adult life, health issues defined Mr. Gross.[iii] He developed chronic ulcerated colitis, and as a result underwent multiple operations involving the removal of his colon, and a part of his large intestine.[iv]When he graduated from Drake University with a B.S. in Personnel Management, he weighed 87 pounds.[v]

Upon graduating Mr. Gross went to work for Farm Bureau as a claims adjuster, eventually becoming the highest volume adjuster in the company.[vi]He stood out for his outstanding contributions, earned many professional designations, and began teaching classes to other employees.[vii]Mr. Gross’ exceptional work performance and contributions to his company were reflected in his annual reviews, which were in the top 3-5% of his company for 13 consecutive years.[viii]Yet, notwithstanding Mr. Gross’ improbable story, in 2003, all claims department employees over the age of 50 with a title of supervisor and above were demoted on the same day.[ix]Mr. Gross was replaced by a person he had hired who was in her early forties, did not have the required skills for the position as stated on the company job description, nor his breadth of experience.[x]Mr. Gross would later file an age discrimination lawsuit pursuant to the Age Discrimination in Employment Act (ADEA)[xi]in federal court, and the rest as they say, is history.

On June 18, 2009, the Supreme Court of the United States decided Gross v. FBL Financial Services, Inc.,[xii] which simultaneously held that mixed-motive theories are never proper in ADEA cases and that a plaintiff bringing a disparate-treatment claim pursuant to the ADEA must prove that age was the “but-for” cause of the challenged adverse employment action.[xiii] In effect, the Gross holding abrogated the mixed-motive theory presumably applicable to ADEA cases established inPrice Waterhouse v. Hopkins,[xiv]and led to a celebrated victory for employers to the detriment of older, ADEA protected employees just like Jack Gross, the prototypical individual that the ADEA was created to protect.

While Gross has considerably heightened the burden placed upon ADEA plaintiffs, particularly given the near universal absence of direct evidence of age discrimination in ADEA cases,[xv] its holding imposes a logically impossible burden upon ADEA plaintiffs in Reduction in Force (RIF) cases that the Supreme Court seems to have not contemplated given that Gross did not involve a RIF.[xvi] In short, during a RIF, an ADEA plaintiff always loses.  In order to correct this logical inconsistency, either the Supreme Court must grant certiorari to an ADEA RIF case to affirmatively correct its mistake, or Congress must pass legislation limiting the holding of Gross to non-RIF scenarios, if not all ADEA cases.

How Gross Prevents an ADEA RIF Plaintiff from Ever Prevailing at Trial

Gross prevents an ADEA RIF plaintiff from ever prevailing at trial because an employer will always be able to claim that a legitimate, non-discriminatory reason for the adverse action taken against the employee exists. Inherent in any RIF are financial troubles that force an employer to terminate some of its employees in an effort to remain in business; as a result, the courts have recognized that a RIF is a legitimate business justification for an adverse employment action.[xvii]

Consequently, prior to Gross, when an employer utilized a RIF as a legitimate business justification for an adverse employment action, the plaintiff was required to make an “additional showing” that age was a motivating factor in their termination in order to prevail using a mixed-motive theory of discrimination.[xviii]

However, because Gross simultaneously eliminated the mixed-motive theory as a viable option for ADEA plaintiffs and heightened the requisite showing necessary for a plaintiff to prevail from age as a “motivating-factor” of the adverse employment action to age as the “but-for” cause of the adverse employment action, such an “additional showing” can neverbe made under the law as it is currently interpreted.

Because an employer will always be able to claim that a RIF constitutes a legitimate business reason for termination, under Gross, a plaintiff cannot ever offer evidence that “illegal … motives … were the ‘true’ motives”[xix]for the adverse employment action taken against them.

As a result, an ADEA RIF plaintiff can never prove that “but-for” their age, the employer would not have initiated the adverse action against them given the ever-present excuse of a RIF. Thus, while Gross is detrimental to all ADEA plaintiffs, it is particularly prejudicial to ADEA plaintiffs whose adverse action is a result of a RIF, as it creates a logical impossibility for these plaintiffs to everhave a chance of prevailing against their employer.

