Friday, March 27, 2015

A legitimate affiliation confusion claim?

Grubbs v. Sheakley Group, Inc., 2015 WL 1321126, No. 1:13cv246 (S.D. Ohio Mar. 18, 2015)
 
The court adopted the magistrate judge’s recommendations in this case, dismissing Lanham Act claims (and RICO claims) and declining to retain jurisdiction over state claims.
 
Grubbs was the sole owner of Capital Concepts, Inc., a financial planning, wealth management, and tax preparation firm, which bought Tri–Serve Ltd. and Triserve # 1 LLC, companies that provided human resources and financial services to corporations. Defendant Strunk–Zwick worked for Tri–Serve as a managing director, then as the manager of Capital Concepts, then Tri–Serve again. Plaintiffs alleged that she schemed to defraud Capital Concepts, and later Tri–Serve, and to embezzle assets for her own purposes and for the benefit of other defendants. She allegedly worked with other defendants to transfer clients, employees, and other assets from Capital Concepts and Tri–Serve to entity defendants.  After Grubbs presented evidence of Strunk-Zwick’s scheme, including falsified bank documents, Strunk-Zwick was charged and ultimately convicted of wire fraud.
 
In July 2009, Strunk–Zwick sent emails to a limited number of Tri–Serve clients stating that individual defendants were partnering with Sheakley HR and moving their offices, but that there would be no change to the services provided other than new contact information. The new address was listed as: “TriServe LTD c/o Sheakley HR Solutions,” and Tri–Serve’s address and logo appeared at the bottom of the emails. Plaintiffs alleged that this represented an affiliation between Tri-Serve and Sheakley.
 
The court found that plaintiffs failed to plead likely confusion.  Before using the multifactor confusion test, the threshold question was “whether the defendants are using the challenged mark in a way that identifies the source of their goods.” Here, the Tri–Serve name and logo were used in a “non-trademark way.” The emails specified that clients “will begin to see the Sheakley HR name” as opposed to the name TriServe in future communications. “The use of TriServe’s mark in a ‘non-trademark way’ as a source of comparison between the two organizations and to identify to the email recipients a change in service provider does not make the Entity Sheakley Defendants liable to plaintiffs for trademark infringement. Because the emails sent by defendant Strunk–Zwick clearly identify Sheakley as the future service provider, there is no likelihood of confusion as to the origin of the future services coming from TriServe.”
 
Comment: wow, an affiliation confusion claim that I think should’ve been taken more seriously.  Will wonders never cease?  The problem isn’t that it wasn’t clear that Sheakley would be the service provider.  The problem with the quoted emails was that they made it sound like Tri-Serve was becoming Sheakley in voluntary fashion.  Parts of the emails not quoted in the opinion may have made clear that it was the individual defendants, not the whole Tri-Serve enterprise, that was moving, in which case the court’s ruling makes sense.  But “TriServe c/o Sheakley” sure sounds like an affiliation claim standing alone.
 
False advertising: Here the problem was “commercial advertising or promotion,” using the Gordon & Breach test.  The 2009 emails had only 23 recipients, and “[a]bsent allegations as to either the size of the relevant market or the number of entities within that market that [defendants] contacted, it remains entirely speculative as to whether [defendants’] communications have been ‘disseminated sufficiently to the relevant purchasing public to constitute advertising or promotion within [plaintiffs’] industry.”

Thursday, March 26, 2015

Fair use quote of the day

Rigsby v. Erie Ins. Co., No. 14-cv-905 (W.D. Wis. Mar. 16, 2015): “It is difficult to imagine how it could not be fair use for an insurer to copy or distribute a photograph for the purpose of evaluating an insured’s claim.”

The cartoonist has no idea how fair use works

Story here.

Reading list: Campbell at 21/Sony at 31

Jessica Litman, Campbell at 21/Sony at 31. As you'd expect, insightful and a pleasure to read. Extracts:
 
When copyright lawyers gather to discuss fair use these days, the most common refrain is its alarming expansion. This distress about fair use’s enlarged footprint seems completely untethered from any appreciation of the remarkable increase in exclusive copyright rights.  ...
The idea … that copyright owners’ rights could be greatly inflated without inspiring a comparable expansion in fair use seems delusive. If many, many more uses are arguably prima facie infringing now than before, it follows that fair use will need to stretch to permit more of them. None of the voices expressing the hope that fair use could be confined or returned to its mid-20th Century boundaries seem to endorse a proposal to cut back copyright rights to their mid-20th Century limits. …
When Congress enacted the 1976 Act, it apparently believed that consumers’ personal copying would not subject them to liability for copyright infringement under the new statute, but nothing in the language of the statute made that understanding explicit. Congress did not consider and did not provide for claims that making devices that facilitate consumer infringement might subject device makers to infringement liability. The Sony case, filed shortly after the Act’s enactment, raised both questions.  Confronted with a choice between finding liability where Congress had not intended to impose it or construing the statute to reach a narrower set of uses than the literal language might warrant, the Supreme Court settled on a new formulation of the fair use privilege that allowed it to avoid finding Sony liable for consumers’ personal copying. That fair use analysis wreaked a lot of mischief in the decade it controlled, chiefly by making it much more difficult for commercial uses to claim their uses were fair. It also, for good or ill, encouraged both consumers and businesses to structure their interactions around the assumption that consumers’ personal copying would normally be fair use. In 1994, the Court decided Campbell, and replaced the analysis it had adopted in Sony with a test that focused primarily on the transformativeness of the allegedly fair use. It left the implications of that change for secondary liability and consumer personal uses uncharted.
. . . Advocates for copyright owners resist any proposal to incorporate specific privileges and exceptions into the statute to privilege uses that Congress deems non-infringing. They warn that any new privilege or exception poses a grave risk that future pirates will make use of the privileges to shield wrongful behavior.  The uncertainty surrounding consumer liability, moreover, is itself a weapon that can be deployed against newfangled trumpet makers and the venture capital firms that might fund them.  With no specific exceptions, though, courts have little recourse but to construe fair use as expansively as they have recently construed copyright rights. And that is very expansively indeed.

Wednesday, March 25, 2015

Wannabe competitor lacks standing to challenge false advertising

Maine Springs, LLC v. Nestlé Waters North America, Inc., 2015 WL 1241571, No. 2:14–cv–00321 (D. Me. Mar. 18, 2015)
 
Maine Springs was founded seven years ago to start a bottled water operation in Poland Spring, Maine. Maine Springs owned the natural springs, bottling facility, bulk water facility and necessary equipment for bottled water operations. The bottling facility was located in Poland Spring, and the bulk water facility was about 2 miles away in Poland, Maine. Each had its own spring water source, and Maine Spring’s permits make it the holder of the single largest natural spring water withdrawal permit issued by the State of Maine.
 
Nestlé Waters is the largest distributor of bottled water in the US, with a 31.6% share of all bottled water sales in the United States, almost double that of its closest competitor. Among its 15 brands is Poland Spring, America’s leading brand of bottled water.  Nestlé Waters represents that Poland Spring® bottled water is 100 percent natural spring water. The bottle says: “not all water is created equal. Poland Spring® Brand 100% Natural Spring Water comes only from carefully selected mountain springs that are continually replenished. What starts out as rain and snow, soaks into the ground and is filtered naturally by the earth with a distinct composition of minerals to create our crisp, refreshing taste.” This is part of a general strategy by bottled water sellers to differentiate their products from regular bottled tap water.
 
