Friday, March 22, 2019

Amazon case shows profound difference between DMCA safe harbor & 230 immunity


Kangaroo Mfg. Inc. v. Amazon.com Inc., No. CV-17-01806-PHX-SPL, 2019 WL 1280945 (D. Ariz. Mar. 20, 2019)

The Amazon Chronicles often asks “what is Amazon?”  An interesting question to build a law school course around might be “what can Amazon do?”  Here, the DMCA doesn’t let it avoid an infringement claim on a motion to dismiss or partial summary judgment, suggesting that Eric Goldman has a point when he says the DMCA is useless in actual litigation, whereas §230 gets rid of other claims about Amazon’s alleged practice of merging counterfeit and legitimate listings for the same product.

Kangaroo sells emoji beach balls. On Amazon, third-party sellers create their own listing for a product that they plan to sell, including uploading their own images of the product, and set their own prices for the product.

Each product is identified with a universal product code (“UPC code”) and an Amazon Standard Identification Number, and each product also receives its own product detail page (“PDP”). Multiple sellers can list the same product for sale on the same PDP. However, only one seller may be awarded the “Buy Box” on a PDP, which makes the seller’s item the default for a customer’s purchase. When a seller signs up to sell products on the Defendant’s website, it agrees to the terms of the Amazon Services Business Solutions Agreement (the “BSA”) and the policies incorporated by the BSA.

Kangaroo alleged that Amazon, and third party sellers, sold unauthorized/counterfeit products in violation of Kangaroo’s trademark and copyright, including reselling some of the counterfeit product that it re-purchased from Kangaroo as reimbursement for unauthorized sales.

Amazon didn’t seek summary judgment on the trademark infringement claim or counterfeiting claim to the extent that Kangaroo alleged that Amazon itself sold the accused products.

Copyright infringement: Amazon argued that third parties uploaded the accused images and that it had a license to use Kangaroo’s images—the court doesn’t address the licensing argument.  For the DMCA, the court found genuine disputes “on when and whether the Defendant knew of the infringing material on its website and whether the Defendant took reasonable steps to quickly remove that content” because Kangaroo alleged that it filed several complaints, while Amazon stated that Kangaroo “never submitted an infringement report regarding the images used” for the emoji beach balls. [Can’t both of these be true? Kangaroo complained generally, which isn’t enough, but didn’t file a complaint about images?  This seems like a sloppy treatment of the evidence for summary judgment; the court is clearly annoyed that Amazon isn’t specific enough about when it’s seeking summary judgment and when dismissal in its papers.]  Further, Amazon contended that it removed infringing content “usually within days” of Kangaroo’s complaints, but Kangaroo disagreed.  [I don’t understand this.  Did Kangaroo submit evidence that content remained past “days”?  There are cases finding that a period of days is expeditious as a matter of law.]  Amazon also allegedly continued to use the protected images to sell counterfeit products after the notifications of infringement.  This created disputed issues of fact. 

Negligence: dismissed because of §230. The negligence allegedly stemmed from Amazon’s improper merger of the UPC code assigned to Kangaroo’s product with the code assigned to a competitor’s product. Amazon argued that any content listed on a PDP is provided by third-party sellers, but the court looked to Amazon’s contract, which made it clear that Amazon “had full control over the content displayed on its websites. The Defendant’s pleadings demonstrate that it took the responsibility of managing and cultivating the content provided to it. Therefore, the issue is not the content that was provided to the Defendant, but the Defendant’s alleged mismanagement of the content through conflating UPC codes in a manner that harmed the Plaintiff.”  Nonetheless, Amazon was acting as an interactive computer service under §230 when it took the challenged acts and was immune.

Unjust enrichment: unavailable because of the contract between the parties.

Unfair competition: not dismissed to the extent it was an infringement/counterfeiting claim. But dismissed to the extent it was based on allegations that Amazon harmed Kangaroo by earning fees related to sales made by unauthorized competitors and counterfeiters.

Thursday, March 21, 2019

failure to show damages from literal falsity still allowed injunctive relief


Nutrition Distribution LLC v. IronMag Labs, LLC, No. CV 15-8233-R, 2018 WL 6264986 (C.D. Cal. Nov. 16, 2018(

“This is a false advertising case between two competitors in the business of selling fitness supplements.” IronMag allegedly unlawfully marketed its products as “dietary supplements” and as having no side effects.” The accused products allegedly contain Ostarine, a type of Selective Androgen Receptor Modulator (SARM), deemed dangerous to human health by the FDA. ND sought an injunction and damages under the Lanham Act, California’s UCL, and California’s FAL.

The court granted summary judgment in IronMag’s favor on the money damages claims.  This was a noncomparative false advertising case, meaninig that actual evidence of some injury was essential to recover damages.  ND had no evidence of damages, and it also couldn’t recover profits without proof of harm, again because this wasn’t a comparative advertising or disparagement case, and it wasn’t a misappropriation case involving noncompeting goods (where disgorgement also might be appropriate to deter). “Rather, the parties are two of many competitors in an industry comprised of a broad range of products, and Plaintiff has provided no basis to infer that any profits made by Defendants would have otherwise gone to Plaintiff partially or in full…. The Lanham Act requires that damages awards be compensatory and not designed to punish. Because Plaintiff has offered no proof of actual injury, the Court has ‘no way to determine with any degree of certainty what award would be compensatory.’”

Nor was this an exceptional case for purposes of a fee award.

However, injunctive relief remained possible. It was literally false to claim that products with Ostarine have “basically non-existent” side effects.  No further evidence of a tendency to deceive was required; IronMag didn’t rebut the presumption of deception from literal falsity.  “Even without this presumption, common sense requires a finding that statements denying the existence of negative health effects in a fitness product have a tendency to deceive a substantial segment of interested consumers.”

Common sense also showed materiality.  [There is a lurking contradiction—not a split—in courts about this: some say that additional evidence is required, but I think the court here is right.  Often the content of the literal falsity itself can provide all the information required to find materiality.] “It can naturally be assumed that consumers of fitness supplements take into account the existence and extent of negative side effects when deciding whether to buy them and in comparing different products.”

Even without showing past injury, there was a likelihood of future injury if IronMag could keep selling Ostarine products with deceptive advertising. As the Ninth Circuit has said, “competitors vie for the same dollars from the same consumer group, and a misleading ad can upset their relative competitive positions.”  The injury was irreparable because of the presumption of deception.  “Monetary damages have not been awarded here and in any case would be inadequate to protect the public in the absence of an injunction due to the possibility of Defendants selling products in the future which may pose a risk to public health and safety.” An injunction would issue.

