Influencer Marketing: Top Business and Legal Considerations for 2020
Although influencer marketing is an ever-larger part of marketing budgets, questions have arisen about the longevity of influencers as a marketing channel. In addition, marketers are grappling with how to ensure that they and their influencer partners stay within regulatory bounds, and how to become better at measuring the true impact of influencer campaigns. In this article, we discuss what the Fenwick team has learned about influencer marketing programs following numerous conversations we have had with clients, industry professionals and in-house counsel, summarizing the principal issues marketers and their partners will need to consider in 2020.
The Current Landscape
Although regulators have been sounding the horn for a number of years—including calling for more specific enforcement and guidance efforts in recent months—not all influencers have adapted their disclosure practices to comply with regulations. Also, many businesses are still in the early stages of formalizing their influencer programs, focusing on hiring in-house marketing expertise and developing legal, marketing and related internal and external policies. In addition, marketers are trying to better understand the true impact of influencers’ campaigns, to determine whether to spend more or less time and budget on such efforts.
With the potential for ‘likes’ to be eliminated from platforms such as Instagram, measurement and fraud monitoring are likely to continue to be the focus of many marketers, along with ensuring transparency in marketer relationships with influencers and their own followers. As marketers evolve their practices, influencers and social media platforms must follow if they are to maintain influencer marketing as an impactful marketing channel.
Finally, along with regulatory and measurement challenges, influencers are becoming more and more like celebrity talent. Contracting with such influencers has therefore changed, and more formality will be needed in these arrangements for both parties.
Issues to Follow in 2020
The following list of key issues facing the industry in 2020 should provide guidance to those of you engaging in influencer marketing and contracting with influencer partners:
- Monitor continuous regulatory developments. Regulators continue to closely monitor this space. The FTC has been very active, publishing specific guidance for brands—and, more recently, for influencers themselves—that can help guide compliance. State and federal regulators have also been active on enforcement cases, including the New York and Florida Attorneys General, who announced settlements in 2019 with Devumi, LLC, declaring that it is illegal for a company to sell fake followers, likes and views to users of social media platforms to increase a user’s influencer popularity. This past October, the FTC followed with its own settlement with Devumi as well as its owner and CEO individually. The agency also entered into a settlement with Sunday Riley Modern Skincare, whose CEO instructed its employees to create fake profiles and post fake positive reviews of its products on a major retailer’s website without appropriate disclosures (including that the reviewers were Sunday Riley employees).
- Develop an influencer policy in your voice. Whether you are an influencer agency, social media platform or brand, all businesses involved in influencer marketing should develop influencer guidelines to provide to their partners. Such guidelines should focus on transparency, disclosure and best practices. Keep the policies simple and clear, and put them in your company’s unique voice. As a marketer or agency partner, it is critical to attach this policy to each of your contracts to ensure enforcement with your influencer partners.
- Be active: train, monitor and enforce. The FTC has explicitly indicated in enforcement actions that every party (e.g., brand, agency, influencer, technology supplier) has responsibility to adhere to the FTC Endorsement Guidelines. Make sure you train in-house staff on your influencer policies, and reasonably monitor partners, influencers or vendors on their compliance with both the FTC Guidelines and your influencer policies. If yours is a more sophisticated brand, consider adopting or mandating training for your influencer partners to the extent such partners are also engaging in media training. If you are a marketer, you also cannot be passive in your partner relationships in 2020, thinking you can just pass the buck. Even including language in your agreements or having a policy is not sufficient. The FTC examines the various actions taken or not taken by any company involved in the execution of a marketing campaign in both complying and ensuring its partner’s compliance. Make sure you terminate non-compliant partners (although the FTC has indicated you may allow a partner to cure a breach in certain cases).
- Up your measurement game. Marketers typically rely on influencers or agencies to provide them with metrics. Given that likes may be going away, if you are a marketer, you will need to ensure that you are contractually getting the right data. If you are a brand, you will also need to look beyond the numbers and delve deeper into the composition of the followers and other engagement metrics. Brands will have help as the industry matures; Nielsen, for example, recently launched an influencer measurement tool aiming to help marketers with analyzing brand awareness, ad recall, favorability, and purchase intent. In addition, Instagram recently launched a new tool called Brand Collabs Manager that helps brands find influencers by enabling brands to specify the desired audience they want to reach (i.e. country, gender, age, interests) and then matching brands to appropriate influencers. The tool also provides insights on sponsored ads, and coupled with the matchmaking capability of the tool, will provide more effective influencer strategies as brands can more precisely reach the audiences they are targeting.
