Nolen v. PeopleConnect, arguing that ROP laws applied to noncommercial speech like reprinting high school yearbooks are generally unconstitutional.
Tuesday, October 29, 2024
Timeshare company's own "exit" program for "qualified" owners isn't misleading even if broadly unavailable
Wesley Financial Gp. v. Westgate Resorts, Ltd., 2024 WL
4581512, No. 6:23-cv-2347-RBD-LHP (M.D. Fla. Aug. 28, 2024)
A rare timeshare exit company lawsuit against a timeshare
developer, alleging false advertising and related claims. It’s unsuccessful but
points to practices that the FTC or AGs might have something to say about.
At one point, plaintiff WFG obtained accreditation and an A+
rating from the Better Business Bureau, which it advertised with the AARP,
allegedly bringing in more than $10 million in revenue. Its methods to secure
exits do not include the use of attorneys or the provision of legal services.
Meanwhile, Westgate will not repossess financed timeshare
interests with outstanding loan balances if owners are current on their
payments. “Only paid-off (or inherited) timeshares qualify for voluntary
repossession or termination with Westgate, and only at its discretion.” WFG’s
advice is apparently to stop making payments and then wait for the developer to
foreclose on an interest and offer to take it back, because the credit hit is better
than the costs of other paths.
In response to exit companies, timeshare developers have rebranded
their existing voluntary repossession procedures as developer-backed “exits.” Westgate
has tried to divert consumers to its own “exit” program along with suing exit
companies. In addition, it “stopped taking back interests from owners whom the
developer even suspected of consulting an exit company, conditioning its
repossessions on an affidavit swearing the owner has not worked with ‘any
timeshare exit company, lawyer or law firm’ in seeking cancellation, or if they
have, disclosing the third party, handing over any contract with them, and
promising to cooperate in any future lawsuit against them.” WFG responded to
this development with a confidentiality clause in its contracts requiring its
customers not to reveal they are working with an exit company. Westgate has in
fact sued owners it later discovered were WFG customers and signed the
affidavit anyway. (I don’t understand why one would get into a relationship with
a timeshare developer.)
Anyway, the timeshare coalition ARDA, on whose board two
Westgate executives sit, allegedly got the BBB to revoke plaintiff’s
accreditation, despite the exit company’s five-star rating based on more than a
hundred customer reviews. Then, it successfully lobbied AARP to stop running
WFG’s ads because it lost its accreditation. “Westgate later sued the exit
company in its home state for violating the Tennessee Consumer Protection Act,
which WFG violated by engaging in the unlicensed practice of law, the district
court ruled.”
This lawsuit followed.
Lanham Act false advertising: WFG argued that Westgate’s exit
program was not in fact available to most owners. It challenged the statement
that “[b]y working with Westgate Resorts, owners who chose to relinquish their
timeshare have been able to do so with very little effort and have been able to
relieve themselves of all future maintenance fee obligations” because this
offer is open only to a very limited subset of owners.
The court rejected this claim because the ads truthfully stated
that direct “exits,” like voluntary repossession and contract termination, were
available to “qualified owners” and “qualifying accounts,” “but without
detailing those qualifications.” Given the reference to qualifications, the “owners
have been able to relinquish” claim wasn’t likely to be materially misleading,
even if “exit” is not available to most owners regardless of loan balance. The
court reasoned that “qualified owners” does not mean or imply “most owners.”
This is where the FTC might well disagree: if the conditions
are mostly unattainable and the qualifications are possible to explain—like “you’ve
paid off the purchase”—then further disclosure is required to prevent consumers
from wasting their time/money on something that won’t help them.
But, the court reasoned, “[f]alsely advertising an available
‘exit’ cannot deceive owners into no longer seeking an exit,” so it couldn’t
have harmed the plaintiff if hopeful owners inquired further and found Westgate’s
program unavailable. I don’t get this logic. Why wouldn’t the failure of the
supposedly best option (as other parts of the ad campaign touted) plausibly
lead at least some consumers to despair and give up? If I try a headache remedy
that’s “the best available” and it doesn’t work, why would I try lesser
versions?
Anyway, antitrust claims failed because they were antitrust
claims.
FDUTPA prohibits “[u]nfair methods of competition,
unconscionable acts or practices, and unfair or deceptive acts or practices in
the conduct of any trade or commerce.” But, as explained above, “[a]dvertising
the Legacy Program—which is undisputedly the only developer-backed way to
cancel a Westgate timeshare—does not injure consumers substantially, even if
the ads lead consumers to phone trees or high-pressure sales pitches before
learning Westgate will not let them out.” So too with lobbying the BBB, and
anyway that was the developer coalition, not Westgate directly, and FDUTPA
doesn’t “extend indirect liability to third parties for the unfair and
deceptive acts of another, regardless of their relationship.”
What about the affidavit of non-involvement with exit
companies? The court agreed that the language was “sweeping.” “Blocking
consumers from speaking with attorneys about a contract as a condition of
bargaining, and punishing consumers if they have done so, offends public
policies favoring ‘access to redress,’ ‘access to courts,’ and the uninhibited
ability to engage in ‘full and frank communication’ with an attorney about
potential legal matters.” But Westgate denied that the affidavit’s language
encompasses “all lawyers, law firms, or third parties”—only the ones that
potential clients are likely to find and ones that have developed expertise.
Still, the court found that WFG couldn’t succeed, because a
prohibition on contracting a non-lawyer exit company was fine. “[E]mploying
contracts of adhesion is not an unfair trade practice on its own.”
Timeshare contract terminations are
not some overriding consumer good whose blanket availability the law protects.
It is not plausible to suggest that it is unethical, unscrupulous, or
substantially injurious to consumers for Westgate to change its termination and
repossession policies and procedures—even intending to nullify exit outfits’
methods that rely on getting the developer’s owners to stop payments.
This is true even if WFG is forced to refund a client’s money,
because of its full refund guarantee, if Westgate finds out about its
involvement. Refunds don’t harm consumers.
Tortious interference/civil conspiracy claims also failed,
especially since WFG inserted its own nondisclosure provision after Westgate changed
its practice—forcing disclosure can’t cause tortious interference under those
circumstances.
Monday, October 28, 2024
when weak TM claims do better than seemingly strong false advertising claims
Sanho Corp. v. Kaijet Technol. Int’l, 2024 WL 4553279, ---
F.Supp.3d ----, No. 1:18-cv-05385-SDG (N.D. Ga. May 20, 2024)
Note: A jury found Kaijet liable for design patent and
copyright infringement after this opinion, but rejected the TM claims, which I
guess says something about a jury’s ability to distinguish claims. It didn’t
get a chance to decide the false advertising claims, which I think reflects
courts’ relatively lax approach to TM compared to the rigors to which false
advertising claims are subjected before reaching a jury; personally, I likely
would have gone the other way.
Sanho sells accessories under the HyperDrive name, including MacBook dongles. Kaijet sells competing UltraDrive MacBook dongles.
Kaijet product |
Sanho product |
(My spouse uses a third competitor that looks basically indistinguishable; FWIW, he says that he would not buy the same product again because it's easy to whack it in a way that detaches it from the laptop and that a cable connection would have been a better choice.)
Sanho has a registration for HYPERDRIVE.
HyperDrive logo |
UltraDrive logo |
The court first found that there was a factual issue about whether the hubs were “power adapters” as specified in the trademark registration. The hubs can be used “to transmit[ ] power from a ‘source’ (MacBook Pro) to a ‘sink’ (a cell phone being charged).”
The court also found a factual issue on likely confusion
between UltraDrive and HyperDrive, reasoning that because a power hub is not a
drive (and also that there’s a Star Wars reference), the mark was suggestive.
Third-party use of the weak components “hyper” and “drive” didn’t reduce the
strength of the mark (but somehow that didn’t make confusion less likely just
because the overlap was in “drive”). Although the marks weren’t similar in
appearance, they were “similar in sound, meaning, and usage,” since they both
had a two-syllable prefix followed by the word “drive,” and “hyper” and “ultra”
were roughly synonymous. They were directly competing. Although there’s a
distinction between bad “[i]ntent to benefit from a competitor’s goodwill” and
good “intent to copy,” they’re often related and bad can be inferred from good,
as it could be here. Email communications repeatedly referenced Sanho’s design,
and expressed a desire to use similar elements in its own product. Kaijet US
changed its existing product name from “ultrastation” to “UltraDrive” after
Sanho began selling its hubs, and as Kaijet US was preparing to introduce a
competing product into the same market.
