Thursday, April 20, 2017

9th Circuit revives class action against allegedly mislabeled baby food

Bruton v. Gerber Prods. Co., 2017 WL 1396221, --- Fed.Appx. ----, No. 15-15174 (9th Cir. Apr. 19, 2017)

Bruton sued Gerber, alleging that labels on certain Gerber baby food products included claims about nutrient and sugar content that were impermissible under FDA regulations incorporated into California law. The district court ruled against her.  The court of appeals, over a partial dissent, reversed and remanded.

First, the district court erred in dismissing Bruton’s claim for unjust enrichment/quasi-contract, because it was unclear at the time whether California allowed a separate unjust enrichment claim, but the California Supreme Court has subsequently clarified California law, allowing an independent claim for unjust enrichment to proceed.

Second, the district court erred in finding that a class would not be “ascertainable.” Briseno v. ConAgra Foods, Inc., 844 F.3d 1121 (9th Cir. 2017), held that there was no separate “administrative feasibility” requirement for class certification.

Third, there was a genuine dispute of material fact on Bruton’s claims that the labels were deceptive in violation of the UCL, FAL, and CLRA.  The theory of deception doesn’t require literal falsity, but rather that “(a) the presence of the claims on Gerber’s products (in violation of FDA regulations), and (b) the lack of claims on competitors’ products (in compliance with FDA regulations), made Gerber’s labeling likely to mislead the public into believing that Gerber’s products were of a higher quality than its competitors’ products…. [I]t may be literally true that Gerber’s products are ‘As Healthy As Fresh,” but due to external facts—that Gerber does not comply with the FDA regulations that otherwise prevent its competitors from making the same claim—Gerber’s labels mislead in their implications.”

This theory of deception made sense:

Shoppers in a supermarket aisle look for cues about quality in the products they buy. If a shopper sees two products on a shelf and one says “Supports Healthy Growth & Development,” while the other makes no similar claim and is cheaper, a likely inference is that the first product will be viewed as healthier, explaining why it costs more. If the products had been of the same quality, then competitive pressures would have driven the maker of the second product to use the same attractive label. In the baby food market in particular—where measuring the effect of a particular food on one’s own baby’s growth and development is not practical—consumers have to make quality judgments before the baby is fed, based on what they see in front of them at the store. When everyone plays by the rules, this process works reasonably well. But when the maker of one product complies with a ban on attractive label claims, and its competitor does not do so, the normal assumptions no longer hold, and consumers will possibly be left deceived.

Even reviewing the nutritional information of the competing products wouldn’t help. “Consumers cannot easily check claims like ‘Supports Healthy Growth & Development,’ or ‘As Healthy As Fresh,’  against nutritional charts to determine their veracity. Consumers might believe, for instance, that the claims refer to the quality of the produce used or the particular canning process.”  Likewise, they can’t easily figure out the import of the absence of such claims.  Even for seemingly black and white claims like “No Added Sugar,” if Gerber’s product says “No Added Sugar,” and a competitor’s product doesn’t, the nutritional chart won’t the consumer whether any of the sugar in its product was added—it will simply list the amount of “Sugars.” “Nevertheless, the reasonable assumption would be that some of the sugar in that competitor’s product must have been added, or else the competitor would have used the attractive label ‘No Added Sugar.’”

Bruton also submitted enough evidence of likely consumer deception to create a genuine dispute of material fact. The key evidence was the labels.  “A reasonable jury observing Gerber’s labels and comparing them to those of its competitors could rationally conclude that Gerber’s labels were likely to deceive members of the public.”

The district court also erred in granting summary judgment to Gerber on Bruton’s claims that the labels were unlawful under the UCL, which “borrows” predicate legal violations and treats them as independently actionable. The reasonable consumer test is only a requirement under the UCL’s unlawful prong only when it is an element of the predicate violation. The predicate violation here was of California’s Sherman Law, which incorporates standards set by FDA regulations, which include no requirement that reasonable consumers be likely to be deceived.

Judge O’Scannlain dissented from the majority’s conclusion that there was a genuine issue of material fact about consumer deception.  Bruton’s testimony about her own confusion couldn’t satisfy the reasonable consumer standard, because “a few isolated examples of actual deception are insufficient” to create a material dispute over the likelihood of general consumer deception.  The majority’s reliance on the labels was insufficient because the labels weren’t clearly false, as compared to a label “Made in U.S.A.,” when significant parts of the labeled product weren’t made in the US.  “[T]he challenged statements themselves say nothing at all about the quality of Gerber’s products; they simply report—accurately—certain nutritional features of the products.”  Nothing “inherent” in the labels would support a leap from these correct statements to deceptive quality claims, especially because Gerber’s and competitors’ labels include detailed information about their ingredients. Judge O’Scannlain didn’t see any evidence that the challenged statements made Gerber’s labels objectively more “attractive” to a “a significant portion of the general consuming public,” or that consumers consumers would conclude that any price or quality difference between Gerber and its competitors was due “specifically to the challenged label statements (as opposed to any number of other reasons that may have led Gerber’s nationally recognized brand to carry more market power).”

Georgetown Tech Law Review seeks submissions

From the editors:

The Georgetown Law Technology Review is soliciting content for fall 2017 publication. Founded in 2015, the Review seeks to build a common forum for technologists, lawyers, and policymakers to discuss the increasingly complex intersections between law and technology. It leverages its presence in Washington, D.C. to focus on legal and policy issues driven by cutting-edge technological developments. The Review also collaborates with the Georgetown Law Center on Privacy & Technology, the Georgetown Law Institute for Technology Law & Policy, and the Georgetown-MIT Privacy Legislation Practicum to promote and showcase innovative scholarship.

We welcome submissions on a wide variety of topics, including but not limited to: intellectual property, privacy, cybersecurity, fintech, and telecommunications. While the Review accepts traditional scholarly articles, we are especially interested in shorter (5,000-15,000 word) pieces focused on narrow and timely issues in law and technology. The submission deadline to ensure fullest consideration for the fall issue is June 30, 2017, though we are happy to accept submissions on a rolling basis.

If we can provide further information, or if you would like to discuss a potential submission, please email us at or visit our website at

Presumptions and evidence of causation both work in false advertising cases

Robroy Indus.–Texas, LLC v. Thomas & Betts Corp., No. 15-CV-512, No. 2:16-CV-198, 2017 WL 1370545 (E.D. Tex. Apr. 10, 2017)

T&B and Robroy compete in the market for PVC-coated electrical conduit, which is used to carry electrical wiring in buildings or other structures. The parties are the major suppliers of PVC-coated electrical conduit in the United States; T&B’s conduit is known as “Ocal.”  Robroy alleged that T&B made a number of false claims that only its Ocal products had certain features, such as meeting the UL 6 standard, the ANSI C80.1 standard, and the NEMA RN-1 standard, all significant industry standards.
 T&B also claimed that “only Ocal” offers local installation training and certification. And its promotional materials claimed that Robroy “abrade[s] the surface of the conduit prior to the application of the PVC,” thereby “remov[ing] the protective coatings that the customer is paying for.” T&B further claimed that “UL standards are not being followed by the abrading of the conduits [sic] exterior zinc finish.”

T&B argued that there was insufficient evidence of harm causation to survive summary judgment. The court disagreed.  T&B had three key arguments (1) that Robroy has never been “kicked off” a specification for PVC-coated conduit for any reason related to the T&B statements at issue; (2) the evidence shows that customers made purchasing decisions based on price, quality, availability, and other factors having nothing to do with the alleged false statements; and (3) the evidence shows that customers made decisions to add T&B’s Ocal product to the specifications for particular projects and to purchase Ocal based on price and other factors, not because of the allegedly false statements.

The court agreed with Robroy that, because this was a case of allegedly deliberately false comparative advertising in a functionally two-party market, causation could be presumed.  [Why “deliberately”?  The two-party market situation appears independently significant, assuming the claim is material; the deliberateness might justify a presumption of effectiveness as well. But that’s what the cases say.] A number of circuits and district courts have adopted this rule; no case appears to have rejected it; and the Fifth Circuit hasn’t said anything to cast it into doubt.  Causation is required by the Lanham Act, but “that does not speak to whether and under what circumstances that element can be satisfied by a presumption.”  Also, “[g]iven that courts have uniformly recognized the presumption for the past 30 years, Congress’s silence in the face of that now well-established line of authority suggests, if anything, that Congress is satisfied with the status quo.”

T&B argued that this wasn’t really a two-party market, but Robroy provided evidence that “during the period at issue in this case, the PVC-coated electrical conduct market has been effectively a two-competitor market.” Also, some of the allegedly false statements were directed at Robroy by name, and many of the challenged statements were comparative, which would be understood as referring to Robroy by clear implication.  Summary judgment on causation denied.

Separately, there was evidence about actual causation. Robroy’s theory of the case was:

(1) in order to bid on a project, a manufacturer was required to be included on the specification for the project; (2) there were numerous projects on which T&B was not initially on the specification; (3) those contracts would have gone to Robroy but for T&B’s actions that resulted in T&B being added to the project specifications; (4) it was T&B’s false statements that caused project managers and engineers to alter the specifications to include T&B as a qualified bidder on those projects; and (5) on those projects on which T&B won the contract, Robroy suffered injury from the loss of a contract it would have won but for T&B’s false advertising.