Although Nestlé Waters has a bottling plant in Poland Spring, the original Poland Spring is not used as a resource for Poland Spring water, because that spring has been dry for decades. Nestlé’s product doesn’t come from the same aquifer as the original source. Thus, Maine Spring alleged that Nestlé Waters’ representation that the Poland Spring was one of its sources was literally false.  (Wouldn’t the mark be subject to cancellation on this ground if the falsity were material?) In addition, Maine Springs alleged that the ground or well water sold as Poland Spring doesn’t necessarily come from “carefully selected mountain springs that are continually replenished,” as advertised. Though Poland Spring was sold as 100% natural spring water Main Springs alleged that the water comes from a variety of sources including springs, ground water and well water in the Maine geographic area.
 
Maine Springs made attempts to supply bottling companies with its bulk water, but was rejected, and it alleged that “[o]ther bottling companies and at least one distributor have similarly rejected Maine Springs’ proposals for fear of threatened litigation by Nestlé Waters.” Thus, the bottling and distribution facilities have sat idle. Nestlé Waters threatened litigation against Maine Springs for trademark infringement: Nestlé Waters’ position was that Maine Springs could not identify the source of its water, Poland Spring, without creating confusion.  As it wrote, “While we appreciate that there is a geographic location known as Poland Spring, Maine, the predominant associations created by the statement are that the ‘Poland Spring’ is the source of the water and that its contents are associated with the Poland Spring® brand.” 
 
Nestlé Waters demanded that Maine Springs not use any label that identified Poland Spring, Maine as the source of its water, but, as a matter of federal and state law, bottled water must identify its source on the label, including city, state and ZIP code.  (Sounds like an interesting preemption/preclusion defense.)  Maine Springs thus changed its label from “Source: Poland Spring, Maine” to “Source: Located in Poland Spring, Maine,” but Nestlé Waters advised that it did not approve of the change.
 
Maine Springs sued for violation of the Lanham Act; Nestlé Waters argued that Maine Waters didn’t come within the zone of interests protected by the Lanham Act and failed to sufficiently allege proximate cause. But that was distinct from Article III standing, which the court had to address independently, and found wanting. Maine Springs needed to show that Nestlé Waters has invaded “a legally protected interest that is ‘concrete and particularized.’”  It didn’t. Its claims of harm from the false advertising were bald and conclusory.
 
Maine Springs alleged that consumers of bottled water choose Poland Spring water due to Poland Spring’s false statement that its water is natural spring water from the Poland Spring, whereas if Poland Spring were truthful consumers would buy Maine Springs water instead.  But Maine Springs hadn’t actually entered or attempted to enter the bottled water market in any way. Instead its facilities are idle and the complaint didn’t allege that it was prepared to sell bottled water. Thus, the allegedly false advertising couldn’t have diverted consumers. Maine Springs’ plans of eventually marketing and selling bottled water were “too speculative to constitute an injury-in-fact for its Lanham Act claim.”
 
Maine Springs also alleged that bottling and distribution companies rejected its supply proposals, which was a concrete and particularized injury, but it failed at the causation stage. The alleged violation of the Lanham Act was the false advertising, but the rejection of supply proposals wasn’t connected to that.  (This also prevented Maine Springs from alleging proximate cause under Lexmark.)
 
The court declined to exercise supplemental jurisdiction over Maine Springs’ tortious interference claim.

post-POM claim based on false implication of FDA approval survives

Par Sterile Products, LLC v. Fresenius Kabi USA LLC, 2015 WL 1263041, No. 14 C 3349 (N.D. Ill. Mar. 17, 2015)
 
Par’s vasopressin injection product, Vasostrict, is a FDA-approved pharmaceutical. Fresenius’s vasopressin injection product is not.  Vasopressin is a natural hormone that has been used in medicine for over one hundred years, since before the FDCA’s new drug requirements. The FDA has encouraged drugmakers to seek FDA approval for older drugs. However, according to Par, “absent overriding safety concerns, the FDA generally does not take enforcement actions to halt the marketing of unapproved drugs.”
 
Par previously sold an unapproved vasopressin product like Fresenius’s product, but it submitted a New Drug Application to the FDA for a vasopressin injection product called Vasostrict. Vasostrict was finally approved by the FDA in April 2014. Par sued shortly thereafter, accusing Fresenius of misrepresenting its product as safe, effective and FDA-approved, when in fact Par markets the only FDA-approved vasopressin injection product on the market. “Fresenius allegedly represents to wholesale generic drug purchasers, distributors, group purchasing organizations, and integrated delivery networks that it is in compliance with all applicable laws, which these purchasers take to mean that the Vasopressin Injection is FDA-approved; represents that its product is ‘generic’ in providing drug and pricing information to drug and pricing databases known as ‘price lists,’ which buyers believe include only FDA-approved drugs; and places its drug on the market with the sort of standard labeling and packaging typical of FDA-approved drugs.”
 
Fresenius moved to dismiss for lack of standing because Par hadn’t yet begun to sell Vasostrict.  The court found other cases involving plaintiffs who hadn’t begun to sell products distinguishable, because in those cases the alleged harm was remote, speculative and ill-defined. “Unlike the products in the cited cases, Par’s product is already FDA-approved, fully developed and ready for sale.”  Par’s concrete competing product gave it standing and made its allegation of likely sales harm plausible.
 
Fresenius also moved to dismiss for failure to state a claim, arguing that Par was impermissibly trying to enforce the FDCA.  It cited Mylan Laboratories, Inc. v. Matkari, 7 F.3d 1130 (4th Cir. 1993), to support the argument that the mere implication, rather than an explicit statement, of FDA approval is insufficient to state a Lanham Act claim.  Par responded that Pom Wonderful changed the game.  See also JHP Pharmaceuticals, LLC v. Hospira, Inc., No. CV 1307460, 2014 WL 4988016 (C.D. Cal. Oct. 7, 2014) (Lanham Act claim that the defendant misrepresented that its product was FDA-approved, in part by describing it as “generic,” was not precluded by the FDCA). 
 
Again, the court agreed with Par: this wasn’t just pure implication, but a particularized claim that its competitor “misrepresents its product as FDA-approved by offering it for sale in certain marketing channels alongside FDA-approved generic drugs.” That was a classic Lanham Act dispute over consumer deception. “As long as there is no allegation that Fresenius must do something that directly conflicts with the FDCA or an FDA regulation, or may not do something that the FDCA or an FDA regulation specifically requires (not merely authorizes), Par’s Lanham Act claim is not precluded by the FDCA.”
 
