Wednesday, December 12, 2018

Cheezit, the food cops! 2d Circuit reinstates claim over "made with whole grain" where most grain content is white

Mantikas v. Kellogg Co., No. 17-2011 (2d Cir. Dec. 11, 2018)

Plaintiffs bought Cheez-It crackers that were labeled “whole grain” or “made with whole grain.” They alleged violation of New York and California consumer protection laws because such labeling would cause a reasonable consumer to believe that the grain in whole grain Cheez-Its was predominantly whole grain, when, in fact, it was primarily enriched white flour. The district court held that the whole grain labels would not mislead a reasonable consumer, and the court of appeals (in some tension with its recentholding on Trader Joe’s truffle-flavored oil) reversed.

The challenged packages used “WHOLE GRAIN” in large print in the center of the front panel of the box, and “MADE WITH 5G OF WHOLE GRAIN PER SERVING” in small print on the bottom or “MADE WITH WHOLE GRAIN” in large print in the center of the box, with “MADE WITH 8G OF WHOLE GRAIN PER SERVING” in small print on the bottom. Both packages also contained a “Nutrition Facts” panel on the side of the box, which stated in much smaller print that a serving size of the snack was 29 grams and that the first ingredient on the ingredients list (in order of predominance, as required by federal law) was “enriched white flour.” “Whole wheat flour” was either the second or third ingredient.

The district court held that both the “MADE WITH WHOLE GRAIN” and “WHOLE GRAIN” labels would not mislead a reasonable consumer, because both statements were true and were “qualified by further accurate language detailing the number of grams of whole grain per serving.”

False advertising or deceptive business practices under New York or California law requires that the deceptive conduct was “likely to mislead a reasonable consumer acting reasonably under the circumstances.” Context is crucial, including disclaimers and qualifying language. The district court reasoned that “a reasonable consumer would not be misled by a product’s packaging that states the exact amount of the ingredient in question.” But the packaging here allegedly implied that the product was “predominantly, if not entirely, whole grain,” and it wasn’t. This was plausibly misleading because they falsely imply that the grain content was entirely or at least predominantly whole grain.

The ingredient list didn’t help, even though it indicated that a serving size of Cheez-Its was 29 grams and the list of ingredients names “enriched white flour” as the first (and thus predominant) ingredient. The serving size didn’t “adequately dispel the inference communicated by the front of the package that the grain in ‘whole grain’ crackers is predominantly whole grain because it does not tell what part of the 29-gram total weight is grain of any kind.” Plus, adopting the Ninth Circuit’s Williams rule, the court of appeals agreed that “reasonable consumers should [not] be expected to look beyond misleading representations on the front of the box to discover the truth from the ingredient list in small print on the side of the box.” The Nutrition Facts panel and ingredients list plausibly contradicted, rather than confirmed, the “whole grain” representations on the front of the box.

Other cases dismissed on the pleadings involved plaintiffs who alleged deception because a product label misled consumers to believe, falsely, that the product contained a significant quantity of a particular ingredient. Here, however, the deceptiveness was the implication that, of the grain content in the product, most or all of it is whole grain, as opposed to less nutritious white flour. In addition, in most of the other cases, “plaintiffs alleged they were misled about the quantity of an ingredient that obviously was not the products’ primary ingredient.” No reasonable consumer would think that crackers “made with real vegetables” were made primarily with fresh vegetables.  Here, “reasonable consumers are likely to understand that crackers are typically made predominantly of grain. They look to the bold assertions on the packaging to discern what type of grain.” Thus, the front of the package could have misled them. The court declined to adopt a rule that would allow any “made with X” advertising when the ingredient X was in fact present, no matter how deceptive (e.g., if the crackers here were 99.999% white flour).

Tuesday, December 11, 2018

low volume of confused callers doesn't establish irreparable harm

TrueNorth Companies, L.C. v. Trunorth Warranty Plans, LLC, No. C17-31-LTS, --- F.Supp.3d ----, 2018 WL 6438370 (N.D. Iowa Dec. 7, 2018)

TrueNorth sued TN Warranty for trademark infringement and related claims based on the parties’ respective design logos:
plaintiff's logo
defendant's logo
TrueNorth provides financial and insurance services, including products and services to commercial transportation companies and drivers including “transportation risk management, transportation property insurance and transportation equipment insurance. TrueNorth originated in eastern Iowa and now has offices in Tennessee, Texas, Illinois, Michigan and Colorado.”  TN Warranty sells commercial truck warranties, specifically “extended warranty services for mechanical components for used commercial vehicles manufactured by others whose original manufacturer’s warranty has expired.” It markets through independent truck dealers or “authorized retailers,” and the end user is a truck owner or fleet owner who owns the truck(s) covered by the warranties. About 80 percent of its authorized retailers are used truck dealers who sell TN Warranty products at the point of sale at or near the same time they close a deal for the sale of a used truck, while about 15 percent of its warranties are sold by finance companies that provide the financing for the truck and approximately 5 percent of its warranties are sold by repair facilities. Sales to end consumers (individual truckers) are under 1 percent of sales.  TN Warranty argued that “in training new authorized retailers, it emphasizes that it is not selling insurance, but a limited warranty. It does not compete with providers of insurance products and does not market its warranty products through insurance brokers or agents.”  According to TN Warranty, neither it nor its retailers have encountered TrueNorth in the marketplace and was unaware of any other entities that market insurance to the end user in the same way that TN Warranty markets its products; its clients don’t offer insurance. Also, TN Warranty said, “most customers are interested in coverage, cost and convenience rather than the provider of the warranty.”

TrueNorth registered three marks in 2006, including the one shown above, a word mark for TRUENORTH, and the following logo:

TN Warranty started as CompassOne Warranty in 2015, with a mark derived from an earlier company with a mark called Vector Compass. 

In 2015, another entity sued alleging that “Compass” infringed its rights, so (apparently after a contempt order) the founder formed TN Warranty instead, using “TrüNorth” to pay homage to its CompassOne Warranty and Compass Group roots. “It chose to use a dieresis (ü) in its mark to give the brand an international feel, consistent with the company’s international aspirations.”  TN Warranty applied to register the mark; TrueNorth opposed and TN Warranty defaulted.  (Seems like a B&B v. Hargis issue here.)

In early 2016, TrueNorth sent a C&D; in mid-2016, it received an application for insurance from one of its clients in the trucking industry, and among the forms submitted with the application was a Component Breakdown Limited Warranty Agreement form for TRÜNORTH™.  TrueNorth ultimately sued at the end of March 2017. TN Warranty states that it then voluntarily redesigned its mark as follows:

TN Warranty also argued that a non-party, Premium 2000+, was run by an ex-business partner turned rival of TN Warranty’s founder, who’s filed various lawsuits against that founder.  Premium 2000+ allegedly offered to do business with TrueNorth, but cited TN Warranty’s name and mark as a “road block” to doing business, indicating TrueNorth’s lawsuit was premised more on Premium 2000+’s animosity towards the founder rather than on true confusion in the marketplace. TrueNorth disagreed, citing emails and phone calls from truck drivers and professionals within the trucking and insurance industries that allegedly demonstrated confusion.

Preliminary injunction: though the Eighth Circuit has not yet ruled on the Lanham Act consequences of eBay and Winter, those cases lead to the conclusion that a presumption of irreparable harm upon showing likely success on the merits (via confusion) is not warranted.

Harm to reputation can, however, be irreparable.  TrueNorth argued that TN Warranty has received negative consumer reports from the Better Business Bureau and Trucker’s Report (an online forum used by truck drivers). Some of TrueNorth’s trucking industry partners contacted TrueNorth on behalf of drivers with warranty claims in an attempt to resolve warranty issues. It explained its delay in seeking a preliminary injunction stems with an increase in calls about warranties that it received in 2018. TrueNorth argued that it started recording calls in January 2018 due to the “increasing number of calls and other instances of confusion among TrueNorth customers.” It recorded six calls in February 2018, four calls in March 2018, one call in April 2018, three calls in May 2018, no calls in June 2018, two calls in late July 2018 and six calls in August 2018. Its witness described the harm as follows: “Just verbal communications that have been relayed to me that they think that the presence of having su[ch] a similar logo is creating challenges and confusion that is disruptive to our working together to market to owner operators and truck lessees.” The witness further described the situation as creating challenges with how TrueNorth tries to market to leasing companies, but could not provide any specific examples and was not aware of any specific loss of business with the company under discussion.

