Monday, April 24, 2017

Reading list: empirical evidence about FTC's substantiation standard

Sungho Cho &Yongjae Kim, Empirical Rationalization of Prior Substantiation Doctrine: Federal Trade Commission v. Reebok & Sketchers, 29 Loy. Consumer L. Rev. 55 (2016) (not apparently available online—update that website, Loyola Consumer Law Review!)


Companies frequently make efficacy claims in advertisements to introduce new products featuring innovative technology. When such claims are supported by information obtained from scientific research or expert testimonials, they are subject to the doctrine of prior substantiation. Under the doctrine, an advertisement claim based on seemingly credible authorities must be substantiated by a reasonable basis before it is released to the general public. Otherwise, the advertisement will be in violation of Section 5(a) of the Federal Trade Commission Act that prohibits “unfair or deceptive acts affecting commerce.” This study investigates the rationale of the legal rule in light of consumer behavior theories. While the doctrine has been normatively rationalized, it has not been empirically examined. Given the paucity of relevant research, this study will test consumer attitudes and cognitive reactions toward different types of advertisement messages, such as, one with establishment claims and the other without such cognitive contents. The study administered real advertising video clips used by Reebok and Sketchers, disputed in two settled cases where the Federal Trade Commission alleged that the defendants failed to satisfy the legal standard of the substantiation rule. The findings of this study support the rationale of the rule on the ground that the Reebok advertisement clip delivering expressive establishment claims about its product efficacy would likely have more of an immediate impact on consumers’ purchasing intention than Sketchers’ ad without such cognitive information. Implications and future research along with limitations are also discussed.

TM/(c) questions of the day

Which, if any, raise any TM or copyright concerns?
matchboxes with book covers

"phone app sticky notes"

Scented erasers with possibly recognizable trade dresses

Dastar bars TM claim based on unlicensed copying of footage

Fioranelli v. CBS Broadcasting Inc., No. 15-CV-952, 2017 WL 1400119, -- F. Supp. 3d – (S.D.N.Y.  Jan. 19, 2017)

Fioranelli, a photojournalist who was one of four reporters allowed to enter the World Trade Center site on September 11, 2001, sued for copyright infringement and related claims.  In 2014, he registered copyrights on both his own commercially available documentary of the events, as well as raw footage of the photographs he took that day.  In 2002, he settled a previous lawsuit with CBS and granted a limited, nonexclusive license to CBS to use his work “in all regularly-scheduled and breaking news programming and all news magazine programs … and in the advertising, publicity and promotions therefor, produced by CBS owned television stations and CBS News.”  In 2005-2006, allegedly in violation of the License Agreement, CBS allegedly sublicensed some or all of the 9/11 Material to at least fifteen companies.

The court first found that Fioranelli stated a claim for copyright infringement, not just breach of a license agreement, given that the acts alleged went outside the license. “[I]f ‘a license is limited in scope and the licensee acts outside the scope, the licensor can bring an action for copyright infringement.’ ”  The allegations here were “wholly outside the scope of the License Agreement.” Inducement claims against many of the defendants were, however, dismissed for want of specifics.

The court also got rid of Fioranelli’s Lanham Act and state-law claims on Dastar and preemption grounds.  Fioranelli argued that he was allowed to bring a Lanham Act claim “to address the activity of Defendants that directly affected his business and not just his copyright rights,” that he had a registration and the plaintiff in Dastar didn’t, and that he produced a tangible good—his footage—not just an idea.

Dastar applies to copyrighted and public domain material alike.  The allegations that “CBS has engaged in false designation of origin and false descriptions of fact regarding Plaintiff and his work” and that the other defendants “individually published [the 9/11 Material] as part of their own media products,” and thereby “have caused or are likely to cause confusion, to cause mistake, or to deceive as to the origin of Plaintiff’s Work among the public” stated “the exact type of claim that the holding in Dastar prohibits.”

Consumers who viewed the 9/11 Material as part of defendants’ programs were “not falsely informed about the origins of the [material] because [Defendants] did in fact produce” it. Just like the creator of the footage in Dastar, Fioranelli was the originator, not the “producer of tangible goods” protected by the Lanham Act.

The state-law claims fared similarly. The only extra element Fioranelli could identify was that his claims were based on “damage to his business,” but he didn’t explain how the alleged damage to his business was the result of anything other than defendants’ unauthorized copying.

Because the infringing acts alleged commenced before Fioranelli secured copyright registrations, he was not entitled to statutory damages or attorney’s fees (though the court declined to address at this time the argument that the court’s inherent supervisory power allowed it to award attorney’s fees regardless). 