Fresenius argued that, under Mylan, mere implication, rather than an explicit statement, of FDA approval was insufficient to state a Lanham Act claim. But Par did more than allege an implication by Fresenius.  Par alleged that “buyers believe all prescribed drugs identified on the Price Lists are ... FDA-approved,” and that surveys showed up to 91% of pharmacists were actually confused about whether all drugs that appear on industry price lists are FDA-approved. Lanham Act claims can be based on implicit falsity where consumers are deceived.  Mylan shouldn’t be read to bar all implicit falsity claims involving FDA approval, particularly in light of Pom Wonderful.  (Par contended that Fresenius’s claim that its product was “generic” was literally false, but it wasn’t necessary to determine whether the issue was literal falsity or misleadingness at this stage.)  “[W]hether a product is FDA-approved is a simple, easily verifiable matter, not the sort of complex inquiry that might be beyond the Court’s competence or might require the Court to invade the FDA’s rule-making authority,” and thus there was no need for preclusion.
 
Mylan stands for the proposition that “the mere act of placing a pharmaceutical product on the market, without more, cannot support a Lanham Act claim.” But Par went further, alleging that, by placing a product on the market in a particular marketing channel—the industry price lists—and by making certain statements such as that its product was “generic,” Fresenius represented that its product was an FDA-approved generic drug and deceived consumers.  Mylan didn’t involve those allegations.
 
Fresenius also argued that the price lists were controlled by third parties, but its responsibility for the price lists couldn’t be decided on a motion to dismiss. “[L]iability under the Lanham Act has been construed to extend beyond those who actually misrepresent goods or directly place such goods in commerce ... to any person who knowingly causes a false representation to be used in connection with goods and services in commerce.” Fresenius could be held liable if Par could prove that “Fresenius knows that buyers believe all prescribed drugs identified on the Price Lists are ... FDA approved.”
 
However, the court did dismiss claims based on Par’s allegation that Fresenius misrepresented in its contracts with purchasers that its product “complies with all relevant state and federal laws, including the FDCA when, in fact, [it does] not.” Misrepresentations made in the course of negotiating or executing an individualized contract with a purchaser weren’t “advertising or promotion.”
 
Par also alleged that Fresenius misrepresented the safety and effectiveness of its product in labels and package inserts, and that by including unapproved indications and omitting recommendations, Fresenius would lead consumers to believe that Par’s product was less effective than Fresenius’s product.  The court dismissed claims based on these allegations, because Par didn’t plead facts showing that the implied message of greater effectiveness was actually transmitted to consumers, nor did it plead facts showing that Vasostrict was at least as effective as Fresenius’s product.  The dismissal was without prejudice.
 
Par’s claims based on Fresenius’s touting its product as “safe” and “effective” were also dismissed.  They might well fall within the FDA’s primary jurisdiction or be precluded, but the court didn’t have to decide that because Par didn’t allege facts to show lack of safety or effectiveness.
 
State law claims rose and fell with the federal claims.  (Where preclusion is the issue, this is not obvious since preemption and preclusion aren’t the same thing, but the parties didn’t dispute it.)

Monday, March 23, 2015

Farley and Tsai on the Redskins trademark

At Prawfsblawg, Professors Christine Haight Farley and Robert Tsai analyze the First Amendment case against the Redskins cancellation, and conclude that 2(a) should survive scrutiny.

Bad 230 ruling for LivingSocial

Faegin v. LivingSocial, Inc., 2015 WL 1198654, No. 14cv00418 (S.D. Cal. Mar. 16, 2015)
 
After losing its attempt to mandate arbitration, LivingSocial gets a terrible §230 ruling in this trademark infringement etc. case involving vouchers it sold.
 
The plaintiffs were joint owners of A.T. Your Service Cleaning and Janitorial. LivingSocial is a “‘strategic business marketing partner, creating online promotions,’ in other words, a marketplace that partners with vendors to advertise and offer deals and discounts to potential customers.” The other defendants owned At Your Service Housekeeping, a competing service also operating in San Diego County. From March through April 2012, plaintiffs partnered with LivingSocial to advertise A.T. Your Service in San Diego County.  Then in May to July 2012, the At Your Service defendants partnered with LivingSocial to do the same thing.  They allegedly failed almost uniformly to honor vouchers bought on LivingSocial’s website, and consumers were confused about the two services, at least in part because the vouchers failed to contain a phone number for At Your Service, and consumers searched for the phone numbers online and found A.T. Your Service. This allegedly led to “unwarranted negative reviews of Plaintiffs’ services on popular review websites such as Yelp, Google+, Facebook, etc.”
 
The complaint asserted trademark infringement, false advertising, and unfair business practices (as well as a fraud claim against the non-LivingSocial defendants).  LivingSocial moved to dismiss all claims against it.
 
LivingSocial claimed CDA immunity, reasoning that it wasn’t alleged to have played any role in the codefendants’ adoption and use of the name.  Since none of the claims would exist without the name, LivingSocial reasoned, that ended the CDA analysis.  Under Roommates, “so long as a third party willingly provides the essential published content, the interactive service provider receives full immunity regardless of the specific editing or selection process.” The complaint alleged that the codefendants partnered to sell vouchers, and that “[t]he vouchers sold by defendant LivingSocial failed to contain a phone number for At Your Service [Housekeeping], causing customers to search for the phone number online and to confuse and associate Plaintiffs with At Your Service.” Because of the prior partnership, the complaint further alleged, LivingSocial knew about the resulting “dilution,” and profited from the vouchers; it also “permitted 30 days to pass without providing the services ordered.”
 
Eric Goldman is going to hate this:
 
Based on the allegations of the FAC, the Court cannot conclude that Defendant LivingSocial is entitled to immunity as an “interactive computer service” that is not an “information content provider.” The FAC alleges that Defendant LivingSocial advertises and sells the allegedly misleading vouchers. From this allegation, the Court is able to draw the “reasonable inference” that Defendant LivingSocial was “‘responsible, in whole or in part’ for creating or developing” the content made available on LivingSocial’s website.
 
I’m not as militant as Eric is on this point, but this strikes me as entirely wrong.  Amazon advertises and sells lots of books. It is not reasonable to infer that it was responsible in whole or in part for creating and developing the content therein.  We know, under Roommates, that providing guidelines for content is not enough to make a defendant a content provider, if the actual content provider can still choose between legal and illegal content.  How then could it possibly be reasonable to infer that it is more likely than not, per Twiqbal, that LivingSocial bore responsibility for creating or developing the unlawful content from the allegation of advertising and sale of vouchers for third-party services?  The court even quoted the right standard: selection or editing rules don’t strip a provider of §230 immunity.  It seems much more plausible that LivingSocial applied selection or editing rules than that it wrote the unlawful content (or that it barred the other provider from including its telephone number, triggering the resulting confusion).
 
LivingSocial then argued that §1114(2)(B) of the Lanham Act required that federal claims against it be dismissed to the extent they sought anything but injunctive relief, since it provided advertising services for the codefendants’ company and was therefore entitled to the publisher’s safe harbor. Moreover, any request for injunctive relief was moot because “LivingSocial stopped running co-Defendants’ advertisement in July 2013 and the co-Defendants’ website and business is defunct.”
 