The court found this evidence of irreparable harm insufficient. Under Eighth Circuit law, a party must show that “the harm is certain and great and of such imminence that there is a clear and present need for equitable relief.” Though TrueNorth showed some level of confusion through phone call recordings and email communications, that didn’t rise to the level of irreparable harm (such as loss of customers or decline in sales) based on this confusion. The time addressing confusion and explaining that TrueNorth provides insurance services and not warranty services “can be addressed through monetary means.”  As to call volume, TrueNorth didn’t provide context; apparently each of the 28 to 30 individuals who take calls in TrueNorth’s call center receive 25 to 30 calls per day (and up to 100 calls per day during peak season). “Six calls per month is hardly so disruptive that TrueNorth is suffering irreparable harm that cannot be addressed through monetary means.”

Nor did TrueNorth show that the alleged harm was more than a possibility. Though reputational damage can constitute a threat of irreparable harm and is difficult to measure, there was still no showing that it was likely. TrueNorth argued that its reputational damage came from (1) customers upset about their warranties and (2) industry partners who have commented on TN Warranty’s presence. But TrueNorth doesn’t sell truck warranties, and there was no record evidence that upset TN Warranty customers would tell fellow truck drivers to avoid business with “True North” or fail to go to TrueNorth for insurance based on a negative impression stemming from their warranty.  This was possible, but merely speculative. And the only industry partners at issue were Lone Mountain Leasing (which raised the alarm on the logo in the first place) and Premium 2000+ (“which competes with TN Warranty and has its own arguable agenda for pursuing business with TrueNorth”).  And the relevant witness couldn’t establish any specific harm as to those partners.  As to Premium 2000+, it sought out TrueNorth to do business, not the opposite, and its reason for not going forward was “questionable based on the record,” which included an email stating that they couldn’t do anything unless TrueNorth got rid of TN Warranty’s founder. “TrueNorth has demonstrated only that its affiliates have acknowledged the presence of another entity named “True North.”

TrueNorth had dealt with other True North entities, and had previously entered into coexistence agreements with one that provided financial consulting services to large banks and credit reporting agencies and another that provided advertising and public relations services. “TrueNorth’s willingness to co-exist with other entities using the same name, albeit in arguably different industries, tends to lessen the alleged harm.”

Finally, its delay in seeking relief weighed against finding irreparable harm. TrueNorth waited 17 months after filing its complaint to bring its motion for preliminary injunction, and even longer if you measure from the time TrueNorth learned of TN Warranty. “TrueNorth’s only explanation for the delay was that it was collecting sufficient evidence to support its motion. If the harm was truly as serious, imminent and irreparable as alleged, TrueNorth should not have needed 17 months to bring a properly supported motion.”

Pleading compliance w/test rules doesn't plausibly plead compliance for consumer plaintiffs

Anglin v. Edgewell Personal Care Co., 2018 WL 6434424, No. 4:18-CV-00639-NCC (E.D. Mo. Dec. 7, 2018)

Are there people who believe that Twiqbal improved consistency?  Because I do not understand the level of detail required. Here, the magistrate holds that pleading that one’s testing complied with FDA regulations is not sufficient to plausibly plead that one’s testing complied with FDA regulations.  I would have thought that, if it’s enough of a fact to be determined by a court and not trigger preemption, then it’s enough of a fact to be pled on its own, even if it is a potentially dispositive issue.  But I don’t see non-advertising Twiqbal cases, so I might be overly critical.

The plaintiffs sought to represent a class of Banana Boat “SPF 50” or “SPF 50+” product purchasers. They alleged that “rigorous scientific testing has revealed that the Products do not provide an SPF of 50, much less ‘50+’.” Consumer Reports magazine reported in May 2016 that “its own testing had revealed that Banana Boat Kids SPF 50 sunscreen lotion had an SPF of only 8.” Further, plaintiffs alleged that their own independent testing using FDA methods demonstrated the Products had SPFs lower than listed on the label. They brought various state law false avertising claims.

The court rejected defendants’ primary jurisdiction argument. The FDA published a “sunscreen Final Rule” allegedly “mandating a whole host of highly specialized, highly scientific, and precise technical and scientific protocols that manufacturers must follow relating to testing and labeling.”  Agency expertise is “the most common reason for applying the doctrine,” which is also used “to promote uniformity and consistency with the particular field of regulation.” Other cases have rejected applying the doctrine to sunscreen labeling, given that plaintiffs allegedly relied on long-established SPF testing procedures and standards, rendering their labels false and misleading, which is a routine factual question for courts. Defendants argued that the court would have to determine whether the parties’ tests followed the technical and scientific requirements of the sunscreen Final Rule. But “this Court is equipped to address such technical and scientific questions, as this and other courts routinely do on a regular basis.” Even if the FDA was in the “best” position to interpret the Final Rule, the court could do so too.  In terms of uniformity and consistency, it was merely speculative that the FDA would be taking further action, much less formal action, or that any such action would be retroactive. Though the FDA had solicited bids for testing sunscreens over two years ago, there was no indication that further action was forthcoming.

However, the preemption argument did better in that it helped kick out the case, although not definitively. The court found that the FDA testing requirements meant that no non-FDA compliant testing could be used to establish the true SPF of a sunscreen, making the Consumer Reports testing irrelevant. If and only if plaintiffs’ testing was FDA-compliant, then their claims were not preempted.  The relevant allegations:

…. Plaintiffs conducted their own independent testing of the Products, utilizing the methodology for SPF testing mandated by the FDA.
Specifically, the independent testing conducted by Plaintiffs was conducted in compliance with all FDA testing methods embodied in FDA Final Rule, 21 CFR Parts 201 and 310, (Federal Register/Vol 76, No 117/Friday, June 17, 2011/Rules and Regulations, including 21 CFR 201.327).
The results of the independent testing conducted by Plaintiffs were consistent with the results suggested by Consumer Reports’ test results and confirmed that the Products had actual SPFs substantially lower than the claimed SPF 50 or “50+”.
Plaintiffs’ investigation concluded that all three products, clearly labeled as containing SPF 50 or “50+”, contained an SPF of less than 37.8 and no more than a 30.1.

This wasn’t sufficient (though plaintiffs said they were prepared to file an amended pleading). The complaint was 34 pages long and only 4 paragraphs were devoted to this crucial issue (this comparison strikes me as a bad measurement tool). Only one paragraph mentioned the specific methodology. There was a need for more than a “conclusory statement that the testing complied with the FDA Final Rule, an ultimate question this Court may be called upon to decide in the future.” And it was unclear whether plaintiffs had FDA-compliant test results relating to all three challenged products. Thus, the court found it prudent to allow an amended complaint.

The court also commented that plaintiffs would likely have difficulty satisfying the predominance requirements on their nationwide claims, but declined to dismiss the class certification parts of the case at this time.

Thursday, December 06, 2018

Juxtaposition of claims about protein amounts and sources plausibly creates falsity

Hi-Tech Pharmaceuticals, Inc. v. HBS Int’l Corp., --- F.3d ----, 2018 WL 6314282 , No. 17-13884 (11th Cir. Dec. 4, 2018)

Hi-Tech sued HBS, alleging that the label of its protein-powder supplement HexaPro misled customers about the quantity and quality of protein in each serving, in violation of the Georgia Uniform Deceptive Trade Practices Act and the Lanham Act.  The district court dismissed the Georgia claims on FDCA preemption grounds and found that it wasn’t plausible that the label was misleading. The court of appeals affirmed the first conclusion, but reversed the second, and declined to find that the FDCA precluded Lanham Act claims here.

The front of the label identifies the product as an “Ultra-Premium 6-Protein Blend” with “25 G[rams] Protein Per Serving,” and it touts the product’s “6 Ultra-High Quality Proteins” and “5 Amino Acid Blend with BCAAs [Branch-Chain Amino Acids].” The left side repeated “an Ultra-Premium, Ultra-Satisfying Blend of 6 High-Quality Proteins” and identified those six whole-protein sources, stating that the product “is also fortified with 5 Amino Acids to enhance recovery.” The right side features the nutrition-facts table, which states that HexaPro contains 25 grams of protein per serving, and the list of ingredients. This side also has a table labeled “Amino Acid Profile” whose heading indicates that HexaPro contains 44 grams of amino acids per serving, while the table itemizes only 25 grams.