The result was the same under state law.  Monetary relief is allowed under the FAL “to restore to any person in interest any money or property, real or personal, which may have been acquired by means of such unfair competition.” This “allows awards of restitution, but not awards of non-restitutionary disgorgement,” which was all ND was seeking here.

survey isn't evidence of actual deception, court says in First Amendment case w/TM relevance


Express Oil Change, L.L.C v. Mississippi Board of Licensure for Professional Engineers & Surveyors, No. 18-60144 (5th Cir. Feb. 19, 2019)

Just as a matter of client advocacy, it is time for these First Amendment cases about the government’s near-inability to regulate based on the meaning of words to start being cited in run-of-the-mill trademark and false advertising cases.  I don’t think the results will be good policy, but at the very least we will see whether courts mean what they say, or instead mean “legislative and administrative entities shouldn’t get to regulate but it’s ok when private parties sue under the same theories.”  In particular, where trademark and false advertising treat “false and misleading” as the regulable category (albeit with different standards of proof for “misleadingness” in §43(a)(1)(B) cases than for falsity), First Amendment commercial speech law has for decades made a distinction between actually/inherently misleading speech and potentially misleading speech.  Here the Fifth Circuit applies that distinction to disregard a survey showing 55% deception—that’s just “potential”—and hold that, without actual consumer deception, only a disclaimer remedy is allowable.  (Among other things, the First Amendment doctrine has yet to engage with what we know in TM/advertising law about the ineffectiveness of disclosures and the range of responses among consumers—a few actually confused consumers out of millions don’t necessarily justify liability, especially where the challenged use provides useful information to other consumers.  The libertarian anti-statistical bent of this crop of judges may have additional implications for their reactions to those arguments in trademark and other First Amendment cases.)

Mississippi legally restricts the use of the term “engineer.” Express Oil Change operates several automotive service centers in Mississippi under the name “Tire Engineers.” In 2015, the Mississippi Board of Licensure for Professional Engineers & Surveyors determined that the name “Tire Engineers” violated the pertinent statutes and requested that Express cease using it.  Express sued for a declaratory judgment that its use was ok; the trial court ruled against it.

The district court found that “Tire Engineers” was inherently likely to deceive consumers that the services performed at Tire Engineers are performed by tire engineers or under the supervision of tire engineers.” The court accepted “substantial evidence” that “the term ‘tire engineers’ is used by courts, universities, tire manufacturers, tire manufacturers, general periodicals, specialized periodicals, and the general public to refer to actual engineers who have expertise in the manufacture, selection, and repair of tires.” A survey conducted by the Center for Research and Public Policy found that “[s]ixty-six percent of the respondents expected that Tire Engineers ‘has professional engineers on staff,’” and “[f]ifty-eight percent [of respondents] expected Tire Engineers to use engineers to service tires.” Additionally, the Board highlighted an Express advertisement claiming that “[a]ll of our Express Oil Change & Tire Engineers have tire engineers who are qualified to [service] . . . tires . . . .”  (Express discontinued use of “Tire Engineers have tire engineers” in 2017, but the court didn’t indicate that Express couldn’t bring the phrase back.)

“The party seeking to uphold a restriction on commercial speech carries the burden of justifying it.” This “burden is a ‘heavy’ one,” and may not be “satisfied ‘by mere speculation or conjecture.’” Commercial statements that are actually or inherently misleading aren’t protected by the First Amendment. “[A] statement is actually or inherently misleading when it deceives or is inherently likely to deceive.” Joe Conte Toyota, Inc. v. La. Motor Vehicle Comm’n, 24 F.3d 754, 756 (5th Cir. 1994). Statements that are only potentially misleading, however, are within the scope of the First Amendment, and their regulation is judged by Central Hudson (or, though the court doesn’t say so here, by Zauderer when the state’s remedy is requiring an additional disclosure).

Express argued that “[t]he term ‘engineer’ is commonly used to describe jobs and trades other than professional engineering” and pointed out that the Fifth Circuit had already rejected the “circular” reasoning that a term “is inherently misleading because it does not conform to [a state actor’s] definition . . . of the term.”  The court of appeals agreed with Express: “Because its essential character is not deceptive, Tire Engineers is not inherently misleading. The name, first trademarked in 1948, apparently refers to the work of mechanics using their skills ‘not usu[ally] considered to fall within the scope of engineering’ to solve ‘technical problems’ related to selecting, rotating, balancing, and aligning tires.”  “Engineer” “can mean many things in different contexts, and it is certainly not limited to those professionals licensed by Mississippi to practice engineering.”  Since it was not “devoid of intrinsic meaning,” it wasn’t inherently misleading.  [That formulation, though derived from earlier cases, seems particularly unhelpful here. Even if we think that non-onomotopoeiac words had “intrinsic” meaning, that meaning would seem determine whether a use was inherently misleading—is the use consistent with its meaning, or contradictory?  Words without intrinsic meaning, by contrast, would seem more readily non-false/non-misleading, as we hold in puffery cases.]

Lanham Act lawyers, pay attention: The court thought that the survey cut both ways, given that it asked: “The company ‘Tire Engineers’ advertises that it has ‘qualified personnel’ to repair tires. As a result of this advertising how strongly do you expect the following[:] . . . That the company, Tire Engineers, is performing engineering services.” “Just over one-half of all respondents with an opinion, [fifty-five percent], suggested they believed a company that uses the name ‘Tire Engineers’ performs engineering services for tires,” but nearly 45% percent of respondents stated that they did not share this belief or were unsure. “While this suggests that the name is potentially misleading, it also suggests that the name is not inherently—that is, its essential character is not—misleading.”  If 55% deception isn’t enough for actual/inherent deceptiveness, then no survey will be. 

In addition, the district court failed to account for the way the Tire Engineers mark is used: “on the company’s website, which describes its automotive services (not any professional engineering services), and at its retail stores, which appear like any other store that performs automotive services . . . .”