Whether there was evidence of actual confusion was a
contested issue about interpreting consumer complaints.
Sanho’s false advertising claim alleged that the defendants falsely advertised
a hub as an “8-in-1” product, when it contains only seven ports. But the court
agreed that this wasn’t literally false, and Sanho offered no evidence of
likely confusion. It seems like a jury should at least have addressed the
literal falsity issue, because it’s hard to say that no reasonable jury could
have found literal falsity, when there are eight numbers for ports and the
numbers don’t correspond to, or even add up to as far as I can tell, eight
distinct functions. But the court reasoned that “labels do, in fact, count out
eight functions. Several of those functions do seem duplicative—(5) and (6) are
both labeled ‘USB 3.0.,’ (7) and (8) are both labeled ‘Memory Card’—but that
suggests the labels are misleading, not literally false.” I would instead have
said that means that both possible meanings—number of functions or number of
ports—are literally false.
neither eight functions nor eight ports shown |
Non-protectable are Sanho’s product name and description,
the packaging’s selection of typographies and colors, and familiar images such
as MacBooks and laptop ports.
Also non-protectible are functional
elements like the listing of product information and specifications. The way in
which the product-shaped cutout or window on the front of the packaging allows
consumers to view the product without opening the packaging is likewise
functional and therefore non-protectable.
However, there was “a spark of creativity here in Sanho’s
arrangement and coordination of the packaging’s otherwise unprotectible
constituent elements—most notably in the alignment of the right side of the
product-shaped cutout with the left edge of a depiction of a MacBook to suggest
the physical docking of the hub to the laptop.” Packaging for similar products
contained “more or less the same elements—product name and description,
specifications and features, cutouts or windows—but in a variety of
arrangements, none of them resembling Sanho’s in overall layout, and none of
them suggesting its product’s physical compatibility with another device in the
way that Sanho’s does.”
packaging front comparison |
packaging side comparison |
The court found that defendants
appropriated the most original
element of Sanho’s design: the cutout in the center showing the product hub
physically interfacing with a depiction of a MacBook to the right. In addition,
the front of [defendants’] packaging presents mostly the same information as
Sanho’s, and in the same layout: product name at top, product description at
bottom, “4K” and “50 Gbps” callouts at bottom right. The back of j5create’s
packaging, like Sanho’s, depicts a MacBook, open at a similar angle and viewed
from a similar perspective, with the product hub attached and its ports
labeled, followed by a bulleted list detailing the ports’ capabilities. The
left side panel of [defendants] packaging, like Sanho’s, depicts and labels the
hub’s ports. These are significant similarities in the packagings’ arrangement
and coordination of dominant design features.
But they were also “far from identical,” including
differences in color and font, as well as defendants’ product carrying product
specifications in four languages and depicting the product’s side profile on
the side of the package. Because substantial similarity is qualitative, this
was for the jury.
Finally, the court rejected Kaijet’s false advertising
counterclaim based on Sanho’s allegedly false “fake review campaign” of
positive product reviews on Amazon, based on failure to show materiality. It
was insufficient to provide:
1. A study showing that 74% of
respondents “read online reviews” from online stores like Amazon and BestBuy;
2. A study showing that 32.7% of
respondents cited “[p]roduct reviews and recommendations as a “[m]ain reason
for shopping at Amazon”; and
3. Sanho CEO Daniel Chin’s
declaration testimony that “The UltraDrive is an inferior and lower quality
version of the HyperDrive. It receives less favourable customer rating reviews
on Best Buy’s website and has many complaints.”
“Evidence about where consumers read online reviews is not
probative of what they do with the information in those reviews. Likewise,
evidence about why consumers choose to shop at Amazon is not probative of why
they would choose the HyperDrive over the UltraDrive, when the latter was sold
exclusively through Best Buy.” There was no evidence tending to prove that
Sanho’s alleged fake reviews caused consumers to buy Sanho’s products instead
of defendants’, and self-interested testimony on superiority was insufficient.
(This is a bit of conflating materiality with harm causation, but ok. Imagine a
court finding evidence that consumers generally care about brand names, or
other general testimony about branding, insufficient in a TM case!)
Also, defendants failed to rebut Sanho’s evidence of
immateriality, which was deposition testimony that No such evidence has been
produced. Furthermore, the Kaijet Defendants have failed to meaningfully rebut
Sanho’s evidence of immateriality: deposition testimony that the Sanho product had
a better aggregate rating on Best Buy (where it is actually sold) than it did
on Amazon, and Sanho’s expert’s testimony that the sales metrics of its
products, both of themselves and relative to the sales metrics of Kaijet, were
uncorrelated with the timing of Sanho’s alleged fake review campaign. No
reasonable jury could find, on this record, that Sanho’s fake review campaign
was material.
Tuesday, October 22, 2024
Revisiting Ty v. GMA
Ty, Inc. v. GMA Accessories, Inc., 132 F.3d 1167 (7th Cir. 1997), features dueling bean bag animals. I've never been convinced the two pigs at issue were substantially similar, even in staged pictures, but Harvard's amazing librarians finally dug up a color picture of the two cows at issue, and they're a lot more similar .... which plausibly influenced the court's reasoning on the pigs.
Ty's Daisy the cow and GMA's Louie the Cow |
Friday, October 18, 2024
Laches as to direct liability also precludes contributory liability
Hawaii Foodservice Alliance, LLC v. Meadow Gold Dairies Hawaii, LLC, --- F.Supp.3d ----, 2024 WL 2834159, No. 21-00460 LEK-WRP (D. Hawai’I Jun. 4, 2024)
Interesting contributory liability issue in its interaction
with laches. At the core, plaintiff alleged that defendant MGDH’s use of
phrasing and imagery suggesting that Meadow Gold brand products are sourced in
Hawai’i was misleading and deceptive because Meadow Gold products contain milk
and other products, such as whipping cream, imported from the continental
United States. The other defendants, Hollandia, Heritage, and Saputo, supplied products
to MGDH. The operative claims were false designation of origin/false
advertising in violation of the Lanham Act and coordinate state-law claims.
The court previously granted partial summary judgment to
MGDH for all claims based on “Hawai’i-Themed Images and Phrases” (e.g., a Hawai’ian
themed mascot and the tagline “Hawaii’s Dairy” as well as “Made with Aloha”) on
laches grounds, although the court denied summary judgment for claims based on
the use of text that represents that Meadow Gold products are manufactured
fresh in Hawai’i:
In 1897 seven O‘ahu dairy farms
united as the Dairymen’s Association, Ltd., to manufacture fresh milk for the
community. Through the support of Hawai‘i families, we grew to become Meadow
Gold Dairies in 1959. Today we operate statewide and continue to manufacture
fresh milk, dairy, juice and nectar products in Hawai‘i. Generations of loyal
Island families enable us to maintain our tradition of giving back to the
communities we serve.
The court previously denied the supplier defendants’ request
for summary judgment on the grounds that the laches defense was personal to
MGDH. Now, it essentially reverses that holding for purposes of contributory
liability. The court accepted the suppliers’ argument that they couldn’t have “‘contribute[d]’
to a Lanham Act violation that never occurred.” This Court agrees. [But that’s
not what laches means: a violation (may have) occurred, but it is no longer
redressable. Had they sued in time, it would have been found to be a
violation.]
But the court applied a plaintiff-focused rule:
“The affirmative defense of laches
‘is an equitable time limitation on a party’s right to bring suit, which is
derived from the maxim that those who sleep on their rights, lose them.’ ”
Plaintiff did not merely lose the ability to obtain a remedy against MGDH for
its use of the Hawai’i-Themed Images and Phrases, Plaintiff lost any rights it
may have had under the Lanham Act regarding the use of the Hawai’i-Themed
Images and Phrases.
Permitting plaintiff to prove contributory liability by
establishing a primary violation by MGDH would allow plaintiff to avoid the “effect”
of laches.
In addition, Hawai’i-themed images and phrases suggested a
connection to the state, but didn’t make a representation about the origin
of the milk. Thus, plaintiff couldn’t show falsity for false designation of
origin/false advertising. (For the same reasons, it couldn’t show a violation
of the state law prohibition on unfair methods of competition from those
words/images.)
