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Monday, April 09, 2007

Guest Blog: Constitutionality of the Trademark Protection Act

By Matthew Prince
Adjunct Professor of Law
John Marshall Law School

There has been some question over whether Utah has the right to pass the Trademark Protection Act. Santa Clara University Law Professor, Eric Goldman, suggests that SB236 may be a violation of the so-called Dormant Commerce Clause. To understand his point, and why he is wrong, you need to understand both the Commerce Clause of the U.S. Constitution as well as the history of state trademark statutes in the United States.

The Commerce Clause of the U.S. Constitution was enacted to ensure that we had one cohesive, federal system. That does not mean that every state has to have the same laws, but rather that laws do not discriminate against out-of-state businesses. An old-school Commerce Clause case would involve one state erecting a tax on out-of-state residents. For example, imagine Colorado passed a law which erected a toll booth at the Utah-Colorado border and charged everyone with a non-Colorado license plate a fee as they crossed. That would be a classic violation of the Commerce Clause because the toll booth discriminated against out-of-state residents. No one has alleged that the Utah Trademark Protection Act discriminates against out-of-state businesses in this way.

Because there is no discrimination against out-of-state businesses, critics of the Utah Trademark Protection Act must turn to a more controversial constitutional doctrine: the so-called Dormant Commerce Clause. Instead of one state overtly discriminating against out-of-state residents, the Dormant Commerce Clause is a judicial extension of the Commerce Clause that says states may not "unduly burden" interstate commerce. Professor Goldman, and others, argue that the Utah Trademark Protection Act potentially violates this principle.

But they are likely wrong for two fundamental reasons.

First, in order to "unduly burden" interstate commerce a statute needs to create a burden. To understand why this isn't the case in this instance, you need to understand how search engines sells keyword advertising. For example, check out this web page in on Google's AdWords website. Google, and other search engines, claim to allow advertisers to select to display their ads not just on a regional level but down to a neighborhood level. In order to allow this, the search engines already have to be tracking the geographic location of every user searching for terms on their sites.

Try it yourself. Search for "Honda Dealer" at www.google.com. I am writing this from Park City, Utah and, when I run this search, I get ads for Larry H. Miller Honda, Stockton to Malone Honda, and Ken Garff Honda. Your results may vary, depending on where you are located, but the results I get are local Honda dealerships within 30 miles of my home. These dealers have not purchased ads for the entire country on the fanciful hope that a Utah searcher may stumble across their ads. Instead, Google has allowed them to purchase ads and then restrict their display to only those searchers within the state. If search engines are already restricting searches based on the searcher's geographic location, then what is the additional burden preventing them from complying with Utah's law? Moreover, how it is an "undue burden"? The answer is: it isn't.

Second, in order to violate the Dormant Commerce Clause a statute must not be authorized by Congress or be a traditional state police power. In this case, Congress has specifically authorized states to regulate in the area of trademarks. Trademark is an interesting area of law that exists simultaneously on the state, federal, and international level. Well prior to the enactment of Utah's law, all fifty states have their own trademark statutes with their own specific nuances. The right of states to pass their own trademark statutes is not only recognized by history, but also by the Lanham Act itself. This recognition trumps any potential Dormant Commerce Clause claim.

As the Supreme Court explains:
“When Congress so chooses, state actions that it plainly authorizes are invulnerable to constitutional attack under the commerce clause.” Northeast Bancorp., Inc. v. Bd. of Governors, 472 U.S. 159, 174.