Hi-Tech alleged three kinds of deception.  First, HexaPro contains free-form amino acids and other non-protein ingredients as well as whole proteins; an analysis that excludes these “spiking agents” and counts only “total bonded amino acids”—which alone are molecularly complete proteins—allegedly yields an “actual protein content” of “17.914 grams per serving,” not 25 grams per serving. However, the applicable FDA regulation permits “[p]rotein content [to] be calculated on the basis of the factor 6.25 times the nitrogen content of the food,” even if not all of a product’s nitrogen content derives from whole-protein sources.

Second, Hi-Tech argued that the label and in particular the use of “Ultra-Premium 6-Protein Blend” suggests that the product’s entire stated protein content derives from the whole-protein sources identified on the left side of the panel. Third, Hi-Tech alleged that the front of the label was misleading about both the quantity and the source of the product’s protein content: the proximity of “Ultra-Premium 6-Protein Blend” to the phrase “25 G Protein Per Serving” misled consumers into believing that HexaPro “contains 25 grams of the ‘Ultra-Premium 6-Protein Blend’-type protein per serving,” but it has only roughly 18 grams from those sources.  The district court rejected these claims because HexaPro’s label “provides a detailed breakdown of all ... ingredients, including the mix of amino acids.”

Georgia law: The FDCA expressly preempts state laws that “directly or indirectly establish ... any requirement for nutrition labeling of food that is not identical to the requirement of section 343(q) of this title, except [for sales of food at some restaurants], or ... any requirement respecting any claim of the type described in section 343(r)(1) of this title made in the label or labeling of food that is not identical to the requirement of section 343(r) of this title.” In turn, section 343(q) regulates “nutrition information” that must be disclosed about certain nutrients in food products, including the “total protein contained in each serving size or other unit of measure.”  Section 343(r) governs all other statements about nutrient content that “expressly or by implication” “characterize[ ] the level of any nutrient.”  

Hi-Tech’s state-law claim was therefore preempted. Federal regulation expressly allows “[p]rotein content [to] be calculated on the basis of the factor 6.25 times the nitrogen content of the food,” and Hi-Tech didn’t dispute that HexaPro’s labeling complied with this regulation. Alleged misleadingness about the nature, source, and quality of the whole proteins, free-form amino acids, and other ingredients that make up HexaPro’s advertised 25 grams of protein per serving would have to be fixed by changing the advertised amount of protein or itemizing each source’s contribution, but the FDCA and its regs don’t require that. “[T]o avoid preemption, Hi-Tech’s state-law claim must be identical, not merely consistent, with federal requirements. To the extent that the Georgia Uniform Deceptive Trade Practices Act would require changes to HexaPro’s labeling, it would ‘directly or indirectly establish’ requirements that are ‘not identical to’ federal requirements.”

Lanham Act: Initially, the court of appeals rejected the argument that Hi-Tech’s allegation about the true whole-protein content was “conclusory” because it didn’t explain HexaPro’s chemical composition; Twiqbal doesn’t require a plaintiff to provide evidence for its factual allegations.  Courts can disregard legal conclusions and “threadbare” recitals of the elements, but an allegation about how much protein is actually in a product isn’t a legal conclusion.  That’s “a specific assertion about physical and chemical fact that is either true or false, no matter what legal conclusions it may or may not support.”

Given that, the complaint plausibly alleged that the label was misleading. “Considering the label as a whole and taking its statements in context, we find it plausible that a reasonable consumer would be misled to believe that a serving of HexaPro contains 25 grams of protein derived from the ‘6-Protein Blend’ comprising the ‘6 High-Quality Proteins’ listed on the label.” Even an additional prominent statement that the product contained an amino acid blend wasn’t enough to avoid this conclusion. The allegation was not that consumers would be misled to believe that the only ingredient is the “Ultra-Premium 6-Protein Blend.” Rather, Hi-Tech argued that the label would induce a reasonable consumer to believe that the protein in HexaPro derives exclusively from the six-protein blend, and this was at least plausible. The label doesn’t indicate that the claimed 25 grams came from any other source than the whole-protein ingredients; other than in the 25-gram claim, it never used the word “protein” to refer to anything other than the whole-protein ingredients, and instead consistently treated “amino acids” as separate from and providing distinct nutritional benefits from “protein.” The “Amino Acid Profile” on the right side of the label listed 25 grams of amino acids, but provided no explanation of how this figure related either to the product’s 25 grams of protein per serving or the 44 grams of amino acids per serving advertised at the top of the table.

“Based on the total impression given by the label, it is plausible that only sophisticated consumers schooled in federal regulations or nutrition science would understand or even suspect that free-form amino acids or other non-protein ingredients form any part of HexaPro’s stated 25 grams of protein per serving.” While the FDA permits protein calculations based on free-form amino acids and other nitrogen-containing non-protein ingredients, Pom Wonderful established that the FDCA “does not generally bar claims of false advertising of food under the Lanham Act.”

HBS’s specific arguments for preclusion also failed. HBS argued that application of the Lanham Act would create “a genuinely irreconcilable conflict” with the federal regulation governing protein calculations because it couldn’t simultaneosuly disclose both 25 grams of protein to satisfy the requirements of the FDA and 18 grams to satisfy Hi-Tech. But that wasn’t the only way to cure the misrepresentation. “[I]t would suffice to clarify on the HexaPro label how much protein in each serving derives from the six-protein blend and how much derives from free-form amino acids and other non-protein ingredients”; there was no federal law against that.

HBS also argued that the Lanham Act claim would be barred barred “if determining the truth or falsity of the [challenged] statement would require a court to interpret FDA regulations, which is generally left to the FDA itself.” And HBS alleged that Hi-Tech was asking the court “to substitute its own judgment regarding the most appropriate way to measure protein for the FDA’s judgment.” But the conclusion didn’t follow from the premise. The no-interpretation rule involves claims trying to “circumvent the FDA’s exclusive enforcement authority by seeking to prove that [d]efendants violated the FDCA, when the FDA did not reach that conclusion.” Hi-Tech’s claim doesn’t require the court to question the FDA’s conclusion that protein content may be calculated on the basis of the factor 6.25 times the nitrogen content of the food. Instead, the question was whether the HexaPro label was misleading “in the context of the label’s failure to specify the sources of the nitrogen measured by the federal test.”

Friday, November 30, 2018

Copying others' claims without substantiation for one's own services can be false

TRUSTID, Inc. v. Next Caller, Inc., No. 18-172-LPS, 2018 WL 6242493 (D. Del. Nov. 26, 2018) (report and recommendation)

The magistrate addressed trade secret and false advertising claims, though there are also patent claims in the case. The relevant facts for the false advertising bit: TRUSTID alleged that it “invested significant time and millions of dollars to test, measure, and validate the performance of its [own anti-spoofing and caller-authentication] technologies[,]” and that such “technologies can [only] be reliably tested ... in real-world situations[.]” It was thus allegedly able to advertise truthfully that it (i) saved customers $0.50 per call, (ii) achieved a 10% increase in IVR [interactive voice response, meaning that human customers talk to an automated menu] containment, and (iii) saved 30 seconds per call. Last Caller allegedly claimed the same capabilities for its own caller-authentication system: “‘increase 10% IVR Containment Rate,’ ‘[s]ave $0.50 per call,’ and ‘save 30 secs handle time.’ ” TRUSTID alleged that these statements must be false because Last Caller did nothing to substantiate these claims but merely copied TRUSTID’s own assertions. Without citing the Third Circuit Novartis case holding that complete lack of substantiation can be literal falsity, the magistrate reached the same result: though this only barely crossed the line to plausibility, “[i]t seems likely that a party who makes claims about its own product’s attributes—without ever taking any steps to confirm whether those claims are true, and instead simply parroting assertions that its competitor made about the competitor’s own products—is making false statements about its product.”  

Wednesday, November 28, 2018

Restaurant can't bring unfair competition claim against Trump Old Post Office claim for using Trump's name to draw business

K&D, LLC v. Trump Old Post Office, LLC, No. 17-731 (RJL), 2018 WL 6173449 (D.D.C. Nov. 26, 2018)

Plaintiff owns Cork Wine Bar, located in the downtown Washington, D.C. area. Cork argued that it faced unfair competition from the Trump Old Post Office due to the desire of people to curry favor with the Administration by getting restaurant services (including both hosting and catering) there, encouraged by statements from people in the Administration.