Remaining claims against suppliers (only two of whom could
have been held to make the remaining accused claims): They argued that a
defendant has to falsely designate origin of their own goods,
contrasting the language of Section 1125(a)(1)(A) (prohibiting false
designation of origin that “is likely to cause confusion, or to cause mistake,
or to deceive as to ... the origin ... of his or her goods”), with that of
Section 1125(a)(1)(B) (covering misrepresentations of “the nature,
characteristics, qualities, or geographic origin of his or her or another
person’s goods ....”). AvePoint, Inc. v. Power Tools, Inc., 981 F. Supp. 2d 496
(W.D. Va. 2013), held that §1125(a)(1)(A), “by its plain terms, does not extend
to misrepresentations regarding the geographic origin of another person’s goods
...,”
Even if that was so, there was at least a genuine issue of
material fact as to whether the products that the remaining supplier defendants
provided to MGDH were their own goods.
The court described the accused text as “a trademark of
MGDH,” which seems dubious (it doesn’t seem like the kind of thing that
functions as a mark, coming within a block of text as it does). But the larger
point—in preparing the packaging for the dairy products they sold to MDGH, the
suppliers engaged in “bona fide” use of the text—seems right regardless of
whether it was a trademark use. If the products had been defective, we’d
certainly say they were the supplier’s products even if they were also the
licensor’s products.
Damage: The supplier defendants argued that the evidence
showed that, after MGDH took over, plaintiff “did not lose any customers, and
retained its 65% market share” during the period it used the relevant text. But
that didn’t prove it couldn’t have had more. Likewise, that its sales didn’t
increase after the text was removed didn’t indicate that MGDH didn’t lose
potential profits as compared to a world in which the text was never used. Also,
plaintiff provided a damages expert; the motion to exclude was the proper forum
for dealing with the expert.
Direct liability for § 1125(a)(1)(B) false advertising requires
that an entity “made ‘the specific, false statement[ ] at issue in the
litigation.” This could be shown if they controlled or were involved in
creating the statement on the labels. The suppliers argued that this was all MGDH’s
doing, and that they only reviewed for compliance with FDA regulations, correct
spelling, etc. Witnesses said things like: “when they give us their graphics
with their brand equity on it, we are not checking and validating that because
it’s not ours to do anything with.”
But plaintiff submitted evidence that supplier-defendant Saputo
suggested to MGDH that the accused text be removed, which suggestion was
followed, creating a genuine issue of material fact on control. By contrast,
supplier-defendant Heritage approved label proofs that included the accused
text, but there was no evidence of control over the use of that text in
particular, so the direct liability claim against it failed.
Contributory liability also involved contested factual
issues. The court adopted the Eleventh Circuit standard: “[f]irst, the
plaintiff must show that a third party in fact directly engaged in false
advertising that injured the plaintiff. Second, the plaintiff must allege that
the defendant contributed to that conduct either by knowingly inducing or
causing the conduct, or by materially participating in it.” The second prong
requires a plaintiff to “allege that the defendant actively and materially
furthered the unlawful conduct — either by inducing it, causing it, or in some
other way working to bring it about.”
The court treated the state law claims similarly.
associating two differently named products can't cause dilution, which requires similar marks
In re Soclean, Inc., Marketing, Sales Practices & Prods. Liab. Litig., No. 22-mc-152, MDL No. 3021, 2024 WL 4444819 (W.D. Pa. Oct. 8, 2024)
Previous
discussion of MDL. As previously noted, SoClean is a dominant player in the
market for medical devices that sanitize continuous positive airway pressure
machines (CPAPs), which treat sleep apnea and respiratory conditions. It
alleged that the Philips defendants, who make such devices, engaged in false
advertising about one of SoClean’s devices in order to deflect blame for the
Philips devices’ design defects. Philips counterclaimed for false advertising,
trademark dilution, and state-law deceptive trade practices. This opinion
adopts in part and rejects in part a special master recommendation that
SoClean’s motion to dismiss the counterclaims be denied.
False advertising: SoClean argued that Philips failed to
allege adequately causation because there are multiple intervening steps
between the alleged consumer deception and Philips’ alleged injury. Philips’
theory was that SoClean’s claim that its device was compatible with the Philips
devices was false, which influenced consumers to use SoClean’s device with
Philips devices -- thereby damaging Philips’ products by causing the foam to
degrade, as well as harming the reputation of Philips’ products, and causing a
decline in Philips’ sales.
This satisfied Lexmark and created a factual issue on
proximate cause because the alleged harm flowed from SoClean’s own
pronouncement that its device was compatible with Philips’ devices. Intervening
causes such as the FDA alert about cleaning CPAP machines and Philips’
voluntary recall could affect damages but weren’t enough to warrant dismissal.
Trademark dilution: This requires an association arising
from similarities between two marks that causes damage. There is no
dilution claim for associating one marked product with a differently marked
product. Thus, SoClean’s compatibility chart, which stated that SoClean’s
products were “compatible with free adapter” with Philips’ products, could not “lessen
the capacity of Philips’ mark to identify and distinguish Philips’ mark from
SoClean’s mark.”
New Hampshire Consumer Protection Act: The relevant theories
were that (1) SoClean made representations about characteristics its product
did not have (i.e., full compatibility); and (2) SoClean made representations
about its sponsorship, approval, affiliation or connection with Philips.
As for the first, it was
certainly reasonable to infer that
a consumer would understand the references to 'compatibility” to mean that the
SoClean device can actually be used with the Philips device without causing
harm to the Philips device or to consumers who use both devices together. As
Philips analogized, a consumer seeing a claim that a charging cable was
compatible with a certain phone would conclude that the cable not only
physically fit, but also would “charge their phone without frying the
motherboard.”
This was enough at the motion to dismiss stage, as was
pleading consumer confusion about affiliation or approval.
SoClean argued that the counterclaims were untimely even
under the discovery rule.
Under New Hampshire law, “Once a defendant has established
that the statute of limitations would bar an action, the plaintiff has the
burden of raising and proving that the discovery rule is applicable to an
action that would otherwise be barred by the statute of limitations.” On the
face of the counterclaims, the action wasn’t brought within three years (the
state consumer protection period). Thus, the burden shifted to Philips to plead
sufficient facts to plausibly support the application of the discovery rule,
and it didn’t explain why it reasonably took so long to reach the conclusion
that SoClean’s product increased the risk that Philips foam would degrade. So
the state claims were dismissed with leave to amend.
As for the Lanham Act, laches generally can’t be determined
on the basis of the pleadings, despite laches being apparent on the face of the
counterclaims because of the relevant dates. The Third Circuit is more
plaintiff-friendly: the discovery rule has a “fundamentally plaintiff-friendly
purpose” and “is grounded in the notion that it is unfair to deny relief to
someone who has suffered an injury but who has not learned of it and cannot
reasonably be expected to have done so.” And “a plaintiff is not required to
plead, in a complaint, facts sufficient to overcome an affirmative defense.” We
don’t yet know when Philips knew or reasonably should have known about its
counterclaims; at this stage, that helps Philips.
Another API (c) case with false advertising and contract claims too
Trackman, Inc. v. GSP Golf AB, 2024 WL 4276497, No. 23 Civ. 598 (NRB) (S.D.N.Y. Sept. 24, 2024)
Trackman makes the golf simulator game Perfect Golf, which
offers users the ability to virtually play some of the most famous golf courses
in the world. Defendants allegedly copied key components of Trackman’s
copyrighted software and falsely suggested, in promotions and advertisements,
that defendants were authorized to use the well-known courses in their game.
Although the court dismissed a contract claim, copyright and
false advertising claims survived.
Plaintiff’s Perfect Golf simulator allows users to design
golf courses; has “an API4 for external tournament sites to be able to fully
integrate into Perfect Golf for online real-time scoring and tracking”; and
allows users to play each other on courses designed in the simulator. Using a
combination of radars and cameras, plaintiff’s launch monitors track the full
trajectory of a golf shot. Launch monitors incorporated into plaintiff’s
simulator technology, which allows users to play golf indoors using real clubs
and balls in front of an “impact screen” that displays the simulation and keeps
golf balls from ricocheting back at the player after they are hit.
Perfect Golf has a EULA that bans reverse engineering.
