Thursday, October 19, 2017

When the specifics are misleading: medical test stats draw false advertising claim

Quidel Corp. v. Siemens Med. Solutions USA, Inc., 2017 WL 4654644, No. 16-cv-3059 (S.D. Cal. Oct. 16, 2017)

Quidel is a “diagnostic healthcare manufacturer” that “developed, promotes and sells the Thyretain TSI Reporter BioAssay,” which is “intended for the qualitative detection in serum of thyroid-stimulating immunoglobins (TSI).” Quidel alleged that Thyretain “is the only commercially available assay that detects TSI only, as opposed to those that fail to differentiate between thyroid-stimulating and thyroid-blocking immunoglobins” (TBI), commonly known as “TRAb” assays. Siemens sells the IMMULITE 2000/2000 XPi TSI assay, which is intended to compete with Thyretain. In 2016, Siemens obtained FDA clearance to market IMMULITE, under a “substantial equivalence” finding through the Section 510(k) premarket notification process.

Quidel cited seven scientific studies and alleged that IMMULITE detects both TSI and TBI, and therefore “compares similarly to other TRAb assays, detecting but not differentiating between stimulating and blocking antibodies.” E.g., one study found that while IMMULITE was “about as sensitive and consistent as the Thyretain bioassay,” it did not “consistently distinguish[ ] between stimulating and blocking activities in 20 selected cases of hypothyroid Hashimoto’s thyroiditis.”  Thus, Quidel challenged Siemens’ claims about its ability to differentiate TSI from TBI, e.g., “Unlike TRAb (TSH receptor antibody) assays which detect both stimulating and blocking antibodies, the Siemens TSI assay specifically detects only thyroid stimulating antibodies, which are the hallmark of Graves’ disease.”  The “only” claim was later discontinued (though the press release and marketing statements that included that word have not been removed from the web), but the current product description claims that IMMULITE detects TSI with 98.5% specificity, contrasting that to TRAb assays that detect both TSI and TBI, thus allegedly implying that IMMULITE is TSI only.  (What I can't tell from the specificity claim, and I haven't looked up the underlying documents, is whether this applies when there's TBI but not TSI present, which would affect how similar IMMULITE is to Thyretain.)  Given that IMMULITE costs less and works faster than Thyretain, Quidel alleged that this falsity caused it damage, including the loss of at least one lab customer at a cost of $250,000 a year and corrective advertising costs.

The court found that Quidel had sufficiently pled falsity and misleadingness to satisfy Rule 9(b) for its Lanham Act and California state law false advertising claims, as well as with intentional interference with economic advantage.  Likewise with materiality for false advertising: given the alleged cost and time differences, it is reasonable to infer that an equivalence claim would influence purchasing decisions.  Siemens argued that materiality was inadequately pled because labs are sophisticated parties and are required to independently verify an assay’s performance data, but that’s a matter of reliance at most, not materiality.


Siemens argued that the FDCA precluded the Lanham Act claim because the FDA pre-approved Defendants’ product name and performance data and required Siemens to include that information on the IMMULITE label and packaging insert. Moreover, Siemens couldn’t IMMULITE’s name or alter its specificity and sensitivity data without prior FDA approval.  Under Pom Wonderful, this argument failed. It’s still true that “a private action brought under the Lanham Act may not be pursued when...the claim would require litigation of [an] alleged underlying FDCA violation in a circumstance where the FDA has not itself concluded that there was a violation.”  However, the claim here didn’t implicate FDA determination of whether the premarket approval was ok.  Quidel didn’t challenge the product name and performance data in the labeling, but rather the marketing statements (including the use of specificity to distinguish IMMULITE from TRAb assays).  Thus, the court’s evaluation of Siemens’ similarity claims/failure to disclose the similarity of IMMULITE to TRAb assays wouldn’t intrude on FDA’s exclusive enforcement authority.  Likewise, it would not be impossible to comply both with the FDCA and state false advertising law.  “Removing the phrase ‘TSI only’ from Defendants’ marketing materials or adding a disclaimer that IMMULITE does not differentiate between stimulating and blocking antibodies does not reasonably lead to Defendants being forced to change their assay’s name or performance data such that Defendants would first need FDA approval.”

Wednesday, October 18, 2017

Reading list: scientific claims and anti-fraud laws

Shannon Roesler, Evaluating Corporate Speech About Science (forthcoming, Geo. L.J. 2018)

Pull quote: “[C]onsumer protection laws should encourage accurate representations of contemporaneous scientific knowledge, rather than lucky guesses about the state of scientific knowledge in the future.”  Amen.

Abstract: How should courts evaluate the truth or falsity of corporate speech
about science? This question is critical to antifraud actions like the ongoing state
investigations into whether ExxonMobil misrepresented scientific knowledge regarding
global climate change. ExxonMobil claims that these investigations chill scientific
inquiry and burden speech on a matter of public concern in violation of the First
Amendment. Of course, the notion that scientific progress depends on the free exchange
of ideas is uncontroversial. But although the free-market approach to scientific discourse
has firm foundations, this Article suggests that it is a misguided approach to the question
of when corporate speech about science is misleading.
Too often, courts and commentators assume the truth of corporate speech about
science, an assumption that inevitably results in First Amendment scrutiny. The
reluctance to analyze the truth of such speech is understandable given the nature of
scientific knowledge itself. Scientific knowledge is not easily described in terms of truth
or falsity. But corporate speech that uses the inherent uncertainty of scientific inquiry to
mischaracterize scientific knowledge is not participating in scientific discourse.
Moreover, when courts treat such speech as part of a larger scientific debate, they
threaten to undermine the deterrent function of antifraud laws and shift the costs of

misleading speech onto the public.

Monday, October 16, 2017

Consumer's ability to trust future representations provides standing to seek injunctive relief

Delman v. J. Crew Group, Inc., 2017 WL 3048657, No. 16-9219 (C.D. Cal. May 15, 2017)

This is another factory outlet false advertising case. The J. Crew Factory Website sells clothing and other items at what appears to be a significant discount. It used two prices for each item: the “Valued At” price and “Your Price.” A reasonable consumer would allegedly believe, falsely, (1) that the Valued At price was the original price of an item sold at one of J. Crew’s higher priced stores and/or (2) that the item is similar to one sold by other merchants at or near the Valued At price. Instead, while the items resemble those sold at non-outlet J. Crew stores, they’re of inferior quality and were never offered, at a J. Crew store or anywhere else, for sale at the Valued At price. “Despite the promise of a discount implicit in the comparison between the Valued At and Your Price sales prices, J. Crew is in fact selling the goods available on the Factory Website at full price.” 

J. Crew maintained in a previous lawsuit that the Valued At price represented the price at which other retailers offered the same or similar goods. Delman hired an expert who investigated to see whether the same or similar goods were available for purchase from other retailers at or around the Valued At price, but did not find comparable goods available at the Valued At price.  Instead, many (if not all) of the goods could be bought at or below the Your Price price.

The court found that Delman’s allegations satisfied Rule 9(b), both as to the implied discount-from-regular-J. Crew claim and the “Valued At means prevailing market price for a similar item” theory. J. Crew argued that her decision to plead two theories of deception made her allegations fatally vague, but “there is no reason why a pricing scheme that is purposely ambiguous could not also be deceptive or misleading.”  If a reasonable consumer could interpret the Valued At price to mean one of multiple, mutually exclusive things, all of which are untrue, that states a claim. 

Nor were the theories so implausible that no reasonable consumer could be misled.  J. Crew argued that “value” could only reasonably be interpreted to mean the defendants’ subjective opinion of the worth of the goods, based on dictionary definitions.  But the dictionary wasn’t the end of the matter, when the issue was “how a reasonable consumer would interpret the phrase ‘Valued At’ in the context of the specific commercial interaction that Plaintiff has challenged.” In context, “the great esteem in which J. Crew holds its wares” was not the only interpretation a reasonable consumer could give the term. As the court pointed out, the Valued At price was located right next to the Your Price sales price, and was struck out.  “Why place the two prices next to one another if they are not meant to be compared? And why strike out the Valued At price, if not to suggest to the purchaser that he or she is getting a bargain of some sort?”  This “visual language,” the court wisely noted, “could easily be understood to mean that the Valued At price refers to a real, objective price, which the Factory Website has discounted for the benefit of its customers.”

Plaintiff did fail to provide proper notice as required to bring a breach of contract claim in California, and also had to wait to bring a CLRA claim given the notice requirement of the CLRA.

J. Crew argued that Delman suffered no damages, because she received the goods that she paid for at the agreed-upon price.  But courts have rejected this argument under California law.  “[A] bargain hunter is, in fact, economically harmed when the seller inflates the perceived value of its products” (citing Hinojos v. Kohl’s Corp., 718 F.3d 1098 (9th Cir. 2013)).


Finally, J. Crew argued that Delman lacked standing to seek injunctive relief because she no longer risked being deceived by J. Crew’s deceptive pricing. However, Delman alleged that she would purchase more apparel from J. Crew if it were to cease making its false representations.  The issue wasn’t whether policy concerns for the enforcement of California law could trump Article III, but rather that Delman alleged irreparable injury in the future: she couldn’t ascertain, from J. Crew’s pricing scheme, the true value of the items she’d like to buy, and thus she can’t trust its bargain claims.  This continued inability to trust was a sufficient likelihood of future injury to confer Article III standing.

TM use in ad text and on website not confusing where true source is clearly marked

Guardian Pool Fence Sys. Inc., Plaintiff, v. Sunwest Industries, Inc., No. 16-0824, 2017 WL 2931413 (C.D. Cal. Jun. 1, 2017)

Guardian and All-Safe compete in the market for mesh pool fences; a Guardian fence costs around $2,000, and an All-Safe fence costs around $1,500. The parties previously litigated keyword ad buys, but dismissed the litigation. In 2016, a potential Guardian customer reportedly said that he had seen the Guardian name in numerous places on All-Safe’s website and asked if the two companies were related.