The district court separately determined that “Tire Engineers” was actually misleading, based on a phone poll commissioned by the Board, which found that “[a]lmost half of the respondents (47.8%) believed that a company [using] the name ‘Tire Engineers’ performs engineering services for tires.” This wasn’t evidence that any actual consumer had been misled, which is required for “actual” misleadingness.  But the court of appeals decided that Supreme Court and circuit precedent required “evidence of deception” to find actual misleadingness, even though none of those cases actually addressed whether survey evidence could be “evidence of [actual] deception.”  [I am even more convinced after this case that the rejection of probabalistic evidence is a core aspect of today’s conservative jurisprudence, which conveniently allows the rejection of all kinds of regulation/legislation that is based on probabalistic calculations.]

The district court wasn’t wrong that the name was potentially misleading, but its remedy—the ban on the use of “engineers”—flunked Central Hudson because it was more extensive than necessary.  Express wanted at most “a simple point-of-sale disclaimer that ‘Tire Engineers does not employ professionally-licensed engineers or provide engineering services.’” [Express has no worries about initial interest confusion/bait and switch, apparently.]  The court of appeals didn’t rule on what kind of disclaimer would be sufficiently tailored, but the Board needed to consider less restrictive means such as a disclaimer.

Because of all this, the court of appeals didn’t reach whether INS v. Sorrell trumped Central Hudson.

Star Trekkin' across the universe of fair use


I like Star Trek better than Dr. Seuss, ok?

Dr. Seuss Enters., L.P. v. ComicMix LLC, No. 16-CV-2779 JLS (BGS) (S.D. Cal. Mar. 12, 2019)

DSE owns the copyrights to the works of Theodor S. Geisel, better known as Dr. Seuss. It licenses additional works under the Dr. Seuss brand, including Oh, the Things You Can Do That Are Good For You!; Oh, the Pets You Can Get!; Oh, Baby! Go, Baby!; Oh, the Places I’ll Go! By ME, Myself; Oh, Baby, the Places You’ll Go!; and Oh, the Places I’ve Been! Journal. Seuss’s Oh, the Places You’ll Go! is a very popular gift for graduates, is DSE’s best-selling book, and is the perennial number one selling book on The New York Times Best Sellers list each spring during graduation season.  DSE also extensively licenses other entertainment products and merchandise, including “The Wubbulous World of Dr. Seuss, a television and book series with The Jim Henson Company that featured ‘muppetized’ Dr. Seuss characters; Grinch Panda Pop, a digital game that combines Jam City’s Panda character with the Grinch character; Dr. Seuss Funko figurines, which combine Funko Inc.’s distinctive toy designs with Dr. Seuss characters; and a line of Comme des Garçons clothing combining Comme des Garçons’ well-known heart design with Grinch artwork.”

David Gerrold has written Star Trek episodes (including some of the most beloved), and suggested to defendant Hauman that, “if we could get a license, we should do a Star Trek Primer.” The original idea was to combine Star Trek themes with Pat the Bunny, “although they also considered using Fun with Dick & Jane, Goodnight Moon, and The Very Hungry Caterpillar, before finally settling on Go!” Hauman invited defendant Templeton to join the project: “this would be Seuss-style [(Star Trek: The Original Series)] backgrounds,” and that “we’re going to want the cover and at least a background art piece for promotions, as well as be able to use the cover for posters, mugs, and all the merchandise that will push this thing over the top.” Templeton responded, “Holy CRAP that’s a cool idea. The title is like printing money. I’m totally in.” Each of the three testified that they considered Boldly a parody, a mash-up, and a transformative work.  

Hauman scanned a copy of Go! because he wanted to “parallel [Go!] as close as [he] c[ould]” Although Gerrold wrote his first draft “from scratch” and without access to Go!, he later rewrote the text to more closely match Go! Hauman created a side-by-side comparison of the text, to assist in their effort “to parallel the structure of [Go!].” Templeton’s illustration of one page took him about seven hours because he “painstakingly attempted to make” his illustration “nearly identical” in certain respects to one illustrated by Dr. Seuss.  He testified that this was “essential to the parody . . . that people recognize the source material in poses since they WON’T be seeing the Grinch or the Whos or the Gox” or any other character from Dr. Seuss, and Templeton was therefore “concerned if we try to completely ignore everything about the source material the gags fall apart.”

Defendants included two disclaimers on the copyright page of the unpublished draft. The first read: “This is a work of fair use, and is not associated with or endorsed by CBS Studio or Dr. Seuss Enterprises, L.P.” Id. The second stated, “Copyright Disclaimer under section 107 of the Copyright Act 1976, allowance is made for ‘fair use’ for purposes such as criticism, comment, news reporting, teaching, scholarship, education, research, and parody.”

Along with working on a deal with ThinkGeek to distribute the book, defendants launched a Kickstarter for Boldly. The “Risks and Challenges” section included: “While we firmly believe that our parody, created with love and affection, fully falls within the boundary of fair use, there may be some people who believe that this might be in violation of their intellectual property rights. And we may have to spend time and money proving it to people in black robes. And we may even lose that.” They raised nearly $30,000.

An editor at publisher Andrews McMeel Publishing (AMP) saw the Kickstarter page, reached out to defendants, and subsequently presented a proposal to AMP’s Acquisitions Committee for publishing Boldly, describing the intended audience as “Graduates and parents of graduates (college, high school, 8th grade); fans of Star Trek; fans of Dr. Seuss.” AMP’s VP of Sales advised seeking “an on-sale date” that would allow them to “try and capture some grad biz.”

After the lawsuit begain, Gerrold suggested that re-drawing the illustrations could be a “way out” of the litigation and Templeton offered to revise the artwork to follow Go! less closely. Later, ThinkGeek contacted Hauman for an update, as it would “LOVE to be able to offer [Boldly] for Graduation.” Mr. Hauman replied, “I would LOVE to offer it to you, but the lawsuit grinds on.” Boldly remained unpublished.

Previous rulings in the case held that Boldly was transformative, but DSE urged the court to reconsider in light of Oracle America, Inc. v. Google LLC, 886 F.3d 1179 (Fed. Cir. 2018), which held that Google’s use of Oracle’s Java program was not transformative, despite the fact that Google only used 37 of the 166 Java SE API packages and created its own implementing code. But Google copied those 37 packages wholesale, while in Boldly “the copied elements are always interspersed with original writing and illustrations that transform Go!’s pages into repurposed, Star-Trek-centric ones.”  There was no verbatim copying of text or illustrations; the borrowed elements were always adapted or transformed. This was highly transformative. Nor did Boldly have “the same intrinsic purpose and function as Go!,” i.e., “providing an illustrated book, with the same uplifting message that would appeal to graduating high school and college seniors.” DSE holds no monopoly over an illustrated book with an uplifting message, and defendants’ is tailored to fans of Star Trek’s Original Series. As to good/bad faith, discussing the necessity of a license and determining that Boldly was a “fair use parody” without seeking the advice of counsel isn’t bad faith. Even if it’s a derivative work under §101, it can still be a fair use, since all the §106 rights—including the right to create/authorize derivative works—are limited by §107.

