What's UpCounsel? LegalForce thinks it's false advertising

LegalForce RAPC Worldwide P.C. v. UpCounsel, Inc., 2019 WL 160335, No. 18-cv-02573-YGR (N.D. Cal. Jan. 10, 2019)

LegalForce’s litigation against various competitors in the trademark registration world continues.  UpCounsel “is an online marketplace for legal services that enables users (primarily entrepreneurs and businesses) to find and hire attorneys via its website.” LegalForce sued UpCounsel for false advertising and unfair competition, including acting as an unregistered lawyer referral service.

Here, some of the false advertising claims were dismissed as puffery, while others survived.

Law firm/virtual law firm: Exemplary statements included: “We are the world’s largest virtual law firm for businesses of any size. We allow businesses to get high-quality, cost-effective legal services. While our lawyers serve as outside general counsel to many companies, we also assist with specialized legal work like IP, immigration, commercial contracts, litigation, and much more.” The “world’s largest” part was nonactionable puffery.  The “virtual law firm” part was not actionable because of the context, which also introduced UpCounsel as a “startup” that enabled others to “find” attorneys and thus indicated that UpCounsel was a platform rather than a true firm.  I understand the court to be reasoning that there are “tech platforms that enable individual lawyers to communicate with clients” (Uber, but for lawyers) and there are “law firms,” and because most of the challenged statements gestured at identifying UpCounsel as a “platform,” all the rest of that understanding—including that the lawyers would be individuals operating separately—would naturally follow.  On the one hand, seeking legal counsel does require some care and attention from a reasonable consumer; on the other, (1) the whole point of the service is to target people starting businesses fresh, who may not know the ins and outs of the legal services market; (2) even experienced nonlawyers may reasonably not know very much about the important differences between a “law firm” and other means of getting legal services. Anyway, similar statements were analyzed similarly, where there was mention both of a “virtual law firm” and of independent contractors or a claim of “as good as using a law firm.”

However, claims of the form “Top 5% of { Practice Area}  Lawyers in { City}” were not puffery.  LegalForce alleged that “[b]y indicating ‘5%’, UpCounsel implies that there exists an independent and publicly trusted ranking system in each and every city and the attorneys that UpCounsel lists on its city pages are chosen from the top 5% of such a list. In reality, no such list exists.” It quoted a review by a customer of UpCounsel who said the reason he selected UpCounsel was because he believed it was “a network for only the most top notch legal reps in the area” and “[t]he attorneys offered with them are at the top of their game and you will get what you pay for.” Another customer wrote that he was deceived when he saw an advertisement on a search engine “[o]ffering ‘Business Legal Services On-Demand by Top Attorneys’” and thought that a disruptive startup would be a good, cheaper choice for a disruptive startup to use. He concluded: “I wish I had never used UpCounsel and I’m warning all startups, business and companies out there to never make the same mistake!” [Which goes to show that you maybe shouldn’t hire a lawyer the way you’d summon a Lyft.]

Lanham Act claims based on the claim of “Top 5% of Trademark Attorneys” already survived a motion to dismiss on the basis of puffery. Challenging similar statements pertaining to other types of attorneys, namely patent, intellectual property, copyright, and startup attorneys, didn’t change the analysis. UpCounsel cited Hackett v. Feeney, No. 2:09-cv-02075-RLH-LRL, 2011 WL 4007531 (D. Nev. Sept. 8, 2011) to argue that, in order to be actionable, the statement must answer the “critical question ‘[Top 5%] as determined by whom[?]’ ” But that case involved a “voted #1 best show in Vegas!”; not only is #1  particularly puffy, but voting on a best show is also puffier than specifying a specific category of attorneys. Specifying a specific practice area meant that “[i]t cannot be said that no reasonable consumer would rely on such an assertion.”

UpCounsel argued that Google made the challenged statements, not UpCounsel, but this didn’t work at the motion to dismiss stage.  “Plaintiffs allege that the search results ‘republish’ statements originally made by UpCounsel. The issue of who actually made the statements (i.e., the search results) is a factual issue to be resolved at summary judgment.”

The same result happened with “The 10 Best { Practice Area}  Lawyers in { State}  NEAR ME,” which was allegedly false because “individuals listed in each resulting page are not usually near the customer who did the search, and often not even in the same state.”  “A reasonable consumer reading these statements could conclude that UpCounsel attorneys are objectively and measurably superior to other ‘{ practice area}  lawyers in { state}’ near the consumer.” [And even if not, they could reasonably conclude that those were lawyers “near” them.]

So too with “{ City}  { Practice Area}  Lawyers 5.0 ***** Based on { X number of}  reviews,” e.g., “Cotati Intellectual Property Lawyers 5.0 ***** Based on 5450 reviews.” That was allegedly false because “It is impossible for Cotati Intellectual Property Lawyers to have 5,450 reviews on UpCounsel. Cotati is a small town in Northern California with a population of 7,455. There are only 21 attorneys in the city of Cotati licensed to practice law in California, and none of these 21 attorneys are listed on UpCounsel.” (Among other things, one guy who allegedly never even used the UpCounsel platform appeared as a “Top 5%” franchise lawyer in Santa Rosa, California, “Top 5%” copyright lawyer in Coeur d’Alene, Idaho, and a “Top 5%” intellectual property lawyer in Montgomery, Alabama, among other practice areas and cities.)  Invariably, LegalForce alleged, UpCounsel would display a five-star rating, resulting from deceptively aggregating reviews to make it seem as if the reviews came from actual customers in those cities and states.” UpCounsel allegedly used code to “refresh” its reviews to make them more attractive to Google.

UpCounsel argued that use of SEO techniques “as a means to its advertising ends” didn’t state a claim under the Lanham Act because UpCounsel’s “software code” wasn’t a statement that was seen or relied on by customers, and that statements regarding five-star reviews were non-actionable puffery. The first issue, whether the code is (or made) a statement that consumers saw and relied on was a factual issue for summary judgment. The statements were not puffery. [Among other things, that there were X number of relevant reviews is a verifiable statement, even if the individual statements in the review might be non-factual.]

Similarly, LegalForce alleged that UpCounsel “intentionally and purposefully, and in bad faith, attempts to deceive Google search crawlers and the public that uses Google to search for legal services.” For example, “UpCounsel’s tag for its 5450 fabricated reviews for attorneys in Cotati is based on a fraudulent data field called ‘reviewCount’ which is printed on each page,” and “UpCounsel’s page source for each of its tens of thousands of reviews” includes code whose the sole purpose was to “trick search engines into recognizing UpCounsel’s aggregate ratings as trustworthy.” Using this code allegedly intentionally violated Google’s technical and content guidelines.

UpCounsel argued that its “software code” and HTML “page source” weren’t statements that were seen and relied on by customers. Further, a false advertising claim requires a false statement made by the defendant, so UpCounsel argued that a claim couldn’t be based on search results that LegalForce elicited from a search engine using words that LegalForce chose. The court agreed that, standing on their own, the software code and HMTL page source weren’t actionable statements. But LegalForce’s pleading “tied the software code and HTML page source to specific actionable statements,” such that UpCounsel’s actions caused search results to include false and misleading statements.  The software code and HTML page source were thus allegedly evidence of intent to mislead consumers.

