Fee award justified in case involving fraud on the PTO

Amusement Art, LLC v. Life is Beautiful, LLC, 2017 WL 2259672, No. 2-14-cv-08290

(C.D. Cal. May 23, 2017)

Initial ruling discussed here.  Defendant LIB hosts the Life is Beautiful festival in Las Vegas, Nevada—an annual event that features music, art, food, and other programming. One of the logos initially associated with the event was an image of a heart made of splattered paint. Amusement Art is owned by artist Thierry Guetta and his wife Debora Guetta. Guetta’s first solo art exhibition, held in 2008, was entitled “Life is Beautiful” and Guetta incorporated that phrase into some of his artwork. Guetta also previously produced artwork depicting a heart accented by splattered paint. Amusement Art sued for trademark and copyright infringement and related claims.

After the lawsuit began, LIB determined that a number of the statements of use Amusement submitted to the PTO to receive “Life is Beautiful” registrations were false. Although Amusement voluntarily surrendered 8 of its registrations, it continued to claim a 2014 registration in connection with festivals and art events.  The court granted LIB’s motion for summary judgment on all claims and its counterclaims for cancellation.  As for the trademark claims based on “Life is Beautiful,” the court found them barred by the doctrine of unclean hands.  For trademark claims based on the heart design, the design didn’t function as a mark, nor did Amusement show that the design was valid and protectable.  On the copyright claim, no rational jury could find the two images were “virtually identical,” “as is required when asserting a copyright claim based on a ubiquitous image such as a heart design.”

Here, the court granted LIB’s fee request as to the Lanham Act claims, but not the copyright claim, reducing its request through various deductions to a bit over $922,000 in total, out of a request for roughly twice that.  Applying Octane Fitness, the court reasoned that a party’s bad motivation or fraudulent conduct is “archetypal” conduct warranting fee-shifting under the Lanham Act.  Thus, fraud on the PTO is routinely deemed to be exceptional.  Given the extent of the fraudulent conduct in this case, the court found that LIB was entitled to recover for fees incurred in connection with the “Life is Beautiful” trademark claims.  The infringement claims were initially based on eight fraudulently-obtained registrations where Amusement claimed the use of the “Life is Beautiful” mark in connection with 257 categories of goods, but it obtained the registrations by staging photographs and submitting false declarations. Amusement responded that it surrendered the eight fraudulently-obtained registrations and that the infringement claim was ultimately premised on a ninth registration that was not fraudulently-obtained. Nope.  Amusement “attempted to fraudulently ‘secure a monopoly over most plausible uses of the phrase “Life is Beautiful” without actually investing any resources into developing the goodwill of their brand.’ Plaintiff then subjected others to the burden of litigation on the basis of all of those marks.”  Its abandonment of the fraudulently obtained marks didn’t clean its hands, nor did it make this case unexceptional.

LIB argued that the weakness of the heart design infringement claim also justified a fee award. Amusement’s 30(b)(6) witness stated that she considered the heart design a copyright image rather than a trademark image. Also, there was a lack of evidence substantiating Amusement’s claim that the limited use of the design in Guetta’s artwork rose to the level of a protectable trademark. The court agreed that the claim was “exceptionally weak.” Even if the court ignored the corporate representative’s statement, Amusement submitted “no evidence of actual use of the mark as a trademark and no evidence that the mark would be recognized by a consumer as a source identifier. … [T]his case is not one where there was inadequate evidence to create a triable issue but rather almost no evidence.”

However, the court denied fees on the copyright claim.  LIB pointed to the absence of any evidence of direct copying and the visual differences between the images.  Amusement did own a valid copyright, though, and “the evidence suggests this action was brought in good faith to protect that copyright. Moreover, although the court concluded that a copyright claim pertaining to a ubiquitous image such as this heart design must be evaluated under the virtually identical standard, it was not unreasonable for Plaintiff to urge a less stringent standard.” There were in fact similarities between the images, even if not enough to create a triable issue of fact. Nor were deterrence interests served by awarding fees, since owners of valid copyrights “are entitled to bring enforcement actions against images that bear visual similarity to their copyrighted design.”

As for apportioning the time spent between Lanham Act and other claims, including congruent state law claims, much of the work related to all the claims.  Moreover, the parties addressed the state law claims for unfair competition and common law trademark infringement only as derivative of the Lanham Act claims.  Ultimately, the court concluded that work related to the Lanham Act claim made up 60% of the total reasonable attorneys’ fees here.  

high-tech look can't fool reasonable consumers about orthotics

Kommer v. Bayer Consumer Health, --- F.Supp.3d ----, 2017 WL 2231162, 16 Civ. 1560 (S.D.N.Y. May 18, 2017)

Bayer sells Dr. Scholl’s foot care products, including the Dr. Scholl’s Custom Fit Orthotics Inserts. In many stores, they are sold alongside defendants’ point-of-sale kiosk, the Dr. Scholl’s Custom Fit Orthotics Foot Mapping Kiosk, which features a platform for customers to stand on and a computer monitor at top. 

The instructions direct customers to remove their shoes and step onto the Kiosk platform; the system recommends the best Insert model for the user’s feet. There are fourteen different models of pre-fabricated, pre-packaged Inserts, and the Kiosk will always recommend one of the models. The Dr. Scholl’s website touts the custom fit kiosk to “recommend the Custom Fit Orthotic Inserts that are right for you.”  The complaint alleged that the arch measurements from the kiosk were imprecise, depending on an individual’s weight and stance, and that reliance on arch measurements isn’t sufficient to prescribe a custom fit orthotic.  Kommer experienced foot pain; he paid $333 for custom orthotics, then tried the kiosk and ended up buying the recommended inserts for $50, allegedly higher than similar inserts that sell for $10.  He alleged that, had he known the truth that the inserts were “standardized, mass produced over-the-counter shoe inserts” he would not have bought them, and that his foot pain increased after using them while his prescribed orthotics relieved the pain. 

The basic claims, brought under N.Y. GBL §§ 349 and 350, were that defendants (1) misled consumers into believing that the Inserts were “functionally equivalent” to orthotics fitted and prescribed by a medical professional, and (2) misled customers into believing that the Inserts are individualized to a consumer’s “unique physical characteristics,” and not simply “generic, pre-fabricated, mass-produced, over-the-counter shoe inserts.” The allegedly misleading acts included the use of “Custom Fit Orthotic” in the product name, the Kiosk’s use of “pseudo-technology,” and the use of designations “such as ‘CF440’ ” on the Insert models—designations which Kommer alleged weren’t found on other Dr. Scholl’s products, and which “suggest a level of precision and exactitude that is not present in the product.”

The court first found that Kommer lacked Article III standing to seek injunctive relief, regardless of the public policy reasons for allowing such standing.  Kommer essentially conceded that he wouldn’t buy the inserts, or be misled by the marketing, again in the future.

The court also found that Kommer hadn’t plausibly alleged material misleadingness, which is evaluated from the objective standpoint of a reasonable consumer. “At the point that the consumer is directed to select a pre-packaged Insert stacked along shelves on the side of the Kiosk … it is no longer reasonable for him to think that he is getting a product ‘individually designed’ for his feet.”

