Friday, December 02, 2016

... and the Best Title of the Year award goes to Mark Lemley


Mark A. Lemley 


Stanford Law School

November 30, 2016

Update re: DMCA re-registration

I have updated my original post to include the information that the Library of Congress, not the CO, set the password requirements, and to add a rant about how re-registration should not be a thing.

Failing to disclose refund policy does not make price claims literally false

First Data Merchant Services Corp. v. SecurityMetrics, Inc., --- Fed.Appx. ----, 2016 WL 7010889, No. 15-2301, No. 15-2364 (4th Cir. Dec. 1, 2016)

Lower court opinion discussed here.  The court of appeals affirmed the district court’s rejection of the parties’ claims against each other that were at issue on appeal (a major issue of settlement interpretation was not appealed).  First Data and SecurityMetrics are in the Payment Card Industry (PCI). In the PCI, issuers supply payment cards to consumers and collect amounts due; acquirers clear and settle payment card transactions on behalf of merchants; and processors facilitate the communication and settlement of payment. Some PCI providers outsource certain functions to third-party vendors. First Data is an acquirer and processor. SecurityMetrics is a third-party vendor.

The PCI Data Security Standard to help protect against credit card theft and fraud is universal, but the payment card brands each have different requirements for demonstrating or validating compliance with the standard. Acquirers, such as First Data, can impose noncompliance penalties and fees on merchants. Acquirers often rely on third-party vendors, such as SecurityMetrics, to validate merchants’ compliance.

The parties used to work together, with First Data listing SecurityMetrics as its preferred data compliance vendor in all communications with certain merchants. First Data charged merchants a PCI compliance fee and then paid SecurityMetrics for its compliance services on behalf of the merchants. When First Data decided to offer its own compliance service, it ordered SecurityMetrics to cease communication with its merchants; SecurityMetrics alleged First Data had breached their contract and stopped sending its weekly data feed. 

On appeal, SecurityMetrics argued (among other things) that First Data’s advertisements violated the Lanham Act. Some promotional materials stated that First Data merchants would have to pay First Data’s compliance fee regardless of whether the merchant also used a third-party compliance vendor, whereas First Data actually provided refunds to merchants who used third-party compliance vendors.

The challenged First Data ads said:

If you choose to use a third-party vendor for PCI DSS compliance services, you will need to contract with and pay that vendor directly. In addition to your alternate vendor’s charges for PCI DSS compliance services, you still will need to pay the Compliance Service Fee charged to you by your merchant services provider. The Compliance Service Fee is not affected by your choice to use a third-party vendor.* * *

If First Data’s PCI compliance services are contractually available to you, you will be charged an applicable annual compliance fee for those services, regardless of whether you use them or utilize the services of some other third-party PCI compliance services vendor. If you utilize the additional services of a third party vendor, you will pay that third party vendor’s charges for those fees in addition to First Data’s annual compliance fee.

The court of appeals agreed that these statements were ambiguous, not literally false.  It was undisputed that merchants had to pay a fee to First Data regardless of whether or not they paid a third party for the same services.  SecurityMetrics alleged that, in practice, First Data would refund a merchant that complained about being double charged.  But failing to state that a refund  might be available was not literally false.  By one reading, the service fee would change because of First Data’s refund policy.  But another reading was that, “because First Data’s refund policy was discretionary and not automatic, the advertisement is true on its face.” A customer who didn’t ask for a refund wouldn’t get one.  This wasn’t false by necessary implication, and there was no evidence of deception.


As for tortious interference claims, the court upheld the exclusion of recorded calls and emails from customers who cancelled contracts with SecurityMetrics as hearsay.  The evidence of causation, “why the merchants decided not to renew or sign a contract,” was relevant but inadmissible.  SecurityMetrics argued for admitting the calls and emails under the state of mind exception, since they were offered only to prove “what customers believed and why they did what they did.” “However, unless the statements are also offered for the truth of the matter asserted—that the merchants canceled their contracts with SecurityMetrics because of First Data’s misconduct—these customer statements do not show causation.”  [I have to admit, I don’t grasp this distinction.  Thoughts from people with more experience with evidence?  This seems like the kind of evidence routinely admitted in trademark cases.]

Saving people, suing things: TM lawsuit over -hunter suffix continues

Kenyon v. Clare, No. 16-cv-00191, 2016 WL 6995661 (M.D. Tenn. Nov. 29, 2016)

Sherrilyn Kenyon sued Cassandra Clare alleging trademark/copyright violations arising from Clare’s books, the “Shadowhunter Series”; this opinion addresses only trademark claims, where a motion to dismiss proves fruitless (though state law unfair competition was dismissed as time-barred under a one-year statute of limitations).

Kenyon published the “Dark-Hunter Series,” a series of books, short stories, and other original material and alleged that she owned the trademark rights to certain marks, such as “Dark-Hunter,” “Dream-Hunter,” and “Were-Hunter.” Kenyon used “dark-hunter.com” to promote her series and provide additional content regarding the Dark-Hunter world. Kenyon also produced several television commercials and videos, as well as a variety of Dark-Hunter merchandise, such as a line of collectible dolls, clothing, coloring books, jewelry, and novelty items.

