The Tort of Appropriation: Consequences and Avoidance Strategies

In the age of the internet, successful marketing and advertising requires businesses to be able to immediately capture the attention of potential customers. Often, this can be accomplished by using a familiar face or voice in advertising material. Whether it is a celebrity talking about their favorite hamburger or an NBA player’s picture on a box of cereal, such endorsements tend to play a role in the marketing success of a product or service. However, when a person’s identity is used without their permission, what may have seemed like an innocent use of someone’s image can quickly turn into a lawsuit.

Misappropriation and the Right of Publicity

The “right to privacy” and its protection from government intrusion was a foundational tenet of America’s inception; its protection from private actor’s intrusion has been a fundamental legal principle in the United States since as early as the late 19th century.[1] Embedded in such principle is the tort of “misappropriation”, or the unauthorized use of a person’s identity for another’s benefit.[2] Although this right to privacy typically applies to any person,[3] those who are arguably most harmed from such practices are celebrities and public figures. In the context of celebrities, public figures and others who generate economic value from their identity, the “right of publicity” is the legal principle which aims to protect such valuable traits from unauthorized uses.[4] In protecting such assets, various states have passed right of publicity statutes, such as California’s Celebrities Rights Act which also affords posthumous rights for deceased celebrities and public figures.[5]

What is Protected?

Attributes such as a person’s name, voice, signature, photograph, and likeness are those traits which are specifically protected under law.[6] However, courts often analyze the use of any of these features in a wide-reaching manner. For instance, the use of a person’s name applies not just to someone’s legal name, but also to pseudonyms and aliases.[7] Additionally, of these characteristics, courts often interpret “likeness” using the broadest of definitions. In one instance, using the “readily identifiable” standard, a court found that a sufficiently detailed drawing could fall under the “likeness” category.[8] This “readily identifiable” test is included in California’s Celebrities Rights Act and provides that “a person shall be deemed to be readily identifiable from a photograph when one who views the photograph with the naked eye can reasonably determine that the person depicted in the photograph is the same person who is complaining of its unauthorized use.”[9]

What is Prohibited?

Misappropriation is the unauthorized use of a person’s identity for “exploitative purposes”, which is generally defined as “advertising purposes or for the purposes of trade.”[10] Such exploitative purposes are further laid out in California’s right of publicity statute, which prohibits the unauthorized use of another’s identity in connection with “products, merchandise, or goods, or for purposes of advertising or selling, or soliciting purchases of, products, merchandise, goods or services.”[11]

Whether a use is for “exploitative purposes” is often a subject of contention between parties. As was the case when Jewel Foods ran a full-page advertisement congratulating Michael Jordan on being inducted in the Naismith Memorial Basketball Hall of Fame in 2009 which resulted in Jordan subsequently suing Jewel Foods for violations of his right of publicity.[12] The court sided with Jordan in finding that the inclusion of the “Jewel-Osco” logo along with the conspicuously placed marketing slogan in the congratulatory advertisement was sufficient to be considered a commercial or exploitative use.[13] In yet another contentious use in 2019, a lawsuit was brought against Fiji Water for a right of publicity violation.[14] In this case, Fiji Water had posted a meme[15] which featured a cardboard cutout of Kelly Steinbach, who was seen holding a tray of Fiji Water bottles throughout the 2019 Golden Globe Awards.[16]

Consequences

In addition to the risk of being dragged into a potentially costly and lengthy litigation proceeding, remedies for misappropriation and the violation of one’s right of publicity can have substantial consequences. One such example occurred in the In re NCAA Student-Athlete Name & Likeness Licensing[17] class action, where college athletes had sued a videogame developer for the unauthorized use of the athletes’ names and likenesses, which ultimately purportedly settled for $40 million in favor of the college athletes.[18]

One key form of recovery in a misappropriation action is the disgorgement of the defendant’s wrongfully earned profits.[19] Additional types of remedies are often available, particularly in California where the right to publicity is a paramount concern to celebrities and public figures alike. In support of the significance of such assets, California law provides that plaintiffs are not only permitted to pursue and recover damages for violations of both the common law and statutory right of publicity,[20] but in cases where the defendant is found to have engaged in fraudulent or malicious conduct punitive damages and attorneys’ fees may also be recoverable.[21]

Avoidance Strategies

Using a person’s identity without their consent can result in considerable liability. However, there are certain types of uses which fall outside the scope of misappropriation. One of the key misappropriation exemptions or exceptions is a use that is made in connection with a newsworthy or public interest matter.[22] Particularly, uses that are made in connection with news, public affairs, sports and political campaigns are ones that, in some jurisdictions, do not require consent.[23] Although such uses may not be immune from defamation or other potential causes of action.[24]

Another form of use which often arises in misappropriation claims are certain types of creative uses which tend to be protected by the First Amendment.[25] In some jurisdictions, commentary, criticism, satire, and parodies fall under such exempted uses.[26] Meanwhile, some courts have ruled that a creative use of another’s identity may not constitute misappropriation if such use is transformative, looking to whether the new work merely supersedes the objects of the original creation, or instead adds something new with a further purpose or different character which alters the first with new expression, meaning, or message.[27] However, the ideal situation is likely to avoid having to support an argument for “transformation” altogether and maintain originality in advertising.