Although Perfect Golf used to be compatible with third-party
launch monitors, as of August 2020, Perfect Golf users had to buy plaintiff’s
launch monitors to play the game.
Defendant saw the compatibility-breaking as an opportunity
to replace Perfect Golf and be compatible across a number of launch monitors.
This first required developing golf simulator software,
eventually called GSPro. GSPro allegedly copied Perfect Golf’s course-creating
code as well as copied Perfect Golf’s ‘combine’ feature,” which “enables
golfers to identify strengths and weaknesses in their game.” Defendants also
allegedly developed an online platform to host tournament play by GSPro users
that copied Perfect Golf’s API data structures for simulating golf
competitions. And they allegedly copied golf courses created on Perfect Golf’s
course design platform.
In addition, defendants allegedly claimed that course
selection included “iconic, branded courses like St. Andrews in Scotland and
various PGA Tour Tournament Players Club courses throughout the United States”
without having the licenses “required” to offer those courses, while plaintiff
had “diligently sought and obtained permission[ ], including trademark
licenses, from the owners of branded golf courses,” including St. Andrews and
various PGA Tour courses. “Eventually, in 2023, the trademark owners of the St.
Andrews and PGA Tour courses sent cease-and-desist letters to defendants, after
which defendants ‘removed, disabled access to, or renamed the St. Andrews and
PGA Tour courses,’” but plaintiffs argued that the damage had been done.
The court refused to hold on a motion to dismiss that the
API data structures at the center of the dispute (which sound like they’re
needed for interoperability) were not copyrightable, relying on the Federal
Circuit’s decision in Google v. Oracle. The structures at issue include “shared
naming conventions that allows a simulated golf tournament site … both to
communicate with [client] software … and to process data, like how many shots
it takes for a player to complete a hole in the golf simulation.”
The court found that plaintiff sufficiently pled the “modest”
requirements of originality by alleging that it spent “years” developing the
program, which provides, among other things, “an immersive experience centered
on high-resolution visuals” and “hyper-realistic gameplay.” (Why does this make
the API protectable?) It also alleged that it “built” an API. (That very verb signals
the issue.) But: “Such allegations, at this stage, are more than sufficient to
demonstrate that Perfect Parallel both independently developed the subject API
structures and made numerous creative decisions in doing so.” Anyway, questions
of originality are generally inappropriate for determination on a motion to
dismiss. Likewise, whether plaintiff’s API structures were a protectable
process or method of operation couldn’t be determined on a motion to dismiss.
Estoppel/license defenses were also premature, and the
complaint satisfied the discovery rule on its face for statute of limitations purposes.
However, the court dismissed the breach of contract claim,
finding the EULA’s anti-reverse engineering provisions preempted by copyright
law. “Put simply, plaintiff claims that defendants breached the [reverse
engineering] Provision by ‘studying and analyzing’ plaintiff’s software as part
of its efforts to develop its own competing golf simulator software that would
be compatible with Course Forge courses and third-party hardware.”
The disputed work was clearly within the scope of copyright—software/literary
work. For express preemption to apply, “the state law claim must involve acts
of reproduction, adaptation, performance, distribution, or display.” That was true
here. But a claim isn’t preempted if it has an extra element that makes it
qualitatively different. Unlike other circuits, the Second Circuit has instructed
that the “extra element” inquiry is not “mechanical” but instead “requires a
holistic evaluation of the nature of the rights sought to be enforced, and a
determination whether the state law action is qualitatively different from a
copyright infringement claim.”
While some courts have held that the promise element of a
contract claim suffices, categorically exempting contract claims from
preemption, the Second Circuit hasn’t. (And in an age of unavoidable contracts
of adhesion, saying that as a matter of law there’s an actual “promise” and then
that the promise avoids preemption seems wrong.) In the Second Circuit, “a
breach of contract claim is preempted if it is merely based on allegations that
the defendant did something that the copyright laws reserve exclusively to the
plaintiff (such as unauthorized reproduction, performance, distribution, or
display).”
Plaintiff argued that its contract claim was distinguishable
because it is specifically (and carefully) “directed to the non-copying acts of
studying and analyzing copyrighted works.” But, evaluating the nature of the
rights sought to be enforced “holistically” showed that the contract claim was
centrally about copying (or studying) in order to create competing works. Defendants’
“studying and analyzing” were “part and parcel of their broader infringing
conduct that is at the heart of plaintiff’s copyright claims (i.e., unlawfully
developing, producing, and distributing plaintiff’s software).”
Then, in a footnote revealing a fundamental misunderstanding,
the court noted the strategic reasons for a breach of a contract claim, if the
API structures turn out not to be copyrightable—in that case plaintiff would be
“wholly or partly without a remedy.” Thus, the court dismissed the contract
claim without prejudice if there are “substantial changes in the law.” This is
a flat-out mistake about 301’s scope, which doesn’t just apply when there are
valid © claims. It applies when the subject matter is the same as ©’s subject
matter, whether or not the material at issue is protectable. That’s why you
can’t use state law to protect works whose copyright has expired, or the facts
in a work. If it’s a claim whose gravamen is copying a fixed work, then the
unprotectability of the copied material doesn’t matter.
And then the court upheld a false advertising claim that
seems quite problematic to me. Plaintiff alleged that defendants “sought to
commercially advertise and promote the availability of iconic branded golf
courses for simulator play on the SGT platform,” which misleadingly suggested that
they were “authorized to offer genuine, trademarked courses,” when, in reality,
defendants “lacked the rights to offer these branded courses.” The court agreed
that plaintiff didn’t allege literal falsity, but found that implied falsity
was plausible.
The claims weren’t literally false because “iconic, branded
golf courses” were available for play. But they might have falsely implied
licensing/endorsement, and plaintiff didn’t need to provide extrinsic evidence of
deception at this stage. Also (ugh), intentional deception might obviate the need
for evidence of confusion, and the facts here might allow that theory: Defendants
allegedly
(1) knew
that they did not have the requisite authorization to make available the
trademarked courses; (2) made a litany of statements on social media and
elsewhere suggesting that they had such authorization; and (3) made these
statements with the intention of influencing “a significant number of users” to
purchase SGT subscriptions and GSPro downloads on the basis that they could
play “at some of the most coveted courses around the world.”
Even though (3) was true, that was enough for the court.
What about materiality? It was plausible that consumers
would care about whether the courses endorsed defendants, because the courses
are official partners of plaintiff, which was plausibly related to plaintiff’s
success.
What about Dastar? Some courts have rejected Lanham
Act claims premised upon false representations of licensing status.” E.g.,
Sybersound Records, Inc. v. UAV Corp., 517 F.3d 1137 (9th Cir. 2008), rejected
the plaintiff’s argument that “the licensing status of each work is part of the
nature, characteristics, or qualities of the karaoke products” because they
weren’t characteristics of the goods themselves. But the court found this line
of cases to be irrelevant to the false advertising claim here. “Dastar
and the like are concerned about impermissibly blurring the lines between
trademark and copyright law.” The claims here were “based solely on the SGT
Defendants’ misleading statements regarding the licensing of trademarked
courses, not the licensing of expressive copyrighted (or copyrightable)
material…. [T]he misrepresentations at issue have nothing to do with claims of
authorship of an expressive work or creation of an invention.” Plaintiff wasn’t
suing over copying the simulated version of the course.
This is a little weird given that the representations of the
courses were copyrightable representations—the license was a license to
represent the courses, not to play on them or replicate them in the physical
world. More to the point, though, the analysis does not fit well with today’s
textualism. Dastar says that is about the meaning of “origin” in the Lanham
Act, even if that interpretation was motivated in significant part by
avoiding a TM/© conflict. Dastar says that “origin” does not include the
origin of intangible content—including who “stands behind” that intangible
content. It specifically addresses the argument that intangible origin could
well matter to consumers for “communicative” goods. You can get there textually
by saying that “nature, characteristics or qualities” is broader than “origin,”
for sure. But I think these days you have to take that step.
It’s also worth noting that the TM claim here is based on
the representation of golf courses in the game, which shouldn’t require
permission any more than a book about the golf courses would—there are pretty
significant Rogers issues as well, and the trademark claimants aren’t even
actually here to make their claims.