“The limitations on state authority created by the Commerce Clause cannot be ascertained without reference to the relevant federal law” and if authorized by federal law cannot run afoul of the Commerce Clause.
Norfolk Southern Corporation v. Oberly, 822 F.2d 388, 393 (3d Cir.1987), upholding Delaware’s coastal zone statute which banned product transfer facilities from operating on the Delaware coast.
The Supreme Court has long observed with respect to the application of the Dormant Commerce Clause, that when “state or local government action is specifically authorized by Congress, it is not subject to the Commerce Clause even if it interferes with interstate commerce.” White v. Massachusetts Council of Construction Employers, Inc., 460 U.S. 204, 213 (1983) (holding that Commerce Clause did not prevent City of Boston from giving effect to Mayor's Executive Order requiring all construction projects funded with municipal monies to be performed by a workforce at least half of whom were bona fide residents of Boston), citing Southern Pacific Co. v. Arizona, 325 U.S. 761, 769 (1945); see also Sea Air Shuttle Corp. v. Virgin Islands Port Authority, 800 F.Supp. 293, 304-05 (D.Vi.1992) (port authority's actions were authorized under the proprietary powers exception to Airline Deregulation Act preemption and therefore did not violate the Dormant Commerce Clause); Bowers v. NCAA, 151 F.Supp.2d 526, 539 (D. NJ. 2001) (finding similar implicit authorization by federal statute).

In all the Supreme Court cases cited above where state statutes are upheld, virtually none of the delegation of authority from a federal statute are as clear as the Laham Act’s delegation to the states of the right to set the terms and conditions under which their trademarks apply.

Moreover, the history of state trademarks stretches back to the birth of our nation and is a right that is traditionally held by the states, something repeatedly and convincingly considered by courts looking at whether a state has the right to act. Therefore, given the Lanham Act’s clear delegation, overwhelming precedent, and the traditional history of state trademarks, the Commerce Clause analysis would likely never come into play.

This is all beside the fact that every sitting Supreme Court Justice, except the Chief Justice and Justice Alito, has been critical of so-called Dormant Commerce Clauses analysis. See Quill Corp. v. North Dakota, 504 U.S. 298, 309 (1992) (Stevens, J., writing for a unanimous court) (recognizing that the Commerce Clause “says nothing about the protection of interstate commerce in the absence of any action by Congress”); Wyoming, 502 U.S. at 461-62 (Scalia, J., joined by Rehnquist, C.J., and Thomas, J., dissenting) (describing the “negative Commerce Clause” as “nontextual”); U.S. Term Limits, Inc. v. Thornton, 514 U.S. 779, 797, n.12 (1995) (Stevens, J., joined by Kennedy, Souter, Ginsburg, Breyer, J.J.) (“[T]he Constitution is clearly silent on the subject of state legislation that discriminates against interstate commerce.”). The Supreme Court itself has cautioned against an over-implication of the so-called Dormant Commerce Clause, warning that it is not in the text of the Constitution but instead a “judicial creation.” See, e.g., C&A Carbone, Inc. v. Clarkstown, 511 U.S. 383, 401 (1994).

Remember, this is not a part of the U.S. Constitution but instead a doctrine that has been invented by courts. It can just as quickly be disavowed by the same courts. Especially when, as here, real harm is being done to the real economic interest of trademark holders.

One of the best aspects of the U.S. federal system is that each state can function, in the words of Justice Brandeis, as a laboratory for democracy. See New State Ice Co. v. Liebmann, 285 U.S. 262, 311 (1932) (Brandeis, J., dissenting). We all learn in third grade civics class that one of the strengths of our country is that states can experiment with new ideas. The best ideas rise to the federal level. I don't know whether the Utah Trademark Protection Act will rise to this level, but the level of attention it has drawn from trademark holders and search engines alike indicates that this is at least an issue that warrants discussion.

17 Comments:

Anonymous Anonymous said...

haha, you guys are idiots.

Check out what slashdot has to say about this: http://yro.slashdot.org/yro/07/04/10/0121209.shtml

4/10/2007 3:17 AM  
Blogger Phillip Rhodes said...

This blog shows a complete lack of understanding of the technology involved in the Internet, which is why it's completely wrong about the "undue burden" aspect.

Google and other search engines only have a vague notion of where you are geographically, and even that notion is not always correct. Geolocating by IP address is an inexact science, and it must be by definition because of the way IP addresses are allocated and used.

To give a simple example. If address 65.190.188.24 is assigned to an ISP in North Carolina, you might assume that the user of that address is located in NC. But if the ISP that has that IP does business in SC, GA and VA (a not unlikely scenario) then there's no easy way to tell if the user of that IP - at any given time - is in NC, SC, GA or VA. And if it's used for dial-up service, the user could actually be anywhere in the world.