- Adopt fraud tools and talk to your partners. Advertising transparency tools for media buying are now widely adopted across the industry, and marketers routinely obligate their partners to use these tools and contractually prohibit any payments for fraudulent clicks. However, companies are still in the early stages of truly understanding measurement in the influencer marketing space. Many influencer agency and technology companies have or are developing software to help track measurement or ferret out fraudulent activity. There are also independent third-party measurement tools and technologies in the marketplace. Start having the conversation with your partners and industry colleagues to adopt or otherwise consider using technology as another tool in your toolbox to guide marketing campaign impact. If you are an influencer agency and do not have such a toolbox, licensing third-party solutions on behalf of your clients will meet what is likely to be a consistent demand going forward from marketers. The social media platforms through which influencers engage in marketing are also essential to the conversation of minimizing fraud in the industry. Without the participation and coordination of the platforms themselves, it will be difficult for the other parties involved to reliably determine if fraud is taking place and to what extent. It is essential that all primary stakeholders come to the table to strategize how to combat the issue of fraud.
- Address key contractual protections and legal risks. Develop an influencer contract or terms of service that address the various key contractual terms necessary to implement an influencer marketing campaign. Determine who you are contracting with, and if not directly with an influencer, whether or not the right protections are still in place. If you are simply providing free products to influencers, a more informal communication about transparency and the obligation for influencers to disclose that they received such product may be sufficient. However, as digital marketing campaigns evolve to include branded content or co-marketing executions, additional issues should be addressed and analyzed in a more formal “talent agreement,” including content clearance, ownership rights, takedown and enforcement rights, exclusivity, morals clauses and measurement/data reporting obligations. For certain campaigns, additional legal analysis may need to be performed to consider legal and business risks related to background checks, independent contractor status of influencers, applicability of talent union obligations (e.g., SAG/AFTRA), and compliance with not only the FTC Endorsement Guides but also other regulations, including FDA regulations and the California Talent Agencies Act. Traditional copyright, trademark and rights of privacy/publicity issues that content creators are used to addressing in the context of more traditional media campaigns will also come into play.
One example worth noting is a case involving esports pro Turner “Tfue” Tenney. The 21-year-old video game athlete is currently in a lawsuit with FaZe Clan, Inc.—an esports entertainment company that Turner had contracted—claiming FaZe Clan violated the CTAA because it is engaging with Turner but is not licensed as a talent agency. Under Labor Code 1700.4 and 1700.5, the CTAA requires any person or corporation who “engages in the occupation of procuring, offering, promising, or attempting to procure employment or engagements for an artist” to be licensed as a talent agency by the labor commissioner. Penalties for violations include the potential disgorgement of profits the talent agency made from the violation. Accordingly, Turner is arguing that his contract with FaZe Clan should be voided and FaZe Clan is not entitled to any of his earnings. FaZe Clan countersued, claiming they are entitled to a portion of Turner’s $20,000,000 in income, and a jury trial is expected to occur in March 2020.
In a nutshell, 2020 should show continued growth, but also growing pains, for the influencer marketing industry. The FTC and individual states are likely to increase enforcement, which should push the industry to reach a consensus around best practices and contract terms.
Whether you are an influencer, agency, brand or even a tech partner, formalizing your influencer program and policies and having more in-depth discussions with your partners will be key for continued success—and for staying out of hot water with regulators.
The EU Copyright Directive: Potential Copyright Liability and a “Best Efforts” Standard for Platforms
In 2019, the Council of the European Union’s Committee of Permanent Representatives approved a Directive on Copyright in the Digital Single Market to respond to developments in the modes and markets for creation, production and dissemination of information and copyrighted works. An EU directive, as distinct from an EU regulation, sets a standard that EU member states must meet with their own legislation. As a result, the focus now turns to how each state will implement the controversial rules by the June 7, 2021, deadline.