In the alternative, Kommer argued that the marketing would lead consumers to believe that the Inserts are the functional equivalent of prescribed, individually-made orthotics.  But the kiosk instructions also contained a disclaimer: “The Dr. Scholl’s Custom Fit Orthotic Center uses state of the art technology to measure your feet, but does not diagnose medical conditions. It is not intended to take the place of your podiatrist. See your podiatrist as needed for diagnosis and treatment of medical conditions.”  Disclaimers aren’t always sufficient, but this one was. It was printed in “reasonably-sized font right at the top of the Instructions” and was sufficiently clear even before a consumer made a purchase or even stepped on the kiosk. Nor was it inconsistent with defendants’ other representations, and it was unclear how designations such as “CF440” would lead a reasonable consumer to believe that he was getting over-the-counter inserts comparable to prescribed ones, “particularly when Plaintiff does not allege that such designations are unique to, or even typical of, the latter.”  Kommer didn’t explain how “high technology-looking” marketing was inherently deceptive.  “To the extent that a consumer may overestimate the function of the Kiosk … the disclaimer provides adequate clarification of its capabilities.”

A box size whopper? Slack fill claims for candy continue

Bratton v. Hershey Co., 2017 WL 2126864, No. 16–cv–4322 (W.D. Mo. May 16, 2017)

Bratton sued over alleged slack fill in Reese’s Pieces and Whoppers candy boxes.  He alleged that:

Consumers spend an average of 13 seconds making an in-store purchasing decision. The decision is heavily dependent on a product’s packaging, in particular, the package dimensions. When faced with a large box and a smaller box, both containing the same amount of product, a consumer is more likely to choose the larger one, thinking it is a better value.

About 29% of each Reese’s Pieces box was allegedly slack filled, and about 41% of each Whoppers box. 

Bratton sued under the Missouri Merchandising Practices Act (MMPA) for a Missouri consumer subclass, which requires (1) the purchase of goods or services, (2) primarily for personal or household purposes; and (3) an ascertainable loss of money or property, (4) as a result of, or caused by, the use or employment by another person of a method, act, or practice declared unlawful under the MMPA. The MMPA is “ ‘paternalistic legislation designed to protect those that could not otherwise protect themselves,’ ” High Life Sales Co. v. Brown–Forman, Corp., 823 S.W.2d 493, 498 (Mo. 1992), and is thus very broadly written.  Unlawful practices include “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.”  Reliance is not required. “[I]n order to prevent evasion by overly meticulous definitions,” the statutory scheme does not provide definitions of any particular unlawful practices. Thus, “[f]or better or worse, the literal words cover every practice imaginable and every unfairness to whatever degree.”

The Missouri Attorney General has authority to promulgate rules under the MMPA. Under those rules,  “deception” is defined as “any method, act, use, practice, advertisement or solicitation that has the tendency or capacity to mislead, deceive or cheat, or that tends to create a false impression,” and “[i]t is deception for any person in an advertisement or sales presentation to use any format which because of its overall appearance has the tendency or capacity to mislead consumers.” The rules further provide that reliance and intent are not elements that must be proven to establish deception or misrepresentation, nor is proof of deception, fraud, or misrepresentation required.

Given this breadth, the allegations of the complaint that the packaging misled Bratton to believe that the boxes contained more candy than they actually did, and that the actual value of the product was less than the value as represented by the packaging, were sufficient. “Hershey’s candy boxes are opaque and non-pliable, and a reasonable consumer could conclude that the size of a box suggests the amount of candy in it.”  The court’s conclusion was reinforced by Bratton’s allegations about federal regulations barring slack fill, subject to exceptions that Bratton alleged didn’t apply. Regardless of whether he could prove his MMPA claim by pointing to such violation, the existence of the federal prohibition “supports the reasonableness of a consumer’s belief that the package of candy he purchases will not have 29% or 41% non-functional slack-fill.”

Hershey argued that “[c]onsumers are well aware of the fact that substantially all commercial packaging contains some empty space”; that “[i]t is common knowledge in ‘our industrial civilization’ that substantially all packaged goods include some amount of empty or ‘head’ space, which is necessary for efficient manufacturing and distribution”; and that “a reasonable consumer, upon picking up the Reese’s Pieces or Whoppers container, would instantly realize that it is not filled to the brim: with each movement of the package, its contents noticeably and audibly rattle.” But the allegations of the complaint controlled, and Hershey’s statements were not facts of which the court could take judicial notice.  Anyway, realizing that the package wasn’t filled to the brim didn’t contradict Bratton’s allegations that the boxes were substantially empty and that they could easily be more full.  Deliciously, Hershey deposited sample boxes with the court, but the court declined to make findings of fact “about what conclusions a reasonable consumer would draw about the amount of product in the course of deciding to purchase the boxes.”

Hershey also argued that the clear and accurate labeling on the packages—net weight, number of pieces of candy per serving, and number of servings per box—was fatal to Bratton’s claim because it tells a consumer how much candy is in the box. An ingredient list is not required on packaging “so that manufacturers can mislead consumers and then rely on the ingredient list to correct those misrepresentations and provide a shield from liability for that deception.” A reasonable consumer “would expect that the ingredient list comported with the representations on the packaging, and … in any event, the manufacturer was in the superior position to know and understand the ingredients in the product, and whether they comported with the packaging.” The same is true for the dimensions of the boxes as for the ingredients.

Hershey then argued that Bratton failed to allege ascertainable loss under the MMPA. Ascertainable loss involves “the benefit-of-the-bargain rule, which compares the actual value of the item to the value of the item if it had been as represented at the time of the transaction.” The allegations here were sufficient:

Bratton alleged that the value of the products he purchased was less than the value of the products as represented by size of the boxes.

Standing to pursue injunctive relief: Hershey argued that, now that Bratton knows about the slack fill, he can’t plausibly claim that he’s subject to further harm.  However, the court found that Bratton adequately pled a threat of ongoing or future harm, which is fairly traceable to Hershey’s conduct: Hershey continues to sell slack-filled candy boxes.  If Hershey changes its practices, Bratton alleged, he’s likely to buy the products in the future.  The fact of Bratton’s discovery of the truth doesn’t make the packaging less misleading.

Likewise, Bratton sufficiently pled unjust enrichment.  The question of whether he could represent a Missouri or nationwide class was not appropriate for resolution at this stage.

Suing for false advertising as abuse of process

Bobrick Washroom Equipment, Inc. v. Scranton Products, Inc., 2017 WL 2126320, No. 14-CV-00853 (M.D. Pa. May 16, 2017)

In May 2014 SP sued Bobrick, alleging that it “carefully orchestrated a campaign to scare architects, product specifiers, procurement representatives, building owners, and others in the construction industry into believing that Scranton Products’ toilet partitions are fire hazards, are unsafe and pose health and safety risks if used in building projects across the country.” After SP voluntarily dismissed the claim, Bobrick filed a complaint asserting false advertising and wrongful use of civil proceedings under Pennsylvania’s Dragonetti Act, as well as common law unfair cornpetition and abuse of process claims.

Bobrick’s Lanham Act and unfair competition claims arose from SP’s alleged misrepresentations of “thousands of its high density polyethylene (‘HDPE’) toilet partitions sold for installation in schools and other public and private buildings as being compliant with applicable fire, life safety, and building code requirements.” SP allegedly falsely represented that its HDPE toilet partitions comply with the requirements of the NFPA 286 room-corner test, a fire performance test promulgated by the National Fire Protection Association, even though SP allegedly improperly modified and manipulated the test methodology to produce a favorable result, thereby invalidating the test, and sold toilet partitions with a different chemical composition and physical structure than those it claimed to have successfully tested under NFPA 286.

