Friday, September 24, 2021

FB's "Russian state-controlled media" label wasn't commercial advertising or promotion

Maffick LLC v. Facebook, Inc., 2021 WL 1893074, No. 20-cv-05222-JD (N.D. Cal. May 11, 2021)

Facebook’s application of “Russia state-controlled media” label to a news page on Facebook was not commercial advertising or promotion. Mentioned here mostly to highlight the differences in pleading standards applied to trademark and false advertising claims. Who here thinks that the following language wouldn’t suffice in a run-of-the-mill trademark complaint?

Facebook’s false and misleading labeling of Maffick has actually deceived and has the tendency to deceive a substantial segment of the public and is material in that it is likely to influence economic decisions by Maffick’s existing and potential customers and business relations. Facebook has thus caused and threatened to cause Maffick significant reputational harm and damage to its business interests, including lost sales.

For a false advertising claim, “[t]his is ipse dixit and not the pleading of facts.” Maffick provided no clues about how the alleged deception of the public by the “Russia state-controlled media” label might have affected the “economic decisions by Maffick’s existing and potential customers,” whoever they might be, and how those “decisions” caused a commercial injury to Maffick’s sales or business reputation.

Regulatory safe harbor bars claim over meaning of "gigabyte"

Dinan v. SanDisk LLC, 844 Fed.Appx. 978, No. 20-15287 (9th Cir. 2021)

SanDisk allegedly violated the usual California consumer protection statutes by using gigabyte (“GB”) to mean 1,000,000,000 bytes (“the decimal definition”), when plaintiffs assumed gigabyte as used by SanDisk meant 1,073,741,824 bytes (“the binary definition”). The court of appeals affirmed the dismissal of the complaint. California’s safe harbor doctrine protected SanDisk’s labeling, because relevant statutes clearly permitted the use of the metric system as published by the National Institute of Standards and Technology (NIST), and NIST publications instruct that the metric prefix “giga” and the symbol “G” mean 1,000,000,000, which corresponds to the decimal definition of gigabyte.

 Both California and federal law expressly authorize use of the metric system in commerce. 15 U.S.C. § 204 (“It shall be lawful throughout the United States of America to employ the weights and measures of the metric system....”); Cal. Bus. & Prof. Code § 12301. California law expressly provides that the definitions and tables for weight and measure “as published by the National Institute of Standards and Technology ... shall govern weighing and measuring equipment and transactions in this state.” And NIST has made clear that “giga” is a metric prefix that means 1,000,000,000.

 

Mars and Quaker dodge chocolate/child slavery claims, but Starbucks doesn't

Myers v. Starbucks Corp., 2021 WL 1921120, No. 5:20-cv-00335-JWH-SHKx (C.D. Cal. May 5, 2021)

Myers sued Mars, Quaker Oats, and Starbucks under the CLRA and UCL, alleging claims related to use of child slaves to produce cocoa. Child slavery, which allegedly produces most of the cocoa Americans consume, is horrific both for the enslaved children and for the environment, promoting deforestation in the Ivory Coast. Consumers would prefer “chocolate that destroys neither the rainforest nor the lives of millions of children,” but the supply chain makes detecting malfeasance difficult: “small farms sell to intermediaries, who mix together beans from many farmers to sell to grinders or traders and then to manufacturers.” Although chocolate is often untraceable, some companies have traced their cocoa from bean to chocolate bar and have eliminated child slavery from their supply chains. “However, the World Cocoa Foundation has conceded that it cannot eradicate child labor in cocoa production by 2025.”

All defendants advertise their cocoa as humanely produced. The back of Mars Dove Dark Chocolate products say: “[w]e buy cocoa from Rainforest Alliance Certified™ farms, traceable from the farms into our factory,” and Mars used the seal of Rainforest Alliance Certification, “a third-party certifier which holds itself out as the benchmark for the sustainable production of cocoa,” on packaging. However, “Mars can, at best, trace only 24% of its cocoa back to farms,” because the ethically sourced beans were allegedly intermingled with slave-produced beans at its factories.

Quaker Oats advertised that its Chocolate Chip Chewy Bars “support sustainably sourced cocoa through [the non-profit entity] Cocoa Horizons.” But the bars were allegedly not sustainably sourced, and only 26% of the farms from which Cocoa Horizons sources its cocoa had programs to prevent child labor.

Starbucks labels its Hot Cocoa Mix as “made with ethically sourced cocoa” and administers an internal certification program known as “COCOA.” Starbucks was allegedly “fully aware that the farms it sources its cocoa from use child and slave labor.”

The court granted the motion to dismiss as to Mars and Quaker, but not Starbucks.

Mars: The use of the Rainforest Alliance seal didn’t amount to a specific affirmative misrepresentation. Myers alleged that only 24% of the chocolate was traceable, and alleged that Mars intermingles its beans for Dove Dark Chocolate specifically and can’t trace its sources. But the court parsed the Mars statement like it was looking for perjury: Mars said that it buys traceable beans, not that it only buys traceable beans. That was true, and so it wasn’t an affirmative misrepresentation. Likewise, Mars only claimed that it bought traceable beans, not that the product on which it advertised its purchases of traceable beans contained those beans. This reasoning seems indifferent to the idea of “misleadingness” rather than falsity. But the court thought that Myers didn’t allege “facts sufficient to show that a reasonable consumer would read Mars’ packaging to mean the opposite of what it says.” [The opposite?]

Quaker: Likewise, because Quaker Oats advertised “support” for sustainably sourced cocoa, not any specific result, the label was not misleading.

Starbucks: Previously, the court dismissed an earlier version of the complaint because Myers had not pleaded facts sufficient to allege that the COCOA program was “a sham.” Also, alleged environmental misconduct didn’t matter, because “ ‘ethically sourced’ is generally understood to refer to labor practices.” (This court is not very interested in finding out what reasonable consumers actually might think.)