In 2006, Clare began marketing a work that allegedly incorporated one of Kenyon’s Dark-Hunter trademarks as the name of one of Clare’s protagonists. At Kenyon’s demand, Clare replaced the term with “Shadowhunters.” Clare and her publishers allegedly assured Kenyon that “Shadowhunters” would be used solely for the name of Clare’s protagonists and that they would not expand the use of the “Shadowhunters” term or adopt it as a trademark.

A few years later, Clare’s publisher printed approximately 100,000 copies of a Shadowhunters book, mistakenly referring to the story’s protagonists as “Darkhunters” instead of “Shadowhunters” on the back cover. Kenyon demanded a correction and a recall.  Clare’s publisher destroyed some of the mislabeled books, but refused to recall the books already in stores or sold. These books allegedly led to confusion in the marketplace, where some purchasers thought that Clare was one of Kenyon’s pennames.

Recently, Clare began using the website domain name “shadowhunters.com” to promote her novels, which the website describes as “Cassandra Clare’s Shadowhunters.” A related movie, “Mortal Instruments: City of Bones,” was released in 2013 and was primarily promoted and discussed through the use of the term “Shadowhunters.” Clare also wrote a television series, titled “Shadowhunters: The Mortal Instruments,” which was released in 2015 and promoted on “shadowhunterstv.com.” Also in 2015, Clare released redesigned book covers that printed the words “A Shadowhunters Novel” along the right side or bottom of the covers.

Kenyon alleged that the books were similar, which enhanced confusion.  They were allegedly “promoted, discussed, and celebrated in similar online forums and at similar conventions”; shared similar themes, origin stories, and target audiences; used “shadow” (Kenyon’s “creed and tagline” said: “We are Darkness. We are Shadow. We are Rulers of the Night. We are the Dark-Hunters.”); and had similar visual representations.

The court refused to find laches on the trademark claims on the pleadings, even though Kenyon learned about the alleged infringement in 2006.  Without evidence about the reasonableness of the delay or evidence of prejudice, a ruling on laches was inappropriate.

Clare also argued that, as a matter of law, there could be no confusion between the marks because the proper author’s name is on the cover of her books, and that Kenyon couldn’t hold a “trademark monopoly” on the word “hunter” in the supernatural creative works context. Having the author’s names on the books wasn’t dispositive, because likely confusion extends beyond point of sale confusion.  Plus, Kenyon’s claims went beyond just the books to TV shows, movie, and merchandise.  And there wasn’t sufficient evidence to resolve whether Kenyon was wrongfully seeking a “trademark monopoly” for any –hunter suffixed word in the field of supernatural creative works; she did allege secondary meaning and confusion.


There’s a lot of room here for thinking about First Amendment constraints on trademark claims brought against expressive works.  Rogers, by its terms, doesn’t apply to title v. title contests, but this isn’t exactly a title v. title contest, more franchise v. franchise, and also the Second Circuit’s later Cliffs Notes decision points out that First Amendment principles should also affect analysis of title v. title claims, given that authors have expressive interests in naming and that interest doesn’t disappear when another author is the plaintiff.

Ugly facts doom "Life is Beautiful" infringement claim: fraud on the PTO bars claim

Amusement Art, LLC v. Life Is Beautiful, LLC, 2016 WL 6998566, No. 14-cv-08290 (C.D. Cal. Nov. 29, 2016)

Defendant LIB hosts the Life is Beautiful festival in Las Vegas. In developing the festival’s style, founder Rehan Choudhry collected digital images from Google searches related to his concept, which included artwork created by Thierry Guetta, aka Mr. Brainwash, including the phrase “LIFE IS BEAUTIFUL.”  Choudhry hired a graphic designer to develop the festival’s logo; the result was a heart made of splattered paint. The first festival was held in the fall of 2013, and repeated annually, featuring music, food and alcohol tastings, public speakers, and art exhibitions and installations.

festival logo

Example of Mr. Brainwash art using Life is Beautiful

Amusement Art licenses IP produced by artist Thierry Guetta. Guetta’s his first solo art exhibition in 2008, entitled “Life is Beautiful,” followed by six other exhibitions using that name through 2012.  In some of his artwork, Guetta incorporates phrases such as “Life is Beautiful.” In mid–2013, a common acquaintance introduced LIB to Guetta’s business associates and encouraged the two parties to consider possible collaboration.  But an in-person meeting a year later went badly.  After further discussions, Amusement Art sued for trademark and copyright infringement of “Life is Beautiful” and Guetta’s “splashed paint heart designs.”

Between 2011 and 2012, Amusement Art filed eight ITUs for “Life is Beautiful” covering paints, electronics and accessories, jewelry, paper goods and printed matter, rubber goods, leather goods, housewares and glassware, and textiles. AA executives filed Statements of Use, under penalty of perjury, asserting that AA had actually used the phrase “Life is Beautiful” as a trademark to sell approximately 257 categories of goods within the application classes. AA also submitted pictures of various goods with “Life is Beautiful” sales tags attached to them. In September of 2014, one month before suing, AA also filed an application for Life is Beautiful” for festival and community events.

When LIB determined that AA didn’t actually sell many of the goods on which it obtained registrations, it told AA that it was going to seek cancellation on the basis of fraud on the PTO. AA surrendered eight of the registrations, but retained its 2014 registration in connection with festivals and art events.