As for the abuse of process-type claims, Bobrick alleged that SP knew or should have known that its central claims—similar to those challenged in the false advertising claims here—were false, but sued anyway, for “the improper purpose of stifling legitimate competition by Bobrick, silencing Bobrick’s efforts to educate market participants about code requirements in the interest of public safety, and inflicting financial harm on Bobrick for unfair competitive advantage by increasing Bobrick’s costs and otherwise.” The result was “[n]early three years of costly and time-consuming litigation.”  SP also allegedly destroyed numerous relevant documents while contemplating litigation and made discovery more costly in various ways, including by miseading Bobrick and the court.

The court first found that false advertising was cognizable as unfair competition under Pennsylvania common law, which was not limited to passing off.  Then it refused to dismiss the abuse of process claim. “Generally speaking, to recover under a theory of abuse of process, a plaintiff must show that the defendant used legal process against the plaintiff in a way that constituted a perversion of that process and caused harm to the plaintiff.”  Though un-of-the-mill discovery disputes cannot constitute an abuse of process under Pennsylvania law, Bobrick alleged “facts far more detailed and nefarious: that SP knew that some or all of its HDPE toilet partitions did not actually comply with NFPA 286 (i.e., its claims were baseless) yet SP nevertheless continued to prosecute this lawsuit for nearly three years, all while stifling Bobrick’s legitimate discovery efforts for the specific purpose of financially harming Bobrick and gaining a competitive advantage in the marketplace.” 

coffee cup lid trade dress survives functionality challenge

If I have the right image of the defendant's coffee cup lid, this is a good example of the difficulties separating scope from validity: the challenged design is noticeably different from the registered design, and it seems to me that the case that the overall concept is functional is stronger than the case that the specific implementation is functional.  I guess we'll see.

Solo Cup Operating Corp. v. Lollicup USA, Inc., 2017 WL 2152424, No. 16 C 8041 (N.D. Ill. May 17, 2017)

Solo Cup has a registered product configuration mark for its “Traveler” coffee-cup lid:

The lid was also the subject of design and utility patents that expired in 2001 and 2003, and which were disclosed to the PTO during the registration process.  Solo alleged that Lollicup’s Karat lids infringed its mark.

Lollicup asserted a bunch of defenses, some of which the court rejects here, including fraud on the PTO.  Fraud occurs when the applicant “withhold[s] from the Patent and Trademark Office ... material information or fact which, if disclosed to the Office, would have resulted in the disallowance of the registration sought or to be maintained,” or makes “a deliberate attempt to mislead the PTO into registering [the] mark by presenting materially false and misleading information to the PTO when ... seeking the trademark registration.” Lollicup argued that Solo’s statements made during the application process about non-functionality constituted fraud.

Under Traffix, the existence of a utility patent that encompasses the product configuration claimed “is strong evidence that the features therein claimed are functional,” but not completely dispositive.  Functionality isn’t a fact that can be withheld from the PTO but a determination for the examiner. Thus, for fraud to relate to functionality, a party must either withhold from the examiner information or facts that are material to the determination of whether the mark is functional or present false or misleading information that is material to the functionality determination.  Lollicup argued that Solo’s representations that certain features of its lid were ornamental were inconsistent with representations made to the patent examiner about those features’ functionality. “But as any practitioner before the PTO would likely concede, applications advocate for a result by highlighting facts that are favorable. Where, as here, the trademark examiner was in a position to agree or disagree with the characterizations contained in the application by studying the patent itself, such an argument made by a trademark applicant does not give rise to a reasonable inference of fraudulent intent.”

Similarly, Solo’s director of product development submitted a declaration to the PTO stating that (a) the lid had the same basic functional characteristics of competing lids and (b) the configuration didn’t affect the cost of manufacturing the lid to the disadvantage of others in the marketplace. These were potentially false and misleading but they characterized the configuration in “broad terms that are not demonstrably false nor directly contrary to the patent disclosure,” which claimed that the configuration assisted in manufacturing.

The court similarly dismissed false advertising claims based on Solo’s allegedly false use of the registration symbol on its lid.  The trademark was registered and the court dismissed the fraud claims.  “[U]se of the ® symbol on its registered lids cannot be a false statement of fact prior to cancellation or abandonment of that mark.” Even if the trademark is ultimately cancelled, it will still have been registered and thus there was no false claim in prior use of the symbol.

A similar fate awaited Lollicup’s claims of unconstitutionality of the registration and preemption under federal patent law.  The right to copy a design upon expiration of a patent is “far from absolute.” Thomas & Betts Corp. v. Panduit Corp., 138 F.3d 277, 287 (7th Cir. 1998). 

Reading list: Shakespeare's literary disputes

Bonus points for beginning with a great Hamlet quote (the best use of which I ever saw was a production that arranged the scenes so that when Hamlet disparages what he's reading as "words, words, words" he is reading his letters to Ophelia, which she has returned to him).

Barbara Lauriat, Literary and Dramatic Disputes in Shakespeare's Time
Journal of International Dispute Settlement, Forthcoming

Disputes over literary works and plays — between one authors and another, one publisher and another, and between authors and publishers — have arisen since the ancient world. This is to be expected, since publishing poems and plays and producing theatrical performances can have significant economic, political, and emotional implications all at the same time. The nature and legal frameworks governing these disputes have changed dramatically over the centuries, however, particularly with regard to the proprietary rights involved. Though modern copyright law did not exist at the time, the Elizabethan age saw a high degree of professionalism of theatrical performance, book publishing, and dramatic authorship. When audiences are clamoring for novel entertainments, authorship is becoming a professional activity, and profits are to be made, customs and traditions inevitably arise — as do violations of those customs and traditions. This article discusses the framework of authorship and publishing in Shakespeare’s time and examines some of the disputes that arose and how they were resolved in a context where the legal remedies were limited. Methods from patronage to private guild “courts” to theft to public denunciation to outright violence were employed in attempts to maintain profitable businesses in publishing and theatre.

New article: fixing incontestability

With apologies to John Welch, who hates the term.

Fixing Incontestability: The Next Frontier? Boston University journal of Science and Technology Law, Forthcoming

Abstract

Incontestability is a nearly unique feature of American trademark law, with a unique American implementation. The concept of incontestability allows a trademark registrant to overcome arguments that a symbol is merely descriptive of features or qualities of the registrant’s goods or services—for example, “Juicy” for apples. Incontestability provides a nearly irrebuttable presumption of trademark meaning, which is a powerful tool for trademark owners. Unfortunately, incontestability is not granted as carefully as its power would counsel. Courts may misunderstand either the prerequisites for, or the meaning of incontestability, allowing trademark claimants to assert rights that they don’t actually have Incontestability needs clearer signals about what it is and when it is available. In the absence of serious substantive examination of incontestability at the PTO—which seems unlikely to materialize any time soon—changes designed to increase the salience of incontestability’s requirements to filers and to courts could provide some protection against wrongful assertions. Incontestability can only serve the trademark system if it is granted properly and consistently.

Another outlet price deception case, with pictures

Stathakos v. Columbia Sportswear Co., 2017 WL 1957063, No. 15-cv-04543 (N.D. Cal. May 11, 2017)

The parties sued Columbia, bringing the usual California claims, for alleged use of deceptive and misleading reference prices on merchandise in its company-owned Columbia outlet stores.  Columbia sold two categories of garments: (i) “Inline Styles,” which were regular products produced for sale at any of defendants’ stores, wholesale partners, or online; and (ii) “Outlet Special Makeup Builds,” which, starting in 2014, were designed specifically for, and sold only at, defendants’ outlet stores.  Before 2014, Columbia’s price tags at the outlet stores showed both the higher price at which a garment previously sold Inline and the lower price at which it could be purchased at the outlet.  Outlet Builds also had price tags showing two prices; these clothes were “styles based off an in-line style, with slight aesthetic modifications,” and so the higher price tag represented the price at which the “corresponding inline style sold for” whereas the lower price was the “price at which the item could be purchased at the outlet (absent a special sale at the outlet).”  But the Outlet Builds were never sold anywhere other than outlet stores and never sold for the higher reference price. There were about 580 Outlet Builds through the time of the litigation.