As a result, Guardian found that its name appeared on All-Safe’s website in several places. “Guardian Pool Covers,” “Guardian Pool Safety,” “Guardian Pool Fence,” and “Guardian Pool Products” all appeared as “Topics” listed in the right hand column of All-Safe’s website, along with many other topics such as “Swimming Pool Safety.”  Each topic had its own page collecting all of the posts tagged with that specific topic.  Each post had a “by” field, which All-Safe used to insert topic labels.  Guardian argued that this practice suggested that Guardian had authored the posts, but the court disagreed, given that other “by” entries included “Removable Mesh Pool Fence” and “Swimming Pool Safety.”  The Guardian-tagged posts didn’t discuss Guardian, but were generally about pool safety, and they didn’t offer products for sale.  All-Safe said that it didn’t authorize the Guardian tags, but that its third party vendor created them without specific authorization, and they were removed shortly after this litigation began.  The Guardian topic pages were viewed 17 times total by 5 unique users, presumably some of them Guardian’s counsel; 17 views was less than .01% of all All-Safe website traffic. 

Here's what the topic list looked like:
Here are some tagged posts: 




As for the keyword aspects of the case, from January 2008 until February 2011, All-Safe used “guardian pool fence” as a search term targeted at Spain, Portugal, Puerto Rico, and Costa Rica, resulting in four clicks.  These campaigns ended in February 2011.   From January 2008 to May 2016, All-Safe’s AdWords campaigns together generated well over 800,000 clicks.  Also, for a few months in 2016, Guardian included “all safe pools” in its Google AdWords, along with eighteen other search terms, several of which included the term “all safe” or “all-safe,” though Guardian argued that this was inadvertent and in contravention of its standard practice. In May 2016, a search for “all-safe” returned an ad for Guardian with the headline “all safe pools – Guardianpoolfence.com.” “All safe pools” generated six clicks on Guardian ads.

Guardian didn’t challenge All-Safe’s AdWords search program, only the Guardian Topics on All-Safe’s website. The court found confusion unlikely.  Along with the usual multifactor test, internet search-related cases also require considering “an additional factor of particular importance”: “the labeling and appearance of the advertisements and the surrounding context on the screen displaying the results page.” Though Guardian wasn’t making a search-related claim, but rather challenging a webpage layout and tags in a topics section, this factor was still applicable “because the full context of the webpage is important to assessing how a consumer would understand the Guardian Topics.” In cases challenging online activity, the Ninth Circuit has sometimes skipped the Sleekcraft test “in favor of a more streamlined inquiry: ‘(1) Who is the relevant reasonable consumer?; and (2) What would he reasonably believe based on what he saw on the screen?’” This was the appropriate analysis here, “because it is a website rather than a product that bears the mark.”

The consumers here would be careful and accustomed to shopping online, given the cost of the pool nets.  What would such customers understand? 

The fact that the Guardian Topics are listed as topics suggests that somewhere on All-Safe’s website there is discussion of the various Guardian Topics. A company discussing a competitor on its own website does not alone amount to trademark infringement or generate confusion. A reasonably prudent consumer would draw very little from the fact Guardian appeared as a topic on the All-Safe website. At worst, a reasonable consumer might click on a topic “uncertain as to what they will find.”

A consumer who did click would find blog posts about pool safety, not about Guardian.  “The use of the term Guardian in the topic names is confusing, but it is confusing in that it makes little sense given the ultimate content of the posts tagged with the topic. It does almost nothing to suggest that Guardian is in any way the source of the pool nets for sale through All-Safe, and pool nets are not directly offered for sale anywhere in blog posts.”  Thus, the uses wouldn’t create confusion as to the origin of All-Safe’s goods or services.  Moreover, the Ninth Circuit has cautioned that reasonable consumers “expect to find some sites that aren’t what they imagine based on a glance at the domain name or search engine summary.” Similarly, the court here considered reasonable consumers “capable of dismissing dead-end topics labels as oddities, indicative of almost nothing.”

The fact that a single consumer might potentially have been confused—the one who talked to Guardian’s VP—was insufficient to show likely confusion, especially given the hundreds of thousands of views of All-Safe’s website. All-Safe’s website prominently displayed its logo, and only its logo, on every page. “This ‘broader context’ of the topics pages mitigates against any possible confusion as to a connection with Guardian.” Summary judgment for All-Safe.


All-Safe counterclaimed based on Guardian’s use of “all safe” or “all-safe” in Google AdWords. However, as All-Safe itself said, “there is growing consensus in the case authorities that purchasing trademarked keywords for the purpose of competitive keyword advertising does not violate the Lanham Act.” Guardian didn’t use the All-Safe mark on its website or the phrase “all safe” in its domain name. Plus, clear labeling of a search result as an ad “can help eliminate any possibility of confusion.”  Interestingly, the court applied this principle to an ad whose text arguably used both All-Safe’s mark and Guardian’s mark, which not all courts would—the court thought that clear marking as an ad was enough of a signal that consumers might get competing information.  Even though All-Safe’s trademark appeared in the ad, it “also clearly incorporated Guardian’s non-infringing domain name,” and thus Guardian’s ad wasn’t likely to confuse.

Tuesday, October 10, 2017

Uncontradicted testimony that defendant’s claim lacks scientific support requires judgment for plaintiffs

Rosendez v. Green Pharmaceuticals, No. D071073, 2017 WL 4400011 (Cal. Ct. App. Oct. 4, 2017) (unpublished)

Plaintiffs alleged that Green’s SnoreStop, a homeopathic remedy for snoring, was a sugar pill falsely advertised to stop snoring. Although the trial court found the testimony of Green’s homeopathy expert was not credible and gave it no weight, the court also concluded that plaintiffs failed to meet their burden of proof on their UCL, FAL, and CLRA claims, noting they “proceeded on the theory that there is no scientific basis for the advertised efficacy of SnoreStop” but “provided no evidence of tests to determine the efficacy of SnoreStop.” The court of appeals reversed, implicitly rebuking a number of recent cases that have (wrongly) interpreted California’s standard—which does not allow private plaintiffs to require substantiation from defendants—as precluding claims by private plaintiffs that rely on evidence that shows no scientific support for the defendant’s scientific claims.

Green claimed that a clinical study showed that 79.5 percent of SnoreStop users reported noticeable improvements within the first five nights, but the study, according to plaintiffs, didn’t support the findings attributed to it and “is instead characterized by severe methodological deficiencies.” SnoreStop allegedly “simply consists of a myriad of toxic substances that are provided in such extremely diluted form that they have no impact on the human body whatsoever.”  Homeopathy relies on dilution, and of SnoreStop’s seven “purportedly active ingredients,” five were diluted to one part per million, one of to one part per ten thousand and one part per million, and one to one part per trillion.

Plaintiffs’ expert was Dr. Lynn Willis, who has a Ph.D. in pharmacology.  Willis testified about the two fundamental principles of homeopathy—the law of similars (treat a disease with substances that cause symptoms mimicking the disease) and the principle of dilution (diluting drugs makes them more powerful).   Willis testified he was not aware of any valid scientific support for dilution, which is in direct opposition to dose response theory, the basic principle of pharmacology.  The theory of homeopathy is that tapping the diluted solution against a hard surface causes a release of healing energy, but this has never been detected.  Based on his education, training, research, and scientific review of homeopathic literature, Willis opined that the homeopathic law of similars is “not compatible with conventional theories of how drugs and other medications work,” and was contrary to proven scientific theory, as was dilution.  He also specifically addressed each of SnoreStop’s seven “active” ingredients (including belladona) and their dilution levels.  He testified that each ingredient would not, in isolation, relieve snoring, and that he was unaware of any credible scientific evidence to support the claim that the combination, at that dilution level, would be able to shrink swollen tissues that block air passages (as claimed by defendant).  He further testified that defendant’s clinical study was unreliable: among other things, it relied on snorers’ bedmates’ opinions, and it failed to include a power analysis to figure out how many subjects would be needed to detect a real difference.  The study also showed that 45% of the placebo group showed a reduction in snoring, meaning that the test group was also likely responding due to placebo response.  The net improvement that should have been attributed to the treatment group was thus 20.4%, and he concluded that the study should not be relied on to claim efficacy for SnoreStop.

Plaintiffs’ evidence also included the named plaintiff’s testimony about her own experience with SnoreStop and its inefficacy for her.

At the close of plaintiffs’ case, Green moved for judgment as a matter of law, which was denied.  Green called, as an expert on homeopathy, Gregory Dana Ullman, who testified that he practiced homeopathy and had written hundreds of articles on homeopathy. He testified that he believed all of the statements at issue on the SnoreStop package label were accurately stated and correct.  After closing arguments, the court concluded that plaintiffs failed to meet their burden of proof, because Dr. Willis couldn’t testify to the product as a whole, and thus there was insufficient evidence that the combined ingredients failed to work.  As to the study, the court found that Dr. Willis hadn’t conducted counter-testing of his own or proved that the study was flawed.  However, the court found Ullman’s testimony not credible and entitled to no weight, in part because of his support for the use of a radionics machine, whereby a physician puts a picture of his patient on one side, and a few medicines on the other side, and then sees which of the medicines the needle points toward.

When the trial court concludes that the party with the burden of proof failed to carry that burden, the question on appeal is whether the evidence compels a finding in favor of the appellant as a matter of law. This requires a finding that appellant’s evidence was (1) “uncontradicted and unimpeached” and (2) “of such a character and weight as to leave no room for a judicial determination that it was insufficient to support a finding.”  A trier of fact isn’t automatically required to give a verdict that conforms to expert opinion, even if unanimous; the value of the expert opinion depends on the quality of the evidence the expert provides.  The trier of fact can only be reversed unless it could not, in light of the record, reasonably reject the expert’s testimony, which was the case here.
 