Myers revised her argument: because “no company, including Starbucks,” can claim slave-free chocolate, a reasonable consumer would be misled by chocolate advertised as “ethically sourced.”

This, the court accepted for purposes of the motion, though it was still skeptical. Myers successfully alleged that “child slavery is endemic to the chocolate trade; that it is difficult or impossible to produce chocolate without labor from child slaves; that a reasonable consumer is sensitive to these concerns and would consider ethically made chocolate and reliance on child slavery mutually exclusive; and that Starbucks claims that its hot chocolate is made from ethically sourced cocoa.”

Her desire to buy chocolate again also gave her standing for injunctive relief.


Made-in-USA claims over tea survive; "America's Classic" could be falsifiable in context

Banks v. R.C. Bigelow, Inc., --- F.Supp.3d ----, 2021 WL 1734779, No. 20-cv-6208 DDP (RAOx) (C.D. Cal. May 3, 2021)

Plaintiffs sued over tea labeled “MANUFACTURED IN THE USA 100% AMERICAN FAMILY OWNED” and “AMERICA’S CLASSIC.” However, the tea leaves which comprise over 90% of the products were allegedly “grown by tea plantations, and processed by tea processing plants, located in places such as Sri Lanka and India.” Many of the “additional flavors or spices added to some of the Products, are also not from the United States.”  They brought the usual California claims; the court allowed some to continue.

Defendants first argued that no reasonable consumer would be deceived by the statements “America’s Classic” and “Manufactured in the USA 100% Family Owned.” The placement of “America’s Classic” at the top of the package, with a large bold “Bigelow” between the two words could plausibly have the effect of drawing a reasonable consumer’s attention to the statement. Further, on the back of the packaging, styled as a stamp, are the statements “Manufactured in the USA,” “American Family Owned” and “100%” in larger font between those two statements, which could plausibly mean 100% manufactured in the USA and 100% family owned. Given the allegations about the actual source of the tea and other ingredients, plaintiffs plausibly alleged that the representations were likely to deceive reasonable consumers.

Likewise, at the motion to dismiss stage the court wasn’t going to review the statements in isolation to determine whether the single statement “America’s Classic” is nonactionable puffery. “[E]ven statements that ‘might be innocuous “puffery” or mere statement of opinion standing alone may be actionable as an integral part of a representation of material fact when used to emphasize and induce reliance upon such a representation.’ ” Nor was the court going to assess whether the claims were in fact true at this stage. UCL, FAL, and CLRA claims survived.

What about California’s Made in the USA statute?

It is unlawful for any person, firm, corporation, or association to sell or offer for sale in this state any merchandise on which merchandise or on its container there appears the words “Made in U.S.A.,” “Made in America,” “U.S.A.,” or similar words if the merchandise or any article, unit, or part thereof, has been entirely or substantially made, manufactured, or produced outside of the United States.

“Made” means artificially produced by a manufacturing process. “[O]ne would not violate the statute by making, manufacturing, or producing merchandise solely in the United States even though using raw materials acquired from a foreign source.” However, plaintiffs alleged that the raw materials were manufactured, that is, processed, outside the US, creating a fact question. And the law plainly covered both “made” and “manufactured” claims.

The package had a side panel statement in small font: “Blended and Packaged in the U.S.A.” That wasn’t sufficient to grant a motion to dismiss.

However, following Sonner, equitable claims under the UCL, FAL, and unjust enrichment were dismissed without leave to amend because plaintiffs didn’t allege that they lacked legal remedies.

 

Thursday, September 23, 2021

Disparate impact isn't "unfair" for consumer protection purposes, court indicates

Schulte v. Conopco, Inc., No. 20-2696 (8h Cir. May 18, 2021)

This would make a great student note topic: Is disparate impact “unfair” under state consumer protection laws? The court here implicitly says no, without ever confronting the question directly. Seems wrong to me.

Schulte sued numerous companies for violating the Missouri Merchandising Practices Act (MMPA) through their marketing of men’s and women’s antiperspirants—the men’s is cheaper. The court of appeals affirmed the dismissal of the complaint.

The MMPA bans “the act, use or employment by any person of any deception, fraud, false pretense, false promise, misrepresentation, unfair practice or the concealment, suppression, or omission of any material fact in connection with the sale or advertisement of any merchandise in trade or commerce.”

A Missouri regulation interprets “unfair practice” as any practice that either “[o]ffends any public policy as it has been established by the Constitution, statutes or common law of this state, or by the Federal Trade Commission, or its interpretive decisions” or “[i]s unethical, oppressive or unscrupulous.”

But, the court reasoned, “Schulte mistakes gender-based marketing for gender discrimination. She ignores that the different scents, packaging, and labels make the products potentially attractive to different customers with different preferences.” In order to prevail, she’d have to plausibly allege that the only difference between the products is the gender of the purchaser,” but targeted marketing was not the same thing as “enforced point-of-sale pricing by gender.” (By that logic, advertising only to hire men would not be a problem if they’d hire women who showed up regardless.)

Because men and women can purchase any of the products, they both have equal opportunity to buy. “Ironically, her claim assumes all men and all women must purchase products marketed to their gender.” She’s free to purchase the men’s products if all she cares about is price. “Her choice not to illustrates a difference in demand based on product preferences, not the purchaser’s gender.” She doesn’t want the men’s products “because she does not want to ‘smell like a man.’ She just does not want to pay extra for her preference.” But “preference-based pricing is not necessarily an unfair practice."

over dissent, 5th Circuit applies Lanham Act to political speech

Alliance for Good Government v. Coalition for Better Government, No. 20-30233 (5th Cir. May 19, 2021)

I sometimes hold out the hope that courts will develop a general treatment of the First Amendment/Lanham Act interaction. This case suggests that that day, if possible, is still far off.

The district court found that the defendant, a nonprofit that endorsed political candidates, was liable to its counterpart AGG for infringement; joined CBG’s principal Darleen Jacobs post-judgment; and awarded attorneys’ fees to AGG. The court of appeals affirms over a dissent that would have held that the First Amendment precluded application of the Lanham Act to political speech.