What the Supreme Court Can Do to Fix the Gross Problem

The Supreme Court can and needs to fix the Gross problem and the confusion it has created for lower courts by granting certiorari to an ADEA RIF case and explicitly stating that mixed-motive theories are and must be applicable to ADEA RIF cases, and that evidence of age discrimination can be considered a “motivating factor,” rather than the “but for” cause, of illegal age discrimination within the burden shifting framework articulated within McDonnell Douglas Corp. v. Green.[xx]

As of this moment, the lower district and circuit courts are confused as to the application of Gross and its relationship with the McDonnell Douglas prima facie case and burden-shifting framework. Furthermore, this confusion is certain to increase as more RIF and non-RIF ADEA cases are filed in the near future as a result of the current economic recession, and as the unworkable nature of theGross holding in ADEA RIF cases is further exposed. Notably, post-Gross ADEA cases are relatively few and far between at the time this article is being written; however, early signs support the contention that the lower courts are not in conformity with how to interpret Gross.

The Tenth Circuit explicitly states that Gross has created some uncertainty regarding burden shifting in the ADEA context.[xxi] The Jones decision discusses in detail the application of Gross to McDonnell Douglas and clearly states that the court will not overturn their prior decisions applying the burden-shifting framework to ADEA claims.[xxii]

Furthermore, the Sixth Circuit attempts to reconcile Gross’ “but for” language with the burden shifting test in McDonnell Douglas.  By applying similar language from the application of Title VII in McDonnell Douglas, that “where there is a reduction in force, a plaintiff must … show that age was a factor [emphasis added] in eliminating his position”[xxiii]the court attempts to pigeonhole the two decisions together.  The use of the language “a factor” instead of “the factor” in the Johnsondecision enunciates the line that the court has drawn between “but for” causation of age discrimination and age being a “motivating factor” in determining whether illegal age discrimination is afoot.

The Ninth Circuit on the other hand, has essentially followed Gross to the letter.[xxiv] In the McFadden decision, the Ninth Circuit holds alongside the Supreme Court and agrees that the McDonnell Douglas burden-shifting framework does not apply to ADEA claims, and that a plaintiff must carry the burden of persuasion throughout the case.  Therefore, no burden shifting occurs, and causation must be “but-for.”

These cases, et al., are the first evidence of post-Gross confusion, and illustrate the growing problem facing the lower courts as well as plaintiffs soon to bring mixed-motive age discrimination cases involving RIFs. Some circuits and district courts continue to apply theMcDonnell Douglas burden-shifting framework and will consider whether age was a “motivating factor” of an adverse employment action, while others require a heightened burden of proof that age was the “but for” cause of an adverse employment action. Such varying interpretations of Gross will inevitably lead to circuit splits, the absence of uniformity in the application of federal law, and a future Supreme Court decision to clean up the mess.

Thus, the Supreme Court should grant certiorari to an ADEA RIF case and seek to dispel the impossible burden it has placed upon RIF plaintiffs.

What Congress Can Do to Fix the Gross Problem

Congress can fix the Gross problem by enacting legislation that limits the scope of the Gross decision to non-RIF ADEA cases, or, in the alternative, to all ADEA cases by explicitly stating that the mixed-motive theory articulated in Price Waterhouse v. Hopkins,[xxv] as well as the burden shifting framework articulated in McDonnell Douglas Corp. v. Green,[xxvi] are fully applicable to ADEA cases.

As this article is being written, both houses of Congress have responded to theGross problem by proposing bills entitled the “Protecting Older Workers Against Discrimination Act,”[xxvii] the stated purpose of which are “to amend the Age Discrimination in Employment Act of 1967 to clarify the appropriate standard of proof.”[xxviii] While these bills clearly reflect Congressional understanding of the harm that Gross causes ADEA plaintiffs, their current language as well as their present place in the legislative process creates foreseeable problems that should be swiftly resolved.

First and foremost, both bills are presently tied up in Committees.[xxix]As a result, amidst a nationwide economic recession resulting in numerous corporate RIFs as discussed infra, plaintiffs filing age discrimination lawsuits while in post-Gross, pre-Congressional action “purgatory” will be left without a remedy.

Second, because such “purgatory plaintiffs” will likely exist given the current economic recession, Congress should seek to include retroactive language in the proposed bills in an effort to afford these plaintiffs a remedy. Currently, no such retroactive language exists in either bill proposal.[xxx]

Third, the proposed bills as presently written include no language recognizing theGross problem’s disproportionate and logically impossible burden it places on ADEA RIF plaintiffs, as opposed to the more classic, non-RIF ADEA plaintiff.[xxxi]While it may be reasonably presumed that general language that disavows the Gross decision’s applicability to ADEA cases would prevent its application to ADEA RIF plaintiffs as well, there is no sense in leaving any provisions of these bills subject to judicial interpretation.