"Australian for [American] beer" isn't deceptive, court rules

Nelson v. MillerCoors, LLC, 15-CV-7082, 2017 WL 1403343, -- F. Supp. 3d – (E.D.N.Y. Mar. 31, 2017)

The court dismissed Nelson’s complaint, invoking lots of different consumer protection laws, based on Miller’s allegedly misleading marketing of Foster’s Beer, “an Australian-style beer brand.”  Foster’s began exporting to the US in 1972, and its can labels sported “multiple references to Australian culture and symbols,” namely “an image of a Red Kangaroo, the national symbol of Australia, and the Southern Cross constellation,” which is “a main component on the Australian national flag.” In 2011, all Foster’s Beer sold in the United States became domestically brewed. MillerCoors allegedly tricked consumers “into believing they are purchasing the same [imported] product as they had in the past precisely because it has maintained the same packaging for Foster’s over time, despite the fact that the Foster’s sold in the United States is also brewed domestically.  Nelson also pointed to MillerCoors’s “overall marketing campaign, online and in advertisements,” including: (1) the brand slogan “Foster’s Australian for Beer”; (2) the “How to Speak Australian” television ads “depict[ing] Foster’s as being a product from Australia by using Australian accents and scenery”; and (3) the official website for Foster’s Beer, which, as of December 2015:

• Noted Foster’s Beer is made out of hops that are only grown in three locations in Australia, and that “[t]hese hops and an exclusive Foster’s yeast are what give Foster’s its bold refreshing taste. The secret yeast doesn’t produce sulfur harshness that other beers can exhibit, which means that Foster’s taste is never skunky and always Australian,”
• Advertised, ‘ “Foster’s is available in more than 150 countries, making it the largest-selling Australian beer brand in the world,” ’ and
• Displayed “an outline of the country of Australia, references to [the beer’s] roots and history in Australia, and use of Australian symbols and phrases including ‘How to Speak Australian,’ ‘Foster’s — Australian for Beer,’ and a video screen with images of rugby players.”

This allegedly exploited consumers’ willingness “to pay a premium for high quality, imported beer.”

The court found no reasonable consumer would be deceived.  The label clearly discloses the brewing location and isn’t hidden or in small text. “The idea that consumers purchase products based on certain of a label’s statements or images (e.g., pictures of a constellation and a kangaroo) but are blind to others (e.g., a statement in plain English of where Foster’s Beer is brewed) in close proximity on that label strains credibility.”  Disclaimers fail to cure allegedly misleading representations on the front of packaging “only where the alleged misrepresentation is clearly stated and the disclaimer is exceedingly vague or requires consumers to make inferences.”  The disclaimer here was explicit: “BREWED AND PACKAGED UNDER THE SUPERVISION OF FOSTER’S AUSTRALIA LTD, MELBOURNE, AUSTRALIA BY OIL CAN BREWERIES, ALBANY GA AND FORT WORTH TX.” [Really? The first geographical words the consumer encounters is “Australia,” twice.] Likewise, “© Oil Can Breweries, Fort Worth, TX” is displayed on the Foster’s webpage, which was “inarguably clear as to the brewing location.” 

Ninth Circuit bars consumer claims challenging assertions of clinical proof

Kwan v. SanMedica Int’l, -- F.3d --, No. 15-15496, 2017 WL 1416483 (9th Cir. Apr. 21, 2017)

Kwan alleged that SanMedica’s product SeroVital was falsely advertised as effective, and the district court dismissed her complaint as a lack of substantiation claim not actionable under California consumer protection law. The court of appeals affirmed.

SanMedica advertised, inter alia, that its product had been clinically tested and shown to produce a 682% increase in human growth hormone (HGH), which had multiple physical and cosmetic benefits.  To proceed in a challenge to this claim, Kwan would apparently need to allege “that one or more of the authorities alluded to actually studied or tested the formula SeroVital contains and found that it does not produce a 682% mean increase in HGH levels, or that Plaintiff herself did not experience such an increase when using the product, or that a study exists somewhere demonstrating that a 682% increase is categorically impossible to achieve in an over-the-counter pill.” Instead, she only alleged that the study relied upon to make the claim was “not an example of scientific evidence recognized by experts, was never peer-reviewed, and was never published in a peer-reviewed journal.”  So even if affirmative statements about the existence of clinical tests proving effectiveness are material to consumers, California law doesn’t allow challenges to those statements merely because the consumer might be able to show that the test didn’t demonstrate the truth of the affirmative statement.

I think this is a mistake—with such evidence, the challenger has shown that the statement about clinical proof is false, even if she hasn’t falsified another part of the ad; the Lanham Act also doesn’t allow mere lack of substantiation claims, but Lanham Act jurisprudence correctly recognizes that there can be separable statements about the proof behind another statement—and advertisers make those statements in order to convince consumers that their statements are credible.

The court of appeals found that it wasn’t enough to allege that the “clinically tested” representation and the health benefit claims falsely implied that the marketing claims of SeroVital’s health benefits were clinically proven by credible scientific proof. That was just a lack of substantiation allegation, repackaged.  The court rejected Kwan’s invocation of Lanham Act establishment claim precedent because doing so “would clearly violate recognized California law on the burden of proof placed on the plaintiff.”  As readers are probably aware, the burden is also on the plaintiff to show falsity under the Lanham Act; the Lanham Act precedent, however, makes clear that statements or implications about proof can themselves be false.  Kwan wasn’t trying to shift the burden of proof, as the court accused her of doing; she was challenging the truth of some of SanMedica’s claims.

Sixth Circuit has nominative fair use sans la lettre

Oaklawn Jockey Club, Inc. v. Kentucky Downs, LLC, No. 16-5582 (6th Cir. Apr. 19, 2017)

Query: Does the Sixth Circuit’s refusal to adopt nominative fair use, and its insistence on a separate doctrine of “use as a trademark,” make a difference?  After all, many courts applying “nominative fair use” conduct the same back-of-the-envelope mini-confusion inquiry in determining whether there can be any liability as we see from the court here.