Nature of the work: weighs only slightly in DSE’s favor because Go! is creative but long and widely published.

Amount used: though “there is no dispute that Boldly copies many aspects of Go!’s and other Dr. Seuss illustrations[,] . . . Boldly does not copy them in their entirety[,]” but rather “infuse[s each] with new meaning and additional illustrations that reframe Seuss images from a unique Star-Trek viewpoint.” Nor did Boldly “copy more than is necessary to accomplish its transformative purpose.” DSE pointed to defendants’ emails weighing the possibility of creating “whole new artwork, not specifically based on any individual drawing by Seuss, but close enough to his style to match the text” as evidence that Defendants “could have taken far less from Go! to create a ‘mash-up.’”  The court disagreed. It’s always possible to argue that an infringement defendant could have used less.  Here, defendants sought to “mash up” the Star Trek original series with Go! in particular, rather than “Dr. Seuss” in general.

The court found Leibovitz v. Paramount Pictures Corp., 137 F.3d 109 (2d Cir. 1998), analogous. That case cautioned that, “[i]n assessing the amount and substantiality of the portion used, [the court] must focus only on the protected elements of the original.” For the cover of each work, for example, DSE could claim copyright protection in “the unique, rainbow-colored rings and tower,” but not “any disc-shaped item tilted at a particular angle.”  And on Boldly’s cover, “Defendants drew a similarly-shaped but decidedly non- Seussian spacecraft—the USS Enterprise—at the same angle and placed a red-and-pink striped planet where the larger of two background discs appears on the original cover.” Boldly’s cover also features a figure whose arms and hands are posed similarly to those of Go!’s narrator “and who sports a similar nose and eyes, but Boldly’s narrator has clearly been replaced by Captain Kirk, with his light, combed-over hair and gold shirt with black trim, dark trousers, and boots.” Captain Kirk was not the unnamed “boy” protagonist of Go! “Finally, instead of a Seussian landscape, Boldly’s cover is appropriately set in space, prominently featuring stars and planets.” To sum up, “portions of the old work are incorporated into the new work but emerge imbued with a different character.” Indeed, defendants here took less from DSE both quantitatively and qualitatively than Paramount did in Liebovitz, which “incorporated nearly the entirety of the plaintiff’s photograph, except for superimposing a different face onto the body.” Here, defendants took only “discrete elements”: “cross-hatching, object placements, certain distinctive facial features, lines written in anapestic tetrameter.” Those are indeed significant, but defendants didn’t use Dr. Seuss’ words, his character, or his universe. This was no more than necessary for their purposes: a “mash-up” of Go! and Star Trek.

Market effect: where a work is highly transformative, market harm could not be presumed, and it hadn’t been shown. DSE didn’t meet its burden by showing that it licensed a lot of other stuff and arguing that if mash-ups were okay, “the entire market for authorized collaborative works would be threatened.” Instead, the “potential harm to [Plaintiff]’s market remains hypothetical.” The court found that Boldly didn’t substitute for the original and served a different market function than Go!, targeting “consumers who have already read and greatly appreciated Go! and Dr. Seuss’s other works, and who simultaneously have a strong working knowledge of the Star Trek series.” Although Boldly was supposed to be “safe” for kids, it wasn’t targeted at them. It still “touches on more adult subjects, including ‘lovers . . . [who]’ll never be back for an episode two.’ Even the illustrations are imbued with sexual innuendo, with one page depicting a number of women (and possibly one man) with whom Captain Kirk has slept,” showing him pulling on his boots as a signifier of post-coital status.  As Gerrold testified, Boldly was intended “for adults who are familiar with all the episodes [of Star Trek]” and “would not work for kids who have not seen the episode[s].”

Go!’s graduation and derivative markets were a closer question, but DSE still introduced no evidence that graduation substitution purchases were likely. And these defendants clearly intended to market Boldly to fans of Star Trek. “Although it is certainly conceivable that some would-be purchasers of Go! would instead purchase Boldly for a Trekkie graduate, there is a dearth of evidence or expert testimony permitting the Court to extrapolate the likely effect—if any—that Boldly may have on Plaintiff’s sales of Go!”

So too with DSE’s derivative market. There was no evidence tending to show that it would lose licensing opportunities or revenues as a result of publication of Boldly or similar transformative works. DSE’s argument “risks circular reasoning,” in that “it is a given in every fair use case that plaintiff suffers a loss of a potential market if that potential is defined as the theoretical market for licensing the very use at bar.” DSE’s proprietary “Style Guide” supported defendants’ argument that Boldly was not part of a traditional or likely to develop argument. DSE instructs its licensees not to show characters with items “not from [the Seuss] world” and not to “use Seuss characters with third party’s characters.” Licensees are also not supposed to “make up Seuss-like rhymes.” Boldly broke those rules, e.g., “Your big ship will take you to alien skies. / It’s the best that we’ve got for your great enterprise.” Licensing derivative works doesn’t allow a copyright owner to squelch transformative ones.

On balance, this was a fair use, and defendants won summary judgment on the copyright claims.

Surviving trademark claims: the court previously kicked out claims based on Boldly’s title, but did not rule on defendants’ alleged misappropriation of “the stylized font that [Plaintiff] uses consistently throughout the Dr. Seuss books” and “Dr. Seuss’s unique illustration style.” The court determined that these were not protectable elements under trademark law.  DSE’s survey purported to show that “24% of consumers are confused as to origin [of Boldly] because Defendants deliberately used [Plaintiff’s distinctive illustration style and font].” But “[c]ourts have almost uniformly said no” trademark protection exists for an artistic style.  [Citing McCarthy; a see also for Dastar.]  This is copyright’s job.