The only way a Google or Yahoo or Altavista can really tell exactly where you are is to ask you, and tie that information to a login account. So if you're searching while logged in, assuming you've provided accurate information, Google or Yahoo can tell where you are. Otherwise, to ask the search engines to accurately ensure that no ads are displayed to someone in Utah - which might violate the Utah law - is basically impossible.

Yes, there are a few other details to consider; and there are ways to make geolocating IPs a little more accurate. But it's never going to be completely accurate.

And what of other mechanisms besides IP address? Anything else you can come up with is - at best - a heuristic which isn't going to be any more accurate than using the IP address. Actually, it will probably be less accurate.

So in short, this law would require search engines to do the impossible, or would require the entire Internet to be re-jiggered in such a way that your geographic location is transmitted along with every IP packet you send. That would only mean re-writing every operating system in the world, and replacing / updating every router in the world.

Good luck convincing somebody that that isn't "undue burden."

Now maybe point 2 trumps all that, but considering just how disruptive it would be to impose this sort of requirement, I find it hard to believe that any reasonable court would uphold this. But then again, courts do stupid things every day, so who knows...

4/10/2007 9:34 AM  
Blogger Phillip Rhodes said...

On second thought, maybe there is an easy solution to this. Maybe we should just disconnect Utah from the Internet completely. That might be better for everybody in the long run...

4/10/2007 9:39 AM  
Blogger sellmeyoursoul said...

Especially when, as here, real harm is being done to the real economic interest of trademark holders.

What real harm? Pontiac's feelings get hurt when an add for Mazda pops up. Since you seem to use google as the model for the entire industry this law affects I will too, though their competitors who don't have as sophisticated a system are more likely to be harmed by this. If you put a search in for a single keyword in google, you get pages of related search results and a few adds that are clearly marked. If the user is confused and thinks the adds are somehow the most relevant result, they don't understand the tool that they've chosen to use. In that case, the onus is clearly on the user. If the law's premise is that everyone is too stupid to know the difference, I feel sorry for the people of Utah and the level of contempt they are shown by their own legislators.

If this law were to prevent search engines from selling "adds" that are indistinguishable from search results, a practice that I believe has died since the rise of google, then that would be another story. Although, there are laws against fraud that would probably be applicable.

The only harm here is to the companies who need to interface with Utah's database on a conditional basis. And perhaps to the companies who will need to pay the state to get an electronic trademark since not having one implicitly dilutes your mark (assuming that your premise is correct). That would mean that you are not doing everything to protect your trademark and could have consequences in any trademark dispute.

There is also the danger of someone getting an electronic trademark that "should" go to someone else. For instance, if I had a company that put energy efficient windows into your house, I'd want a search for windows to turn up my add, so I'd get the trademark. If I moved fast enough, then Microsoft, who also has a product of that name would be in conflict with me. As I understand current law, we could both hold the mark since we are clearly not in the same field. Does the electronic mark support that level of distinction? What is the process for disputes?

I also reject the argument that similar laws are on the books in other countries. Just because France or Germany has bad trademark laws doesn't mean we should emulate them. They also restrain speech in ways that are totally incompatible with the first amendment. Should we consider changing that bit of the constitution? Of course not.

As well intentioned as this law may be, it seems to address a problem that doesn't truly exist for a small number of corporations with bruised egos at the expense of pretty much everyone else in the state of Utah. It sets a bad president for the rest of the country. Even if it is upheld as constitutional, that doesn't change the fact that it's a bad law.

4/10/2007 9:42 AM  
Anonymous Jason Carr said...

I disagree with point #1. This law does create undue burden on search engines (and potentially on advertisers).

While you are correct in stating that Google has the capability to geographically target ads, that targeting has 2 important limitations:

1. It is selected by advertisers. This means that if any advertiser chose to advertise nationally (which is extremely common), Google would then be required to check their keywords against some database of special Utah marks and then, if any conflicts were found, apply special limits preventing the ads from showing in Utah (and, should other states inact similar measures, one could see how this could quickly become a massive undertaking).