The court found that this advantage, while perhaps looking bad (and, you know, violating the Emoluments Clause), was not unfair competition.  Even though D.C. common law doesn’t have specific elements, it’s understood to include “various acts that would constitute the tort if they resulted in damage.” These acts include “defamation, disparagement of a competitor’s goods or business methods, intimidation of customers or employees, interference with access to the business, threats of groundless suits, commercial bribery, inducing employees to sabotage, [and] false advertising or deceptive packaging likely to mislead customers into believing goods are those of a competitor.’ ”  But none of this was pled—interference with business isn’t anything that harms the business; it means tortiously interfering with access to the business. [After all, the problem doesn't seem to be commercial bribery, as such.]

Somewhat uncharitably, the court characterized Cork’s objection as being to “the process known as competition, which though painful, fierce, frequently ruthless, sometimes Darwinian in its pitilessness, is the cornerstone of our highly successful economic system.”  Prominent people are allowed to have equity in the companies they promote.  More to the point, given that a government official might be thought to have more power worth courting via purchases as opposed to simply a popular image, a forty-year-old case is (almost) directly on point.  In Ray v. Proxmire, 581 F.2d 998 (D.C. Cir. 1978), Ray alleged that Proxmire’s tour and hospitality service unfairly competed with Ray’s similar business by trading on the prestige and contacts that Proxmire had as the wife of the senior sitting United States Senator from Wisconsin. The court of appeals there held that “simple use of one’s status in society is not itself illegal .… financial success does not become unlawful simply because it is aided by prominence; nor could it be, without locking the famous out of the economy.” “[H]owever reprehensible it might be through political influence to use public [office] for private gain, that evil cannot provide a basis for” Cork’s unfair competition claim here.

Cork argued that the common law evolves, but provided no case law indicating that D.C. common law had evolved so far as to reject Ray.

Monday, November 26, 2018

Honey Badger don't care for different reasons: court fixes artistic relevance but still doubles down on transformativeness

Gordon v. Drape Creative, Inc., No. 16-56715 (9th Cir. Nov. 20, 2018)

Previous opinion discussed here; amicus brief that may have influenced the court to withdraw that opinion and put out a superseding one here. The court found a triable issue of fact on whether defendants’ “Honey Badger Don’t Care” greeting cards were explicitly misleading; it transferred much (though not all) of the nonsense it previously said about artistic relevance to its explication of what counts as explicitly misleading.  I have a few questions and a couple of suggestions.

“Defendants have not used Gordon’s mark in the creation of a song, photograph, video game, or television show, but have largely just pasted Gordon’s mark into their greeting cards.” This passed the low threshold for being an expressive work, meaning that Gordon had to show a triable issue of fact on artistic relevance or explicit misleadingness in order to avoid summary judgment.  Use of the phrase as a punchline had relevance to the jokes of the cards, so there was no triable issue on the former.  What about the latter?  Explicit misleadingess is not the same as the general likely confusion test, which shouldn’t be used to “dilute” Rogers, but other circuits have treated it as “essentially a more exacting version of the likelihood-of-confusion test. A plaintiff who satisfies the ‘explicitly misleading’ portion of Rogers should therefore have little difficulty showing a likelihood of confusion.”

The court of appeals rejected the district court’s “rigid” requirement that, to be explicitly misleading, the defendant must make an “affirmative statement of the plaintiff’s sponsorship or endorsement”:

In some instances, the use of a mark alone may explicitly mislead consumers about a product’s source if consumers would ordinarily identify the source by the mark itself. If an artist pastes Disney’s trademark at the bottom corner of a painting that depicts Mickey Mouse, the use of Disney’s mark, while arguably relevant to the subject of the painting, could explicitly mislead consumers that Disney created or authorized the painting, even if those words do not appear alongside the mark itself.

Emphasis added, because this analogy is how the court makes the magic happen, and yet this analogy is inapposite.  The court’s concern is for situations where the defendant puts the symbol at issue in the place on a work where a trademark goes as a matter of convention.  That’s not the punchline of a joke.  If defendants put “Honey Badger Don’t Care” in the back center of the greeting card, where Hallmark puts its mark, sure, find a triable issue of fact.  But this analogy cannot support saying that there’s a triable issue when the use is part of the overall expressive work.

The court of appeals reiterated that “the mere use of a trademark alone cannot suffice to make such use explicitly misleading.”

But each time we have made this observation, it was clear that consumers would not view the mark alone as identifying the source of the artistic work. No one would think that a song or a photograph titled “Barbie” was created by Mattel, because consumers “do not expect [titles] to identify” the “origin” of the work. But this reasoning does not extend to instances in which consumers would expect the use of a mark alone to identify the source.

The above would be understandable, if a bit dangerous.  The next language encourages plaintiffs to claim the content of their works—like, say, Mickey Mouse—as their marks, and then sue for use of the content in another expressive work.  As we said in the amicus, that’s copyright’s job, not trademark’s.  Here we go: “A more relevant consideration is the degree to which the junior user uses the mark in the same way as the senior user.” Prior Rogers cases, the court said, involved different contexts or markets—Barbie in a song or photos [Barbie wasn’t in art before?], a strip club in a video game, a record label v. a TV show. [*Cough*Rogers was a case about a dancing movie star suing a movie about dancers*cough*.]  Such “disparate use of the mark” was at most “only suggestive” of the product’s source and therefore didn’t outweigh the junior user’s First Amendment interests.

“But had the junior user in these cases used the mark in the same way as the senior user—had Twentieth Century Fox titled its new show Law & Order: Special Hip-Hop Unit—such identical usage could reflect the type of ‘explicitly misleading description’ of source that Rogers condemns.” [… Didn’t the opinion just say that consumers don’t use titles that way? I guess they don’t, unless they do.]  Rogers implements this insight with its rule that “misleading titles that are confusingly similar to other titles” can be actionable.  [The American failure to theorize “use as a mark,” it seems to me, has gotten us to this place.  I accept that titles can be confusingly similar.  I do not accept that punchlines should be treated as serving as marks (and thus capable of being “confusingly similar”) when they are serving as punchlines; the fact that one trademark owner might use its mark as a punchline shouldn’t prevent anyone else from using it as a punchline.  Dastar and Rogers are, as Mark McKenna says, inherently linked.]

Disney, by the way, will love this sentence: “Indeed, the potential for explicitly misleading usage is especially strong when the senior user and the junior user both use the mark in similar artistic expressions.”  If we applied Rogers, “an artist who uses a trademark to identify the source of his or her product would be at a significant disadvantage in warding off infringement by another artist, merely because the product being created by the other artist is also ‘art.’”  [Emphasis added to show how the court is still conflating the claimant’s expressive use as a punchline with use as a mark.]

And now the part McKenna understandably hates most: the reintroduction of transformativeness.  The court says that another consideration relevant to explicit misleadingness is “the extent to which the junior user has added his or her own expressive content to the work beyond the mark itself.” Misleadingness is less likely “when the mark is used as only one component of a junior user’s larger expressive creation, such that the use of the mark at most ‘implicitly suggest[s]’ that the product is associated with the mark’s owner…. But using a mark as the centerpiece of an expressive work itself, unadorned with any artistic contribution by the junior user, may reflect nothing more than an effort to ‘induce the sale of goods or services’ by confusion or ‘lessen[] the distinctiveness and thus the commercial value of’ a competitor’s mark.” Here, there was “a triable issue of fact as to whether defendants simply used Gordon’s mark with minimal artistic expression of their own, and used it in the same way that Gordon was using it—to identify the source of humorous greeting cards in which the bottom line is ‘Honey Badger don’t care.’” 

What evidence is relevant to whether the use as a punchline served a source-identifying function for defendant’s greeting cards?  What instructions to the jury will assist them?  These aren’t in any way rhetorical questions—we now know that explicit misleadingness doesn’t have to mean explicit misleadingness.  So what are we looking for?  Transformativeness assesses what else has been added, but I don’t see how it helps figure out what serves as a mark in the work.

The court describes Gordon’s evidence as including evidence that “in at least some of defendants’ cards, Gordon’s mark was used without any other text; and that defendants used the mark knowing that consumers rely on marks on the inside of cards to identify their source.”  But that formulation presupposes what is supposed to be established: that the punchline was serving as a mark for defendant’s cards.  It seems that the question of use as a mark, in the end, is what the jury should focus on, in which case Rogers has done very little to protect smaller expressive works like greeting cards.  Indeed, the court then points out the obvious counter: defendants’ cards list defendants’ website on the back cover, where one would expect a trademark on a greeting card.  [I have to wonder how specific Gordon’s evidence is about consumers relying on marks on the inside of cards, especially when there is a mark on the outside back.]  A jury could find explicit misleadingness.