Typeface: As Jacqueline Lipton explains, “a typeface is the artistic creation of a typeface designer, while a font is the result of an industrial process to enable the reproduction of typefaces in the printing process.” Jacqueline D. Lipton, To (c) or Not to (c)? Copyright and Innovation in the Digital Typeface Industry, 43 U.C. Davis L. Rev. 143, 148 (2009) (footnote omitted). A typeface is no more susceptible of trademark protection than a general style. “Although The New Yorker may trademark the name of the typeface or its mark in that stylized typeface, see THE NEW YORKER, Registration No. 0844606, it cannot trademark (or copyright, see 37 C.F.R. §§ 202.1(a), (e)) the typeface itself.”  It couldn’t, therefore, turn to trademark to protect against another’s use of its typefaces, even if there was de facto secondary meaning.  The court was bolstered in its conclusion by evidence that “Boldly does not use th[e] ‘Seuss font[s]’” DSE urges licenses to use in its Style Guide.  [This isn’t fully played out in the opinion, but the reason that defendants’ use of a different typeface matters is that trademark protection in a style or typeface would be essentially boundless—as long as confusion was allegedly likely, people could be sued for getting too close in their own expressive works.]

Previously, the court had first concluded that defendants hadn’t made a nominative use because they’d taken too much of the Go! trade dress in lettering the titles, including the shape of the exclamation point. But on review of Twentieth Century Fox Television v. Empire Distributions, Inc., 875 F.3d 1192 (9th Cir. 2017), it then found that “the title of Boldly . . . is relevant to its own content” and didn’t explicitly mislead as to source. Now, it reasoned that use of Seussian typefaces, not in conjunction with an enforceable mark, couldn’t support a claim for violation of the Lanham Act or California’s UCL. It therefore didn’t need to address defendants’ Rogers argument.

Bonus: here's John Oliver's Oh! parody from his recent segment on online shaming:


Wednesday, March 20, 2019

court, while uncomfy with some Amazon techniques, declines to grant PI


Comphy Co. v. Amazon.com, Inc., NO. C18-1460RSM (W.D. Wash. Mar. 12, 2019)

The Comphy Company markets itself as a luxury company, historically supplying its linens to luxury spas. Ultimately, Plaintiff decided to start retailing its products online through its own website, though it doesn’t market directly to customers and instead relies upon word of mouth and first-hand exposure at hotels, spas, and bed and breakfasts utilizing its products.

Amazon solicited Comphy several times to sell its products on Amazon’s platforms, but Comphy declined based on its luxury strategy. Nonetheless, Amazon bought keyword advertising utilizing keywords including COMPHY from several search engines, resulting in ads for, e.g., “Comfy Sheets Queen”; “Shop Comfy Sheets” “Comphy Co Sheets”; and “Comphy Company Sheets at Amazon.” Likewise, if consumers use Amazon’s own-site search and start typing “comph,” Amazon’s search bar provides possible searches including for “comphy sheets,” “comphy company sheets,” and “comphysheets” along with seven other unrelated possible searches. Because Comphy’s products are not available through Amazon, a search for “comphy sheets” provides products similar to Plaintiff’s products, including bedding offered for sale by “Comfy.” On one product advertised in response to a search for “comphy sheets,” Amazon prominently displayed “Amazon’s Choice for ‘comphy sheets,’” though Amazon represented that it had stopped doing that specifically (but didn’t agree to an injunction requiring that cessation).

Comphy projected a significant increase in its online sales in 2018 but hadn’t met that growth rate. It requested an injunction against Amazon’s allowing third parties’ unauthorized use of COMPHY or highly similar terms such as COMFY to promote bedding, sheets, pillows and related products; selling merchandise under the COMPHY COMPANY, COMPHY SHEETS or COMFY SHEETS storefront in connection with those products; using “Comphy Company Sheets”, “Comphy” (either alone or with other words), or “Comfy” applied to allegedly infringing products (either alone or with other words) to display “infringing and unlabeled third-party sheets”; autosuggesting searches for “Comphy”, “Comphy Sheets”, “Comphy Company” and “Comfy Sheets” when users begin to type the first few letters; using “Comphy” on product search result pages in phrases like “Amazon’s Choice for Comphy Sheets”; and using COMPHY or COMFY SHEETS as keywords with online advertising networks. The breadth of Comphy’s claims and its failure to segregate particularly disturbing uses from the other behavior it challenged doomed its request for injunctive relief.

Comphy’s failure to disaggregate Amazon’s uses made it unlikely to succeed on the merits overall.

First, it wasn’t clear whether or to what extent Comphy had a valid mark in “Comphy” alone. Its registrations were for stylized versions of its name. The presumptive validity of the registration was rebutted for these purposes because, first, the registration was for goods other than those at issue here, specifically: “Linens and bedding for health spas, namely, towels, pads in the nature of bed pads, mattress pads and table pads, sheets, duvets, comforters, pillow cases, pillow shams, and table skirts.” That didn’t cover the consumer bedding at issue here; Amazon wasn’t alleged to infringe on the spa market. Second, the registration didn’t cover the “bare” word mark, which matters because “comphy” is a mere misspelling of the descriptive-for-linens term “comfy.” Comphy itself testified that it consistently used the design/logo.


The registered marks

Comphy didn’t succeed in establishing rights in “comphy” as a text mark. Plaintiff may not “remove a common descriptive word from the public domain by investing his goods with an additional quality, thus gaining the exclusive right to call his wine ‘rose,’ his whisky ‘blended,’ or his bread ‘white.’” “Similarly, Plaintiff does not have the exclusive right to call its goods ‘comfy.’” Comphy didn’t establish commercial strength; it argued that it was the “brand standard” for luxury hotels, spas, and bed and breakfasts and that it has “expended extensive sums annually since 2003 on advertising to promote its Comphy brand and branded products, via trade shows and other advertising and marketing in industry publications targeting bed and breakfasts.” But that all involved use of the stylized “C” mark, “which lends distinctiveness to the mark.” Nor did strength in the luxury spa market indicate strength in the consumer retail market, especially since Comphy doesn’t market to consumers but relies on personal exposure and word of mouth.