We look at key aspects of the new directive—which will likely have wide-ranging effects on online platforms that will extend well beyond EU borders—as well as considerations for companies and online service providers going forward.
Many commentators saw in the EU directive an effort both to target American Internet platforms with restrictions and obligations, and to assert European interests in the global Internet ecosystem. In this respect, the new rules resemble the EU’s General Data Protection Regulation, which has begun to affect data privacy and information collection practices worldwide.
The two provisions discussed below received the most attention and criticism for their effect on major incumbent online service providers and on the environment for the development of new and competing services.
Article 15: “Protection of press publications concerning online uses”
Article 15 (formerly Article 11) grants press publishers (covering journalistic matter in any media, including newspapers and magazines) a right to be compensated for any commercial use of their content by an “information society service provider” (generally, online service providers). It is unclear how far the concept of “press publisher” extends, given that the phrase is undefined. The directive explicitly states that its protections should not “apply to websites, such as blogs, that provide information as part of an activity that is not carried out under the initiative, editorial responsibility and control of a service provider, such as a news publisher.” The right expires two years after the material is “published” (calculated starting from January 1 of the year following the date that the press publication is first published). It does not apply retroactively to material published before June 7, 2019, when the directive was adopted by the member states and came into force.
Mere hyperlinking and the “use of individual words or very short extracts” are exempt from the provision. So are merely private or non-commercial uses.
Member states are responsible for ensuring that authors of press publications receive “an appropriate share” of revenue that publishers receive under the provision. The EU Parliament stated in a press release that this right is effected in part by automatically giving right to news publishers to negotiate licensing agreements on behalf of its journalists for content used by news aggregators.
Article 17: “Certain uses of protected content by online services”
Copyright Liability and Related Obligations for UUC Platforms
The directive requires user-uploaded-content (UUC) platforms to obtain licenses from rightsholders to host and disseminate copyrighted works. This marks a change from protection that the EU’s e-Commerce Directive, issued in 2000, had historically afforded information society service providers against copyright infringement liability for the actions by their users.
Under the copyright directive, online platforms will be liable for copyright infringement by their users, unless the platforms have permission from rightsholders or can establish that they have:
- Made “best efforts” to obtain permission;
- Made “best efforts,” consistent with “high industry standards of professional diligence,” to ensure that any content flagged by rightsholders are made unavailable on the platform; and
- Acted expeditiously to disable or remove copyrighted work from the platform upon notice by the rightsholder, and made “best efforts” to prevent future uploads. The prevention of future uploads requires what some refer to as an “upload filter.”
“Best efforts” is usually an extremely high standard. In this context, to determine whether a platform has met the standard, member states must consider the type and size of the platform, the user base, the types of works made available on the platform, and the available solutions and/or costs involved. Member states must ensure that platforms build an “effective and expeditious complaint and redress mechanism” for users to address disputes over the removal or disabling of content.
Platforms must provide to rightsholders, upon their request, “adequate information” regarding the practices underlying their “best efforts” at compliance with Article 17 (formerly known as Article 13). Where platforms have licensed content from rightsholders, they must also provide information on the use of any content subject to the licensing agreement.
Rightsholders seeking to remove or disable content must provide a reason for their request. In addition, they are entitled to a response “without undue delay” and review of any removal decisions by a human person (rather than a machine).
Users’ Protections and Rights
Any authorization the UUC platform receives from the rightsholder will automatically pass onto the end-user, so long as the end-user’s use of the material is not commercial or “does not generate significant revenue.” (It is not clear from the text of the directive what permissible uses may be commercial but not result in “significant revenue.”)
Any efforts by a UUC platform to secure licenses from a rightsholder should not interfere with its users’ rights to use the content in ways covered by existing exceptions to copyright infringement including for “quotation, criticism, review” and for “caricature, parody, or pastiche.” Article 17 requires member states to ensure that users have an affirmative right to use their UUC for these purposes.
Article 17 also states that its application shall not lead to any “general monitoring” obligations by the service provider. In other words, member states should not require or suggest that the platforms generally monitor UUC in any manner that would be inconsistent with data protection laws.
Member states must also enact alternative dispute resolution schemes to provide users an extrajudicial means of asserting their rights should platforms remove content that is uploaded for one of the protected categories of expression.
