Mexican flag and "taste of Mexico" not enough to deceive reasonable consumers about non-Mexican origin, 2d Cir rules

Hardy v. Olé Mexican Foods, Inc., 2023 WL 3577867, No. 22-1805 (2d Cir. May 22, 2023) (per curiam)

There was a CD Cal case raising the same “false Mexican origin” claims with a different result. Hardy alleged that defendant’s La Banderita tortilla products violated the NY GBL by deceiving consumers into believing the products were made in Mexico, not the US. The court of appeals affirmed the dismissal of the complaint.

Hardy had standing for the product he purchased, and class standing for three unpurchased products that made the same allegedly false claims that led to a price premium.

“On the La Banderita Products, a graphic resembling the Mexican flag (but with corn stalks instead of the coat of arms of Mexico) figures prominently in the center of the packaging and sets the green-white-red color scheme of the packaging.” The edges of the packaging may also display a smaller version of the flag graphic – this time with a white bull replacing the white segment of the flag – and the phrase “A Taste of Mexico!” On the back of the packaging there is a La Banderita logo and the flag graphic, followed by a “Nutrition Facts” table, heating instructions, and barcode. The bottom-left corner includes graphics stating that the products are “MANUFACTURED BY: OLÉ MEXICAN FOODS, INC. NORCROSS, GA 30071” and “MADE IN U.S.A.”

In the context of the whole package, this was not likely to mislead a reasonable consumer. While the front of package features “may encourage consumers to draw associations with Mexico and promote the belief that the products contain Mexican-style flavors and ingredients, no reasonable consumer would construe these elements to be an affirmative representation that the La Banderita Products were in fact manufactured in Mexico.” This was especially true given the conspicuous back-of-package statement. There is no rule that information on the back of a package is always irrelevant. While a small-print ingredient list cannot “cure” front-label representations that are otherwise highly deceptive because “reasonable consumers expect that the ingredient list contains more detailed information about the product that confirms other representations on the packaging,” that isn’t necessarily true outside the context of nutritional labels. It’s not true here, where “the front-side packaging makes no express representations as to the origin of the La Banderita Products, while the back of the packaging unambiguously notes where the products were ‘made’ and ‘manufactured.’”

court: there's no right to jury trial when seeking only injunction/disgorgement in false advertising case

Bluegreen Vacations Unlimited, Inc. v. Timeshare Lawyers P.A., 2023 WL 3510374, No. 20-24681-Civ-Scola (S.D. Fla. May 17, 2023)

The court grants these timeshare plaintiffs’ motion for a bench trial, ruling that the Seventh Amendment doesn’t guarantee a jury trial in a false advertising case where the plaintiffs seek only equitable remedies. I presume that the defendants think that a jury might be more sympathetic to their unclean hands-type arguments, and they also argued they'd wasted a bunch of time and resources preparing for a jury; the court notes that “a significant portion of the Defendants’ opposition highlights what is perhaps best referred to as Bluegreen’s persistent gamesmanship in this and related cases.”

 The issue of “whether a right to a jury trial exists turns on whether the claims were historically cognizable at law or considered equitable.” This requires comparing the statutory action to 18th-century actions, then examining the remedy sought; the latter is the more important consideration. The Eleventh Circuit previously held that a plaintiff in a trademark infringement suit under the Lanham Act is not entitled to a jury trial when it seeks only disgorgement of the defendant’s profits in lieu of actual damages. Hard Candy, Ltd. Liab. Co. v. Anastasia Beverly Hills, Inc., 921 F.3d 1343, 1348 (11th Cir. 2019).

Although this was a false advertising case with no obvious 18th-century analogue, the court found Hard Candy dispositive. The nature of the relief requested—disgorgement and an injunction—was the determining factor. This also applied to plaintiffs’ tortious interference and civil conspiracy claims, even though both causes of action were traditionally cognizable at law.

alleged price bait-and-switch with large "processing fee" suffices to plead Lanham Act false advertising

New Vision Unlimited, LLC v. Glasses USA, Inc., 2023 WL 3535386, No. 22-22534-Civ-Scola (S.D. Fla. May 18, 2023)

New Vision, an eye-care professional and provider of optical goods and services, including contact lens fittings and contact lens sales with seven brick-and-mortar locations and two websites, brought a putative class action against four online contact-lens retailers for Lanham Act false advertising. The court denied a motion to dismiss.

Defendants promote their lenses through Google and other search engines, advertising low prices that are allegedly “far lower” than the prices New Vision and other “honest” retailers advertise. Consumers of contact lenses are allegedly very price conscious and thus this works, but, New Vision alleged, “only after a customer has filled out online forms, providing details about her prescriptions, contact information for her doctor (to verify her prescription), and certain biographical and payment information, do the Defendants reveal there is a ‘processing fee’ added to the order” of about twice the initially advertised cost. This final cost is allegedly “about the same as the prices honest retailers such as Plaintiff advertise, because this is the true market price.”

Although New Vision alleged that the processing fee was hidden enough that, “many times,” “consumers do not even notice that the total amount they are being charged for the order is about the same as what they would have paid if they bought from [New Vision],” screenshots in the complaint show the processing fee presented in plain type, in normal-size font, in the middle of the secure checkout page. (Those things are not necessarily incompatible, given that consumers might think there’s nothing more than ministerial stuff to do to check out, especially given autofill. I wonder what discovery may show about whether consumers ever complain afterwards.) New Vision alleged that, even if consumers do notice the fee, sunk costs keep them at the sites, and they may also mistakenly believe that all contact-lens retailers charge similar “processing fees.”

Defendants argued that their ads were literally true because consumers can actually purchase one box of the advertised contact lenses for the published price, and any conceivable deception was cured by the full disclosure of the added processing fees prior to final purchase.

Defendants supplied screenshots from each of their websites, showing that no processing fee is added to a consumer’s purchase when only one box is selected. But first, there was no way of knowing whether these current offerings were the same as those during the period at issue in the complaint. Second, the allegations of the complaint were that the typical orders were twice as much as advertised, which this didn’t refute. Third, some of the ads were at least capable of being false even under this interpretation. E.g., one of the Contact Lens King ads in the complaint offers a “90 Pack” for “Only $26.22/box.” “While it may be possible to interpret this, as the Defendants urge, to mean that Contact Lens King will in fact honor the $26.22 price if a customer’s purchase is limited to one box, that is certainly not the only interpretation. … [A] reasonable interpretation would be that the advertised $26.22 price is per box, regardless of how many boxes are ordered.”

Nor did disclosure prior to final checkout solve the problem, given the sunk costs allegations that “the complained of fees are not revealed until deep into the purchasing process or at least not until the consumers have already been lured away.” The court also rejected the argument that, because the complained-of practices were allegedly commonplace, they weren’t actionable. There is consumer protection even in the market for lemons!

Along with literal falsity, misleadingness was also plausible. Even if “consumers won’t notice a processing fee that doubles the cost” was problematic as an allegation, New Vision offered other deceptiveness theories, based on bait and switch advertising/sunk costs.