Nor was Amazon’s use clearly confusingly similar. Whether the use was confusingly similar depended, in part, on the strength of the mark. Network Automation thought that having an inherently distinctive mark could lead to an inference that a consumer who uses the mark is searching only for that particular source (an assumption that is itself often unwarranted), but that reasoning didn’t apply here. Amazon argued that COMPHY is a common misspelling of “comfy”: within Amazon reviews, COMPHY is used in reference to bedding only 9% of the time and used in reference to Comphy’s goods only slightly more than 1% of the time. The court agreed that use of “comphy” as a search term didn’t necessarily indicate an intent to search for Comphy’s products, even when it was used in reference to bedding. Amazon’s survey also determined that 13% of consumers regarded COMPHY as referring to a particular source for bedding, but that more than 12% of those consumers also regarded “comfort”—a non-existent control—as also referring to a particular source for bedding. [Clever control, since there are “comfort + other word” marks out there.]

Proximity of goods and similarity of marks did weigh in Comphy’s favor. In a footnote, the court indicated that its analysis might differ “profoundly” if Comphy had focused only on Amazon’s search engine ads for “Comphy Co Sheets” at Amazon, which makes sense to me, or on Amazon’s use of the search term “comphy sheets” within its own website to offer consumers “comfy” brand sheets or other sheets marketed as comfy or comfortable, which as stated doesn’t—if the sheets are plausibly comfy, then descriptive use should be just fine. (Though admittedly that isn’t easy to show in the Ninth Circuit, given its defiance of the Supreme Court’s view in KP Permanent.) Anyway, Comphy “elected to lump the contexts and uses together, and the Court declines the invitation to scour the limited record to craft a legally defensible injunction.” In particular, only uses of “comphy” by an Amazon customer who perceived that word as a mark but who confusedly bought “comfy” sheets instead would involve confusion; other scenarios involved no confusion at all, or at most diversion. “And, the Court can only determine whether a customer knows of Plaintiff’s sheets based upon the strength of the mark.”

There was evidence of actual confusion, including Amazon reviews referring to Comphy and a declaration from an Amazon consumer who intended to purchase Comphy sheets, bought “Comfy Sheets” on Amazon, realized his mistake when the sheets arrived, and returned the Comfy Sheets. The court found the evidence of actual confusion “often compelling,” but this was only a small percentage, and Amazon pointed out that people who pick descriptive terms invite a certain amount of confusion. “The Court agrees that some actual confusion may exist even if a reasonably prudent consumer would not be confused.”

Marketing channels: favored Comphy. Degree of care: Comphy’s self-positioning as a luxury company meant its consumers weren’t “wholly unsophisticated”; neutral.

Amazon’s intent: Amazon’s prior solicitation of Comphy’s business didn’t indicate a bad intent; there was no evidence that the prior business inquiries were related to Amazon’s current actions. Intent was “essentially neutral.”

Balancing the factors, there wasn’t a likelihood of success on the merits.

Separately, Comphy didn’t show irreparable harm. Sales growth short of Comphy’s ambitions wasn’t irreparable harm, nor did Comphy adequately tie its lower-than-desired rate of increase to Amazon’s actions. Nor would money damages be inadequate to remedy this “mainly financial” harm.

Lost control over reputation: “misuse of a trademark no longer results in a presumption of irreparable harm.” Comphy showed evidence of consumer confusion and dissatisfaction, but dissatisfaction with Amazon’s offerings in the absence of confusion wasn’t relevant. Only if dissatisfaction were attributed to Comphy would there be harm to its brand, and there wasn’t evidence of that. Nor did Comphy explain why final remedies wouldn’t be adequate. “Indeed, this case appears quite distinct from prior cases where interaction with confused consumers cannot be remedied because those consumers are unknown to the parties. Here, there seems to be a much higher chance that, if liable, Defendant could contact almost every purchaser of the allegedly inferior products and seek to repair any damage that may have been done to Plaintiff’s brand.”

In conclusion, the court suggested that Amazon was very close to (and perhaps even over) the legal line in some of its acts (“Comphy Co.” in keyword-triggered ad text!), but still declined to grant relief on this record.

Apple's misleading use of "episode" to describe promo clips could lead to liability (w/o its contract)


Zaragoza v. Apple Inc., 2019 WL 1171161, No. 18-cv-06139-PJH (N.D. Cal. Mar. 13, 2019)

Plaintiffs sued Apple for how it sells TV seasons on its iTunes store. The home page for each season “provides general information about the season and three purchasing options,” which include buying individual episodes, buying an existing full season, and buying all current and future episodes of an as-yet-to-be-completed season (Season Pass). Apple represents the number of “Episodes” available in a season on each season’s home page, with individual video clips in a horizontally scrolling list along the bottom, with cost information and text along with a thumbnail image.


Plaintiffs alleged that Apple delivers fewer than the advertised number of episodes with its “Buy Season” or “Season Pass” options, because Apple counts both promotional videos and what consumers allegedly understand the word “episode” to mean—plot-based episodes of a television show—in its advertised number of episodes. Plaintiffs thus received fewer episodes than they believed they were purchasing, and also received a smaller discount by buying the entire season than they believed they were getting compared to buying individual episodes. For example, plaintiff Zaragoza purchased a season of “Genius: Edison” that advertised “13 Episodes” at the time of purchase, but only six of those 13 were plot-based episodes, and seven were promotional videos. By season’s end, Zaragoza received only four more plot-based episodes and iTunes was advertising “22 Episodes,” which included ten plot-based episodes and 12 promotional videos. Likewise, iTunes ultimately advertised “17 Episodes” for the first season of “Killing Eve,” but only eight of those videos were actually “episodes,” as plaintiffs allegedly understood the term.

Each “episode” can also be selected, which then presents more detail about it, including a title, the “episode number,” the length of the video clip, its individual price, and a written description.

Apple argued that plaintiffs’ interpretation of “episode” was implausible and that a reasonable consumer had to understand that “episode” includes advertisements, trailers, promotional videos, and other videos that are not part of the show’s narrative. Apple contended that its scrollable list of videos appearing immediately below the word “Episode” provided context that necessarily dispels any belief to the contrary.