“Willis’s expert testimony regarding the efficacy of SnoreStop was uncontradicted and unimpeached and constituted ample proof that SnoreStop is not an effective snoring remedy.” Willis had relevant training and expertise; he testified that there was no valid scientific support for the dilution theory, and that it contradicted dose response theory, “the basic principle of pharmacology. Willis also testified that he had never detected any evidence to support the homeopathic idea that striking a substance releases healing energy, noting that ‘science has no way to measure this energy.’” Thus, he opined that homeopathic theories were “contrary to proven scientific theory.”  This testimony was unimpeached and uncontradicted; the trial court gave Green’s witness testimony no weight. And uncontradicted and unimpeached testimony of an expert witness may not be “arbitrarily disregarded” by the trier of fact. 
“Willis’s testimony about the inefficacy and scientific implausibility of homeopathy in general alone was sufficient to satisfy plaintiffs’ burden of proving the inefficacy of SnoreStop as a snoring remedy.”

Moreover, his testimony wasn’t limited to homeopathy in general, because he also testified about the inefficacy of each of SnoreStop’s “active” ingredients and the inefficacy of those ingredients in combination. The trial court mischaracterized his testimony in stating that Willis “could not testify as to the product as a whole.” But he testified that each ingredient wouldn’t work, and that he wasn’t aware of  any credible scientific evidence that the combination would work and that he was of the opinion that they wouldn’t.  Also, though the court stated that plaintiffs didn’t prove that Green’s cited study was flawed, Willis testified about a number of flaws in the study.  Contrary to the trial court’s statement, plaintiffs provided scientific evidence to support their theory that there is no scientific basis for the advertised efficacy of SnoreStop.

The trial court based its holding largely on plaintiffs’ lack of tests on the actual SnoreStop tablets. But Willis “was entitled to accept the information on the label and could competently testify that given that information, there is no scientific basis to conclude that SnoreStop could have any effect on snoring beyond a placebo effect.” An expert’s opinion is not unreliable simply because the expert’s opinions are based on data collected by others. Because Willis’s reasoning, qualifications, or credibility were unchallenged, the rejection of his opinions was arbitrary.

“Given the uncontradicted and unimpeached evidence that the fundamental principles of homeopathy have no basis in science and that SnoreStop in particular is not an effective remedy for snoring, the court should have found for plaintiffs on both of their causes of action and awarded the appropriate relief requested in plaintiffs’ complaint.”  In a footnote, the court noted that one older California appellate case suggested that if a homeopathic product is listed in the Homeopathic Pharmacopoeia of the United States (HPUS), its efficacy is sufficiently established under the FDCA to avoid false advertising liability. However, unlike non-homeopathic OTC drugs, homeopathic OTC drugs are not evaluated by the FDA at all, and the FDA explicitly says that a homeopathic drug’s compliance with the requirements of the HPUS “does not establish that it has been shown by appropriate means to be safe, effective, and not misbranded for its intended use.” So inclusion in the HPUS or compliance with FDA guidelines regarding the HPUS “does not establish, much less guarantee, the product’s efficacy.”


Finally, the trial court’s apparent decertification of the class was in error; there was no indication that the requirements for certification were no longer satisfied at the time of trial. The trial court was directed to determine the damages, restitution, and other relief to which the plaintiff class members were entitled. 

Friday, October 06, 2017

Suing Doe reviewers under the Lanham Act fails

Reybold Gp. v. Does 1-20, 2017 WL 4326360, No. 17-810 (D. Del. Sept. 29, 2017) (magistrate judge)

Reybold sued the Does for infringement, dilution, injurious falsehood, and defamation based on their statements on ApartmentRatings.com about Reybold’s St. Andrews Apartment Complex, and made an ex parte motion for discovery.  Reybold wanted to issue a third-party subpoena to ApartmentRatings.com seeking, among other things, the IP addresses from which the online postings originated. Reybold planned to then subpoena the relevant ISPs associated with those IP addresses, in order to identify names, payment information, and other identifying information associated with those addresses.  The court, rightly, denied the motion.

Here’s two examples of the comments at issue:
(b) anonymous
I would in no way recommend this complex. Apartments are old, lawns are always trash covered, cigarette butts and dog crap everywhere. Trash areas are always a mess. Maintenance stuff never gets done. When it does they have to come back 3 or 4 times. My rent goes up every year and new people get deals, yet I get nothing for staying. I’m out of here this year. There is tons of new stuff around that is cheaper. Rock wood, Emblem, check these out. So much nicer for less money. Also, my UPS and FedEx packages are always getting stolen from my door and they don’t do anything about it. Good Riddance $hlt Andrews.
Added Feb 01, 2017 ...
(e) anonymous
I’ve been living at this place with bad wiring for months now and no one seems to care. I have several outlets that spark when I use them, some that don’t work at all, and one that only works when you tap on it. The wiring in my home is obviously not right. I have been begging them to fix it and they keep telling me they’re trying to get an electrician out to look at it but no one ever shows. I have children and I should feel safe having them live her[e] but I don’t. But let me pay rent one day late and they’re all over me. I hate this place.

Expedited discovery requires the party seeking discovery to demonstrate that its request is “reasonable” in light of the relevant circumstances. Where such discovery is sought in order to identify unknown or anonymous John Doe defendants, courts first ask whether the plaintiff has established a prima facie case for each essential element of the claim(s) in question. If so, courts have asked whether the plaintiff has demonstrated: (1) that it has no other way to identify the alleged wrongdoers, aside from obtaining the discovery at issue; or (2) that expedited discovery is necessary because evidence identifying the defendants may be otherwise destroyed (e.g., as a result of routine deletion by third party ISPs). Good cause can exist in these cases, although courts will still consider other protections for defendants from misuse of their personal information.

The court looked at the Lanham Act claims first, since they provided federal subject matter jurisdiction. There was no suggestion of false association in the complaint; claims for “Unfair Competition” and “Commercial Defamation” were both really false advertising claims.  Reybold failed to sufficiently allege commercial advertising or promotion: that the reviews were commercial speech, that they came from a defendant in commercial competition with Reybold [note that this should have been replaced with the Lexmark standard, but it makes no difference], or that the speech was made for the purpose of influencing consumers to buy a defendant’s goods or services.  Seven of the 14 challenged posts were listed as being written by a “Resident” or “Prospective Resident[,]” and all 14 postings either directly state or very strongly imply that the poster currently lives in, has previously lived in, or was thinking of moving to St. Andrews.  No post was explicitly identified with a competitor; one post mentions competitors, but still claims to be from a renter making comparisons.  And no other facts were pleaded to explain why the posts could plausibly be from competitors. 

Without the Lanham Act claims, the question arose whether the court had subject matter jurisdiction over the remaining claims.  With anonymous Does, it was hard to show diversity jurisdiction.  (Given the content of the posts, the more plausible inference was that there was no diversity jurisdiction.)  Some federal courts apparently think otherwise, but the Third Circuit has a fairly clear rule about whether the existence of unidentified or “Doe” defendants defeats diversity jurisdiction: where there are no allegations as to their citizenship, “John Doe parties destroy diversity jurisdiction if their citizenship cannot truthfully be alleged.”


Given the lack of a prima facie federal claim and the apparent lack of subject matter jurisdiction, the court denied Reybold’s motion for expedited discovery.

Thursday, October 05, 2017

Fantasy gambling is newsworthy, doesn't violate players' rights of publicity

Daniels v. FanDuel, Inc., No. 16-cv-01230 (S.D. Ind. Sept. 29, 2017)

Akeem Daniels, Cameron Stingily, and Nicholas Stoner played college football and sued FanDuel and DraftKings for violating their Indiana right of publicity. Defendants run fantasy sports websites and mobile apps; they assemble a group of select collegiate players—including plaintiffs—to appear on a list of available athletes, and they assign each player a fictitious “salary.” A customer can then buy the services of individual athletes, and each athlete on the fantasy team scores a certain number of points in each contest based on real-life performance.  Defendants allegedly generated roughly $3.0 billion in customer entry fees in 2015, and used athletes’ names and likenesses in marketing.

Indiana Code Section 32-36-1-8(a) provides that a “person may not use an aspect of a personality’s right of publicity for a commercial purpose during the personality’s lifetime or for one hundred (100) years after the date of the personality’s death without having obtained previous written consent ….” The statute defines a person’s right of publicity as “a personality’s property interest in the personality’s: (1) name; (2) voice; (3) signature; (4) photograph; (5) image; (6) likeness; (7) distinctive appearance; (8) gestures; or (9) mannerisms.”

The law does not apply to:

1. The use of a personality’s name, voice, signature, photograph, image, likeness, distinctive appearance, gestures, or mannerisms in material that has political or newsworthy value.
2. The use of a personality’s name, voice, signature, photograph, image, likeness, distinctive appearance, gestures, or mannerisms in connection with the broadcast or reporting of an event or a topic of general or public interest.
3. The use of a personality’s name, voice, signature, photograph, image, likeness, distinctive appearance, gestures, or mannerisms in literary works.
4. The use of a personality’s name to truthfully identify the personality as the performer of a recorded performance.

Newsworthiness: plaintiffs argued that this exception didn’t apply to noncommercial speech.  But the statute only covers uses with a commercial purpose. Thus, “the exceptions must apply to uses that are commercial in nature.” [Not all uses that have a commercial purpose are commercial speech; the analysis here doesn’t require understanding that, but below the conflation will cause some trouble.] 

Newsworthiness is broad under Indiana law. As a 1993 federal court applying Indiana law wrote, “The privilege of enlightening the public is by no means limited to dissemination of news in the sense of current events but extends far beyond to include all types of factual, educational and historical data, or even entertainment and amusement, concerning interesting phases of human activity in general.” Plaintiffs argued that this 1993 case was inapplicable because it was decided prior to the enactment of the ROP statute.  But, of course, that’s exactly why it applies—“[t]he legislature is presumed to know the common law and to incorporate it into the statute except where it expressly indicates otherwise.”  Plus, a contrary holding would raise significant constitutional issues, so avoidance supported a broad interpretation as well. Given the breadth of the exception, plaintiffs’ athletic achievements and activities were newsworthy.