“Lite” Version of Article 17 for Small New Platforms
Smaller and younger platforms are entitled to a lower “best efforts” standard. Those that have been available in the EU for less than three years or have an annual revenue below 10 million euros are required to show “best efforts” only in obtaining permission from rightsholders and to act expeditiously to remove content upon notice. Once these platforms average over five million unique visitors a month, however, they must also demonstrate best efforts to prevent future uploads of protected content.
Exemptions from Article 17 Licensing Requirements
According to the Copyright Reform FAQ, certain types of UUC platforms and providers are exempt from Article 17’s licensing requirements, including:
- Open-source software development and sharing platforms (i.e., Github)
- Electronic communication service providers (i.e., WhatsApp)
- Nonprofit scientific or educational repositories
- Nonprofit online encyclopedias (i.e., Wikipedia)
- Online marketplaces (i.e., eBay)
- Business-to-business cloud services and UUC cloud services (i.e., Dropbox).
The EU directive provides exemptions from copyright liability for the following:
- Text- and data-mining for research organizations and cultural heritage institutions;
- Teaching and other educational purposes by educational institutions, where the work is accredited if possible; and
- Preserving cultural heritage.
The new rules impose certain responsibilities on the EU member states to facilitate content distribution and licensing, including:
- Consulting “rightsholders, collective management organizations and cultural heritage institutions in each sector” to facilitate the licensing of “out-of-commerce works” (works that are not or have never been commercially available) for use by cultural heritage institutions
- Providing an “impartial body or of mediators” to assist with concluding licensing agreements for audiovisual content of online streaming platforms (Article 10)
Supporters of the directive have argued that it was important to compensate copyright holders more fully in the online environment, while critics have cautioned against a vaguely-written law that threatens free speech and appears to target American companies as a protectionist move.
Although the directive’s text does not prescribe any particular means of detecting and removing protected works, and the European Commission has clarified that it does not require “any specific technology to recognise illegal content,” many have criticized the “best efforts” standard as essentially requiring all covered platforms to establish a content identification and filtering system. Critics point to the fact that the “best efforts” standard requires platforms not only to remove copyright-protected content in reaction to notifications but also to prevent future uploads of copyright-protected content. Others have noted that any filtering system is inherently unreliable and prone to removing permitted user-generated content, like memes and gifs. And more have criticized the standard as imposing a burden that only the biggest and most resourceful companies can meet, thereby securing their monopoly or increasing their market share in the EU.
The European Commission and the member states are expected to organize “dialogues” among stakeholders to arrive at a uniform application of the directive. The 28 individual member states will then have up to 24 months to enact local legislation to meet the directive’s requirements.
France became the first member state to implement the provisions of the directive on July 23, 2019. It was added to the country’s Intellectual Property Code (IPC) “to create a neighboring right for the benefit of the press agencies and the press editors” outlining the rights of press editors and news agencies. The new French law requires platforms to obtain authorization from a press agency or publisher before reproducing or communicating all or part of the press’s publication in accord with the core change of Article 15 of the directive.
Other sections of the law show that France’s implementation of Article 15 goes beyond the requirements of the directive. Whereas the new rules state that “Member States shall provide that authors of works incorporated in a press publication receive an appropriate share of the revenues that press publishers receive for the use of their press publications by information society service providers,” Article L.218.4 of the French IPC requires platforms, when determining compensation, to base it on direct or indirect operating revenue of any kind or a flat rate and to consider things like the human, material and financial investments the publishers and press agencies made. Platforms must also base compensation on the contribution made by the publication’s political or general information, and the importance of the press publications to online public communication services.
In addition, Article 15 only states that it will not apply “in respect of the use of individual words or very short extracts of a press publication.” The French law, however, goes further and states that this exception does affect the rights provided by Article L.218-2, particularly where short extracts can substitute for the press publication or otherwise allows the reader to dispense with the need to refer to the publication.
No member state has formally adopted the provisions of Article 17 of the directive. In fact, in Poland v Parliament and Council, Poland has filed a legal challenge before the Court of Justice of the European Union, seeking to annul Article 17 in its entirety or at least the article’s sections that require platforms to make their “best efforts” to remove and prevent the future upload of allegedly infringing copyrighted material. The plea alleges that the provisions of this section of the directive infringe on the right to freedom of expression and information guaranteed by Article 11 of the Charter of the Fundamental Rights of the European Union.