References:

[1] See U.S. Const. amend. IV; see also, Samuel D. Warren & Louis D. Brandeis, The Right to Privacy, 4 Harv. L. Rev., 5 (1890). [2]  See, Ross v. Roberts, 222 Cal. App. 4th 677 (2013). [3] Fla. Stat. § 540.08 (2020). [4] See, Timed Out, LLC v. Youabian, Inc., 229 Cal. App. 4th 1001, 1006 (2014). [5] Cal. Civ. Code § 3344.1 (2020). [6] Cal. Civ. Code § 3344 (2020). [7] See, Faegre & Benson, LLP v. Purday, 367 F. Supp. 2d 1238 (D. Minn. 2005). [8] See, Newcombe v. Adolf Coors Co., 157 F.3d 686, 692-93 (9th Cir. 1998). [9] Cal. Civ. Code § 3344(b)(1) (2020). [10] N.Y. Civ. Rights Law § 51 (2020). [11] Cal. Civ. Code § 3344(a) (2020). [12] See, Jordan v. Jewel Food Stores, Inc., No. 12-1992 (7th Cir. 2014) [13] Id. [14] See, Steinbach v. The Wonderful Company LLC, et al. (LASC 19STCV03256)[15] Merriam-Webster defines “meme” as “an amusing or interesting item (such as a captioned picture or video) or genre of items that is spread widely online especially through social media.” [16] Id. [17] See, Keller v. Elec. Arts Inc., 724 F.3d 1268 (9th Cir. Cal. 2013). [18] See, Maureen A. Weston, Gamechanger: NCAA Student-Athlete Name & Likeness Licensing Litigation and the Future of College Sports, 3 Miss. Sports L. Rev. 77, 98 (2014). [19] Cal. Civ. Code § 3344(a). [20] Cal. Civ. Code § 3344(g) (2020). [21] Cal. Civ. Code § 3294 (2020). [22] See, Montana v. San Jose Mercury News, 34 Cal. App.4th 790, 793 (1995). [23] Cal. Civ. Code § 3344(d) (2020). [24] See, Eastwood v. Superior Court, 149 Cal. App. 3d 409, 421-26 (1983) [25] U.S. Const. amend. I. [26] Wash Rev. Code § 63.60.070(1) (2020). [27] See, Comedy III Prods., Inc. v. Gary Saderup, Inc., 25 Cal. 4th 387 (2001).

What’s in a Name? Avoiding Promoter Liability in Pre-Incorporation Contracts in Presley v. Ponce Plaza

A corporation must file the necessary paperwork with the Secretary of State to be incorporated. The incorporation process might take some time, and while this process is pending, the individuals forming the corporation may need to sign purchase orders, leases, or other necessary contracts. The individual who signs any of these contracts lists the corporation’s name, but the corporation is not technically in existence and will not be liable until the corporation adopts the contract.

Any contract entered into prior to the incorporation of a business entity is a possible liability for the “promoter.” A promoter is a person or entity acting on behalf of the corporation not yet formed.[1]  Presley v. Ponce Plaza Assocs., is an appellate case that involved a final summary judgment imposing personal liability upon the appellant for accelerated rent due under a lease agreement in which the appellant supposedly executed on behalf of a professional association.[2] The court reasoned that “[a]lthough the named professional association utilized by the appellant on the lease agreement was not a duly incorporated entity, the appellant maintained that the parties understood that it was merely an abbreviated name for appellant’s duly incorporated entity.”[3] The appellee, however, countered that, at all times, its lease agreement was with the appellant solely as an individual and that, in any event, where the appellant knowingly executed a contract on behalf of a non-incorporated entity, the appellant was individually liable as a matter of law.”[4] The court found that this created a sufficient dispute of material fact to preclude summary judgment and thus summary judgment was in error.[5] The lesson in this case is to avoid potential liability as a promoter, parties to a contract and contract drafters should always use the exact name of the entity already formed to avoid the accusation that the agreement was a pre-incorporation contract with a yet to be formed entity.