Next, LegalForce alleged that “UpCounsel deceives customers by steering them to attorneys and non-attorneys who are not located anywhere close to their city, or authorized to practice in their respective state” or in any state. Among other things, UpCounsel listed patent agents as lawyers; UpCounsel conceded that three examples cited in the complaint were in fact patent prosecutors (among other things, a patent agent appeared as a “Top 5%” immigration lawyer in Blackfoot Idaho and as an “Oregon Attorney[ ] & Lawyer[ ] for Hire On-Demand” through UpCounsel). But UpCounsel argued that it didn’t steer anyone to unlicensed attorneys and that nothing on its UpCounsel’s website represents that these individuals are attorneys.

Comment: Google search results are answers to questions, which thus could be false as answers—and potentially false advertising under the right circumstances—even if they lack a true/false value standing alone. If UpCounsel programs its site to respond to a search for lawyers with unlabelled nonlawyers or lawyers outside the jurisdiction and use the headline “Top 5% of Patent Lawyers in Oakland, California,” then the response can be as false as if I asked for Diet Coke at a restaurant and was given undisclosed Diet Pepsi in return (and though I am loath to admit it, the results for consumers could be far worse).  There’s nothing inherently false about Diet Pepsi; the falsity is in the use in response to a request for something else. 

However, this formulation seems to foreground a §230 issue that is not discussed in the opinion: does UpCounsel rely on what its (putative) lawyer-contractors tell it?  Or does the problem come from non-§230 protected decisions made by UpCounsel on how to structure or label the website?  This formulation also highlights that labelling may be the key here: there’s nothing wrong with advertising an alternative to what the consumer is searching for, but even in the comparatively more liability-happy area of trademark the courts have understood that labeling is the key.  One question is whether ultimately it should matter that, in the individual description of the lawyer/patent agent on the page of “patent lawyers,” (1) that description is provided by the user, or (2) the description is clear, which in the case of the specific patent agent identified by the complaint it was not—he offered “legal services” and “patent prosecution services” but didn’t disclose that he was a nonlawyer, something another nonlawyer might not notice especially among a page of lawyers offering similar services.  When I search Amazon I often get a set of results that don’t make any sense (something to do with algorithmic manipulation or something even weirder?); is Amazon falsely advertising to me because of those bad results, which come from seller-provided information?  My sense is that the answer is no, but then again the fact that some of the results are bad is much easier to determine when I’m looking for girls’ pants size 10; I also think that it is different for a platform to claim to provide access to legal services in particular, which structures consumer expectations when looking at specific entries.

One problem seems to be that UpCounsel structured its own page/headline creation algorithm to be so overenthusiastic that it recommended lawyers far outside their practice areas or states of licensure.  Unless that came from data entered by individual participants checking boxes for those practice areas/states, I think that §230 would not pose a barrier to liability for such structuring.

Anyway, the court concluded: “Accepting as true plaintiffs’ allegation that the search results ‘republish’ statements originally made by UpCounsel, as the Court must in analyzing UpCounsel’s motion to dismiss, UpCounsel cannot reasonably argue at this stage that it has not made false statements by way of the search results.”

UCL claims:  Allegations of lost business and decrease in business value, and allegations of wrongfully denied business opportunities, sufficed to plead standing under the UCL’s expansive standing doctrine.  But could LegalForce bring claims based on violations of other laws that didn’t themselves provide a private cause of action? Usually, yes; the limit is that plaintiffs may not “plead around an absolute bar to relief” by recasting the cause of action as a claim under the UCL: “[t]o forestall an action under the unfair competition law, another provision must actually ‘bar’ the action....” by explicitly precluding private enforcement or expressly providing immunity for the conduct alleged.

Some of the other rules that LegalForce alleged UpCounsel violated thus allowed a bootstrapping UCL claim, such as the provision of the California Business and Professions Code section that bars unregistered attorney referral services. This was not enforceable by private parties, but its violation could be borrowed to create a remedy under the UCL. However, the California ules of Professional Conduct expressly provide: “These rules are not intended to create new civil causes of action.”  Their violation couldn’t be borrowed for a UCL claim. As for federal USPTO rules of professional conduct, the court found no binding or citable authority that the claims were impliedly preempted.

The UCL unfairness claim also survived. As a competitor, LegalForce had to use the more limited definition of “unfair”: they had to plead “conduct that threatens an incipient violation of an antitrust law, or violates the policy or spirit of one of those laws because its effects are comparable to or the same as a violation of the law, or otherwise significantly threatens or harms competition.” UpCounsel argued that this couldn’t be done without pleading “a reduction of competition in the market in general and not mere injury to their own positions as competitors.” The court didn’t agree that LegalForce had to state an antitrust claim to proceed.  They sufficiently pled that UpCounsel’s actions “otherwise significantly threaten[ ] or harm[ ] competition,” given allegations that UpCounsel gave itself an unfair advantage over legitimate, rule-following competitors.

FDCA preempts arguments that structure/function claims in fact mislead about disease prevention

Dachauer v. NBTY, Inc., --- F.3d ----, 2019 WL 150016, No. 17-16242 (9^th Cir. Jan. 10, 2019)

Defendants make vitamin E supplements that claim, on their labels, to “support cardiovascular health” and to “promote[ ] immune function,” “immune health,” “heart health,” and “circulatory health.” Dachauer alleged false advertising, because the supplements do not prevent cardiovascular disease and might increase the risk of all-cause mortality. The district court granted summary judgment, and the court of appeals affirmed, mostly on the alternate ground of preemption.

The FDCA distinguishes between “disease claims” and “structure/function claims” for dietary supplements. A structure/function claim “describes the role of a nutrient or dietary ingredient intended to affect the structure or function in humans” or “characterizes the documented mechanism by which a nutrient or dietary ingredient acts to maintain such structure or function,” but “may not claim to diagnose, mitigate, treat, cure, or prevent a specific disease or class of diseases.” A disease claim, conversely, “claims to diagnose, mitigate, treat, cure, or prevent disease,” either explicitly or implicitly. To make a structure/function claim, the manufacturer must have substantiation that the statement is truthful and not misleading; the statement must contain a prominent disclaimer that the FDA hasn’t evaluated the statement and that the product “is not intended to diagnose, treat, cure, or prevent any disease”; and the statement must not itself “claim to diagnose, mitigate, treat, cure, or prevent” disease.

The FDA’s guidance states that structure/function claims may use general terms such as “strengthen,” “improve,” and “protect,” as long as the claims “do not suggest disease prevention or treatment.” It holds that, for example, “supports the immune system” doesn’t imply disease prevention, even though by any ordinary rules of communication it does.  The FDA further allows substantiation of structure/function claims with evidence of an effect on a small aspect of the relevant structure/function, rather than with evidence of an effect on the main disease that consumers associate with that structure or function.  [A concise explanation of the extremely underregulated features of supplement law, as compared to other fields.]