Materiality was also plausible. Defendants argued that, if consumers didn’t notice the near doubling of the price, then the advertised prices couldn’t have been material; and if they did notice but buy anyway, that also showed immateriality. But “the role the initial alleged price deception played in driving consumers away from New Vision and towards the Defendants” was also relevant. “It is not the materiality of the processing fees that is at issue here but, rather, it is the materiality of the deceptive prices published in the Defendants’ ads that drives consumers to the Defendants’ websites and then ultimately influences their final purchasing decisions.” Defendant-favorable cases, including resort fee cases, were distinguishable as involving more/earlier disclosure (and mostly ignore the sunk costs problem anyway). Defendants “improperly framed their materiality analysis, focusing only on the consumers’ ultimate decisions to go through with their purchases of the Defendants lenses, without any consideration of the separate deceptive advertisement that got them there.”

Although some of the injury allegations were conclusory, New Vision alleged sufficient harm. It described a “typical scenario,” in which one of New Vision’s patients asks for a price for a particular product, compares New Vision’s price to defendants’ ads, “complains that Plaintiff’s store is ‘overcharging’ and ‘too expensive,’ ” and, despite staff’s attempts to explain, leaves without buying and ends up “believing that Plaintiff’s prices are not competitive across the board.” The court was willing to accept that New Vision was attesting to actual sales it has lost in the manner it describes as a “typical scenario.”

Great balls of fire: lawsuit over malt sold looking nearly identical to whisky can continue

McKay v. Sazerac Co., 23-cv-00522-EMC (N.D. Cal. May 17, 2023)

The court rejected Sazerac’s motion to dismiss McKay’s usual California statutory and common law claims on behalf of a putative class based on Sazerac’s labeling and marketing of mini bottles of Fireball malt beverages, which look almost the same as Fireball Whisky.

image from complaint

Fireball Malt back

Did you know that Fireball Whisky has been sold since 1989 and is the fifth best-selling spirit in the United States? It’s Canadian whisky—a distilled spirit—with added cinnamon syrup and sweeteners, and is 66 proof (33%) alcohol by volume (ABV). It’s sold in many sizes, from 1.75L bottles to 50ML mini bottles. The label reads “Cinnamon Whisky.”

Fireball Malt debuted in 2020. It is a malt or wine-based beverage with added cinnamon syrup, sweeteners, and whisky flavors, and results in 33 proof (16.5%) alcohol by volume (ABV). It has no whisky and is only sold in 50ML mini bottles. The label reads “Cinnamon” and, in smaller font, “Malt Beverage With Natural Whisky & Other Flavors and Carmel Color.”

Because it’s not hard liquor, it can be sold in more locations, such as gas stations and convenience stores.

The court rejected Sazerac’s argument that it was protected by the safe harbor doctrine, which allows conduct that the legislature has specifically considered and permitted. Here, the Alcohol and Tobacco Tax and Trade Bureau granted a certificate of label approval (COLA) covering Fireball Malt. The regs say that a COLA may not be issued if the label contains “any statement or representation, irrespective of falsity, that is misleading to consumers as to the age, origin, identity, or other characteristics of the malt beverage” or if any label statement “directly creates a misleading impression or if it does so indirectly through ambiguity, omission, inference, or by the addition of irrelevant, scientific, or technical matter.” But “neither of these provisions clearly permit the type of representations made by Sazerac in the Fireball Malt label.” “To forestall an action under the unfair competition law, another provision must actually ‘bar’ the action or clearly permit the conduct.”

The claims here didn’t turn solely on Sazerac’s failure to use font of the minimum size required by a regulation or disclose added flavoring as required by another regulation. “Rather, it is the combination of the labeling and appearance that creates confusion between the whisky and malt bottles. Plaintiff’s claims are predicated on a comparative analysis of the two products in question. Importantly, there is no evidence that the TTB regulations address any sort of comparative analysis with other labels, or test for consumer confusion.”

As another court reasoned, “COLAs are too ‘informal’ to be considered regulations having the force of law. Compared to the ‘rigorous’ approval process for prescription-drug labels, the TTB process ‘hinges on self reporting’ and reflects only the representations made to it by the distributor, not an endorsement of those claims.”

The court also found fraud adequately pled, including for the statutory claims. The complaint plausibly alleged affirmative misleadingness given that the two products’ labels were “substantially the same,” including the brand name “Fireball,” Sazerac’s fire- breathing dragon logo, the words “RED HOT,” the same color scheme, burnt edge, font and labeling, and the words “CINNAMON.” Fireball Malt bore the ambiguous descriptor “Malt Beverage With Natural Whisky & Other Flavors and Carmel Color” and was packaged in a 1.7-oz, shot-size bottle “common for hard liquor.” The court rejected Sazerac’s argument that the other descriptors on the label make plain that Fireball Malt is a malt beverage, not a whisky, citing to the language of “Malt Beverage,” “ALC 16.5% BY VOL,” and “WHAT YOU HAVE HERE TASTES LIKE SMOOTH WHISKY WITH A FIERY KICK OF RED HOT CINNAMON” located on the back of the product.

Tasting “like” whisky didn’t clearly preclude a reasonable interpretation that it was or included whisky. “It is also not clear that consumers would carefully scrutinize the tiny print of ‘Malt Beverage’ and ‘ALC 16.5% BY VOL’ in light of the other flashier language and design of the packaging.” Ordinary consumers don’t have “an obligation to conduct extensive linguistic analysis on their grocery shopping runs.”

Sazerac further argued that McKay should have known that the products he bought in a gas station were not whisky because gas stations are not licensed to sell hard liquor. But a reasonable consumer “could well be unaware of which establishments hold which liquor license types. He may not know that a gas station store can sell malt but not whisky. This is especially so if he is making a quick roadside purchase. He might also assume that the store is not complying with the terms of its liquor license.” The complaint even alleged that “[o]ne radio personality who saw a huge Fireball display in front of the cash register at a gas station wondered if ‘that specific store was doing something they’re not supposed to be doing’ by selling ‘cinnamon flavored whiskey!!’” Nor would a reasonable consumer need to compare his purchase with other beverages in the vicinity to assess whether the store sold only beer/wine and malt. Sazerac argued that it has structured its distribution such that Fireball Whisky and Fireball Malt and never both placed in the same store. “But the reasonable consumer may not be aware of Sazerac’s distribution practices.”

McKay also successfully alleged concealment under the CLRA, FAL, and UCL. An actionable “omission must be contrary to a representation actually made by the defendant, or an omission of a fact the defendant was obliged to disclose.” Such an obligation arises when (1) “the omission was material,” (2) the omission relates to a fact that is “central to the product’s function,” and (3) one of four special circumstances exists, including partial representations that are misleading because some other fact has not been disclosed. That was alleged here.  

It was too early to tell whether equitable claims had to be dismissed because legal relief was sufficient; McKay also had standing to seek injunctive relief.

Second Circuit signals some minimal flexibility on Polaroid analysis in another strip club false endorsement case

Souza v. Exotic Island Enters., Inc., 2023 WL 3556053, No. 21-2149-cv, --- F.4th ---- (2d Cir. May 19, 2023)

Whereas the timeshare false advertising cases might be making law largely applicable to other timeshare cases, what’s going on in the strip club advertising cases might have somewhat broader implications. (Both sets feature lots of cases against lots of defendants; the strip club cases seem to be more geographically dispersed, which may also contribute.)