Plaintiffs argued that LivingSocial wasn’t an innocent infringer and therefore couldn’t qualify for a safe harbor: it was aware of A.T. Your Service Cleaning and Janitorial’s existence through the parties own business relationship beginning in early 2012. Under §1114(2)(B):
 
Where the infringement or violation complained of is contained in or is part of paid advertising matter in a newspaper, magazine, or other similar periodical or in an electronic communication …, the remedies of the owner of the right infringed or person bringing the action under section 1125(a) of this title as against the publisher or distributor of such newspaper, magazine, or other similar periodical or electronic communication shall be limited to an injunction against the presentation of such advertising matter in future issues of such newspapers, magazines, or other similar periodicals or in future transmissions of such electronic communications. The limitations of this subparagraph shall apply only to innocent infringers and innocent violators.
 
Because the complaint alleged knowing infringement based on the prior relationship, LivingSocial wasn’t entitled to safe harbor protection.
 
Similarly, the claim for willful trademark dilution under state law survived, even though LivingSocial argued that the complaint only alleged that LivingSocial “knew or should have known that the business names were similar and that its advertisements would cause dilution of the famous mark,” a “threadbare recital” of the elements.  Given the prior relationship, the court found that the allegations were sufficient to infer willful infringement.  Comment: I don’t get how knowledge or constructive knowledge became willful intent to dilute—what’s the motive on LivingSocial’s part that justifies that further inference, as opposed to indifference?  Also, the court’s failure to distinguish infringement from dilution hampers it here: intent to infringe (confuse consumers) is different from intent to dilute (whatever that is).
 
Although the court called dilution “infringement,” it correctly recognized that plaintiffs hadn’t plausibly pled federal fame. Plaintiffs argued that any such determination was premature, because they alleged that they’d advertised A.T. Your Service on numerous websites and that the service had been recognized on consumer review websites such as Yelp, Google +, and Facebook.  The complaint further alleged that the advertising partnership with LivingSocial helped make A.T. Your Service’s mark famous and distinguished. But federal fame requires that the plaintiff be a “household name,” and the complaint failed to allege facts demonstrating that A.T. Your Service was “widely recognized by the general consuming public of the United States.”
 
The UCL claim survived because of the other alleged legal violations.
 

The market for lemon smoothies: injunctive class settlement certified

Lilly v. Jamba Juice Co., 2015 WL 1248027, No. 13-cv-02998 (N.D. Cal. Mar. 18, 2015)
 
This preliminary approval for a settlement contains the most extensive analysis I’ve seen of the “deceived consumers do have standing for injunctive relief in consumer deception cases” position.
 
Jamba Juice labeled its smoothie kits “all natural,” but the kits allegedly contained ingredients that consumers would not have understood to be “natural”: ascorbic acid, xanthan gum, steviol glycosides, modified corn starch, and gelatin.  Plaintiffs brought the usual California claims, including breach of warranty, and moved to certify  a class for liability and damages purposes. Due to questions about whether damages could “feasibly and efficiently be calculated,” the Court declined to certify a damages class, but certified a class for the purpose of determining liability and requested supplemental briefing on the 23(b)(2) issue of certification for injunctive relief.  After mediation, the parties reached a preliminary settlement, including injunctive relief.  The court was required to raise standing sua sponte.
 
Standing for injunctive relief requires a plaintiff to allege that a ‘real or immediate threat’ exists that he will be wronged again.” “In a class action, ‘[u]nless the named plaintiffs are themselves entitled to seek injunctive relief, they may not represent a class seeking that relief.’” (This isn’t my area, but I don’t understand why a settlement can’t include relief that a plaintiff might not have gotten at trial.  There can be cy pres uses specified for unclaimed settlement funds, right?  If that’s ok, why not injunctive relief?)  Courts are split on when a consumer class may be certified for the purposes of obtaining injunctive relief against deceptive product labeling. The court here decided that injunctive relief was available, because “[t]o hold otherwise would effectively preclude consumers from ever obtaining prospective relief against mislabeling.”
 
Courts that reached the contrary conclusion “misapprehend the nature of the injury suffered by the consumer. When a consumer discovers that a representation about a product is false, she doesn’t know that another, later representation by the same manufacturer is also false. She just doesn’t know whether or not it’s true.” Misrepresentations injure consumers not just through untruth, but also through lack of certainty about truth.  (The market for lemons!)  Because we already know the purchaser was willing to buy the product with the set of attributes she thought it had, she’s most likely to be injured without an injunction, not least.
 
“Consumers make choices in the marketplace among the alternative goods competing for their dollars.” A purchase is a revealed preference: it justifies the inference that the consumer chose the bundle of characteristics most likely to provide the greatest utility for her money. A consumer who buys a mislabeled product lets us know that “she values most highly the product as it was promised to be – because that’s how she spent her money.”  She may discover the truth, but the manufacturer may later change its product to conform to the label—“[i]n fact, the manufacturer has every reason to do this, since the market apparently values the very attribute the label promises.”  (Well… “every reason” might be going a bit too far in the absence of regulation!) Without injunctions, consumers won’t know whether the labels are true, and will have to suspect a continuing misrepresentation, thus deterring her from spending her money in a utility-maximizing way.  While others may but, our skeptical consumer—“the person most likely to suffer future injury from this misrepresentation” – will be deprived of it.  As a result, a rule denying her standing “prevents the person most likely to be injured in the future from seeking redress.”
 
Defendants previously disputed whether the plaintiff’s declaration that she would consider buying properly labeled smoothie kits was enough to confer standing. The court concluded that willingness to consider future purchase was sufficient, given that the harms avoided by the litigation are not just the harms of buying or using a misleadingly labeled product, “but also the harm of being a consumer in the marketplace who cannot rely on the representations made by Defendants on their product labels. Without injunctive relief, Lilly could never rely with confidence on product labeling when considering whether to purchase Defendants’ product.”
 
In addition, a requirement that a plaintiff articulate a definite intent to buy a product sometime in the future “is inconsistent with the realities of consumer purchase decisions. Consumers make decisions in a dynamic marketplace, based on all the information available to them at the time of purchase, including the other similar products then available and all other potential uses of the funds available to make the purchase at issue.” A plaintiff can’t really know what the competing uses for her money will be sometime in the future, what new products may emerge, or what her tastes may be.  “Nonetheless, injunctive relief enables the Plaintiffs and other consumers to have confidence that the information they receive about the challenged products at the time of purchase is accurate.”  Lilly’s statement of willingness was therefore enough.
 
Under the stipulated injunction, Jamba Juice would relabel the products so that they didn’t use “all natural” on packaging or other advertising, including websites, but would not be required to remove or recall existing products or packaging in inventory or on the market.
 
The Ninth Circuit strongly favors settlement.  Settlement requires a preliminary determination of acceptability on the merits of the settlement and, if the class action settled before class certification, the propriety of certifying the class. Where the parties reach a class action settlement prior to class certification, courts “must be particularly vigilant not only for explicit collusion, but also for more subtle signs that class counsel have allowed pursuit of their own self-interests and that of certain class members to infect the negotiations.” Preliminary approval of a settlement is appropriate if “the proposed settlement appears to be the product of serious, informed, non-collusive negotiations, has no obvious deficiencies, does not improperly grant preferential treatment to class representatives or segments of the class, and falls within the range of possible approval.”
 