The role of Congress cannot be understated in fixing the Gross problem, and while it has taken the proper initial steps to remedy the subversion of federal law thatGross represents, timeliness, retroactivity, and precision in language choice to guarantee the protection of ADEA RIF plaintiffs soon to be effected is essential in ensuring that the rule of law is upheld.  As Justice Ginsburg famously stated in another recent travesty of judicial interpretation in the employment context,[xxxii]“the ball is in Congress’ court.”[xxxiii]

Why Fixing the Gross Problem Matters Now More than Ever

A survey of ADEA charges filed with the EEOC from 1997 to 2009 indicates that in 2008 and 2009, more ADEA charges were filed with the EEOC than in any other fiscal year in the 12-year sample size.[xxxiv]Furthermore, a tremendous increase in ADEA charges is glaringly apparent from 2007 to 2008.[xxxv]While no known data exists to support the contention, it can be reasonably inferred that such a substantial rise in ADEA charges filed with the EEOC is a byproduct of the ongoing economic recession in the United States.

As this article is being written and during the time period reflected in the EEOC charge data, numerous corporate employers, all of which are subject to the protections of the ADEA, are reducing their workforces in droves in an effort to reduce operating costs and maintain profit margins. To name a few that can be quickly found with a simple Google search, the health insurer Humana,[xxxvi] the discount retailer Target,[xxxvii] the drug manufacturers Sanofi-Aventis,[xxxviii]Eli Lilly,[xxxix]and Bristol-Meyers Squib,[xl] the oil giant Shell,[xli] the healthcare giant Cardinal Health,[xlii]and the telecommunications provider AT&T,[xliii]are all reducing their workforces during the current economic recession.

With every RIF that takes place between now and the moment that either the Supreme Court or Congress act to eliminate the applicability of the Gross decision to ADEA RIF cases if not ADEA cases as a whole, multitudes of ADEA protected plaintiffs adversely effected by a RIF that may or may not have a compelling case for illegal age-motivated discrimination against their employer, will ultimately be denied the legal protections afforded to them under federal law.[xliv]

Above all else, the Supreme Court, Congress, and the readers of this article must remember that people like Jack Gross are exactly those that the ADEA was meant to protect.  Now, the Supreme Court has to fix its mistake, or Congress must do it for them.

 

[i]Testimony of Jack Gross:  Hearings Before the Senate Judiciary Comm., 111thCong. (2010).

[ii]Id.

[iii]Id.

[iv]Id.

[v]Id.

[vi]Id.

[vii]Id.

[viii]Id.

[ix]Id.

[x]Id.

[xi]29 U.S.C.A 621 (1967)

[xii]129 S. Ct. 2343 (2009).

[xiii]Id.

[xiv]109 S. Ct. 1775 (1989).

[xv]See Generally, Desert Palace, Inc. v. Costa, 123 S.Ct. 2148 (2003).

[xvi]See 129 S.Ct. 2343 (2009).

[xvii]See Hardin v. Hussmann Corp., 45 F.3d 262 (8th Cir. 1995); Coleman v. Quaker Oats Co., 232 F.3d 1271 (9th Cir. 2000).

[xviii]See Hardin v. Hussmann Corp., 45 F.3d 262 (8th Cir. 1995).

[xix]NLRB v. Transp. Mgmt. Corp., 103 S. Ct. 2469, 2473 (1983).

[xx]93 S. Ct. 1817 (1973).

[xxi]Jones v. Okla. City Pub. Schs., 617 F.3d 1273, 1278 (10th Cir. 2010).

[xxii]Id.

[xxiii]Johnson v. Franklin Farmers Cooperative, 378 F. Appx. 505, 509 (6th Cir. 2010).

[xxiv]McFadden v. Krause, 357 F. Appx. 17 (9th Cir. 2009).

[xxv]109 S. Ct. 1775 (1989).

[xxvi]93 S. Ct. 1817 (1973).

[xxvii]H.R. 3721, 111th Cong. (2009), 2009 FD H.B. 3721 (NS) (Westlaw), See also S. 1756, 111th Cong. (2009), 2009 FD S.B. 1756(NS) (Westlaw).