Thursday, October 17, 2024
My latest copyright acquisition
From Franklin Mint Corp. v. Nat’l Wildlife Art Exch., 575 F.2d 62 (3d Cir. 1978), the works in suit, Cardinals on Apple Blossom and The Cardinal:
Claims that "non-drowsy" is false aren't preempted by FDCA
Calchi v. Topco Assoc., LLC, 2024 WL 4346420, No. 22-cv-747 (N.D. Ill. Sept. 30, 2024)
Is there any circuit style more distinctive than the Seventh
Circuit style? (Cf.)
This is one of a number of lawsuits against purportedly non-drowsy
cold meds that are allegedly in fact drowsiness-promoting because of an active
ingredient called Dextromethorphan Hydrobromide, which studies allegedly
confirm causes drowsiness. The court was snarky about the multiple lawsuits and
their resemblances. Calchi herself sued a different manufacturer in the SDNY. “She
might have a big fool-me-once, fool-me-twice problem (and an adequacy of class
representation problem, too).”
TopCo argued FDA preemption. The FDA expressly considered
the claim that “DXM caused drowsiness and determined that insufficient data
existed to support such a finding.” So it doesn’t require a drowsiness warning.
Thus, TopCo argued, Calchi’s claim would create separate requirements that are
“not identical” to the federal requirements and are thus preempted.
Calchi responded that, regardless, TopCo cannot add false or
misleading information to the label. Controlling Seventh Circuit precedent
agreed with her (possibly to the court’s dismay). True, a state law that
prohibits using the label “non-drowsy” for DXM seems “different from” the
federal regulation, which doesn’t ban calling DXM “non-drowsy.” But Bell v.
Publix Super Markets, Inc., 982 F.3d 468 (7th Cir. 2020), reasoned that, when
the FDA standard of identity required only that the label call the item “Grated
Parmesan Cheese,” and was silent about whether the products could be labeled as
“100%” cheese, a deception claim wasn’t precluded. States may not “tack on
further required disclosures” but they may prohibit advertisers “from
voluntarily adding deceptive language to the federally permitted labels.” This
was so because doing so doesn’t create any new requirement, given that the FDCA
already provides that false or misleading labels constitute misbranding. This FDCA
provision seems to distinguish consumer protection claims from attempts to add requirements
orthogonal to the federal scheme. The court imagined a hypothetical where the federal
government said things to park visitors like “don’t feed the bears” and “stay
on the paths” and the state then wanted to add a “don’t swim in the rivers”
rule. But here, the federal rule is similar to “don’t engage in dangerous
behavior,” and the plaintiff is trying to establish that something is “dangerous.”
If she’s right, then there’s no “difference” between the law and its
application, just a level of specificity. The preemption question is whether
states—whether through statutory torts or otherwise—can specify whether something
is false or misleading if the FDA hasn’t opined on the issue.
Indeed, the court concluded, states can’t add to the list of
required disclosures, but “if the federal government has not addressed a
statement about D, then states can ban a statement about D if the states
believe that D is false.” If the state law is directed to banning false and
misleading statements, it “doesn’t add anything new, because federal law
already prohibits false and misleading statements.” Thus, unless a monograph
“protects a particular statement,” the preemption provision of the FDCA “does
not expressly preempt state-law prohibitions on deceptive statements that
sellers add voluntarily to their labels or advertising.”
Following the course of my thoughts exactly, the court
suggested that “this issue boils down to an all-too-common, all-too-important
question: who decides? … If the FDA looked at a statement, and took no position
on whether it is false or misleading, can the states ban it?” But Bell
made the question academic. (Thanks! I agree, it’s a super important question!
Not much reasoning in the cases! FWIW, I incline towards the Bell
position, because the FDA has way too much on its plate to go after whatever new
language marketers think of next. But the ability of state legislatures
to declare something to be false or misleading as a matter of law worries me.
Does the First Amendment require advertisers to have an opportunity to disprove
falsity/misleadingness of their commercial speech (outside the IP context?).)
Calchi alleged that TopCo shouldn’t have voluntarily placed
a misleading “Non-Drowsy” label on its medicine. That’s not preempted.
A reasonable consumer could plausibly be materially deceived
by “non-drowsy,” since there were plenty of obvious reasons to want to avoid
drowsiness.
Calchi alleges that she bought a product, and would not have
purchased the product without the misrepresentation. That’s enough to allege an
injury. She also alleges that she paid more for the product than she otherwise
would have paid. Based on this complaint, that theory is a bit shakier, but it
is enough to get to the next stage of the case. She also alleged a pocketbook
injury—she paid more than she otherwise would have—and that was enough at this stage,
though the court expressed some skepticism about proof.
Amazon potentially on the hook for marketing mislabeled supplements
Li v. Amazon.com Servs., 2024 WL 4336432, No. 2:23-cv-01975-JHC (W.D. Wash. Sept. 27, 2024)
Plaintiffs alleged that Amazon promoted, sold, and delivered
dietary supplements that lacked mandatory FDA disclaimers in violation of
California law. Plaintiffs allegedly saw the representations on the “product
labels and otherwise” on Amazon’s site and believed “that the [p]roducts
harbored therapeutic value, and/or they and the marketing claims were reviewed
and approved by the FDA.” Plaintiffs allegedly relied on “Amazon’s stature,
representations, and reputation,” its marketing of the dietary supplements, and
the “[p]roduct labels and its omissions from the same” when choosing to buy the
dietary supplements. They also “purchased more of, and/or paid more for, the
[p]roducts” than they would have “had [they] known the truth about the
[p]roducts.” As a result, Plaintiffs “lost money” because of Amazon’s conduct
and were “exposed to risk of serious bodily injury.”
Amazon allegedly “systematically...promote[s] and sell[s]” dietary supplements that “lack[ ]...mandatory disclaimers from [p]roduct labels.” Many dietary supplements in Amazon’s marketplace allegedly claim to “treat, cure, or prevent various diseases and viruses including...diabetes, high blood pressure, Alzheimer, arthritis, depression, prostate cancer, and others,” when these products have not been “scientifically established as safe or efficacious under the established protocol for drugs, nor are they subject to FDA review and approval.” E.g., this listing for Doctor’s Best Vitamin D3:
Other companies like Safeway and Target allegedly lawfully
label their supplements by not making such claims:
Most of Amazon’s sales come from Amazon’s “Fulfilled by Amazon” (FBA) program, in which Amazon provides services including stocking, maintaining, and storing products at Amazon fulfillment centers; sorting and shipping; and 24/7 customer support for consumers of the products. Amazon controls product listings, communications with consumers about the product, and processing of payments and fees for sale of the product, including Amazon’s service fee. Amazon also purportedly operates an “Industry-Leading Safety and Compliance Program,” which allows Amazon to “ban or delist products” in the marketplace that are “unlawful and/or dangerous.”
Plaintiffs brought both product liability/warranty claims
and the usual
consumer protection claims under California law.
First, plaintiffs adequately alleged standing, despite
Amazon’s argument that the reliance allegations were implausible because the
product details and labels showed that all of the products had at least one
clear DSHEA disclaimer.
Spending money one would otherwise not have spent is a
quintessential injury in fact.
Federal law, which is adopted by California’s Sherman Law,
mandates that, if a dietary supplement includes a statement that “describes the
role of a nutrient or dietary ingredient intended to affect the structure or
function in humans, characterizes the documented mechanism by which a nutrient
or dietary ingredient acts to maintain such structure or function, or describes
general well-being from consumption of a nutrient or dietary ingredient,” it
must also include a DSHEA disclaimer. The disclaimer must be “prominently
displayed and in boldface type” and include the text: “ ‘This statement has not
been evaluated by the Food and Drug Administration. This product is not
intended to diagnose, treat, cure, or prevent any disease.’ ” The disclaimer
must also “be placed adjacent to the statement with no intervening material or
linked to the statement with a symbol (e.g., an asterisk) at the end of each
such statement that refers to the same symbol placed adjacent to the
disclaimer[.]”Also, “[o]n product labels...the disclaimer shall appear on each
panel or page where there such is a statement. The disclaimer shall be set off
in a box where it is not adjacent to the statement in question.” Plaintiffs argued
that “to be legally compliant, the disclaimer must: (1) appear ‘on each panel
or page’ of a supplement label or package that bears a health-related claim;
and (2) be ‘prominent.’ ”
Amazon argued that the product labels and product details
pages, including the product images on those details pages, include the DSHEA
disclaimer in a box titled, “Important information” in “bold orange font.” It further
contended that “the product detail[s] pages for multiple [p]roducts include
images showing an actual product label with the prominent DSHEA disclaimer.” The
structure function claim on the front label of those products was followed by
an asterisk that directs a consumer to a DSHEA disclaimer on the back label.