Previously, the district court granted AGG summary judgment and enjoined CBG from using the latter’s word and composite marks. The court of appeals affirmed but modified the injunction to restrain only CBG’s use of its composite mark (both parties apparently used bird logos). Then the district court awarded attorneys’ fees, which CBG also appealed; the court of appeals found no abuse of discretion in finding the case exceptional but remanded to adjust the fee award to account for work related to claims on which AGG didn’t prevail/voluntarily dismissed.

On remand, Alliance moved to join Darleen Jacobs, a principal of CBG, because it had learned during post-judgment discovery that CBG lacked resources to pay the fee award. Jacobs opposed Alliance’s motion for fees, but the district court ultimately found it appropriate to hold her directly liable. This was consistent with due process because “[i]t was only after considering Jacobs’s arguments in opposition that the district court found her liable for the fee award.” It was also ok to hold her liable for fees under the principle that “[a]n officer is individually liable for any tortious conduct that he committed in connection with his corporate duties.” The case was exceptional because CBG “litigated in an unreasonable manner, including presenting meritless defenses at the summary judgment stage, filing an unsupported laches defense, meritless counterclaim, and a meritless motion to dismiss, and behaving unreasonably during discovery by insisting on proceeding with depositions even after the district court granted summary judgment.” Jacobs was a principal of CBG and personally signed the motion for summary judgment, the counterclaim, the motion to dismiss, and Coalition’s memorandum insisting on proceeding with depositions after the district court’s summary judgment ruling. So holding her directly liable was not an abuse of discretion.

CBG and Jacobs also raised a First Amendment argument “similar to one raised in the prior two appeals, arguing that the imposition of an attorney fee award would violate their free speech.” But the First Amendment argument in the first appeal had not been preserved or ruled on below, and so the court declined to consider it on appeal. The majority concluded that this discretionary decision was not clearly erroneous, so the law of the case applied. 

And here’s the wow moment: “Moreover, even if Coalition’s speech is rightly considered noncommercial speech, this Court has not previously held that § 32(1) of the Lanham Act, the section at issue here, applies only to commercial speech.” Footnote: Yes, this court has held that §43(a) applies only to commercial use, but it has not extended that holding to §32. (Comment: There is no language in §32 that in any way could be considered broader than §43(a) in this respect.) Also, the Second Circuit has found that §32 applies to “[a] political organization that adopts a platform and endorses candidates under a trade name.” United We Stand Am., Inc. v. United We Stand Am. N.Y., Inc., 128 F.3d 86 (2d Cir. 1997).

Judge Dennis dissents: “The majority strains at gnats but swallows a camel.” Had the judge been part of the first appeal, he “would have worked to persuade the court that applying the Lanham Act to the non- commercial political speech of Coalition for Better Government is contrary to the Act and violates the First Amendment.” The law of the case was not an inexorable command. The previous cases “were predicated on a patent error, i.e., that the Lanham Act can be constitutionally applied to the noncommercial political speech of a political organization, such as the political endorsements made by Coalition in this case.” Further, “misapplying the Lanham Act to noncommercial political speech creates an anomalous precedent that will beget grave injustice—the imposition of liability for, and consequent chilling of, the exercise of constitutionally-protected free speech.”

The parties principally vet and endorse political candidates vying for local and state offices. “Neither organization offers or advertises commercial goods or services. And the speech in which they engage—purely political speech—is at the core of the First Amendment’s protections.” Meanwhile, the Lanham Act “exclusively regulates commercial activity and commercial speech.”

The first appeal determined that First Amendment/commercial speech issues were waived. This was error: (1) “[I]t is axiomatic that a party can only be liable for violating a statute if the statute actually applies to the party and its acts (or omissions)…. [T]here was simply no way for the panel to hold Coalition liable without it concluding that the Lanham Act may, in its view, validly constrain noncommercial political speech.” (2) Applying the Lanham Act to noncommercial political speech infringes on First Amendment free speech rights, violating the judicial duty to avoid constitutional infirmity of statutes. (3) It was plain error to hold otherwise, even if CBG didn’t preserve the issue. “[E]ven if no Fifth Circuit decision squarely holds that the particular provision of the Lanham Act invoked here is limited to commercial speech, the ‘absence of circuit precedent does not prevent the clearly erroneous application of statutory law from being plain error.’” Text, legislative history, and constitutional avoidance all indicated the right result, as did “the near uniform holdings of our sister circuits that the Act does not reach noncommercial speech.” (Extensive discussion of all these things omitted.)

What about United We Stand? Not only was that a sole outlier in an otherwise uniform line of cases, it was also incorrect to hold that purely political speech is a “service” under the Lanham Act. “[S]uch a service is not being rendered in commerce[;] it is being rendered as part of the political process.” Tax Cap Comm. v. Save Our Everglades, Inc., 933 F. Supp. 1077, 1081 (S.D. Fla. 1996). In politics, confusing marks have to be addressed by more speech.

The dissent also didn’t like allowing the district court to add more fees based on the costs of the appeal, considering that a violation of the mandate in the second appeal. And, in holding Jacobs personally liable, the court became the first to allow such liability for a party’s counsel under the Lanham Act. Sanctions for attorney misconduct should have been applied, if appropriate, instead.

The majority reasoned that Jacobs could be personally liable because “[a]n officer is individually liable for any tortious conduct that he committed in connection with his corporate duties.” The dissent rejoined that this principle “has no application to an attorney representing her client; attorneys initiate and prosecute cases at the behest of their clients, but it is the client who ultimately must decide whether to bring a case. Thus, when the fee-shifting provision is applied to individuals who were not party to the underlying litigation, it should be reserved for those who, in their capacity as a high-level officer or owner of an organization, make a case exceptional.” What about Jacobs’s leadership role within CBG? The district court expressly cited her conduct as counsel, not her position within the CBG structure, as rendering the case “exceptional” and thus justifying imposing liability for the award on her personally; it never mentioned any actions that she took as an officer or principal. That wasn’t ok.