The promoter remains personally liable for pre-incorporation contracts he enters into, even after corporate adoption, unless and until there has been a novation.[6] A novation is a legal agreement between the promoter, the corporation, and at least one other contracting party in which each party agrees that the other contracting party that the corporation will replace the promoter under the contract.[7] Therefore, without a novation, if a corporation is formed and the contract is adopted by the business, both the promoter and the business will be liable on the contract. A corporation will become liable on a contract when it adopts the contract by either an express board of directors’ resolution or an implied adoption through knowledge of the contract and acceptance of its benefits.[8] This is known as ratification.[9]

Promoters are personally liable for pre-incorporation contracts because at the time of the formation of a pre-incorporation contract the corporation was non-existent. One strategy is to avoid contracting as a promoter altogether and simply to wait until the corporation is officially formed to enter into agreements on its behalf.  However, there may be situations in which pre-incorporation contracts are unavoidable. Determining the possible liability for pre-incorporation contracts is something that should be discussed with an attorney and the promoter and all liabilities should be analyzed thoroughly before signing on the dotted line. Such contracts should be carefully drafted to limit the danger that the promoter will be held personally liable.

According to Presley v. Ponce Plaza Assocs., in Florida, a creditor seeking to recover from an individual who has supposedly acted on behalf of a nonexistent corporation, the creditor must prove that the individual knew or should have known of the corporation’s nonexistence when he or she so acted.[10] It is, therefore, advisable to consult with an attorney and inquire about the possibility of including in pre-incorporation contracts a novation clause. This would include an explicit acknowledgement by the other contracting party that it understands it is contracting with an individual and the not yet formed corporation and that the contracting party will look only to the corporation, not the promoter, for performance if and when the corporation adopts the contract. Including such a provision in a true pre-incorporation contract can help avoid misunderstanding and save contracting parties, creditors, and debtors alike a great deal of money and frustration.

 References:

[1] Promoter, Black’s law dictionary (11th ed. 2020). [2] Presley v. Ponce Plaza Assocs., 723 So. 2d 328 (Fla. 3d DCA 1998). [3] Id at 329. [4] Id. [5] Id. [6] Electro-Protective Corp. v. Creative Jewelry by Kempf, 513 So. 2d 190, 192 (Fla. 5th DCA 1987). [7] Id. [8] Spurrier v. United Bank, 359 So. 2d 908, 910 (Fla. 1st DCA 1978). [9] Id. [10] Presley v. Ponce Plaza Assocs., 723 So. 2d 328, 329 (Fla. 3d DCA 1998).

Can a Business Sue for a Bad Review?

The Confluence of Free Speech and Free Enterprise

In the digital age, the culture surrounding how a business is “reviewed” by a customer or patron has become one of the most determining factors of a businesses’ success. The growing popularity of websites such as Yelp, Google, Bing, and other services which allow people to rate and review businesses has in turn resulted in a surge in the importance and impact that these reviews can have. With reviews now becoming the driving force behind influencing where consumers choose to take their business to, it is more essential than ever to understand what options a business has after receiving a negative review.

Defamation

One of the more common causes of action which businesses bring forth against the poster of a negative review is for defamation. Although the definition of “defamation” varies from state to state, it generally encompasses a false and unprivileged publication which “exposes a person to hatred, contempt, ridicule, or which is injurious to such person’s occupation.”[1] Defamation can be in the form of a written publication, known as libel, or a spoken publication, known as slander.[2] In the context of reviews that are published about a business, the applicable form of defamation is “libel.” Although bringing a libel case against someone typically requires a plaintiff to show damages which result from the libelous statement, such as showing is not required if the statement is defamation per se.[3] Examples of libel per se are statements that: “(i) relate to the person’s business or profession to the person’s detriment; (ii) falsely claim that the person committed a crime of moral turpitude; (iii) imputes unchastity on the person; or (iv) claim that the person suffers from a loathsome disease.”[4]

Often, a negative review that is published about a customer’s experience with a business could constitute defamation per se, as such a review would relate to the plaintiff’s business or profession. However, there are several privileges and defenses that a defendant has available with regards to defamation claims making an effective defamation case difficult. In the context of a negative review, statements that are merely one’s opinion, hyperbole or which are understood as mere ridicule, rather than an allegation of fact, are subject to the “Opinion and Fair Comment Privileges” and are therefore not deemed to constitute a defamatory statement.[5] Additionally, truth and the substantial truth are absolute defenses against a finding that a statement is defamatory.[6]

Despite the potential availability of certain privileges or defenses, in cases where the person who published statement had fabricated the events surrounding the review or had otherwise falsified parts of the review, there is a greater likelihood that an injured business owner may prevail in a defamation claim against the reviewer. One such example occurred in 2016 when Florida’s Fourth District Court of Appeal awarded a business owner $350,000 for a negative review in which the business owner was able to prove that the reviewer had falsified information related to the review.[7]