“In 2010, the Kentucky Horse Racing Commission amended its regulations to permit gambling on historical horse races.”  This is a way of letting people gamble without live races.  “Customers receive anonymized information about the historical horses, handicap the race, and place their bets,” or there’s also apparently an “automatic” feature that skips the handicapping, so it’s basically a slot machine.  After bets are placed, the regulations require, “the terminal shall display a video replay of the race, or a portion thereof, and the official results of the race. The identity of the race shall be revealed to the patron after the patron has placed his or her wager.” In defendants’ product, the replay isn’t an actual replay, but “computer-generated, generic, and lasts for only a few seconds; it shows only the order of finish and does not attempt to visually recreate the racetrack that originally hosted the race.”  It does display the track name as part of substantiating the results.
from the brochure
The track owner-plaintiffs have registered marks for their racing tracks.  They alleged that the use of their marks was likely to confuse consumers into believing that they are the source of the video recreation and endorse its accuracy.  Also, the game-maker’s ad brochure includes a screenshot of a video replay that uses the track names of Mountaineer Casino Racetrack & Resort, Rockingham Park, and Turf Paradise, though the owners of these tracks weren’t parties to this suit. The brochure states that “[t]he Encore RBG System and its individual games have successfully undergone the rigorous testing of Gaming Laboratories International (GLI), the gold standard in technical review and authorization of wagering software and hardware.”

“Trademark use” is required before the multifactor confusion test is applied.  “When the mark is used in a way that does not deceive the public we see no such sanctity in the word as to prevent its being used to tell the truth.” Prestonettes, Inc. v. Coty, 264 U.S. 359, 368 (1924). “If defendants are only using [the] trademark in a ‘non-trademark’ way—that is, in a way that does not identify the source of a product—then trademark infringement and false designation of origin laws do not apply.” Interactive Prods. Corp. v. a2z Mobile Office Sols., Inc., 326 F.3d 687, 695 (6th Cir. 2003).

Well, how do you know?  The inquiry focuses on “whether a consumer is likely to notice [the plaintiff’s trademark] . . . and then think that the [defendant’s product] may be produced by the same company[.]”  Why is this not a poor woman’s confusion test?  This is left as an exercise for the reader. In fact, the court described its earlier Hensley case in these terms: “Because there was no likelihood of consumer confusion regarding whether the plaintiff trademark owner was the source of the defendant’s products, we held that the defendant’s use of the trademark was a permissible non-trademark use.”

The track owners argued that the display of their marks was a trademark use because it confuses consumers into believing that the track owners provided or verified the video replays.  The court of appeals disagreed, pointing out that there were no live feeds of races or actual video replays.  (If there had been, would that have been likely to confuse?)  “These depictions are sufficiently different from the Track Owners’ product—live horse racing at their venues—that the minimal use of the trademarks, preceded by the word ‘Location,’ would not confuse consumers into believing the videos were provided by Plaintiffs.”  It could be true that there is such a thing as “an Oaklawn® horse race,” and thus “deciding where to watch a live horse race or which live-broadcast race to watch [note: not which source to watch it via] may be similar to deciding which brand of computer to purchase.”  But here, “the fact that a race occurred at Oaklawn or Churchill Downs is relevant only as a factual matter—it is used so consumers can substantiate the race’s result, not to promote the quality of Exacta’s product.”

It was fair to say that the marks were used “to substantiate or legitimize the video,” but “only in the sense that they provide consumers with the requisite details to verify the video game’s accuracy.”  If the game displayed inaccurate results, it was unlikely that a consumer would blame or complain to the tracks; the target of complaint would be defendants, the parties actively representing the accuracy of the results.  “The term ‘Location’ preceding the trademarks sufficiently explains to consumers that the trademarks are being used in a wholly descriptive manner and does not cause a likelihood of confusion as to the source of the video,” especially since the replay didn’t depict the facilities.

As for Exacta’s advertising materials, the only display of specific track names appeared in a screenshot of a video replay, and the brochure touts defendants’ own expertise and goodwill.  “Because this was a non-trademark use of Plaintiffs’ trademarks, we need not reach the question whether the fair-use defense applies.”  Sure, fine, whatever.

The same analysis applied to Kentucky common law trademark infringement and unfair competition claims.

Thursday, April 20, 2017

9th Circuit revives class action against allegedly mislabeled baby food

Bruton v. Gerber Prods. Co., 2017 WL 1396221, --- Fed.Appx. ----, No. 15-15174 (9th Cir. Apr. 19, 2017)

Bruton sued Gerber, alleging that labels on certain Gerber baby food products included claims about nutrient and sugar content that were impermissible under FDA regulations incorporated into California law. The district court ruled against her.  The court of appeals, over a partial dissent, reversed and remanded.

First, the district court erred in dismissing Bruton’s claim for unjust enrichment/quasi-contract, because it was unclear at the time whether California allowed a separate unjust enrichment claim, but the California Supreme Court has subsequently clarified California law, allowing an independent claim for unjust enrichment to proceed.

Second, the district court erred in finding that a class would not be “ascertainable.” Briseno v. ConAgra Foods, Inc., 844 F.3d 1121 (9th Cir. 2017), held that there was no separate “administrative feasibility” requirement for class certification.