The court so found here.  The settlement was both procedurally and substantively fair.  The court’s certification order indicated that plaintiffs faced substantial obstacles to obtaining classwide monetary relief, but otherwise showed that class treatment was appropriate. They just hadn’t shown that common questions predominated for the purposes of determining damages, because they failed failed to present a damages model.  In light of the difficulty of establishing damages and the relatively small amount of money individual class members could get, the difficulties of further litigation supported a conclusion that the settlement was substantively fair. The consumer protection purpose of the class action mechanism was “partially vindicated” by this settlement, which would help future consumers.
 
Notice to absent class members was not required because settlement class members didn’t release any monetary claims for mislabeling. Rule 23(e)(1) states that “[t]he court must direct notice in a reasonable manner to all class members who would be bound by the proposal.” Membership in a Rule 23(b)(2) class is “mandatory,” as “[t]he Rule provides no opportunity for (b)(1) or (b)(2) class members to opt out, and does not even oblige the District Court to afford them notice of the action.”  The court reasoned that “the key question in determining whether notice is required is ‘whether the rights of absent class members were compromised in any way.’” Because class members retained their right to sue for damages, but wouldn’t be able to opt out of the injunction no matter what, the court concluded that no notice was required.

court refuses to enjoin consumer protection law on First Amendment grounds

Loan Payment Administration LLC v. Hubanks, 2015 WL 1245895, No. 14-CV-04420 (N.D. Cal. Mar. 17, 2015)
 
A misinterpretation of nominative fair use mars this otherwise quite sensible rejection of a First Amendment challenge to a consumer protection law.
 
LPA is a subsidiary of Nationwide Biweekly Administration, whose sole shareholder is Daniel Lipsky.  Defendants are deputy DAs with the Monterey and Marin County DA’s offices.
 
Nationwide, perhaps unsurprisingly, administers biweekly loan repayment programs and has approximately 125,000 customers around the country, including over 10,000 in California. The current litigation revolves around its “Interest Minimizer” biweekly program, targeted at borrowers with home mortgages. Nationwide allegedly acts as an intermediary between a borrower and a mortgage servicer, collecting one-half of a monthly mortgage payment from the borrower’s checking account every other week.  This results in a 13th annual payment, which allegedly saves customers money by helping them pay off their mortgage loans faster than they otherwise would.  Nationwide charges a “deferred enrollment fee” equal to one biweekly debit, six months after enrollment in the program. Nationwide’s written solicitations do not disclose the existence of this fee, and the DAs alleged that Nationwide employees “responding to calls from borrowers are carefully trained to obscure the existence or amount of this fee.”
 
The DAs submitted three consumer complaints filed with the Better Business Bureau about Nationwide’s business practices. One consumer who was charged over $1500 complained that Nationwide “never told [the consumer] that there will be [a] deferred enrollment fee and I am sure of it because if they ever mentioned a fee I would immediate[ely] drop discussion and wouldn’t proceed to this program.” According to the consumer’s complaint, Nationwide’s investigation determined that although the Nationwide employee who handled the consumer’s call “did disclose the fact that there was a ‘deferred fee’ that would be collected in 6 months, the manner in which the fee was disclosed was not compliant with [Nationwide’s] policies and procedures.”
 
Nationwide solicits customers by mailing letters to them.  For example, a homeowner received an envelope with the return address of Nationwide Biweekly Administration, Inc. Above the homeowner’s address, the letter stated in large bold font: “Loan Payment Change Request.” To the far right, the letter stated in smaller, non-bolded font: “Nationwide Biweekly Administration is not affiliated with the lender.” The letter used the name of the homeowner’s specific servicer at the top of the letter, in the first sentence of the letter, and at least two other times in the letter. It also referred to the specific amount of the homeowner’s loan several times, often in connection with explicit references to the mortgage servicer. (Nationwide gets consumer loan information from public records.) There was a disclaimer at the bottom of the letter, in smaller font, that Nationwide “is not affiliated, connected, associated with, sponsored, or approved by the lender listed above.”
 
There was an attached Q&A document with questions such as “Does my Lender or loan change?” answered: “No. The bi-weekly program is administered to your current lender. There is no change in your interest rate or the terms of your loan.”  (Administered “to”—not “by.”  I smell misleadingness.)  Another question, “Who is Nationwide Biweekly Administration?” was answered “one of the nation’s largest and most recognized Independent processors.”
 
Another letter sent to the same homeowner was similar; it advised that “[i]f you waive the biweekly option, you will be asked to confirm that you understand that you are voluntarily waiving the interest savings and loan term reduction achieved through the biweekly option.” It contained a comparison chart comparing the homeowner’s “Current Monthly Payment” to the “NEW BIWEEKLY Option.” It had a similar disclaimer.
 
Another consumer complaint to the BBB said that the consumer received a letter “featuring my lender’s name, Mountain West Financial Inc., above my name and address on the top left corner and assumed wrongly that it was coming from my lender.” The consumer said that Nationwide didn’t disclose the deferred enrollment fee; he wrote that “[s]ince I still thought they were affiliated [with] my mortgage company, I assumed no fees were involved and cooperated with them.” The consumer further stated that he was a “[n]ative French speaker” and “I am not comfortable speaking in English, especially on the phone where I may not properly understand and interpret what I am being told.”
 
In 2013, Nationwide got a letter from Hubanks, a deputy DA in the Consumer Protection Unit of the Monterey County District Attorney’s Office. It said that numerous consumer complaints “indicate a pattern of deceptive business practices having an adverse impact on California consumers,” based on Nationwide’s practice of referencing the names of consumers’ lenders and the consumers’ loan information in Nationwide’s solicitation letters.  The letter said that Nationwide’s solicitations violated Business and Professions Code § 14701(a), which prohibits a person from using the “name, trade name, logo, or tagline of a lender in a written solicitation ... without the consent of the lender,” unless the letter is accompanied by a statutorily-prescribed disclaimer. In addition, the letter said that Nationwide’s use of consumers’ loan amounts in Nationwide’s solicitation letters violated Business and Professions Code § 14702, which prohibits a person from using a consumer’s “loan amount, whether or not publicly available, in a solicitation for services or products without the consent of the consumer,” unless the solicitation contains a statutorily-prescribed disclaimer.  The letter continued that these acts were deceptive and misleading; in addition, it stated that “the placement of the lender’s name in the header of the letter may lead the consumer to believe their lender is, in fact, the originator of the correspondence or affiliated with Nationwide.”  It concluded by saying that the DAs were considering what action to take.  (It also mentioned another law, not at issue in this litigation.)
 
Nationwide then stopped using actual consumer loan information in its solicitation letters and changed the comparison chart to use the “typical monthly repayment plan” of the borrower’s lender instead of the borrower’s actual amount.  The letters also added: “As always we work for you and not the lender. Partnering only with you the customer who we provide all the savings benefit to, is why we do not contract or partner with the lender.”
 