I may regret saying this, but there is one easy source of law to look at for further guidance on what constitutes “explicit” misleadingness: Lanham Act false advertising doctrine. I’ve been critical of the rigid explicit/implicit division because in general commercial speech it overstates the distinction between those modes of communication in terms of the impact on consumers. However, as a way of ameliorating the risks of suppressing noncommercial speech it makes a ton more sense.  If a court wanted to get better guidance on what “explicit” means, now that we’ve been told it doesn’t require an affirmative statement of origin other than use of the mark but also that not all uses of the mark will qualify, it would be reasonable to look at false advertising cases, given the nearly identical statutory language. There, the general rule is that a claim is explicit when it is unambiguous; ambiguity moves into implicit territory, which for false advertising requires a survey to show deceptiveness and for Rogers would mean no liability for the defendant.  The doctrine of falsity by necessary implication adds that a claim is explicit when the only reasonable interpretation is that the claim is being made even if not every step is spelled out.  This doctrine could help implement the Honey Badger panel’s concern for protecting uses of a mark in the place on an expressive work where marks usually go (as distinct from the content of the work itself, which will vary across works as the real trademark won’t).

Tuesday, November 20, 2018

Twitter's promise of free speech isn't false advertising just because it suspends abusive users

Kimbrell v. Twitter Inc., 2018 WL 6025609, No. 18-cv-04144-PJH (N.D. Cal. Nov. 16, 2018)

Kimbrell alleged that “Twitter employs twitter trolls who are responsible for goading Twitter users who support President Donald Trump into engaging in purportedly abusive conduct, which Twitter subsequently uses as a basis for banning those pro-Trump Twitter users,” contrary to Twitter holding itself out to be a “free and open” platform.  Allegedly, she replied to a @realDonaldTrump tweet with a “history of progressive talking points and where they originated.” Twitter’s trolls allegedly targeted plaintiff, who responded with tweets that used @ (apparently to respond to other commenters in the thread) and, somewhat incoherently, called at least some of them [presumably not Trump] "loons," "F**King trolls," "idiots," "crybaby losers," and some other stuff.

Twitter then suspended her account for abusive behavior [hey, could we get that done for misogynist trolls? asking for a friend], and then made the suspension permanent for targeted abuse. Kimbrell alleged that “abuse” was defined by Twitter employees to mean tweets that “disagree[ ] with them politically ... with the ultimate goal [of] suspend[ing] every POTUS supporter by targeting their accounts.”

The allegations, which dodged 230 because they were about Twitter's own statements, didn’t make out a claim of false advertising under California law.  While Twitter’s Rules say that Twitter “believe[s] in freedom of expression and open dialogue,” that sentence goes on to say “we prohibit behavior that crosses the line into abuse[.]” “That is not likely to deceive a reasonable consumer into believing that Twitter did not retain the right to suspend users who ‘cross the line into abuse.’” Separately and independently, Kimbrell lacked standing for want of an alleged economic injury.  The same problems prevented her from stating a claim under Illinois law.

This is personal: Diet Coke obesity suit dismissed even after repleading

Geffner v. Coca-Cola Co., 2018 WL 6039325, No. 17 Civ. 7952 (LLS) (S.D.N.Y. Oct. 31, 2018)

Plaintiffs alleged that, by marketing Diet Coke as “diet,” Coca-Cola misleads consumers into believing that drinking Diet Coke will assist in weight loss or healthy weight management. Scientific studies allegedly showed that the opposite is true:” nonnutritive sweeteners like aspartame interfere with the body’s ability to properly metabolize calories, leading to increased risk of weight gain and health problems.” They alleged a consumer survey showing that a majority of consumers expect diet soft drinks to help them lose weight or maintain/not affect their weight.  They brought claims under NYGBL §§ 349 & 350 and related common-law claims.  

The plaintiffs alleged that Coca-Cola’s ad campaigns reinforced the weight-loss/control message of the name.  “One longstanding 1980s advertising campaign claimed that Diet Coke ‘will not go to your waist’ and is ‘suitable for carbohydrate and calorie-reduced diets.’” Other ads depict slim people drinking Diet Coke, and one showed a slim Diet Coke bottle with its label hanging loose. The American Beverage Association, of which Coca-Cola is a member, allegedly funded a study of soft drinks which purported to show that “diet beverages can help with weight loss,” and published an article claiming that “low-calorie-sweeteners can help reduce calories and sugar intake and aid in maintaining a healthy weight - or even dropping some weight.”

Plaintiffs’ nationwide and California survey showed that over 60% of consumers believed that drinks labeled “diet” would help maintain/not affect weight, while up to 15% thought that it would help the drinker lose weight.  A bit over 20% had no expectations and only a few percent said that it would contribute to weight gain.

The cited studies concerned non-nutritive sweeteners (“NNS”) like aspartame; their findings include: “The addition of NNS to diets poses no benefit for weight loss or reduced weight gain without energy restriction”; “Data from large, epidemiologic studies support the existence of an association between artificially-sweetened beverage consumption and weight gain in children”; “While people often choose ‘diet’ or ‘light’ products to lose weight, research studies suggest that artificial sweeteners may contribute to weight gain”; aspartame consumption alters the intestinal microbes in a way that causes glucose intolerance; aspartame consumption by rats “resulted in hyperglycemia and an impaired ability to respond to insulin”; “There now exists a body of evidence, from a number of investigators, that animals chronically exposed to any of a range of LCSs [low-calorie sweeteners] … have exhibited one or more of the following conditions: increased food consumption, … increased weight gain, greater percent body fat, … and significantly greater fasting glucose, … compared with animals exposed to plain water or - in many cases - even to calorically-sweetened foods or liquids” “frequent use of diet beverages has been associated prospectively with increased long term risk and/or hazard of a number of cardiometabolic conditions usually considered to be among the sequelae of obesity: hypertension, metabolic syndrome, diabetes, depression, kidney dysfunction, heart attack, stroke, and even cardiovascular and total mortality”;  “Using different models and approaches to account for initial ‘indication’ and changing usage patterns, we consistently found low-calorie sweetener use associated with weight gain and expanding waistline.”  But … my addiction!

The Nutrition Labeling and Education Act of 1990 (NLEA) governs when a label containing nutrition content and health claims will be deemed misbranded. It provides an exception for the term “diet” used in soft drink brand names if the word was contained in the brand name of the soft drink, the name was in use before October 25, 1989, and the use was in conformity with the old CFR. However, such uses are still subject to the requirement that a “food shall be deemed to be misbranded” if “its labeling is false or misleading in any particular.” The FDCA preempts requirements that aren’t the same as those of the NLEA.

The FDCA didn’t authorize use of “diet” in Diet Coke; the exemption meant that it wasn’t required to follow certain labeling rules, but didn’t “affirmatively approve or require” the name. Nor would state law claims impose additional requirements, since federal law prohibits statements that are false or misleading in any way. (This also meant that the NYGBL safe harbor defense for conduct that is “subject to and complies with the rules and regulations” of any federal agency didn’t apply).

Nonetheless, plaintiffs still failed to state a claim. As shown in the plaintiffs’ survey, the majority of consumers expect diet soft drinks to not affect their weight, so the name wasn’t plausibly misleading. “Diet” generally means “fewer calories than the alternative.” Thus, regular consumers would understand this to be a calorie statement, and that “caloric reduction will lead to weight loss only as part of an overall sensible diet and exercise regimen dependent on individual metabolism.” [This seems to me to miss the point of the allegations, which is that consumers are mistaken to think that the only relevant thing that Diet Coke does is have fewer calories—the allegations are that it affects the body in ways that encourage weight gain.  The substantial majorities of consumers who expect it to be weight-neutral are thus deceived.]

I do agree that most of the ads didn’t add much: “Reasonable consumers understand that advertising will feature healthy and attractive consumers enjoying the subject products and will not star the unhealthy and unfit. Such advertising cannot be said to imply that a product will cause weight loss without regard to exercise and nutrition.” 