[xxviii]Id.

[xxix]Id. (H.R. 3721 presently rests in the Subcommittee on Health, Labor, Employment, and Pensions, while S. 1756 presently rests in the Committee on Health, Education, Labor, and Pensions.)

[xxx]See http://www.govtrack.us/congress/billtext.xpd?bill=h111-3721 andhttp://www.govtrack.us/congress/billtext.xpd?bill=s111-1756

[xxxi]See Id.

[xxxii]Ledbetter v. Goodyear Tire & Rubber Co., 550 U.S. 618, 127 S. Ct. 2162 (2007)

[xxxiii]Ledbetter v. Goodyear Tire & Rubber Co., 550 U.S. 618, 661, 127 S. Ct. 2162, 2188 (2007) (Ginsburg, J., Dissenting).

[xxxiv]http://www.eeoc.gov/eeoc/statistics/enforcement/adea.cfm (24,582 charges were filed in 2008 and 22,778 charges were filed in 2009.)

[xxxv]Id. (Only 19,103 charges were filed in 2007.)

[xxxvi]Catherine Larkin and Alex Nussbaum, Humana Plans to Reduce Workforce by 1,400 This Year, Bloomberg Businessweek, Feb. 17, 2010,http://www.businessweek.com/news/2010-02-17/humana-plans-to-reduce-workf…

[xxxvii]Scott Mayerowitz and Alice Gomstyn, Target Among the Latest Chain of Grim Layoffs: Major Companies From Communications to Retail Layoff 40,000; More Americans Lose Jobs, ABC News, Jan. 27, 2009,http://abcnews.go.com/Business/CEOProfiles/story?id=6731375&page=1

[xxxviii]Linda A. Johnson, Sanofi-Aventis to Reduce US Workforce by 1,700, The Boston Globe, Oct. 8, 2010,http://www.boston.com/news/health/articles/2010/10/08/sanofi_aventis_to_…

[xxxix]Eli Lilly to Reduce Workforce, United Press International, Sept. 14, 2009,http://www.upi.com/Business_News/2009/09/14/Eli-Lilly-to-reduce-workforc…

[xl]Ellen Gibson, Bristol-Myers to Cut 3% of Workforce to Reduce Costs, Bloomberg Businessweek, Sept. 23, 2010,

http://www.businessweek.com/news/2010-09-23/bristol-myers-to-cut-3-of-workforce-to-reduce-costs.html

[xli]Shell To Layoff Workforce To Reduce Cost, Energy Business Review, April 30, 2009, http://utilitiesnetwork.energy-business-review.com/news/shell_to_layoff_…

[xlii]Press release, Cardinal Health, Cardinal Health to Reduce Workforce to Respond to Economic Conditions, (March 31, 2009.)

http://cardinalhealth.mediaroom.com/index.php?s=43&item=295 (

[xliii]AT&T to reduce workforce by 12,000, San Antonio Business Journal, Dec. 4, 2008,

http://www.bizjournals.com/sanantonio/stories/2008/12/01/daily29.html

[xliv]See the Age Discrimination in Employment Act at 29 U.S.C.A 621 (1967)

Charles “Chip” William Hinnant III and John Erwin Barton © Copyright 2010

National Law Review's Student Legal Writing Contest Deadline is Friday November 12th

Everybody’s talking about how abysmal the job market is for law students – why not build your resume while still in school?  Young lawyers are under increasing pressure to start thinking about business development activities earlier in than ever in their careers.  One tried and true way of building one’s professional reputation is by publishing.  One sure way to get noticed and to help others is to write  in a style which is helpful and educational to prospective clients.  The National Law Review is one of the nation’s premier resources for secondary legal analysis for businesses and twice a year we offer students the opportunity to submit consumer-friendly articles for publication.

The winning articles will be published online starting in Mid November 2010. The top article(s) chosen will be featured on the NLR home page. Up to 5 runner-up articles will also be posted in the NLR searchable database.

Please note that although students are encouraged to submit articles addressing Labor & Employment Law, the featured topic for the November issue, they may also submit entries covering current issues related to other areas of the law.