Plaintiffs argued that defendants weren’t “news organizations” engaged in “reporting,” so they couldn’t qualify for the exception, but neither of those were predicates for qualifying for the exception, and the court wouldn’t read in any such requirements.  Plaintiffs then argued that the assignment of fictitious salaries to plaintiffs and commentary posted in comment fields or in commentary/blog portions of the sites weren’t newsworthy.  However, the statute doesn’t prohibit the use of materials “associated with” the name, likeness, etc. of an individual—it prohibits the use of the names and likenesses themselves. “Adopting Plaintiffs’ reading of the statute would bring an almost limitless universe of materials within its reach, with obvious First Amendment implications.” Thus, fictitious salaries and commentary [about those salaries?] didn’t constitute a person’s name or likeness, and weren’t encompassed within the definition of a person’s right of publicity. [For an example of what would be at risk with a contrary holding, consider Joyce Carol Oates’ Blonde or the more low-brow Alternate Presidents, a collection of fictional stories (also, not coincidentally, including some alternate Marilyn Monroe stories).]  Thus, defendants’ motion to dismiss was granted on this ground.  (Defendants’ ads were also covered because advertising related to exempt material is also exempt, which only makes sense.)

For the same reasons that the defendants’ materials were newsworthy, they were also matters of public interest.  But the public interest exemption requires use “in connection with the broadcast or reporting of an event or a topic.” Defendants argued that their websites “report” information about college sports, because they profile players on their websites; “corral [the] week’s news, notes and injury updates;” and disseminate performance information. But they also allow customers to create fantasy football teams.  The Ninth Circuit, in In re NCAA Student-Athlete Name & Likeness Licensing Litig., 724 F.3d 1268, 1271 (9th Cir. 2013), considered a similar challenge raised by former student athletes to a video game, which allowed individuals to “control avatars representing college football players as those avatars participate in simulated games,” and ruled that the material at issue did not constitute “publishing or reporting.”  However, it also distinguished the video games from the C.B.C. fantasy baseball case because video games use “virtual likenesses” rather than just performance and biographical data.  Here, defendants’ websites could be used as “reference sources,” “either for purposes of playing the associated game, or for information about the collegiate sports and athletes represented on the websites.” This was a close call, but given the policy of defining reporting broadly/constitutional avoidance, the court found that the materials were “reporting” and defendants also won their motion to dismiss on that ground.

That was good, because they fared less well on their other objections, which the court presumably addressed to save time after the inevitable appeal.

DraftKings argued that its contests fell within the “literary works” exception.  Other courts have determined that video games are literary works for similar purposes, and websites are literary works under the copyright law.  However, for the publication/reporting exception, DraftKings tried to distinguish itself from video games, and it also didn’t explain why “the particular features of fantasy sports competitions are similar to the video games that courts have determined constitute literary works.” This created factual issues not suitable for resolution at the motion to dismiss stage.

Plaintiffs also argued that they were entitled to the exemption for naming performers of recorded performances. The statute doesn’t explicitly require that a protected entity be the entity that “otherwise rightfully reproduce[s], exhibit[s], or broadcast[s] the recorded performance.” However, defendants also used plaintiffs’ names and likenesses for purposes other than to identify them as performers of a recorded performance. “At a minimum, Defendants also listed selections of Plaintiffs’ athletic and statistical achievements.” “The statute itself only lists a personality’s ‘name’ as subject to coverage by this exception, and Defendants have offered no justification as to why it should expanded to cover the other uses—including Plaintiffs’ likenesses—that are at issue in this case.”  [Does that mean that a greatest hits DVD would violate the law if it talked about the players on the promo text on the back?]

The court also declined to recognize a First Amendment defense at this stage, because it wasn’t clear (among other things) whether defendants’ speech was noncommercial. In classifying whether “mixed” speech should be classified as commercial or non- commercial, the Seventh Circuit has highlighted the following relevant considerations: “whether (1) the speech is an advertisement; (2) the speech refers to a specific product; and (3) the speaker has an economic motivation for the speech.”  [But not all speech offered for profit is “mixed” speech—I doubt the court would think that a (non-sponsored, I have to add) NYT article or editorial was “mixed” speech even though the NYT seeks to make a profit. The court thought it couldn’t figure this out at the motion to dismiss stage, even though the pleading itself apparently distinguished between defendants’ ads and the service defendants sold, so I’d say this could be done on a motion to dismiss.


The court also rejected defendants’ copyright preemption argument, because the Seventh Circuit’s holding in Toney indicates that persona (etc.) isn’t copyrightable subject matter because it can’t be fixed.  It may be that a person’s likeness can’t be fixed in a specific photo, but if she uses the same name through time I can’t see what’s so unfixable about the name; I guess the argument must be that the name is just the manifestation of the unfixed persona which is really what the ROP protects.  Still, that name is fixed in a tangible medium, like other uncopyrightable stuff as to which state-law protection is preempted.  Sigh.

Kate Spade fails to toss outlet lawsuit alleging inferior quality compared to boutiques

Irvine v. Kate Spade & Co., 2017 WL 4326538, No. 16-CV-7300 (S.D.N.Y. Sept. 28, 2017)

Plaintiffs alleged that Kate Spade marks merchandise sold at outlets with an illusory and arbitrarily higher price from which a substantial “discount” is then offered, in violation of New York’s GBL § 349 and Florida’s Deceptive and Unfair Trade Practices Act (FDUTPA). Plaintiffs bought merchandise at outlet stores; the products were marked with unique four-letter identifiers and advertised with two prices: Tags on the goods themselves listed a figure referred to as “Our Price,” while signs advertised steep discounts ranging from twenty to seventy percent off; the two prices appeared again on sales receipts along with a number reflecting the relevant percentage “off” the product, and a final total amount of “savings.”

However, the goods at Kate Spade outlets were allegedly fundamentally different than the goods at Kate Spade boutiques, and had never been offered for sale at the “Our Price” figure either at Kate Spade boutiques or at third-party retailers. These products were allegedly “of inferior craftsmanship and utilized different hardware, materials, logos and product demarcations.” Plaintiffs alleged that they wouldn’t have made their purchases, or would’ve paid less than they did, but for their “mistaken belief” that they were purchasing “boutique-quality merchandise at substantially reduced outlet prices.”

The parties disputed whether Rule 9(b) applied, requiring the claims to be pled with particularity.  Courts have divided both for §349 and FDUTPA.  The court here reasoned that plaintiffs’ claims weren’t “premised on allegations of fraud,” as they didn’t claim actual reliance or knowing intent to induce reliance.  Thus, the court concluded that only Rule 8(a) applied.

The parties treated the statutes the same in other ways, and the court analyzed the claims under both states’ laws together. The court accepted one theory of deceptiveness and rejected another.  First, plaintiffs alleged that Kate Spade “misrepresented the existence, nature and amount of price discounts” in their outlet stores by “tout[ing] steep discounts” from former retail prices that “did not constitute the prevailing market retail prices or values.”  Although this conduct is generally unlawful, that didn’t mean that the plaintiffs had standing—both NY and Florida required actual injury.  Allegations that a plaintiff paid a price premium or didn’t receive the product for which she paid would suffice, but under this theory neither occurred.  Deception itself is not injury.  Neither is pleading that one wouldn’t have bought a product but for a deceptive practice.  It wasn’t enough to allege conclusorily that the deception induced them to pay more than they were subjectively willing to pay otherwise—that disappointment isn’t cognizable.  In the absence of allegations that, for example, Kate Spade sells the same products for a lower price when they don’t have the allegedly deceptive “Our Price” anchoring them, there was no connection between the alleged deception and the injury.  (Query how the research about anchoring and perceptions of value should play into this; the court accepts a similar theory below when connected to quality, but it seems to me that the same manipulation of perceptions of value could also lead people to pay more than they’d otherwise pay under the pure “deceptively marketed” theory.)


Second, plaintiffs alleged that Kate Spade “touted its artificially inflated former ‘our price’ price as a value anchor to create the illusion of greater” quality, even though “the Outlet Merchandise was of inferior quality.”  It was plausible that the “Our Price” labels conveyed an implicit message of quality and that that message is false or misleading.  By alleging that the goods they purchased at the Kate Spade outlets were worth less than than the “discounted” prices they paid, plaintiffs alleged a plausible, and cognizable, injury. 

FTC loses motion to dismiss because court doesn't deal well with statistics

FTC v. Quincy Bioscience Holding Co., 2017 WL 4382312, No. 17 Civ. 124 (S.D.N.Y. Sept. 28, 2017)

Lawyers and especially generalist-by-necessity judges need to understand some statistical basics. When they don’t, they let bad science shape consumers’ decisions and even law.  The FTC and NY’s AG sought to hold Quincy liable for false advertising.  Quincy sells a dietary supplement known as Prevagen, whose active ingredient, apoaequorin, is a dietary protein originally derived from the jellyfish Aequorea victoria. Defendants claim that “Prevagen improves memory,” that it “has been clinically shown to improve memory,” that “A landmark double-blind and placebo controlled trial demonstrated Prevagen improved short-term memory, learning, and delayed recall over 90 days,” that Prevagen “Helps with memory problems associated with aging,” that “Prevagen is clinically shown to help with mild memory problems associated with aging,” and that Prevagen can support “healthier brain function, a sharper mind and clearer thinking.”