Plaintiffs’ expert Ms. Goldaper, a fashion industry veteran, was allowed to opine on the differences between the Outlet Builds and their supposed main store (inline) counterparts, which she opined were often material.  (Out of the garments she reviewed, she found seven with major material differences from their counterparts, nine had modest differences, two were counterparts, and one had no counterpart whatsoever.)

Plaintiffs’ expert Dr. Compeau was also allowed to opine on consumer behavior, specifically: (i) a review of the extant literature demonstrates that consumers are affected and influenced by reference prices; (ii) defendants utilize reference prices extensively; (iii) because the Outlet Builds are never sold anywhere but the outlet stores and never at the reference price, the reference prices were false and suggest savings to the consumer; and (iv) the reference prices deceived consumers into buying Outlet Builds that they otherwise would not have bought.  However, he was not allowed to opine on a defendant’s corporate intent, or on legal conclusions/matters outside the scope of his expertise, though he could opine on whether practices might mislead consumers.

Columbia argued that their reference prices were valid under section 17501 of the FAL, which reads: “No price shall be advertised as a former price of any advertised thing, unless the alleged former price was the prevailing market price as above defined....” A 1957 Attorney General Opinion stated that the “phrase ‘prevailing market price’ means the predominating price that may be obtained for merchandise similar to the article in question on the open market and within the community where the article is sold.” But California’s false advertising laws were not so narrow.  Even if the reference prices satisfied the definition of “former price,” there could still be deception: the evidence would let a jury conclude that consumers could not distinguish based on the price tags between garments which were Outlet Builds that were never sold for the advertised reference price and Inline styles sold at the outlets which were at some point sold for the advertised reference price.

With respect to five items plaintiffs bought after the original complaint was filed, defendants got summary judgment, because plaintiffs couldn’t have relied on the idea that they were getting discounted original store merchandise. But there were triable fact issues on the other items they purchased.

Plaintiffs sought monetary relief.  Columbia argued that the only possible measure of monetary relief here was the difference between the actual value of the garments and the price paid, but that isn’t the only measure of restitution.  Relevant principles: restitution can’t be ordered just to deter; any proposed method for calculating restitution has to account for the benefits a plaintiff received; and the amount must represent a measurable loss supported by the evidence.

Plaintiffs argued that three different methods could work: (1) full refund, (2) promised discount, and (3) disgorgement of profits.  The first wouldn’t work, even though plaintiffs alleged that they wouldn’t have bought the garments without the supposed discount; under California law, a full refund may be available as a means for restitution only when “plaintiffs prove the product had no value to them.” (E.g., Trump University programs.  Makaeff v. Trump Univ., 309 F.R.D. 631 (S.D. Cal. Sept. 18, 2015).) But these plaintiffs “undeniably obtained some value from the garments they purchased”; they considered the color, fit and function of the garments before they bought.

Turning to “promised discount,” plaintiffs argued that you could start with the reference price, the outlet price, and an actual purchase price, and calculate the percentage of the promised discount between reference and outlet price, then apply that percentage to the actual purchase price, giving the benefit promised by Columbia. Courts have split on this theory of damages; the court agreed with the other court that rejected this model.  This discount model “seeks to award Plaintiff the bargain she expected to receive without any focus on the amount of money she lost in the process.”  Usually, plaintiffs allege some sort of price premium enabled by the misrepresentation, which could be calculated.  A proper measure of restitution could be the difference between the price plaintiffs actually paid and the price a reasonable consumer would have paid absent the reference price, but the promised discount model here didn’t purport to measure that difference.  Instead, the model assumed that plaintiffs would have purchased such products only if the “promised discount” were applied to the actual purchase price. This is the equivalent of “awarding plaintiffs expectation damages, without accounting for the amount of money plaintiffs actually lost in the process,” and that’s not what restitution does.

Disgorgement: “Restitutionary disgorgement,” which focuses on the plaintiff’s loss, is allowed under California law, but not “nonrestitutionary disgorgement,” which focuses on the defendant’s unjust enrichment.  Again, plaintiffs’ model for disgorgement focused on Columbia’s gain without accounting for benefits plaintiffs gained.

The court did, however, certify a Rule 23(b)(2) class, though it rejected a damages class. Columbia’s main argument on commonality centered on its expert’s survey. Its expert opined that (i) consumers were driven, in large part, by the garment’s attributes rather than price; (ii) only a few consumers rated the perceived discount as a very important factor; (iii) many consumers would have still purchased the item knowing that the reference price only concerned a price at which a similar item sold; and (iv) there was no uniform understanding of what the reference prices represented.  This wasn’t enough to rebut the presumption of reliance and materiality at this stage of the case.  Plaintiffs’ rebuttal expert, Dr. Poret, identified flaws in the coding that arguably supported plaintiffs’ theory that many people were deceived and considered the amount of savings they received significant.

a true story of a false advertising claim based on a "true story"

Incarcerated Entertainment, LLC v. Warner Bros. Pictures, No. 16-cv-1302 (M.D. Fla. May 10, 2017)

Plaintiff alleged that it owned the rights to the life story of Efraim Diveroli and sued Warner for false advertising and unfair competition, based on Warner’s promotion of the movie War Dogs as the “true story” of Diveroli’s path to becoming an international arms dealer. At 18, Diveroli allegedly started a small business specializing in arms,  ammunition trading, and bidding on U.S. Government defense contracts, and was awarded a $298 million contract to support the United States’ war effort in Afghanistan. At  age 22, Diveroli was indicted by a federal grand jury in Miami for his company’s violation of arms embargos and ultimately accepted a four-year plea deal. Guy Lawson wrote an article in Rolling Stone, The Stoner Arms Dealers: How Two American Kids Became Big-Time Weapons Traders, featuring accounts by both Diveroli and one of his employees Packouz. Lawson optioned the movie rights for the article to Warner and later expanded the article into a book, Arms and the Dudes.  (Well played!) Diveroli marketed his own manuscript, Once a Gun Runner, and his business partner contacted a number of producers and studios, including Warner, which declined to pursue a consulting arrangement with Diveroli but retained Packouz as a consultant and enlisted Guy Lawson as a producer.

The complaint alleged that Warner grossed more than $85 million by promoting War Dogs as Diveroli’s “true story” when it was not the true story, shutting the plaintiff out of the marketplace because consumers would purchase a ticket to War Dogs instead of buying Diveroli’s memoir, Once a Gun Runner.  Star Jonah Hill, for example, claimed of the movie that “it’s all true,” while another promoter told interviewers “these are real people,” and another explained that “we certainly tried to follow what happened as closely as possible I think. If you know the story at all, we pretty much stick to the facts as much as we can.”

The court, perhaps surprisingly, found that the challenged statements were “commercial speech.”  The statements were used for promotional purposes, referring to a specific product, and with an alleged economic motivation: Warner knew that representing the story as “true” would induce consumers to see the movie. The court rejected Warner’s argument that the promotions were “intertwined” with non-commercial speech, including political and artistic commentary, and were protected because they related to a movie, which is a protected expressive work.  But movies “are also sold in the commercial marketplace like other more utilitarian products, making the danger of consumer deception a legitimate concern that warrants some government regulation.” Rogers v. Grimaldi.