Alliance never attempted to pierce CBG’s corporate veil, and Jacobs was joined only after the court held that CBG waived its noncommercial speech and First Amendment defenses. Holding her to that was “highly inequitable, particularly in light of the clear merit of her constitutional and statutory defenses, which she has never personally waived…. [T]he majority offers no analysis as to why Coalition’s litigation choices somehow bind Jacobs personally, and … there was no finding by the district court that Jacobs controlled Coalition such that its litigation conduct could be attributed to her.”

competitor plausibly alleged injury by alleging consumers changed behavior upon discovering the truth

3B Medical, Inc. v. SoClean, Inc., --- Fed.Appx. ----, 2021 WL 2025153, No. 20-3477-cv (2d Cir. May 21, 2021)

The parties compete in the market for medical devices that sanitize continuous positive airway pressure machines (CPAPs), which treat sleep apnea and respiratory conditions. “SoClean controls approximately ninety percent of the market while 3B controls about five percent. Three competitors control the remaining five percent of the market.” 3B alleged that SoClean falsely advertised by failing to disclose that its sanitizing devices emit ozone, a toxic gas that can cause side effects including skin irritation, difficulty breathing, and damage to the respiratory system, but marketing the devices as “safe,” “healthy,” and free of “harsh chemicals.” SoClean markets uses “activated oxygen” for “ozone” and represents that its devices use the same sanitizing process as hospitals. But “hospitals do not use ozone sanitizers in spaces occupied by patients.” 3B’s competing devices, uniquely in the market, don’t use ozone, but the majority of CPAP users handwash their machines. Without SoClean’s false advertisements, 3B alleged, “more consumers would investigate alternatives to ozone-sanitizers and discover” and “purchase” 3B’s devices.

The district court reversibly erred when it found that the complaint failed to plausibly allege injury. “3B specifically alleged, based on customer reviews, that when customers discovered the harmful effects of ozone and the use of ozone by SoClean and all other competitors, they decided to purchase a 3B device.” This amounted to an allegation that SoClean’s advertising caused consumers to buy its products when they would otherwise buy 3B’s, that is, to withhold trade from 3B.

Neither the existence of the competitors nor the possibility of handwashing rendered 3B’s lost sales injury speculative. 3B was the non-ozone competitor, and the fact that some consumers were willing to buy devices that cost hundreds of dollars showed that handwashing was “not a close substitute.” 3B didn’t allege a sales decline, but that’s because it entered the market only after SoClean’s ads, so no such comparison was possible. In “these circumstances,” 3B’s citation to specific customer reviews was sufficient to plausibly allege injury. However, it would eventually need to prove its injury with evidence. (Can it get disgorgement instead?)

retail/outlet claims for Vineyard Vines scrape past motion to dismiss

Casio v. Vineyard Vines, LLC, 2021 WL 466039, 19-CV-5135 (JMA) (AYS) (E.D.N.Y. Feb. 9, 2021)

Plaintiff alleged falsity in pricing/tags in defendant’s outlet stores. The products allegedly “purport to be identical” to those sold in the “retail” stores, “shar[ing] similar product line names” and “similar style numbers” to their “retail” store counterparts. The price tags list a “suggested retail” price followed by “our price.” But, “[d]espite their similarity in appearance and classification, the Outlet Products are of distinctly lower quality, evinced through the care tags.” Thus, there was a misrepresentation about quality. Plaintiffs sought to represent New York and New Hampshire classes.

The court declined to hold that the tags weren’t misleading as a matter of law, but expressed doubt that plaintiffs could ultimately prevail.

Defendant argued that a reasonable consumer would “understand that outlet retail stores typically are stocked with merchandise produced specifically for outlets that, while not necessarily of lower quality, may be produced at lower cost to the manufacturer for various reasons.” But the court couldn’t evaluate the truth of this argument at this stage. While prior cases have held that “the retail history of clothing (e.g., whether it was offered for sale in a traditional store before being sold in an outlet store) is generally not” material, the falsity here was alleged to be the quality of the goods, which indeed is material.

Defendant argued that the word “retail,” as used on the contested price tags, is clear and unambiguous and describes the sale of goods at a general level, not an indication that products of the same quality were sold at its “retail” stores. This too couldn’t be resolved on a motion to dismiss. “Defendant itself recognizes the level of imprecision with which it uses the term ‘retail’ by conceding at least one instance on its own website where it makes a distinction between gift card use in its ‘retail’ versus ‘outlet’ stores.” Nor was plaintiffs’ alleged understanding “esoteric.” Other district courts have described similar divisions by describing stores as “outlet stores” and “retail stores.”

Defendant then argued that plaintiffs failed to allege quality differences. The court was not about to resolve factual questions about whether the “Chappy” product line in outlet stores could be compared to the “Chappy” product line offered in defendant’s “boutique” stores.

Likewise, plaintiffs sufficiently pled a cognizable injury based on the purportedly lower quality of the products they purchased, though the court warned that discovery might very well disprove that theory.   

Magnuson-Moss Warranty Act claims were, however, dismissed: the retail price label wasn’t an express warranty of quality. And plaintiffs lacked standing to seek injunctive relief.

Wednesday, September 22, 2021

adjectival order matters (some) in finding literal falsity

Suzie's Brewery Company v. Anheuser-Busch Companies, LLC, --- F.Supp.3d ----2021 WL 472915, No. 3:21-cv-178-SI (D. Ore. Feb. 9, 2021)

Alleged ambiguity didn’t save AB from this false advertising claim.

AB makes Michelob ULTRA Hard Seltzer, which has earned USDA organic certification, and sells it in all states except Utah. Suzie’s Brewery also makes and sells hard seltzer that earned USDA organic certification before AB’s did, but only sells it in 6 states.