Third, there was a genuine dispute of material fact on Bruton’s claims that the labels were deceptive in violation of the UCL, FAL, and CLRA.  The theory of deception doesn’t require literal falsity, but rather that “(a) the presence of the claims on Gerber’s products (in violation of FDA regulations), and (b) the lack of claims on competitors’ products (in compliance with FDA regulations), made Gerber’s labeling likely to mislead the public into believing that Gerber’s products were of a higher quality than its competitors’ products…. [I]t may be literally true that Gerber’s products are ‘As Healthy As Fresh,” but due to external facts—that Gerber does not comply with the FDA regulations that otherwise prevent its competitors from making the same claim—Gerber’s labels mislead in their implications.”

This theory of deception made sense:

Shoppers in a supermarket aisle look for cues about quality in the products they buy. If a shopper sees two products on a shelf and one says “Supports Healthy Growth & Development,” while the other makes no similar claim and is cheaper, a likely inference is that the first product will be viewed as healthier, explaining why it costs more. If the products had been of the same quality, then competitive pressures would have driven the maker of the second product to use the same attractive label. In the baby food market in particular—where measuring the effect of a particular food on one’s own baby’s growth and development is not practical—consumers have to make quality judgments before the baby is fed, based on what they see in front of them at the store. When everyone plays by the rules, this process works reasonably well. But when the maker of one product complies with a ban on attractive label claims, and its competitor does not do so, the normal assumptions no longer hold, and consumers will possibly be left deceived.

Even reviewing the nutritional information of the competing products wouldn’t help. “Consumers cannot easily check claims like ‘Supports Healthy Growth & Development,’ or ‘As Healthy As Fresh,’  against nutritional charts to determine their veracity. Consumers might believe, for instance, that the claims refer to the quality of the produce used or the particular canning process.”  Likewise, they can’t easily figure out the import of the absence of such claims.  Even for seemingly black and white claims like “No Added Sugar,” if Gerber’s product says “No Added Sugar,” and a competitor’s product doesn’t, the nutritional chart won’t the consumer whether any of the sugar in its product was added—it will simply list the amount of “Sugars.” “Nevertheless, the reasonable assumption would be that some of the sugar in that competitor’s product must have been added, or else the competitor would have used the attractive label ‘No Added Sugar.’”

Bruton also submitted enough evidence of likely consumer deception to create a genuine dispute of material fact. The key evidence was the labels.  “A reasonable jury observing Gerber’s labels and comparing them to those of its competitors could rationally conclude that Gerber’s labels were likely to deceive members of the public.”

The district court also erred in granting summary judgment to Gerber on Bruton’s claims that the labels were unlawful under the UCL, which “borrows” predicate legal violations and treats them as independently actionable. The reasonable consumer test is only a requirement under the UCL’s unlawful prong only when it is an element of the predicate violation. The predicate violation here was of California’s Sherman Law, which incorporates standards set by FDA regulations, which include no requirement that reasonable consumers be likely to be deceived.

Judge O’Scannlain dissented from the majority’s conclusion that there was a genuine issue of material fact about consumer deception.  Bruton’s testimony about her own confusion couldn’t satisfy the reasonable consumer standard, because “a few isolated examples of actual deception are insufficient” to create a material dispute over the likelihood of general consumer deception.  The majority’s reliance on the labels was insufficient because the labels weren’t clearly false, as compared to a label “Made in U.S.A.,” when significant parts of the labeled product weren’t made in the US.  “[T]he challenged statements themselves say nothing at all about the quality of Gerber’s products; they simply report—accurately—certain nutritional features of the products.”  Nothing “inherent” in the labels would support a leap from these correct statements to deceptive quality claims, especially because Gerber’s and competitors’ labels include detailed information about their ingredients. Judge O’Scannlain didn’t see any evidence that the challenged statements made Gerber’s labels objectively more “attractive” to a “a significant portion of the general consuming public,” or that consumers consumers would conclude that any price or quality difference between Gerber and its competitors was due “specifically to the challenged label statements (as opposed to any number of other reasons that may have led Gerber’s nationally recognized brand to carry more market power).”

Georgetown Tech Law Review seeks submissions

From the editors:

The Georgetown Law Technology Review is soliciting content for fall 2017 publication. Founded in 2015, the Review seeks to build a common forum for technologists, lawyers, and policymakers to discuss the increasingly complex intersections between law and technology. It leverages its presence in Washington, D.C. to focus on legal and policy issues driven by cutting-edge technological developments. The Review also collaborates with the Georgetown Law Center on Privacy & Technology, the Georgetown Law Institute for Technology Law & Policy, and the Georgetown-MIT Privacy Legislation Practicum to promote and showcase innovative scholarship.

We welcome submissions on a wide variety of topics, including but not limited to: intellectual property, privacy, cybersecurity, fintech, and telecommunications. While the Review accepts traditional scholarly articles, we are especially interested in shorter (5,000-15,000 word) pieces focused on narrow and timely issues in law and technology. The submission deadline to ensure fullest consideration for the fall issue is June 30, 2017, though we are happy to accept submissions on a rolling basis.