Nationwide had been the subject of similar enforcement actions or inquiries in other states. In 2010, it entered into a stipulated judgment with the Ohio AG; in 2011, it entered into a consent order with New Hampshire’s Banking Department; and in 2012, it entered into a similar consent order in Georgia. Nonetheless, Nationwide sued here, arguing that the relevant California laws unconstitutionally restrained its speech.
 
The speech here was commercial, and the court determined that Zauderer, rather than Central Hudson, applied. This is not a ban on speech, but a disclosure requirement, and commercial disclosure requirements must merely meet the reasonable relationship test, which is more like rational basis review.  A disclosure requirement is valid if its requirements aren’t unduly burdensome and “reasonably related to the State’s interest in preventing deception of consumers.” A commercial speaker’s interest in not providing truthful information is minimal, especially if that protects consumers.
 
The laws at issue required that a person who uses a “solicitation for financial services” and isn’t affiliated with the lender must disclose additional factual information: (1) if a solicitor uses the name, trade name, logo, or tagline of a lender, that the solicitor state the solicitor is “not sponsored by or affiliated with the lender and that the solicitation is not authorized by the lender”; and (2) if the solicitor uses a consumer’s loan number or loan amount, that the solicitor state that the solicitor “is not sponsored or affiliated with the lender and that the solicitation is not authorized by the lender.”  The legislative history made clear that these were anti-deception measures.
 
Nationwide argued that Zauderer didn’t apply because “the Zauderer standard only applies to disclosures about a company’s own products or services.” It relied on Safelite Group v. Jepsen, 764 F.3d 258 (2d Cir. 2014), where a Connecticut law required that an insurance company, if it referred a policy holder to an affiliated company for auto repairs, must also refer the policy holder to at least one other company that was not affiliated with the insurance company. The Second Circuit held that Zauderer didn’t apply because the “law does not mandate disclosure of any information about products or services of affiliated glass companies or of the competitor’s products or services.”. Instead, the law “requires that insurance companies or claims administrators choose between silence about the products and services of their affiliates or give a (random) free advertisement for a competitor.”
 
Safelite was different. The Second Circuit found that “[p]rohibiting a business from promoting its own product on the condition that it also promote the product of a competitor is a very serious deterrent to commercial speech.”  Here, Nationwide didn’t have to disclose any information about a competitor, but rather about Nationwide’s own business, specifically that Nationwide wasn’t affiliated with a consumer’s lender.
 
There was a reasonable relationship here between the purpose of the law and its requirements. The legislature’s goal was “prevent[ing] the deceptive use of lenders’ trade names in consumer solicitations” and prohibiting a person from using “an identical or similar name to a lender in a solicitation where that use confuses consumers as to the lender’s sponsorship of the person or its services.” The mechanisms were restricting uses of lenders’ “name, trade name, logo, or tagline” without a clear and conspicuous statutorily-prescribed disclaimer, and the same with a consumer’s loan number or loan amount. The mechanism bore a reasonable relationship with the statute’s goals.
 
Undue burden: an undue burden exists if  the “detail required in the disclaimer ... effectively rules out” the commercial speech in the first place. Here, the required disclaimer requires the solicitor to state that it is “not sponsored by or affiliated with the lender,” and that “the solicitation is not authorized by the lender, which shall be identified by name.” The disclaimer must be made “in close proximity to, and in the same or larger font size as, the first and the most prominent use or uses of the” lender’s name or logo. The requirements are similar for the use of consumer loan information, including a disclaimer that the information “was not provided by that lender.” These were relatively brief disclosures in the context of Nationwide’s letters, which were one or two full pages of text.  They wouldn’t “effectively rule[ ] out” Nationwide’s use of solicitation letters.
 
Nationwide argued that the laws unconstitutionally prohibited the republication of publicly available information. But disclosure requirements aren’t bans.
 
Nationwide also argued that its speech qualified for a statutory exemption.  The law provided that it was “not a violation of this chapter” for “a person in an advertisement or solicitation for services or products to use the name, trade name, logo, or tagline of a lender” without the statutorily-prescribed disclaimer (1) if the person’s “use is exclusively part of a comparison of like services or products in which the person clearly and conspicuously identifies itself,” or (2) if the person’s use “otherwise constitutes nominative fair use.”  Nationwide argued that it used lenders’ names in comparing the Interest Minimizer with “the typical monthly repayment option offered by most mortgage lenders.”  The court disagreed—first, Nationwide only adopted that new comparison chart after receiving the enforcement letter.  Second, the use wasn’t “exclusively part of a comparison of like services.” “In fact, the very beginning of Nationwide’s solicitation letters (the part which is visible through the envelope window) list the ‘Lender’ of the recipient by name above the recipient’s address.”
 
And nominative fair use?  The court first expressed uncertainty whether this defense only applied when the asserted claim was trademark infringement, rather than violation of these disclosure rules or other non-trademark claims.  Even assuming Nationwide could use nominative fair use, the defense failed.  The elements: (1) the “product or service in question must be one not readily identifiable without use of the trademark;” (2) “only so much of the mark or marks may be used as is reasonably necessary to identify the product or service;” and (3) the user does “nothing that would, in conjunction with the mark, suggest sponsorship or endorsement by the trademark holder.”
 
The court held that, to satisfy the first element, “the party asserting a nominative fair use defense must show that it is not ‘reasonably possible’ to refer to the party’s product or service without use of the trademark.” But it was “reasonably possible” for Nationwide to explain its Interest Minimizer service without using lenders’ names.  That’s not the New Kids standard, though the court says it’s applying New Kids.  New Kids asks whether it’s reasonably possible to refer to the trademark owner/subject of discussion without use of the TM owner’s mark.  The Third Circuit asks whether it’s possible for the defendant to refer to its own product or service without using the mark, which is the standard Judge Koh applies here.  Not that the ultimate decision is wrong!  But the problem is part (3) of the test, not part (1).  Under Abdul-Jabbar v. General Motors, I would argue, the appearance in a commercial solicitation creates the problem.  (Indeed, the court’s reasoning is particularly dangerous insofar as it rejected Nationwide’s argument that its solicitations worked better by using the lender’s name, conferring an advantage relative to “non-targeted mass mailers.”  By accepting the argument that Nationwide’s Interest Minimizer itself was still readily identifiable without use of the name, the court made it seem like use of a mark has to be necessary, not just helpful in conveying a message.)
 
With the merits out of the way, the court then found that Nationwide hadn’t satisfied the requirements for a preliminary injunction. Without likely violation of First Amendment rights, there was no irreparable injury.  Nationwide also argued that an injunction was necessary to prevent its business from being destroyed, because its president Lipsky declared that “[t]he filing of an enforcement action by the District Attorneys ...may result in [Nationwide’s] bank partners refusing to do business with Nationwide,” could lead regulators to suspend or revoke its licenses, and would likely lead consumers to demand refunds, which could bankrupt the company.
 
None of these were real and immediate threats, rather than conjectural or hypothetical. Lipsky offered no facts in support of his assertions that an enforcement action “may” result in the suspension or revocation of Nationwide’s licenses to operate in other states, or that an enforcement action is “likely” to result in customers demanding refunds of their fees, or “may” result in Nationwide’s bank partners refusing to do business with Nationwide. Plus, the fact that irreparable harm depended on the actions of independent third parties lessened the credibility of the claim. Moreover, the fact that Nationwide’s business wasn’t destroyed by the other consent orders in at least three other states undermined the claim of harm here.
 