Based on these facts, it was deceptive for AB to advertise Michelob ULTRA Hard Seltzer as “the only” or “the first” “national USDA certified organic hard seltzer.” Suzie’s got a TRO (assisted by the TMA). AB could, however, advertise that Michelob ULTRA Hard Seltzer is “the only” or “the first” USDA certified organic hard seltzers that are distributed nationally, as long as that remained true.

Crucially, federal regulation of “organic” labels makes heavy use of the term “national.” The USDA National Organic Program (NOP) sets national standards for the production, handling, and processing of organically grown agricultural products. The National Organic Standards Board (NOSB) advises the Secretary of Agriculture in setting the standards upon which the NOP is based. “National” appears prominently throughout the regulatory scheme and “is consistently associated with the federal program that governs any mention, use, or display of the official USDA organic seal or label. Further, the word ‘national’ always immediately precedes the word ‘organic’ in all official references to the USDA’s National Organic Program.”

AB issued a press release: Michelob ULTRA Introduces First National USDA Certified Organic Hard Seltzer That’s ‘As Real As It Tastes’ With The Launch Of Michelob ULTRA Organic Seltzer. The body claimed that it was “the first-ever national USDA certified organic hard seltzer” and called it “an innovative, first-of its-kind organic option” for the hard-seltzer category. Likewise, one TV ad claimed that it was the "only national USDA Certified Organic Hard Seltzer,” while another said it was “the only national hard seltzer that is USDA Certified Organic. Don’t fall for anything else.”

AB also apparently was partnering with influencers to promote the same message, e.g. “It is the first National USDA Organic Seltzer” and “the first ever USDA National Organic Certified Seltzer with realass fruit flavors.” So “first national organic” was a big part of the message.

Suzie’s contended that this caused consumers to question whether Suzie’s Organic Hard Seltzer really is organic. Suzie’s was ok with “only national hard seltzer that is USDA certified organic” or “the first-nationally distributed USDA certified organic hard seltzer.”

AB argued that there was no harm to Suzie’s in 44 states of the union, so it lacked national Lanham Act standing. Suzie’s “correctly replies that the concept of standing asks who has a right to sue, which is different from the scope of an appropriate remedy.”

Under the circumstances, the court found literal falsity in: (1) “only national USDA certified organic hard seltzer”; (2) the “first-ever national USDA certified organic hard seltzer”; and (3) “bringing an innovative, first-of its-kind organic option to the hard seltzer category.” In the alternative, even if these statements weren’t literally false, they were still likely to mislead consumers. AB’s alternative reading of the phrase as “the only (or the first) USDA certified organic seltzer that is nationally distributed” was not a reasonable reading and thus the phrase was not ambiguous. This was because “national” is also integral to the organic certification program, a main purpose of which was “to create a national, unified standard for organic labelling, designation, and advertising.”

Grammar explanation: Most adjectives come before the thing they modify. Multiple adjectives that all modify a single noun generally are separated by commas or “and.” AB didn’t use commas, and “national” made no sense as a modifier of “seltzer.” “There is no such thing as a ‘national seltzer.’” While plain seltzer can’t be organic or USDA certified, seltzer can be hard/alcoholic, and hard seltzer can be certified organic. So the adjectives were not all modifying the noun “seltzer.” Even viewing “national” as a cumulative modifier, it would modify “USDA certified” and not “seltzer” based on its placement, supporting Suzie’s. The only reasonable interpretation was that the entire phrase “national USDA certified organic” constituted a phrasal adjective, aka a compound modifier, which “functions as a unit to modify a noun.”  The court also commented that, given the expense of the launch, “[i]t is highly unlikely that the word “national” was placed where it was as the result of careless copywriting.”

There was a presumption of deception from literal falsity, and Suzie’s also submitted evidence that three consumers and a distributor contacted it after AB’s false TV ad aired, questioning the veracity of Suzie’s organic certification. “The fact that a presumably knowledgeable beverage distributor could be misled by Anheuser-Busch’s commercial is additional circumstantial evidence that less sophisticated consumers were and can be deceived.” And a news story reported that AB was “tout[ing] its recent release as the first USDA-certified organic hard seltzer: Michelob Ultra Organic Seltzer.” “Similarly, the fact that a presumably knowledgeable journalist could be misled by Anheuser-Busch’s representations is additional circumstantial evidence that less sophisticated consumers were and can be deceived.”

This evidence also showed materiality, as did the significant resources required to get USDA certification as organic. Also, “[p]resumably, Anheuser-Busch would not highlight this feature of its product in its advertising unless it believed that doing so would promote sales.”

The court noted that the TMA covered §43(a) in its entirety, thus providing a presumption of irreparable harm upon a finding of likely success on the merits. AB didn’t rebut that presumption, and even without it the evidence above would have been enough.

AB asked for a big bond because it would cost “at least $37,900 to produce and distribute replacement advertising necessary to appropriately support the nationwide launch of a new product on the scale that the ULTRA Seltzers are being released.” But it didn’t explain how it got those numbers, and the court didn’t think that moving “national” to “distributed nationally” or deleting “only”/ “first” would be expensive. Bond of $5,000.

Netflix prevails over claims by lawyers that they were misportrayed in money laundering film

Mossack Fonseca & Co., S.A. v. Netflix Inc., 2020 WL 8509658, No. CV 19-9330-CBM-AS(x) (C.D. Cal. Dec. 23, 2020)

MFSA brought trademark dilution and false advertising claims against Netflix for its portrayal in the film “The Laundromat.” (It’s about money laundering.) No. (Libel/false light claims aren’t addressed in this decision; see below.)