This was not the “rare situation” where plaintiffs’ alleged understanding of the word “Episodes” was implausible as a matter of law. “It is plausible that consumers understand the word ‘Episode’—particularly in the context of a description of a season of a television series—to mean an episode that is part of the television show’s season, and not a commercial for the show or another type of promotional or behind-the-scenes video. Reviewing the word’s definition in readily-available dictionaries confirms that plaintiffs’ alleged understanding could be found reasonable by a trier of fact.” [Notably, those dictionary definitions didn’t suggest that Apple’s interpretation was also reasonable.] Though context does matter, the court wasn’t willing to hold that, as a matter of law, a reasonable consumer must scroll through the list of videos in sufficient detail to view the curative information. Moreover, there was a factual issue about what consumers of the Season Pass feature would be able to view in the list of videos when making their purchases. “The Apple TV appears to make no representation about how many future episodes there will be, but rather reports only on the total number of video clips associated with a show’s season at the time the consumer views that season’s home page.” If it said there were 10 episodes at the time of purchase and there were 5 narrative episodes and 5 promo videos at the time, a reasonable consumer might expect that 10 episodes was the total number of narrative episodes in the season. Moreover, there were factual questions “concerning how much a consumer would have to investigate into the Apple TV menu structures to be exposed to much of the allegedly-curative information Apple describes.”

Apple also argued that it didn’t sell “goods or services” within the meaning of the CLRA, but only licenses to view content. The CLRA definitions say “(a) “Goods” means tangible chattels bought or leased for use primarily for personal, family, or household purposes, ... (b) “Services” means work, labor, and services for other than a commercial or business use….” And it provides that it “shall be liberally construed and applied to promote its underlying purposes, which are to protect consumers against unfair and deceptive business practices and to provide efficient and economical procedures to secure such protection.” The complaint alleged that the “Season Pass” was a service, including a promise to offer current and future episodes for viewing on an ongoing basis as the season progresses. The court refused to take judicial notice of the alleged contract between the parties. Though these purchases weren’t “tangible chattels,” plaintiffs plausibly alleged a purchase of services and there was at least a factual dispute. [We call VOD a service, even if it inherently involves “licenses” as well.]

Warranty claims survived for similar reasons, though the California U.C.C. applies only to contracts for the sale of “goods.” Unlike under the CLRA, goods are “all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale[.]” Courts look to the “essence of the agreement” and “have generally found that ‘mass-produced, standardized, or generally available software, even with modifications and ancillary services included in the agreement, is a good that is covered by the UCC.’ ” Plaintiffs adequately alleged that the essence of the agreement concerned the sale of the episodes. (See also the “Buy Now” button and this very helpful article by Aaron Perzanowski & Chris Jay Hoofnagle.) “Episode” could be an affirmation of fact or promise relating to the goods sold and therefore a warranty.

Lanham Act claim based on patent threats fails even with invalidation of the patent


American Fireglass v. Moderustic, Inc., --- F.Supp.3d ----, 2019 WL 1227963, No. 15-CV-2866 JLS (BGS) (S.D. Cal. Mar. 15, 2019)

The parties compete in the market for pieces of broken tempered glass for use in fireplaces and fire pits (Moderustic also sells “fireglass” for use in aquariums), where it apparently gives an appealing visual effect (fire on ice). Moderustic obtained a patent for a method of creating tumbled tempered glass and began contacting American Fireglass, its dealers, and other glass sellers alleging infringement. In a newspaper article, its principal stated that “he hopes to shut down competition and bring his annual sales up.”

American Fireglass originally tumbled many of its products, but by November 2014 it had completely “stopped tumbling the tempered glass fragments that it sold because tumbling slowed production and caused the glass fragments to become scratched and dull and less desirable.” It “began removing references to tumbling its fireglass from its advertising and promotional material, including its web site.” However, it “mistakenly overlooked some products that appeared on its website” but “removed these remaining references to tumbling ... immediately after it was brought to [Plaintiff’s] attention in August 2016.”

American Fireglass sued Moderustic to invalidate the patent and for its patent-related threats; Moderustic counterclaimed for false advertising about tumbling. The court invalidated the Moderustic patent as obvious. Its remaining counterclaim, false advertising, survived summary judgment because the claims on the website were literally false as to some products, and there is no “de minimis damage” exception to the Lanham Act. [The real issue here sounds like it might be materiality.] “[A]n inability to show actual damages does not alone preclude [ ] recovery” under the Lanham Act, but the real issue was American Fireglass’s lack of evidence on lack of harm.

Moderustic sought summary judgment on the patent-based Lanham Act/UCL claims. In the Ninth Circuit, “where Lanham Act claims ... are based on a defendant’s representation that someone infringed his patent, plaintiff must show that defendant’s representation was made in bad faith.” Moderustic’s statements in letters that it had been issued patents covering its methods weren’t literally false—it had an issued patent at the time, and while the PTO had rejected a different patent, “it was technically being reconsidered by the Federal Circuit at that time the letters were sent” and the letter clearly indicated its status. Thus, no reasonable jury could find the statements misleading, especially since the second patent was duplicative of the first.

Nor was there evidence of bad faith. “Without a showing that Defendant had some malicious intent, rather than simply asserting its rights as the patentholder, the Court cannot find bad faith present here.” The same result obtained under California’s UCL.

commercial speech requirement defeats Lanham Act claim against competing news channel


Tang v. Guo, No. 17 Civ. 9031 (JFK), 2019 WL 1207859 (S.D.N.Y. Mar. 14, 2019)

Plaintiff Tang is a political activist, author, and “one of the leading Chinese political dissidents.” He currently runs two pro-democracy nonprofit organizations and co-founded the online, independent media outlet “Conscience Media,” which are supported with donations. Tang also “conducts and host[s] conferences and fundraising events.”

In early to mid-2017, defendant Kwok, “a Chinese multi-billionaire and real estate mogul,” began to market a YouTube series, “Everything Is Just Beginning.” Tang alleged that the real purpose of “Everything Is Just Beginning” “was to compete with Mr. Tang personally and socially, as well as professionally, in the online media business.” Kwok allegedly “began to contact Tang’s potential donors” to dissuade them “from doing business with or contributing to ... Tang or his online media outlet, Conscience Media.” Kwok also began posting “taunting material and defamatory statements” about Tang and his wife Jing on YouTube and Twitter, accusing them of being spies and accusing Tang of defrauding donors and of being a “swindler” and convicted rapist. As a result, many individuals allegedly cancelled their upcoming trips to Tang’s Democratic Revolutionary Conference and Tang lost donors to his organizations and website.

Tang sued for violation of the Lanham Act and brought various state law claims for slander, tortious interference, and the like. The court dismissed the Lanham Act claim for want of commercial speech, and declined to retain jurisdiction over the pendent state claims.