California law doesn’t allow private plaintiffs to demand substantiation for advertising claims. The private plaintiff bears the burden of producing evidence to prove that the challenged statement is false or misleading.  [Though of course it could be false or misleading by explicitly or implicitly claiming to have substantiation that doesn’t exist.]

The FDCA expressly preempts any state law that establishes “any requirement respecting any claim of the type described in section 343(r)(1) of this title made in the label or labeling of food that is not identical” to FDCA requirements such as those for structure/function claims. The argument that defendants’ structure/function claims were false because the supplements don’t prevent cardiovascular disease were thus preempted.

There was “ample” evidence that vitamin E supplements, taken in the doses that defendants sell, fail to prevent cardiovascular disease. Plaintiff’s expert argued that “no metric except the absence or presence of cardiovascular disease can measure heart health,” but this was a rejection of the two separate FDCA categories and thus not an acceptable conclusion because it would impose a non-identical requirement on supplements that claim to promote heart health.  [I think this is the right result under the law, which highlights that the current law has nothing to do with truth or truthful communication.  One could have a regime that allowed more specific claims—taking supplements with this ingredient is associated with improved indicator X, which itself may be associated with a lower risk of heart disease—but that’s not the system we have, which allows the manufacturer to skip all the qualifications and inherently imply broad-based efficacy by using the approved structure/function formulation.] The same was true for defendants’ claim that their supplements promote immune health, even if the supplements fail to reduce all-cause mortality.

However, the misleadingness claim based on the argument that the supplements increase the risk of all-cause mortality was not preempted. FDCA regulations say that a label “shall be deemed to be misleading if it fails to reveal facts” that are “[m]aterial with respect to consequences which may result from use of the article” under normal conditions of use or the conditions of use that the label prescribes. “In other words, if a supplement’s label recommends taking one capsule per day, and that dose actually causes an increased risk of death—a material fact ‘with respect to consequences which may result from use of the article’—the FDCA would deem it misleading not to reveal that fact on the label.”  That would also violate California law. However, the record lacked evidence that vitamin E supplements were actually harmful, as opposed to simply useless at reducing all-cause mortality (which they do not claim to reduce). At best, the record showed a “small” correlation between high-dose vitamin E supplements and an increased risk of all-cause mortality. The meta-analyses showing this correlation didn’t conclude that vitamin E supplements caused an increased risk of all-cause mortality. That wasn’ enough to create a genuine issue of material fact.

Claims in contracts aren't "advertising or promotion"

Segerdahl Corp. v. American Litho, Inc., No. 17-cv-3015, 2019 WL 157924 (N.D. Ill. Jan. 10, 2019)

This opinion deals with Lanham Act/coordinate state law counterclaims by American Litho against Segerdahl. The parties compete within the direct mail service market, a subset of the printing and marketing industry. American Litho challenged statements on Segerdahl’s website:

Our ability to handle your sampling program from start to finish under one roof means greater security, better quality and shorter turn-time.

We specialize in digital, web and sheetfed offset printing-all housed within our single campus network to provide a level of flexibility not found anywhere else.

Our integrated campus and end-to-end capabilities allow us to easily maintain control of your most intricate projects.

We are the only facility that can execute your entire sampling program on one campus-providing greater security, faster time to market, tighter quality and inventory control.

American Litho also challenged Segerdahl’s statements in its contracts with three of its customers, agreeing to perform all printing services in-house despite subcontracting portions of the work without their customers’ knowledge.  The statements in those contracts weren’t “commercial advertising or promotion.”  Statements to current customers aren’t “communicated for promotional purposes.”

Website statements: These were puffery. American Litho argued that Segerdahl’s website misled potential customers to believe that all printing jobs are handled on-site, but the statements were either exaggerated or so vague that they couldn’t be proven or disproven. American Litho focused on the phrase “from start to finish under one roof,” but the entire statement merely “brags on Segerdahl’s ‘ability’ to handle printing jobs that results in ‘greater security, better quality and shorter-turn time.’” Other similar statements were tied to claims about Segardahl’s generalized awesomeness. “Does American Litho suppose that customers are comparing with all industry rivals to verify whether Segerdahl truly offers ‘a level of flexibility not found anywhere else?’ The Court is doubtful…. One would expect these types of subjective nonquantifiable statements to be posted on a company’s website. That is the very purpose of advertisement.” [Ugh. I liked it when the purpose of ads was to convey actual information.]  Ultimately, these were “nonactionable highly subjective claims.”

false advertising claim needs to talk about asterisks to plead with particularity

Anthony v. Pharmavite, 2019 WL 109446, No. 18-cv-02636-EMC (N.D. Cal. Jan. 4, 2019)

Despite generally favorable substantive rulings for plaintiffs, the court dismisses the complaint for false advertising of a nutrition supplement for failure to plead with particularity under Rule 9(b), specifically for failing to discuss the asterisks on the claims at issue.

Pharmavite represents that its biotin supplements “may help support healthy hair, skin and nails.” Each health benefit representation on a label includes either an asterisk and obelisk (*†) or two obelisks (†‡), which I will shorthand as asterisks. The relevant references are to a disclaimer on the back of a label that says: “Biotin may help support healthy hair, skin, and nails in those that are biotin deficient”  or “May help support healthy hair, skin and nails in those deficient in biotin.”  This is allegedly misleading because “most people obtain more than enough biotin from their daily diets, so biotin supplements are unneeded, superfluous, and will provide no health benefits. Only a minuscule percentage of individuals with biotin deficiencies could potentially benefit from biotin supplements.” Allegedly, “[o]nce there is sufficient biotin in the body, any additional supplements are superfluous and the body ultimately excretes them.” The only benefits would come to people with  “exceedingly rare conditions that cause ... biotin deficiencies—less than [0.00138] percent of the population.”

Whether a reasonable consumer would be misled by the labeling could not be resolved as a matter of law, given the prominence of the claim to “help support healthy hair, skin and nails.” “A reasonable consumer, representing a significant portion of the population, could understand this representation to mean that there is a possibility that he/she will experience benefits to his/her hair, skin, and nails from using the Biotin Products.”  [It is extremely unlikely that “may” moderates this much if at all.]  As alleged, the vast majority of the population can’t benefit, so “for virtually all consumers, the term ‘may’ overstates the chances of obtaining any benefit.” Qualifying words like “may” may be relevant to the reasonable consumer’s understanding [cases cited, but not consumer research—plaintiffs might be well advised to plead that “may” doesn’t matter!] but that could still be misleading. “A reasonable consumer could understand ‘may’ to mean a reasonable possibility or a reasonable probability, rather than merely a vanishingly small possibility on the order of 0.00138 percent.” 