Appellants, current and former professional models, appealed their summary judgment loss on a variety of claims arising from the use of their images in social media posts promoting a “gentlemen’s club” operated by EIE. The court of appeals affirmed, including on the district court’s decision not to exercise supplemental jurisdiction over remaining state claims.  

The basic undisputed allegation was that EIE, through a third-party vendor, used plaintiffs’ images without their permission in social media posts promoting its club.

The district court concluded that plaintiffs’ false endorsement claims were foreclosed by Electra v. 59 Murray Enters., Inc., 987 F.3d 233 (2d Cir. 2021); their false advertising claims were founded upon injury that either fell outside the zone of interests protected by the Lanham Act, or that was unsubstantiated by the record; and the bulk of their state-law right of publicity claims were barred by New York’s one-year statute of limitations for such claims.

In substantially identical declarations, plaintiffs testified that because they “rely on [their] professional reputation[s] to book modeling and advertising jobs,” their reputations are “critical” to the opportunities they are offered, and they therefore “have spent considerable time and energy” protecting and policing their images and reputations, and carefully negotiating their modeling fees based on “informed assessment[s]” of any given job’s effect on their brands. Plaintiffs had “varying levels of success and visibility in their modeling careers.” Several had appeared in magazines, advertising campaigns, television episodes, and films. Some were former Playboy Playmates. Their highest yearly modeling earnings range from around $18,300 to around $107,000. Their social media footprints range from several thousand to a few million followers. They had “fleeting” links to New York, and most no longer work as full-time models.

From 2014-2018, the posts at issue used revealing photos of the plaintiffs against ad copy linked thematically to the visual, e.g., a picture of one plaintiff “in an apparent school uniform that included a short plaid skirt, captioned: ‘Friday Oct 17th SEXY SCHOOL GIRL PARTY! No Cover For Ladies That Wear A Sexy School Girl Skirt[.] All Our Dancers Will Be Wearing Short Plaid Skirts!’” 

In response to interrogatories, plaintiffs couldn’t identify specific jobs or work lost as a result of the posts. Instead, they responded that “prospective clients have no duty to disclose to the model their reasoning for why the model was denied an endorsement opportunity. It is also a widely known fact that on the outset of creating a highly coveted endorsement deal, clients and/or their advertising agencies will conduct due diligence of models in advance of contacting a model to discuss an endorsement opportunity.” Thus, they argued, they couldn’t know their losses.

Is likely confusion an issue of fact or one of law? “[A]lthough our stance may have wobbled over the years, recent cases have solidified our view that, ‘[i]nsofar as the determination of whether one of the Polaroid factors favors one party or another involves a legal judgment – which it often does – we must review that determination de novo.’” Thus, the overall standard of review is de novo: whether confusion is likely is a matter of law.

False endorsement assesses the Polaroid factors. Here, the district court correctly held that strength of the mark favored defendants. Recognizability is the bottom line for strength of a mark. As previously held, “misappropriation of a completely anonymous face could not form the basis for a false endorsement claim.” Although inherent distinctiveness is also relevant to strength generally, there was no argument that plaintiffs’ marks were inherently distinctive. And the court noted that inherent distinctiveness as a concept was “more awkward to apply when it effectively interrogates how much one human being does, or does not, physically resemble another…. The usual criteria for inherent distinctiveness … have little application here.”

For false endorsement, the “mark” in question “is the identity of the purported endorser herself.” But

an endorser’s face and body fall nowhere on the familiar spectrum from “arbitrary” to “generic”; their identity inherently is their mark. And where any face or figure regarded as “attractive,” will do, notwithstanding the anonymity of the actual person whose face or figure is depicted (and the negligible endorsement value derived from that actual person’s connection to the product being sold), the unauthorized use of that person’s image may invade rights granted by other statutes or common law sources, but creates no risk of consumer confusion as conceived under the Lanham Act.

Some limits on the Polaroid spectrum! The other way to say it is that indicia of identity are descriptive, but this works too. Anyway, “recognizability thus serves the purposes of trademark law in the false endorsement context.”

The district court correctly evaluated the relevant evidence of recognizability. It didn’t abuse its discretion in excluding plaintiffs’ proffered expert testimony as unreliable, and there was next to nothing left without that. A district court “should only exclude [expert] evidence if the flaw is large enough that the expert lacks good grounds for his or her conclusions.” The proffered expert’s survey of 812 respondents “who had patronized ... a ‘Bikini Bar/Gentlemen’s Club/Strip Club’ in the past two years,” wasn’t reliable because of methodological problems: The study lacked a control group; had an “overly inclusive” approach to recognition; and failed to show respondents several plaintiffs’ full faces “(which, the court noted, somehow did not appear to have meaningfully affected respondents’ professed ability to recognize the Plaintiffs who were pictured).” The overly inclusive bit was because recognizability is about whether consumers would actually assume sponsorship or approval and not just mere appearance in an ad; finding an image “vaguely familiar” or having “in some manner” seen the plaintiff before taking the survey wasn’t helpful in answering that question.

The remaining evidence was insufficient:

This consisted of (1) vague and conclusory (and identical) written testimony from Plaintiffs that each had “achieved celebrity status and fame” and that “[o]n any given day, regardless of where I’m at, I am recognized by complete strangers and my fans who follow me on social media,” and (2) evidence of Plaintiffs’ relatively modest modeling income, professional prominence, and social media footprints, which the district court determined (in a finding Plaintiffs do not contest on appeal) to be, at best, comparable to evidence the Electra panel had deemed insufficient to establish a strong mark.

After excluding more of the expert’s testimony, actual confusion also favored defendants. That testimony claimed that: (1) 62% of respondents agreed with the statement that “[a]ll the women shown in these ads have some affiliation, connection or association with those clubs in whose ad they appear”; (2) 75% agreed that “[a]ll of the women in these ads have agreed to sponsor, endorse or promote the club represented in these ads”; and (3) 76% agreed that “[a]ll of the women in the ads approve of the use of their image in those Club advertisements in which they appear.”

But this part of the survey required respondents to give their impressions of all the images, rather than differentiating among different images and/or plaintiffs, and the survey neither provided respondents with a “don’t know” option nor instructed them “not to guess.” This wasn’t abuse of discretion (even though other district judges might have done otherwise).

Without that, there was no “meaningful” evidence of actual confusion. At deposition, one of defendants’ witnesses was asked if the fact that one of the posts at issue included the phrase “our girls” would cause a “reasonable customer” to believe “well, they’re saying our girls; this is one of the girls who is going to be there.” He responded: “That’s up to them. I’m not – some may, some may not. It’s the individual’s discretion if they choose to believe what they see.” This was his own subjective perception of the post’s effect on consumers; it “may be probative of his state of mind, but nothing about [his] speculative answer to a speculative question establishes that any actual consumer was actually confused.”