LIB argued that all of plaintiffs’ “Life is Beautiful”-based trademark claims were barred by unclean hands.   This requires clear and convincing evidence “[1] that the plaintiff’s conduct is inequitable and [2] that the conduct relates to the subject matter of [Plaintiff’s] claims.”  The inequitable conduct here was fraud on the PTO in claiming use.  AA argued that there was no evidence that its statements were made knowingly or with intend to defraud the PTO.

Fraud on the PTO in acquiring a patent can give rise to an unclean hands defense.  Similar logic bars recovery in trademark.  Cancelling a registration for fraud requires: “(1) a false representation regarding a material fact; (2) the registrant’s knowledge or belief that the representation is false; (3) the registrant’s intent to induce reliance upon the misrepresentation; (4) actual, reasonable reliance on the misrepresentation; and (5) damages proximately caused by that reliance.” The parties didn’t dispute that the statements of use submitted by AA were material false statements nor that the PTO reasonably relied on those misrepresentations.

As for knowledge and intent elements, “no rational jury could credit Plaintiffs’ claim that the false statements were innocent mistakes in light of the extent of the deception.”  AA filed eight separate registrations representing use on hundreds of categories of goods.  There was no evidence that AA mistakenly believed it actually sold most of the claimed goods.  Instead, AA argued that the executives who filed the applications were not native English speakers and that they filed the applications without the assistance of an attorney. “This explanation is implausible given that Plaintiffs have lived in the United States and spoken English for over 30 years and have also affirmed that they have filed trademark applications across the world.”  But the bigger problem was that AA didn’t explain the several “deceptive” photos submitted with the applications showing goods staged with “Life is Beautiful” tags though these goods were never actually sold.
 
specimen for sculpture

specimen for banners

specimen for handbags

first specimen for tape

second specimen for tape

Further, no reasonable jury could find that reliance on these false representations didn’t cause damage:

By falsely securing the registration of marks that they never used and then later suing LIB on the basis of those marks, there is no question that Plaintiffs have harmed LIB. But the more pervasive harm in this case is the cost imposed on a public that relies on the integrity of the [trademark] system…. Instead of furthering the Lanham Act’s goal of fostering competition in the marketplace, Plaintiffs attempted to secure a monopoly over most plausible uses of the phrase “Life is Beautiful” without actually investing any resources into developing the goodwill of their brand. Plaintiffs falsely claimed ownership over the mark in eight classes of goods covering nearly 250 specific items. In doing so, Plaintiffs may have chilled potential competitors from entering the marketplace and developing their own brand identifications across an array of goods. To put into perspective the extent of the fraud, Plaintiffs registered the mark in nearly one–fifth of all possible classifications, asserting use in goods as varied as food coloring, watch boxes, beach umbrellas, cleaning sponges, talking children’s books, and crime scene tape. In fact, after eliminating trademark classifications that would plainly be inapplicable to the phrase at issue or Plaintiffs’ business, the court could identify only four or five additional classifications in which Plaintiffs could have even conceivably registered this mark. While it is difficult to measure after the fact the precise magnitude of the harm of Plaintiffs’ actions, the court concludes that there is no triable issue whether Plaintiffs’ acted inequitably.

[Note that the specimen of use for sculpture at least raises issues of use as a mark v. ornamental use that really should have gotten more attention, while the specimen for “banners” doesn’t show the claimed mark at all!  The PTO is supposed to look at the specimen to make sure it shows use as a mark/to see issues that couldn’t have been resolved without a specimen … like whether the specimen shows the mark at all.  The specimen first shown for tape was initially refused, correctly, for mere ornamentality, and then AA submitted a revised specimen, so the examiner there got it right.]

Unclean hands also requires that the inequitable conduct “relates to the subject matter of [Plaintiff’s] claims.” AA argued that this requirement would only apply if “the plaintiff has engaged in precisely the same type of conduct about which it complains,” to wit, infringement.  Nope, fraud on the PTO in procuring the right asserted counts; “the relevant inquiry is ‘not [whether] the plaintiff’s hands are dirty, but [whether] he dirtied them in acquiring the right he now asserts, or [whether] the manner of dirtying renders inequitable the assertion of such rights against the defendants.’ ” AA dirtied its hands in acquiring at least eight of the registrations asserted against LIB.

There was a closer question as to the registration of the phrase “Life is Beautiful” in connection with exhibitions and festivals, which Plaintiffs filed shortly before filing suit.  This registration was the subject of cancellation proceedings before the PTO, but AA hadn’t surrendered it, and there was evidence of actual use with at least some claimed categories of goods/services.  Still, the fraud barred all of AA’s infringement claims.  The earlier filings potentially deterred competitors in hundreds of categories.  After that, AA became aware of LIB’s use in a category AA had yet to claim; it filed another application in that category; then it sued.  Under the circumstances, unclean hands applied.

Unclean hands also requires balancing the equities of the plaintiff’s and defendant’s wrongdoing.  Here, that weighed in LIB’s favor.  AA attempted to profit off its fraud “both by deterring competitors and by subjecting Life is Beautiful to the present litigation,” undermining “the sanctity of a trademark registration system that relies on parties truthfully representing which marks are bona fide source identifiers and which are not.”  AA’s weak trademark infringement claim didn’t offset that claim.