If we can provide further information, or if you would like to discuss a potential submission, please email us at or visit our website at

Presumptions and evidence of causation both work in false advertising cases

Robroy Indus.–Texas, LLC v. Thomas & Betts Corp., No. 15-CV-512, No. 2:16-CV-198, 2017 WL 1370545 (E.D. Tex. Apr. 10, 2017)

T&B and Robroy compete in the market for PVC-coated electrical conduit, which is used to carry electrical wiring in buildings or other structures. The parties are the major suppliers of PVC-coated electrical conduit in the United States; T&B’s conduit is known as “Ocal.”  Robroy alleged that T&B made a number of false claims that only its Ocal products had certain features, such as meeting the UL 6 standard, the ANSI C80.1 standard, and the NEMA RN-1 standard, all significant industry standards.
 T&B also claimed that “only Ocal” offers local installation training and certification. And its promotional materials claimed that Robroy “abrade[s] the surface of the conduit prior to the application of the PVC,” thereby “remov[ing] the protective coatings that the customer is paying for.” T&B further claimed that “UL standards are not being followed by the abrading of the conduits [sic] exterior zinc finish.”

T&B argued that there was insufficient evidence of harm causation to survive summary judgment. The court disagreed.  T&B had three key arguments (1) that Robroy has never been “kicked off” a specification for PVC-coated conduit for any reason related to the T&B statements at issue; (2) the evidence shows that customers made purchasing decisions based on price, quality, availability, and other factors having nothing to do with the alleged false statements; and (3) the evidence shows that customers made decisions to add T&B’s Ocal product to the specifications for particular projects and to purchase Ocal based on price and other factors, not because of the allegedly false statements.

The court agreed with Robroy that, because this was a case of allegedly deliberately false comparative advertising in a functionally two-party market, causation could be presumed.  [Why “deliberately”?  The two-party market situation appears independently significant, assuming the claim is material; the deliberateness might justify a presumption of effectiveness as well. But that’s what the cases say.] A number of circuits and district courts have adopted this rule; no case appears to have rejected it; and the Fifth Circuit hasn’t said anything to cast it into doubt.  Causation is required by the Lanham Act, but “that does not speak to whether and under what circumstances that element can be satisfied by a presumption.”  Also, “[g]iven that courts have uniformly recognized the presumption for the past 30 years, Congress’s silence in the face of that now well-established line of authority suggests, if anything, that Congress is satisfied with the status quo.”

T&B argued that this wasn’t really a two-party market, but Robroy provided evidence that “during the period at issue in this case, the PVC-coated electrical conduct market has been effectively a two-competitor market.” Also, some of the allegedly false statements were directed at Robroy by name, and many of the challenged statements were comparative, which would be understood as referring to Robroy by clear implication.  Summary judgment on causation denied.

Separately, there was evidence about actual causation. Robroy’s theory of the case was:

(1) in order to bid on a project, a manufacturer was required to be included on the specification for the project; (2) there were numerous projects on which T&B was not initially on the specification; (3) those contracts would have gone to Robroy but for T&B’s actions that resulted in T&B being added to the project specifications; (4) it was T&B’s false statements that caused project managers and engineers to alter the specifications to include T&B as a qualified bidder on those projects; and (5) on those projects on which T&B won the contract, Robroy suffered injury from the loss of a contract it would have won but for T&B’s false advertising.

While it might be true that in particular instances customers chose T&B’s products over Robroy’s products for reasons other than T&B’s false statements, Robroy argued, that occurred after the stage of the process in which the project engineers were persuaded to alter the specifications for their projects to allow T&B to bid, which was the critical point at which the false advertising was allegedly effective.  If T&B hadn’t been allowed to bid, according to Robroy’s evidence, “on many of the projects the specifications initially called for Robroy products or required quality assurances that only Robroy could meet.” The critical step was project engineers’ decisions to “open” the specifications to allow T&B to bid on the projects.  And there was evidence in the record that this “opening” at least sometimes came as a result of the challenged statements.  [Is there an analogy here to bait-and-switch initial interest confusion?  Initial qualification deception?]  The allegedly false statements were clearly designed toward getting engineers to open the specs.  E.g., “a form letter including several of these false statements was posted on an internal bulletin board that was available to the project specification specialists at T&B who were responsible for attempting to ‘break’ specifications that specified only Robroy products or ETL-listed conduit.”  And T&B reps claimed success in their endeavors. One internal comment: “That job was specified [Robroy] but with the help of you and T[o]m Russ [a senior T&B sales representative who promoted the use of the “only Ocal” material during efforts to “break” specifications] we were able to open it up to Ocal.”

Pizza Hut, Inc. v. Papa John’s Int’l, Inc., 227 F.3d 489 (5th Cir. 2000), found that evidence of subjective intent to deceive on the part of the defendants’ executives was insufficient to show that the false advertising in question actually succeeded in persuading customers to buy the defendant’s products instead of the plaintiff’s.  However, here there was “evidence—including statements by T&B representatives—that the effort succeeded.”

The evidence was mostly circumstantial, and circumstantial evidence isn’t always enough, but here it was.  “This is not a case in which the proof is limited to showing no more than that the defendant’s representatives intended to mislead potential customers or that false statements were made in the course of competitive bidding, after which one party lost the project.” On Robroy’s evidence, Robroy was “essentially guaranteed to be awarded a contract on those projects, until T&B ‘broke’ the specifications, obtained the right to bid, and ultimately was awarded the contract.” It was reasonable to infer that the challenged statements played a pivotal role in the customers’ decisions to allow T&B to bid on the projects, even if there might also be other reasons that engineers might have opened the specs. The inference of causation was “strengthened by the evidence that T&B’s own representatives expressed their view that the characterizations of Robroy were responsible for the engineers’ decisions to open the specifications to bidding by T&B, and that one of the project engineers repeated one such alleged falsehood when changing the specification to allow T&B to bid.”