The primary support for these claims is the Madison Memory Study, a randomized, double-blind, placebo-controlled study involving 218 adults between the ages of 40 and 91. Participants were assigned “AD8” scores of 0 through 8, with an AD8 score of 2 used to differentiate between those who are cognitively normal or very mildly impaired (with scores of 0-2) and those with higher levels of impairment (with scores of 3-8). At intervals during the 90-day trial, participants were assessed on a variety of cognitive skills. “No statistically significant results were observed for the study population as a whole on any of the cognitive tasks.”  However, test cell participants in the AD8 0-1 subgroup showed statistically significant improvements over those who received the placebo in three of the nine tasks (measuring memory, psychomotor function, and visual learning), and showed a “trend toward significance” in two more tasks (measuring verbal learning and executive function). Test cell participants in the AD8 0-2 subgroup showed statistically significant improvements over those who received the placebo in three of the nine tasks (measuring executive function, attention, and visual learning), and showed a “trend toward significance” in one more task (measuring memory). Thus, the study concluded, “Prevagen demonstrated the ability to improve aspects of cognitive function in older participants with either normal cognitive aging or very mild impairment, as determined by AD8 screening.”

The FTC allegegd that “the researchers conducted more than 30 post hoc analyses of the results looking at data broken down by several variations of smaller subgroups for each of the nine computerized cognitive tasks,” and that post hoc subgroup analysis “greatly increases the probability that the statistically significant improvements shown are by chance alone.” As a result, “the few positive findings on isolated tasks for small subgroups of the study population do not provide reliable evidence of a treatment effect.”  Further, plaintiffs alleged that Quincy’s theory was that apoaequorin enters the human brain to supplement endogenous proteins that are lost during the natural process of aging, but there are no studies showing that orally-administered apoaequorin can cross the human blood-brain barrier. Instead, Quincy’s studies allegedly show that orally-administered apoaequorin is rapidly digested in the stomach and broken down into amino acids and small peptides like any other dietary protein.

In a footnote, the court said that these studies were “contradicted by canine studies whose relevance plaintiffs challenge,” and also that the FTC’s argument “loses force when applied to the results of the subgroup study which make it clear that something caused a statistically significant difference between those subjects who took Prevagen and those given a placebo” (emphasis added).

And here, in the footnote, we have the core of the problem: that “something” causing the statistically significant difference is, at a minimum, plausibly random error.  When you analyze 20 different subgroups, and one of them shows a statistically significant difference at the .05 confidence level, that is exactly what you would expect when the hypothesis that there is no effect is true: 19 out of 20 times, experimental results from the sample match underlying truth, and 1 out of 20 times they don’t.  That’s literally (numerically) what .05 confidence means.  And it’s also part of why post hoc subgrouping is so risky and potentially misleading: once you slice and dice, you have decreased your sample size and increased the chances of getting a false positive.  If the only evidence you had were from the subgroup, then yes, the results support the hypothesis of efficacy, but you can’t ignore that you also have the evidence from the other subgroups.  Moreover, a related reason why post hoc subgrouping is dangerous is that it’s post hoc because you had no preexisting reason to suspect a difference in reaction to the test substance.  Occam’s Razor works well here: the simplest and most plausible explanation is that the subgrouped results, which aren’t even for the same cognitive tasks across groups (thus making a posited mechanism other than random error even harder to come up with), are positive as a result of random error. This is why lawyers desperately need statistics classes.

Xkcd has this on lock, as usual with math stuff:


Despite this, the court found that the FTC didn’t plausibly allege that the representations at issue were false or unsubstantiated, given that “the Madison Memory Study followed normal well-accepted procedures, conducted a ‘gold standard’ double blind, placebo controlled human clinical study using objective outcome measures of human cognitive function using 218 subjects.”  The parties agreed that it failed to show a statistically significant improvement in the experimental group over the placebo group as a whole. The court said “[t]hat confined plaintiffs’ attack to the studies of subgroups,” but that’s an odd way to frame it: the best evidence we have is that the claims that Quincy actually made, phrased generally in the advertising, and not directed at people with low AD8, are untrue.  The best evidence we have that the claims Quincy made are substantiated comes from the subgrouping, but at a minimum the claims would then not be properly qualified, and the better evidence is from the study as a whole.  Anyway, ignoring that, the court ruled that, as to the subgroups, “the complaint fails to do more than point to possible sources of error but cannot allege that any actual errors occurred.”  

The court thought that the FTC’s post hoc argument was merely theoretical.  “They say that findings based on post hoc exploratory analyses have an increased risk of false positives, and increased probability of results altered by chance alone, but neither explain the nature of such risks nor show that they affected the subgroups performance in any way or registered any false positives.”  When I was in practice, we had a case where we ended up having a math professor testify. He concededly had absolutely no expertise in trademark law, or surveys, or drug errors, but he was really helpful in explaining statistics, and why a supposedly positive result from a “confusion analysis” didn’t mean that confusion was likely.  (Bayes’ theorem, so useful.)  Given the substantiation standard and the other evidence from the study as a whole and the evidence about the blood/brain barrier, it is at least plausible that the positive results were false positives. Perhaps that could be refuted by replicating the study and seeing whether the same subgroups and tasks show up as significant, as a start.  The court thought there was no “reason to suspect that these risks are so large in the abstract that they prevent any use of the subgroup concept, which is widely used in the interpretation of data in the dietary supplement field.”  Even if that’s true, (a) what is the court doing deciding this on a motion to dismiss? And (b) post hoc subgrouping is a very different animal.  There’s a very good book about this, Richard Harris’ Rigor Mortis, which I highly recommend to the interested. Still, “[a]ll that is shown by the complaint is that there are possibilities that the study’s results do not support its conclusion,” which isn’t enough for plausibility.


The court dismissed the coordinate state law claims to be renewed (I hope) in state court, if not on appeal.

Monday, October 02, 2017

Pleading facts indicating that ad claims are likely impossible suffices for plausibility

Fan Fi International, Inc. v. Interlink Prods. Int’l, Inc., 2017 WL 4293144, No.16-cv-00661 (D. Nev.
Sept. 27, 2017)

After being sued in New Jersey, Fan Fi and ETL sued Interlink in Nevada for false advertising under the Lanham Act and deceptive trade practices and unfair competition under Nevada law, alleging that some of Interlink’s showerheads violated federal regulations because they permitted a flow of greater than 2.5 gallons per minute at 80 pounds per square inch when the flow restrictor was removed and that the flow restrictors could be removed with less than eight pounds of force.

False advertising claims can’t be based on unsettled regulatory provisions. The court found that the force test regulation was ambiguous.  The Department of Energy itself—the promulgating agency—expressly stated in the Federal Register that the meaning was so unclear that DOE had yet to establish a test method to determine whether a shower head satisfies the test. Though the 8-pound requirement is clear, the method by which resistance to removal was to be tested was unclear (e.g., what angle should the force be applied from).

Fan Fi previously alleged that Interlink advertised a 100,000-hour lifespan, exceeding typical industry claims of 25,000-to-50,000 hours, and argued falsity because this claim would take 11 ½ years to substantiate and unidentified consumers had complained that the LEDs failed in as little as two weeks. The court previously dismissed, with leave to amend, reasoning that a claim of product life could be based on a reasonable estimate, and that isolated instances of product failure did not show falsity. To plead falsity required something objective, “e.g., a mechanical comparison of Defendant’s LED system with an LED system of known lifespan” or the like.  Fan Fi now alleged that another entity tested one of the showerheads, finding a lifetime of 199 hours.  The allegations continued that the LED system comprised a motor that generates power to the LED light from the movement of water through the showerhead, and that this motor lasts for several hundred or several thousand hours, meaning that 100,000 hours wouldn’t be possible for the system.  Interlink argued that there was no indication of expert testing or testing of more than one unit, but that didn’t matter at the pleading stage, where plausibility could be achieved by alleging testing and an explanation of mechanical characteristics that made the ad claims likely impossible.

"information and belief" isn't enough to allege competitive injury in false advertising case

Brickstructures, Inc. v. Coaster Dynamix, Inc., 2017 WL 4310671, No. 16 CV 10969 (N.D. Ill. Sept. 28, 2017)

Brickstructures, a LEGO-structure-creating business, sued Coaster for breach of contract, breach of fiduciary duty, and false advertising under the Lanham Act. Given that the complaint’s allegations of diversity jurisdiction were insufficient, the court looked at the Lanham Act claims.  Brickstructures’ founder conceived of the idea of a brick-based roller coaster many years ago. He began by adapting a piece from a model roller coaster kit sold by Coaster, which used glue and not LEGOs, then reached out to Coaster to propose a possible partnership. The parties agreed to collaborate and their joint venture began a small production run of a brick-based roller coaster. After a thousand kits were made and sold, Brickstructures alleged, Coaster remitted far less than Brickstructures was due, and then stopped communicating.  Coaster then launched a successful Kickstarter campaign for a nearly identical toy.

The allegedly false claims were that Coaster’s solo kit, the Cyclone, was the first commercially available kit combining the leading block system with the Coaster Dynamix track system, that it was the first brick-based roller coaster of its kind and the first commercially available brick compatible roller coaster construction toy, and that it was created by the Coaster Dynamix team.


It didn’t matter that the parties weren’t direct competitors, because of Lexmark.  However, what must be pleaded (and proven) is that plaintiff suffered an injury to its sales or business reputation, and the allegations of injury, all stated on information and belief, were too conclusory and superficial to sustain this complaint under Twiqbal. “[W]here something is alleged which should be within a plaintiff’s personal knowledge, an information and belief allegation thrusts the complaint into the realm of speculation.” Reputational injury wasn’t outside Brickstructures’ knowledge.  And without an adequate allegation of injury, there was an Article III problem.  (Brickstructures definitely alleged a contract-based injury, but it needed a Lanham Act-based one.) 

Are Crocs' uniqueness claims a crock?