First Amendment Protection

The First Amendment to the Constitution of the United States prohibits the making of any law which abridges the freedom of speech.[8] When one party sues another in response to a party’s publication of speech, such suit is often referred to as being a “strategic lawsuit against public participation” or “SLAPP”. In an effort to defend the citizen’s right to the exercising of their freedom of speech, states across the country have in turn passed what are generally referred to as “Anti-SLAPP” statutes, which are intended to provide protection in cases where a lawsuit has been brought against a party primarily to chill the valid exercise of the constitutional rights of freedom of speech.[9] In such cases, where a defendant is able to prevail on an Anti-SLAPP motion, the plaintiff would in turn be liable for the defendant’s attorney’s fees, court costs, and other expenses.[10]

The Consumer Review Fairness Act of 2016

Considering the increased vulnerability that businesses had become exposed to as a result of negative reviews, businesses have often turned to including or embedding non-disparagement clauses within certain agreements and licenses. The intent and effect of such clauses are to restrict a consumer’s ability to publicize negative and disparaging statements against a business. As a response to such oppressive actions against consumers, the Consumer Review Fairness Act of 2016 (CRFA)[11] was passed which solidified consumers’ “right to Yelp” and effectively invalidated non-disparagement clauses in certain “form contracts.”[12] Additionally, the CRFA makes it unlawful for a person to offer or enter into a form contract containing a non-negotiable non-disparagement clause.[13] The CRFA further empowers the Federal Trade Commission (FTC) with investigating and enforcing the act by providing the FTC with the ability to bring forth an action against a party who has violated the CRFA with causes of action such as unfair or deceptive acts or practices.[14]

Dealing with the Review Platforms

Besides dealing with the actual poster of a negative review, another common avenue that business owners looked to are the platforms in which the review is published on. Before the CRFA was passed, certain business review platforms such as Yelp had begun taking matters into their own hands. In 2012, Yelp starting issuing “Consumer Alerts” through it’s “Yelp’s Consumer Protection Initiative” which alerted visitors to a businesses’ profile that the business owner had previously threatened a reviewer with legal action.[15]

Additionally, business owners had often sought out to obtain the identity of anonymous negative review posters through subpoenaing records which would reveal such poster’s identity. Although ultimately reversed on jurisdictional issues, the Court of Appeals of Virginia held that the anonymity of the poster of a review can in fact be upheld if the reviews were in fact lawful.[16] However, such anonymity may not be upheld in cases where a plaintiff has a legitimate, good faith belief that such reviews are defamatory, such as is the case when the reviewer had not actually been a customer of the business.[17]

Lastly, have been the attempts for business owners to sue the review platforms themselves for having the published defamatory statements against them. However, after years of litigation, the California Supreme Court held in the landmark case Hassel v. Bird[18] that review platforms, such as Yelp in this case, are not liable for defamatory statements posted on their service due to the immunity granted to content service providers under Section 230 of the Communications Decency Act.[19]

Ultimately, it is an uphill battle for businesses to sue for a bad review. While some have been successful, case law, the burden of proof, and the level of anonymity make it difficult to sustain even a bona fide claim for defamation as a result of a falsified bad review.

[1] Cal. Civ. Code §§ 45-46. [2] Cal. Civ. Code § 44. [3] See Yow v. National Enquirer, Inc. 550 F.Supp.2d 1179, 1183 (E.D. Cal. 2008). [4] Restatement (2nd) of Torts, §§570-574. [5] See Leidholdt v. L.F.P. Inc., 860 F.2d 890 (9th Cir. 1988). [6] See Time Inc. v. Hill, 385 U.S. 411 (1967). [7] See Blake v. Giustibelli, Case No. 4D14-3231 (Florida 4th DCA, January 6, 2016). [8] U.S. Const. amend I. [9] California Code of Civil Procedure § 425.16. [10] Id. [11] 15 U.S. Code § 45(b). [12] 15 U.S. Code § 45(b)(a)(3). [13] 15 U.S. Code § 45(b)(c). [14] 15 U.S. Code § 45(b)(d). [15] Vince Sollitto, Protecting Free Speech: Why Yelp is Marking Businesses That Sue Their Customers, Yelp Official Blog (July 25, 2016)  https://blog.yelp.com/2016/07/protecting-free-speech-yelp-marking-businesses-sue-customers [16] See Yelp, Inc. v. Hadeed Carpet Cleaning, Inc., 752 S.E.2d 554 (2014). [17] Id. at 560. [18] Hassell v. Bird, 420 P.3d 776 (Cal. 2018). [19] 47 U.S.C. § 230.