The intertwining theory couldn’t be resolved on a motion to dismiss.  Rogers typically applies only to titles or other expressive works, not to ads, e.g., Facenda (a “making of” documentary about a  videogame whose aim was to promote another creative work).  The challenged movie trailers, social media posts, and interviews could be subject to Facenda treatment.

Warner argues that “based on a true story” couldn’t be actionable because it conveys that the movie “is obviously fictionalized in part.” There was no such clear-cut rule; the entire trailer in context included a realistic news report by Wolf Blitzer, a well-known CNN anchor, and the entire ad has to be considered.  As for interviews with principals, the question whether they, in their full context, falsely or misleadingly portrayed War Dogs as a true story called for a fact-intensive inquiry that couldn’t be done on a motion to dismiss. 

The complaint also plausibly alleged that statements by Larson and Packouz were made as agents of Warner. Lawson was a producer of the movie, and Packouz was retained as a consultant and had a cameo in the movie.  An agency relationship with Warner could be plausibly inferred.  Warner argued that their statements were opinion or puffery.  Lawson stated on his Facebook page that War Dogs was “amazingly close to the real truth of the story” and that War Dogs was inspired by his own book. A reasonable person could infer that Lawson knew the true story and his characterization of War Dogs “fairly implie[d] a factual basis.” Likewise, because Packouz identified himself as the subject of the movie, his statement that “this is exactly how it happened” at least arguably implied a factual basis.

Warner argued that plaintiff didn’t properly allege deception, but no factual evidence of consumer deception is required at the pleading stage. As to materiality, plaintiff alleged sufficient facts to support an inference that the truthfulness of War Dogs was an “inherent quality or characteristic,” alleging that consumers are drawn to true stories and that a test screening for War Dogs revealed that one of the main things people liked was that it was based on a real story. Plus, because plaintiff wasn’t alleging that scenes from the movie itself  were false or misleading, the accuracy of the movie wasn’t relevant to the issue of materiality.  (Hunh?)

Warner finally challenged standing under Lexmark.  Plaintiff alleged that it was a direct victim of Warner’s advertising because War Dogs diverted book sales from it. Thus, the plaintiff plausibly alleged that its injuries “flowed directly” from Warner’s advertising.

remedial actions prevent finding of irreparable harm for TRO

Ocusoft, Inc. v. Walgreen Co., 2017 WL 1838106, No. H-17-1037 (S.D. Tex. May 8, 2017)

Ocusoft sells “the first commercially available eyelid cleanser, Ocusoft Lid Scrub,” which Walgreens aells alongside its private label eyelid cleansing pads, which are routinely placed next to Ocusoft’s products on store shelves.  Ocusoft sued for false advertising and unfair competition under the Lanham Act, federal patent infringement, and unfair competition, dilution, misappropriation of goodwill, and unjust enrichment under Texas common law. In support of its accompanying motion for a TRO, Ocusoft alleged (1) that store clerks at three Walgreens stores in Texas made false representations that the Walgreens Private Label and the Ocusoft products were the same or were made by the same manufacturer, (2) that one local store in Texas falsely advertised consumer savings on a compare-and-save label showing a $7 discount, when the actual savings was $3.50, and (3) that Walgreens’s online advertisements displayed the 2015 Walgreens Rinse-Free Pads, but customers were shipped the 2016 Walgreens Rinse-Free Pads, which contained different ingredients.

Walgreens argued that it “never instructed its local store employees to inform customers that Walgreens-branded products are the same as, or are manufactured by the same company, as Ocusoft eyelid pads.” t argued that “these isolated incidents, including a single incorrect savings tag in one store, were unlikely to influence the purchasing decisions of consumers.” Walgreens denied awareness of any customers other than Ocusoft’s agents who asked whether the products are the same or were made by the same manufacturer, or of any online customers (less than 1% of eyelid care customers) who complained about receiving the 2016 version of the product instead of the 2015 version. However, Walgreens also claimed that it had corrected the alleged misrepresentations, including replacing the incorrect compare-and-save tag, issuing internal communications to all store managers nationwide to instruct local store employees to not tell customers that the Ocusoft and Walgreens Private Label products are the same or are from the same manufacturer, and removing images of the 2015 Walgreens Rinse-Free Pads from its website.

Ocusoft argued that a TRO was still necessary because at least one Walgreens store in Florida displayed an incorrect compare-and-save tag and an employee who was questioned about the Walgreens Private Label and Ocusoft products said that they were the same.

The court found that Ocusoft hadn’t shown irreparable injury, although the court wasn’t persuaded that Ocusoft’s ten-week delay in seeking a TRO rebutted any presumption of irreparable harm. Ocusoft argued that it filed its TRO after completing its investigation, which included store visits, lab testing, and a survey; the court found that a two-to-three-month delay in seeking a TRO does not foreclose injunctive relief.

In addition, Ocusoft alleged loss of market share, goodwill, or reputation due to Walgreens’ false statements, but presented no record evidence. Speculative injury isn’t sufficient.  Though Ocusoft argued that lost market share was irreparable harm, it didn’t present any data on that alleged loss.

Without deciding whether Ocusoft was entitled to a presumption of harm, the court held that Walgreens’ corrective action avoided any alleged imminent harm. One additional allegation of an incorrect compare-and-save tag in one store in Florida was insufficient to revive Ocusoft’s claim.

allegedly false claims of official endorsement by Trump can be false advertising

Bobbleheads.com, LLC v. Wright Brothers, Inc., 2017 WL 1838932,  No. 16-CV-2790 (S.D. Cal. May 8, 2017)

Bobbleheads.com makes bobbleheads, including the Hillary Clinton Striped Prison Pantsuit Bobblehead, an application for copyright registration for which was filed Sept. 2, 2016 (and an application covering just the head was filed in May 2016).

Bobbleheads argued that defendants made unauthorized copies in two of their bobbleheads:

(I see the claim for the first, but the second?  How is that anything more than the same idea?)

Several days after filing for the copyright registration, Bobbleheads sent a C&D to defendants, and defendants allegedly took steps to make it appear that they had temporarily discontinued the sale of the first version.  Bobbleheads also sent numerous DMCA takedown notices to ISPs, allegedly causing defendants to shift their advertising and sales to other platforms and outlets.

Bobbleheads also alleged that defendants falsely advertised that their products were sponsored or otherwise affiliated with the Trump/Pence Presidential campaign (using the Trump/Pence campaign logo on websites and other advertisements; indicating that a copyright for their website was owned by or affiliated with Trump; and stating in their advertisements that Defendants’ bobbleheads were “The official bobble head doll of the 2016 Donald Trump Presidential campaign”). Plus, defendants allegedly falsely advertised that they were selling the second version, but actually shipped the first version.

The court first considered whether Rule 9(b) applied to the Lanham Act claim, and held that it did where the claim is grounded in fraud, as here. Under that standard, the claims survived in part, with the exception of conclusory allegations that defendants used Bobblehead’s pictures of its own bobblehead to sell their competing bobbleheads.

Defendants also successfully argued that Bobbleheads lacked standing under Lexmark because it failed to allege any kind of reputational or economic injury as a result of the conduct charged.  Merely stating that defendants’ false advertising “somehow caused Plaintiff to suffer damages” was not specific enough—there were no more specific allegations of, “at the very least, lost sales or damage to its reputation.” This wasn’t enough to plead proximate causation.  Bobbleheads argued that “if one product is the ‘official’ product, every other product is unofficial and therefore inferior. Consumers in the market are likely to choose the official product over the unofficial one and thus Defendants, through their false advertising campaign have diverted sales from the Plaintiff....” Such allegations might be sufficient, but they weren’t in the complaint; Bobbleheads could replead.