In addition, even if consumers were “hoodwinked” as described, “thus giving rise to a plausible deceptive trade practices claim,” that’s not false endorsement:

A generic misconception that the anonymous, unrecognized models in the posts are in fact the same models who work at [the club] inflicts the same injury on a consumer irrespective of any goodwill those models have cultivated in their own “marks,” because that misconception does not rely upon such goodwill in the first place…. In other words, the misconception goes to the nature of the product itself, not the mistaken belief that someone whose imprimatur the consumer values has vouched for that product.

The district court also correctly held that bad faith weighed in defendants’ favor. As in Electra, they used third-party contractors to create the ads and publish them, and there was no evidence that they ever asked those contractors to use a photo of a specific person.

The district court’s factor balancing was also correct; it focused on three of the eight factors, discussed above, and then assumed without deciding that the remaining ones favored plaintiffs. Although that approach is “discouraged” in this circuit, and to avoid a costly remand district courts should go through all the factors, it was ok here.

Comment: I’m not really sure how to evaluate this argument—if it’s often a matter of law, that suggests remand wouldn’t be necessary in many cases, and if the district court errs in the factors it does analyze, that seems like it would often make remand necessary anyway, but the larger problem is, I think, that not all the factors are always relevant. Like “quality,” for example, which the Second Circuit refuses to go en banc to get rid of (and, by the way, its rule that you have to march through all the factors was a later panel rejecting an earlier panel; shouldn’t they have had to go en banc to do that?) Technically, one could now argue that the nominative fair use factors should be considered in every Second Circuit case, at least where raised by the defendant, but that seems useless and perhaps misdirective where it’s the other factors that are really more relevant.

Anyway, the court concluded, vacatur was not inevitable even when a district court “neglects to account” for all eight factors. Though it’s “risky,” in “rare cases … the weight of binding precedent may obviate the need for a complete Polaroid analysis.” This was such a case, given Electra. “We cannot fault a district court for its reasonable adherence to recent, directly-on-point, binding precedent constructed upon substantially indistinguishable facts.” And plaintiffs didn’t present any reasons to suggest that the other factors weighed more strongly in their favor than they did in Electra.

Plaintiffs argued that, if more factors favored them than disfavored, they should have won, but the balancing isn’t a counting exercise (which, not for nothing, is why the “gotta count them all” analysis is not great).

False advertising: Lexmark was consistent with prior circuit precedent that a viable false advertising claim requires the plaintiff to have been “injured as a result of the misrepresentation, either by direct diversion of sales or by a lessening of goodwill associated with its products.” Likewise, Lexmark supported the circuit rule that, although such injury may be “presumed” from a direct competitor’s “false comparative advertising claim,” in all other cases, a plaintiff must present some affirmative “indication of actual injury and causation.” Lexmark didn’t foreclose courts from granting a presumption of injury to direct competitors while requiring others to present evidence of injury and causation. There was no evidence of direct competition, nor was there evidence of injury and causation.

Plaintiffs claimed that they might have lost out on work due to the “reputational hit” from being linked with a strip club, and that they were deprived of licensing revenue for their images. The first type of injury could satisfy Lexmark; there just wasn’t any evidence that it happened. Even if they couldn’t get direct evidence because people don’t explain why they don’t hire you, there were other things they could have done: There was nothing in the record that anyone who might conceivably have hired them ever saw the posts in question; there was no temporal evidence correlating downturns in their careers with the appearance of the posts; there was no expert testimony of “the effect of this kind of R-rated association on a typical model’s career – much less on these particular models’ careers.”

The second type of injury, lost licensing revenue, didn’t fall within the Lexmark zone of interests test. It wasn’t “reputational” injury, and it didn’t flow from the deception wrought by the ads.  

Finally, the district court correctly found most of the right of publicity claims time-barred. Recent changes to the NY right of publicity didn’t change the limitations period.

court allows some claims based on allegedly misleading statistical claims for pregnancy test: Bayes' Theorem in the courts

In re Natera Prenatal Testing Litig., No. 22-cv-00985-JST, 2023 WL 3370737, -- F. Supp. 3d – (N.D. Cal. Mar. 28, 2023)

Natera sells Panorama, a noninvasive prenatal testing (“NIPT”) product which screens for an array of fetal chromosomal and genetic conditions:

NIPTs are screening tests, not diagnostic tests; while an NIPT can screen patients for a “high risk” of the presence of a particular fetal condition, a patient who receives a positive NIPT result should follow up with diagnostic testing to confirm the presence of that condition.… Diagnostic tests, though more accurate than NIPTs, are also more invasive, are associated with a risk of miscarriage, and must be conducted later in the pregnancy term. In 2020, the American College of Obstetricians and Gynecologists (“ACOG”) changed its guidance to recommend that all pregnant persons “be offered both screening and diagnostic testing options.”

Natera’s advertising touted “fewer false positives and fewer false negatives” and offered patients the ability to “[d]iscover more about your baby’s health.” It included a testimonial from a patient “now planning a birth at a regular maternity ward instead of closer to the children’s hospital thanks to this painless test!” Its website described Panorama as “the most reliable way of non-invasively assessing a baby’s health,” having been tested with “the largest prospective NIPT study” with outcomes of “~90% samples with genetic truth.” It stated that a “high risk” finding for a particular condition “indicates a very high probability that your baby may have [the] condition.” It highlighted Panorama’s positive predictive value (PPV) for Down syndrome of over 90% and describes Panorama as “[n]on-invasive and highly accurate, ... identif[ying] more than 99% of pregnancies affected with Down syndrome [with] the lowest reported false positive rate of any prenatal screening test for the commonly screened chromosomal abnormalities: [Down syndrome], trisomy 18, and trisomy 13.”

The importance of PPV is easy to overlook. (I’m working on a paper with Chris Buccafusco now about this problem in music copyright cases.) If there is any false positive rate at all, and if the base rate of the tested-for condition is low, then a positive result can be much more likely than not to be a false positive, even if the test has a very low false positive rate. And most people find this very difficult to understand—how could a 99% reliable test be wrong more often than not? This is sometimes known as “base rate neglect.” Down syndrome is the best case for PPV because its prevalence in the population is much higher than most of the other tested-for conditions.

As the court explained,

Panorama’s accuracy varies widely across conditions. While Panorama is very effective in screening for Down syndrome, it is much less effective in screening for rare genetic conditions, including those caused by microdeletions. … Natera knew, but did not disclose, that Panorama has a high rate of false positives for microdeletion-related and other rare conditions. In 2016, Natera acknowledged the results of a published study which found that Panorama had an 18% PPV for DiGeorge syndrome, a rare genetic condition. In other words, 82% of Panorama’s positive results for DiGeorge syndrome were false positives. Panorama’s PPVs for other rare conditions – which similarly were not disclosed in marketing materials – are as low as 2-5%, such that up to 98% of positive results for those conditions are false positives.

Yet Natera allegedly advertised Panorama “as reliable overall, prominently emphasizing the accuracy rates of the tests for more common conditions like Down [s]yndrome [which] Panorama can reasonably detect.” Natera’s brochure for consumers didn’t include any information about PPV rates, and the website listed only the PPV for Down syndrome.