 

Why Students Should Submit Articles

  • Students have the opportunity to publicly display their legal knowledge and skills.
  • The student’s photo, biography, and contact information will be posted with each article, allowing for professional recognition and exposure.
  • Winning articles are published alongside those written by respected attorneys from Am Law 200 and other prominent firms as well as from other respected professional associations.
  • Now more than ever, business development skills are expected from law firm associates earlier in their careers. NLR wants to give law students valuable experience generating consumer-friendly legal content of the sort which is included for publication in law firm client newsletters, law firm blogs, bar association journals and trade association publications.
  • Student postings will remain in the NLR online database for up to two years, easily accessed by potential employers.
  • For more Information and contest rules, please click here.

An Analysis of South Africa’s Mental Health Legislation

The National Law Review is pleased to congratulate Natalie LaToya McCrea of American University- Washington College of Law winner of the Fall 2010 Law Student Writing contest.  

If one were to measure a society’s health by its historical environment, then something can indeed be said of South Africa. This nation is known for its long abhorrent history with apartheid entrenched with a political and human rights struggle. In 1995, the world witnessed the evisceration of apartheid and the birth of a new democratic South Africa. In light of the struggle endured by a visible portion of the South African population, a question asked is, what about the forgotten and somewhat invisible individuals, those who suffer with mental illness. The purpose of this work is to discuss South Africa’s mental health legislation, namely Mental Health Care Act, No. 17 [MHCA 2002], and conduct a comparative study with the African Banjul Charter, the UN Principles for the Protection of Persons with Mental Illness [MI Principles], and the World Health Organization Principles.

Historical Mental Health Legislation

While South Africa has had numerous mental health statutes, our discussion will commence with the 1973 Act.

Mental Health Act 18 of 1973 [MHA 1973] grew out of a “public panic” that ensued after the assassination of then Prime Minister, Dr. Hendrik French Verwoerd by someone deemed to be mentally ill.[i] A Commission that inquired into his death concluded that many assassinations “are committed by mentally disordered persons.”[ii] The Commission’s conclusion spawned a proposed amendment, which eventually culminated into MHA 1973.[iii]

Scholars and psychiatrists have noted that MHA 1973 did not have an individual rights concern. Rather, its primary focus was on patient control and treatment, along with the “welfare and safety” of the society.[iv] The fact that this Act was propelled during the apartheid era cements the view that the human rights of the patients were not necessarily the priority. Specifically, MHA 1973 has been criticized because (i) it only required a reasonable degree of suspicion to be certified to a mental institution;[v] (ii) individuals could be denied their freedom and placed in a mental facility based on prejudices and vendettas.[vi] In fact, finding someone mentally incapable was sometimes utilized solely for political means in the apartheid era. Freedom fighters were often silenced by being placed in a mental facility; (iii) once deemed mentally ill and certified, patients went without the assistance of the law, and could spend a considerable amount of time in the mental institutions against their will[vii]; and (iv) patients did not have a significant right of appeal or representation.[viii]

According to the South Africa Federation for Mental Health, while MHA 1973 was in existence, it facilitated disproportionate mental health care based on race, with blacks receiving the least care. In effect, the MHA 1973 provisions did not promote personal autonomy, dignity or justice for individuals with mental illness.  Instead, it highlighted a paternalistic principle which allowed mentally ill patients to be alienated, stigmatized and disempowered. It became apparent that MHA 1973 needed to be reconsidered and changed.

South Africa’s Present Mental Health Legislation

South Africa entered into a state of transition after the presidential election of Nelson Mandela in 1994. The nation was moving from a repressive regime into a new democratic era. According to the World Health Organization [WHO], Mandela’s administration was particularly focused on ridding the nation of all apartheid polices, and instituting new ones that met the needs of groups previously disadvantaged.

The new South Africa adopted its Constitution with an accompanying Bill of Rights on May 8, 1996, which came into force on February 7, 1997. It became even more evident that MHA 1973 needed to be brought in step with the newly adopted principles of the South African Bill of Rights.[ix] Specifically, it needed to reflect the rights expounded in Chapter 2, §§§ 9, 10, and 12; recognizing respectively, issues of equality; the right to the respect and protection of human dignity; and the freedom and security of person.