Plaintiffs rejoined that “[b]urying a disclaimer multiple
scrolls down on Amazon’s product page, and/or amongst a multitude of voluntary
claims and images (which dominate through placement, size, color, contrast),
cannot as a matter of law redress illegality, nor can it redress the deception
and fraud.”
The court agreed with plaintiffs: “None of the materials introduced by Amazon refute Plaintiffs’ contention that the products omit disclaimers on the primary panels that carry the structure function claim. For example, no image submitted shows a product that includes the required disclaimer on the same panels that carry the structure function claims.” E.g, the Amazon display page for Safrel Vitamin B-12:
Thus, plaintiffs plausibly alleged that they were misled
when purchasing the dietary supplements on Amazon.
Amazon argued that plaintiffs failed to “plausibly allege”
that a reasonable consumer would believe that the dietary supplements had
“therapeutic value” or had received FDA approval, given the DSHEA disclaimer under
the “Important information” section and that the “[p]roduct photographs” and
“Amazon.com display page images” for some of the dietary supplements show that
the health claims on the front label were “accompanied by asterisks or other
symbols that directed the consumer to a DSHEA disclaimer.” Amazon argued that
it is “implausible” and “unreasonable” for a consumer to ignore the asterisk.
But Amazon allegedly omitted disclaimers from display panels that carry health-related claims and, as a result, plaintiffs allegedly did not read “disclaimers in conjunction with reading the effusive health claims, which led to their belief in the products’ therapeutic value and safety.” This wasn’t suitable for resolution on a motion to dismiss. Amazon also provided the court with images of the “product detail pages” of the dietary supplements plaintiffs purchased. The product details page for Nature’s Nutrition Turmeric Curcumin stated in bold, black font that the product provides “Natural Joint Support” and “Support[s] Joint and Heart Health[,]”but there is no asterisk next to either of these assertions nor is there an adjacent DSHEA disclaimer:
This was consistent with plaintiffs’ allegations that the
“proximity and prominence” of the DSHEA disclaimers provides consumers with the
opportunity to “see and read them in order to be alerted that the products are
not therapeutic and thereby avoid deception.”
Amazon argued that plaintiffs’ claims sought to impose
vicarious liability on it, which is unavailable for unfair competition claims,
as to which “[a] defendant’s liability must be based on [their] personal
‘participation in the unlawful practices’ and ‘unbridled control’ over the
practices that are found to violate [California Business and Professions Code]
sections 17200 or 17500.” Under the CLRA, “absent allegations of participation
or control[,]” the defendant cannot be held liable for the acts of third
parties.
Plaintiffs responded that Amazon was “integral[ly]
involv[ed] in the unlawful and deceptive marketing, promotion, sales, delivery
into interstate commerce, and delivery to Plaintiffs of illegal products.” The
court agreed with plaintiffs, citing Amazon’s promotional efforts as well as
FBA and Amazon’s control of consumer support and whether returned items could
be resold. Plaintiffs sufficiently alleged Amazon’s “unbridled control” over
the “unlawful practices.”
Amazon then argued that California’s Sherman Law protected
it by exempting “persons engaged in business as wholesale or retail
distributors of foods, drugs, devices, or cosmetics, except to the extent that
they are engaged in the packaging or labeling of the commodities or they
prescribe or specify the manner in which the commodities are packaged or
labeled.” (This exemption must “not be construed to repeal, invalidate, or
supersede any other section of this part.”) But the “unbridled control”
allegations also sufficiently pled around this. “Amazon’s alleged actions in
labeling and promoting the dietary supplements exceed the role of a wholesale
or retail distributor. The Amazon product pages for the dietary supplements
state structure function claims about the products.”
However, the economic loss rule barred the product liability
claims. There was no special relationship between Amazon and the plaintiffs.
Implied warranty of merchantability claims did survive.
CAFA can't prevent remand to state court where consumer protection claims are all equitable
Haver v. General Mills, Inc., 2024 WL 4492052, No.: 3:24-cv-01269-CAB-MMP (S.D. Cal. Oct. 11, 2024)
Interesting remand to state court. Haver sued under the UCL
and FAL, alleging that GM deceptively marketed “Fruit Snacks” to contain “Real
Fruit Juice,” when the snacks in question were allegedly sweetened entirely
with added sugars. GM removed under CAFA, but the court held that it lacked
jurisdiction over Haver’s claims, which were all equitable, and therefore
remanded, ruling that CAFA didn’t trump the rule regarding remand when the claims
were only cognizable in state court. “[N]o antiremoval presumption attends
cases invoking CAFA, which Congress enacted to facilitate adjudication of
certain class actions in federal court.” Nonetheless, under 28 U.S.C. §
1447(c), remand is available if the court lacks subject matter jurisdiction.
Although removal was proper, the court continued on to
Article III standing, which requires traceable injury and redressability. A
plaintiff’s intention to purchase a product in the future is necessary for
Article III standing when seeking injunctive relief. “As a general rule, if the
district court is confronted with an Article III standing problem in a removed
case—whether the claims at issue are state or federal—the proper course is to
remand for adjudication in state court.”
The relevant part of the complaint said: “Plaintiff and
Class Members are likely to continue to be damaged by General Mills’ deceptive
trade practices, because General Mills continues to disseminate misleading
information.” But Haver didn’t plead any concrete intention to buy the snacks
in the future, meaning she didn’t have Article III standing for injunctive
relief.
And Haver’s remaining claims sounded in equity: restitution
and disgorgement. Equitable jurisdiction asks whether the “principles governing
equitable relief” allow a district court to “exercise its remedial powers.” In
that sense, equitable jurisdiction is a “threshold jurisdictional question.” Sonner
v. Premier Nutrition Corp., 971 F.3d 834 (9th Cir. 2020). (I did wonder
whether defendants’ victory in Sonner could be taken back by plaintiffs,
and here we are.)
“Federal courts sitting in diversity can only award
equitable relief under state law if there is no adequate legal remedy.” But Haver
didn’t plead that she lacked an adequate remedy at law. “[N]othing in the
complaint suggests that a damages award for the alleged false advertising type
claims would fail to make class members whole.” Thus, the court lacked
equitable jurisdiction; the court couldn’t provide the only relief Haver
sought.
Numerous abstention doctrines guide courts on remand
decision, as well as “longstanding Supreme Court precedent which informs that
when a federal court lacks equitable jurisdiction, a case may be remanded.”
Cates v. Allen, 149 U.S. 451 (1893); Twist v. Prairie Oil & Gas Co., 274
U.S. 684 (1927). These precedents are binding.
GM argued that they weren’t, because those cases predated
the merger of law and equity, and CAFA superseded any discretionary remand
decision. “But none of these advancements have altered a federal court’s
authority to remand cases ‘where the relief being sought is equitable or
otherwise discretionary.’” “Although the Court shares Defendant’s concern for ‘end-runs’
around federal statutes, the principles of federalism and proper judicial
administration point to remand where this Court cannot offer Plaintiff any
relief under purely state causes of action.” This wasn’t a case where remand
would have resulted in piecemeal adjudication—it would be an inevitable loss on
the whole claim. (Speaking of end-runs around statutes ….)
Wednesday, October 16, 2024
even after default, court may constrain recovery in competitive market
KHN Solutions LLC v. Shenzhen City Xuewu Feiping Trading Co., No. C 20-07414 WHA, 2024 WL 4351861 (N.D. Cal. Sept. 30, 2024)
I don’t usually blog default judgments, but this one was interesting.
It granted interim relief against Amazon.com, impounding funds and products of
defendants. KHN makes blood-alcohol concentration breathalyzers; defendants
make competing breathalyzers “popularized by fake reviews and false quality
assurances on Amazon.” After difficulties serving the Chinese defendants, the
magistrate allowed email service and recommended a default judgment.
The district court asked Amazon to comment, since the
recommended injunction would burden it. Amazon proposed revisions, including expanding
the injunction to cover products newly identified by three Amazon Standard
Identification Numbers, and that Amazon transfer defendants’ allegedly
ill-gotten gains only after Amazon covered its fees from all those sales.