Crocs, Inc. v. Effervescent, Inc., No. 06-cv-00605, 2017 WL 4286148 (D. Colo. Sept. 25, 2017)

Crocs makes molded clogs, and Dawgs is a competitor. Allegedly, “[e]ach and every functional feature disclosed in the [’858] patent application, except the heel strap, already existed in the Battiston Molded Clog,” while pivoting heel straps also existed and were sold attached to molded clogs, and these features were also disclosed in an Italian patent granted in 2002.  Nonetheless, in 2006, the PTO also issued a design patent, which “contains diagrams of the base shoe that are substantially similar to the diagrams that were created by Ettore Battiston in 2000 and assigned from Battiston to [Foam Creations, Inc.], with a strap added that serves a functional purpose and such as had previously existed for many years on a wide variety of footwear, including clogs.”  Thus the patent allegedly lacked both novelty and appropriate inventorship. Crocs allegedly failed to get patents similar to the ’858 and ‘789 patents outside the United States because of the “well-known existence of prior sales, the widely-recognized existence of invalidating prior art, and the established identity of the true and proper inventorship and origin of the shoe.”

After the ‘789 patent issued, Crocs filed a complaint with the ITC against various respondents, alleging infringement. While ITC initially found no infringement of the ‘789 patent and that the ’858 patent was invalid as obvious in view of prior art, the Federal Circuit reversed on the latter issue and remanded. Crocs allegedly acted in the ITC proceedings “knowing that these patents were invalid and unenforceable,” and also filed a 2006 lawsuit alleging patent infringement.  Dawgs was added to the case in 2012, and argued that the litigation was objectively baseless in light of the unenforceability of the patents and because, by the time Crocs filed its amended complaint adding Dawgs, it “knew or should have known” that the Battiston patent “rendered the claims of at least the ’858 patent” invalid.

In 2012, another Crocs opponent filed an application for inter partes reexamination of the ’858 patent, and, allegedly in retaliation, Crocs sued CVS, which sold Dawgs products. Dawgs filed an application for inter partes reexamination with the PTO of the ‘789 patent. In 2016, the PTO rejected the sole claim of the ‘789 patent as unpatentable and closed the reexamination prosecution related to that patent.

Dawgs argued that Crocs’ acts violated antitrust law and that Crocs engaged in false advertising. The individual named defendants allegedly “directed, participated in, sanctioned, ratified, or acquiesced” in the decision to sue Dawgs and to continue the 2006 lawsuit through the present.

The court found that the court had personal jurisdiction over the individual defendants, though they reside outside Colorado.  The fact that Crocs was headquartered in Colorado and conducts business in the forum wasn’t relevant to the minimum contacts analysis, since “each defendant’s contacts with the forum State must be assessed individually.” However, “the act of authorizing and directing a lawsuit [may] be enough to establish jurisdiction over officers of a corporation.” As the Tenth Circuit has noted, “[i]t is scarcely unfair to make those who have initiated a lawsuit in a particular state undergo suit in that state to determine whether the lawsuit was tortious.”

The antitrust claims failed.   Defendants were immune from suit for seeking and enforcing Crocs’ patents. The other antitrust claims failed because it’s basically impossible to plead successful antitrust claims.  So too with intentional interference with business advantage. 

False advertising claims, however, survived.  These were based on claims that Crocs misled the public and consumers by claiming that Crocs were made of” an exclusive and proprietary closed-cell resin that they call ‘Croslite.’”  “Croslite” is in fact ethyl vinyl acetate, used by footwear companies around the world, including Dawgs. Crocs’ promotional materials refer to “our patented CrosliteTM material” and “our proprietary CrosliteTM material,” and claim that Croslite is a “revolutionary technology.” These claims allegedly misled consumers into believing that Crocs uses a different material from competitors and that Crocs owns the rights to such material, so that consumers mistakenly believe that Dawgs are “made of inferior material.”


Defendants argued that Dawgs didn’t allege that each individual defendant made a false statement of fact.  “The statute itself does not insulate individuals from liability who authorize the use of false statements in commerce, and defendants cite no authority barring Lanham Act liability where a defendant approves promotional statements that he or she knows are false.”  Also, Dawgs properly alleged standing as a competitor under Lexmark. Its alleged injuries “flow[ ] directly from the deception” caused by Crocs’ advertising. 

Thursday, September 28, 2017

Reasonable consumers needn't expect individual products to differ from overall brand recommended by experts

Eidelman v. Sun Prods. Corp., No. 16-cv-3914, 2017 WL 4277187 (S.D.N.Y. Sept. 25, 2017)

Eidelman allegedly bought Sun Product’s “237-fl oz. bottle of ALL PLUS + FREE CLEAR ... liquid detergent” based on its label that it was “from the #1 Detergent Brand Recommended by Dermatologists for Sensitive Skin.”  But he discovered that this particular product wasn’t recommended, and sued under New York law.  He alleged that the words “from the” were presented in an “excessively small” font size, as compared to the remainder of the text, and the words “recommended by dermatologists” were in bold, misleading consumers to believe that the product itself was the “#1” detergent recommended by dermatologists for sensitive skin, when it wasn’t.  Eidelman also alleged that a reasonable consumer would presume that if the product was “from the #1” recommended brand for sensitive skin, this should include the detergent contained in the labeled bottle.


from the website

on the product

Sun allegedly makes a standard bottle for an alternate detergent which has a label that states that it is “#1 recommended by Dermatologist, Allergists [and] Pediatricians for Sensitive Skin,” without the “from the” qualifier. Given the similarities between the bottles, at the time of product choice and purchase, consumers would allegedly be misled into believing that both detergents are the most highly recommended by dermatologists for those with sensitive skin types. Eidelman also alleged that the product he bought contained a “number of known skin irritants,” but that the ingredients for the Detergent are not listed on the bottle, nor easily accessible online.
 
Another product, slightly different label
The court found that Eidelman stated a claim under NY GBL §§ 349 and 350.  Defendants argued that the claim was limited to the “brand,” and that a “reasonable consumer acting reasonably under the circumstances understands what it means for doctors to recommend a ‘brand’ as opposed to a particular product.” Even assuming the entire text of the label was fully visible and easily read, the court refused to conclude as a matter of law that no reasonable consumer could be misled—the claims weren’t “patently implausible” or unrealistic.

Eidelman also alleged negligent misrepresentation, which requires “(1) the defendant had a duty, as a result of a special relationship, to give correct information; (2) the defendant made a false representation that he or she should have known was incorrect; (3) the information supplied in the representation was known by the defendant to be desired by the plaintiff for a serious purpose; (4) the plaintiff intended to rely and act upon it; and (5) the plaintiff reasonably relied on it to his or her detriment.” Defendants challenged whether a special relationship existed.  “[L]iability in the commercial context is ‘imposed only on those persons who possess unique or specialized expertise, or who are in a special position of confidence and trust with the injured party such that reliance on the negligent misrepresentation is justified.’ ” Eidelman argued that Sun’s claim on its website to have “clinical proof” of the products’ benefit and mild effects on skin satisfied his burden. And the label claims that it’s from the “#1” brand recommended by dermatologists for sensitive skin.  These claims weren’t as extensive, in volume and substance, as they were in other cases where a seller’s claims to special expertise were enough to create a special relationship.  Eidelman didn’t overcome the presumption that advertisements are generally insufficient to establish such a relationship.

An unjust enrichment claim did survive, even though defendants argued that Costco couldn’t be held liable because there was no allegation that it actually participated in misleading activities.  Costco as retailer allegedly received a price premium from selling the falsely labeled product, which was enough at this stage.


Tuesday, September 26, 2017

Errant earrings: (c) but not trade dress success likely, still no irreparable harm

Ear Charms, Inc. v. Bling Jewelry, Inc., 2017 WL 2957796, No. CV 16-02091 (C.D. Cal. Apr. 11, 2017)

Sandra Callisto designed a “stylish alternative to pierced earrings” for Ear Charms, specifically “wave” earrings, which allegedly bore “a unique and distinctive trade dress in the overall design of the product” consisting of “four curls, bent in gentle turns that roll around the perimeter of the ear, each widening to greater degrees until flattening out— like a wave rolling onto land.”  Ear Charms registered copyrights in the wave earrings.  Bling allegedly sold copies smaller in size, scale, and weight than those of Ear Charms, which Ear Charms alleged showed that defendants created molds and stamping dies from its products. Defendants had also been making wholesale purchases of Ear Charm products.
 
registered and allegedly infringing designs


Defendants didn’t challenge the validity of the copyrights, and the court found access plus virtual identicality, leading to likely success on the merits of the copyright claim.  (As to the designs for which applications were merely pending, there seems to me to be a Kalpakian problem for some—how do you expect a starfish ear wrap to look?  As a dedicated Etsy browser, I think some, though not all, of these are pretty much the basic idea of an X ear wrap.  Also, applying for one registration for a silver-plated version of a charm and one for a gold-plated version seems to miss the point of the copyright system.)
 
registration pending designs and alleged copies


Trade dress infringement: Ear Charms alleged inherent distinctiveness of its “wave” trade dress, but Walmart says no go.  In showing secondary meaning, Ear Charms relied on its founder’s declaration, which averred that Ear Charms had been sold since 1982 and “state[d] in very general terms that in thirty-five years the public has come to recognize earrings bearing the Product Trade Dress and associate those products with high quality and conformity to Plaintiff’s specifications and that the Product Trade Dress has established strong secondary meaning and extensive goodwill.” Such a conclusory declaration was insufficient to show likely success.  Ear Charms argued that intentional copying shifted the burden to the defendant to show lack of secondary meaning, but the Ninth Circuit disagrees, given that “[c]ompetitors may intentionally copy product features for a variety of reasons. They may, for example, choose to copy wholly functional features that they perceive as lacking any secondary meaning because of those features’ intrinsic economic benefits.”

Unfair competition/misleading advertising under the UCL:  Ear Charms suggested that the relevant wrong here was conversion, but such a claim would be preempted by the Copyright Act given that defendants lawfully bought Ear Charms products. Likewise, the misleading advertising claim fell with the trade dress claim.