South Africa’s new Mental Health Care Act (MHCA 2002) was passed in 2002 and promulgated on December 15, 2004.[x] It came in force in line with other positive international initiatives in mental health legislation, such as the London Mental Health Act 2007, The Scotland Mental Health (Care and Treatment) 2003, and the Jamaica Mental Health Act 1998.  In effect, MCHA 2002 seeks to: (1) shift the system from a past custodial approach to one encouraging community care; (2) make certain that appropriate care, treatment and rehabilitation are provided at all levels of the health service; and (3) highlight that individuals with mental disabilities should not be discriminated against, stigmatized or abused.[xi]

MCHA 2002’s Key Provisions

Mental illness is defined under the Act as a “positive diagnosis of a mental health related illness in terms of accepted diagnostic criteria” made by a mental health care practitioner authorized to make such diagnosis.[xii] The Act outlines the rights and duties to mental health patients, and highlights that their human dignity and privacy must be respected; that they should not be unfairly discriminated against because of their mental status; and that they should be protected from “exploitation, abuse and any degrading treatment” [xiii]

Involuntary Treatment:

Regulation No. 27117 of 2004 governs MCHA 2002.[xiv] This Regulation and § 33 of the Act, states that in order to commence a proceeding to have someone involuntarily committed, “an application must be made to the Head of a Health Establishment (HHE) by a spouse, next of kin, partner, associate, parent or guardian”, who must have seen the person within the past seven days.[xv] Once the application is received, the HHE must have the person examined by two mental health care practitioners who perform independent assessments of the patient, and must report their findings and recommendations.[xvi] If the assessments of the two practitioners are different, then the HHE must have the patient assessed by another practitioner.[xvii] The HHE can approve an application only if the two mental health care practitioners agree together that involuntary care is needed.[xviii]

MHCA 2002 is clear that only individuals suffering from mental illness are eligible for involuntary care.[xix] According to the Act, an involuntary mental health user “must be provided with care, treatment and rehabilitation at a health establishment if at the time of application, there is a reasonable belief that the mental health care user has a mental illness,” and is likely to cause serious harm to their person or others.[xx]

If the HHE recommends involuntary care, treatment and rehabilitation, the patient must be admitted to a health establishment within 48 hours.[xxi] The HHE must then arrange for the assessment of the patient’s physical and mental health status for 72 hours.[xxii] After the 72-hour assessment, based on the medical health care practitioner’s reports, the HHE must decide if the patient requires further involuntary care, treatment and rehabilitation services as an inpatient. If the HHE determines that the patient does not require further treatment, care or rehabilitation, the patient must be discharged immediately, unless the patient gives consent to further care. Invariably, depending upon the HHE’s determination, the patient can be discharged or have their status changed to a voluntary inpatient or outpatient. [xxiii]

Voluntary Treatment:

MHCA 2002 directs that an individual who voluntarily submits to a mental health facility for care and treatment, and who consents to such care, is “entitled” to care and treatment, or referral.[xxiv]

Procedural Protections and Precautions:

MHCA 2002 incorporates several procedures, and precautions to ensure that patient’s rights are fully protected. One notable precaution is that persons directed by the HHE to examine the prospective patient must be qualified mental health practitioners.[xxv]

Another important precaution and procedural protection is the establishment of the Mental Health Review Boards, which are to be constituted in every province.[xxvi]The primary aim of the Boards is to ensure that the rights of the prospective patients are not violated. The Boards must be comprised of one magistrate, one attorney, and a mental health practitioner.[xxvii] Where the HHE subjects an involuntary patient to the 72 hour assessment, and concludes that the patient should receive further involuntary care, treatment and rehabilitation, the HHE must submit a report within 7 days of the expiration of the 72-hour assessment requesting the Board to approve further involuntary care.[xxviii]

One striking element of the Act is that while the Board considers the HHE’s decision to continue involuntary treatment, all (the applicant, the mental health providers), except for the reluctant patient is afforded the opportunity to present their representations to the Board.[xxix] Additionally, it is interesting that after the Board makes its deliberations, there is no mention of them sending a notification of the results to the potential patient. The Act, however, notes that decision letters are sent to the HHEs and the applicant who requested that the patient be treated.[xxx] Once the Board decides to adhere to the HHE’s assessment that the involuntary patient should continue to be so treated, the Board must submit their decision for judicial review and send all documentations to the High Court for consideration of the matter. The Court has a month to consider.[xxxi]

The aforementioned concerns are somewhat ameliorated by the Act’s provision that mental health care users have a right to legal representation, and to appeal to the Board about the decisions of the HHE to continue involuntary treatment.[xxxii]One problem, however, is that the HHE’s decision in favor of involuntary care is not submitted to the patient, but to the applicant.  Since the reluctant patient was not notified of the HHE’s decision in the first place, it is rather difficult for the patient to submit an appeal.  If the Board finds for the reluctant patient, s/he must be released immediately. If the Board finds in favor of the HHE’s decision, the Board must submit their decision to the High Court for judicial review.[xxxiii]