The recommended injunction didn’t specify the particular
breathalyzers for Amazon to discontinue. Amazon and plaintiffs proposed adding
identifiers for three specific models of Rofeer-branded breathalyzers, not just
one model. The complaint never stated a specific model name, product number, or
web address of the complained-of product(s). The complaint’s allegations about
fake reviews and poor breathalyzer test results — even when accepted as true — were
untethered from specific models. Amazon did suggest that of the many
“Rofeer®-branded breathalyzers” it investigated only “certain” products
identified “by Plaintiff,” the “B07ZH6PVD4” and “B08CZBL7YS” products, but neither
identifier made it into the proposed text of the injunction, and then they
proposed to expand it to a third.
“But how can the Court permanently enjoin the sales of three
specific products, when there is only an allegation or evidence supporting at
most one product being falsely advertised? Plaintiff was required to plead
false advertising with specificity, then prove it.” It only did so with
evidence as to B07ZH6PVD4.
This is a false advertising case, not a counterfeiting case.
Usually, a false advertising injunction stops false statements about products. The
recommended injunction would do more:
It would permanently stop
defendants from selling their product (including from unspecified sites besides
Amazon’s, where no false statements have been shown). It would even order the
shipping of offending breathalyzers to plaintiff. And it would permanently
disable the defendants’ purported seller accounts, even though the record does
not show that defendants’ sole use of these accounts is for selling falsely
advertised items.
That would not be justified as a permanent injunction,
though interim relief was appropriate.
As for damages, “the proposed injunction permits double,
triple, or even sixteen-fold recovery,” by letting the plaintiff recoup “up to
the amount of the Court’s damages award” from Amazon, then from financial
institutions and payment processors “not limited to” the fifteen listed in the
injunction to get “the amount of the Court’s damages award.” “Plaintiff has not
established that defendants even have accounts with all third parties.” There
were no provisions to avoid double recovery, and even single recovery would be
unsupported.
The recommended damages award “exceeds what the law allows,
because it impounds all sales revenue, not just plaintiff’s actual damages or
defendants’ profits.” The Lanham Act allows compensation, not punitive damages,
as measured either by actual damages or defendant’s profits. The plaintiff
bears the burden of proving the “defendant’s gross profits from the infringing
activity with reasonable certainty.”
But selling always has costs.
Awarding defendants’ total revenues
ignores that reality. Similarly, total sales surpass what plaintiff possibly
would have earned but-for the purported misconduct. Selling products almost
always involves competing against more than one rival for the sale. Here, there
were multiple rivals: Plaintiff compares defendants’ product not only to its
own but to third-party “Lifeloc’s FC10 police-grade industry standard
breathalyzer.” If plaintiff made fewer sales because of defendants, Lifeloc
likely made fewer sales, too. Thus, awarding all of defendants’ revenues (or
profits) to plaintiff also ignores this reality. Plaintiff makes no substantive
or equitable argument to justify such outsized relief.
District courts have awarded damages in trademark infringement
cases in the amount of defendant’s sales where no offsetting costs were proven.
But trademark infringement involves more direct harm than defendants “who
simply made false statements about their own products.” The recommended award
here surpassed “what equity allowed, which is the Lanham Act’s limit.” And
there were other problems with the proposed award, including that Amazon
omitted dollar amounts from its spreadsheet showing sales “ostensibly for
confidentiality reasons.” Because of the lack of detail, there was no way to
attribute sales to specific models.
Thus, the court ordered Amazon to cease to deal with the
defendants/anyone operating for their benefit; impound any products in Amazon’s
control that are at issue in this case, specifically including three ASINs; and
impound all revenues in the Amazon accounts of persons or entities that have
accrued from selling those products. “Upon the Court’s further order, the
impounded funds might be released to defendants or possibly to plaintiff — or
to someone else, perhaps even to disappointed purchasers. Same goes for the
products. But defendants must show up to make their case.”
The court reasoned that impounding would create a fund to
allow damages, once properly determined. Impounding was also intended to “get
the immediate attention of defendants and to break the cycle of selling into
our country but refusing to appear and to defend, meaning to get the attention
of defendants and persuade them to appear and to defend on the merits.” If
defendants failed to appear, the court would entertain a renewed motion for
default judgment.
false "patented/proprietary/exclusive" claims can be actionable despite Dastar
Crocs, Inc. v. Effervescent, Inc., No. 2022-2160 (Fed. Cir. Oct. 3, 2024)
Crocs sued competitors for patent infringement; defendant
Dawgs counterclaimed for false advertising about the characteristics of the
primary material Crocs uses to make its footwear products, a material it
promoted as the “patented,” “proprietary,” and “exclusive” “Croslite.” Dawgs
alleged that none of this was true, but that Crocs misled current and potential
customers to believe that “Crocs’ molded footwear is made of a material that is
different than any other footwear.” The district
court, relying on the Federal Circuit’s Baden
decision interpreting Dastar, tossed out the claims, reasoning that
these terms were Dastar-barred claims of inventorship rather than claims
about the nature of Crocs’ products. The court of appeals reversed.
Baden found that claims to have “innovative” technology
were Dastar-barred. Baden had argued that Molten’s advertisements were
false “precisely because Molten was not the source of the innovation,” i.e.,
not the author. But “authorship, like licensing status, is not a nature,
characteristic, or quality, as those terms are used in Section 43(a)(1)(B) of
the Lanham Act.” By contrast, “here, the false claim that a product is patented
does not stand alone. Dawgs presents allegations and evidence that the falsity
of Crocs’ promotional statements is rooted in the nature, characteristics, or
qualities of Crocs’ products.”
Specifically, “[a] claim that a product is constructed of ‘patented’
material is not solely an expression of innovation and, hence, authorship.” In Baden,
there weren’t ads “linking such claims to a product’s tangible nature,
characteristics, or qualities.” But here, Dawgs alleged promotional statements
by Crocs that a patent covers Croslite, paired with statements that “Croslite
has numerous tangible benefits.” Thus, the claim “patented” “was used by Crocs
to ascribe characteristics that go to the nature and qualities of Croslite.” This
plausibly alleged that consumers would be misled about the “nature,
characteristics, or qualities” of Crocs’ product.
For-profit company can republish ASTM standards incorporated by reference into law
Am. Soc. for Testing & Materials v. UpCodes, Inc., No. 24-1895 (E.D. Pa. Oct. 2, 2024)
ASTM, which produces technical standards, sued UpCodes for providing free online access to
unauthorized copies of ten ASTM standards, all of which have been incorporated
by reference into state and local legal codes. ASTM sought a preliminary injunction
based on its copyright and trademark claims, which the court denied.
Over seventy percent of ASTM’s revenue comes from the sale
of its standards. Along with individual sales, ASTM sells a publication
entitled ASTM Standards in Building Codes that contains over 13,000 ASTM
standards including the ten at issue here.
“Although local, state, and federal jurisdictions reference
ASTM standards in their laws, it is accepted that ASTM does not lobby the
government—or other entities—to reference their standards.” Nonetheless, ASTM’s
official form and style manual indicates that certain ASTM standards are
“developed for reference in model building codes.” Plus, “when ASTM standards
are adopted into law, ASTM can market its own compliance-focused training
materials.”
UpCodes is a for-profit start-up, which only publishes
standards that, in its view, have been adopted into law by specific
jurisdictions. Users of the UpCodes website can filter their searches by
jurisdiction or by the original publisher of the adopted standard. Any user
with an UpCodes account can freely view and copy a supported jurisdiction’s
laws , and they can also purchase a subscription to access UpCodes’ premium
features, including bookmarking, annotating, and automation tools. Posting
these standards therefore “may provide UpCodes with tangential benefits like
drawing users to its website, increasing active account numbers, and enabling
the collection of user information.”
Each unauthorized copy that UpCodes posted at issue here includes
what ASTM describes as “expressly non-mandatory” material, such as explanatory
notes, supplementary materials, appendices, and Annexes. UpCodes identifies
ASTM as the original publisher. Since promulgating the ten standards at issue,
ASTM has published updated versions of nine of them.