While it might be true that in particular instances customers chose T&B’s products over Robroy’s products for reasons other than T&B’s false statements, Robroy argued, that occurred after the stage of the process in which the project engineers were persuaded to alter the specifications for their projects to allow T&B to bid, which was the critical point at which the false advertising was allegedly effective.  If T&B hadn’t been allowed to bid, according to Robroy’s evidence, “on many of the projects the specifications initially called for Robroy products or required quality assurances that only Robroy could meet.” The critical step was project engineers’ decisions to “open” the specifications to allow T&B to bid on the projects.  And there was evidence in the record that this “opening” at least sometimes came as a result of the challenged statements.  [Is there an analogy here to bait-and-switch initial interest confusion?  Initial qualification deception?]  The allegedly false statements were clearly designed toward getting engineers to open the specs.  E.g., “a form letter including several of these false statements was posted on an internal bulletin board that was available to the project specification specialists at T&B who were responsible for attempting to ‘break’ specifications that specified only Robroy products or ETL-listed conduit.”  And T&B reps claimed success in their endeavors. One internal comment: “That job was specified [Robroy] but with the help of you and T[o]m Russ [a senior T&B sales representative who promoted the use of the “only Ocal” material during efforts to “break” specifications] we were able to open it up to Ocal.”

Pizza Hut, Inc. v. Papa John’s Int’l, Inc., 227 F.3d 489 (5th Cir. 2000), found that evidence of subjective intent to deceive on the part of the defendants’ executives was insufficient to show that the false advertising in question actually succeeded in persuading customers to buy the defendant’s products instead of the plaintiff’s.  However, here there was “evidence—including statements by T&B representatives—that the effort succeeded.”

The evidence was mostly circumstantial, and circumstantial evidence isn’t always enough, but here it was.  “This is not a case in which the proof is limited to showing no more than that the defendant’s representatives intended to mislead potential customers or that false statements were made in the course of competitive bidding, after which one party lost the project.” On Robroy’s evidence, Robroy was “essentially guaranteed to be awarded a contract on those projects, until T&B ‘broke’ the specifications, obtained the right to bid, and ultimately was awarded the contract.” It was reasonable to infer that the challenged statements played a pivotal role in the customers’ decisions to allow T&B to bid on the projects, even if there might also be other reasons that engineers might have opened the specs. The inference of causation was “strengthened by the evidence that T&B’s own representatives expressed their view that the characterizations of Robroy were responsible for the engineers’ decisions to open the specifications to bidding by T&B, and that one of the project engineers repeated one such alleged falsehood when changing the specification to allow T&B to bid.”

Robroy’s state-law unfair competition claim under the common law also proceeded.

Having a product in development isn't enough for Lanham Act standing

Pulse Health LLC v. Akers Biosciences, Inc., 2017 WL 1371272, No. 16-cv-01919 (D. Or. Apr. 14, 2017)

Pulse was formed to develop a product that can measure aldehyde molecules in human breath via a non-invasive hand-held device. Its device was called FRED or Revelar. Akers develops and sells diagnostic products and devices designed to deliver various health information test results. The parties entered into contracts for Akers to make a breath tube containing a chemical reagent that could accurately measure aldehyde molecules in human breath, to be used with the FRED/Revelar device. Akers’ development failed, according to Pulse, and Pulse requested to part ways. The final agreement provided that Pulse transferred the relevant tech back to Akers, and Akers waived the remainder of what Pulse was supposed to pay.  Akers granted Pulse an exclusive and perpetual license to use the relevant tech in the field of aldehyde tests, which included any testing for oxidative stress, but excluded tests relating to diabetes, cancer, and alcohol. The agreement further provided that Akers had no rights with respect to Pulse’s technology for its hand-held FRED/Revelar device.

Akers started to sell hand-held products that Pulse claimed measured oxidative stress and free radical damage through disposable tubes, which Pulse determined was a copy of its FRED/Revelar product. “The chemistry for the OxiChek and the Assigned Technology reagents are the same, and the circuit boards for the OxiChek product have a similar layout and the same optical chamber, LED, diodes, switches and gates as the original FRED/Revelar device developed by Plaintiff.”

The court rejected Lanham Act and state-law consumer protection claims.  Pulse wasn’t within the zone of interests protected by the statute and there could be no proximate causation of injury, even if, as alleged, Akers “knowingly made false statements in advertising the technology’s ability to detect levels of oxidative stress or free radicals” using Pulse’s technology.  Because Pulse didn’t have a competing product on the market, it failed to allege any injury to a commercial interest in reputation or sales. Possible future sales of a product under development weren’t enough, despite the alleged “spoiling” of the market based on Akers’ false advertising.  Any such injury was purely speculative.

The Oregon Unlawful Trade Practices Act only protects consumers, not competitors. Because leave to amend would not allow Pulse to fix either of these problems, it was denied.

Lesson: write your noncompete more clearly so that suing for breach will give you all the relief you seek, I guess?

My colleague Laura K. Donohue, now on Twitter

Where she will be tweeting about the national security state, privacy, et cetera.  She's got comprehensive knowledge and a prime location, so take a look!

Monday, April 17, 2017

Grange grudge: court orders disclaimer to resolve confusing corporate status

National Grange of the Order of Patrons of Husbandry v. California State Grange, 2016 WL 8730678,  No. 16-201 (E.D. Cal. Sept. 23, 2016)

As relevant here, plaintiffs sued the California Guild and Robert McFarland for false advertisement and unfair competition under the Lanham Act, and moved for a preliminary injunction.  “The National Grange is a nonprofit fraternal organization founded in 1867 to promote the interests of rural America and agriculture.”  The California State Grange was created as its California affiliate in 1873 and elected McFarland as its leader in 2009.  After disputes arose, the National Grange revoked the California State Grange’s membership and the two sides disaffiliated in 2013.The disaffiliated chapter, led by McFarland, continued as a separate entity under the California corporate charter filed in 1946, while the National Grange chartered a new California State Grange in 2014.

Defendants continued to represent themselves publically as the California State Grange, but in 2015 the court granted the National Grange summary judgment on its trademark infringement and false advertisement and unfair competition claims. The court permanently enjoined the disaffiliated entity from using the word “Grange,” but declined to extend that prohibition to include similar words because the National Grange did not expressly seek such relief in its initial complaint. Those rulings are pending on appeal in the Ninth Circuit [ed.: where they may languish for a long time].

In April 2016, the court granted the National Grange’s motion for post-judgment injunctive relief, ordering that the disaffiliated entity

[R]emove the word “Grange” from all corporate registrations and other documents filed with any federal, state, or local government ... [R]emove the word “Grange” from all public telephone and business directory listings, on the internet or otherwise, ... [Refrain] from: (a) conducting business using the name “Grange,” …; (b) using “Grange” in any domain name or email address …; and (c) referencing their past affiliation with plaintiff or any other entity whose name contains the word “Grange,” including representing themselves to be the former California State Grange; successor to the California State Grange; or formerly known as, trading as, or doing business as the California State Grange....

The disaffiliated entity changed its corporate name to the “California Guild,” but continued to refer to itself as “CSG” and “[f]ormerly the California State Grange.”

In this proceeding, the National Grange sought a lot more relief, including a prohibition on “referencing the history and goodwill of the California State Grange” and surrender of all physical and intellectual property of the California State Grange (the physical property also being subject to a California state proceeding).

Defendants “continued to advertise that ‘cities and townships have grown up around our rural halls’; that the the [sic] Defendant’s organization has ‘lobbyists in Sacramento and boasts a long history of successful legislative advocacy’; that the Defendants’ organization was the first organization to support and promote women as equal voting members’ [sic]; and that ‘[i]n these uncertain times our members find comfort and security by returning to our roots and reaffirming principles and goals set by the founders 140 years ago.’ ” The National Grange argued that “only the California State Grange can claim the 140 years’ [sic] of history and goodwill associated with the organization.” The court noted that defendants apparently found a way around the injunction “by taking credit for the California State Grange’s history and achievements without referencing it by name.”

Without discussing Dastar, the court stated that “[t]he Lanham Act prohibits uncredited references to another entity’s history and achievements.”  However, the court noted another loophole: the California Guild remains incorporated under the same corporate papers that the California State Grange formerly existed under.  Thus, defendants were “technically correct when they refer to the California Guild as an organization that has existed for ‘decades’ and around which ‘cities and townships have grown up.’” Though the National Grange maintained that this was nonetheless deceptive, the court found that its “hands were tied with respect to claims to history and achievements accrued post-incorporation”  because such claims weren’t false or misleading but true, although “claims to history and achievements accrued prior to 1946 are undeniably false.”  The court wasn’t ignoring reality or gamesmanship; it was recognizing that, “for some reason, plaintiffs have not taken effective action in the three years after the parties disaffiliated to prevent defendants from occupying the California State Grange’s corporate charter. The court cannot step in to save plaintiffs here.” Thus, the court would only enjoin defendants from referencing history and achievements accrued by the California State Grange prior to its incorporation.  Irreparable injury existed because “further uncredited references to their history may permanently dilute their brand in California.”