2. It is technically impossible to exactly determine the geographic location of all internet users. Google's targeting technology is good and works for most users, but, due to the limitations inherent in the internet's architecture, it is not perfect (and cannot be). This effectively means that no search engine, Google or otherwise, can be 100% compliant with this law without blocking the offending ads across the entire US (even in places where it would otherwise be legal).

There is a third, and even more compelling reason that this creates an undue burden: Not all search engines and keyword advertising companies have geographic targeting capabilities. In fact, most do not. This law would require the companies that do not support geographic targetting to either develope such capabilities (which would cause them to incur massive and potentially debilitating costs) or cease opperations in the US. That, of course, would likely put many of these companies out of business which, in turn, would adversly affect the thousands of businesses both large and small which depend on the advertisements on these networks for significant portions of their revenue.

It seems to me that this law is not only foolish, misguided, unfair, and shortsighted, but it is also doomed to failure because of the undue burdens that it will place on search engines and their advertisers. Time (and expensive and wasteful court battles) will tell.

4/10/2007 9:53 AM  
Anonymous Anonymous said...

Try all of this with Yahoo! and you don't get locale specific ads. Does that mean Yahoo! will now have to infringe upon a Google patent to implement locale specific results? I do not know if said patent exists, but Yahoo! returned results from Duluth, GA when I searched for "Honda Dealer." (try it yourself)
How will Yahoo! ensure it's searchers are in Utah if it does not have/cannot create the technology to do so?

4/10/2007 10:44 AM  
Anonymous Anonymous said...

Lets see...
1. It is imposible to geographicaly locate all internet searches.
2. Many advertisers/sites do not allow you to pick geographic display areas
3. Many companies have generic names like shoestore.com If they took out shoe store how the heck is it unfairly competitive for others to avertise on that term?
4. Keyword avertising does not create confusion for the consumer. Nobody thinks a Mazda ad that says The Mazda whatever - better milage than a pontiac X is going to lead them to the official pontiac site. There are already strong laws in effect to prevent mazda from misleading consumers and you shoud know better.
5. When you go to the phone book to look up Al's pizza you see all kinds of adds for pizza. Why exactly should an online search be diffrent?
6. Utah's general councel already warned that this law might violate the DCC.

This law absolutely shows a lack of understanding of how search engines and the internet work. It shows at least some disreguard or lack of understanding of existing laws and case law. And it is clearly aimed at unfairly limiting competition.

Frankly I think Google, Yahoo, etc. should just serving results to any IP that resolves to Utah just to limit their liability.

4/10/2007 11:07 AM  
Anonymous Anonymous said...

One quick question. So when did we determine that search engines and potential advertisers new method of advertising, not have to take in account existing trademark laws?

I am sorry that google has made a fortune off of it, but they did not do their homework. Now they have to pay the price, and design a system that does not infringe on an existing trademark.

4/10/2007 11:31 AM  
Anonymous Voice of Utah said...

Ouch--your guest "law professor" not mentioning his business interest in this legislation? Cringeworthy...
http://www.sltrib.com/ci_5635042

4/10/2007 4:13 PM  
Blogger The Senate Site said...

Thanks, VoU, for the link.

Matthew Prince works for UNSPAM. He has confirmed that UNSPAM has no plans to bid on the contract. Not sure they'd be allowed to, anyway. Not sure what his plans are, but if he, or anyone else wants to get involved as private individuals, more power to them.

4/10/2007 4:38 PM  
Anonymous Anonymous said...

All this discussions is based entirely on a single keyword ad based search engine: Google.

First, there are other search engines out there (as another anonymous user stated with Yahoo being the example). While I'm not a law professor, I can't help but think that an undue burdon would be placed on a smaller advertising firm trying to break into the online market.

Next thing Utah will do is pass a law defining the Internet as "a series of tubes" or that the Backspace key must be removed from any keyboards which write email to Utah residents, as that key has the capability to destroy the word Utah, and therefore is a political assasination.