The court found that the cited studies didn’t plausibly allege that “consumption of aspartame increases the risk that a consumer will gain weight or develop hyperglycemia.” None of the cited studies showed a causal link between the aspartame in Diet Coke and risk of weight gain or health problems; “indeed, many caution against a finding of causality.” One cited study concluded, “In summary, the available evidence does not directly support a role of [artificial sweeteners] in inducing weight gain or metabolic abnormalities ...” Another study found that “observational data in humans cannot show causality.” Another found that, although use of low-calorie sweeteners was “associated” with weight gain, it “cannot rule out the possibility of unmeasured confounders.”  The studies supported a correlation between aspartame consumption and risk of weight gain or health problems, but that didn’t plausibly rule out other factors or plausibly support “risk” or causation.  [Query for civ pro types: under what non-probabalistic circumstances must allegations “rule out” other factors?  The idea of ruling out seems inconsistent with plausiblity even under Twiqbal.  I do understand the idea that, even if a lack of correlation would make a causal claim less plausible, the presence of correlation doesn’t establish causation.]

Monday, November 19, 2018

Pipe down: court awards minimal disgorgement where willful falsity was limited in time

Pipe Restoration Technologies, LLC v. Coast Building & Plumbing, Inc., 2018 WL 6012219, No. 13-cv-00499-JDE (C.D. Cal. Nov. 16, 2018)

The parties (defendant will be called PRPI) compete for pipe restoration work involving the use of epoxy in small diameter, potable plumbing applications in residential properties in Orange County. The idea is that dried epoxy covers the interior of the piping system, avoiding the need for full pipe replacement. Not shockingly, epoxy for drinking water systems has to be certified to the appropriate NSF/ANSI standard.  PRPI advertised that their epoxy was certified to the appropriate standard, but from late 2008 to early 2009, the 3M epoxy they used wasn’t certified for use in half-inch hot water potable pipe, although it did have a certification for use in one-inch cold water pipes. The court found that PRPI’s false advertising in this period was intentional, willful, and material. (There were other difficulties with using properly certified epoxy in later periods, but it seems that the court implicitly found that these were not shown to be willful/PRPI believed they were properly certified.) The court presumed harm to plaintiffs, as PRPI’s competitors. 

However, other challenged representations either weren’t willfully falsified or weren’t falsifiable. For example, PRPI claimed that its restoration would stop future corrosion; PRPI’s owner testified that this was true for the interior of the pipe, and plaintiff argued it was false because of the possibility of exterior corrosion, but (sitting in a bench trial) the court concluded that a reasonable consumer wouldn’t have interpreted the representation that way. PRPI advertised that restoration didn’t generate landfill waste; plaintiffs argued that the empty epoxy cartridges would generate waste, but the court again found that a reasonable interpretation of the claim related to waste from corroded metal pipes, not de minimis waste from epoxy cartridges. Finally, representations regarding PRPI’s service as “the only” company or service providing the specified service were, in context, puffery that would have been reasonably interpreted by consumers as mere general, subjective claims.

As a result of this violation of federal and coordinate state law, plaintiffs were entitled to PRPI’s profits from that time period, which was the only period for which plaintiffs met their burden of showing willfulness. The revenue from epoxy pipe restoration work for the relevant period was $9,560. PRPI didn’t establish allowable costs, but the court relied on principles of equity to allocate some.  At the time, PRPI was just starting business; PRPI’s owner estimated his general margins for his construction business at the time to be approximately 15%. “[I]t would be an unfair windfall to award Plaintiffs the entirety of Defendants’ revenue during the relevant period. The Court also notes, without casting blame, that the amount of time this case has taken to prosecute to trial, may partly be the reason why Defendants were no longer able to reconstruct costs incurred nearly ten years prior to trial.” Thus, the court awarded an estimated 25% in profit margin, or $2390.

Nor did plaintiffs get a permanent injunction. After 2009, there were no willful misrepresentations, and PRPI  “spent significant time and resources to attempt to ensure proper certifications accompany their services.”  Likewise, this wasn’t an exceptional case for fee-shifting; although the court found willfulness for 2½ months, plaintiffs sought to recover for a period totaling more than seven years and did not obtain injunctive relief. For similar reasons, and taking into account “the closeness and difficulty of the issues in the case, and the economic disparity between the parties,” the court also declined to award costs to plaintiffs.  All told, not a huge win given the likely costs of litigation, unless the costs inflicted on the defendant were enough to justify the lawsuit from the plaintiff’s perspective.

Monday, November 12, 2018

Bringing a false advertising claim with unclean hands leads to fee award

Certified Nutraceuticals, Inc. v. Avicenna Nutraceutical, LLC, 2018 WL 5840042, No. 16-cv-02810-BEN-BGS (S.D. Cal. Nov. 7, 2018)

The court awarded roughly $170,000 in fees in this Lanham Act false advertising case because the plaintiff engaged in the same conduct (falsely claiming that its product was patented) as its competitor in the market for collagen products, and still sued the competitor. The court previously granted summary judgment based on unclean hands; the briefing “brought to light filings by Certified that seemingly misrepresented the status” of one patent, leading the court to impose sanctions against Certified, its CEO, and its counsel.  (Basically, when Avicenna showed that Certified’s patent hadn’t issued before it advertised its “patented” status, Certified claimed that it was referring to another patent, but years before it had been enjoined from exercising that patent.)

Under Octane Fitness the exceptionality inquiry for fees requires a court to consider “factors, including frivolousness, motivation, objective reasonableness (both in the factual and legal components of the case) and the need in particular circumstances to advance considerations of compensation and deterrence.”

Frivolousness/unreasonability: “prior to filing its lawsuit, Certified knew or should have known that its unclean hands barred its Lanham Act claim and that it did not suffer any injury, barring its two state law claims.”  As for the California state law claims, Certified could only identify two customers it “lost” as a result of Avicenna’s statements, and those two customers’ decisions weren’t based on Avicenna’s false statements but on the customers’ beliefs in Avicenna’s product’s superior quality and consistency.  Even under more stringent older standards, there was no reasonable basis for bringing these claims.  Nor would the court refuse to award fees because Certified got Avicenna to stop making patent-related claims, in that Avicenna’s misrepresentation of its product as “patented” happened only twice, and Avicenna corrected both instances prior to Certified filing its lawsuit.

Objective reasonableness of litigation: the sanctions order provided the court’s basis for finding that litigation was conducted in an objectively unreasonable manner. Moreover, Certified’s decision to file a similar case in the district while the present case was pending additionally demonstrated objective unreasonability; that case was voluntarily dismissed after a motion to dismiss indicated that Certified didn’t own the second patent.

Deterrence: Certified has a history of litigation, including the lawsuit just mentioned (which targeted nearly a dozen competitors) and a case in which  the California Court of Appeal affirmed a sanctions award of $34,000 against Certified’s principal for advancing frivolous arguments in a lawsuit against another competitor. Certified also filed a second lawsuit alleging similar false advertising claims against Avicenna, but had yet to serve Avicenna with the lawsuit.  The court found that this conduct was relevant both for the Octane Fitness totality of the circumstances test and for the deterrence factor. Also, Certified failed to comply with the sanctions order by filing a notice that the sanctions were paid within three days of payment, which had been part of the order.  “To say the least, Certified’s brazen litigation tactics and utter disregard for this Court’s own order suggest a lack of respect for the rule of law that should be deterred.”

Avicenna could only recover for fees related to its work on the Lanham Act claim, not the two state law claims, but the claims here were “so inextricably intertwined that even an estimated adjustment [for the state law claims] would be meaningless.” They relied on the same factual allegations and had many of the same elements.

literal falsity still needs to be material, and court wants a survey or other direct evidence thereof

LivePerson, Inc. v. [24]7.AI, Inc., 2018 WL 5849025, No. 17-cv-01268-JST (N.D. Cal. Oct. 26, 2018)

LivePerson “provides online chat engagement services through a digital platform that it sells to website operators.” That is, it helps websites provide real-time text-based communications with website users directly on the website. Its platform tries to identify when initiating a chat with a particular user is most likely to produce a positive outcome, such as a sale, using rules based on variables such as the user’s navigation history.

[24]7 provides customer service agents to businesses, including customer service agents that participate in the type of online chats initiated through LivePerson’s chat platform. In 2006-2007, the parties agreed to market and provide services to mutual customers; at the time, [24]7 didn’t have its own chat platform, while LivePerson offered a chat platform, but did not have digital chat agents to staff that platform.  After the direct contractual relationship ended, the two companies continued to provide their services to mutual customers.