Defendants argued that Dastar barred any relief.  But Dastar is about false authorship claims, not false endorsement.  Bobbleheads didn’t allege reverse passing off, or anything about the manufacturer of the goods.  Instead, Bobbleheads’ false advertising claim was based on misrepresentations about “official” Trump endorsement. This claim was “unrelated to the authorship or origin of Defendants’ bobbleheads,” and thus not covered by Dastar.

Defendants also argued that, “to the extent Plaintiff complains of Defendants using an alleged false copyright notice, such a claim must fail because the Copyright Act covers that kind of activity, but does not allow for a private right of action.” But Bobbleheads wasn’t asserting a claim for misuse of a copyright notice; instead the allegedly false copyright notice was part of the overall false advertising claim based on misrepresentation of “official” Trump campaign status.

Defendants further challenged the plausibility of materiality here: It doesn’t matter if some customers who thought they were ordering the second version received the first version because “the joke of the bobblehead is the same regardless of the subtle variation in her hand position.”  But literally false statements and images were allegedly used to market the bobbleheads, and literal falsity is presumed to have deceived consumers.  Defendants could attack materiality later.

Finally, defendants argued that associations with the Trump organization were opinions/puffery, not actionable facts.  The court disagreed. “Whether or not the Trump organization did, in fact, sponsor Defendants’ bobbleheads or claim copyright in the website are ‘knowable’ facts, not opinions.”  There was a conceptual difference between use of a symbol (TM or ©) indicating one’s belief in one’s own alleged rights, versus use of a symbol indicating that someone else, e.g. the Trump organization, claims rights in defendants’ website—the latter is an ascertainable fact.

The court also deferred ruling on defendants’ argument that Bobbleheads couldn’t get statutory damages and attorney’s fees because Bobbleheads learned of the alleged infringement before it applied for the registration.  (Only the full doll registration was relevant because the allegations of copying focused on everything but the head.)  On the allegations of the complaint, the date on which defendants began their infringement was unknown.

Plan P2 Promotions, LLC v. Wright Brothers, Inc., 2017 WL 1838943, No. 16-CV-2795  (S.D. Cal. May 8, 2017)

Same story, different bobblehead, here the Donald Trump Red Hat Bobblehead, published in 2015, application for registration filed October 19, 2016.

Here, based on the dates, PPP agreed that it wasn’t entitled to statutory damages/attorney’s fees under the Copyright Act, but the court refused to dismiss its request for attorney’s fees under the Lanham Act.  PPP adequately pled that this case was exceptional in that defendants “were willfully blind and acted in reckless disregard” of plaintiff’s rights, defendants falsely claimed an association with the Trump organization; and that defendants engaged in a bait-and-switch advertising campaign in order to hide their infringement of PPP’s bobblehead and deceive consumers into purchasing a product they did not order.

CFP: 2018 AALS Annual Meeting

To encourage and recognize excellent legal scholarship and to broaden participation by new law teachers in the Annual Meeting program, the association is sponsoring a call for papers for the 32nd annual AALS Scholarly Papers Competition. Those who will have been full-time law teachers at an AALS member or fee-paid school for five years or less on July 1, 2017, are invited to submit a paper on a topic related to or concerning law. A committee of established scholars will review the submitted papers with the authors’ identities concealed. [Disclosure: I am on the committee this year.]

Papers that make a substantial contribution to legal literature will be selected for presentation at the AALS Annual Meeting in San Diego, California, in January 2018. Inquiries: Questions should be directed to scholarlypapers@aals.org.

More details at the AALS site.

False advertising and the privatized state

Hansen v. Scram of California, Inc., No. 17-cv-01474, 2017 WL 1628401 (C.D. Cal. Apr. 28, 2017)

When the carceral state becomes a business, can it commit business torts?  Plaintiffs sued Scram and Alcohol Monitoring Systems (AMS) for the usual statutory California claims and fraud, arguing that they misrepresented the capabilities of the transdermal alcohol monitoring devices that AMS manufactures and Scram distributes.  The devices, worn on an ankle, were designed to detect and record any instances when a wearer consumes alcohol by detecting alcohol vapors caused by ingested alcohol diffusing through the skin. Plaintiffs alleged that the devices were inherently susceptible to detecting false-positive alcohol readings as a result of “environmental alcohol,” including vapors from cologne, aftershave, hand sanitizer, household cleaners, and gasoline.  Defendants allegedly did not inform buyers of the risk and affirmatively misrepresented it.

Defendants’ business model relies on court mandated rehabilitation programs, as a condition of probation or bond, and other criminal justice system functions.  People enter into private contracts with defendants and pay monthly fees. Users sync the device daily with a monitoring station; if the device concludes that any alcohol vapor readings were caused by an “alcohol consumption event,” defendants inform the relevant law enforcement agency or court exercising jurisdiction over the wearer that the individual consumed alcohol, but they don’t alert the wearer, nor does the device alert in real time. Thus, users can’t get time-sensitive evidence—an immediate blood or breath alcohol test—to challenge any resulting revocation of their bond or probation.

Defendants allegedly advertised their device as “a cost-effective and accurate alternative for law enforcement agencies and courts to track the alcohol usage of at-risk individuals,” and told the public and the governmental agencies with which they seek to work that the device could tell the difference between alcohol vapors from ingested alcohol and alcohol vapors from enviromnental alcohol because the rate of alcohol dissipation purportedly differs.  Plaintiffs alleged two instances involving third parties in which courts rejected the device’s results as “biologically impossible and scientifically unreliable.” Plaintiffs also cited a study that concluded that the “methodology used by AMS cannot separate ethanol [drinking alcohol] from other contaminating alcohols and therefore is not a reliable method.”

Plaintiffs alleged that they experienced false positives.  For example, plaintiff Hansen wore the device while living in a residential alcohol treatment center; the day after she tested negative on a breathalyzer at the center, AMS sent a report indicating that she’d consumed alcohol for a day-long period.  When Hansen received the report, she again tested negative for alcohol and a follow-up blood test reported the same. As a result of the report, she was subject to an additional year of alcohol monitoring; she paid $6,400 to Scram, $300.00 for a urine test from a certified laboratory, and $2,000 in attorneys’ fees to defend against the alleged alcohol consumption.  (It seems like a dangerous business model to profit from false positives when the person who is ordered to pay faces jail if she says no.)  Hansen alleged that, had she known about the false positives and the lack of timely notification to users, she wouldn’t have agreed to buy the alcohol monitoring service as a condition of her bond.

Similarly, plaintiff Oh paid Scram $225 per week for its monitoring services and a $325 enrollment fee. A Scram employee allegedly denied Oh’s request for a fee reduction and warned that if Oh did not pay, Scram would report to the trial court that Oh had violated her “Scram conditions.” Scram reported that Oh was in violation of her monitoring conditions for consuming alcohol from June 5 to June 7, 2015; the resulting report “indicated that Oh’s transdermal alcohol concentration stayed constant for two days, which plaintiffs assert is a biological impossibility.” When she became aware of the report, Oh allegedly had her urine tested for alcohol at a state certified laboratory and that test was negative. Oh challenged defendants’ report in court and the “trial Court was unable to come to a resolution[.]”  Oh also alleged that she lost money in reliance on the false representations/omissions.