The National Grange also challenged defendants’ allegedly false claims that local chapters must ‘disaffiliate’ with the California Guild in order to join [the California State Grange]” and that the local chapters “are ‘no longer nonprofit, must pay taxes, cannot accept tax deductible donations, or receive various grants.’ ” But the National Grange didn’t show falsity for those statements.  Any acts defendants engaged in while purporting to act in the official capacity would violate the existing order; they were allowed to solicit new guild members and officers in their own capacity.  The court denied the National Grange’s request to enjoin “performance of Grange rituals” as vague and overly broad.  “While performance of similar functions can contribute to a violation of the Lanham Act, plaintiffs’ request encompasses legitimate commercial activities such as soliciting new members and providing services to farm communities.”

The National Grange’s request for delivery of all business records, physical property, and intellectual property also went beyond the false advertising claims at issue here.  There was no evidence that defendants’ alleged use of business records and mailing lists constituted false advertising. Using the “proprietary mailing lists of the California State Grange ... albeit under different names” to contact Grange members with proper identification was “not, in itself, false advertisement.” Use of website logos, images, and backgrounds that are nearly identical to the National Grance could cause actionable confusion, but the National Grange’s request for relief was too broad. 

The court declined to evict defendants from the buildings alleged to belong to the California State Grange, but it did agree that, given defendants’ other deceptive tactics (referring to themselves as an organization “created in 1873,” “provid[ing] 160 years of service,” and “oldest agricultural organization in California”), their use of the National Grange’s buildings and former telephone numbers “would serve to further create a false impression among the public that they are affiliated with or successors to the California State Grange.” Eviction was a drastic measure for a preliminary injunction;  at this stage, a further disclaimer would suffice. However, it was reasonable to require defendants to cease using the old phone numbers.

As for that disclaimer: though the court would allow defendants from to claim credit for the history and achievements of the corporate entity formerly named the California State Grange from 1946 to 2013, “unless the public is notified that defendants are not in fact the California State Grange there would be a strong probability of confusion.”  Thus, all communications discussing the history or achievements of the corporate entity formerly named the California State Grange required a prominent disclaimer: “NOT AFFILIATED WITH THE CALIFORNIA STATE GRANGE.” Defendants were already using a mealy-mouthed disclaimer, “not affiliated with ... the Grange of the State of California’s Patrons of Husbandry Chartered.” The National Grange argued that this name was “unknown to the California Granges.” Without specifically ruling on that argument, the court saw no harm in making the disclaimer clearer.

Uber can't get taxi false advertising case dismissed on 12(b)(6)

Delux Cab v. Uber Technologies, Inc., 2017 WL 1354791, No. 16cv3057 (S.D. Cal. Apr. 13, 2017)

Delux, a cab company in San Diego, sued Uber for false advertising about “the purported exceptional safety of Uber” and the relative unsafety of taxicab rides. Challenged claims included:  “SAFEST RIDES ON THE ROAD—Going the Distance to Put People First,” and that Uber sets “the strictest safety standards possible …. The specifics vary depending on what local governments allow, but within each city we operate, we aim to go above and beyond local requirements to ensure your comfort and security—what we’re doing in the US is an example of our standards around the world.” Uber also touted rigorous background checks that it said compared favorably to those in the taxi industry.  Uber added a separately itemized $1 “Safe Rides Fee” shown on receipts, touting the fee as supporting an “industry-leading background check process, regular motor vehicle checks, driver safety education, development of safety features in the app, and insurance.”

Uber argued that the statements were all puffery, but many of them were specific and testable: Uber claims that it is “setting the strictest safety standards possible,” that its safety is “already best in class,” and that its “three-step screening” background check procedure, which includes “county, federal and multi-state checks,” and adheres to a “comprehensive and new industry standard.” A reasonable consumer “could conclude that an Uber ride is objectively and measurably safer than a ride provided by a taxi or other competitor service, i.e., it is statistically most likely to keep riders from harm.”  Nor were the statements merely aspirational and subjective.  Thhe simple addition of phrases such as “Uber is committed to ...,” “Uber works hard to ...,” or “We’re doing everything we can to ...” to an advertising statement isn’t an automatic shield from liability.  Nor did the context preclude a finding of misleadingness. Though Delux didn’t dispute that Uber screens criminal records going back seven years and conducts county, federal, and multi-state checks, the additional statements it made were also falsifiable, and the seven-year multi-jurisdictional background check was allegedly not “industry-leading.”

Uber also argued that several of its statements weren’t made in commercial advertising or promotion because they were made to journalists independent of Uber. Those challenged statements were “inextricably intertwined” with the reporters’ coverage of a matter of public concern, whether Uber is safe for riders.  Claims based on those statements weren’t actionable under the Lanham Act.

The “Safe Rides Fee,” however, was actionable even though Uber argued that it related to a transaction that had already occurred; it was aimed at getting future rides.

Uber agued that Delux didn’t adequately allege proximate cause.  Injury can be presumed in false comparative advertising cases.  The parties here were direct competitors, and it made sense that Uber’s alleged misrepresentations would decrease taxi rides.

Who registers the watchmen? court needs more info in (c) case

Sara Designs, Inc. v. A Classic Time Watch Co., --- F.Supp.3d ----, 2017 WL 627461, No. 16CV03638 (S.D.N.Y. Feb. 15, 2017)

Sara sued for copyright infringement, trade dress infringement, state trademark infringement and dilution, unfair trade practices, and deceptive practices and false advertising under New York General Business Law §§ 349 and 350. The court granted a motion to dismiss and denied a motion for a preliminary injunction.

Sara sells a highly successful series of wrap watches, including several styles of wrap watches using gradient chains, leather strands, adjustable links that include a lobster claw closure connected to the gradient chains with a ring, and an extension chain with a Sara Designs leaf-shaped logo connected to the watch. A representative from NY & Co. allegedly visited Sara’s booth at a trade show to ask whether it would lower prices or produce their product with lower-end materials under the NY & Co. brand. Sara declined, and NY & Co. allegedly had A Classic Time copy several of Sara’s watches. 

Bonus question: after Varsity Brands, are these watches protectable?

The copyright aspects had a problem: the complaint included certificates of copyright registration for several watches, “and numerous images of what appear to be internet screenshots of various iterations of Plaintiff’s watches and Defendants’ allegedly infringing watches.” But each of the submitted certificates of registration were text-only, and none were accompanied by any corresponding images of the work it purported to cover nor any specific descriptions of the work, other than the title of the work. The internet images of the allegedly infringed watches weren’t alleged to correspond to any particular registration number.

[Scroll down for more]
from complaint

More allegedly infringing watches

The court ordered Sara to file a supplemental submission “clarifying the scope of the copyright application and grant covering the allegedly infringed watches.” The resulting declaration didn’t provide further evidence to show that the certificates of registration corresponded to the images of the various watches submitted with the complaint. For example, although Sara alleged that “the W03 All Chain Wrap Watch” was infringed, it didn’t submit a certificate of registration referencing any “W03” watch, nor did it allege a plausible basis for a determination that any of the certificates covered that watch. “The declaration proffers, without explanation, multiple and seemingly different watches as being covered by single certificates of registration, and refers to watch titles that differ from the titles in the certificates and the Complaint.” There was no plausible factual basis from which to infer that a valid copyright registration covered any of the specific watches shown in the screenshots.  The complaint was dismissed with leave to amend.

The trade dress claims were conclusory and insufficient.  The complaint failed to identify the “precise nature of the trade dress” allegedly at issuse, “and merely contains a high level description of features of several watches, such as ‘gradient chain,’ ‘lobster claw closure,’ and ‘leaf-shaped logo,’ without allegations as to whether and how those features are distinctive.” Sara also didn’t properly allege secondary meaning, merely “asserting in a conclusory manner” that Sara was “known primarily for its unique and famous Wrap Style Watches,” and that its trade dress was “widely recognized by consumers as being associated with Plaintiff and has developed secondary meaning in the marketplace.” The complaint didn’t plead facts about advertising expenditures, consumer surveys, marketing coverage or prior attempts to plagiarize Sara’s trade dress that would support a proper inference of secondary meaning.

State dilution claims require a plaintiff to show “(1) that it possesses a strong mark, one which has a distinctive quality or has acquired a secondary meaning such that the trade name has become so associated in the public’s mind with the plaintiff that it identifies goods sold by that entity as distinguished from goods sold by others, and (2) a likelihood of dilution by either blurring or tarnishment.” The allegedly infringing watches were marked with “NY & Co.” or “New York & Company” logos. If Sara ought to claim that the term “wrap style watch” or the appearance of its watches constituted protectable marks, it didn’t allege sufficient facts or legal theories to make infringement or dilution claims plausible.

Sara’s unjust enrichment claim was preempted by the Copyright Act, like the unfair competition claim to the extent that it was also based on misappropriation of copyright. The claims similar to the Lanham Act claim were dismissed for the reasons above, and for the additional reason that the complaint didn’t adequately allege bad faith. The deceptive practices/false advertising claims under GBL §§ 349-350 were dismissed for want of alleged facts supporting an inference of harm to the public interest or consumers outside of harm to Sara’s own products and its related property rights.