And the public interest disfavored an injunction, which would “prohibit local officials from enforcing statutes designed to protect consumers from the risk of fraud.”

Friday, March 20, 2015

And another commercial advertising or promotion case, no competition required

Educational Impact, Inc. v. Danielson, No. 14–937, 2015 WL 381332 (D.N.J. Jan. 28, 2015)
 
EI sued Charlotte Danielson and other entities for breach of contract, violations of the Lanham Act, unfair competition, tortious interference, and unjust enrichment.  Per the complaint: Danielson wrote a rubric to evaluate teacher performance, the “Framework for Teaching,” with iterations in 1996, 2007, 2011, and 2013. This rubric has been widely adopted.  EI makes professional development programs and services, and it contracted with one Danielson-run defendant to create a program based on the Framework for Teaching. The contract had an exclusivity/non-compete provision, which defendants allegedly breached by working with defendant Teachscape, a direct competitor of EI. 
 
Danielson allegedly initially maintained that the “psychometric assessment tool” she was working on with Teachscape would not compete with EI’s Framework for Teaching Online Program, but then she began working exclusively with Teachscape and allegedly created a directly competing program using the same rubric. In 2012, Teachscape began to represent that it was the “exclusive digital provider,” for Danielson’s new versions of the Framework for Teaching Evaluation Instrument, e.g., claiming that Teachscape’s products “are the only software products authorized for use with the 2011 and 2013 Editions.” Another defendant website similarly stated that only Teachscape could incorporate the 2011 and 2013 Framework for Teaching Evaluation Instruments in its software products.  EI allegedly discovered that Danielson had directed one defendant’s employees and contractors to download EI videos and use them in seminars and training programs. (Related copyright infringement suits against several school districts that were Teachscape customers were stayed given their dependence on the issues in this case.)
 
I won’t talk about the contract-based claims; suffice it to say that they remain alive.
 
As to the Lanham Act/unfair competition claims, they were based on statements that Teachscape’s products “are the only software products authorized for use with the 2011 and 2013 Editions” and “only Teachscape can incorporate the content of the Framework for Teaching Evaluation Instrument (2011 and 2013) in its software products.” Defendants argued, among other things, that their statements were true as applied to software programs (as opposed to online videos) and that the statements weren’t made in commercial advertising or promotion.
 
The court turned to the Gordon & Breach test for commercial advertising or promotion but, explicitly dealing with an outstanding issue from Lexmark, held that Gordon & Breach’s competition requirement no longer applies. “Here, although [one defendant] is not in direct competition with EI, the claims made on its website, if shown to be false, likely have the effect of limiting EI’s sales. Under current law, this allegation is sufficient to state a claim under the Lanham Act.”
 
The issues around falsity and exclusive rights couldn’t be resolved on a motion to dismiss. Among other things, “software” might include a program that uses online videos and PDF handouts, as EI’s program did. The complaint therefore stated a claim.
 
Some parts of the tortious interference claims survived too.

commercial advertising or promotion post-Lexmark

Tobinick v. Novella, No. 9:14–CV–80781, 2015 WL 1191267 (S.D. Fla. Mar. 16, 2015)
 
Steven Novella wrote two articles criticizing the practice of Edward Tobinick, “a doctor who provides medical treatment to patients with ‘unmet medical needs’ via two institutes—‘Edward Lewis Tobinick M.D.,’ a California medical corporation, and ‘INR PLLC,’ a Florida professional limited liability company—both doing business as the ‘Institute of Neurological Recovery.’” Novella published the first article, “Enbrel for Stroke and Alzheimer’s”, on May 8, 2013 in response to a piece published in the Los Angeles Times. As Novella described it,
 
The [Times] story revolves around Dr. Edward Tobinick and his practice of perispinal etanercept (Enbrel) for a long and apparently growing list of conditions. Enbrel is an FDA-approved drug for the treatment of severe rheumatoid arthritis. It works by inhibiting tumor necrosis factor (TNF), which is a group of cytokines that are part of the immune system and cause cell death. Enbrel, therefore, can be a powerful anti-inflammatory drug. Tobinick is using Enbrel for many off-label indications, one of which is Alzheimer’s disease (the focus of the LA Times story).
 
“The allegedly false statements in the first article concern the viability of Plaintiff Tobinick’s treatments, the scientific literature discussing those treatments, the size and locations of Plaintiff Tobinick’s Institutes, and, by implication, the categorization of Plaintiff Tobinick’s practice as ‘health fraud.’” Novella published the second article, “Another Lawsuit To Suppress Legitimate Criticism—This Time SBM” on July 23, 2014, after plaintiffs sued. It mostly restated the content of the first article, though plaintiffs also alleged that it was false and misleading to say that “there have been no double-blind placebo-controlled clinical trials of the treatment provided by the Plaintiffs.”
 
Plaintiffs sued Novella as well as the Society for Science-Based Medicine, whose responsibility for the articles was “far from clear.”  The articles weren’t posted on the Society’s website, though there’s a link to the first article on its wiki.  The articles were and remained posted on the Science-Based Medicine blog (SBM blog).  Novella was involved both with the blog and the Society, as “Founder and Executive Editor” of the blog, and as a Board member and Officer of the Society. Plaintiffs argued that the SBM Blog was part of the Society’s structure and internet presence, such that the Society should be liable for the content of the articles.
 
Plaintiffs sued for violations of the Lanham Act/unfair competition, trade libel, and libel.
 
Treating the defendants’ motion as a motion for summary judgment, the court found that the Lanham Act claims against the Society had to fail as the blog posts weren’t “commercial advertising or promotion,” at least with respect to the Society, and that the libel claims had to be dismissed without prejudice because plaintiffs failed to provide the requisite pre-suit notice, but that it couldn’t yet be determined whether §230 barred the libel claims against the Society.
 
The Society is a §503(c)(3) nonprofit with an educational mission promoting “the concept of science-based medicine—that all health care practices and products need to be rooted in a single, science-based standard of care, delivered within a consistent framework of scientific standards.” It has a “Donate” button on its homepage, and there are both free and paid memberships.  It has a web store with links to purchase eBooks comprised of compiled SBM Blog posts; the eBooks are free with Society membership.
 
The evidence that the Society was responsible for the blog consisted primarily of various statements made by Board members and Officers of the Society, as well as the Society itself, that the SBM Blog is one of two blogs “for the [S]ociety.” There was notable cross-membership, and the two websites supported and encouraged cross-traffic by linking to each other and by offering the “Science–Based Medicine” eBooks. However, there were also distinctions: the SBM blog predated the Society by at least five years; donations made to the SBM Blog do not go to the Society but rather to the New England Skeptical Society; and the Society stated that Novella published the articles without the Society’s knowledge, consent, or participation.  The relationship between the Society and the SBM blog was a material fact that precluded resolution of the CDA immunity argument.   
 