The putative class plaintiffs all received Panorama results requiring further evaluation and subsequently underwent subsequent monitoring by medical specialists or invasive diagnostic testing, incurring additional expenses. Each of their Panorama results turned out to be a false positive. They brought the usual California statutory claims, warranty and common-law claims, and claims under the consumer protection laws of other states (Maryland, Illinois, Florida, and New Jersey).

Claims for misrepresentation by partial omission with particularity, plaintiffs needed to identify the allegedly misleading representations that each of them saw and relied upon in deciding to purchase Panorama, but they didn’t.

However, the court rejected the learned intermediary doctrine as applied to the fraud-based claims. “Under California law, failure-to-warn claims brought in products liability actions are subject to the learned intermediary doctrine, which holds that a manufacturer of prescription drugs or certain medical devices satisfies its duty to warn by providing adequate warning to the prescribing physician, rather than the patient.” Natera didn’t identify any California courts that applied this doctrine to consumer protection claims. Even if that was sometimes appropriate, Natera didn’t explain why these claims were “essentially” or “disguised” failure-to-warn claims, as would be required to do so; plaintiffs were arguing that the products’ accuracy was misrepresented, not that they posed undisclosed safety risks. The court reasoned similarly as to other states’ laws.

Did Natera owe a duty to disclose? Under California law, “to be actionable[,] the omission must be contrary to a representation actually made by the defendant, or an omission of a fact the defendant was obliged to disclose.” A plaintiff sufficiently pleads a duty to disclose where: (1) the plaintiff alleges the omission was material; (2) the alleged defect was central to the product’s function; and (3) the defendant (a) is plaintiff’s fiduciary, (b) has “exclusive knowledge” of material facts, (c) “actively conceals” a material fact, or (d) makes misleading partial representations. Plaintiffs failed to identify a relevant “defect” in the tests. In another false advertising case challenging the undisclosed presence of child and slave labor in the supply chain, the Ninth Circuit rejected the existence of any duty to disclose because “the labor practices in question ... are not physical defects that affect the central function of the chocolate products.” Thus, the omission-based California claims were dismissed with leave to amend. (This seems to me to be slicing the salami a bit too fine, but I admit I’m uncomfortable with product liability analogies anyway. The “defect” here is that the product doesn’t provide the information it claims, which is central to its function of providing medical information. If it were a physical monitor that flashed red when it shouldn’t, it seems to me that should count, so why would it be different here? Also, whether something is a “defect” may depend entirely on how it’s advertised: if I advertise paint as paint, it’s not defective, but if I advertise it as a cancer cure it is.)

The court also found that the plaintiffs didn’t need not plead an independent duty to disclose for omission-based claims brought under the Maryland, Illinois, Florida, and New Jersey laws.

Implied warranty of merchantability: this requires that consumer goods, among other things, “are fit for the ordinary purposes for which such goods are used.” “Plaintiffs plausibly allege that the basic function of a test which screens for a specified set of genetic conditions is to accurately detect the risk of such conditions, and that Panorama was unfit to do so.” But there was no privity as required for an implied warranty of merchantability, even though plaintiffs alleged reliance on Natera’s advertising. However, there was a split of district court authority about whether there’s a third-party beneficiary exception to the vertical privity requirement, which the court resolved in plaintiffs’ favor.  Plaintiffs alleged they “are the intended third-party beneficiaries of agreements between Natera and their physicians and health insurers”; that these agreements to use Panorama “were designed and intended for the benefit of Plaintiffs ... to make health care decisions,” and that Natera “understood that Plaintiffs[ ] ... would require that [Panorama] provide reliable and accurate information regarding genetic abnormalities that may affect their pregnancy and the well-being of their bab[ies].”

 

courts continue to jack up materiality requirements; the Lanham Act and the death of common sense?

Delta T LLC v. MacroAir Technologies, Inc., No. EDCV 20-1489-GW-JPRx, 2022 WL 19827572 (C.D. Cal. Nov. 18, 2022)

MacroAir asserted – among other things – a counterclaim for false advertising under the Lanham Act. Of potential note: Plaintiff aka BAF (Big Ass Fans) argued that MacroAir needed consumer testimony, consumer surveys, or expert testimony to establish materiality. The court stated—contrary to actual practice—that “materiality in false advertising cases is ‘typically’ proven through consumer surveys,” but immediately qualified this claim: “that type of evidence is not required.” Still, “[w]hile surveys are not required, a party advancing a false advertisement claim still must have some basis for demonstrating a triable issue of fact on the subject, when-challenged.” This is an example of courts cranking up the liability standard over time, in the inverse of what they’ve done in trademark cases where they’ve accepted ever broader theories of liability. Historically, materiality was usually a matter of common sense; it still should be in appropriate cases.

The court rejected MacroAir’s attempt to presume materiality from (alleged) literal falsity. It surveyed the caselaw in the Ninth Circuit, which was not consistent. Even though materiality is itself not provided for in the statute—it developed from the injury requirement—the court reasoned that, in the absence of any statutory guidance, “the elements of a false advertising claim under the Lanham Act should be treated like the elements of any other claim which a plaintiff must prove in order to prevail – MacroAir must come forward with evidence to demonstrate a triable issue of fact on the question.” Moreover, “it is not the type of advertisement or communication in question in general that must be material, but the deception itself.”

The court rejected MacroAir’s evidence as insufficient because of this. Its expert apparently opined on the materiality of “manufacturers’ claims about warranty, performance, reliability, [ ] safety, and perceived differences between manufacturers’ offerings in these areas,” but “that evidence is too broadly-drawn for the false advertising element of materiality.” Summary judgment dismissing the claim.

copying/explicit references let Roblox proceed with dubious (c) claim; Lego should be watching

Roblox Corp. v. Wowwee Gp. Ltd., 2023 WL 2433970, -- F. Supp. 3d --, No. 22-cv-04476-SI (N.D. Cal. Mar. 9, 2023)

Roblox runs a “digital world where users create virtual games and experiences and connect with other users.” Users interact with the platform through virtual characters known as “Avatars.” Roblox’s “Classic Avatars” are “humanoid figures with cylindrical heads, C-shaped hands, block-shaped bodies and legs, square or rounded arms, and cartoon-like facial expressions.” (Comment: That is, they’re just like Lego minifigs.) Roblox authorized plaintiff Jazwares to manufacture “Avatar Figurines,” real-world toys based on the digital Avatars. Its TOS provide that users will not use Roblox content outside of the Roblox Platform, monetize Roblox content, or imply an association with Roblox for their businesses outside of the Roblox Platform.

Wowwee sells a line of dolls called “My Avastars,” which plaintiffs allege were “copied directly from Roblox’s Classic Avatars.” WowWee’s Vice President of Brand Development & Creative Strategy, Sydney Wiseman, used her WowWee email address to create a Roblox user account and used her Roblox account to promote My Avastars dolls on social media, including videos on her TikTok account. Wiseman narrates, “I was playing roblox and as I was customizing my avatar I was inspired to create a doll line called my Avastars.” Defendants allegedly marketed the My Avastars dolls with a “code” that could be used in the Roblox platform.