Another important procedural protection applicable to both voluntary and involuntary mental patients is that their conditions must be periodically reviewed, and annual reports must be submitted to the Board for review.[xxxiv]

MHCA 2002 Compliance with Other Human Rights Principles

The African Banjul Charter on Human and People’s Rights was ratified by South Africa on June 9, 1996, and accordingly, its principles are binding on South Africa. The Charter calls for the protection of the dignity of mental health patients; their equality before the law; their right not to be deprived of their liberty and security; and the right to obtain good mental health. [Articles 5, 3, 6, 16, respectively]. Some of these proscriptions were called to the forefront before the African Commission on Human and Peoples’ Rights in the landmark case, Purohit and Moore v. Gambia No. 241/2001 (2003). The Commission held that all states party to the Banjul Charter should guard and protect the rights of the mentally disabled to dignity and the enjoyment of life.[xxxv]

South Africa’s MHCA 2002 recognizes and subscribes to the importance of protecting individuals with mental illness.[xxxvi] The Act further recognizes that this protection is called for in the state Constitution.  There is a clear indication that South Africa wants to protect the rights and interests of the mentally ill.[xxxvii] The human dignity and respect principles evoked in Purohit are enforced and protected in §§8, 10 and 11 of the Act.

The Principles for the Protection of Persons with Mental Illness and the Improvement of Mental Health Care (MI Principles)[xxxviii]

As illustrated below, MHCA 2002 comports with many of the tenets of the United Nations’ MI Principles:

Chapter III of the Act is a reflection of MI Principle 1 enumerating some basic rights for the mentally ill, such as respect for human dignity and privacy;[xxxix] the consent to care factor;[xl] and rules against discrimination, exploitation and abuse.[xli] MI Principle 4 is reflected in Section 12 of the Act. Specifically, similar to the MI Principles, MHCA 2002 § 12 directs that a determination of an individual’s mental health status should not be based on their socio-political, cultural or economic background. The MI Principle of Notice of Rights (Principle 12) can be found in § 17 of the Act providing that mental health patients must be informed of their rights before any administration of care or treatment.  The Act follows MI Principle 16 on involuntary admission in that it considers the dangerousness factor before committing an individual involuntarily. The Act, like Principle 16, recognizes the importance of the concurrence of two mental health practitioners, and that involuntary preliminary treatment should be brief pending a review.[xlii] Additionally, both the Act and the MI Principles contain provisions for the creation of Review Boards [Principle 17; MHCA § 18]. They both also have provisions for periodical reviews of involuntary patients [Principle 17, MHCA § 30]; and the right of the patient to appeal [Principle 17, MHCA §29]. The MI Principle of monitoring is reflected in the Act in the form of judicial reviews in §§ 34, 35, 36 and 37.

The World Health Organization Principles

According to the WHO, South Africa’s MHCA 2002 “is consistent with international human rights standards…and appears to be a highly appropriate and important milestone in the development of the mental health system in South Africa.[xliii]

Many of the principles reflected in MHCA 2002 are in line with the WHO’s concept that the aim of a mental health legislation is to “protect, promote, and improve” the lives of the mentally ill.[xliv] Significantly, WHO’s concepts are reflected in a number of the Act’s principles, namely that mental health services should offer care, treatment and rehabilitation; and that recipients should be treated with the least possible restriction on their freedom.

Concerns with the New Mental Health Care Legislation

Despite the fact that MHCA 2002 represents a major milestone in South Africa’s history, the WHO has noted that it does not appear to be enough to bring forward major reforms greatly needed in South Africa’s mental health system.[xlv] In fact scholars have commented that the system is plagued with human resource constraints and infrastructure restraints, and thus implementation of the Act’s requirement in community and district hospitals is problematic.[xlvi] According to Moosa, South Africa has a limited amount of specialized psychiatric hospitals, and those that are available are ill equipped to properly abide by the 72-hour provision. Additionally, many South African psychiatric hospitals do not separate the patients by age groups; and there is a significant lack of beds.[xlvii] Other problematic areas that undermine the Acts successful implementation are lack of proper training, inadequate skills; and a lack of proper understanding of the Act.[xlviii]

Conclusion

South Africa’s new mental health care act is an important instrument implemented to advocate for the best interest of mental health care users. Although there are problems, one must remember that the nation had a horrid past, and remnants of the past system are still ingrained therein. The redeeming factor is that South Africa has made the step to correct the deficiency and has moved towards enabling its citizens to have access to obtaining optimal mental health care.