Although implementation may vary across the European Union, as a practical matter, the most aggressive implementations may create a standard that will affect a company’s EU-wide practices and policies. While many details remain unknown, the directive has begun to affect U.S. companies that have customers and users in the EU.
Online service providers should monitor further implementations carefully and consider what their political allies can do to help shape the national laws. They must weigh the need to comply with restrictions and obligations against the importance of the European market or specific national markets. They should also study the logistical challenges of compliance and the possible licensing frameworks and terms.
Companies familiar and experienced with processes for qualifying for safe harbor under the Digital Millennium Copyright Act will find the challenges of the new European requirements more complex. Vigilant monitoring and preparation are advisable.
Is Your Trade Secret Safe Under FOIA?
By Mary Griffin
In June 2019, the U.S. Supreme Court decided Food Marketing Institute. v. Argus Leader Media. The case marked the Court’s first chance to address an important question: When can (or cannot) the federal government withhold information from a Freedom of Information Act request based on the contention that responsive information is confidential or a trade secret? The Court held that commercial or financial information that is “customarily and actually treated as private by its owner and provided to the government under an assurance of privacy” is confidential under Exemption 4 to FOIA and is therefore shielded from disclosure.
Argus Leader Media, a newspaper company, filed a FOIA request for data collected by the U.S. Department of Agriculture requesting the name, address and store-level data for all retail stores that participate in the national food stamp program. The USDA released the names and addresses of the participating stores but declined to disclose the requested store-level food stamp data, citing FOIA’s Exemption 4, which shields from disclosure “trade secrets and commercial or financial information obtained from a person and privileged or confidential.” Unsatisfied with the USDA’s nondisclosure, Argus brought a lawsuit in the U.S. Court of Appeals for the Eighth Circuit to compel disclosure of the store-level data.
Like many other courts, in Argus Leader Media v. United States Department of Agriculture, the Eighth Circuit applied the “substantial competitive harm” test to determine whether FOIA’s Exemption 4 shielded disclosure of the requested store-level data. Under this test, commercial information is not confidential unless the disclosure of such information is “likely…to cause substantial harm to the competitive position of the person from whom the information was obtained.” The Eighth Circuit ordered disclosure, finding that such disclosure was not likely to cause “substantial competitive harm.”
On appeal, in Food Marketing, the Supreme Court rejected the “competitive harm” test, noting that the test was a “casual disregard of the rules of statutory interpretation” and did not find support in the statutory language. Instead, the Court used the plain meaning of the term “confidential” as understood at the time Exemption 4 was enacted. It found that information is confidential if: (1) the information is “customarily kept private, or at least closely held,” by the submitting party of information; and (2) where the receiving party provides “some assurance that [the information] will remain secret.” The Court explained that the first condition must always be established because it would not make sense for the government to treat information as private if the owner does not. However, the Court left open the second question: whether confidential information loses its confidential status if it is provided to the government without assurance that the information will remain private. The Court went on to state that “at least where commercial or financial information is both customarily and actually treated as private by its owner and provided to the government under an assurance of privacy, the information is ‘confidential’ within the meaning of Exemption 4.”
Although Food Marketing seems to broaden the scope of Exemption 4, it is unclear whether both conditions must be met for trade secrets to be protected under the exemption. In an October 2019 guidance update, the Department of Justice suggested that “agencies should as a matter of sound administrative practice consider both conditions in the process of determining whether to invoke Exemption 4's protection for ‘confidential’ commercial or financial information.” With that, companies that must disclose confidential information to federal agencies should obtain explicit assurance that the agencies will not disclose the information in response to a FOIA request. Further, companies should ensure that they are taking the necessary precautions to keep their trade secrets private, as agencies may seek information from the submitter about its practices.
“Small Claims” for Copyright Infringement Actions
By Chieh Tung
On October 22, 2019, the U.S. House of Representatives passed the Copyright Alternative in Small-Claims Enforcement Act, which would provide an alternative dispute resolution program for lower-value copyright infringement claims.