Roblox sued for copyright infringement, false advertising, trademark infringement, false association and false designation of origin, trade dress infringement, intentional interference with contractual relations, breach of contract, and false advertising and unfair competition under California law.

The court found copyright infringement adequately pled as to several figures, although substantial similarity was a “close issue.” “While the features for which plaintiffs allege protection are similar to those of other toys, there are differences including the customizability of features of plaintiffs’ avatars and the shape of the avatars’ legs.” And defendants’ dolls were “virtually identical” in shape to Roblox’s avatars.  

Looking at the side by side pictures in the complaint, this is a bit hard to swallow, but the evidence of copying/references to Roblox clearly bleed over from the TM side.

Lindsey Roblox avatar

Cindy Roblox avatar

Allegedly jnfringing Dreamer My Avastars

The trade dress claim also survived based on a trade dress definition that Lego surely doesn’t like: “a distinct overall look and feel stemming from at least their (1) humanoid, blocky shape; (2) cylindrical heads; (3) C-shaped hands; (4) block-shaped legs; (5) square or rounded arms; (6) cartoon-like facial expressions and lack of a nose; and (7) the particularized combination of these elements.”

 The court also found that the alleged use of the Roblox name was not, as a matter of law, nominative fair use. The allegations that WowWee advertised the dolls would be sold with a code redeemable in a game on Roblox, used the hashtags #roblox and #newroblox to advertise the My Avastars dolls, and included the Roblox mark and interface in social media advertisements, including responding to user inquiries by stating that WowWee was “working with top [R]oblox developers.” This was enough survive the motion to dismiss. There’s no blanket rule that hashtags can’t constitute infringement, as long as “the use otherwise meets the test for trademark infringement.”

more images from the complaint

 Interestingly, the contract/tortious interference claims against US resident defendants had to be arbitrated because of Roblox's own TOS. And Jazwares, Roblox’s licensee, lacked standing for copyright claims, but did have Lanham Act standing because that doesn’t require copyright or trademark ownership. “Jazwares has adequately pled injury due to customers associating the My Avastars dolls with Roblox, leading to lost sales of Jazwares’ Avatar Figurines.”

Interestingly, the contract/tortious interference claims against US resident defendants had to be arbitrated because of its own TOS. And Jazwares, Roblox’s licensee, lacked standing for copyright claims, but did have Lanham Act standing because that doesn’t require copyright or trademark ownership. “Jazwares has adequately pled injury due to customers associating the My Avastars dolls with Roblox, leading to lost sales of Jazwares’ Avatar Figurines.”

court doesn't find consumer protection claim over "sweet cream" plausible without survey; dictionaries insufficient

Sneed v. Ferrero U.S.A., Inc., --- F.Supp.3d ----, No. 22 CV 1183, 2023 WL 2019049 (N.D. Ill. Feb. 15, 2023)

Courts in consumer protection cases reject surveys with abandon when they don't agree with the results, but may also demand them. The court dismissed Sneed’s allegations that Ferrero’s Kinder Joy eggs were misleading because the label describes the candy as “sweet cream topped with cocoa wafer bites,” when, in fact, the “cream” is made of vegetable oils, skim milk powder and whey proteins. Sneed’s argument that “cream” means a dairy product with a high fat content of at least 18% milkfat relied on five dictionary definitions and one FDA regulation.

But her complaint recognized the existence of a food substance known as “artificial cream,” where the milkfat is replaced with vegetable oils. That meant the question was misleadingness: whether “cream” “has such a singular and pervasive meaning among the general consuming public that most consumers believe it to only mean a dairy product with 18% milkfat content and are therefore likely to be misled by Kinder Joy’s packaging.”

She didn’t successfully allege this. “Although allegations about the results of consumer surveys are not required as a matter of federal notice pleading, allegations about how the general consuming public understands the term ‘cream’ is the kind of thing that makes plausible the conclusory allegation that ‘sweet cream’ is misleading.” Dictionaries weren’t enough, nor was it enough that more than half of the package is white and has two large “drops” of milk and that the front of the package says “sweet cream.” The ingredient list on the back didn’t include “milk,” “whole milk,” or any other indication that it is a dairy product with at least 18% milkfat. Plus, there exist other candies on the market labeled “cream” which are instead made of artificial cream—Goetze’s “Caramel Creams” (made since 1895), “Cookies ‘n Cream Bites,” and Twizzlers’ “Filled Twists” that are “orange cream pop” flavor. Dismissed without prejudice.

 

if an allegedly falsely advertised product isn't useless, P may have standing to seek injunctive relief

Perez v. Bath & Body Works, LLC, No. 21-cv-05606-BLF, 2023 WL 3467207 (N.D. Cal. May 15, 2023)

Interesting analysis of standing for injunctive relief: Where the product is a useful one, the court finds standing based on a desire to purchase it again if truthfully labeled.

Perez alleged that defendant BBW falsely claims that hyaluronic acid, an ingredient in those products, “attracts and retains up to 1,000x its weight in water to make skin look smoother and more supple.” She brought the usual California claims. 

BBW argued that there was no standing for injunctive relief because she alleged that it was scientifically impossible for hyaluronic acid to retain 1,000x its weight in water. Past cases have said, among other things, that plaintiffs who “explained that they were not concerned with phosphoric acid, but rather with whether Coca-Cola was telling the truth on its product’s labels” lacked standing because their “desire for Coca-Cola to truthfully label its products, without more, is insufficient to demonstrate that they have suffered any particularized adverse effects.” Perez alleged that she wanted to purchase BBW products “that could help improve the appearance of her skin, including, specifically, Bath & Body Works Hyaluronic Acid and moisturizing products such as those described above.” But, she alleged, without professional testing or other expert evidence, she couldn’t determine if BBW was telling the truth about its products’ features. Even if the formulation or advertising changes, “as long as Defendants may use inaccurate representations about the capabilities of their hyaluronic acid products, then when presented with Defendants’ advertising, Ms. Perez continues to have no way of determining whether the representations regarding those capabilities are true.”

The court found these allegations sufficient. As the Ninth Circuit has said, “the threat of future harm may be the consumer’s plausible allegations that she will be unable to rely on the product’s advertising or labeling in the future, and so will not purchase the product although she would like to.” BBW argued that the Ninth Circuit was dealing with wipes that could conceivably be flushable, but Perez alleged that the claim here was scientifically impossible. “But the Court declines to look at the threatened injury so narrowly.” While “a plaintiff must show ‘a sufficient likelihood that he will again be wronged in a similar way,’ … [a court] ‘must be careful not to employ too narrow or technical an approach.’ ” The inability to rely on defendant’s representations was a “similar” injury.  

BBW argued that a plaintiff needs to allege a desire to purchase the product as advertised. But a plaintiff can allege “a concrete, imminent injury” even without alleging a desire to purchase the product “as advertised.” Also, this case didn’t involve an allegedly worthless product: “Even if hyaluronic acid cannot retain 1,000 times its weight in water, it is not necessarily useless as a moisturizer.”