As for the deficiency disclaimers, there was a question of fact about whether a reasonable consumer would notice it and continue on to the disclaimer. The Ninth Circuit has rejected the premise that “reasonable consumers should be expected to look beyond misleading representations on the front of the box to discover the truth from the ... small print on the side of the box.”  There was a separate question about whether the substance of the disclaimer was any use. “For instance, the disclaimer does not state that the Biotin Products would not benefit those who are not biotin deficient. Nor does it explain that exceedingly few people are in fact biotin deficient. A reasonable consumer, experiencing hair, skin or nail problems, might plausibly believe he or she has a biotin deficiency or would otherwise benefit from the product.” [Cf. the old Geritol case, where Geritol advertised that it could alleviate fatigue caused by iron deficiency—much more clearly making the relevant disclosure than here.  This was nonetheless misleading because most fatigue wasn’t caused by iron deficiency, so many consumers were buying a product that wouldn’t help them with the problem for which they sought relief, given that Geritol’s ads targeted the general, fatigued population.] Thus, the disclaimer was not so unambiguous and express that a reasonable consumer couldn’t be deceived as a matter of law.

However, the complaint still flunked 9(b) because it didn’t discuss whether plaintiffs saw the asterisk; whether they read the corresponding disclaimer; and if they did read it, how the disclaimer affected their purchasing decision. It didn’t mention the asterisk or disclaimer at all. Dismissed without prejudice.

The injunctive relief claim was dismissed with prejudice because plaintiffs didn’t allege an imminent or actual threat of future harm absent an injunction. The claim was “predicated on the premise that, as a matter of scientific fact, biotin supplements ‘are unneeded, superfluous, and will not provide any benefits’ to anyone without a biotin deficiency.” Thus, plaintiffs wouldn’t desire to purchase such supplements in the future if truthfully advertised.

False claims of "original" status don't support public interest in disseminating art for anti-SLAPP purposes

Coker v. Sassone, --- P.3d ----, 2019 WL 117467, 135 Nev. Adv. Op. 2, No. 73863 (Jan. 3, 2019)

In the course of interpreting the Nevada anti-SLAPP law, the Nevada Supreme Court says some things about the relationship between counterfeits that might easily be taken out of context and applied to any copies; I hope future applications heed its careful language.

Sassone is an artist and painter who has created numerous works of art, but never made original, signed lithographs. When he saw such advertised, he sued Coker, alleging that the copies being sold were counterfeit and that his signature was forged. Coker filed a special motion to dismiss under NRS 41.660, the state anti-SLAPP law, arguing that dissemination of artwork to the public is expressive conduct and is in the public interest. The district court denied Coker’s motion, finding that Coker failed to demonstrate that his conduct was “a good faith communication that was either truthful or made without knowledge of its falsehood,” one of the statutory requirements for anti-SLAPP protection. The Supreme Court affirmed, conducting a de novo review.

Under Nevada law, district court considering a special motion to dismiss must undertake a two-prong analysis. First, it must “[d]etermine whether the moving party has established, by a preponderance of the evidence, that the claim is based upon a good faith communication in furtherance of ... the right to free speech in direct connection with an issue of public concern.” At that point, “the burden shifts to the plaintiff to show ‘with prima facie evidence a probability of prevailing on the claim.’ ”

Only the first part was at issue here.  An anti-SLAPP movant  “need only demonstrate that his or her conduct falls within one of four statutorily defined categories of speech, rather than address difficult questions of First Amendment law.”  One such category is: “[c]ommunication made in direct connection with an issue of public interest in a place open to the public or in a public forum ... which is truthful or is made without knowledge of its falsehood.”  The truthful/good faith part was the problem here. Coker relied on his declaration that he bought the lithographs from a bulk art supplier and never personally created any copies of the artwork.  However, Sassone clarified that his complaint was based on Coker’s representation of the lithographs as originals. To take advantage of this category, “Coker would need to provide evidence persuading this court that at the time he advertised and sold the lithographs online, he believed that they were originals and, thus, advertised them as such. Tellingly, Coker has made no such statement. Nor has he provided this court with any evidence suggesting that he believed that the lithographs were, in fact, originals.” Thus, Coker failed to make the requisite showing.

In addition, Coker argued that his conduct was in direct connection with an issue of public interest, “widespread access to creative works.” However, Sassone wasn’t challenging “the mere dissemination of his artwork, but Coker’s description of the counterfeit works as originals. In this respect, Sassone acknowledges that had Coker copied Sassone’s works and sold the copies while disclosing them as such, Sassone would have no basis for his suit. We find this distinction imperative in concluding that Coker’s conduct was not made in direct connection with an issue of public interest” (emphasis added).

Under the governing law, which is statutory and not constitutional, and which is guided by similar California law, (1) “public interest” isn’t the same as mere curiosity; (2) a matter of public interest should be “of concern to a substantial number of people”; (3) there should be “some degree of closeness between the challenged statements and the asserted public interest—the assertion of a broad and amorphous public interest is not sufficient”; (4) the focus should be the public interest “rather than a mere effort to gather ammunition for another round of private controversy”; and (5) communicating something to a large number of people doesn’t alchemize it into a matter of public interest.

Here, (3) was lacking, as Coker failed to demonstrate how false advertising and the sale of counterfeit artwork was “sufficiently related to the dissemination of creative works.”  Stretching (4) out of its origin (to address the libel law scenario in which people are saying nasty things back & forth), the court also found that Coker failed to show that the focus of his conduct “was to increase access to creative works or advance the free flow of information. Without evidence suggesting otherwise, we conclude that his focus was to profit from the sale of artwork, and that increased access to creative work was merely incidental.”  [This is very troubling standing alone: a lot expressive activity, including online, is done for profit, and its content could easily be called “incidental”—at the very least, this idea should be rejected where a profit-seeking movant says that the content was deliberately chosen as content that deserved dissemination, though Coker apparently didn’t do that here.]  The conclusion was still limited: “we cannot conclude that selling counterfeit artwork online, while advertising it as original, is related to the asserted public interest of dissemination of creative works.”

Maloney v. T3Media, Inc., 853 F.3d 1004 (9th Cir. 2017), was not to the contrary. Maloney upheld the grant of a media company’s anti-SLAPP motion after the company was sued for distributing unlicensed photographs of NCAA student-athletes. The Ninth Circuit held that the activity was in the public interest “because the photographs memorialize cherished moments in NCAA sports history, and California defines ‘an issue of public interest’ broadly.” But Coker didn’t explain how sports memorabilia related to art. And Maloney didn’t justify extending the definition of “an issue of public interest” to include “the advertisement and sale of counterfeit artwork as original.” Whether this was expressive activity under the First Amendment was not relevant to the interpretation of the anti-SLAPP act.

Announcing the Fourth Edition of Advertising & Marketing Law: Cases & Materials by Tushnet & Goldman

Eric Goldman has all the details here.  Preview:

 It is available for purchase in the following formats:

* A DRM-free PDF file. Price: $12
* A DRM-free ePub file for mobile devices. Price: $12
* In Kindle. Price: $9.99
* A print-on-demand book from Amazon. Because of the book’s length, we publish the hard copy in two volumes: Volume 1(covering chapters 1-8) and Volume 2 (covering chapters 9-17). Price is $20 for each volume ($40 for the set) plus shipping and tax. The hard copy 4th edition is cheaper than the 3rd edition by 10%, plus the book should now qualify for free Amazon shipping, Also, we offer a free PDF or ePub file to buyers of the hard copy version; all they have to do is email me a copy of their receipt showing which edition they bought, and I’ll promptly email the electronic file.