Indeed, the determination that AA didn’t actually use “Life is Beautiful” as a mark “would be fatal to any claim for trademark infringement of the ‘Life is Beautiful’ mark, and provides an alternative ground for resolving that issue.”  LIB argued that AA’s use was merely ornamental, just one of several positive phrases Guetta used in his artwork under the mark “Mr. Brainwash.”  LIB contended that use of the phrase as the title of an art show or as a mark on the back of canvasses didn’t qualify the phrase as a mark.

AA responded by asserting that its registration “constitutes prima facie evidence of the validity of the registered mark and of [Plaintiffs’] exclusive right to use the mark on the good and services specified in the registration.” But where one party has presented evidence rebutting a claim to a trademark, the registration is “merely evidence ‘of registration,’ nothing more.”  Given LIB’s evidence that AA’s mark was not actually a source identifier and that the majority of the marks at issue were fraudulently obtained, the presumption of validity alone was not sufficient to avoid summary judgment.

Although AA surrendered eight registrations, LIB still wanted summary judgment on its counterclaim for cancellation, to avoid any attempt by AA to file new statements of use and reassert the same infringement claims.  Before the TTAB, an attempt to surrender rather than face judgment would require the written consent of every adverse party to the proceeding, in order to prevent the creation of mootness and evasion of a judgment to which the adverse party was entitled.  That logic also applied here. 

“Without an entry of judgment, there is nothing to stop Plaintiffs from refiling their marks after the conclusion of this litigation, and once again fraudulently deter potential competitors from entering the marketplace or subject Defendants to renewed trademark infringement actions.”  True, “an ‘actual controversy’ must exist not only ‘at the time the complaint is filed,’ but through ‘all stages’ of the litigation.” Already, LLC v. Nike, Inc., 133 S. Ct. 721, 726 (2013). But “a defendant cannot automatically moot a case simply by ending its unlawful conduct once sued, and thus “a defendant claiming that its voluntary compliance moots a case bears the formidable burden of showing that it is absolutely clear the allegedly wrongful behavior could not reasonably be expected to recur.”  If AA had no intention of fraudulent refiling, judgment would cause little harm, while giving LIB “substantial assurance” that it could build its business. Thus, the court granted the cancellation counterclaims.

The court also granted summary judgment on AA’s trademark infringement and copyright infringement causes of action based on an image of a “splashed painted heart.” For the first two years of the Life is Beautiful festival, LIB used a painted heart design as the logo; that image can still be seen in connection with the festival on social media.
 
Guetta heart
First, LIB argued that AA didn’t use the heart design as a mark, but rather as an ornamental element in works and on merchandise. The court found that corporate representative Deborah Guetta’s testimony constituted an acknowledgement that the heart design didn’t function as a mark; she said the image was a “copyright image” and not a “trademark image.”  Even crediting AA’s explanation that she was referring to registration, there still was no factual issue here.  The heart design would require secondary meaning to be protected as a mark, and the limited use here—also described by the court as “sporadic use of the mark in Guetta’s artwork”—was insufficient, despite a statement by one of LIB’s employees that the image was a logo.

Copyright infringement: LIB argued that they hired a designer who independently created the design. Even assuming the designer had access to AA’s heart, there was no substantial similarity. “Where the image at issue is ubiquitous, the copying must be exact.”  Plaintiffs argued that one AA employee couldn’t tell the difference (which really wasn’t the right interpretation of his statement), and that the fact that both parties used similar heart images along with the phrase “Life is Beautiful” supports a finding of substantial similarity.

No rational jury could find the two heart designs “virtually identical”:

Guetta’s heart is largely a monochromatic faded red while LIB uses at least two shades of two colors—red and purple—to depict their heart. Guetta’s heart is composed of a much more dramatic splash of plaint with splatters reaching across the canvas, compared to LIB’s more controlled drip pattern on the heart. Moreover, Guetta’s heart looks like a handmade image with no smooth portions in the heart outline, while LIB’s looks like it may have been computer–generated with extended smooth lines for several portions of the heart’s outline.


Finally, use in connection with “Life is Beautiful” didn’t support a finding of substantial similarity. The court didn’t like this “additive approach” to determining whether the images “actually in dispute” were themselves substantially similar. LIB also identified a logo from an uninvolved third party that also uses the phrase “Life is Beautiful” with a splattered heart design, “suggesting that such coincidences can occur without any further meaning.” 
unrelated design

Thursday, December 01, 2016

DMCA agent re-registration process removes one annoyance, adds another

Apparently one no longer has to provide a fax number to have a complete agent designation, which is good news.  (Welcome to the 21st century!)  But take a look at this password requirement:

Anyway, consider this your reminder: DMCA agent re-registration is now a thing.

Update: The CO assures me that this password requirement came from the Library of Congress, not from the CO itself.  That's useful information and I apologize for directing my ire so directly at the Office, though I have to say I'm still not thrilled about the requirement to re-up every three years, which is exactly the kind of formality that we got rid of elsewhere in copyright because it rewards the strategic exploitation of screw-ups.  Since we've already seen copyright trolling around sites without perfect DMCA compliance, this database seems like an invitation for trouble.