Robroy’s state-law unfair competition claim under the common law also proceeded.

Having a product in development isn't enough for Lanham Act standing

Pulse Health LLC v. Akers Biosciences, Inc., 2017 WL 1371272, No. 16-cv-01919 (D. Or. Apr. 14, 2017)

Pulse was formed to develop a product that can measure aldehyde molecules in human breath via a non-invasive hand-held device. Its device was called FRED or Revelar. Akers develops and sells diagnostic products and devices designed to deliver various health information test results. The parties entered into contracts for Akers to make a breath tube containing a chemical reagent that could accurately measure aldehyde molecules in human breath, to be used with the FRED/Revelar device. Akers’ development failed, according to Pulse, and Pulse requested to part ways. The final agreement provided that Pulse transferred the relevant tech back to Akers, and Akers waived the remainder of what Pulse was supposed to pay.  Akers granted Pulse an exclusive and perpetual license to use the relevant tech in the field of aldehyde tests, which included any testing for oxidative stress, but excluded tests relating to diabetes, cancer, and alcohol. The agreement further provided that Akers had no rights with respect to Pulse’s technology for its hand-held FRED/Revelar device.

Akers started to sell hand-held products that Pulse claimed measured oxidative stress and free radical damage through disposable tubes, which Pulse determined was a copy of its FRED/Revelar product. “The chemistry for the OxiChek and the Assigned Technology reagents are the same, and the circuit boards for the OxiChek product have a similar layout and the same optical chamber, LED, diodes, switches and gates as the original FRED/Revelar device developed by Plaintiff.”

The court rejected Lanham Act and state-law consumer protection claims.  Pulse wasn’t within the zone of interests protected by the statute and there could be no proximate causation of injury, even if, as alleged, Akers “knowingly made false statements in advertising the technology’s ability to detect levels of oxidative stress or free radicals” using Pulse’s technology.  Because Pulse didn’t have a competing product on the market, it failed to allege any injury to a commercial interest in reputation or sales. Possible future sales of a product under development weren’t enough, despite the alleged “spoiling” of the market based on Akers’ false advertising.  Any such injury was purely speculative.

The Oregon Unlawful Trade Practices Act only protects consumers, not competitors. Because leave to amend would not allow Pulse to fix either of these problems, it was denied.

Lesson: write your noncompete more clearly so that suing for breach will give you all the relief you seek, I guess?

My colleague Laura K. Donohue, now on Twitter

Where she will be tweeting about the national security state, privacy, et cetera.  She's got comprehensive knowledge and a prime location, so take a look!

Monday, April 17, 2017

Grange grudge: court orders disclaimer to resolve confusing corporate status

National Grange of the Order of Patrons of Husbandry v. California State Grange, 2016 WL 8730678,  No. 16-201 (E.D. Cal. Sept. 23, 2016)

As relevant here, plaintiffs sued the California Guild and Robert McFarland for false advertisement and unfair competition under the Lanham Act, and moved for a preliminary injunction.  “The National Grange is a nonprofit fraternal organization founded in 1867 to promote the interests of rural America and agriculture.”  The California State Grange was created as its California affiliate in 1873 and elected McFarland as its leader in 2009.  After disputes arose, the National Grange revoked the California State Grange’s membership and the two sides disaffiliated in 2013.The disaffiliated chapter, led by McFarland, continued as a separate entity under the California corporate charter filed in 1946, while the National Grange chartered a new California State Grange in 2014.

Defendants continued to represent themselves publically as the California State Grange, but in 2015 the court granted the National Grange summary judgment on its trademark infringement and false advertisement and unfair competition claims. The court permanently enjoined the disaffiliated entity from using the word “Grange,” but declined to extend that prohibition to include similar words because the National Grange did not expressly seek such relief in its initial complaint. Those rulings are pending on appeal in the Ninth Circuit [ed.: where they may languish for a long time].

In April 2016, the court granted the National Grange’s motion for post-judgment injunctive relief, ordering that the disaffiliated entity

[R]emove the word “Grange” from all corporate registrations and other documents filed with any federal, state, or local government ... [R]emove the word “Grange” from all public telephone and business directory listings, on the internet or otherwise, ... [Refrain] from: (a) conducting business using the name “Grange,” …; (b) using “Grange” in any domain name or email address …; and (c) referencing their past affiliation with plaintiff or any other entity whose name contains the word “Grange,” including representing themselves to be the former California State Grange; successor to the California State Grange; or formerly known as, trading as, or doing business as the California State Grange....

The disaffiliated entity changed its corporate name to the “California Guild,” but continued to refer to itself as “CSG” and “[f]ormerly the California State Grange.”

In this proceeding, the National Grange sought a lot more relief, including a prohibition on “referencing the history and goodwill of the California State Grange” and surrender of all physical and intellectual property of the California State Grange (the physical property also being subject to a California state proceeding).