As usual, if you are a professor, or are hoping to teach the course, and would like a free evaluation copy, please email me (egoldman@gmail.com).

A sample chapter, Chapter 13 (on publicity rights and endorsements), is available as a free download.

We’ve discussed the book’s background and our goals as authors in this essay.

Y/S/H Junior Faculty Forum, June 5-6 2019 Request for Submissions (including IP)

Yale/Stanford/Harvard Junior Faculty Forum

June 5-6, 2019, Yale Law School

Yale, Stanford, and Harvard Law Schools announce the 20th session of the Junior Faculty Forum to be held at Yale Law School on June 5-6, 2019.

The Forum’s objective is to encourage the work of scholars recently appointed to a tenure-track position by providing experience in the pursuit of scholarship and the nature of the scholarly exchange. Meetings are held each year, rotating among Yale, Stanford, and Harvard. Twelve to twenty scholars (with one to seven years in teaching) will be chosen on a blind basis to present their work at the Forum. One or more senior scholars will comment on each paper. The audience will include the participating junior faculty, faculty from the host institutions, and invited guests. The goal is discourse both on the merits of particular papers and on appropriate methodologies for doing work in that genre. We hope that comment and discussion will communicate what counts as good work among successful senior scholars and will also challenge and improve the standards that now obtain. The Forum also hopes to increase the sense of community among American legal scholars generally, particularly by strengthening ties between new and veteran professors.

TOPICS: Each year the Forum invites submissions on selected legal topics. For the upcoming 2019 meeting, the topics will cover the following areas of the law:

- Antitrust

- Bankruptcy

- Civil Litigation and Dispute Resolution

- Contracts and Commercial Law

- Corporate and Securities Law

- Intellectual Property

- International Business Law

- Private Law Theory and Comparative Private Law

- Property, Estates, and Unjust Enrichment

- Taxation

- Torts

A jury of accomplished scholars, with expertise in the particular subject area, will choose the papers to be presented. There is no publication commitment. Yale, Stanford, or Harvard will pay presenters’ and commentators’ travel expenses, though international flights may be only partially reimbursed.

QUALIFICATIONS: Authors who teach law in the U.S. in a tenured or tenure-track position and have not been teaching at either of those ranks for a total of more than seven years are eligible to submit their work. American citizens or permanent residents teaching abroad are also eligible provided that they have held a faculty position or the equivalent, including positions comparable to junior faculty positions in research institutions, for less than seven years and that they earned their last degree after 2009. We accept jointly authored submissions, but each of the coauthors must be individually eligible to participate in the Forum. Papers that will be published prior to Forum are not eligible. There is no limit on the number of submissions by any individual author. Faculty from Yale, Stanford, and Harvard Law Schools are not eligible.

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Parody as evidence of fame?

I was skeptical about the idea that the National Geographic golden frame was recognizable as a mark on its own, but parodic use (in conjunction with "society," so not entirely on its own) seems to me to be evidence to the contrary:

Actual confusion provides evidence of irreparable harm

Home Comfort Heating and Air Conditioning, Inc. v. Ken Starr, Inc., 2018 WL 3816745, No. 18-cv-00469-JLS-DFM (C.D. Cal. Jul. 24, 2018)

Home Comfort Heating & Air Conditioning provides HVAC services in Los Angeles County and the surrounding area; it asserted rights in marks “wholly or partially comprised of the word elements ‘HOME COMFORT,’ ” including “HOME COMFORT SERVICES,” and “HOME COMFORT HEATING AND AIR CONDITIONING.” It had some registrations.  Ken Starr Inc. subsequently began operating an HVAC business under the name “Home Comfort USA” in Southern California, including Los Angeles County and the surrounding area.

Notable findings: The court found strong evidence of confusion from negative online reviews, including one negative Yelp review, and oral complaints with regard to products and services that were supplied by KSI. In the prior year, Home Comfort received five attempts by customers seeking to return products purchased from KCI, two refund requests arising out of KCI’s services, thirty inquiries about KCI’s special pricing offers, and forty inquiries about available services from customers who saw KCI’s ads. A few of the voicemails were generic requests for quotes, but the majority reference specific accounts, appointments, and issues with prior work done by KCI.

The district court applied the 9^th Circuit’s screwed-up “can you determine the product just from knowing the mark?” test to determine that the marks were suggestive.  Twenty-six HVAC businesses around the nation that use some combination of the terms “home” and/or “comfort” in connection with their services didn’t diminish the strength of the mark, especially without more evidence of use and given that “HVAC customers will, necessarily, seek a local source for these products and services.” Of the three businesses that did serve California, each used other distinguishing words as well: “Stephan’s Home Comfort Services,” “Engineered Comfort,” and “US Comfort.” Nor did Home Comfort’s addition of “Heating & Air Conditioning” to its marks, KCI’s slogan “Call the Comfort Guys, We’re There!” or the parties’ different colors deminish the likely confusion. The word marks “Home Comfort” and “Home Comfort USA” were essentially indistinguishable and adding generic words didn’t create a meaningful distinction “from the perspective of a consumer.” The stylized marks included “Home Comfort” as their dominant portion and had a depiction of a house and appeared substantially similar; the colors and the slogan weren’t how consumers would make a primary identification.

Purchaser care was neutral because almost everyone needs HVAC services, making the target market average, but they tend to be expensive, increasing consumer care.

Given that the factors favored a finding of likely confusion, was there irreparable harm? The rule is that “[e]vidence of loss of control over business reputation and damage to goodwill could constitute irreparable harm,” and the court found that the actual confusion shown here satisfied that standard.  However, delay works against a finding of irreparable harm, and Home Comfort delayed 20 months after discovery of the problem to seek relief.  The court found that the delay was sufficiently explained by Home Comfort’s oppositions to KCI’s trademark registration applications and extensive settlement discussions. In addition, the dates of the voicemails indicated that confusion was increasing over time, making delay less probative.  With that, the other requirements for injunctive relief were easily satisfied.

Almond milk name isn't deceptive to reasonable consumers

Painter v. Blue Diamond Growers, No. 17-55901, 2018 WL 6720560, --- Fed.Appx. ---- (9th Cir. Dec. 20, 2018)

Painter alleged that Blue Diamond mislabeled its almond beverages as “almond milk” when they should be labeled “imitation milk” because they substitute for and resemble dairy milk but are nutritionally inferior to it. The court of appeals affirmed the district court’s finding of FDCA preemption. “The FDCA sets forth the bare requirement that foods imitating other foods bear a label with ‘the word “imitation” and, immediately thereafter, the name of the food imitated.’”  Painter’s argument that Blue Diamond needed either a nutritional comparison of almond milk to dairy milk or cease using the term “milk” on the label of its almond milk products thus conflicted with the FDCA.