So, kudos again for removing the fax requirement!  But the Office never explained why renewal was so important for DMCA agents.  The concern for updated information could be satisfied by, say, an email every three years suggesting that people check to make sure the information is accurate, and if it was no action need be taken.  That's how my domain name maintenance notices work.  I'm pretty sure that every site with an agent designation would be willing to pay $60 at the outset instead of $6 for more certainty that screwing up a calendar, or having an outdated credit card on file, wouldn't itself destroy DMCA protection.

Wednesday, November 30, 2016

New edition, Goldman & Tushnet, Advertising and Marketing Law

Eric Goldman has posted all about it, including an overview and links for where you can get your own fresh copy.  Eric did the heavy lifting on getting this out, and I really appreciate it.  I also am personally satisfied with the revised disclosure materials, which incorporate recent FTC activity and the DC Circuit's AMI decision applying Zauderer to all mandatory factual disclosures.

Tuesday, November 29, 2016

Reading List: Legal Amateurism

Legal Amateurism, Annelise Riles

 Abstract:
 Academics in the humanities and social sciences have often remarked upon the “amateuristic” quality of the analytical tools used by legal scholars. Rather than dismiss this quality out of hand, this paper approaches “legal amateurism” as a practice of knowledge production that can be studied ethnographically. The type of academic work produced by legal scholars expresses a unique relationship between scholarship and practice that bears the imprint of both the Formalist and Realist legal traditions. A certain degree of amateuristic scholarship, especially if it pertains to topics outside of one’s immediate area of expertise, provides legal professionals with a space for thought, reflection, and play – elements that are experienced as sorely lacking in today’s fast-paced, highly technological world. While amateur, non-monetized work can be a way to accrue symbolic capital or demonstrate a certain level of privilege, it also offers legal professionals the opportunity to refresh and renew their commitment to their own work and the legal profession more generally. Drawing on examples from the eccentric scholarship of John Henry Wigmore, as well as the drafting of technical documents in a Japanese bank, this paper argues that a certain aesthetic of amateurism lies at the heart of what it means to be a legal professional today.

ABA Blawg 100/Hall of Fame

I’ve made the ABA Blawg Hall of Fame, as well as the Blawg 100, which is very nice.  I believe it’s in part a reward for persistence, as I’ve been at this since 2003 (though I only got serious in 2005), making the blog older than my children.  A number of other interesting IP blogs made the list, including Hall-of-Famer Eric Goldman; check it out!

Monday, November 28, 2016

TM question of the day, high heel edition

We know that Louboutin's red sole mark is only valid as applied to shoes with contrasting uppers.  So, do these shoes infringe?  (In case it's hard to tell, I'd describe the sole color as a fairly bright pink.)  Do they dilute?
pink, white, silver
If they can dilute, could a different but also unusual-for-soles color dilute?  Wouldn't any unusual and contrasting color make consumers think of Louboutin?
white with--dare I say--Tiffany blue contrasting sole

Breakfast break: energy claims not misleading by US standards

Spector v. Mondelēz International, Inc., 178 F.Supp.3d 657 (N.D. Ill. 2016)

Mondelēz makes belVita Breakfast Biscuits and Breakfast Bites. Spector allegedly bought packages of Breakfast Biscuits in reliance on the package representations of “NUTRITIOUS STEADY ENERGY ALL MORNING”:
 

The relevant graphic uses a clockwise arrow representing a four-hour period of time between 8 a.m. and noon:


The Breakfast Bites icon is similar, but contains the phrase “4 hours”:


The back of the Breakfast Bites box states that a single serving is “[a] nutritious start to a busy morning,” which is “a nutritious, convenient, on the go breakfast choice that contains slow-release carbs from wholesome grains to help fuel your body for 4 hours”:


Spector alleged that this was misleading, in that it portrays the products as “perfect for an ‘on-the-go’ lifestyle due to their being ‘portable.’ ” However, th products actually provide four hours of nutritious steady energy only if they are combined with a serving of low-fat milk. The disclosures on the Australian website for belVita allegedly showed that “Defendant fails to state in its United States advertising that the purported studies on which Defendant claims to rely require that the Products be consumed with at least a serving of low-fat milk in order to obtain the benefits Defendant touts.”

The back of the Breakfast Biscuits box, which repeats the claim of four hours of “nutritious steady energy all morning” while suggesting that Breakfast Biscuits be “enjoy[ed]...as part of a balanced breakfast with a serving of low-fat dairy and fruit,” allegedly conveyed that milk was optional.

Pleading a violation of the Illinois Consumer Fraud Act requires a plaintiff to satisfy Rule 9(b).  The fundamental defect here was that Spector pled no facts, such as personal experience or third-party studies, showing that the products don’t provide “nutritious steady energy” as promised.  Spector’s allegation of falsity was merely conclusory. 