Defendants argued that they were entitled to quasi-judicial immunity and the litigation privilege, because this wasn’t really a false advertising case but a case about monitoring alcohol consumption and reporting the resulting information to a court. Quasi-judicial immunity is “extended in appropriate circumstances to non jurists who perform functions closely associated with the judicial process.” “However, it is only when the judgment of an official other than a judge involves the exercise of discretionary judgment that judicial immunity may be extended to that nonjudicial officer.” Defendants didn’t claim to exercise any discretion when they offer their services on behalf of courts. Plus, plaintiffs alleged misconduct beyond defendants’ work on behalf of courts, extending to misrepresentations about their device to individual customers, law enforcement agencies, courts, and the general public.

Similarly, defendants argued that they were protected by California’s litigation privilege because plaintiffs’ essential claim was that defendants communicated information about plaintiffs’ consumption of alcohol to courts in connection with ongoing criminal matters. The California litigation privilege “applies to any communication (1) made in judicial or quasi-judicial proceedings; (2) by litigants or other participants authorized by law; (3) to achieve the objects of the litigation; and (4) that have some connection or logical relation to the action.” Again, the court disagreed: plaintiffs’ claims relied on defendants’ alleged misrepresentations made to people in plaintiffs’ position.

However, plaintiffs failed to allege their common law fraud claim with sufficient particularity, which also doomed the statutory claims because each claim relied on defendants’ allegedly fraudulent misrepresentations. Plaintiffs needed to allege who made the representations, when the misrepresentations were made, and how they were communicated. They didn’t describe the content of defendants’ ads or when plaintiffs viewed them. Also, plaintiffs failed to provide defendants of thirty days’ notice of the alleged CLRA violations, as required for damages under the CLRA.  Plaintiffs were allowed leave to amend. 

City of Chicago can sue pharmacos for falsely advertising opiods

City of Chicago v. Purdue Pharma L.P., 211 F.Supp.3d 1058 (N.D. Ill. 2016)

The court sustained in part a claim by Chicago against defendant pharmacos, based on their allegedly deceptive and unfair marketing campaigns that served to “reverse[] the medical understanding of opioids so that prescribing opioids to treat chronic pain long-term would be commonplace.” Defendants, among other tactics, allegedly deployed sales reps to doctors and other prescribers to mislead them into believing that the benefits of using opioids to treat chronic pain outweighed the risks and that opioids could be used safely by most patients. The pharmacos allegedly “knowingly disseminated unbranded marketing messages that were inconsistent with information on defendants’ branded marketing materials,” including misrepresentations that that opioids improved function, that addiction risk could be managed, and that withdrawal was easily managed, and misleading minimization of the adverse effects of opioids and overstatements of the risks of NSAIDs.

The court refused to stay or dismiss under the primary jurisdiction doctrine. The court wouldn’t have to determine whether opioids were appropriate for the treatment of chronic, non-cancer pain or whether defendants’ drugs’ labels were accurate, but whether defendants deliberately misrepresented the risks, benefits, and superiority of opioids when marketing them to treat chronic pain, “contrary to ... scientific evidence and their own labels[.]” “Courts are equipped to adjudicate such claims.”

The complaint sufficiently alleged deceptive practices in violation of MCC § 2-25-090, which makes it unlawful for a business to “engage in any act of consumer fraud, unfair method of competition, or deceptive practice while conducting any trade or business in the city,” including “[a]ny conduct constituting an unlawful practice under the Illinois Consumer Fraud and Deceptive Business Practices Act.”  The ICFA requires: “(1) a deceptive act or practice by the defendant; (2) the defendant’s intent that the plaintiff rely on the deception; and (3) the occurrence of the deception during a course of conduct involving trade or commerce.” In an enforcement action, as here, the city didn’t have to allege injury and causation, or proximate harm to any consumer. “A deceptive practice violates the ICFA even if it doesn’t actually deceive or injure anyone ... and the Illinois Attorney General has the power to investigate and enjoin such a practice without a showing of actual loss.”  The same analysis applied to the city’s claims under MCC § 4-276-470(1), which makes it illegal to use deception, fraud, false pretense, or misrepresentation with the intent that others rely on such concealment, in connection with the sale or advertisement of any merchandise.

The city alleged sufficient facts to meet Rule 9(b)’s particularity requirement. It identified which Chicago-area prescribers defendants’ representatives made alleged misstatements to, what those alleged misstatements were, and generally when and where those alleged misrepresentations were made. In addition, the city alleged that defendants closely tracked specific dates and the identities of defendants’ sales representatives who made the detailing visits and such information would be found in discovery.

The city also alleged that defendants engaged in unfair acts and practices to promote the sale and use of opioids to treat chronic pain. An unfair practice (1) offends public policy; (2) is immoral, unethical, oppressive, or unscrupulous; or (3) causes substantial injury to consumers; unfairness “depends on a case-by-case analysis.” For public policy, a practice must violate a standard of conduct contained in an existing statute or common-law doctrine that typically applies to such a situation. The court found that the policy of discouraging drug addiction in Illinois, the “public policy, enshrined in state and federal law, seeking to ensure that pharmaceuticals are marketed and utilized appropriately,” and the public policy against victimization of vulnerable populations for profit, were not specific enough to constitute a relevant public policy.

A practice is immoral, unethical, oppressive, or unscrupulous when said conduct “leaves the consumer ‘little choice but to submit.’ ” The allegations didn’t rise to the level of leaving the prescriber or the consumer with limited alternatives to treat long-term pain.  

“A practice causes substantial injury to consumers if it causes significant harm to the plaintiff and has the potential to cause injury to a large number of consumers.” The alleged $13 million in false claims billed to the city was a significant sum, but the city didn’t allege enough under Rule 9(b) to connect defendants’ alleged deceptive marketing with prescriptions that were covered by the city.  The city was given leave to amend.  Similar analysis applied to the false claims allegations involving getting the city to pay for fraudulent claims for prescriptions for opioids that were not medically necessary or reasonably required to treat chronic pain.

The city alleged that defendants’ misrepresentations were material because if it had known of the false statements, it would have refused to authorize payment for opioid prescriptions to treat chronic pain. But it also alleged that it “paid and continues to pay the claims that would not be paid but for defendants’ illegal business practices,” which contradicts materiality.  Thus, the city didn’t sufficiently allege materiality, as required for a false claims cause of action.

The city would also have to connect its allegations about specific prescribers who heard defendants’ misrepresentations and prescriptions for defendants’ drugs that were paid by the city.  If those were sufficiently connected, the city would still need to allege that those prescribers relied on defendants’ misrepresentations when they prescribed defendants’ drugs. The city argued that reliance was plausibly pled by alleging: (1) the city’s increased spending on opioids; (2) interviews with Chicago prescribers who prescribed opioids paid for by the city and confirmed that they prescribed opioids based on deceptive marketing and patients’ demand; and (3) a sample of claims for opioids that were prescribed by physicians who were subject to defendants’ deceptive marketing and paid for by the city.  Defendants argued that intervening events broke the causal chain, including (1) the prescriber’s independent medical judgment; (2) the patient’s preferences; (3) the patient’s decision to fill a prescription; (4) the patient’s decision whether and how to use the medication; and (5) the city’s decision to cover and reimburse the prescriptions.  Defendants were improperly relying on RICO case law, which doesn’t ever find causation.  For false claims, general tort law principles applied, and a defendant is responsible for “the natural, ordinary and reasonable consequences of his conduct,” which includes the effect of many foreseeable intervening effects such as filling a prescription.  If the city did connect prescribers with prescriptions, the court would likely find adequate allegations of causation.  So too with unjust enrichment claims.

court allows company to bring right of publicity claim

Youngevity Int’l, Corp. v. Smith, No. 16-cv-00704, 2016 WL 7626584 (S.D. Cal. Dec. 1, 2016)

Youngevity and Dr. Joel D. Wallach sell various health supplements using independent direct sellers known as “distributors” to move product. The individual defendants were former Youngevity distributors and / or employees. Defendants Wakaya and TNT were companies formed by some of the individual defendants competing with Youngevity. For about seventeen years, TNT ran various websites that explicitly used plaintiffs’ likenesses [sadly, the court believes that both Wallach and Youngevity have separate claims, even though Youngevity doesn’t have a “likeness”; the court does not address the scope of a ROP claim, however, so there is no specific legal ruling]. Plaintiffs terminated the parties’ business relationship and demanded cessation of this use, but defendants didn’t stop.