Separately, the claim was properly dismissed as implausible.  No reasonable consumer would be deceived into believing that Blue Diamond’s almond milk products were nutritionally equivalent to dairy milk based on their package labels and advertising, which was unambiguous and factually accurate. Nor were the products plausibly mislabeled under federal law.  Almond milk wasn’t an “imitation” of dairy milk: “almond milk does not involve literally substituting inferior ingredients for those in dairy milk,” and a reasonable jury couldn’t conclude that almond milk was nutritionally inferior to dairy milk within the meaning of the law, because it wasn’t plausible that a reasonable consumer would “assume that two distinct products have the same nutritional content.”

Court sanctions plaintiffs for inaccurate images of product labels in complaint

Hunt v. Sunny Delight Beverages Co., No. 18-cv-00557-JLS-DFM, 2018 WL 6786265 (C.D. Cal. Dec. 18, 2018)

Some Sunny Delight beverages bear names derived from fruits, such as “Orange Strawberry,” “Orange Pineapple,” “Strawberry Guava,” and “Watermelon,” while others are less fruity, such as “Smooth & Sweet” or “Blue Raspberry.” Plaintiffs alleged they bought several different varieties, including the “Orange Strawberry” and “Orange Pineapple.” They brought the usual California claims, alleging that none of the Products “contain any or all of the actual juices from the displayed fruits,” and that the labels failed to disclose this. They alleged that that the following images were true and accurate representations of the “Orange Strawberry” and “Orange Pineapple” labels:

Sunny Delight sought to introduce evidence that the images weren’t in fact true and accurate depictions of the labels. The court agreed that this was improper at the pleading stage and denied the motion to dismiss. Sunny Delight later moved for Rule 11 sanctions, alleging that plaintiffs knowingly included inaccurate images and induced the court to rely on them.  The labels it proffered “include much, if not all, the information that Plaintiffs allege is unlawfully missing, including disclosures that the Products are ‘artificially flavored.’” Its chief marketing officer submitted a declaration that

Sunny Delight has never sold a product labeled as the ones [depicted in] the First Amended Complaint are labeled. Sunny Delight product labels have always included more information about the products than shown in [the FAC]. The images in [the FAC] that Plaintiffs claim are the true labels they read and relied on are actually just images from an old version of Sunny Delight’s website. Those were stylized images used on the website only. They lack numerous details on the actual labels because people looking at the website have trouble reading all the things that are on the actual labels given the size of the images. Sunny Delight has never sold any products with the labels reflected in [the FAC].

In addition, if plaintiffs bought Orange Strawberry within the last 5 years, it would have had a front-of-pack statement disclosing artificial ingredients. Deposition testimony from the named plaintiffs corroborated Sunny Delight’s argument that these were stylized images.  Counsel “intimated to them that the stylized online labels were identical to the in-store labels on the Products Plaintiffs had purchased; neither [plaintiff] could fully recall the actual contents of the labels on the purchased Products.”

The court found that plaintiffs and their counsel had knowingly made false factual contentions in the first amended complaint, including the allegation that the embedded image was a “true and accurate representation” of the labels, as well as numerous allegations that likewise incorrectly described those labels in ways that are central to the claims in the litigation. “These falsehoods were not the product of reasonable mistake and were not mere inaccuracies that would ‘likely have [had] evidentiary support after a reasonable opportunity for further investigation or discovery.’”  Plaintiffs’ counsel acknowledged at the hearing that they based the complaint on Sunny Delight’s website, not on the labels on the actual products. “That approach might have been acceptable had Plaintiffs purchased the Products based on a website image, but they did not…. It is apparent that Plaintiffs’ counsel did not undertake the most fundamental of investigations— namely, examining the actual Product labels—before filing the First Amended Complaint.”  Counsel had the opportunity to acknowledge the problem when Sunny Delight identified it, but they compounded it instead, arguing that the court should take the allegations as true.  This wasted the court’s and Sunny Delight’s time and resources, and was sanctionable under Rule 11.

The court struck the first amended complaint rather than parsing the allegations for any that were salveageable. However, the court wouldn’t strike the complaint with prejudice.  Plaintiffs argued that at least some of their claims still had merit, and the court didn’t rule on whether the presence of a front disclaimer would preclude the claims as a matter of law. The court was also wary of confusing attorney honesty with the merits; sanctions address only the former.  Nonetheless, to serve Rule 11’s deterrent purposes, the court also awarded reasonable attorneys’ fees for preparing this motion and the second motion to dismiss, where the misrepresented labels formed the core of the dispute and were the primary basis for the court’s ruling.  Fees for general casework, or for the first motion to dismiss—which was primarily about jurisdiction—were not included.

9th Circuit easily rejects In re GNC's "all scientists must agree" standard for falsity

Sonner v. Schwabe North America, Inc., --- F.3d ----, No. 17-55261, 2018 WL 6786616 (9th Cir. Dec. 26, 2018)

Happy holidays to me!

Sonner sued the sellers of two Ginkgold nutritional supplements for violations of the UCL and CLRA and breach of express warranty. Sonner alleged that the products were falsely labeled as capable of improving various cognitive functions when in fact they provided no such benefits, citing expert opinion and other scientific evidence (including evidence from randomized controlled trials showing no difference from placebo) in support.  The district court granted summary judgment, relying on In re GNC to hold that she couldn’t proceed on a literal falsity claim because she didn’t show that all scientists agreed that the claims were false.  Instead, it reasoned, where “both sides have produced expert testimony and scientific research in support of their claims,” but Sonner failed to critique the expert testimony and each of the scientific studies proffered by defendants by “challenging the methodology, structure, or independence of [Schwabe’s] studies,”  the evidence was “insufficient to allow a reasonable juror to conclude that there is no scientific support for [Schwabe’s] claims.”

The court of appeals reversed: “UCL and CLRA claims are to be analyzed in the same manner as any other claim, and the usual summary judgment rules apply.”  The plaintiff has the burden of proving falsity or misleadingness by a preponderance of the evidence. “Therefore, to defeat summary judgment, Sonner need only produce evidence of a genuine dispute of material fact that could satisfy the preponderance of the evidence burden at trial. Sonner easily met her burden by producing expert testimony and other scientific data that Ginkgo biloba has no more of an effect on mental sharpness, memory, or concentration than a placebo.” Requiring her to do more than that—to foreclose any possibility that the products worked—wrongly elevated her burden far beyond that applicable to summary judgment. Arguments going to the bases of experts’ opinions go to the weight of the evidence in the fact-finder’s evaluation, “an inquiry that is not proper at the summary judgment stage.”