Friday, April 14, 2017

Lack of damages dooms false marking, advertising claims

Gravelle v. Kaba Ilco Corp., 2017 WL 1349278, No. 2016-2318 (Fed. Cir. Apr. 12, 2017)

Gravelle sued his competitor Kaba for falsely marking its key-cutting machines as “patent pending” for a time, as Kaba eventually admitted, and sought monetary relief under the Patent Act, the Lanham Act, and North Carolina’s Unfair and Deceptive Practices Act.

In April 2015, Gravelle sold the rights to his key-cutting machine to Hudson Lock LLC which sold “between 50 and 85” RapidKey 7000 machines over a year and spent “probably ... $30,000 in advertising.” Kaba’s competing machine had two features, “automatic blade detection” and “automatic calibration,” marked as “patent pending,” although no patent application for those features was ever filed. Kaba sold 687 EZ Code machines between 2008 and 2015, continuing to use the false marking through at least September 10, 2013.

In order to sue under the false marking statute, a plaintiff must have “suffered a competitive injury as a result of a violation” of the marking statute. The court of appeals found that the district court correctly concluded that Gravelle did not put forth sufficient evidence to connect the decline in his sales to Kaba’s false marking of its machine as “patent pending.”  Gravelle claimed that he was “forced” to sell his rights to Hudson for $20,000, representing a loss of the value in the absence of Kaba’s false marking. Again, his evidence—his own estimate—was too speculative.  “Gravelle has advanced no evidence that he was deterred from introducing or continuing to market a product similar to Kaba’s falsely marked one or from engaging in innovation in the field of Kaba’s product, or that he incurred costs in designing around the features Kaba marked as subject to a pending patent.”  Gravelle claimed that the features “automatic blade detection” and “automatic calibration” were “highly desirable within the small locksmith community, at large, to the extent that same could readily influence a buyer[’]s purchasing decision.” But that was “too speculative and unexplained an assertion to support the causal proposition, which is anything but obvious, that buyers actually purchased the ‘patent pending’ machines over Gravelle’s machines.”  Further, no reasonable juror could find that Gravelle’s testimony was sufficient to show that the reason Hudson spent $30,000 advertising for a product it believed would generate $2 million in annual profits was that the expenditure was necessary to overcome Kaba’s false marking.

This same problem prevented success on Lanham Act false advertising claims.  Gravelle didn’t argue for a presumption of injury due to direct competition in the district court, and anyway this case didn’t involve a two-player market.  Though disgorgement is an available remedy under the Lanham Act, liability still depends on showing proximately caused harm.  So too with the state-law claim.

The court of appeals remanded for further fact-finding on the award of fees to Kaba.  The district court found that Gravelle’s case for injury causation was frivolous. Though no reasonable jury could find sufficient evidence of injury, “the question of whether the evidence crossed the triable-issue threshold was a closer one than the district court concluded. It is not implausible that in some markets a number of potential customers, choosing between two similar machines, one marked ‘patent pending’ and the other not, will buy the marked one because they think that buying the unmarked one exposes them to the risk of later infringing a patent of the seller of the marked one.”  Gravelle didn’t point to enough evidence that this would actually occur for this particular market.  But frivolousness focuses on “what a litigant could reasonably believe would constitute sufficient evidence to allow a reasonable inference of harm caused by the false marking.”  On this question, more findings were required than the district court provided.  Gravelle, a pro se plaintiff, was deeply involved in the relevant market, and he offered his own opinion that customers “could” be influenced by a “patent pending” marking. “[I]t is not clear that a person in Gravelle’s position should be charged with understanding that merely possible influence (‘could’) is inadequate and that ‘influence’ cannot be asserted in a wholly general manner, but must be supported by evidence, whether from customers or others, concretely showing how customers would have been influenced by a marking in the specific market.” The district court was thus ordered to reconsider the fee award.

Thursday, April 13, 2017

Ordinary false advertising isn't disparagement for insurance purposes

Vitamin Health, Inc. v. Hartford Casualty Ins. Co., --- Fed.Appx. ----, 2017 WL 1325263, No. 16-1724
 (6th Cir. Apr. 11, 2017)

Vitamin Health makes products intended to reduce the risk of developing age-related macular degeneration, advertising that its products contain the combination of vitamins recommended by the second Age-Related Eye Disease Study, a 2013 study conducted by the National Eye Institute for the National Institutes of Health.  Bausch & Lomb, a competitor, sued Vitamin Health for patent infringement and false advertising, alleging that that Vitamin Health’s product contained less zinc than what the AREDS 2 study recommended.  Because of the false advertising claim, Vitamin Health asked its insurer Hartford to defend it, and Hartford declined.  Here, the court upholds the district court’s finding that Hartford had no duty to defend.

Vitamin Health argued that the false advertising claim fell within the policy’s definition of “personal and advertising injury,” which covers, among other things, “Oral, written or electronic publication of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services.”  Vitamin Health argues that allegedly disparaged Bausch & Lomb by implication. But there can be no disparagement when the alleged misrepresentation was of the policy holder’s own product. Under Michigan law, “a disparagement claim requires a company to make false, derogatory, or disparaging communications about a competitor’s product.”  

Vitamin Health argued a theory of “implied disparagement,” which allegedly existed whenever one company claims its products are superior to all other products. But it wasn’t clear that Michigan law recognizes claims of disparagement by implication, and even if it did, Vitamin Health didn’t make claims about its own superiority; Bausch & Lomb was the one that claimed that its product was the only one that complied with the AREDS 2 formula.

Don't try to make a Lanham Act case out of a copyright case

Lieb v. Korangy Pub’g, Inc., 2016 WL 8711195, No. 15-CV-40 (E.D.N.Y. Sept. 30, 2016)

The Second Circuit isn’t a good place to try to plead around Dastar.  Lieb sued Korangy for copyright infringement and deceptive business practices based on alleged infringement of the article “10 Surprises When Inheriting Real Estate.” Lieb, a HuffPo blogger, alleged that Korangy infringed by copying and promoting its contents in a separate article, “Watch for These 10 Surprises When Inheriting Real Estate,” published on, and engaged in unlawful business practices by advertising the infringing work on the Real Deal, social media websites, and other outlets.  Korangy allegedly harmed consumers by linking to the infringing work “which, in turn, distorts information contained in the Copyrighted Work and thereby misleads and consequently harms consumers.” The fact that the infringing work linked to the original work allegedly “wrongfully suggests … that the Infringing Work was published with the apparent authority to hold itself out as of equal value to the Copyrighted Work” and that “the Infringing Work was published with the authorization of Plaintiff.”  Korangy’s ads for the article were allegedly deceptive because the infringing work “was falsely advertised as a wholly original work and it was falsely advertised to have been authored by a non-party.” Korangy allegedly did this with lots of different articles online.

Lieb sought to amend his complaint to add Lanham Act claims, alleging that “Defendant engaged in the systematic practice of misappropriating others’ articles and altering them so that they are no longer representative of the authors’ works, while simultaneously attributing them to the original authors[.]”  The proposed complaint also alleged false advertising “by copying and/or summarizing and/or removing information from the Copyrighted Work, thereby distorting the intended meaning of the Copyrighted Work.”

At this point in the case, an amended complaint required a showing of good cause under Rule 16(b), which requires that a movant have exercised diligence but still failed to meet the Court’s deadline despite such efforts.  The court found that Lieb had not done so; allegedly newly discovered evidence of Korangy’s “systematic practice” of summarizing articles as Lieb’s had been summarized could and should have been known before; indeed, the opearative complaint alleged “numerous” examples of such articles.  Anyway, nothing about Lieb’s own Lanham Act claim required evidence of intent to deceive, which was what Lieb contended he’d newly unearthed in the deposition testimony of Korangy employees.

Also, even with good cause, amendment would be futile because of Dastar.  Allegedly falsely designating the infringing work as having been authored by someone else is not actionable, nor was allegedly passing off the infringing work as having been authored by Lieb.  As for the false advertising claim, Dastar’s interpretation of “origin” “necessarily implies that the words ‘nature, characteristics, and qualities’ in 43(a)(1)(B) cannot be read to refer to authorship.” Thus, “a failure to attribute authorship to Plaintiff does not amount to misrepresentation of ‘the nature, characteristics, qualities, or geographic origin of ... Defendant’s goods.’ ” 

Flea market case on secondary (and tertiary) liability for counterfeiting

Luxottica Gp., S.P.A. v. Greenbriar Marketplace II, LLC, --- F.Supp.3d ----, 2016 WL 5859023, No. 15-cv-01382 (N.D. Ga. Sept. 30, 2016)

Luxottica sought to hold Greenbriar and Albert Ashkouti liable for contributory trademark infringement based on sales of counterfeit goods by some vendors at the Greenbriar Discount Mall, including “knock-off” Ray-Ban and Oakley sunglasses (Luxottica brands).  In December 2013, DHS and the Atlanta PD raided the mall and adjacent Greenbriar Strip Plaza and seized thousands of counterfeit products, including counterfeit Ray-Ban and Oakley merchandise. Luxottica’s investigators observed sales of fake Ray-Bans and Oakleys and were able to purchase several pairs of counterfeit sunglasses on multiple undercover trips to the flea market from October, 2014 to April, 2015. Luxottica sent a C&D letter about this addressed to the “Owner/Manager” of the “Greenbrier Strip Plaza Warehouse” in January 2015.