Spector argued that the studies cited by Mondelēz on its Australian website were sufficient to form the basis of a plausible claim that the “nutritious steady energy” claim was actually false because the Australian website supposedly said that a glass of milk was required.  Under Illinois law, “[l]ack of substantiation is deceptive only when the claim at issue implies there is substantiation for that claim, i.e., if defendants had claimed something along the lines of ‘tests show that [the product in question] is [ ] effective ....” Here, though, the products’ packaging didn’t imply there was substantiation for the “nutritious steady energy” claim.  [I disagree—in the modern world, a health or nutrition claim is a scientific claim, especially when quantified for “four hours,” and necessarily implies some degree of scientific substantiation.]

Further, while the Australian website did imply the existence of substantiation for the “nutritious steady energy” claim, Spector didn’t allege she ever saw the substantiation claim on that website and thus she couldn’t have relied on it.  But she was using the Australian substantiation as evidence that the US package was false, not as something she relied on.  Mondelēz argued that, because Spector herself made the studies part of the complaint, the court could examine them, but the court found merit to Spector’s point that she was citing the description of the studies, not the studies themselves.  So the court proceeded without evaluating the study data.

The Australian website allegedly claimed that “belVita Breakfast biscuits† provide carbohydrates that are continuously and gradually absorbed and released throughout the morning,” with the † leading to the statement, “belVita Breakfast plus a glass of low-fat milk,” below this chart:



Although these disclaimers were repeated multiple times, the court found it clear that they didn’t say that “one must consume the Products with low-fat milk in order to achieve four hours of energy.” “The actual statements do no more than refer to the fact that milk was consumed with the Products in the cited studies.” Plaintiff confused correlation with causation. This was not enough to rise to the level of plausibility under Twiqbal, especially since her claims sounded in fraud.  “In the context of this case, the Court concludes that Plaintiff must do more than allege ‘the neutral facts necessary to identify the transaction.’”  This was necessary to protect Mondelēz from the stigma of fraud.  Further Illinois courts are “always watchful that the Act not be used to transform nondeceptive and nonfraudulent omissions into actionable affirmations.” An omission is actionable only “where it is employed as a device to mislead.”

Also, Spector lacked a relevant injury under ICFA.  Although she alleged a financial injury—she wouldn’t have bought the products or paid as much for them had she known the truth—that wasn’t enough under ICFA.  Illinois cases established that a plaintiff who alleges deceptive advertising about the effectiveness of a product has not suffered an injury if she “believed the [product] [was] effective and never complained to anyone that [it] did not work.” Spector never alleged that she didn’t get four hours of steady energy.

The same defects doomed her claims for breach of express warranty and unjust enrichment.


Fourth Circuit rejects attempt to control references to expert services with IP

File under "we need a federal anti-SLAPP law."

Devil’s Advocate, LLC v. Zurich Am. Ins. Co., No. 15-1048, 2016 WL 6871905, --- Fed.Appx. ---- (4th Cir. Nov. 22, 2016)

John W. Toothman is a lawyer and the founder of Devil’s Advocate, a consulting firm that provides expert testimony about the reasonableness of legal fees. In 2008, Zurich became embroiled in a coverage dispute in Texas state court.  In 2010, a lawyer representing, contacted Toothman about serving as an expert witness in the case. Toothman responded by email, indicating his availability and attaching a copy of a blank form billing agreement, his resume, and additional information about Devil’s Advocate’s services. The Billing Agreement left blank spaces for fee terms; nobody at Zurich signed it.  After a further request, plaintiffs proposed a fee of “2.1% of the gross amount of the fees we would review and report upon,” and stated that the proposal was “preliminary, prior to our engagement and full review of available information.” 

Zurich didn’t accept the proposal but told Toothman that, because the deadline for designating experts had passed, Zurich needed leave of court to designate him as an expert witness, which was a condition precedent to Zurich’s acceptance of the proposal. In several emails, Toothman indicated that he knew he had not yet been retained.  Toothman ultimately sent an estimate of nearly $70,000 and an invoice for half that amount; Zurich denied ever agreeing to its terms.

Toothman then took the position that “[payment of the full fee was triggered when Zurich designated me as its expert on December 3, 2010.” Zurich withdrew its request for leave to designate him as an expert witness in the Texas litigation. Plaintiffs responded by suing Zurich, alleging claims of breach of contract, unjust enrichment, conversion, unauthorized use of name, trademark infringement, and copyright infringement.  None of these worked, in the district court or on appeal.

Unjust enrichment: no sufficient allegation of actual benefits conferred on Zurich.  Plaintiffs knew that Zurich was submitting their materials to the court, and that getting court approval was a condition precedent to getting plaintiffs hired.  The assertion that the mere use of their names would promote a better settlement was “wholly speculative” and anyway not realized by Zurich because it withdrew its motion to designate Toothman as an expert before settling the Texas litigation.

Unauthorized use of Devil’s Advocate’s corporate name and Toothman’s personal name. Virginia Code § 8.01-40(A), in pertinent part, says:

Any person whose name, portrait, or picture is used without having first obtained the written consent of such person, or if dead, of the surviving consort and if none, of the next of kin, or if a minor, the written consent of his or her parent or guardian, for advertising purposes or for the purposes of trade, such persons may maintain a suit in equity against the person, firm, or corporation so using such person’s name, portrait, or picture to prevent and restrain the use thereof; and may also sue and recover damages for any injuries sustained by reason of such use. ...