[i] Nicholas Haysom, Martin Strous, and Lloyd Vogleman, The Mad Mrs. Rochester Revisited: The involuntary confinement of the mentally ill in South Africa, 6 SAJHR 341, 343 (1990).

[ii] Id.

[iii] Id.

[iv] Burns, JK Implementation of the Mental Health Care Act (2002) at district hospitals in South Africa: Translating principles into practice, S Afr Med J 2008; 98 46-49.

[v] Id.

[vi] Id.

[vii] Id.

[viii] Id.

[ix] Bonthuys, Elsje, Involuntary Civil Commitment and the New Mental Health Bill,118 SALJ 667 (2001).

[x] Mental Health Care Act 17 of 2002 (S.Afr.),http://www.info.gov.za/view/DownloadFileAction?id=68051

[xi] MYH Moosa and FY Jeenah, Involuntary treatment of psychiatric patients in South Africa, 11(2)Afr Journal of Psychiatry, 109, 110 (2008).

[xii] Mental Health Care Act 17 of 2002 Chapter 1, § xxi (S. Afr.).

[xiii] Id. atChapter 3, §§§ 8, 10 and 11.

[xiv] http://www.info.gov.za/gazette/notices/2004/27117.pdf

[xv] Mental Health Care Act 17 of 2002 §33 (1,2) (S. Afr).

[xvi] Id. at § 33(4,5).

[xvii] Id. at § 33(6).

[xviii] Id. at §33(7).

[xix] Id. at § 32.

[xx] Id.

[xxi] Id. at §33(9).

[xxii] Id. at § 34.

[xxiii] Id. at §34(3).

[xxiv] Id. at §§ 25, 26.

[xxv] Id. at §27(4), §33(4).

[xxvi] Id. at § 18.

[xxvii] Id. at § 20.

[xxviii] Id. at §34(3)(c).

[xxix] Id. at §34(7)(a).

[xxx] Id. at §34(7)(b).

[xxxi] Id. at §34(7)(c).

[xxxii] Id. at §§ 15, 35.

[xxxiii] Id. at §35(3)(4).

[xxxiv] Id. at §§30, 37.

[xxxv] Michael L. Perlin, Arlene S. Kanter, Mary P. Treuthart, Eva Szeli & Kris Gledhill, INTERNATIONAL HUMAN RIGHTS and COMPARATIVE MENTAL DISABILITY LAW840-841 (Michael L. Perlin eds., 2006).

[xxxvi] Mental Health Care Act 17 of 2002 Preamble (S. Afr).

[xxxvii] Id. at §4(c)(d).

[xxxviii] The Protection of Persons with Mental Illness and the Improvement of Mental Health Care, G.A. Res. 46/119, U.N. Doc. A/Res/46/119 (Dec 17, 1991).

[xxxix] Mental Health Care Act 17 of 2002 §§8, 13 (S. Afr).

[xl] Id. at §9.

[xli] Id. at §§10, 11.

[xlii] Id. at §§26, 33.

[xliii] WHO, Mental Health Policy Development and Implementation in South Africa: A Situation Analysis, 10 [January 31, 2008].

[xliv] Id.

[xlv] Id.

[xlvi] MYH Moosa and FY Jeenah, Involuntary treatment of psychiatric patients in South Africa, 11(2)Afr Journal of Psychiatry, 109, 110 (2008).

[xlvii] Id.

[xlviii] Burns, JK Implementation of the Mental Health Care Act (2002) at district hospitals in South Africa: Translating principles into practice, S Afr Med J 2008; 98 46-49.

© 2010 Natalie McCrea

About the Author:

Natalie Latoya McCrea received her J.D. from Syracuse University College of Law in 2009. She also holds a Master’s Degree in International Affairs from Maxwell School of Citizenship and Public Affairs at Syracuse University. She is currently pursuing a LLM with a specialty in international business from American University Washington College of Law.  www.wcl.american.edu / 347-886-6900