Why do people fall for pyramid schemes? FTC v. Noland offers examples

 FTC v. Noland, 20-cv-00047-DWL (D. Ariz. May 11, 2023)

The decision in FTC v. Noland is notable for its discussion of the testimony of a number of witnesses supporting the defendant who seem to have been largely victims of the pyramid scheme found by the court, but internalized defendant’s messages so strongly that they were unable to see themselves that way. They often didn’t track expenses or even sales in an organized way, so they overestimated their net earnings/didn’t notice their net losses, and seem to have engaged in separate mental accounting of expenses like attending seminars. They didn’t blame the company for losing money and some donated large sums to legal defense for the company and its principals. It gives some depressing insights into how people fall for pyramid schemes and may stay true believers, thinking only that they themselves have failed to succeed.

Apple v. Corellium out: 11th Cir. finds copying for security research transformative

Apple v. Corellium, Inc., No. 21-12835 (11th Cir. May 8, 2023)

The Eleventh Circuit affirmed the core finding that Corellium’s copying of iOS for security research purposes was fair use, but vacated and remanded for further analysis of contributory infringement claims and claims related to the use of the icons, giving Apple another bite at, etc.

I won’t recap the whole opinion, but I do note that the court of appeals says, perhaps more explicitly than any other court, that the question is whether a transformative character may reasonably be perceived, not limiting that formulation to parody:

[T]ransformativeness does not require unanimity of purpose—or that the new work be entirely distinct—because works rarely have one purpose. In assessing whether a work is transformative, the question has always been “whether a [transformative use] may reasonably be perceived.” Campbell, 510 U.S. at 582 (emphasis added) (finding that a parody was transformative even though both a song and its parody serve the same function of entertainment). We don’t ask whether the new product’s only purpose is transformative.

We’ll see if Warhol makes that obsolete.

Trademark and Unfair Competition Scholarship Roundtable 2023 Reminder: Submissions Due May 15, 2023

The Engelberg Center on Innovation Law & Policy will host this year’s Trademark and Unfair Competition Scholarship Roundtable. The Roundtable is designed to be a forum for the discussion of current trademark and right of publicity scholarship, covering a range of methodologies, topics, and perspectives. Five to six papers will be chosen for discussion over the course of the Roundtable, with each paper allocated an entire hour for discussion and assigned a commentator. 

The Roundtable will be held on Friday, October 6, 2023. Participation at the Roundtable will be limited and invitation-only and we expect all participants to have read the papers in advance. The Roundtable will cover the travel and lodging expenses for invited authors. 

We invite submissions from academics working on any aspect of trademark, false advertising, marketing, right of publicity, or related areas of the law. Priority will be given to those who can attend the entire event and a dinner the night of the event. Submissions must be of full drafts in Microsoft word format. The deadline for submission is May 15, 2023, and decisions on participation will be made shortly thereafter, ideally, by June 1st. 

To submit a draft paper, please fill out the form here (https://cvent.me/8zdYqE) and upload an anonymized version of your draft.  Please note that the maximum file size that may be uploaded is 10MB. 

For further information about the Roundtable, please email either: Barton Beebe (NYU): barton.beebe@nyu.edu; Jennifer Rothman (Penn): rothmj@law.upenn.edu, or Rebecca Tushnet (Harvard): rtushnet@law.harvard.edu.

Peloton music library class action fails because consumers probably didn't see the claim

Passman v. Peloton Interactive, Inc., 2023 WL 3195941, No. 19-cv-11711 (LJL) (S.D.N.Y. May 2, 2023)

Interesting discussion of the way in which the objective reasonable consumer standard allows consumers classes to bring certain probabilistic claims, where some consumers might have different interpretations, although the court ultimately denies certification because of damages/price premium issues.

Plaintiffs’ claims under New York law were based on the offer of an “ever-growing” or “growing” library of live and on-demand studio classes, which offer was allegedly false because a bunch of classes were pulled from the library because of unlicensed music use. After it was sued in 2019, Peloton removed approximately 6,500 on-demand classes from its library, leaving approximately 7,000 classes available to its members.

The court initially held that problems with plaintiffs’ expert’s conjoint damages model went to weight rather than admissibility, since it was a model that was consistent with their theory of liability.

Materiality and falsity were common questions subject to an objective inquiry into how a reasonable consumer would react. Peloton argued that there was too much variation in how, when, and why consumers bought subscriptions. “Defendant’s argument confuses the question of whether a reasonable consumer would likely be misled by an allegedly false advertisement with the separate question—relevant where reliance is at issue—of whether an individual consumer was misled by the advertisement….  The inquiry demands an objective analysis of the understandings a reasonable consumer would draw from a challenged statement, not the significance of that challenged statement to an individual consumer’s purchasing decision.” While context is relevant to that, it’s ad context, not any possible context:

[W]hat is relevant to the analysis is not the number of products purchased, their exact identity, or the circumstances under which they were purchased; what matters is the nature of the allegedly false statement and how consumers interact with the false statement and therefore understand it. Thus, courts generally have no difficulty finding named plaintiffs typical of a class so long as the challenged statement is consistent across the class.

Peloton also argued that falsity wasn’t a common question because there wasn’t 100% agreement in plaintiffs’ survey on the meaning of “ever-growing”—the survey found that only 76.5% of respondents thought that “ever growing” meant “increase over time.” But misleadingness is an objective inquiry. “Evidence that actual consumers, in fact, interpreted the challenged statement in line with ‘the plaintiffs’ proffered theory of deception’ is relevant to, and may be necessary for, the ultimate conclusion that a reasonable consumer would have been deceived.” But  “the fact that consumers may have interpreted the statement differently does not preclude certification.” Differences in understanding might bear on injury, but falsity itself “cannot differ from case to case or be based upon whether the case is prosecuted on an individual or a class basis; it turns upon an objective analysis that applies across cases.”

Nonetheless, because causation, injury and damages weren’t common among the putative class members, individual questions predominated and a Rule 23(b)(3) class couldn’t be certified. The evidence submitted didn’t show a price premium or propose a methodology which could be used to demonstrate a price premium.

Peloton presented affirmative evidence that there was no price premium and “compelling evidence” that plaintiffs failed to carry their burden on predominance. The challenged claim wasn’t on a product label or package:

[N]o purchaser of a Peloton product need have been exposed to the Challenged Statement and the evidence suggests that many of the purchasers were not exposed to the Challenged Statement. The Challenged Statement did not appear in every Peloton advertisement and did not appear on all of Peloton’s marketing materials. Rather, the Challenged Statement appeared in a relatively small subset of Peloton’s advertisements, and did not appear in any television advertisements, which represented Defendant’s largest advertising channel during the Class Period. The Challenged Statement also appeared on only four of the 269 pages of Pelton’s website, the primary place where consumers purchase Peloton products.

Even when it did appear, the claim wasn’t alone or the most prominent. E.g.: “Experience unlimited access to the world’s best instructors anytime, anywhere, with 15+ daily live classes and an ever-growing library of 9,000+ classes available on-demand.”