Schwabe argued that the Ninth Circuit should follow In re GNC, 789 F.3d 505 (4th Cir. 2015), which required—at the pleading stage—a plaintiff to allege that “all scientists agree that [the products] are ineffective at providing the promised [ ] benefits” in order to allege falsity under California law.  This holding was always dumb—among other things, it rested on a misreading of the Lanham Act’s distinction between literal falsity and implicit falsity—and the court of appeals here rejected it.  “We are unpersuaded by the notion that a plaintiff must not only produce affirmative evidence, but also fatally undermine the defendant’s evidence, in order to proceed to trial.” That’s not how civil—or even criminal—litigation works.  “If the plaintiff’s evidence suggests that the products do not work as advertised and the defendant’s evidence suggests the opposite, there is a genuine dispute of material fact for the fact-finder to decide.”  

Nor were Sonner’s claims essentially “lack of substantiation” claims, which private plaintiffs are prohibited from pursuing under California law. “Sonner has the burden of proof as to her claims, unlike a substantiation claim where the onus is on the defendant to substantiate the assertions in its advertisements.” 

The breach of express warranty claims were reinstated for the same reasons.

PS: Since In re GNC purported to interpret California law, can we now defer to the 9th Circuit to say that the case isn't even right in the 4th Circuit?  I know, it would be better for a California state court to point this out--I can hope, though.

Amicus Brief of Scholars of Corpus Linguistics in Rimini Street v. Oracle

Just found this use of linguistics super interesting. Abstract:

The question presented in Rimini Street v. Oracle is whether the Copyright Act's allowance of "full costs" is limited to the categories and amounts of costs enumerated in 28 U.S.C. 1920 & 1821, or whether it refers to all litigation expenses. Because Congress and the Supreme Court have stated that the word "costs" is a term of art, the question turns on whether the word "full" -- as the Ninth Circuit held -- can cause "costs" to lose its technical meaning. This brief, filed on behalf of eleven corpus linguistics scholars, presents empirical evidence derived from corpora -- electronically searchable databases of texts -- that shows that it cannot. The meaning of adjectives is determined by the nouns they modify, not the other way around. That is why we judge a "tall seven year old" by a different standard of tallness than a "tall NBA player" and why the word "long" means one thing when modifying "story" and something else entirely when modifying "table." Furthermore, the linguistic evidence shows that "full" in Section 505 should be considered a "delexicalized" adjective -- meaning its purpose is to draw attention to and underline an attribute that is already fundamental to and embedded in the nature of the noun. "Full" often serves to emphasize the completeness of an object that is already presumed to be complete, like "full deck of cards," "full set of teeth," and "full costs."

Avvo's Pro designation is opinion/puffery

Davis v. Avvo, Inc., --- F.Supp.3d ----, 2018 WL 6629269 (S.D.N.Y. Dec. 19, 2018)

Davis, an attorney, sued Avvo for false advertising in violation of the Lanham Act and NYGBL § 349. Avvo hosts profiles of attorneys for consumers to use; the profiles often contain client and peer reviews, as well as a numerical “Avvo rating,” which is derived by criteria defined by Avvo. Avvo includes profiles for attorneys who pay for advertising and related services and attorneys who do not. Davis alleged that lawyers who pay Avvo (1) receive higher Avvo ratings than similarly qualified nonpaying attorneys, although the defendant represents its ratings as objectively calculated; (2) receive a badge reading “Pro” laid on top of the profile headshot; (3) are touted in Avvo’s advertising as “highly qualified,” “the right,” or the “best” attorneys; and (4) have positive client reviews spotlighted and negative client reviews removed or blocked.  [For the last, Eric Goldman will almost certainly disagree but I think that a bar could reasonably determine that attorneys shouldn’t pursue partnerships with entities that cook the books in the manner alleged.]

The court dismissed the claim; the challenged practices/statements were nonactionable opinion and puffery. Quoting McCarthy: “Under both the Lanham Act and the Constitutional free speech clause, statements of opinion about commercial matters cannot constitute false advertising ....” Also true of GBL §349.

First, the court ruled that the allegedly misleading features of the defendant’s website, including its Avvo ratings, weren’t commercial speech because Avvo’s consumer-facing side was

an informational directory of attorneys, which consumers can consult whether or not they intend to hire an attorney. And the complained-of website features simply provide information; they might be considered in making, but do not themselves propose, a commercial transaction. Moreover, that sponsored advertisements appear on the defendant’s website does not morph the website’s noncommercial features into commercial speech.

So that put the profiles outside of the Lanham Act anyway.

Second, these were statements of opinion, incapable of being proven false and thus constitutionally protected:

The defendant’s rating system is inherently subjective. The defendant chooses the inputs for its system and decides how to weigh them. … A reasonable consumer would view an Avvo rating as just that – the defendant’s evaluation. What factors the defendant believes to be important in assessing attorneys, and the result of the defendant’s weighing of those factors, cannot be proven false.

Third, the “Pro” badge appearing on the profile pictures of attorneys who pay Avvo is intended to convey a statement of fact: that an attorney has verified the attorney’s information as it appears on Avvo. Avvo’s website explains this meaning with an “i” icon next to the “Pro” badge. Hovering over the “I” discloses that “Attorneys that are labeled PRO have verified their information as it appears on Avvo,” and the website eventually explains the “Avvo Pro” subscription plan if you follow enough links elsewhere. Thus, the statement wasn’t false. Davis alleged that it was still misleading because it implied higher quality, and the disclosures weren’t sufficiently conspicuous to avoid that implication.  The court agreed with Avvo what this was puffery. “Pro” means, literally, a professional; that was true [though why that’s relevant to misleadingness, especially when others in the profession were not granted the dignity of that characterization if they didn’t pay, is unclear]. To the extent that consumers perceived it as “conveying that an attorney is especially experienced or skilled, the term is mere puffery.” Davis couldn’t prove that lawyers marked “Pro” were undeserving, “because in context the term has no definite meaning or defining factors.” Allegations about advertising “highly qualified,” “the right,” or the “best” attorneys failed for the same reasons, as did allegations that paying lawyers got enhanced visibility on the website.

Fourth, the court determined that spotlighting positive client reviews while removing or refusing to post negative client reviews in the profiles of attorneys who pay for the defendant’s services wasn’t false advertising. Initially, the website stated that Avvo could withhold reviews that didn’t meet its guidelines, and that negative reviews could be put through a dispute process at a lawyer’s request. “Consumers are therefore on notice that every client review might not be posted in an attorney’s profile.” [That’s really not the same thing as distorted selectivity, though—neither of those policies discloses discrimination in favor of paying lawyers.]  Anyway, “a collection of client reviews reflects subjective judgments. A reasonable reader would understand that each review is merely an opinion.” Thus, the absence of some reviews didn’t render the remainder misleading. [That doesn’t make a lot of sense to me. The overall ecosystem can be misleading even if each input is subjective, especially where the ecosystem is run by someone who purports to be independent.  Under the court’s reasoning, it wouldn’t be false advertising for a food producer to claim to “win” a taste test—taste being classically subjective—by removing the tasters who rated the product poorly and not disclosing that. The concern about deterring individual reviews, or even collections of reviews, is a real one, but so is the concern about undisclosed bias driven by payment from the reviewed.]  