Liability for contributory infringement depends upon whether the alleged contributing defendant “intended to participate” in the infringement or “actually knew about” the infringement. “The extent and nature of the violations being committed may be relevant in making this determination.”  The defendant also needs to have “actively and materially furthered the unlawful conduct,” which can include “bad faith refusal to exercise a clear contractual power to halt the infringing activities.”  Corporate officers can be held personally liable for contributory trademark infringement if they “actively participated as a moving force in the decision to engage in the infringing acts, or otherwise caused the infringement as a whole to occur.”

For purposes of this motion, defendants didn’t dispute knowledge of the alleged widespread sale of counterfeit merchandise at the discount mall/flea market and focused on their control over operations.

Greenbriar Marketplace is the owner of the real property on which the Discount Mall is located. Greenbriar Marketplace leases the anchor store space and the adjoining parking lot areas to defendant 2925 Properties, LLC, for the operation of the Greenbriar Discount Mall (flea market). Greenbriar Marketplace’s only income is rent from tenants of the shopping center, including 2925 Properties. 
Greenbriar Marketplace has two owners: Tabas Two, LLLP and Kimberly Swindall. 2925 Properties sublets spaces to vendor/tenants in the flea market. Kimberly Swindall is also the sole member/owner of 2925 Properties:

organization chart

2925 Properties also owns and operates an adjacent property and shopping center, as outlined on the map:

The utility of photos in opinions

Defendant Albert Ashkouti owns 67% of Tabas Holdings, which in turn owns 1% (and is the general partner) of Tabas Two. Ashkouti is also a limited partner of Tabas Two, and “a member of the general partner of Greenbriar Marketplace’s majority member.” He’s listed with the Georgia Secretary of State’s office as the “registered agent” and identified himself as a “member/manager” for Greenbriar Marketplace, although he in fact is not personally a “member” of the LLC:

Ashkouti chart

Kimberly Swindall was aware of the December 2013, law enforcement raid on the Greenbriar Discount Mall and adjacent Greenbriar Strip Plaza and acknowledged the seizure of counterfeit merchandise at both shopping centers. That raid “was not the first run-in with counterfeiting by Greenbriar and 2925 Properties, nor was it their last.” Swindall’s efforts to combat the prevalent sale of counterfeit merchandise at the flea market were “unsuccessful in ridding the flea market of all counterfeit sales.”  Greenbriar Marketplace, as landlord, has certain rights if its tenant 2925 Properties doesn’t comply with the lease terms, including the right to terminate the lease; the lease requires 2925 Properties to obey the law.  The lease also barred the sale of alcohol, obscene, erotic or pornographic materials.

Greenbriar Marketplace argued that its tenant was solely responsible for the use of the property and that it had no right of control over tenants under the lease.  But liability for contributory trademark infringement can attach to a landlord who continues to lease space to a tenant whom it knows or has reason to know is engaging in trademark infringement even without direct control over the infringing conduct. Swindall’s dual status as half-owner of Greenbriar Marketplace—the property owner and landlord—and as sole owner of 2925 Properties which operates the flea market was also highly relevant, as was her general awareness of the widespread counterfeiting problem at the flea market.  A reasonable jury could find that Swindall could have acted on behalf of Greenbriar Marketplace but refused to do so, or it could conclude that she took reasonable efforts to flush out infringing sales of counterfeit merchandise at the flea market.

Ashkouti was not individually liable for contributory infringement. “Mr. Ashkouti’s savvy business structuring of his family’s investment companies was clearly done to avoid opening him up to personal liability for his financial real estate dealings.”  The record showed that he maintained an active management role in Greenbriar Marketplace, and was its agent.  He dealt with the money and never went inside the shopping center, instead employing his own property management company to manage it. “For all practical purposes, Mr. Ashkouti delegated all issues involving the flea market and complaints regarding counterfeiting to Patrick and Kimberly Swindall.” Whenever he received complaints, “he wrote a responsive letter to the complainant, referred the matter to the Swindalls, and relied on them to deal with it.” He met with representatives of Homeland Security once and “complained that the department was harassing him, trying to put him out of business, and that he didn’t have any rights over the flea market vendors that the department had failed to arrest or take any other action against.”

The lease agreement didn’t give Ashkouti the personal right to take action against 2925 Properties. Although he gave “evasive and conflicting deposition testimony,” that wasn’t enough to show sufficent involvement.  He could potentially have exercised control over 2925 Properties, which might be a contributory infringer.  “But control over a contributory infringer in this way (not the actual infringer)—without evidence of more extensive intermingling of Ashkouti and Greenbriar with 2925 Properties’ management/direction of the flea market …—does not provide an adequate basis for Ashkouti’s individual liability.” A reasonable jury couldn’t find that he oversaw, facilitated, or “actively participated as a moving force in contributing to the flea market’s operation.”

Law360 article on my ICE suit by Bill Donahue

Read it here.

Tuesday, April 11, 2017

No evidence of harm means no disgorgement in false advertising case

MB Imports, Inc. v. T&M Imports, LLC, No. 10-3445, 2016 WL 8674609 (D.N.J. Dec. 23, 2016)

MB Imports imported and sold Sicilia brand lemon and lime juice products, and sold them to Safeway from 2001-2003; for many years, they were the only squeezable lemon and lime juices sold in Safeway’s produce department. Safeway discontinued Sicilia in favor of Tantillo juices offered by T&M after a 2009 meeting in which Safeway’s representatives didn’t recall receiving a proposed label for the juices. “Safeway representatives stated that Safeway was interested in selling the Tantillo juices because of the name-brand recognition, price, and Defendants’ willingness to engage in product promotions (and not due to any representations about the product’s quality, country of origin, or anything relating to their labels).”

The front label of Tantillo’s lemon juice stated “Product of Italy,” “Sicilian Lemon Juice,” “Not from Concentrate,” and “All Natural.” The back label listed ingredients, including “Lemon Juice (99.97%)” and “Potassium Metabisulfites (Antioxidant E224).” The lime juice was similar. Laboratory tests commissioned by MB indicated that Tantillo lemon juice contained added water, added non-fruit citric acid, and were not dervived from lemons of Italian or Sicilian descent, and MB concluded that the lime juice could not be “Sicilian” because there was no commercial lime juice exportation from Italy.  Despite getting this report, Safeway continued to sell the juices.

After a bit of litigation, MB was left with Lanham Act and coordinate New Jersey Unfair Competition Statute claims, with “disputed issues of fact regarding whether a consumer would consider the alleged misrepresentations material to his or her purchase; whether the current lemon juice label and previous lime juice labels still being used in advertising are false or misleading;” and “whether, if false and misleading, the representations at issue are material to consumers.”

Here, the court found that defendants were entitled to summary judgment on MB’s request for disgorgement. The Third Circuit has provided six non-exhaustive factors to evaluate whether disgorgement is appropriate: “(1) whether the defendant had the intent to confuse or deceive, (2) whether sales have been diverted, (3) the adequacy of other remedies, (4) any unreasonable delay by the plaintiff in asserting his rights, (5) the public interest in making the misconduct unprofitable, and (6) whether it is a case of palming off.”

Previously, the court found that “no reasonable factfinder could find that Safeway relied on Defendants’ alleged misrepresentations in deciding to sell Tantillo lemon and lime juice products.”  Moreover, MB failed to show that the false advertising caused MB any harm.  Without “at least some evidence of harm,” no award of profits or damages was appropriate.  For damages purposes, the court wouldn’t presume that any of defendants’ sales would have gone to MB but-for the false advertisement.

The court declined to address the appropriateness of attorneys’ fees at this stage. An award of attorney’s fees doesn’t require intentionally false advertising, or the existence of damages.  The court could potentially find culpable conduct if defendants were still using their original ad on the internet, and other claims related to be litigated. It was too early to decide that this wasn’t an exceptional case.

false advertising dispute based on study in medical journal should proceed, judge recommends

Theodosakis v. Clegg, 2017 WL 1294529, No. CV-14-02445 (D. Ariz. Jan. 30, 2017) (magistrate judge)

Theodosakis and Supplement Testing Institute sued defendants for defamation, commercial disparagement, tortious interference with business expectancy, false advertising and unfair competition under the Lanham Act, and violation of Arizona’s Consumer Fraud Act, based on their alleged participation in a study and the subsequent report that was published in New England Journal of Medicine, that plaintiffs claimed contained false and misleading statements.

STI sells glucosamine and chondroitin dietary supplements, including Avosoy Complete. Theodosakis wrote “The Arthritis Cure” (1997), which allegedly first reported that osteoarthritis could be successfully treated through a nine-step treatment program that included two supplements, glucosamine and chondroitin. This was a best-seller and Theodosakis wrote a follow-up. Sales of the supplements allegedly “skyrocketed,” including STI’s.  In 1998, NIAMS, the arthritis division of the National Institute of Health, commissioned a grant to perform human clinical research specifically on the supplements, the GAIT Glucosamine/Chondroitin Intervention Trial.  GAIT included the use of an active comparator, celecoxib (Celebrex).

The NEJM published the study results, with defendants as the lead authors. “The Report stated that Celebrex® passed the two primary outcomes, and that glucosamine and chondroitin, alone and in combination, were not significantly better than a placebo in reducing knee pain from osteoarthritis and do not effectively reduce knee pain from osteoarthritis.” This allegedly soured millions on the supplements, and “[a]s a direct result of publication of the Study and Report, Plaintiff Dr. Theodosakis’ consulting contracts with Rexall and Pharmavite were not renewed.” 