Rogers governed the false advertising claim. There was artistic relevance because the film is about MFSA and the Panama Papers, so the use of the mark was relevant to the film. And using a mark without the owner’s authorization does not explicitly mislead consumers about the source or content of the film. Gordon v. Drape Creative, Inc., 909 F.3d 257 (9th Cir. 2018), is not to the contrary, because Netflix used the mark in a different context, as opposed to using it exactly the same way the plaintiffs do. “Plaintiffs use their mark in the offshore shell company finance industry, whereas Defendant used Plaintiffs’ mark in a film.” Plus, and also distinguishable from Gordon, the mark appears in several scenes of the film, “and is therefore only one component of Defendant’s larger expressive work.” This was not explicitly misleading.

MFSA also argued that the trailer made false statements, because it “portrays the Plaintiffs as criminals and/or in the false light of criminality in the provision of their services as overseas lawyers.” But they failed to identify any false statement in the trailer for the Film. And use of MFSA’s logo in the trailer was also protected by Rogers.

Trademark dilution/tarnishment. Among the problems, Netflix’s use of the MFSA logo was noncommercial because it had some artistic relevance to the film. (Not precisely the full reason, but really I can’t blame the court for cutting some corners on a claim this terrible.)

Mossack Fonseca & Co., S.A. v. Netflix Inc., 2020 WL 8510342, No. CV 19-9330-CBM-AS(x) (C.D. Cal. Dec. 23, 2020)

Special motion to strike the state-law claims of libel/false light invasion of privacy. “The Laundromat” is allegedly “based on” investigative journalist Jake Bernstein’s book entitled Secrecy World: Inside the Panama Papers Investigation of Illicit Money Networks and the Global Elite. It “tells the story of the documents known as the Panama Papers ... leaked in 2015,” which “revealed how Panamanian law firm Mossack Fonseca illegally funneled money for the wealthy in Panama and worldwide.”

Plaintiffs initally failed to authenticate internet stories reviewing the film, e.g., the description: “When a widow gets swindled out of insurance money, her search for answers leads to two cunning lawyers in Panama, who hide cash for the super rich.”

The film was disseminated in a public forum, and it covered a public issue/an issue of public interest. The burden shifted to MFSA to show a probability of success on their claims.

They didn’t.

The Court finds no reasonable viewer of the Film would interpret the Film as conveying “assertions of objective fact,” particularly given the statement at the beginning of the Film “BASED ON ACTUAL SECRETS” which sets the stage and the disclaimer at the end of the Film that states the Film is fictionalized for dramatization and is not intended to reflect any actual person or history.

Even assuming a reasonable viewer would view the Film as statements of actual fact, the Film does not portray Plaintiffs as directly involved in the murders, drug cartels, and other criminal activity committed by their clients as referenced in the Complaint.

And the complaint admitted that some of the offshore entities created by Plaintiffs “appears to have been utilized by some [end users] for criminal activity including, but not limited to, money laundering, tax evasion, bribery and/or fraud.” So the film’s portrayal of persons for whom MFSA created shell companies as engaging in criminal activity was not false. Fonseca and Mossack were also criminally charged, so depicting them as being arrested and jailed wasn’t false. There was no reason to allow them discovery.

 

4th Circuit continues its Lanham Act frolic, notes overbreadth of expansive injunctive relief

De Simone v. Alfasigma USA, Inc., No. 19-1731, 847 Fed.Appx. 174 (4th Cir. Feb. 17, 2021)

Depressingly doubling down on its bizarre interpretation of the Lanham Act first created by misinterpreting California’s UCL, the Fourth Circuit nonetheless mitigates some of the consequences of that game of telephone in this opinion. (I filed an amicus brief, with which the court didn’t agree.)

The parties have been fighting for a while. Ignoring entity shifts: De Simone used to license a probiotic formula to Alfasigma, which continues to make a probiotic under the same trademark, VSL#3, but now with a different formulation. Now De Simone’s entities compete with Alfasigma. A jury found the VSL parties liable for false advertising and unjust enrichment, basically for advertising that the formula was still the same, and awarded over $17 million in damages. The court of appeals affirmed on liability/damages, but partially vacated the injunction as overbroad, picking up on another problem in the case as it has evolved—its restrictions on apparently truthful commercial speech.

The parties presented conflicting expert testimony regarding whether two versions of VSL#3 were essentially the same. Defendants argued that, under In re GNC Corp., 789 F.3d 505 (4th Cir. 2015), their expert’s testimony that the two products were genetically and functionally equivalent precluded a finding of literal falsity as a matter of law. The district court disagreed.

The court of appeals upheld the district court but declined to recognize its GNC error, because “plaintiffs who believe that no reasonable scientist would agree with the challenged representations remain free to make that allegation. A manufacturer may not hold out the opinion of a minority of scientists as if it reflected broad scientific consensus.” The court of appeals said that the district court applied GNC accordingly by holding as follows:

GNC thus does not broadly hold that a false advertising claim based on a statement grounded in science must fail if the defendant presents an expert witness supporting its position. In the absence of a concession that the statement is the subject of reasonable scientific debate, that question is properly decided by the jury.

Of course, the court of appeals and the district court said two different things! In the district court, the plaintiff was not required to prove that “no reasonable scientist would agree with the challenged representations,” or that the defendant “held out the opinion of a minority as if it reflected broad scientific consensus.” Apparently after GNC the plaintiff is required to plead that no reasonable scientist would agree, or at least to avoid pleading that there is a controversy. 

But at the liability stage, the plaintiff here was, appropriately, required to prove that the challenged representations were, by a preponderance of the evidence, false. That is different from requiring the jury to find that the defendant’s expert was unreasonable. Punting to the jury helps disguise the variation, but does not entirely avoid the question of what it is that the jury must find. The district court’s approach is better than nothing, because it allows pleading to get around the qualified immunity-like standard of GNC, but this whole mess could be more easily avoided by looking at what the Lanham Act actually requires.