Then (curse your sudden but inevitable betrayal!) [24]7 introduced its own digital chat platform. It touted its platform, claiming that it was the “first smart chat” platform. Three mutual customers switched to using [24]7’s chat platform. Through these arrangements, [24]7 gained access to the rules and data developed for the customers, which LivePerson claimed as trade secrets in this action; the court denied summary judgment on the theory that LivePerson used improper means. I’ll focus on the false advertising claims.

The challenged statements touted [24]7 Assist as “the industry’s first smart chat that uses prediction and real-time decisioning with big data to drive customer experience,” “the first predictive, real-time customer assistance solution for chat,” and the “world’s first smart chat platform powered by prediction in real-time.”  The court declined to grant summary judgment on puffery, but did on materiality.

This wasn’t puffery because the implication of [24]7’s “first” claims was that LivePerson’s competing platform lacks some element of smart or predictive technology, or at the very least, had a less reliable version. Identifying whether the products possess certain technological features was specific enough to avoid puffery. Even if “smart” and “predictive” were vague in the abstract, in context,  [24]7’s statements introduced particular features as “smart” or “predictive.” “A reasonable consumer could understand [24]7’s ‘first’ statements as implying that other products available at the time lacked these features.” That’s falsifiable.

However, materiality wasn’t so easy. The court declined to presume materiality on the theory that [24]7’s statements were literally false; materiality is a separate requirement.

LivePerson offered a declaration from its Vice President stating that the claim of being “first” to develop a product is likely to influence purchasing decisions because “older technology that has been in the market longer is viewed as having had more time for refinement and development based on data collected over the years.” But “untested, generalized assumptions that a statement is likely to influence purchasing decisions” weren’t sufficient to demonstrate materiality.  In the continuing game of telephone courts have played with the relationship between falsity and materiality, we now hear that materiality “is ‘typically’ proven through consumer surveys,” which provide direct evidence of a statement’s impact. [Voiceover: materiality is not typically proven through consumer surveys. That's not to say the rule can't change--it may be changing through this process of doctrinal accretion--but materiality is quite often a matter of common sense where a claim is central to performance or related to health or safety, and that treatment makes plenty of sense.]

Here, there was no evidence of consumer reaction, and evidence that they didn’t simply take [24]7’s statements at face value in making purchasing decisions. The parties entering into multi-year contracts between companies; for example, Sears conducted an extensive head-to-head test before switching.

Friday, November 09, 2018

False patent marking claim fails in cannabis case despite clear falsity/motive to crush competition: mostly it didn't work

Kremerman v. Open Source Steel, LLC, 2018 WL 5785441, No. C17-953-BAT (W.D. Wash. Nov. 5, 2018)

This case involved cannabis distillation equipment. Kremerman sued OSS for design patent and trade dress infringement and related claims. OSS counterclaimed for false patent marking, false advertising under the Lanham Act, and violation of Washington’s Consumer Protection Act. After some claims were dismissed, Kremerman filed a motion to voluntarily dismiss the affirmative claims and submitted a terminal disclaimer to the PTO disclaiming the remaining term of his patents. (The court also says this disclaimer rendered his trade dress claims moot, which doesn’t seem right in itself.)  The court here dismisses the counterclaims.

OSS contends Kremerman claimed his distillation products were patented when they were not and that he falsely disparaged OSS and its owners with the intent to dissuade customers and suppliers from doing business with OSS and to put OSS out of business.  Basically, OSS had a Chinese manufacturer (along with some Kremerman suppliers) copy/reverse engineer the Kremerman distillation heads, which Kremerman found out about on social media: I kind of love that he found out by seeing an image of his distillation head on OSS’s Instagram page. One supplier’s employee testified that OSS told him Kremerman was a former employee of theirs and that OSS actually owned the rights in Kremerman’s designs.

Kremerman allegedly claimed on his website that his products were patented when there were merely pending applications, and in deposition he testified that he told a supplier that he had patents when in fact, the patents had not issued, because he felt he had to “protect himself.”  In addition, Kremerman allegedly claimed that he was in litigation with OSS before he filed suit, also to discourage others.  He made these kinds of claims in statements both to suppliers and potential customers, e.g., “I have 2 patents on distillation, and there is a reason why everyone tries to copy me!...Oh and we are involved in a federal lawsuit for counterfeiting because of them.” 

The statements were written from Summit Industrial’s email and posted on its webpage or were sent from Kremerman’s email and/or posted on his “Jonathan von Braun” Facebook page (he used several names to promote his products/communicate with customers and others in the industry). There was evidence he promoted his products on Facebook account, even though he maintained it was a private/friends-only acccount.

The court found that Kremerman’s statements specifically representing that he had patents on the distillation heads even though no patents issued until late December 2016 were clearly false as a matter of law. For example, “THIS GLASSWARE IS PATENTED” “is something that could easily have been proven false and is one that customers reading Summit Industrial’s webpage would rely upon due to Kremerman’s presence in the industry.”

Did Kremerman act with an intent to deceive?  He testified that he corrected his website when he was “alerted to it by his attorneys” and he came to understand he had “mistakenly used the word ‘patented’ rather than ‘patent pending.’ ” He also testified that he “did not understand the process…. I believed that when your name is put on an application the patent is yours. …” One supplier testified that Kremerman accurately informed him of the status of his patent applications and, even though Kremerman referred to his products as “patented” in certain communications, he did not believe Kremerman ever intended to mislead him. A C&D letter sent and then posted on Kremerman’s webpage specifically stated that Kremerman’s patent applications were filed and patents were pending. Kremerman also testified that he did not understand the lawsuit process and was “under the assumption that once you begin the process of suing someone, it is the same thing whether or not you have filed in federal court.”

However, when he made the statements at issue, he knew he did not have issued patents. Even if he failed to appreciate the difference between pending patents and granted patents, he claimed he had “granted patents” before he had filed any patent application. Nor did his alleged failure to understand the difference preparing for a lawsuit and actually being in a lawsuit explain his statement “I have 4 of my own patents, and I have already won cases with my counterfeiters,” at a time when no lawsuits had been filed and nothing had been won. He made other statements inconsistent with his claims of lack of understanding, such as “I just released my third patent two weeks ago. And my fourth patent is under final review.”

However, the false patent marking statute applies only to “advertising,” not “promotion.” Thus, “the expression ‘uses in advertising’ cannot refer to any and all documents by which the word ‘patent’ is brought to the attention of the public; it can only refer to use of the word ‘patent’ in publications which are designed to promote the allegedly unpatented product, namely, advertisements.” “Advertising” is defined as “the action of calling the attention of the public esp[ecially] by means of printed or broadcast paid announcements.” Most of the statements at issue were in one-on-one emails, not to the public, and not in paid announcements.

Still, there was a question of material fact about whether statements on the website, or on the Facebook page, were “advertising,” inasmuch as “it can hardly be disputed that companies (Kremerman’s included) use their websites to serve the function of advertising by targeting a specific market, trade, or class of customers seeking products in that marketplace.” But the court was not willing to conclude that a single email was “advertising” even when the relevant market was very small.   

Nonetheless, summary judgment against OSS was warranted because on the issue of whether it suffered a competitive injury, which requires “actual competitive harm.” OSS argued that direct competition allowed a general presumption of a competitive injury, but it didn’t show that anything Kremerman said “had a tendency to mislead consumers” [um, the false statements, which the court deemed plausible to consumers because of Kremerman’s market position?] and didn’t show loss of sales, goodwill or ability to market that was caused by the false marking. “This causation is a necessary element of … 35 U.S.C. § 292.”

OSS’s claim that “fielding inquiries from customers regarding the dispute with Kremerman has become a regular, and unfortunate, part of OSS’s business” was insufficient. “A party claiming ‘loss of goodwill’ must offer evidence of (1) the original value of its goodwill and (2) the scope and depth of the defendant’s harm to the plaintiff’s reputation.”  [Trademark owners might want to pay attention to this idea.] Part one can be done, for example, by considering “a plaintiff’s expenditures in building its reputation in order to estimate the harm to its reputation after a defendant’s bad acts.” But there was no evidence that fielding inquiries caused harm to OSS’s reputation in any appreciable manner.

Nor did OSS show lost business or profits, other than a failed attempt to establish a business relationship with an equipment dealer with whom Kremerman had an established relationship and to whom he said he didn’t want them dealing with OSS because they were “crooks” and “counterfeiters.” Though they began a relationship with OSS, the dealer soon told them, “As I [sic] result of pending litigation [we] will be removing your account from our active account base and suspending your account by end of business day.” However, there was no evidence that the dealer made any decision based on false or misleading information provided by Kremerman. Moreover, OSS acknowledged that it was able to secure an alternative supplier of the relevant equipment and didn’t quantify whether it made more or less money doing so.