The complaint alleged that “[i]f the active comparator [in a study] underperforms as compared to the bulk of its prior studies, there is a high probability that the effects of treatment groups will be understated and could lead to a false-negative result.”  It further alleged that they’d been told that the raw data showed that celecoxib actually failed the two primary outcomes, though they didn’t have access to the raw data.  When the report was published, Dr. Clegg and Dr. Sawitzke were allegedly financially involved with commercial entities that were in direct market competition with the supplements, including plaintiffs’ products.

Dr. Clegg and Dr. Sawitzke argued that they had Eleventh Amendment immunity as members of the faculty of the University of Utah School of Medicine and employees of the University of Utah.  Plaintiffs filed a motion to amend the complaint to clarify that they were suing Dr. Clegg and Dr. Sawitzke in their individual capacities only, and defendants didn’t show that the relief sought would come from the state coffers, interfere with the public administration, or compel the State of Utah to act or restrain from acting.  Thus, defendants failed to meet their burden to show that the complaint should be dismissed on this ground.

Defamation: Defendants argued that “[a]side from acknowledging [Dr. Theodosakis] as a participating investigator and member of the GAIT study steering committee, the report does not mention Dr. Theodosakis.” Also, the “reported findings concern[ed] glucosamine and chondroitin, generic compounds naturally made in humans.”  A corporation, like STI, “has no personal reputation and may be libeled only by imputation about its financial soundness or business ethics.” The statements at issue didn’t implicate STI, so it didn’t state a claim. 

Defamatory statements “must be published in such a manner that they reasonably relate to specific individuals.” Dr. Theodosakis had the burden of showing that the publication was “of and concerning” him.  Statements in the report included: “The dietary supplements of glucosamine and chondroitin sulfate have been advocated, especially in the lay media, as safe and effective options for the management of symptoms of osteoarthritis.”   The report also said, “Studies have demonstrated substantial variation between the content listed on the labels of these products and the actual content. Because our study was conducted under pharmaceutical rather than dietary-supplement regulations, agents identical to the ones we used may not be commercially available.”

Given that “[t]he popular press ... published numerous articles ...” not only about Dr. Theodosakis’ book, but also about the supplements as well, “any alleged defamation occurred with regard to a group.” “When a group of persons are defamed, the statements must reasonably relate to a certain individual member or members.... If the group is so large, or the statements so indefinite, that the objects of the defamatory statements cannot readily be ascertained, the statements are not actionable.”  However, the complaint plausibly alleged that Theodosakis was uniquely identified with the supplements because he “publicly and on a nationwide scale staked his reputation on his position that glucosamine and chondroitin play a major role in treating osteoarthritis.”

Commercial disparagement:  The report was clear that the glucosamine and chondroitin utilized for the Study was conducted under pharmaceutical regulations, so they wouldn’t be identical to readily available supplements. Even though it questioned the effectiveness of the supplements specifically used in the study, the allegations weren’t enough to reasonably conclude that the statements concerned plaintiffs’ products in particular.

Defendants claimed qualified privilege under the First Amendment as to the remaining defamation claims. The judge agreed that a report in NEJM, published for educational purposes, qualified for the common interest privilege given that “ ‘scholarly activity generally fits within the common interest privilege.’ ”  Thus, plaintiffs had to allege abuse of privilege by showing either excessive publication or actual malice.  Plaintiffs alleged that the raw data didn’t support the published findings, and that the doctors were financially involved with Celebrex’s maker.  These reasonably supported the inference of abuse of the privilege with actual malice.  Also, plaintiffs were prepared to allege extensive republication of the claims “in interviews, journals and magazines,” including in a prepared statement from Dr. Clegg concerning the GAIT Study.

Tortious interference:  There was no factual basis alleged to plausibly support the claim that defendants were aware of plaintiffs’ alleged business relationships.

False advertising: A scientific article published in the NEJM isn’t commercial speech and thus can’t be commercial advertising or promotion.  The article didn’t advocate the purchase of one particular product over another.  Drs. Clegg and Sawitzke’s alleged financial interest in Celebrex’s manufacturer as well as an interest in other competitors of glucosamine and chondroitin didn’t change anything; they were only two of more than twenty authors. The publication’s purpose was to assess the efficacy of glucosamine and chondroitin for the treatment of osteoarthritis of the knee, “not as a means to sell Celebrex.”

However, plaintiffs argue that defendants’ republication of the statements allowed Lanham Act liability, since courts have distinguished between the defendant’s initial publication of the article and its continued distribution of reprints or republication. But plaintiffs didn’t specifically allege any particular secondary publication or other means; that wasn’t enough.  They wanted to amend the complaint to add allegations about “interviews, journals and magazines,” Dr. Clegg’s prepared statement, and Dr. Sawitzke’s article published in Arthritis & Rheumatism 2008.” I would have said that none of those were commercial advertising or promotion, for the exact same reasons—Gordon & Breach and similar cases allowing republication claims to continue involved a change in form, when the republication was used as part of a sales pitch.  But the court found that, once defendants were no longer two of twenty authors and each allegedly had a financial interest in Celebrex, making statements “arguably aimed at the medical field, who makes treatment decisions, and the general public touting the Study’s results in favor of Celebrex” were enough to state a claim under the Lanham Act, justifying leave to amend.

The Arizona Consumer Fraud Act claim was dismissed because only consumers can sue under it. 

lack of substantiation isn't actionable, but claims of 100% satisfaction are

Moorer v. Stemgenex Medical Group, Inc., 2017 WL 1281882, No. 16-cv-02816 (S.D. Cal. Apr. 6, 2017)

Plaintiffs brought the usual California claims (plus RICO and California’s Health and Safety Code section 24170, et seq., (Human Experimentation) (!), and Financial Elder Abuse), based on allegedly false advertising of “stem cell treatments” to consumers who are often “sick or disabled, suffering from incurable diseases and a dearth of hope.” Defendants allegedly falsely represented to consumers that “100% of its prior consumers are satisfied with its service.”

The court first found that claims based on lack of substantiation weren’t sustainable.  Plaintiffs undamentally alleged omission of the material information that no data or reasonable basis supported the efficacy of the stem cell treatments. “False-advertising claims based on a lack of substantiation, rather than provable falsehood, are not cognizable under the California consumer-protection laws.”  The closest the plaintiffs got to alleging falsity was “the generally accepted scientific consensus is that there is no treatment for degenerative diseases, or any disease, with a person’s own adult adipose stem cells, that has been proven ‘effective’ at any level.” But is that true because the treatment has been “tested and disproven, or rather, is it because no study regarding its efficacy has been conducted yet, and thus, scientific literature is devoid of a conclusion?”  Plaintiffs didn’t plead the existence of any scientific study that purported to prove that the stem cell procedure didn’t work.

However, claims about misrepresentation of patient satisfaction ratings survived. Defendants represented that their patient satisfaction ratings were monitored and updated on a monthly basis, but plaintiffs alleged that the publicized ratings remained at 100% even after complaints from customers.

However, the claim for financial elder abuse failed to satisfy Rule 9(b).  Also, “an elder prospective customer viewing the website on his or her own volition is not enough to constitute ‘undue influence,’” one of the elements.  Plaintiffs also argued that defendants engaged in human experimentation without informed consent because defendants referred to their treatments as “studies” and claimed to be a “pioneer in research.” To qualify as a “medical experiment,” the use of a device must be “in the practice or research of medicine in a manner not reasonably related to maintaining or improving the health of the subject or otherwise directly benefiting the subject.” Thus, the stem cell treatments fell outside the ambit of “pure research.”  The innovative nature of the treatment didn’t rise to the level of requiring informed consent.  [This seems like a pretty big loophole.  What about malpractice?]

The RICO claim failed because it was a RICO claim, but with leave to amend. 

Monday, April 10, 2017

Reed invalidates highway sign distance and permit regulations

Thomas v. Schroer, 2017 WL 1208672, No. 13-cv-02987 (W.D. Tenn. Mar. 31, 2017)

Reed may or may not work a sea change in First Amendment law generally, but it has definitely worked a sign change.

The Tennessee Department of Transportation (TDOT) promulgates and enforces regulation of billboards and outdoor advertising signs under Tennessee’s Billboard Regulation and Control Act of 1972 and under the Federal Highway Beautification Act of 1965.  Regulated billboards and signs under the Billboard Act are subject to location and/or permit and tag restrictions, e.g., they may not be “within six hundred sixty feet (660') of the nearest edge of the right-of-way and visible from the main traveled way of the interstate or primary highway systems ... without first obtaining from the commissioner a permit and tag.” Some signs, however, are exempted if they relate to the sale/lease of property on which they’re located or if they advertise activities conducted on the property on which they are located—these are known as on-premise signs.  Because, to qualify as an on-premise sign, one must compare the content of the sign to the activities on the premises, the court found the restriction content-based, and because it regulated all signs rather than just commercial signs, it had to survive strict scrutiny, which it did not.

The court commented that commercial sign regulations are subject to intermediate scrutiny, not to Reed’s strict scrutiny, but here the regulation affected both kinds of speech. 