Defendants “continued to advertise that ‘cities and townships have grown up around our rural halls’; that the the [sic] Defendant’s organization has ‘lobbyists in Sacramento and boasts a long history of successful legislative advocacy’; that the Defendants’ organization was the first organization to support and promote women as equal voting members’ [sic]; and that ‘[i]n these uncertain times our members find comfort and security by returning to our roots and reaffirming principles and goals set by the founders 140 years ago.’ ” The National Grange argued that “only the California State Grange can claim the 140 years’ [sic] of history and goodwill associated with the organization.” The court noted that defendants apparently found a way around the injunction “by taking credit for the California State Grange’s history and achievements without referencing it by name.”

Without discussing Dastar, the court stated that “[t]he Lanham Act prohibits uncredited references to another entity’s history and achievements.”  However, the court noted another loophole: the California Guild remains incorporated under the same corporate papers that the California State Grange formerly existed under.  Thus, defendants were “technically correct when they refer to the California Guild as an organization that has existed for ‘decades’ and around which ‘cities and townships have grown up.’” Though the National Grange maintained that this was nonetheless deceptive, the court found that its “hands were tied with respect to claims to history and achievements accrued post-incorporation”  because such claims weren’t false or misleading but true, although “claims to history and achievements accrued prior to 1946 are undeniably false.”  The court wasn’t ignoring reality or gamesmanship; it was recognizing that, “for some reason, plaintiffs have not taken effective action in the three years after the parties disaffiliated to prevent defendants from occupying the California State Grange’s corporate charter. The court cannot step in to save plaintiffs here.” Thus, the court would only enjoin defendants from referencing history and achievements accrued by the California State Grange prior to its incorporation.  Irreparable injury existed because “further uncredited references to their history may permanently dilute their brand in California.”

The National Grange also challenged defendants’ allegedly false claims that local chapters must ‘disaffiliate’ with the California Guild in order to join [the California State Grange]” and that the local chapters “are ‘no longer nonprofit, must pay taxes, cannot accept tax deductible donations, or receive various grants.’ ” But the National Grange didn’t show falsity for those statements.  Any acts defendants engaged in while purporting to act in the official capacity would violate the existing order; they were allowed to solicit new guild members and officers in their own capacity.  The court denied the National Grange’s request to enjoin “performance of Grange rituals” as vague and overly broad.  “While performance of similar functions can contribute to a violation of the Lanham Act, plaintiffs’ request encompasses legitimate commercial activities such as soliciting new members and providing services to farm communities.”

The National Grange’s request for delivery of all business records, physical property, and intellectual property also went beyond the false advertising claims at issue here.  There was no evidence that defendants’ alleged use of business records and mailing lists constituted false advertising. Using the “proprietary mailing lists of the California State Grange ... albeit under different names” to contact Grange members with proper identification was “not, in itself, false advertisement.” Use of website logos, images, and backgrounds that are nearly identical to the National Grance could cause actionable confusion, but the National Grange’s request for relief was too broad. 

The court declined to evict defendants from the buildings alleged to belong to the California State Grange, but it did agree that, given defendants’ other deceptive tactics (referring to themselves as an organization “created in 1873,” “provid[ing] 160 years of service,” and “oldest agricultural organization in California”), their use of the National Grange’s buildings and former telephone numbers “would serve to further create a false impression among the public that they are affiliated with or successors to the California State Grange.” Eviction was a drastic measure for a preliminary injunction;  at this stage, a further disclaimer would suffice. However, it was reasonable to require defendants to cease using the old phone numbers.

As for that disclaimer: though the court would allow defendants from to claim credit for the history and achievements of the corporate entity formerly named the California State Grange from 1946 to 2013, “unless the public is notified that defendants are not in fact the California State Grange there would be a strong probability of confusion.”  Thus, all communications discussing the history or achievements of the corporate entity formerly named the California State Grange required a prominent disclaimer: “NOT AFFILIATED WITH THE CALIFORNIA STATE GRANGE.” Defendants were already using a mealy-mouthed disclaimer, “not affiliated with ... the Grange of the State of California’s Patrons of Husbandry Chartered.” The National Grange argued that this name was “unknown to the California Granges.” Without specifically ruling on that argument, the court saw no harm in making the disclaimer clearer.

Uber can't get taxi false advertising case dismissed on 12(b)(6)

Delux Cab v. Uber Technologies, Inc., 2017 WL 1354791, No. 16cv3057 (S.D. Cal. Apr. 13, 2017)

Delux, a cab company in San Diego, sued Uber for false advertising about “the purported exceptional safety of Uber” and the relative unsafety of taxicab rides. Challenged claims included:  “SAFEST RIDES ON THE ROAD—Going the Distance to Put People First,” and that Uber sets “the strictest safety standards possible …. The specifics vary depending on what local governments allow, but within each city we operate, we aim to go above and beyond local requirements to ensure your comfort and security—what we’re doing in the US is an example of our standards around the world.” Uber also touted rigorous background checks that it said compared favorably to those in the taxi industry.  Uber added a separately itemized $1 “Safe Rides Fee” shown on receipts, touting the fee as supporting an “industry-leading background check process, regular motor vehicle checks, driver safety education, development of safety features in the app, and insurance.”