But a corporate entity is not a “person” for purposes of the Virginia statute. And Toothman’s name wasn’t used for advertising purposes, defined as “a publication which, taken in its entirety, was distributed for use in, or as part of, an advertisement or solicitation for patronage of a particular product or service.”   Use in a court filing or email to opposing counsel isn’t advertising or use in the course of business; we are unable to discern what additional legal services Zurich could have intended to solicit.”

Trademark infringement: time-barred under Virginia’s two-year statute of limitations for fraud.

Copyright infringement: first, plaintiffs’ proposal lacked substantial similarity to the designation Zurich filed in Texas, an inquiry that could be made at the motion to dismiss stage.  The proposal discussed “Appellants’ conflicts, Toothman’s familiarity with the parties involved, his academic and professional experience, an overview of the billing structure, and some observations on the Texas litigation.” In terms of extrinsic similarity, the expert designation “generally summarizes the subject matter on which Zurich’s two experts would testify without specifying the material about which either intended to opine.” There was “little if any similarity,” and likewise it was “implausible that any intended audience could view these two documents as intrinsically similar.”

Zurich also didn’t infringe the copyright to Toothman’s resume; its use was fair under Bond v. Blum, 317 F.3d 385 (4th Cir. 2003).  The material was factual; Zurich’s use “was not for profit or in a traditionally commercial sense”; the amount taken didn’t interfere with any legitimate purpose copyright exists to serve; and there was no interference with a market because there was no market for Toothman’s resume as such.

Breach of contract: there was no meeting of the minds.

Conversion of name and reputation: a plaintiff can’t show the necessary element that the defendant wrongfully exercised dominion or control over property, thereby depriving plaintiff of its possession, where he consented to the use of the property.  The facts indicated Toothman’s implied consent: “Toothman knew that, in order to obtain permission to designate him as an expert, Zurich needed to disclose his name to the court and opposing counsel, and he permitted such disclosure.”

Monday, November 21, 2016

Court tentatively holds that NY's GBL covers damage via personal injury

Carias v. Monsanto Co., 2016 WL 6803780, No. 15-CV-3677 (E.D.N.Y. Sept. 30, 2016)

The plaintiffs filed a putative class action claiming injuries based on their use of Monsanto’s herbicide Roundup. Along with products liability claims, they brought claims under New York General Business Law §§ 349 and 350. The court dismissed claims under the GBL for injunctive relief and design defect claims are dismissed, but not others.

The primary ingredient in Roundup is glyphosate; the EPA approved Roundup and its labeling. The label says that “Glyphosate targets an enzyme found in plants, but not in people or pets.” There are no warnings of serious health risks to humans.  In 2015, the International Agency for Research on Cancer classified glyphosate as “probably carcinogenic to humans.” The plaintiffs alleged that, in reliance on the “plants not people” statement, they purchased Roundup on “several occasions” over the past four years and “used and/or [were] exposed to the use of Defendant’s Roundup products in their intended or reasonably foreseeable manner.” They allege that their “exposure to glyphosate caused” various maladies, including non-Hodgkins lymphoma, pancreatic cancer, renal pelvis cancer, “a pituitary gland tumor,” leukemia, “irritable bowel syndrome/leaky gut disease,” diabetes, and kidney disease.

Plaintiffs alleged that the “plants not people” statement was false because glyphosate inhibits organisms from producing the enzyme EPSP synthase, which is found in gut bacteria in human stomachs and intestines. The total microbiota found in humans can weigh up to five pounds, but gut bacteria are vulnerable to being killed off by glyphosate.

Monsanto argued that FIFRA preempted the failure-to-warn and GBL claims, as did the EPA’s conclusions in various contexts that, as a factual matter, glyphosate does not pose a chronic health risk to human and is not carcinogenic.  Multiple district courts have rejected these arguments, and this one did too, mainly because false statements about safety cause pesticides to be misbranded under FIFRA, and states can impose their own remedies for conduct that violates FIFRA.  EPA’s approval of the label, and statements about safety, weren’t factual findings entitled to preemptive force for these purposes.  However, plaintiffs’ request for injunctive relief under the GBL was preempted because it would require Monsanto to change the label.

Monsanto also tried to rely on the GBL § 349(d) safe harbor for acts that comply with federal agency rules, regulations, or statutes.  EPA’s approval of the Roundup label didn’t suffice given FIFRA’s language, which makes clear that FIFRA doesn’t absolve pesticide makers from liability for misbranding. 

Further, plaintiffs plausibly pled that “plants not people” was false or misleading.  It could be literally false to say that the relevant enzyme is “found in plants, but not in people or pets,” because it is, in fact, found in the gut bacteria of humans. Further, plaintiffs plausibly alleged that this statement was “inherently misleading because it creates the impression that glyphosate has no affect [sic] on people or pets, when in reality, it directly affects both people and pets—by killing-off beneficial gut bacteria.”

Monsanto argued that plaintiffs were relying on a strained parsing of the word “in,” but the court didn’t find it implausible. “Notably, defendant does not point to a single case granting a motion to dismiss where the statement at issue was literally false or the statement at issue was even remotely similar to one at bar.”  Monsanto wanted to dispute that Roundup affects gut bacteria in a manner that is any way detrimental to human health. Not on a motion to dismiss.  If Monsanto was right, then it would have a strong argument that “plants not people” is not material.  (Why?  People are allowed to care about whatever they care about; advertising law usually doesn’t judge the wisdom of their preferences.  Also, I remember a time when the effect of H. pylori on ulcers was a matter for debate and even mockery—if Roundup does affect gut bacteria, a reasonable consumer might care even if the scientific consensus was that no harm has been shown.)