Justice Alito described an off-premises/on-premises distinction as content neutral in his concurrence in Reed, but the court here found that would only be true if a regulation defined an on-premises sign “as any sign within [x] feet of a building,” rather than also considering the relationship between the content and the building’s use.  [The Reed dissents, too, pointed out that a number of the examples were content-based if you define content-based without any reference at all to the reasons we might want to protect speech against government regulation. Even if you do that, it seems plausible that no lawful content is barred by this regulation, depending on the use of the building.] 

First, the state’s interests were not compelling. The state identified interests in preventing the proliferation of billboards, improving (1) aesthetics and (2) traffic safety. These are substantial or significant interests, but not compelling interests.  Nor were they properly related to the speech-based distinctions made by the regulation—the distinction between on-premises-related content and other messages.  One of the defendant’s witnesses testified that signs with more content and signs outside the driver's field of vision may create greater distractions, i.e. “I would know the golden arches for McDonald's or BP for gasoline, I know that that facility sits at the bottom of that sign; and it's a very quick glance and back to the road.”  So that’s an interesting claim about the shorthand function of trademarks, but the court found it unrelated to off-premises/on-premises distinctions.

In fact, the court reasoned, the on-premises/off-premises distinction could interfere with the state’s interests, because “a small sign with muted colors that says “Knowledge is Power” off of 1-40 would require a permit and tag, and compliance with the six-hundred-sixty (660)- foot restriction. Conversely, a large sign with loud colors that states ‘This property is for sale. Right here. This one. The one this sign is on. Look at this sign. Look at this property,’ would require no permit or tag, and could be placed closer to another sign and the roadway.”

Even assuming the state’s interests were compelling, the law wasn’t narrowly tailored. The state argued that “[o]n- premise signs enhance safety by helping drivers locate relevant businesses and activities”; “[t]he impact on aesthetics [by on-premises signs] is minimal because the signs are already integrated with the current land use”; “[o]n-premise signs are inherently self-regulating ... [because] [o]wners of businesses do not want to spend valuable real estate putting up a number of signs—that space is better utilized for the business itself;” and off-premises signs are distracting.  But the state didn’t show that on-premises signs were less distracting than off-premises signs, or that they had less impact on aesthetics. “[T]he State’s conclusory assertion that business owners do not want to put up numerous signs is speculative and lacks evidentiary support. The assertion would certainly not be true for many firework vendors.”   

The law was also overinclusive because it regulated off-premises signs that were not highly distracting, and underinclusive because it didn’t regulate distracting on-premises signs.  The law was also not the least restrictive means to further the state’s interests.

First, the state could limit its regulation to only commercial speech; similar regulations have been upheld after Reed.  While a non-commercial/commercial distinction might be less effective than the current regulation, it wouldn’t be ineffective.  Second, size restrictions might be a content-neutral alternative furthering the traffic safety interest.  [Really?  What is a “sign”?  How do you make that determination content-neutral?]  Spacing requirements could also work, if they also allowed business owners to erect additional signs within a certain distance of a building.  An ordinance that exempted only signs that complied with the Manual on Uniform Traffic Control Devices might also be constitutional.
An alternative regulation might also “require all signs, regardless of content, to be a particular size, use a particular font (or a set of fonts), be limited to a particular colors, face a particular direction, or stand at a particular height, etc.” [Note that this might face federal preemption issues given federal protections for the display of registered trademarks.]

Anyway, bye-bye sign regulation.

Court finds materiality of color questionable

Spruce Environmental Technologies, Inc. v. Festa Radon Technologies, Co., No. 15-11521, --- F. Supp. 3d ----, 2017 WL 1246327 (D. Mass. Apr. 3, 2017)

The parties compete in the radon extraction business. Spruce claimed that Festa falsely advertised its radon extraction fans in violation of the Lanham Act; the Massachusetts Consumer Protection Act, M.G.L. ch. 93A; M.G.L. c. 266, § 91 prohibiting false/unfair ads; and the common law of commercial disparagement. Festa counterclaimed similarly. Spruce filed a motion for partial summary judgment, which was denied.

Previously, the court enjoined Festa from using inaccurate photos of Spruce’s fans and representing that Festa fans have Energy Star and Home Ventilating Institute (HVI) certifications, and enjoined Spruce from claiming that its fans were Energy Star certified. 

Spruce argued that it was entitled to summary judgment on its claim that Festa’s promotions violated the Lanham Act and Chapter 93A because they include a photo of a bright yellow Spruce fan when the fans are actually a different shade of yellow or greyish-brown, which is material because color is an inherent quality and because one of its potential customers suggested in an email that color would affect his purchase decision.  But there were genuine issues of material fact about whether the photo properly represented the fans; there was evidence that the photo wasn’t manipulated and thus might not be literally false, and the fans did become more yellow over time.  Also, the email was hearsay and there was no other evidence of materiality.  “[I]t is unclear whether consumers would find that the difference between the bright yellow in the advertisement and the yellow tint that admittedly develops is an inherent quality.” Also, since the fan was supposed to remove radon, not to be decorative, color might never be an inherent quality.  Injury was also a matter for factfinding.

Likewise for Festa’s Energy Star rating, which Festa conceded was expired at the time of the ads. Spruce didn’t show that it was injured, and there was an unclean hands problem as well; Spruce also made literally false statements that two models were Energy Star rated.  Similarly, Festa allegedly falsely advertised using photos that included HVI certification labels even though that certification had expired. Festa responded that the small labels in the stock photos were indecipherable and there was no evidence that consumers were materially misled; the court agreed that there were genuine factual issues.

Similar factual issues precluded summary judgment on Festa’s counterclaim.

Causation failure dooms Lanham Act claim in bioengineered corn case

In re: Syngenta AG MIR 162 Corn Litig., MDL No. 2591, 2017 WL 1250791 (D. Kan. Apr. 5, 2017)

Plaintiffs asserted various claims against Syngenta relating to Syngenta’s commercialization of the corn seed products Viptera and Duracade, containing a genetic trait known as MIR 162, when China, a key export market, didn’t approve that corn. Plaintiffs alleged that Syngenta’s acts caused corn containing MIR 162 to be commingled throughout the corn supply in the United States; that China therefore rejected imports of all corn from the US, causing corn prices to drop; and that plaintiffs (who didn’t use Syngenta corn) were harmed by that market effect. The court previously certified a nationwide Lanham Act class and state-wide classes for claims under the law of Arkansas, Illinois, Iowa, Kansas, Missouri, Nebraska, Ohio, and South Dakota. Here, Syngenta got rid of all Lanham Act claims, as well as any claim of negligence in which liability was based on any alleged misrepresentation, a voluntary undertaking, a failure to warn, or a duty to recall.  The negligence analysis contains a lot that seems quite interesting, but I’ll focus on the Lanham Act claims.

An August 17, 2011, letter to all Syngenta purchasers stated that Syngenta expected import approval from China for Viptera in late March 2012.  The court found that plaintiffs couldn’t prove injury causation. To show causation, they’d have to show both that farmers read and were influenced by the letter and that the impact of the letter was great enough to cause the embargo that allegedly caused the price drop in this country. Of the more than 100 farmers deposed in this MDL and the related Minnesota litigation, only one testified that he had seen the letter, and none testified that he purchased Viptera or Duracade because of that letter. There was no other survey or expert evidence.  By the time of the letter, Syngenta had been selling Viptera for many months and planting for the 2011 season had been completed. “[T]here was already more than enough corn containing MIR 162 in the system to cause the alleged trade disruption.”  This justified summary judgment for Syngenta on the Lanham Act claims.

Syngenta also won summary judgment on the negligence claims to the extent they were based on alleged misrepresentations made in Syngenta’s deregulation petition or in the course of a lawsuit suit against another market participant.  Plaintiffs argued that they weren’t asserting any negligent misrepresentation claims, but that the alleged misrepresentations were part of the totality of Syngenta’s conduct regarding the commercialization of Viptera that was allegedly unreasonable; the applicable standard of care allegedly included transparency in communications.  The court disagreed.  “The law sets forth certain requirements for liability based on negligence with respect to representations, and plaintiffs may not circumvent those requirements by basing an ordinary negligence claim on alleged misrepresentations,” even when additional negligent conduct was also alleged.  However, failure to warn might be part of the negligence claim.

Among the other rulings on negligence, the court rejected Syngenta’s attempt to compare the fault of the Chinese government in causing plaintiffs’ harm, which creates interesting questions about judging foreign governments’ conduct in domestic disputes.

LiveJournal's missteps threaten its DMCA protection

Mavrix Photographs, LLC v. LiveJournal Inc., No. 14-56596 (9th Cir. April 7, 2017)

Initial note: What the court here describes as LJ’s business model is in reality limited to its treatment of ONTD, the most popular community on LJ.  Most other LJ communities, not to mention its individual journals, operate very differently.  Query whether subsequent treatment will understand this important fact when dealing with the reversal of summary judgment in LJ’s favor on its 512 defense.