Don't the legistators have anything better to do? How about adressing REAL identity theft instead of trying to destroy healthy competition.

4/10/2007 9:11 PM  
Anonymous Anonymous said...

I don't understand the confusion. Obviously the legislators of this dubious law have had their campaign war chests enriched by local businesses. Why are you, dear readers, trying to attack logically, when your arguments will be evaluated financially?

Get with the program. Ignore this law like you were meant to. Either that or move to Utah and start a large corporation. Politicians love to appear to understand the internet, and they love to get paid. Corporations love to feel like they are limiting competition. Consumers have nothing to fear from this naive foray. Everyone wins. Please pay no attention to the logical posts above.

4/10/2007 11:43 PM  
Anonymous Anonymous said...

"We all learn in third grade civics class that one of the strengths of our country is that states can experiment with new ideas."

Third grade civics class? WTF is he talking about? This guy clearly didn't grow up in Utah, but I'm glad he's here now. However misled he might be on the area of online commerce, he has some great ideas on education. What with our current debate on school vouchers, I would love to hear him instruct the teacher's unions on what we all should be learning in the third grade.

4/10/2007 11:53 PM  
Anonymous Anonymous said...

This is a ridiculous law and I for the most part agree with a lot of what others have posted here. I have found those ads to be of great help when I am searching for a product or service. They help me to expand my search results and also to include products or services that I hadn't thought of when entering my search request. And if someone has a service or product that is of better quality or a better price elsewhere in the state or out of the state then I want to know about it. This law shows the ineptitude of Utah State Legislators. Is this really the kind of lame ass laws that the residents of Utah are paying there legislators to come up with? I have family in Utah and they never even heard of this law. So clearly the legislators did not want the people they serve to know about this new law or to even get their input on it. Typical of lawmakers isn't it?

4/12/2007 12:44 PM  
Anonymous James said...

Very interesting indeed:

From the Salt Lake Tribune (http://www.sltrib.com/search/ci_5648312):

" Sen. Dan Eastman, a co-sponsor of the law, says it would give Utah "a neat little cottage industry" in registering trademarks. And the law allows the state to charge up to $250 in registration fees.
...adds Matthew Prince, CEO of Unspam Technologies, noting companies will have to hire Utah lawyers to register their trademarks or sue competitors.
...It's also a tool that could net Prince, who helped write the trademark legislation, another state contract. After pushing lawmakers to create a child-protection registry in 2004, Unspam snagged a lucrative deal to manage the database. Likewise, Prince said he might bid on the trademark contract if the state decides to hire an outside company to handle that database."

Also from the tribune (http://www.sltrib.com/search/ci_5639856):
"... the brains behind the concept, Unspam Technologies CEO Matthew Prince"
"...it would be the second time a Prince initiative has landed the state in court..."

I wonder if Professor Price (the brains behind the legislation) will be bidding. I wonder if that was his plan all along. Of course he would never admit it. But, I wonder if he will bid. And, I wonder if he will win the bid. I wonder if he (or a company with which he is associated) will (should) be allowed to bid considering he already "snagged a lucrative deal to manage the database" relating to the child-protection registry. It would be very interesting.

Seems like a bit of a pattern developing:

1. Get lawmakers to create a new law.
2. Win contract using same lawmakers that created law.
3. Rinse.
4. Repeat.

Let's see what happens with it. Then it will be time for us to reconsider who we're voting for and whose best interests they have in mind.

If I search for "Dell laptop" I want to know I have "Toshiba" as a choice.

4/12/2007 5:00 PM  
Anonymous manish said...

gotta love laws for no reason but the sake of raising revenue. Can anyone say internet tax?

4/12/2007 5:51 PM  
Anonymous Jim Halpert said...

Identifying himself only as an adjunct law professor, Matthew Prince posted this defense of the constitutionality of S. 236 on the Utah Senate blog. Mr. Prince neglects to disclose that he is the CEO of Unspam.com, which lobbied for this legislation, already has a contract to operate a different registry for the State, and could benefit as the “contractor” that would run the electronic registration mark database created by the law.