Website tracking data suggested that, at most, 10.99% of website visitors could have been exposed to the statement, but that didn’t show that they actually saw/noticed it.Peloton’s expert did a survey about whether consumers even noticed the claim. She found that only 0.7%-1.3% of the test group noticed the statement and that there was no statistically significant difference between the test and control with respect to their conclusions about the Peloton products after viewing the webpages. And, despite its statements above, the court also gave weight to plaintiffs’ own survey that showed that people ascribed “different meanings”: while 76.5% understood that the number of classes in the Peloton library would increase over time, 61.8% of them expected the number of classes to increase because no classes would be removed from the library, while 31.4% believed that more classes would be added than removed. Also, 79.8% interpreted the statement to mean the number of classes would increase each day, week, or month, while 3.7% thought the increase would be annual (the remainder had no view). This wasn’t fatal: “materiality is an objective inquiry and thus subject to common proof.”

But this evidence does bear on whether the Challenged Statement could have caused a price impact. That many had differing views over what the Challenged Statement meant and took different meaning from it suggests both that the statement did not have a powerful marketing impact and that those who saw the Challenged Statement may not have interpreted it in such a way as to give rise to a price premium.

In addition, the price of each relevant Peloton offering remained constant both before, during, and for almost eighteen months after the class period. While those results “could perhaps be explained away if there were other confounding factors, including if Defendant offered something additional of value to consumers after the takedown or if sales fell markedly,” Peloton’s expert looked for other confounding factors and found none. The burden of demonstrating that there was a price premium (and thus that the predominance requirements of Rule 23(b)(3) have been met) was plaintiffs’ and they did not satisfy it. Plaintiffs’ conjoint model assumed that individuals saw and noticed the challenged statement to generate its price premium calculations, but that assumption wasn’t supported by the evidence. Plaintiffs’ survey also didn’t distinguish the value of Peloton’s library of classes—a Peloton innovation—from the value of its purported “ever-growing” size.

In addition, plaintiffs didn’t show that there was a model capable of measuring the damages attributable to their theory of liability, since their model conflated the existence of a library with its ever-growing size. “Courts routinely reject price premium methodologies under Comcast when the proposed methodologies do not attempt to isolate the premium due only to the allegedly misleading marketing statement.” The model also didn’t consider the impact of supply-side factors. “Because Defendant might have responded to the decreased demand by producing fewer Peloton products, the damages of the putative class members would presumably be less.” Nor did the model “consider how competitors would have reacted to a decrease in demand for Peloton products, which could in turn affect the supply of Peloton products.” It would be different if the products had only one relevant attribute and that attribute was falsely advertised, since there the entire price paid would be based on falsity and no price premium analysis would be required. [The hypothetical is a joint pain cream that doesn’t cure joint pain; note that this is not a one-attribute product, since there are non-cream treatments for joint pain, so in fact there are at least two attributes, one of which is true in the hypo.]

The same flaws doomed plaintiffs’ omission theory, which relied on a consumer survey showing that 48.9% of respondents would be either extremely or moderately concerned if Peloton were forced by legal action to remove 50% of their classes. Peloton’s designated witness testified that there were only “a single-digit number of subscription cancellations that were directly attributable to ... the on-demand classes removed from [Peloton’s] library in March 2019.”

Second Circuit finds "therapeutic grade"/physical effects claims for essential oils falsifiable; suggests that lack of substantiation violates NY law

MacNaughton v. Young Living Essential Oils, LC, 2023 WL 3185045, No. 22-0344, -- F.4th -- (2d Cir. May 2, 2023)

In 2020, NAD found that Young Living’s claims that its essential oils are “therapeutic-grade” and impart physical and/or mental health benefits were “unsupported.” But MacNaughton had already spent money on Young Living’s products, including lavender oil advertised to “promote[] [a] feeling of calm and fight[] occasional nervous tension” and peppermint oil that allegedly “helps to maintain energy levels.” Feeling misled by claims that the product would have effects like “promot[ing] feelings of relaxation & tranquility,” MacNaughton sued under common law and various state statutes, including NY’s GBL.  The district court claims that its products would do things like “help[] to maintain energy levels” was run-of-the-mill puffery.

Relying on Int’l Code Council, Inc. v. UpCodes Inc., 43 F.4th 46 (2d Cir. 2022), the court of appeals reversed, though it did affirm the dismissal of warranty claims.

Young Living instructs its salespeople that in “describing therapeutic-grade oils,” they should mention that “every essential oil . . . has the highest naturally-occurring blend of constituents to maximize the desired effect.” The website also formerly contained a statement that though the therapeutic-grade “promise” was “bold,” the salesperson could “share [the] products with confidence, knowing that Young Living truly has the experience to produce essential oils that work.” Similar guarantees remain on Young Living’s “various blogs and other websites.” Young Living continued to advertise the products as being “therapeutic-grade.” MacNaughton cited three studies, all of which conclude there is insufficient evidence to find that aromatherapy is an effective treatment of anxiety or of any other type of condition.

The breach of warranty claims were properly dismissed because MacNaughton failed to allege proper notice and privity of contract.

Puffery comes in two forms (1) subjective statements that cannot be proven true or false and are therefore non-actionable puffery as a matter of law and (2) objective statements that can be proven true or false but are so exaggerated that no reasonable buyer could justifiably rely on them.

Under category one, claims that a website designed to compile construction codes “provides a complete understanding of relevant material” and that the author of a book on animals “thoroughly researched dozens and dozens of animals” have been deemed non-actionable puffery as a matter of law. Under category two, claims can be falsifiable but “so patently hyperbolic that any allegations that it misled consumers are facially implausible,” such as a bubblegum brand advertising that its gum permits chewers to “blow a bubble as big as the moon.” “Yet, if the company falsely advertised that you could ‘blow a bubble bigger than your own head,’ it is plausible that a reasonable buyer could be misled.”

“Once the statement is identified as both provable as false and plausible, a defendant can only prevail on the puffery defense after a fact-intensive inquiry on how a reasonable buyer would react. That inquiry cannot be resolved at the pleadings stage.” That was the case here. Young Living’s statements about its “therapeutic-grade” oils having health and medicinal benefits are both provable and not “so patently hyperbolic that any allegations that it misled consumers are facially implausible.”

“Therapeutic-grade” was “not a subjective or vague term, but rather one that represents the item possesses a degree of quality as to produce healing.” It was distinguishable from grade + “adjectives that are merely general representations of superiority” such as “superior grade” or “prime grade.”

The ad context was also relevant:

Along with the “therapeutic-grade” label, Young Living also promised that each Product would produce particular medicinal or physical effects, such as “promot[ing] a sense of clarity and focus.”  Additionally, Young Living directed its salespeople to emphasize that every oil “has the highest naturally-occurring blend of constituents to maximize the desired effect” and that “Young Living truly has the experience to produce essential oils that work.” The accuracy of all these statements and claims is provable. ‘’

NAD/NARB rulings weren’t binding, but were relevant to the plausibility of deception of a reasonable consumer. These claims were all provable, and they weren’t patently hyperbolic. Thus, puffery couldn’t be resolved on a motion to dismiss.

In addition, the court rejected Young Living’s argument that the plaintiff alleged only lack of substantiation, not falsity. Notably, “Young Living does not cite any binding case law to support its argument that the New York General Business Law does not protect against advertising that lacks substantiation.”

Unjust enrichment was also sufficiently pled.