Under California law, misappropriation of likeness requires “(1) the defendant’s use of the plaintiff’s identity; (2) the appropriation of plaintiff’s name or likeness to defendant’s advantage, commercially or otherwise; (3) lack of consent; and (4) resulting injury.” Until March 2016, defendants had implied consent to use plaintiffs’ likenesses; defendants argued that the single publication rule barred plaintiffs from terminating consent so long as the use was consistent.  “In the context of websites, republication does not occur so long as the statement is not substantively altered or directed to a new audience,” and defendants argued that they hadn’t changed the use in the two years before the complaint, thus precluding a claim.  The court disagreed, because not all the elements of the claim had accrued more than two years ago: there were no grounds for suit when consent existed.  The court was not going to “categorically deny a plaintiff the right to terminate consent to the continued but unchanged use of a plaintiff’s likeness after two years.”  Thus, plaintiffs were entitled to preliminary injunctive relief. It was undisputed that the defendants used the websites to get contact information for customers who wanted to buy Youngevity products and advertised a website marketing their own products, falsely suggesting that some of those products were produced and/or endorsed by plaintiffs. “A competitor’s access to a company’s confidential customer information can clearly cause very serious damage to a company’s market share and business goodwill that is impossible to measure and compensate via money damages.”

The court also rejected some other challenges to plaintiffs’ claims on a motion to dismiss.  For example, plaintiffs successfully alleged Lanham Act false advertising in alleging that Wakaya made false statements regarding how much money a Wakaya distributor could potentially earn: “a year from now, many of us will be million dollar earners,” even though no Wakaya distributor has ever earned this amount of money. This statement was allegedly made in a YouTube video; defendants argued that there was no showing that the video came from a Wakaya agent, but at the pleading stage, an allegation to this effect was enough to give sufficient notice.  So too with an allegedly false claim in a YouTube video that Wakaya was a joint venture with billionaire David Gilmour, founder of the Fiji Water Company. However, more conclusory statements that Wakaya falsely advertised that (1) Youngevity was having financial problems and (2) Wakaya products originate from Fiji, without any details regarding “where” and “when” Wakaya allegedly made the statements, were insufficient. So too with allegations that Wakaya was a pyramid scheme and thus claims that its distributors could earn a lot of money were false.

Plaintiffs also alleged that Wakaya’s advertisements of the health benefits of its “pure Calcium Bentonite Clay” products was false or misleading because these products contains high dosages of lead, which is very dangerous. Defendants argued that there was no falsity because the challenged Facebook post didn’t specifically disclaim lead related health hazards. However, read as a whole, the post “tends to suggest that the clay products are overall good for a person’s health,” which would be false if the products did in fact contain high lead levels.

The court adopted the majority federal approach to claims brought by competitors under California’s FAL, which holds that third party/consumer reliance on false claims doesn’t allow a damaged competitor to sue in the absence of the competitor’s own reliance and resulting damage.

Defendants were enjoined to cease operation of 1-800-WALLACH, myyoungevity.com, and wallachonline.com.Youngevity Int’l, Corp. v. Smith, No. 16-cv-00704, 2016 WL 7626584 (S.D. Cal. Dec. 1, 2016)

Youngevity and Dr. Joel D. Wallach sell various health supplements using independent direct sellers known as “distributors” to move product. The individual defendants were former Youngevity distributors and / or employees. Defendants Wakaya and TNT were companies formed by some of the individual defendants competing with Youngevity. For about seventeen years, TNT ran various websites that explicitly used plaintiffs’ likenesses [sadly, the court seems to think that both Wallach and Youngevity have separate claims, even though Youngevity doesn’t have a “likeness”]. Plaintiffs terminated the parties’ business relationship and demanded cessation of this use, but defendants didn’t stop.

Under California law, misappropriation of likeness requires “(1) the defendant’s use of the plaintiff’s identity; (2) the appropriation of plaintiff’s name or likeness to defendant’s advantage, commercially or otherwise; (3) lack of consent; and (4) resulting injury.” Until March 2016, defendants had implied consent to use plaintiffs’ likenesses; defendants argued that the single publication rule barred plaintiffs from terminating consent so long as the use was consistent.  “In the context of websites, republication does not occur so long as the statement is not substantively altered or directed to a new audience,” and defendants argued that they hadn’t changed the use in the two years before the complaint, thus precluding a claim.  The court disagreed, because not all the elements of the claim had accrued more than two years ago: there were no grounds for suit when consent existed.  The court was not going to “categorically deny a plaintiff the right to terminate consent to the continued but unchanged use of a plaintiff’s likeness after two years.”  Thus, plaintiffs were entitled to preliminary injunctive relief. It was undisputed that the defendants used the websites to get contact information for customers who wanted to buy Youngevity products and advertised a website marketing their own products, falsely suggesting that some of those products were produced and/or endorsed by plaintiffs. “A competitor’s access to a company’s confidential customer information can clearly cause very serious damage to a company’s market share and business goodwill that is impossible to measure and compensate via money damages.”

The court also rejected some other challenges to plaintiffs’ claims on a motion to dismiss.  For example, plaintiffs successfully alleged Lanham Act false advertising in alleging that Wakaya made false statements regarding how much money a Wakaya distributor could potentially earn: “a year from now, many of us will be million dollar earners,” even though no Wakaya distributor has ever earned this amount of money. This statement was allegedly made in a YouTube video; defendants argued that there was no showing that the video came from a Wakaya agent, but at the pleading stage, an allegation to this effect was enough to give sufficient notice.  So too with an allegedly false claim in a YouTube video that Wakaya was a joint venture with billionaire David Gilmour, founder of the Fiji Water Company. However, more conclusory statements that Wakaya falsely advertised that (1) Youngevity was having financial problems and (2) Wakaya products originate from Fiji, without any details regarding “where” and “when” Wakaya allegedly made the statements, were insufficient. So too with allegations that Wakaya was a pyramid scheme and thus claims that its distributors could earn a lot of money were false.

Plaintiffs also alleged that Wakaya’s advertisements of the health benefits of its “pure Calcium Bentonite Clay” products was false or misleading because these products contains high dosages of lead, which is very dangerous. Defendants argued that there was no falsity because the challenged Facebook post didn’t specifically disclaim lead related health hazards. However, read as a whole, the post “tends to suggest that the clay products are overall good for a person’s health,” which would be false if the products did in fact contain high lead levels.

The court adopted the majority federal approach to claims brought by competitors under California’s FAL, which holds that third party/consumer reliance on false claims doesn’t allow a damaged competitor to sue in the absence of the competitor’s own reliance and resulting damage.

Defendants were enjoined to cease operation of 1-800-WALLACH, myyoungevity.com, and wallachonline.com.