Mavrix sued LJ for infringement of twenty photos.  Users submitted the photos, but “a team of volunteer moderators led by a LiveJournal employee reviewed and approved them.”  Whether the acts of the moderators could be attributed to LJ was a disputed question of material fact under the common law of agency, which applies to DMCA analysis of whether material was “posted at the direction of the user.” [At the outset, I don’t get this—the analysis on knowledge etc. makes somewhat more sense, but they’re still user-submitted photos whether or not the moderators screen them.] The court of appeals also vacated the district court’s order denying discovery of the moderators’ identities.

LJ “allows users to create and run thematic ‘communities’ in which they post and comment on content related to the theme.”  There are three unpaid administrator roles: “moderators” review posts submitted by users to ensure compliance with the rules; “maintainers” review and delete posts and have the authority to remove moderators and users from the community; one “owner” per community can also remove maintainers.  Oh No They Didn’t! (ONTD) is a popular LJ community focused on celebrity news.

ONTD’s rules instructed users to “[i]nclude the article and picture(s) in your post, do not simply refer us off to another site for the goods.” Another rule: “Keep it recent. We don’t need a post in 2010 about Britney Spears shaving her head.” ONTD’s rules included a list of sources from which users should not copy, which were sources that informally requested that ONTD stop posting allegedly infringing material. ONTD also automatically blocked all material from one source that sent ONTD a C&D. Moderators reviewed proposed submissions and publicly posted about one-third of them. The substantive requirement for approval was new and exciting celebrity news, though they were also supposed to screen out copyright infringement, pornography, and harassment.

Like other LJ communities, ONTD used to be exclusively volunteer, without LJ involvement in day-to-day operation of the site. But it hit 52 million page views per month in 2010 and attracted LiveJournal’s attention. “By a significant margin, ONTD is LiveJournal’s most popular community and is the only community with a ‘household name.’” Thus, LJ determined to exercise more control over ONTD so that it could generate ad revenue from it. LJ hired a then active moderator, Brendan Delzer, to serve as the community’s full time “primary leader” with the intent to “take over” ONTD, grow the site, and run ads on it. Delzer instructed ONTD moderators on the content they should approve and selects and removes moderators on the basis of their performance, as well as performing moderator work of his own. Delzer was paid and expected to work full time, while the other moderators are “free to leave and go and volunteer their time in any way they see fit.”

ONTD posted the allegedly infringing photographs in seven separate posts between 2010 and 2014. Some of the photos contained either a generic watermark or a specific watermark featuring Mavrix’s website “” Delzer did not recall personally approving the seven posts, and LJ has no technological means to determine which moderator approved any given post. Mavrix didn’t send DMCA notices, but when it sued, LJ removed the posts.

The district court held that users’ submission of the posts was key to make them “at the direction of the user.”  The court of appeals disagreed, holding that §512(a) dealt with submission, while § 512(c) “focuses on the service provider’s role in publicly posting infringing material on its site.  Contrary to the district court’s view, posting rather than submission is the critical inquiry.”  This is … an interesting reading of the DMCA.  §512(a) is about transmission.  If §512(c)’s “hosting” means “publicly posting,” then what happens if an ISP enables private storage? 

Anyhow, the common law of agency could make LJ responsible for the moderators’ acts; the DMCA incorporates the common law of agency. To the extent that BWP Media USA, Inc. v. Clarity Dig. Grp., LLC, 820 F.3d 1175 (10th Cir. 2016), contradicted this holding by suggesting that ISP employees could be “users” under the DMCA, the court of appeals disagreed.

So, were the moderators LJ’s agents?  Agency requires actual or apparent authority to act on behalf of the principal as well as the principal’s right to control the actions of the agent.  There was evidence that LJ gave its ONTD moderators explicit and varying levels of authority to screen posts. [Note again that the court is writing as if moderators were this deeply embedded in LJ’s business model throughout LJ’s operations; in fact, I can make myself a moderator of a LJ community I create with no scrutiny/direction at all other than LJ’s general TOS.  This discussion is about ONTD, not LJ as a whole.]  Though they were “volunteers,” “the moderators performed a vital function in LiveJournal’s business model. There is evidence in the record that LiveJournal gave moderators express directions about their screening functions, including criteria for accepting or rejecting posts.”  There were genuine issues on actual authority. So too with apparent authority. LJ users “may have reasonably believed that the moderators had authority to act for LiveJournal”; for example, one user whose post was removed pursuant to a DMCA notice complained to LiveJournal “I’m sure my entry does not violate any sort of copyright law. . . . I followed [ONTD’s] formatting standards and the moderators checked and approved my post.”

Agency also depends on the level of control a principal has over the agent, and there was evidence that LJ “maintains significant control over ONTD and its moderators.”  Delzer supervised moderators and selected and removed moderators on the basis of their performance.  He also exercised control over the moderators’ work schedule. “For example, he added a moderator from Europe so that there would be a moderator who could work while other moderators slept.” Moderators’ screening criteria derived from rules ratified by LJ—LJ ratified them when one LJ employee discussed changing the rules with Delzer and declined to do so.

However, ONTD moderators “are free to leave and go and volunteer their time in any way they see fit.” The moderators can alos reject submissions for reasons other than those provided by the rules, which called into question LJ’s level of control.  Thus, reasonable jurors could find agency, but might not be compelled to do so.

If the moderators were LJ’s agents, the factfinder would still have to assess whether Mavrix’s photos were posted at the direction of the users in light of the moderators’ role in screening and posting. Activities “narrowly directed” towards enhancing the accessibility of the posts wouldn’t change the user-provided nature of the posts. Accessibility-enhancing activities “include automatic processes, for example, to reformat posts or perform some technological change” as well as “[s]ome manual service provider activities that screen for infringement or other harmful material like pornography.”  This follows from § 512(m) of the DMCA, which provides that no liability will arise from “a service provider monitoring its service or affirmatively seeking facts indicating infringing activity.”  What are the edges of accessibility-enhancing intervention?  When YouTube manually selected videos for front page syndication on the basis of substance, the district court on remand held that only those processes “without manual intervention” satisfied § 512(c).  The Fourth Circuit has approved a real estate website’s “cursory” manual screening to determine whether photographs indeed depicted real estate.  This would be an issue for the fact-finder.

The ONTD moderators posted only about one-third of submissions: only those posts relevant to new and exciting celebrity gossip. Betraying a bit of a prejudgment, the court of appeals said that the question was whether “their extensive, manual, and substantive activities went beyond the automatic and limited manual activities we have approved as accessibility-enhancing.”

The court also addressed LJ’s actual and red flag knowledge of the specific infringements alleged.  Failure to use a DMCA notice “is powerful, but not conclusive, towards showing that a service provider lacked actual knowledge.” Delzer didn’t remember approving the posts, but Mavrix didn’t have the opportunity to depose the moderators to determine their subjective knowledge [assuming they were agents, which I guess we are now]. “On remand, the fact finder should determine whether LiveJournal, through its agents, had actual knowledge of the infringing nature of the posts.”  Even without actual knowledge, red flag knowledge arises when a service provider is “aware of facts that would have made the specific infringement ‘objectively’ obvious to a reasonable person.” Watermarks were relevant even if Delzer didn’t know that Mavrix had a website: “The existence of a watermark, and particularly this watermark with a company name, is relevant to the knowledge inquiry…. [T]he fact finder should assess if it would be objectively obvious to a reasonable person that material bearing a generic watermark or a watermark referring to a service provider’s website was infringing.”

In addition, LJ would have to show that it did not financially benefit from infringements that it had the right and ability to control. LJ’s general practices would be relevant, not its conduct with respect to the specific infringements, since “right and ability to control” involves “something more than the ability to remove or block access to materials posted on a service provider’s website.” Something more can be present when the ISP exercises “high levels of control over activities of users,” such as when it “prescreens sites, gives them extensive advice, prohibits the proliferation of identical sites,” provides “detailed instructions regard[ing] issues of layout, appearance, and content,” and ensures “that celebrity images do not oversaturate the content.”

The court of appeals rejected the district court’s conclusion that LJ lacked “something more,” and sent it to the factfinder, because:

LiveJournal’s rules instruct users on the substance and infringement of their posts. The moderators screen for content and other guidelines such as infringement. Nearly two-thirds of submitted posts are rejected, including on substantive grounds. ONTD maintains a list of sources that have complained about infringement from which users should not submit posts. LiveJournal went so far as to use a tool to automatically block any posts from one source.

LJ also needed to show that it did not derive a financial benefit from infringement that it had the right and ability to control. “The financial benefit need not be substantial or a large proportion of the service provider’s revenue.”  The presence of a vast amount of infringing material supported an inference of such a financial benefit, where the service provider “promoted advertising by pointing to infringing activity” and “attracted primarily visitors who were seeking to engage in infringing activity, as that is mostly what occurred on [the service provider’s] sites.” Here, LJ derived ad revenue based on the number of views ONTD receives. Mavrix presented evidence showing that approximately 84% of posts on ONTD contain infringing material, although LJ disagreed; again, this was for the factfinder.

Also, on remand, whether the moderators were agents should inform the district court’s analysis of whether Mavrix’s need for discovery outweighed the moderators’ interest in anonymous internet speech. “Given the importance of the agency analysis to the ultimate outcome of the case, and the importance of discovering the moderators’ roles to that agency analysis, the district court should also consider alternative means by which Mavrix could formally notify or serve the moderators with process requesting that they appear for their deposition at a date and time certain.”