Irreparable harm: there’s no presumption of such harm in copyright cases after eBay. The conclusory claim that defendants’ solicitation of Ear Charms customers “ha[s], and unless enjoined will, detrimentally effect [sic] Plaintiff’s overall ability to control the use of [its intellectual property], thereby causing injury to Plaintiff,” and the claim that Ear Charms “suffered lost profits and lost customer goodwill” were insufficient.  Ear Charms argued that defendants’ poor quality products would harm Ear Charms’ reputation, but lost goodwill/reputation claims “must be supported by sufficient evidence demonstrating that such loss is likely,” and Ear Charms lacked evidence. 

Response to Tim Wu's piece on First Amendment obsolescence

Not Waving but Drowning: Saving the Audience from the Floods. A response to Tim Wu's essay "Is the First Amendment Obsolete?"

Harvard JOLT seeks submissions

The Harvard Journal of Law and Technology is one of the leading journals covering the ever-developing interaction between law and technology. JOLT Digest is the Journal's online-only companion, providing timely updates and new perspectives on recent developments in technology law, touching on topics such as privacy, security, AI, IP, and free speech. Currently offering exclusively student writing opportunities, JOLT Digest is launching a new program for professors, practitioners, and non-lawyers to contribute: Digest Commentary. JOLT Digest is seeking inaugural Commentary authors.


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Brief on TM issues in ASTM v. Public Resource

Mark McKenna and I, with other trademark professors, have written a brief in the ASTM case.  Thanks to Sam Bagenstos for last-minute filing assistance.

Friday, September 22, 2017

It stinks to high heaven: knockoff fragrances infringing, diluting, falsely advertised, but not counterfeit

Coty Inc. v. Excell Brands, LLC, No. 15-CV-7029, 2017 WL 4155402 (S.D.N.Y. Sept. 18, 2017)

Coty and a number of other producers and distributors of well-known fragrances sued Excell, which produced cheap “versions” of Coty’s fragrances, with similar names and “nearly identical packaging.” “Compounding matters, Excell prominently included on its packaging Coty’s own marks, albeit under words to the effect of “Our Version Of” in comparatively smaller text.”  Guess what Judge Furman found as to infringement and dilution after a bench trial? There was also false advertising, but not counterfeiting. Coty was entitled to injunctive relief and to recover Excell’s profits, but not to enhanced damages, and the case wasn’t “exceptional” for the purpose of attorney’s fees and prejudgment interest.

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To give some idea of the scope of Coty’s branding efforts, “between 2002 and 2015, Coty spent over $658 million advertising and promoting its Calvin Klein fragrances, over $114 million advertising and promoting its Vera Wang fragrances, over $14 million advertising and promoting its Lady Gaga fragrances, and over $13 million advertising and promoting its Joop! fragrances.”  Its net sales over that period for Calvin Klein fragrances were over $2.2 billion, for its Vera Wang products over $296 million, for its Lady Gaga products over $28 million, and for its Joop! line over $188 million. Some are successful enough to have subbrands, or “flankers” –Dark Obsession, Eternity Aqua, CK One Shock, and CK Free Blue.

Excell sought to copy expensive fragrances in a way that would be “understood by its customer base of ‘lower income, sometimes ethnic customers.’ ” Excell then chose a product name to evoke the name of the original fragrance. “Excell did not make any meaningful effort to replicate the scent of Coty’s products. Instead, using only their own noses and reviews of the original fragrances, Excell employees made broad recommendations to the company’s supplier in India, which then manufactured the alternative fragrances and packaging,” though Excell often supplied the original fragrance (or a picture of the fragrance) it sought to emulate along with instructions on how to emulate it. Excell also frequently made changes to the products so that the packaging would more closely resemble Coty’s original branded fragrances. Excell nonetheless lacked any meaningful quality assurance program. 

On the front of each fragrance box at issue, Excell included a legend stating that the fragrance was “Our Version Of” the relevant Coty product. On the back was “Not Associated With The Makers Of,” followed by reference to the relevant Coty product.  But Coty’s marks were depicted more prominently than the other text. “On the top of each box, in comparatively smaller lettering, Excell included its own brand name: Diamond Collection Luxurious Fragrances.”

Excell didn’t advertise or market directly to consumers, but sold primarily to traditional retailers and discount chains, such as Kmart, Dollar General, and Ross Stores, and its products were also available on Amazon and eBay.  

In 2015, several of Excell’s principals and employees were indicted on money laundering and other offenses. Given the pending proceedings, three such individuals invoked their privilege against self-incrimination in these proceedings. Excell shut down its business operations and ceased selling its fragrances in December 2016, unrelated to the present lawsuit.

The court rejected Excell’s laches defense.  Laches is no defense against injunctive relief when the defendant intended the infringement, which the court found to be the case here. Also, Coty didn’t delay unreasonably; it sued in 2015, “well within the applicable six-year statute of limitations” given that Excell was founded in 2010. Further, Excell’s sales were relatively insignificant during its first few years of operation and Excell’s marketing efforts to its retailers were less focused on the Coty knockoffs during that time.  Moreover, even if Excell could show unreasonable delay, it didn’t show evidence of prejudice. By Excell’s own admission, the filing of the lawsuit had no effect on its operations: it continued to sell its knockoffs long after Coty filed suit, and was “winding down” due to the pending criminal charges. “[A]ny conceivable prejudice was mooted when Excell decided, for reasons unrelated to this case, to cease its operations and stop using its brands.”

Unfortunately, the court decided that HOMME was suggestive for cologne.  It reasoned that, even if the general consumer knows that “homme” means “man,” it still “requires imagination, thought and perception to reach [the] conclusion” that HOMME is not just a cologne, but a cologne targeting men. Of course, that’s not the traditional framing of the conceptual distinctiveness inquiry, though courts increasingly have (wrongly) changed their approach to this question; the PTO would ask whether, knowing the mark and the goods, imagination is required to connect the two.  Cologne for men?  Not so much.  This didn’t matter much here, given the secondary meaning of the marks.

The court also found that the packages and bottles were product packaging, and thus capable of inherent distinctiveness as trade dress.  Excell argued that the bottles were product design, an argument the court found no support for; I’d be more sympathetic, since part of the point of these bottles is to have beautiful things on one’s dresser, unlike soda or alcohol bottles.  Again, though, Coty also showed secondary meaning.

Similarity: “Excell’s products copy, with only slight differences, the names, typefaces, packaging, design, coloring, and bottle shapes of Coty’s fragrances,” and also include two exact replicas of Coty’s house mark (e.g., Calvin Klein) and product mark (e.g., ETERNITY AQUA) as part of the “Our Version Of” and “Not Associated With” legends.  As the court noted, the City Girl and Love Story fragrances were “[a]t the less infringing end” of the similarity spectrum; the names evoked similar associations and the packages had notable differences.  By contrast, Excell’s OK ROCK and SERENITY fragrances were “remarkably similar” to Coty’s CK SHOCK and ETERNITY, in both name and trade dress. But even the “less infringing” fragrances had significant similarities in color, shape, and layout.  As a whole, each allegedly infringing product was quite similar to its counterpart.
 
similar, but not shockingly so (though still infringing)

way too similar

see more below

Excell argued that its “Our Version Of” and “Not Associated With” disclaimers made clear that the company’s products weren’t associated with Coty. But Coty’s marks were “significantly more prominent and accentuated on Excell’s fragrances than both the supposedly disclamatory language … and Excell’s own marks. In similar circumstances, courts have held that disclaimers are not only ineffective, but actually cut against the allegedly infringing party.”  Based partly on the survey evidence, the court found the same here.

Competitive proximity: price differences/retail channels had “little or no bearing on post-sale confusion as to the source of the goods,” and might even enhance the likelihood that a consumer would buy the accused product, to obtain the same prestige for less money.  Plus, the fragrance market is “somewhat fluid” and some retailers have sold both parties’ fragrances, including K-mart, CVS, Amazon, and eBay. Some Coty fragrances have been “diverted” and sold at CVS and Dollar General, both of which sell Excell products.  The price difference was  “also largely immaterial” to initial interest confusion; “most purchasers of fragrances in a retail setting are likely to view the packaging before checking the price label.”  Finally, the price difference wasn’t huge.

Actual confusion: because “evidence of intentional copying gives rise to a presumption of actual confusion,” the burden was on Excell to demonstrate a lack of confusion, which it failed to do.  Excell’s own survey found that 19.5% of respondents in an Internet survey identified Calvin Klein as the source of Excell’s POSSESSION fragrance, and 15.1% identified Calvin Klein as the source of Excell’s SERENITY fragrance.  And this survey was limited to people who had recently shopped at a discount store, flea market, rummage sale, or bazaar, even though Excell’s products were marketed more broadly. And the survey didn’t measure initial interest or post-sale confusion.  The survey was also flawed because it allowed respondents to see all faces of the packaging at once.  And there were coding errors: people coded as not confused said things like, “What a bargain for a Calvin Klein product”; “It’s made by Calvin Klein, I like it”; and “Just the fact that it was made by Calvin Klein is worth the $4.99.”  Recoded, 25% of the respondents actually identified Calvin Klein as the source of Excell’s POSSESSION and 20% identified Calvin Klein as the source of Excell’s SERENITY.

Anyway, Coty’s survey was more reliable.  Coty used an Eveready format, which is the gold standard for cases involving strong marks.  Coty used a mall intercept survey of “people 18 years old and older who ha[d] purchased a fragrance product for themselves, or for someone else, in the past six months” and showed them versions of the Excell packages. Neither the participants nor the interviewers were exposed as part of the survey to the genuine Calvin Klein OBSESSION or ETERNITY fragrances; the expert concluded that an average of 54% of the respondents misidentified the source of Excell’s products as Calvin Klein.