Although a Lanham Act claim for injunctive relief may be viable even in the absence of proof of damages, OSS didn’t initially ask for injunctive relief, and such an “extraordinary” remedy wasn’t warranted, given that the last challenged statements were from 2016 and there was no evidence of a likely reoccurrence.

What about Lanham Act false advertising? “Courts may presume consumer deception and reliance if the defendant made an intentionally false statement regarding the defendants’ product, even if the statement entailed ‘little overt reference to plaintiff or plaintiff’s product.’” And a court may presume materiality for literally false statements. Here, the challenged statements were: (1) Kremerman’s premature and false statements that he had patents and was in a lawsuit against OSS; and (2) disparaging comments about OSS, its products, and its founders, also made in the same media as (1), e.g., “Pile of garbage counterfeit head”; “Boot the frauds. They are scammers”; “hide yo keys. Oss. Only stolen sh*t”; “…buyers beware, this is counterfeit glass and low quality….we have images of their glass imploding on customers as well as heads in our hands that are known not to work”; “Not to mention the class action suit building from other people they owe money to.” There were other comments about the conduct of OSS’s business; Kremerman in deposition later said that he “misspoke” about things like “We also have found out some dirt with investigators that they do not pay fed tax, or collect it, or give receipts. So the honest answer is they are f*cked. We filed a motion for a audit….”

Were these statements “commercial advertising or promotion”? Statements contained in a few emails to prospective customers weren’t “disseminated sufficiently to the relevant purchasing public”; there was no evidence that the market was small enough for that to be the case. What about the website/FB statements? They “arguably” reached a wider audience (and several were explicitly false), they weren’t widespread ads, and there wasn’t evidence about the size of the relevant market and their exposure to the statements.

“And most importantly, there is no evidence that OSS has or will suffer any injury from the false statements,” as the court discussed above. This also doomed the Washington state unfair business practices claim.

Wipe on, wipe off: after survey excluded, plaintiff wins jury verdict on false advertising windshield protector claim

Illinois Tool Works Inc. v. Rust-Oleum Corporation, 2018 WL 5810327, No. H-17-2084 (S.D. Tex. Jun. 21, 2018)

 ITW’s Rain-X and Rust-Oleum’s RainBrella water repellant product compete in the market for use on vehicle windshields. Rust-Oleum advertised that RainBrella lasted twice as long as Rain-X, as proved by use that lasted over 100 car washes.

The parties sought to exclude each other’s experts’ testimony.  ITW’s expert Berger offered a survey to show consumer perception of Rust-Oleum’s “Last Over 100 Car Washes” statement.  Respondents were qualified if they: (1) were eighteen years of age or older; (2) owned or leased a personal motor vehicle; and (3) had purchased in the past twelve months an automotive product to maintain or enhance the exterior of their vehicle. The test group was shown a static image of a modified RainBrella package from which the phrase “Lasts 2X Longer” had been digitally removed and in a perspective in which only certain portions of the package were viewable.

The test group was asked: “One of the claims on the package is that it ‘lasts over 100 car washes.’ Do you see this in the ad?” If they said yes, they were asked: “In terms of time (weeks, months, years), how long do you believe that the RainBrella product will last?” The test group respondents were given four answer choices: (1) between zero and fifty years; (2) between one and eleven months; (3) between zero and four weeks; and (4) “Don’t Know.” The average answer was 110.6 weeks. The respondents in the control group were shown the same image used in the test group, but also without “Lasts Over 100 Car Washes.” The average duration answer in that group was 19.8 weeks.

A survey validator fully screened seventy-seven of the 359 respondents with working numbers and found that thirty-seven of the seventy-seven screened respondents didn’t recall taking the survey.

Rust-Oleum hired Akron Rubber Development Laboratory, a third party independent laboratory facility, to test how long the RainBrella and Rain-X products lasted on an automotive windshield. ARDL applied the products to a clean windshield. ARDL mounted the windshield onto a test frame, turned on a water spray, and ran the wiper blades. It continued, checking every 10,000 cycles, until water droplets no longer beaded on approximately 50% of the wiper area. ARDL concluded that “RainBrella and its repellent properties last on average, at least two times longer versus the leading competitor ....”

An in-house ITW test also sought to measure the hydrophobicity (water repellency) of each product and concluded that RainBrella did not last twice as long as Rain-X. Rust-Oleum retained a mechanical engineer to review the parties’ test.

Rust-Oleum succeeded in excluding the survey.  First, the survey didn’t adequately replicate market conditions because it omitted the statement “Lasts 2X Longer” from the image of the RainBrella package, which was important to consumer’s perception.  [Interesting question why the control group didn’t control for this difference—I can see arguments either way.] Second, the universe was overinclusive, because it selected for people interested in protecting their car’s exterior, not the windshield in particular.  Third, the 48% validation failure rate strongly indicated the survey was unreliable.

The question form—suggestive of temporal terms, but not leading—was relevant to the issue in the case and thus didn’t “greatly” affect the survey’s reliability, nor did drawing respondents’ attention to specific language on the package. Still, the other flaws rendered the survey “fundamentally flawed and unreliable.”

ITW’s motion to exclude Rust-Oleum’s expert didn’t fare so well.  Although Dr. Brani was not a chemist and lacked experience testing hydrophobicity, he used lab coursework in his teaching and worked at an independent law where he “routinely draft[ed] scientifically based testing protocols and execute[d] this testing to provide greater insight for various clients including insurance adjusters, attorneys, manufacturers of products, and designers of products.”  Thus, his knowledge of and experience with laboratory testing enabled him to assist the trier of fact here.

However, that was limited to his first set of opinions: conclusions regarding generally accepted methods of scientific testing, including qualitative and quantitative testing.  He also offered conclusions regarding the reliability of the ARDL Test and the ITW Test, and the ultimate conclusion that the ARDL Test substantiated Rust-Oleum’s claim that RainBrella “Lasts 2X Longer.”  At the Daubert hearing, he indicated that he couldn’t testify as to whether the ARDL Test procedures were superior to other test procedure, nullifying his written opinion that the ARDL Test was implemented in a reliable way and the ITW Test was not. His final conclusion that the ARDL test substantiated Rust-Oleum’s claim also conflicted with his testimony that he could not opine as to the actual implementation or execution of the ARDL Test, and Rust-Oleum’s counsel represented to the Court that he wouldn’t be testifying as to whether the ARDL Test results are proper. This discrepancy showed that his report’s conclusions on this point were unreliable.

Illinois Tool Works Inc. v. Rust-Oleum Corporation, --- F.Supp.3d ----, 2018 WL 5810326, No. H-17-2084 (S.D. Tex. Oct. 30, 2018)

The jury found in Rain-X’s favor even without the survey.

Here, the court granted a permanent injunction. “The potential for ongoing harm if a defendant continues to make similar false or misleading statements and the likely impossibility of quantifying the extent of harm suffered as a result of false or misleading statements weigh in favor of finding irreparable injury.” There was testimony that ITW’s reputation and brand were harmed as a result of the challenged claims, which supported a finding of irreparable injury.  The balance of hardships weighed in favor of an injunction, but not a recall; the public interest in truthful advertising also supported an injunction.

The jury was instructed that “can award ITW the profits Rust-Oleum earned as a result of its false advertising if [it] finds ITW has shown by a preponderance of the evidence that Rust-Oleum benefited from its false advertising” and that it “may award Rust-Oleum’s profits even if Rust-Oleum’s costs exceed its profits.” The jury awarded profits in the amount of $392,406, and also found Rust-Oleum “acted maliciously, fraudulently, deliberately, or willfully.”

There was no direct evidence of sales diversion, which weighed against a profit award, but there was a strong public interest in making false advertising unprofitable and there was no unreasonable delay in ITW asserting its rights. The court wouldn’t touch the jury award of profits.

The jury also awarded a bit over $925,000 for corrective advertising. Rust-Oleum argued that ITW didn’t engage in pretrial corrective advertising and there was no evidence ITW it would do so in the future. But there was no evidence that it wouldn’t, and the evidence showed Rust-Oleum spent $1,318,023 on advertising. Though the jury could award money for corrective advertising, the size here was punitive, and instead awarded 25% of Rust-Oleum’s ad expenditures, according to the principles of equity: a shade under $330,000.