Uber argued that the statements were all puffery, but many of them were specific and testable: Uber claims that it is “setting the strictest safety standards possible,” that its safety is “already best in class,” and that its “three-step screening” background check procedure, which includes “county, federal and multi-state checks,” and adheres to a “comprehensive and new industry standard.” A reasonable consumer “could conclude that an Uber ride is objectively and measurably safer than a ride provided by a taxi or other competitor service, i.e., it is statistically most likely to keep riders from harm.”  Nor were the statements merely aspirational and subjective.  Thhe simple addition of phrases such as “Uber is committed to ...,” “Uber works hard to ...,” or “We’re doing everything we can to ...” to an advertising statement isn’t an automatic shield from liability.  Nor did the context preclude a finding of misleadingness. Though Delux didn’t dispute that Uber screens criminal records going back seven years and conducts county, federal, and multi-state checks, the additional statements it made were also falsifiable, and the seven-year multi-jurisdictional background check was allegedly not “industry-leading.”

Uber also argued that several of its statements weren’t made in commercial advertising or promotion because they were made to journalists independent of Uber. Those challenged statements were “inextricably intertwined” with the reporters’ coverage of a matter of public concern, whether Uber is safe for riders.  Claims based on those statements weren’t actionable under the Lanham Act.

The “Safe Rides Fee,” however, was actionable even though Uber argued that it related to a transaction that had already occurred; it was aimed at getting future rides.

Uber agued that Delux didn’t adequately allege proximate cause.  Injury can be presumed in false comparative advertising cases.  The parties here were direct competitors, and it made sense that Uber’s alleged misrepresentations would decrease taxi rides.

Who registers the watchmen? court needs more info in (c) case

Sara Designs, Inc. v. A Classic Time Watch Co., --- F.Supp.3d ----, 2017 WL 627461, No. 16CV03638 (S.D.N.Y. Feb. 15, 2017)

Sara sued for copyright infringement, trade dress infringement, state trademark infringement and dilution, unfair trade practices, and deceptive practices and false advertising under New York General Business Law §§ 349 and 350. The court granted a motion to dismiss and denied a motion for a preliminary injunction.

Sara sells a highly successful series of wrap watches, including several styles of wrap watches using gradient chains, leather strands, adjustable links that include a lobster claw closure connected to the gradient chains with a ring, and an extension chain with a Sara Designs leaf-shaped logo connected to the watch. A representative from NY & Co. allegedly visited Sara’s booth at a trade show to ask whether it would lower prices or produce their product with lower-end materials under the NY & Co. brand. Sara declined, and NY & Co. allegedly had A Classic Time copy several of Sara’s watches. 

Bonus question: after Varsity Brands, are these watches protectable?

The copyright aspects had a problem: the complaint included certificates of copyright registration for several watches, “and numerous images of what appear to be internet screenshots of various iterations of Plaintiff’s watches and Defendants’ allegedly infringing watches.” But each of the submitted certificates of registration were text-only, and none were accompanied by any corresponding images of the work it purported to cover nor any specific descriptions of the work, other than the title of the work. The internet images of the allegedly infringed watches weren’t alleged to correspond to any particular registration number.

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from complaint

More allegedly infringing watches

The court ordered Sara to file a supplemental submission “clarifying the scope of the copyright application and grant covering the allegedly infringed watches.” The resulting declaration didn’t provide further evidence to show that the certificates of registration corresponded to the images of the various watches submitted with the complaint. For example, although Sara alleged that “the W03 All Chain Wrap Watch” was infringed, it didn’t submit a certificate of registration referencing any “W03” watch, nor did it allege a plausible basis for a determination that any of the certificates covered that watch. “The declaration proffers, without explanation, multiple and seemingly different watches as being covered by single certificates of registration, and refers to watch titles that differ from the titles in the certificates and the Complaint.” There was no plausible factual basis from which to infer that a valid copyright registration covered any of the specific watches shown in the screenshots.  The complaint was dismissed with leave to amend.

The trade dress claims were conclusory and insufficient.  The complaint failed to identify the “precise nature of the trade dress” allegedly at issuse, “and merely contains a high level description of features of several watches, such as ‘gradient chain,’ ‘lobster claw closure,’ and ‘leaf-shaped logo,’ without allegations as to whether and how those features are distinctive.” Sara also didn’t properly allege secondary meaning, merely “asserting in a conclusory manner” that Sara was “known primarily for its unique and famous Wrap Style Watches,” and that its trade dress was “widely recognized by consumers as being associated with Plaintiff and has developed secondary meaning in the marketplace.” The complaint didn’t plead facts about advertising expenditures, consumer surveys, marketing coverage or prior attempts to plagiarize Sara’s trade dress that would support a proper inference of secondary meaning.

State dilution claims require a plaintiff to show “(1) that it possesses a strong mark, one which has a distinctive quality or has acquired a secondary meaning such that the trade name has become so associated in the public’s mind with the plaintiff that it identifies goods sold by that entity as distinguished from goods sold by others, and (2) a likelihood of dilution by either blurring or tarnishment.” The allegedly infringing watches were marked with “NY & Co.” or “New York & Company” logos. If Sara ought to claim that the term “wrap style watch” or the appearance of its watches constituted protectable marks, it didn’t allege sufficient facts or legal theories to make infringement or dilution claims plausible.

Sara’s unjust enrichment claim was preempted by the Copyright Act, like the unfair competition claim to the extent that it was also based on misappropriation of copyright. The claims similar to the Lanham Act claim were dismissed for the reasons above, and for the additional reason that the complaint didn’t adequately allege bad faith. The deceptive practices/false advertising claims under GBL §§ 349-350 were dismissed for want of alleged facts supporting an inference of harm to the public interest or consumers outside of harm to Sara’s own products and its related property rights.