The district court’s permanent injunction barred defendants from

(1) stating or suggesting in VSL#3 promotional materials directed at or readily accessible to United States consumers that the present Version of VSL#3 produced in Italy ("Italian VSL#3") continues to contain the same formulation found in the Versions of VSL#3 produced before January 31, 2016 ("the De Simone Formulation"), including but not limited to making statements that VSL#3 contains the "original proprietary blend" or the "same mix in the same proportions" as earlier Version[s] of VSL#3; and (2) citing to or referring to any clinical studies performed on the De Simone Formulation or earlier Versions of VSL#3 as relevant or applicable to Italian VSL#3.

(2) was initially based on trademark reasoning, but seems to have been converted over time into a concomitant of the false advertising claim, so the district court reasoned that the remedy should be “focused on curtailing such claims of continuity between Italian VSL#3 and the De Simone formulation.” The court of appeals agreed, but noted that (2) was overbroad for that objective. The studies couldn’t be cited as if they were performed on current VSL#3, but prohibiting citation or reference to them as even relevant went too far. They could feasibly cite or refer to the studies as relevant “without claiming continuity between their old product and their new one.”

 

 

even admissions and severe financial distress don't justify TRO/asset freeze in false advertising case

SI03, Inc. v. Musclegen Research, Inc., 2021 WL 765293, No. 1:16-CV-274 RLW (E.D. Mo. Feb. 26, 2021)

The parties compete to sell protein powder to consumers. SI03 originally sued for false advertising and related claims, and Musclegen counterclaimed similarly.

SI03 alleged that Musclegen markets its Genepro protein powder product by falsely claiming it contains 30 grams of protein in a roughly 11.15 gram (1 tablespoon) serving, when Genepro actually has 10 or fewer grams of protein per 11.15 gram (1 tablespoon) serving; and by claiming the protein in Genepro is absorbed by the human body at a rate that is 300% higher than the rate at which a human body absorbs “traditional whey.” It further alleged that Musclegen’s marketing and packaging statement that it contains “medical grade” protein is incorrect, false, and misleading, as no industry or FDA standard exists for “medical grade” protein.

Musclegen initially said that its product had “three times the protein absorption rate as traditional whey protein—meaning that consuming one scoop of Genepro is the functional equivalent of consuming 30 grams of whey protein,” as supported by a clinical trial. Then it sought to amend its answer and admit many of the allegations when its founder and COO pled guilty to a federal felony count of distributing unapproved new drugs with the intent to defraud and mislead. As a result, Musclegen was “experiencing severe financial distress” and sought to resolve the case. That was good cause to amend! However, the court declined to grant a protective order to pause discovery. There were still issues about willfulness, entitlement to damages/disgorgement of profit, and exceptionality under the Lanham Act. Nor were declaratory judgment claims necessarily moot.

The court also denied SI03’s motion for a TRO to prevent sales of Genepro and to freeze Musclegen’s assets. “The evidentiary support it offers for the TRO motions is fairly slim at this point and based in part on speculation, and the Court finds the motions are premature. Plaintiff points to Defendant’s refusal to participate in discovery, but this cannot serve as a substitute for evidence to show Plaintiff’s likelihood of success.” Plus, Lanham Act trademark infringement/counterfeiting cases about asset freezes didn’t show that similar relief was appropriate in a Lanham Act false advertising case. (I really don’t understand why courts make the TM/false advertising distinction when they do as opposed to ignoring it when they don’t.)

SI03 also failed to show irreparable harm, because a misrepresentation about the defendant’s own product didn’t justify a presumption of harm. (The TMA changes this for irreparable harm, but we have yet to discover whether this will affect courts’ decisions on whether the elements of the underlying cause of action for false advertising have been satisfied.)

Tuesday, September 21, 2021

Contract remedies again prove broader than false advertising for pandemic-related suits

In re Columbia Tuition Refund Action, No. 20-CV-3208 (JMF) & 20-CV-3210 (JMF), --- F.Supp.3d ----, 2021 WL 790638 (S.D.N.Y. Feb. 26, 2021)

These are two putative class actions against Columbia and Pace based on allegedly broken promises due to the pandemic. “The cases are not formally consolidated, but the Court addresses the two motions together because they raise similar issues.” The claims survive only to the extent that they plausibly alleged violations of specific contractual promises for particular services or access to facilities.

Thus, some but not all breach of contract claims survived. For example, plaintiffs failed to plead that Columbia made a specific promise of exclusively in-person instruction. “[R]eferences to classroom locations and physical attendance requirements in Columbia’s syllabi, departmental policies and handbooks, and course registration portal … merely memorialize the pre-pandemic practice; they offered no guarantee that it would continue indefinitely.” References in Columbia’s marketing materials to “the on-campus experience” were often mere puffery “too vague to be enforced as a contract,” such as a statement in a University publication that “Columbia is an in-person kind of place.”

However, the instructional format claim against Pace survived because the plaintiff alleged that the course registration portal on Pace’s website stated that “[o]n-campus” courses would be “taught with only traditional in-person, on-campus class meetings.” On a motion to dismiss, it was ambiguous whether Pace’s disclaimer that “unforeseen circumstances may necessitate adjustment to class schedules” and that “[t]he University shall not be responsible for the refund of any tuition or fees in the event of any such occurrence .... Nor shall the University be liable for any consequential damages as a result of such a change in schedule” applied to a shift online.

And the Columbia plaintiffs did plead that Columbia breached a contract to provide access to certain campus facilities and activities in exchange for mandatory student fees. Resolving this claim involved no intervention into academic judgment, and bad faith was not an element. So too for similar Pace claims. But unjust enrichment wasn’t available where it merely duplicated the contract claims, and conversion also wasn’t available.

NYGBL 349 and 350:  Plaintiffs failed to allege that the universities’ representations were materially misleading. “Plaintiffs cite, and the Court has found, no case holding that a plaintiff can state a claim under Section 349 or 350 where the defendant neither knew nor could have known that its commercial acts or practices were false.” [A reversal of the usual result: contract claims are usually much narrower than unfair trade practices claims.]