Further, plaintiffs alleged a cognizable injury.  Monsanto argued that exposure to glyphosate by ingesting it on agricultural crops wasn’t related to plaintiffs’ purchases of the Roundup consumer products at issue in their GBL claims. But plaintiffs also alleted that they were exposed to the Roundup products they purchased. “[C]omplicated questions of causation are normally not decided on a motion to dismiss.”  Monsanto further contended that personal injuries aren’t actionable harms under the GBL, a matter on which there was scant authority.  The GBL allows any person “injured” by reason of a violation of the statute can recover “actual damages.”  The plain language thus covered personal injuries.  (The court contrasted New Jersey law; the comprehensive New Jersey Products Liability Act is the right authority for personal injury claims, not the New Jersey consumer protection law, but New York doesn’t have a comprehensive products liability statute.)  Although the court was skeptical that GBL §§ 349 and 350 should apply to personal injury claims, “which have traditionally been pursued through product liability suits under New York common law, defendant has not persuaded the Court at this time.”  The court was willing to revisit the issue on fuller briefing at a later stage.


In a footnote, the court noted that “causation for the GBL claims appears to be a particularly difficult hurdle as plaintiffs will presumably have to prove that their injuries were caused by the specific Roundup products that they purchased and used even though the plaintiffs were also exposed to glyphosate through numerous other sources—a point noted in plaintiffs’ own complaint.”  Further, the court cautioned that a fee award would be unlikely “when, as here, the plaintiffs have suffered substantial and high-value personal injuries and allege product liability-type claims under the guise of the GBL. The instant suit is unlike most GBL § 349 claims, which involve statutory damages or minimal actual damages, and where the prospect of an attorney’s fees award may be necessary to attract competent counsel.”  And, “[b]ecause of the nature of the injuries alleged by the named plaintiffs here, the Court has grave doubts that class treatment will be appropriate in this suit.”  Apparently the court wasn’t willing to hand plaintiffs an unalloyed victory.

Pro tip: don't refer to delayed TM claim as "lottery ticket"

Dropbox secured a rare laches ruling based in significant part on internal discussions by the other claimant to "dropbox" about how delaying a claim until after Dropbox's IPO would increase the payout.  Via DuetsBlog.

Truthful report about injunction not misleading, even if injunction shouldn't have been issued

Peek v. Whittaker, 2016 WL 6806265,  No. 13-cv-1188 (W.D. Pa. Nov. 17, 2016)

The parties, floor care businesses, are in a litigation deathmatch; this case is a follow-on to a state court lawsuit.  Whittaker sold carpet cleaning machines and fluids to other businesses that needed to clean their carpets. Whittaker’s Director of Sales was Paul Offutt, who worked under a contract that included a non-compete provision.  When Whittaker told Offutt that Offutt’s contract would not be renewed upon its expiration in June 2008, Stephen Peek told Offutt “The hell with them. Why don’t you look into doing something with me? Let’s do something together.” The two created Clear Floor Care, LLC and took on another Whittaker employee, who took documents with him.

“Whittaker got wind of this, and sued in state court to nip this new venture in the bud.”  He obtained a preliminary injunction barring the defendants from directly or indirectly engaging in any business that competed with Whittaker, soliciting current, former, or prospective customers of Whittaker, soliciting employees of Whittaker, or using any of Whittaker’s trade secrets. Several years later, in April 2013, “after extended discovery, and after the non-compete provision in Offutt’s contract had timed out, the state court went in the other direction and granted summary judgment to Peek et al., concluding that Whittaker was unable to prove its claims that the state court defendants had actually taken or used any trade secrets.”

Peek then sued, arguing that the state court lawsuit was baseless, and that Whittaker knew as much from Day One.  The court rejected Lanham Act claims based on Whittaker’s statements about the lawsuit.  Whittaker sent the preliminary injunction order to three people who worked for two companies (Tandus and Shaw Carpet). These companies were “carpet mills” who weren’t customers of Whittaker nor potential customers of Clear Floor Care, LLC, but they make carpet cleaning and maintenance recommendations to their customers.

By contrast, the parties’ clients or potential clients are organizations in need of carpet cleaning equipment, such as convention centers and personal care facilities. There was no evidence that any such entity received a copy of the preliminary injunction order. Thus, the dissemination wasn’t “commercial advertising or promotion.”  Even if the carpet mills had constituted a relevant purchasing public, dissemination to three people wouldn’t be enough.


Moreover, Peek couldn’t show deceptiveness.  The preliminary injunction existed, and Peek couldn’t show misleadingness.  Even if the injunction had been procured with false testimony, that wouldn’t deceive relevant purchasers because it was a real injunction.  “It was not as if Whittaker disseminated an injunction that it did not have, or stated that the injunction prohibited the Plaintiffs from doing more than what they were actually prohibited from doing. Whittaker disseminated an actual injunction that had the full force of law.”