Further, “spotlighting positive reviews is not false advertising. Not only are the positive reviews opinions, but simply indicating that a particular consumer was satisfied with a service plainly does not constitute a false or misleading statement.”  [Consider the FTC’s Testimonial Guidelines. Under what circumstances might a positive review imply that others can expect the same results? Or are the Guidelines also unconstitutional in this view?]

Finally, Davis did not sufficiently allege injury by offering facts that demonstrate a causal connection between his injury some misrepresentation made by Avvo. Conclusorily alleging lost fees and reputational damages, and diverted business, was insufficient absent facts indicating that consumers on the allegedly misleading Avvo ratings, pro badges, client reviews, or other statements “in choosing or gauging the reputation of an attorney.” “The only fact the plaintiff pleaded to support his theory of harm is that the defendant’s website holds a prominent presence on the internet, and thus consumers who perform a Google search with phrases like ‘top litigation attorney’ will see the website on the first page of results.” That wasn’t enough.

More B&B: Fraud on the PTO that led to years of extra litigation isn't "exceptional" for fee purposes

B&B Hardware, Inc. v. Hargis Industries, Inc., No. 17-1570 (8th Cir. Dec. 21, 2018)

H/T C.E. Petit. This comedy of errors might (might!) be ending. The court of appeals affirmed the district court’s judgment in favor of Hargis and its denial of Hargis’s motion for fees and costs.

For those of you who understandably haven’t followed the ins and outs, the opinion does an admirable job of summarizing:

In B&B’s trademark infringement action against Hargis in May 2000, a jury found that B&B’s “Sealtight” mark was not entitled to protection because it lacked secondary meaning. We affirmed. In June 2006, B&B filed for incontestability status for its trademark with the Patent and Trademark Office (PTO). The PTO issued a Notice of Acknowledgment in September 2006, concluding that B&B’s affidavit of incontestability met the statutory requirements.

… Immediately after its 2006 filing for incontestability, B&B brought suit against Hargis again for trademark infringement, unfair competition, trademark dilution, and false designation of origin. …

[T]he Supreme Court of the United States .. found that the district court should have given preclusive effect to a decision of the Trademark Trial and Appeal Board (TTAB) finding that there was a likelihood of confusion between “Sealtight” and “Sealtite.” …

At trial, Hargis argued that B&B obtained its incontestability status through fraud, presenting evidence that B&B failed to inform the PTO about the 2000 jury verdict that B&B’s “Sealtight” mark was merely descriptive.…

The jury found that Hargis infringed on B&B’s trademark but did not do so willfully, awarded B&B none of Hargis’s profits, and found for Hargis on its counterclaims and its affirmative defense of fraud. Based on the jury’s fraud finding, the district court found that “Sealtight” was not entitled to incontestability status, and that B&B therefore had not pled an intervening change in circumstances allowing it to relitigate claims raised inthe 2000 jury trial. The district court therefore entered judgment for Hargis on all claims.

B&B appealed, arguing that the jury verdict finding fraud and a lack of willfulness was clearly erroneous; and that the district court abused its discretion in refusing to disgorge Hargis of its profits. The court of appeals found no plain error.

Incontestability requires an applicant to file an affidavit with the PTO declaring that “there has been no final decision adverse to [his] claim of ownership of such mark . . . or to [his] right to register the same or to keep the same on the register . . . .” “At least one circuit treats a district court’s finding of mere descriptiveness at summary judgment as such an adverse decision.” [And I don’t see how one could conclude otherwise, since descriptiveness means that the symbol is not a mark and thus can’t be owned as a mark. Failure to disclose is important since the PTO doesn’t examine §15 affidavits on the merits as long as it’s facially complete. And the affidavit is “especially important because a defendant accused of infringing an incontestable trademark may raise an affirmative defense that ‘the registration or the incontestable right to use the mark was obtained fraudulently.’” Fraud on the PTO “consists of willfully withholding material information that, if disclosed, would result in an unfavorable outcome.”  Here, materiality means information that a reasonable examiner would have considered important.

Warning: bad argument alert, not fully called out by the court of appeals.  B&B argued that the 2000 verdict wasn’t a final adverse decision. The court of appeals responded that, in 2007, the TTAB explicitly stated that the 2000 jury verdict was an adverse decision that extinguished B&B’s common-law rights in the “Sealtight” name, so there was no plain error in the district court so finding. B&B then argued that its deception wasn’t willful because it didn’t realize the jury verdict was a final adverse decision and that it didn’t disclose that verdict based on the advice of counsel. The jury was entitled to disbelieve B&B’s owner’s testimony on this point. 

15 U.S.C. § 1065 specifies that the affidavit has to include statements that “(1) there has been no final decision adverse to the owner’s claim of ownership of such mark for such goods or services, or to the owner’s right to register the same or to keep the same on the register; and (2) there is no proceeding involving said rights pending in the United States Patent and Trademark Office or in a court and not finally disposed of.” B&B’s predicate to its defense, that “finality” was what mattered, is thus fatally flawed.  Of course, it is in theory possible that its counsel was so incompetent as not to understand this very clear provision of law, especially since courts of appeal apparently feel no need to mention it, but the true requirements for an incontestable registration might lend even more plausibility to the jury’s conclusion.

Given that incontestability was barred by fraud, the court of appeals affirmed the conclusion that collateral estoppel from the 2000 trial now applied again since there was no significant, nonfraudulent intervening factual change. Once Hargis proved the affirmative defense of fraud, B&B lost the benefits of incontestability, including the presumption of validity.  B&B argued that the 2000 district court lacked subject matter jurisdiction to determine whether “Sealtight” had secondary meaning because incontestability precludes any review of descriptiveness, but the mark wasn’t incontestable in 2000. “Absent any evidence that B&B’s mark has developed secondary meaning since the 2000 trial, we decline to allow B&B to relitigate that issue.”

Hargis also wanted its fees, and I sympathize (we haven’t even talked about the other facts B&B played fast & loose with, no pun intended), given that it’s been fighting this ridiculous case for decades.  Despite the fraud finding, the court concluded that “[t]his case does not present an example of groundless, unreasonable, or vexatious litigation, as it has arguable merit on both sides—evidenced by the fact that both parties have prevailed at various times throughout its 12-year history. We cannot say that B&B pursued litigation in bad faith, as it received a favorable Supreme Court ruling and reasonably believed it could prevail.” This conclusion demonstrates the importance of selecting a starting point.  I would have started instead with B&B’s decisions to go to the PTO seeking a workaround to the failure of the first case, to fail to disclose that material adverse result to the PTO, and to deliberately leverage that wrongly granted incontestability as the sole reason to relitigate the whole case.  I would have thought that taking a matter to the Supreme Court on a premise that itself was based in fraud was “exceptional.”  It’s probably also true that Hargis could have disposed of the matter earlier had its attorneys been unusually attentive to the actual requirements of incontestability and had the district court also understood incontestability, but as between the parties I would attribute the responsibility to B&B.