However, no reasonable jury could find that the allegedly false/defamatory statements constituted commercial speech as to the Society. The Eleventh Circuit uses the Gordon & Breach test for “commercial advertising or promotion,” except that, after Lexmark, the requirement that the parties be competitors is apparently abrogated.  That leaves (1) commercial speech (3) for the purpose of influencing consumers to buy defendant’s goods or services that are (4) disseminated sufficiently to the relevant purchasing public to constitute “advertising” or “promotion” within that industry.
 
To evaluate “commercial speech,” we turn to the First Amendment test. Core commercial speech does no more than propose a commercial transaction.  But more broadly, commercial speech is assessed by whether it is in the form of an ad, whether it refers to specific products sold by the defendant, and whether the defendant had an economic motivation for the speech. Plaintiffs argued that the science-based medicine movement was an economic enterprise, making the speech commercial, as did the sale of eBooks and memberships, along with the acceptance of donations.
 
Nope. Neither article proposed a commercial transaction.  They were not “expression related solely to the economic interests of the speaker and its audience,” but instead “clearly state their intent to raise public awareness about issues pertaining to Plaintiffs’ treatments, a goal in line with the Society’s educational mission.” They did discuss the price of the treatments, but that didn’t make them relate “solely” to the economic interests of the speaker and the audience.  In Bolger, by contrast, the materials found to be commercial speech used an ongoing public debate to advertise the defendant’s own products, which were referenced in the informational pamphlets the defendant distributed, and the defendant conceded that the pamphlets were ads.
 
Here, “[t]he Society published articles questioning the viability of Plaintiffs’ medical practices and the scientific rigor of their research. The only ‘products’ referenced within the first article are Plaintiffs’ own treatments; no competitors’ products—let alone products offered for sale by the Society—are cited in the articles.”  Novella’s medical practice and the drugs he used appeared in the second article “only to illustrate Novella’s belief that he and Plaintiffs are not competitors.”  This was explicitly a response to the lawsuit, not an independent plug for Novella’s practice—which, the court noted, was not the Society’s practice.
 
Furthermore, the Society was a nonprofit:
 
Like nearly every not-for-profit corporation, it seeks to support itself by soliciting donations and offering products for sale. That does not render its speech commercial, particularly where, as here, there is nothing in the record to indicate that the articles containing the allegedly false and/or defamatory statements do not remain free to view online. The articles simply do not constitute commercial speech, at least with respect to the Society.
 
Florida requires pre-suit notice of libel claims to media defendants, which was not properly given here.  To determine whether the Society was a media defendant, the court asked whether it engaged “in the traditional function of the news media,” which is “to initiate ‘uninhibited, robust, and wide-open debate on public issues.’” Media defendants are not just those who “impartially disseminate information,” or “issue unsolicited, disinterested and neutral commentary as to matters of public interest,” but includes those who “editorialize as to matters of public interest without being commissioned to do so by [their] clients.” The Society’s stated mission of educating the public qualified it as a media defendant, since there was no evidence that any of the allegedly false and/or defamatory statements were commissioned by clients. Dismissed with leave to refile.

The photocopier and the arc of history

Smithsonian Magazine on the politics and culture of easy personal copying (version one).

Materials on privacy and surveillance

Terry Diggs, an adjunct at U.C. Hastings Law, alerted me to a website she put together for a privacy/surveillance website with both text and video materials of possible interest to teachers of the subject.  (See the video and MCLE sections for more.)

Thursday, March 19, 2015

picture of refurbished equipment wasn't literally false passing off

Stolle Machinery Co., LLC v. RAM Precision Industries, --- Fed.Appx. ----, 2015 WL 1137429, No. 13–4103 (6th Cir. Mar. 16, 2015)
 
Stolle makes used to produce food and beverage cans. Stolle’s former employee, Shu An moved back to China, and in early 2004 started a competitor company, SLAC. Stolle alleged that An stole its trade secrets, including technical drawings, in order to launch his business.
 
In 2003, Stolle sent a letter to its suppliers alerting them to Stolle’s concerns about An’s behavior. In response, An retained counsel in the US, who sent a letter to Stolle in February 2004 accusing Stolle of “defamatory, or at best, very aggressive tactics, to prevent Mr. An from earning a livelihood.” Stolle replied that although “Stolle Machinery does not agree with your characterization of communications Stolle had, or is alleged to have had, with various companies regarding your client[,] ... Stolle does not anticipate having any communication with other companies regarding your client in the future.” Stolle’s explanation for taking no further action at that time was “How do you secure drawings from a Chinese nationalist who is hiding in China? I don’t know. … If he was an American living in the U.S., I probably would have done something more. … How do I go after him in Jiangsu, wherever he is hiding.”  Over the years, Stolle got more information about An’s copying, and even contacted the FBI, but couldn’t prove espionage.
 
In late 2009, Stolle’s director of sales left the company and accepted a job at RAM Precision Industries, a firm that had been one of Stolle’s parts suppliers. In early 2010, Stolle learned that Fultz and An had jointly met with customers in China during the previous month. “At this point the wheels of this litigation finally began to turn.”
 
The district court found that only a claim against An for copyright infringement could survive summary judgment; the court of appeals found that there was personal jurisdiction and mostly affirmed but reversed the grant of summary judgment to SLAC on Stolle’s claim of trade secret misappropriation because there was a genuine issue of material fact about when the statute of limitations began to run against SLAC, which didn’t exist during the beginning of these events and thus couldn’t benefit from events before its existence.
 
Lanham Act/state Deceptive Trade Practices Act: Stolle alleged reverse passing off because An and SLAC were incorporating Stolle’s trade secrets into their own machine and passing it off as their own. This claim failed as a matter of law under Dastar.  (Small but notable point: by treating the state law claims as governed by Dastar, which interpreted the meaning of “origin” under the Lanham Act, the court is making a potentially significant move as to claims that are barred by Dastar but would not have been preempted by copyright/patent law—a state could in theory decide to read “origin” more broadly, right?)
 
An argument in the reply brief that SLAC passed off a refurbished Stolle machine as a new SLAC machine would have constituted a cognizable Lanham Act violation if it had been made in time.
 
Stolle’s false advertising claim arose from a photo of a piece of Stolle machinery that had been refurbished by SLAC. Stolle alleged that SLAC was depicting Stolle equipment bearing Stolle’s trademark as SLAC’s own equipment. But to get damages, Stolle needed to show literal falsity or evidence of actual deception, and to get an injunction it would need to show a tendency to deceive. And Stolle didn’t provide evidence that SLAC was doing anything other than what it said: “posting the picture on their website to illustrate that they were in the business of refurbishing Stolle machines.” Without further context, the court didn’t find literal falsity, and Stolle didn’t show actual deception or a tendency to mislead.
 
Finally, Stolle argued that SLAC shouldn’t have gotten summary judgment on Stolle’s copyright infringement claim.  There was evidence that An copied Stolle’s drawings, but not that SLAC did.  The allegedly infringing drawings were labeled February 13, 2003, when SLAC didn’t exist, and there was no evidence of copying after SLAC was formed. “The use of copies to manufacture a product does not, by itself, constitute copyright infringement: to hold otherwise would transform a copyright into a patent.”