No PI where individual defendant has left allegedly trademark-infringing role

Nigerians in Diaspora Organization Americas v. Key, 2021 WL 811094, No. 19-3015 (RDM) (D.D.C. Mar. 3, 2021)

“NIDOA is a continental nonprofit organization that advocates for the interests of Nigerians in the Western Hemisphere.”  It alleged that, under the continental organization’s bylaws, defendant Key’s term in office as the chairperson of the Board of Directors expired in 2019, but Key and her associates refused to cede control. Thus, two separate groups claim to be the Board. NIDOA’s theory is that Key is infringing NIDOA’s trademarks by continuing to act in the name of NIDOA-USA.

“While the dispute between the dueling Boards continues, Key has now relinquished her position on the holdover Board of Directors and has thus ceased the activities that arguably infringed the trademarks.” Thus, the request for preliminary injunction was moot, and NIDOA didn’t show likely irreparable injury despite evidence that having two competing Boards caused some confusion and some loss of goodwill and donations for NIDOA and for the Board elected in 2019. For example, a member messaged one NIDOA person through WhatsApp to report a $100 donation for a COVID-19 fundraiser, but it turned out that the money had accidentally been sent to Key’s Board of Directors, when the member intended to send the money to the Board of Directors elected in 2019. In another WhatsApp message, a different NIDOA member observed that a press release from Key was “very[,] very confusing” and complained that the “faction” within NIDOA “sends a wrong signal to the outside world.”

Key satisfied the stringent standards for mootness due to voluntary cessation—at least while the case was pending final resolution, as appropriate for a preliminary injunction. NIDOA was challenging the activities of the holdover Board, not of Key as an individual; many of the documents that allegedly infringed its mark didn’t use her name at all or listed her with other Directors. “[T]here is no basis to find that she will continue to infringe Plaintiff’s trademarks during the pendency of this action, now that she is no longer a member of that board.” Nor was the equitable power to enjoin third parties as successors an interest an exception to the mootness doctrine. The court would not enjoin third parties “even though the claim for a preliminary injunction against Key, the only defendant named in the case, is moot.”  Nor did NIDOA show that the other Board members were in privity with Key or are acting as her agents. NIDOA decided whom to sue, and chose only Key, not the entire holdover Board; it opposed the intervention of the entity representing the holdover Board; it didn’t seek to add the holdover Board as a party.

However, the court reserved judgment on NIDOA’s damages claims and permanent injunctive relief.

Even if the claim weren’t moot, NIDOA failed to show irreparable harm. Apparently uninformed about the TMA’s change in the standard, the court held that there was no presumption of irreparable harm. Interesting question: would cessation rebut the presumption if it had been properly applied? The court concluded: “Ongoing confusion allegedly caused by Key’s past acts is insufficient to support injunctive relief, in the absence of some likelihood that Key will take similar actions again in the future.”

continued desire to purchase TVs suffices for California standing

Julian v. TTE Technol., Inc., 2021 WL 810228, No. 20-cv-02857-EMC (N.D. Cal. Mar. 3, 2021)

Plaintiffs alleged false advertising of TTE’s TVs in violation of California and New Jersey law; the court granted the motion to dismiss but allowed leave to amend as to injunctive relief claims.

According to Plaintiffs, it is false or misleading for TTE to market the televisions as having a “120Hz CMI effective refresh rate” when in fact the televisions have a 60Hz refresh rate. Two of the four named plaintiffs alleged:

• “As a result of [TTE’s] false and misleading statements, Plaintiff...paid more for his [TTE] television than he would have paid had [TTE’s] advertising and representations been truthful.”

• “Plaintiff...would like to purchase a [TTE] television in the future if he knew he could trust their [sic] refresh rate advertising. But, without a court ordering [TTE] to fix their [sic] advertising, Plaintiff...has no way of knowing whether he can trust [TTE’s] refresh rate advertising.”

• “As a result of [TTE’s] false and misleading statements, Plaintiff...paid for a television that [TTE] misrepresented as using technology and including technical capabilities it did not actually have. Plaintiff would not have bought the television but for [TTE’s] refresh rate (Hz) misrepresentations.”

• Plaintiff has experienced poor picture quality when using the TTE television for, e.g., action movies, sports, or video games.

Was this plausible? If plaintiffs wanted a 120Hz television only, not a 60Hz television with poorer picture quality, TTE argued, then “correcting TTE’s alleged advertising to 60Hz would not affect [their] purchasing decisions.” But “the point of the injunctive relief is to prevent TTE from engaging in false advertising so that Mr. Julian and Mr. Pacano can rely … on TTE’s advertising in the future – i.e., so that they can decide whether or not to purchase a television from TTE.” Second, it wasn’t clear that they would never buy a TTE TV in the future. “It is not inherently contradictory for Mr. Julian and Mr. Pacano to make both allegations (i.e., to assert that they would not have bought the televisions or would have paid less for the televisions had there been no false advertising).” The TVs weren’t allegedly worthless if truthfully advertised.

TTE argued that there was no actual or imminent threat of future harm because, now that the individuals know what is meant by “120Hz CMI effective refresh rate,” they will not be deceived in the future: “merely looking at the online specifications or product label would clear any ambiguity.” Again, though, the harm was inability to rely on advertising. As another court cited by the 9th Circuit has held, “A material representation injures the consumer not only when it is untrue, but also when it is unclear whether or not it is true.” A consumer need not check the fine print and is not expected to look beyond misleading representations on the front of a package to discover the small-print truth. And, in fact, plaintiffs “could not know whether the TTE televisions were truly 120Hz or 60Hz without purchasing them.”

But were they really likely enough to be on the market for a TV for an actual or imminent threat of future harm? TVs aren’t like flushable wipes in terms of repeat purchases. “[S]ome day” intentions for the future are not sufficient to establish standing. The complaint’s current allegations weren’t good enough without any factual allegations to “suggest a purchase in the relatively near or forseeable future …, at least in the context where, as here, the goods are not, e.g., consumable items that are bought on a repeat basis …, but rather a durable good not typically purchased on a regular basis.”