Excell argued that the survey erred by not excluding higher-end consumers to ensure that respondents were actual or potential purchasers of Excell’s products, and the court noted some justice to the argument.  The relevant market was the junior user’s customers.  But there was overlap, and it isn’t uncommon for higher-end fragrance companies, including Coty, to create less expensive versions of their products — those “flankers” — for sale at lower price points or in lower-end retail markets. Thus, the survey still had probative value.  Nor was the survey flawed for failing to provide respondents with relevant sales channel and price information about the products, which is in fact irrelevant to initial-interest and post-sale confusion.  It’s also true that the survey only tested two fragrances, and the survey itself indicated that the levels of consumer confusion would likely vary among the fragrances, with a 22% difference in confusion levels between the two Excell products tested.  But the results were still relevant to the other fragrances, given their shared “common and prominent features.”

There was no evidence of actual confusion. But that wasn’t important: (1) the employees’ invocation of the Fifth Amendment limited Coty’s ability to obtain evidence, meaning that it would be unfair to hold the absence of evidence against Coty; (2) Coty and Excell are manufacturers and distributors of fragrances, not retailers, “and thus less likely to hear directly from a duped consumer”; (3) consumers are less likely to complain about a relatively inexpensive product; and (4) the survey was good alternative evidence.

Intent: The record was “replete” with evidence of bad faith. Excell’s business model “involved little more than ‘capitalizing on plaintiff’s reputation and goodwill.’” Excell then “meticulously mimicked the external trappings of those fragrances and used Coty’s protected marks on its packaging in a way that, even with the disclamatory language, could only have been calculated to capitalize on Coty’s goodwill.” Excell kept going “in the face of a slew of complaints from third-party brand owners,” and chose its business model shortly after a company that used to employ various Excell employees entered a Consent Judgment with Calvin Klein and other fragrance producers about infringing alternatives to CK fragrances. Excell argued that Consent Judgement indicated approval of the use of the “Our Version” phrase, but (among other things) the consent judgment didn’t allow anyone to indiscriminately sell “Our Version Of” fragrances, but merely reserved the parties’ rights with respect to fragrances containing the “Our Version Of” legend that weren’t “unlawful under the Lanham Act” and that weren’t “Counterfeit” or “Knock-Off” products.

Excell noted that there is a difference between intending to compete by imitating successful features and intending to deceive purchasers as to source. This is true, “but Excell’s intent falls squarely in the latter category. The company’s intent to deceive can be inferred from the remarkable similarities between the fragrances’ trade dresses, the prominent use of Coty’s legends on Excell’s products, and the uncanny resemblance between the fragrance names chosen by Excell and Coty’s products.” Anyway, an intent to copy “creates a presumption of an intent to deceive, unless there is evidence to the contrary.” [Ugh—does that mean that house brands imitating national brands are presumptively intentionally deceptive?]

Quality, the Second Circuit outlier factor: Favored Coty, because Excell’s products are cheap and use synthetic oils, rather than the natural oils used in Coty’s fragrances.  They don’t smell the same as Coty’s perfumes and colognes. Unlike Coty’s fragrances, many of Excell’s Diamond Collection products were found to contain DEHP, a potential carcinogen.

Consumer sophistication: As now-Justice Sotomayor wrote, “even sophisticated buyers are not always careful buyers, and their very awareness of status brand names and designs may make them more vulnerable to confusion.” Great similarity, as here, reduces the ability of sophistication to resist confusion.  And “it could be argued” that Excell’s target demographic, “lower income, sometimes ethnic customers” was likely to be less sophisticated about the differences between and among fragrances and more easily confused upon seeing Excell’s cheaper knockoffs. This factor was a draw.

Excell argued that it was making nominative fair use of Coty’s marks.  But the Second Circuit just held that nominative fair use isn’t a defense; it instead provides additional factors to consider alongside the Polaroid factors.  “[T]he manner in which Excell displays Coty’s source identifiers belies its argument that it is merely using the marks to inform consumers that it is not the manufacturer of the original fragrance.” The fair use argument “would be on firmer ground if it sold its fragrances in generic bottles and cartons, picked fragrance names that were unrelated to any of Coty’s, included its disclaimers without prominently displaying Coty’s typesetting or marks, and marketed its own brand on the packaging in a noticeable manner.”  But it didn’t do any of that.

Having found likely infringement, the court turned to trademark dilution, federal for the registered Calvin Klein, Vera Wang, and Lady Gaga marks, and New York law for the remaining marks.  The court found dilution by blurring.  Excell didn’t contest the fame of the Calvin Klein, Vera Wang, and Lady Gaga marks. The the similarity between the marks as well as the distinctiveness and degree of recognition of the plaintiff’s mark favored Coty, as did Coty’s otherwise substantially exclusive use and Excell’s intent to create an association.  The court apparently misread the sixth statutory factor, “actual association,” as something like “truthful association,” finding that it favored Coty because Excell had no “actual association” with Coty, but this really can’t have mattered.  The court found state law blurring for the same reasons.

Tarnishment: Yep. “Excell uses inferior oils, employs cheaper packaging components, lacks any quality assurance program, and produces fragrances with potentially harmful ingredients.” The ongoing criminal case also arguably risked tarnishment, but there was “no reason to believe that the average consumer would know about the criminal charges, let alone link them to Coty.”

False advertising: yes.  “Our version of” was misleading.  Coty didn’t have to show literal falsity, because the words implied that the products were “similar, if not equivalent.”  [If the surveys show that people aren’t reacting to the disclaimers by understanding the difference, are they even reading the disclaimers, and can there be material deception without reading?]  The duality of contrast and equivalence was inherent in the use of the word “version.”  “But Excell indisputably does not produce fragrances of a similar quality to those of Coty; nor does it produce anything that could reasonably be called a ‘version’ of Coty’s products.”  [This is consistent with caselaw indicating that, even if there are possible ambiguities, when the defendant isn’t telling the truth under any of the different possibilities, literal falsity may be found.]  In context, along with the infringing marks/packaging, the court found an intent to connote a false equivalence (citing necessary implication cases).

Coty’s survey also found that 20% of respondents believed the legend communicated the message that Excell’s fragrances were substantially equivalent to Coty’s fragrances on formula and longevity of scent. Excell criticized the survey for asking “closed-ended questions of whether the two fragrances were ‘the same or different,’ rather than giving respondents the option to indicate that the products were ‘similar.’ ” But participants were asked a series of open-ended questions, including, “does the wording on these two products communicate or imply anything to you” about whether certain qualities of the products “are the same or different?” Participants then responded using their own language and explained what the wording communicated to them. Plus, surveys crafted to test comparative advertising claims sometimes call for “a more defined option set,” even if closed-ended questions aren’t as good.  Excell’s survey also was closed-ended, but added a third option, “similar.” This didn’t add clarity; anyway, given the significant differences between the companies’ fragrances, the Excell survey’s finding that “[a]pproximately two-thirds of consumers view[ed] the Excell and Calvin Klein products to be ‘similar’ ” only strengthened the court’s falsity conclusion.

Materiality: consumers “undoubtedly care about the quality and longevity of their perfume or cologne.” Because it was a false comparative ad, no further proof of likely injury was necessary.

Injunctive relief: with no mention of eBay, the court reasoned that likely confusion establishes irreparable harm. Money alone couldn’t compensate for the company’s unquantifiable “losses of reputation and goodwill and resulting loss of customers.” The balance of hardships favored Coty, because Excell wasn’t selling any products and was a newcomer to the market anyway.  Coty’s request wasn’t moot, because Excell hadn’t dissolved as of the time of trial.  “Because Excell could simply resume operations directly or indirectly — and because its directors, officers, and employees have demonstrated such tendencies in the past— Excell has not shown that it is ‘absolutely clear that [its] wrongful conduct will not recur.’”  Coty’s request for injunctive relief was granted with respect to Excell and its “officers, agents, servants, employees ... [and] other persons who are in active concert or participation” with them.

The court also awarded an accounting of profits.  This equitable remedy requires courts to consider “(1) the degree of certainty that the defendant benefited from the unlawful conduct; (2) availability and adequacy of other remedies; (3) the role of a particular defendant in effectuating the infringement; (4) plaintiff’s laches; and (5) plaintiff’s unclean hands.” All of these factors favored Coty. Excell’s business model depended on creating customer confusion, making it certain that it benefited from the infringement. Excell’s sales of the accused fragrances from July 2010 through April 2016 totaled a bit over $6.5 million, and it didn’t submit reliable evidence of its costs, only spreadsheets with totals that witnesses couldn’t adequately explain.  Thus, Coty was awarded all Excell’s revenue for the relevant time periods.

Coty argued that it should get treble damages because its marks were counterfeited. A counterfeit mark must be “substantially indistinguishable” or “spurious,” which requires more than a mere similarity between the marks or a “colorable imitation.”  Excell’s infringing products weren’t countefeits.  None used the exact same name, nor the same/“substantially indistinguishable” combination of colors, designs, and shapes. Though Excell did use Coty’s own marks as part of its disclaimers, the existence of those disclaimers and Excell’s (admittedly less prominent) use of the Diamond Collection mark on its bottles “creates enough of a contextual difference that [Excell’s fragrances] cannot be considered counterfeits of [Coty’s].”  The court was unwilling to conclude that Excell was trying to trick buyers into thinking they were actually buying Coty fragrances.  [Note how much implicit weight this gives to the IIC/post-sale confusion theories.]

The court refused to find the case “exceptional” for fees/prejudgment interest purposes. “Exceptional cases” involve fraud, bad faith, or willfulness, but bad faith isn’t an automatic entitlement to attorneys’ fees or prejudgment interest.  Excell’s litigation conduct, “while certainly not commendable, falls short of the ‘the sort of misconduct that supports an attorney fees award.’”  Plus, Coty didn’t show that it suffered “ascertainable damage”: “the fact is that, despite several years of competition with Excell’s infringing products, Coty failed to produce demonstrable evidence of actual confusion.”  Plus, the outcome of the case “was by no means a foregone conclusion,” especially as to fragrances at the less infringing end of the “similarity spectrum.”  Coty did get its costs, though.