When a standard is incorporated by reference,
the incorporated standard may be
enforced against regulated entities without being included in the text of the
law itself. When this happens, a regulated entity will not find the text of the
standard that details their legal obligations in the official public code. They
must look elsewhere to access the content of the standard. Often, that access
comes with a price. The private standard-developing organizations that create
these referenced standards typically copyright their work and charge fees for
users to access them.
When federal agencies incorporate by reference
privately authored materials, federal law requires copies of incorporated
standards to be, at a minimum, available for public inspection at the Office of
the Federal Register’s reading room in Washington D.C., and in the promulgating
agency’s public library. ASTM also operates an online read-only reading room
(with no print or download options) for ASTM standards that have been
incorporated into federal law.
But no such law regulates state or local government
incorporation by reference. The standards at issue in this case were not
available online for free before UpCodes posted them. Although incorporation by
reference can save money and work, it can create “serious notice and
accountability problems.” “[P]lacing legally binding standards behind paywalls
undermines the ‘principle that [government] should provide regulated parties
fair warning of the conduct [a regulation] prohibits or requires.’” This may
also hinder mechanisms of democratic accountability.
Incorporation by reference can also occur indirectly: A
government incorporates by reference a third-party publication. That
publication incorporates by reference a separate privately authored standard. Whether
incorporation by reference is direct or indirect, neither involve having “the
content of the technical standard reprinted in the text of the law itself.
Thus, people are typically unable to view the content of these standards unless
they pay a fee.”
The Philadelphia Building Code states that the 2018
International Building Code “is incorporated as if fully set forth herein,
subject to [] local amendments.” As the IBC’s Chapter on Referenced Standards
explains, “[t]he International Building Code contains numerous references to
standards promulgated by other organizations that are used to provide
requirements for materials and methods of construction . . . . These standards,
in essence, are part of this code to the extent of the reference to the
standard.” The ten ASTM standards at issue are so incorporated. If individuals
violate the Philadelphia Building Code, they can face fines of up to three
hundred dollars a day per violation.
Reading the fair use factors in light of copyright’s
purposes, UpCodes’ copying was likely to be fair use.
Factor one “considers the reasons for, and nature of, the
copier’s use of an original work.” The court deemed UpCodes’ use of the
standards “largely noncommercial,” since it didn’t derive any direct monetary
profit from publishing them. And the transformative nature of the use outweighed
its status as a for-profit company. “UpCodes achieves the distinct objective of
making the law freely accessible and educating the public on the contents of
binding laws. Unlike ASTM, UpCodes seeks neither to publish industry best
practices nor to ‘positively impact[] public health and safety’ by developing
high-quality technical standards.” This use had a different character and
further purpose from ASTM’s use.
The court declined to see both purposes as “providing information to professionals.” UpCodes focused on standards that have been enacted into law, while ASTM sought to publish standards that improve safety and performance. One objective indication of that different purpose (following Warhol) that weighed in UpCodes’ favor was that ASTM has updated 9 of the 10 standards, but UpCodes doesn’t publish the updated versions because they’re not the law, showing that the reasons for copying were different than ASTM’s reasons for publishing. (Although this isn't a big data case, it follows the pattern, which Warhol may have accelerated, of courts being more confident in identifying different purpose in identical copies than different "character" when the latter requires assessing the meaning of physical changes to the copied work.)
In addition, the use was “justified because it furthers the
goal[s] of copyright,” including “enriching public knowledge.” And it was
“justified because copying is reasonably necessary to achieve [UpCodes’] new
purpose.” As UpCodes explained, “[i]f [it] attempted to express that law using
other words . . . it would not be publishing the law of Philadelphia.” The DC
Circuit’s decision in Public Resource was persuasive, even though
UpCodes is not a nonprofit, given the mostly noncommercial nature of the use. Although
the explanatory notes, supplementary materials, and appendices weren’t binding,
the court agreed with the DC Circuit that, “because law is interpreted
contextually, even explanatory and background material will aid in
understanding and interpreting legal duties” and, like legislative history,
such materials “may prove [] important for resolving ambiguities in the
portions of standards that set forth the directly binding legal obligations.”
Factor two: Technical standards generally “fall at the
factual end of the fact-fiction spectrum, which counsels in favor of finding
fair use.” And because “the express text of the law falls plainly outside the
realm of copyright protection,” “standards incorporated by reference into law
are, at best, at the outer edge of ‘copyright’s protective purposes.’” The
nature of the work, that is, is that it has been incorporated into law, weighing
“heavily” in favor of fair use.
Factor three: It’s ok to copy the whole thing when that’s
reasonable in relation to the purpose and character of the use. “[T]his amount
of copying was plainly reasonable in relation to UpCodes’ objective.” Like the
DC Circuit, the court agreed that this factor “strongly” supported fair use
because the copying was limited “to only what is required to fairly describe
the standard’s legal import.”
Factor four: Following Google v. Oracle’s directive
that “a potential loss of revenue is not the whole story,” the court analyzed
both the source of any market harm and the countervailing public benefits of
the copying. Courts must consider “whether enforcing a copyright will allow the
copyright holder to gain profits that would ‘interfere with, not further,
copyright’s basic creativity objectives’” and balance the monetary effects
against the public benefits, a consideration that was “especially weighty” when
it came to standards that have been given the force of law.
Using this analysis, the fourth factor didn’t weigh clearly
in either side’s favor. It was “plain” that free availability from UpCodes
would have a market effect on purchases of the standards from ASTM. Nonetheless, copyright “should not grant
anyone more economic power than is necessary to achieve the incentive to
create,” and “ASTM may have other incentives to continue developing technical
standards even if some of its standards lose their copyright protection after
being enacted into law”: “its mission of promoting product quality and public
safety, its professional interest in being recognized as a global leader in
standard development, and other monetary benefits that it may derive after its
standards are incorporated into law, like profits derived from marketing its
own compliance-focused training materials.”
And of course the countervailing public benefits were
substantial—there was no requirement that referenced standards enacted by state
and local jurisdictions be publicly available, but significant practical value
to the public of unfettered access to such incorporated standards. “For
example, journalists have explained that this access is essential to inform
their news coverage; union members have explained that this access helps them
advocate and negotiate for safe working conditions; and the NAACP has explained
that this access helps citizens assert their legal rights and advocate for
legal reforms.”
Weighing the factors, the use was fair. After all, copyright
law is not designed for the primary purpose of providing “a special private
benefit” to authors like ASTM. The court didn’t see why incorporation by
reference was any different from direct incorporation into law for fair use
purposes, since the legal consequences were “virtually indistinguishable.” (Is
it even “virtually” indistinguishable? Maybe for the commentary.)
Trademark: This was nominative fair use. In nominative fair
use cases, “the alleged infringer uses the trademark holder’s mark to describe
the trademark holder’s product, even if the alleged infringer’s ultimate goal
is to describe his own product.” Like car mechanics identifying VWs as among
the types of cars they repair, UpCodes used ASTM’s mark in a nominative manner.
And “the only practical way” for UpCodes to refer to them was to use the term,
because the entities that incorporated the standards into law did so.
In the Third Circuit, courts use a modified LOC case in
nominative use cases. Under that test, two usually key factors—similarity between
the owner’s mark and the allegedly infringing mark, and strength of the owner’s
mark—are ignored (because in a NFU situation they wouldn’t actually bear on likely
confusion/the use is justified even, or especially, because it’s identical to a
strong mark). Although district courts have discretion, four other factors are likely
to be relevant: (1) the price of the goods and other factors indicative of the
care and attention expected of consumers when making a purchase; (2) the length
of time the defendant has used the mark without evidence of actual confusion;
(3) the intent of the defendant in adopting the mark; and (4) the evidence of
actual confusion. Only if those factors favor a likely confusion finding does
the burden shift to the defendant to show that it’s satisfied the NFU test.
ASTM didn’t make it to the burden-shifting stage.
Here, length of defendant’s use was short and thus not very
probative one way or another. But the relevant consumers were sophisticated: ASTM’s
standards are “targeted at technical people” including “engineers, architects,
builders, and suppliers and manufacturers of construction materials.”
UpCodes’ intent was not to “confuse or deceive consumers as
to the product’s source . . . .” Instead, “ASTM” was the only practical way to
refer to the standards; its intent was accuracy.
And there was no evidence of actual confusion.
Thus, there was no likely success on the merits.
(It’s not even obvious that there’s more to do for summary judgment,
certainly on the copyright claims.)