Currently, rightsholders to copyrighted materials must litigate their claims in federal court, which can be protracted and costly. The purpose of the Act is to provide a “forum for lower-value copyright disputes in which participation is voluntary for both claimants and respondents.” In addition, the law is “intended to be accessible especially for pro se parties and those with little prior formal exposure to copyright laws who cannot otherwise afford to have their claims and defenses heard in federal court.” Parties may appear pro se or be represented by an attorney or a law student on a pro bono basis.
The Act establishes a Copyright Claims Board, composed of three Copyright Claims Officers recommended by the Register of Copyrights and appointed by the Librarian of Congress. Each officer must have at least seven years of legal experience. Additionally, there must be at least two full-time Copyright Claims Attorneys with at least three years of “substantial experience” in copyright law to help with the administration of the Board. The Board may hear claims for copyright infringement, declarations of non-infringement, misrepresentation under section 512(f) of the Digital Millennium Copyright Act, related counterclaims and any legal or equitable defenses, such as the fair use doctrine. Once a proceeding is initiated, defendants have the choice of opting out, and the parties may choose instead to bring their case to court. If the defendant does not opt out—including by failing to appear—the Board’s decision is binding and may be subject only to a request for reconsideration or review by the Register of Copyrights.
Proceedings under the Act differ from actions brought under the DMCA in several notable ways. Unlike the DMCA, which does not cap awards for actual damages and profits, and does not otherwise cap the total amount of recovery, total damages under the Act are capped at $30,000 per proceeding or $15,000 in statutory damages per work. Moreover, the Board is required to consider whether an infringing party has agreed to stop or mitigate their infringing activity. And, unlike federal court actions where registration of a work is a prerequisite to filing a claim, the Act allows claimants to bring a claim or counterclaim for infringement if the owner has applied to register the work and that application has not been denied. However, the Board may not render a decision in a proceeding until a registration has been issued by the Copyright Office.
One potential benefit of the Act is that there will be a lower barrier to entry for rightsholders with more limited resources to adjudicate their claims without the burden of litigation in federal court. For the very same reason, however, it will become much easier for anyone—rightsholders with legitimate claims or otherwise—to pursue a claim for infringement, with the potential threat of up to $30,000 in liability—modest by federal litigation standards, but crippling for individuals or small businesses. This is of particular concern given that claimants may bring claims for unregistered works, which could encompass any of the vast array of online content users share on a regular basis, ranging from articles and photos to memes and videos. To protect against this possibility, potential defendants will need to remain vigilant about their deadline to opt out of a proceeding, as well as the procedure for providing the Copyright Claims Board with the requisite written opt-out notice.
Booking Generic Domains
The U.S. Supreme Court will soon determine whether combining a generic term with a generic top-level domain (gTLD) such as .com can ever be a protectable trademark. Regardless of how the Court rules in U.S. Patent & Trademark Office v. Booking.com B.V., there will be repercussions for future recognition of trademark rights in generic.com domains.
In support of its longstanding practice of rejecting applications to register a generic.com, such as BOOKING.COM, the USPTO claims that registering generic terms combined with gTLDs creates monopolies over "common coinages" that restrict competitors from describing their products and services. To prevail, the USPTO must establish that BOOKING.COM is generic, denoting a "booking commercial website," establishing that, as such, it is ineligible for trademark protection under the Lanham Act. If the Court finds it protectable, there may be a flurry of companies adopting domains consisting of generic words combined with gTLDs and trying to register them as trademarks.
Booking.com claims that, when evaluated in its entirety, as the Trademark Office must, BOOKING.COM makes a distinctive commercial impression that’s distinguishable from another's use of "booking" alone. It may also counter that marks like BOOKING.COM are unlikely to hinder competitors from describing their products and services because a competitor is always referring to a particular source of products and services by referencing the domain. If two domains are confusingly similar, such as booking.com and bookings.com, the same likelihood of confusion standard should be applied to resolve the dispute.
If the Court rules in favor of Booking.com, it should clarify under what circumstances it will allow a generic term combined with a gTLD to register and how broadly they can be enforced. The Court should at least require generic.com domains to show secondary meaning and acquired distinctiveness as it does for descriptive marks. Furthermore, an entity that owns and uses a domain may be blocked from registering it if another entity has filed a prior intent-to-use application for that domain in the U.S. or abroad. To reduce these conflicts, the USPTO will need to verify that applicants own the domain before they apply for its registration.