The principal beneficiaries of this law would be out-of-state businesses that would register their marks in Utah to be able to sue under the law, and, of course, the contractor hired to operate the database. Utah consumers would simply get fewer choices and wind up paying more for things that they buy online.

S. 236 is bad for Utah because it would: (1) severely reduce the utility of Internet advertising that allows businesses in Utah to advertise their wares to consumers around the world; (2) prevent consumers around the U.S. from receiving comparative advertising so that they can find cheaper and better offers online; (3) put Utah in the role of being the only state to tax use of trademarks online (under S. 236, the State is authorized to charge registrants $250 for registering their marks in the database, plus an additional $25 for each class for the mark, and to tax entities that pay to gain permission to use the mark with unspecified additional fees); and (4) force Utah to pay not only its own litigation expenses defending the law, but also those of a plaintiff who successfully challenges the law in court.

Mr. Prince neglects to mention that Counsel to the legislature warned that S. 236 is unconstitutional and that a very similar law that applied only to software that generates ads (rather than banning all keyword advertising) was struck down by the Utah courts in 2004 for violating the Dormant Commerce Clause and First Amendment. WhenU.com, Inc. v. Utah (Civil No. 040907578) (June 22, 2004) (unpublished decision available at http://www.benedelman.org/spyware/whenu-utah/pi-ruling-transcript.html).

In his guest blog on the Utah Senate site, Mr. Prince makes two arguments in defense of the law – (1) that search engines can comply with the law because they can tell what state users are coming from and can stop keyword advertising in France; and (2) that there is no Dormant Commerce Clause problem with the law because

Congress “specifically authorized” states to regulate trademarks through the Lanham Act. Both arguments are off-base.
First, contrary to Mr. Prince’s suggestions regarding Google’s practices, it is not possible for search engines – much less e-commerce sites, ISPs, advertisers and the host of other entities subject to the law – reliably to identify a Utah Internet user. For example, even Internet search engines that attempt to target advertising geographically by IP address see all AOL users as coming from IP addresses located in a handful of states and all Blackberry users coming from Canada. Thus, entities that “cause the delivery” of these ads could comply only by stopping keyword advertising on a nationwide basis. This is precisely the sort of restriction that the Dormant Commerce Clause forbids.

Mr. Prince cites Google’s activities in France as proof that compliance would not be difficult. Leaving aside the question of why Utah would want its Internet economy to function like France’s and that France doesn't have a First Amendment or Dormant Commerce Clause, this argument ignores that a search engine can comply with restrictions in France simply by altering its advertising on the “.fr” domain. In the U.S., advertising would have to change for all of “.com”, “.biz”, etc., which would involve Utah dictating to the rest of the country what sort of comparative advertising it could see.

Second, Mr. Prince argues that Congress has “specifically authorized” this sort regulation. Contrary to Matthew Prince's assertion, there is nothing in the Lanham Act “specifically authoriz[ing] ed states to regulate in the area of trademarks.” The only provision in the Lanham Act I know of that relates to state law is 15 U.S.C. § 1121(b), the “Century 21” statute that restricts state and local governments from requiring alterations of a registered mark. In fact, only last year, in the Trademark Dilution Act Congress chose specifically to allow use of famous trademarks in comparative advertising, parodies and other forms of fair use. Thus, Congress has said nothing, one way or the other, about the states’ ability to enact trademark-like laws, and there is no “authorization” of state legislation contrary to federal law that would overcome a Dormant Commerce Clause argument.

Nor has the Supreme Court suggested, as Mr. Prince implies at the end of his posting, that it is about to repudiate its long-standing precedent recognizing and enforcing the Dormant Commerce Clause. Indeed, those principles were recently affirmed in American Trucking Ass’n v. Michigan Public Service Comm’n, 545 U.S. 429 (2005).

Utah has a major stake in promoting e-commerce, not in restricting it, as S. 236 would do.

Jim Halpert, DLA Piper US LLP
(Counsel to the State Privacy & Security Coalition, an organization of leading technology companies and trade associations that opposes S. 236)

4/13/2007 9:37 PM  

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