In recent Supreme Court trademark decisions, Matal v. Tam and Iancu v. Brunetti, the Court held that refusing applications for disparaging, immoral and scandalous marks was unconstitutional due to broad restrictions on free speech. We could see the Court continue this trend of reducing restrictions on what brands are granted trademark registration. In arguing against trademark protection for generic.com domains, the USPTO relies on decade-old Federal Circuit decisions to deny applications for marks that combine gTLDs with generic terms (e.g., In re 1800Mattress.com IP LLC; In re Hotels.com, L.P.; In re Reed Elsevier Properties Inc.; and In re Oppedahl & Larson LLP). In the years since, however, online consumer activity has substantially increased at an unprecedented rate. This trend supports an assertion that domain names are becoming source-identifying for companies' products and services since a growing number of online consumers are visiting websites to make purchases.
Previously, in Kellogg v. National Biscuit, the Supreme Court held that a mark is not generic when the "primary significance of the term in the minds of the consuming public is not the product but the producer." Since domain names are unique in nature and drive consumers to a particular source of information, products or services, they acquire distinctiveness, regardless of how generic the second level domain appears without the gTLD. Considering this characteristic of domains, the Court is likely to rule in favor of Booking.com as the USPTO’s position is no longer consistent with the realities of brand development and acquired distinctiveness on the internet.
Diversity in Patenting: Current Landscape and Insights from USPTO Report
The Study of Underrepresented Classes Chasing Engineering and Science Success Act (SUCCESS Act) of 2018 tasked the Director of the U.S. Patent Office with preparing a report that (among other things) identifies publicly available data on: (1) the number of patents annually applied for and obtained by women, minorities and veterans, and (2) the benefits of increasing these numbers. The USPTO was also charged with providing legislative recommendations on how to promote the participation of these groups in entrepreneurship generally and in patents specifically.
The USPTO, which transmitted its report to Congress on October 31, 2019, concluded that there is a limited amount of publicly available data regarding the participation rates of women, minorities and veterans. Additionally, the information that does exist indicates that women and minorities are underrepresented as inventors named on U.S.-granted patents, the report found. Most of the studies analyzed by the USPTO focused on women. Relatively few studies focused on minorities, and none focused on veterans.
The USPTO report estimated that the share of women inventors on granted patents increased from approximately 4 percent in 1870 to approximately 7 percent in 1940, and that the “women inventor rate” increased from approximately 4 percent in 1976 to approximately 12 percent in 2016. Despite showing a growing women inventor rate, the report also found that in 2015 women made up about 28 percent of the workforce in science and engineering, compared to which the estimated 12 percent women inventor rate pales. (For more data on gender diversity in patenting, see Fenwick’s previous article exploring findings from a Yale School of Management study.)
According to the USPTO, a study of inventors on “valuable” patent applications from 2011 to 2015 indicated that many minority groups are vastly underrepresented as patent applicants. For example, of the two largest minority groups, African Americans represent 11.3 percent of U.S.-born Americans but only 0.3 percent of patent survey respondents, and individuals of Hispanic ethnicity represent 11.5 percent of U.S.-born Americans but only 1.4 percent of survey respondents.
Even accounting for the sparsity and lack of uniformity of the studied data, the startlingly low inventorship rates for women, African Americans and Hispanics should give pause, and call for greater insight into the problem of insufficient diversity in the patent arena. In its report, the USPTO recommended enhancing its authority to gather demographic information about patent applicants, such as in a voluntary biennial survey, and/or to share demographic information among federal agencies. Such efforts, if properly implemented to respect privacy, could be of value.
If nothing else, the USPTO report seems like an invitation for universities or other independent organizations to undertake larger-scale studies of recent patent participation by women, minorities and veterans across different industries, normalizing for the size of the workforce made up of these groups in those industries.
Congress is continuing to explore these issues. Most recently, the House Small Business Committee conducted a hearing on January 15, 2020, including speakers from academia, government and industry. Their testimony is available here.