Tang argued that Kwok’s web postings were commercial speech because he made them to divert viewers and donors from Tang’s media platform to “Everything Is Just Beginning.” In addition, Kwok allegedly presented links to his real estate properties alongside his videos. The court found that Tang failed to adequately allege economic motivation from his communications on YouTube, Twitter, and to individual donors. Though Kwok allegedly sought to gain viewers, they didn’t allege that he intended to profit from that increase by, for example, ad revenue or donations. As to links to Kwok’s Chinese properties, there were no allegations that Kwok’s communications were made with the intent of gaining potential customers to his real estate ventures. As the court noted, the subject matter of the videos didn’t relate to Kwok’s hotel business.

Tuesday, March 19, 2019

Expedia's "sold out" labels and diversionary phone numbers for hotels lead to class certification


Buckeye Tree Lodge & Sequoia Village Inn, LLC v. Expedia, Inc., No. 16-cv-04721-VC, 2019 WL 1170489 (N.D. Cal. Mar. 13, 2019)

Really interesting false advertising class action, with a smaller-than-plaintiffs-wanted class of hotels certified against Expedia, which offers hotel bookings on its websites. The plaintiffs own hotels that are not available through Expedia. Apparently, the information of a hotel that hasn’t contracted with Expedia sometimes “finds its way onto one of the numerous websites Expedia operates, including Expedia.com, Hotels.com, Orbitz.com, and Travelocity.com.”  When customers search for their hotels on Google or within one of Expedia’s websites, Expedia allegedly falsely suggests that these hotels can generally be booked on the websites, but that they are “sold out” for the period that the customer wants to book them. Expedia then allegedly steers customers to similar hotels that are, in fact, available on its websites.  I’m interested in what Eric Goldman will think—he generally doesn’t like holding websites liable for design features, but “sold out” sure seems likely to mislead consumers. The Lanham Act is strict liability, and it may make sense to require advertisers to bear the costs of mistakes like this one--as this case indicates, they lack nonlegal incentives to fix the problem on their own.

An ad on Google may offer a customer the chance to book a room at the searched hotel through Expedia’s websites. When the customer clicks on the ad and navigates to the “infosite” page for that hotel on Expedia’s sites, they will see a picture of the hotel, a map of where it’s located, a star rating, and details about the property’s amenities, like parking, wifi, and breakfast. Sounds pretty standard for a website that can provide bookings, but … “Next to the hotel’s name and information, the website will communicate some variation of the message: ‘We are sold out.’” The same basic thing happens to a customer who starts searching on an Expedia site and picks a specific not-carried hotel from the list of search results.

Expedia also lists a phone number with each hotel, both on the infosite and search results pages. But “[t]he numbers simply connect to the Expedia call center,” and call center employees are trained on how to handle “customers [who] think they are calling the hotel directly,” “[b]ecause ... the placement of our phone numbers within the hotel search results or on the hotel details page of the website[ leads] some customers [to] think they are calling the hotel directly.” The employees are instructed to encourage callers to book at hotels that have booking agreements with Expedia.  (Okay, even I think an initial interest confusion claim passes the laugh test here.)

For named plaintiff Buckeye Tree Lodge, from January 2015 through August 2016, 149 people landed on the Buckeye infosite page on Expedia; four of those people subsequently made a reservation with another hotel during the same visit to the website.  Only one of the named plaintiffs was able to get itself removed from Expedia before joining the lawsuit; the others weren’t until they sued/joined the suit.

To certify a Rule 23(b)(2) class to pursue injunctive relief, the plaintiffs needed to show standing, including a likelihood of future injury for the class. Expedia argued that the named plaintiffs lacked standing because they weren’t listed on the websites anymore. But defendants can’t “rob a court of jurisdiction by taking strategic unilateral action to moot a plaintiff’s claims before the plaintiff has had the opportunity to seek class certification.” Expedia’s reform wasn’t “genuine, irrefutably demonstrated, and comprehensive”: there was no evidence that it had “made a meaningful attempt to ensure that its website will stop suggesting that hotels it cannot book are sold out.” Indeed, the court thought that the named plaintiffs themselves could end up on Expedia’s websites again because Expedia hadn’t taken measures to stop that.

Rule 23(a)’s numerosity, commonality, typicality, and adequacy of representation requirements were satisfied, as was Rule 23(b)(2)’s condition that the plaintiffs seek “uniform relief from a practice applicable” to the whole class, but only for a specific class: “owners of hotels that do not have booking agreements with Expedia and are not capable of being booked through Expedia, but appear on Expedia’s websites.”  Commonality was the only serious question, and proceeding as a class would generate common answers to the false advertising requirements given the facts above. Did the phone numbers mislead consumers? Did “We are sold out” mislead the reasonable consumer to think that the hotels are fully booked? If so, were the hotels likely to lose business due to Expedia’s conduct? Classwide evidence could be provided, including through surveys.

Expedia argued that it used different language during the class period, including “We have no rooms available for your selected dates ...”, “No rooms available on our site for the selected dates ...”, or “Sorry, the [hotel name] is not available on Hotels.com for your travel dates. You may choose alternative travel dates OR select from the hotels below.” It didn’t track which unavailability messages were displayed to which customers. However, three of the websites used the same unavailability message on their search results page throughout the class period: “We are sold out.” Further, the messages weren’t so different or so numerous that they couldn’t be evaluated through common proof. And because a class was being certified only for injunctive relief, the plaintiffs might only need to evaluate the current messages.

Expedia also argued that typicality was defeated by the myriad unique ways through which the plaintiffs’ information landed on the websites. For example, named plaintiff Buckeye had begun the onboarding process to create an account with Expedia, but ultimately did not go through with the agreement. Plaintiff Mansion’s information got to Expedia because the hotel had contracted to share its information with a third party, TravelClick, that itself disseminated the information to three distribution systems, which in turn gave the information to Expedia. When the Mansion ended its relationship with TravelClick, two of the distribution systems failed to tell Expedia that it would no longer be providing the Mansion’s data, and the other named plaintiffs had similarly complicated stories of data-sharing.

But the plaintiffs were all not capable of being booked through Expedia, which made the Lanham Act question of deception uniform.  Other common questions included: “Given the automated-but-disorganized nature of the online travel industry, does the Lanham Act impose on Expedia an affirmative obligation to institute controls to ensure that its systems are not causing customers to be misled about availability at unaffiliated hotels? And if so, is Expedia satisfying this affirmative obligation?”

And injunctive relief would uniformly benefit the class members. “Expedia could also be required to clearly indicate when listed phone numbers connect directly to its call centers. It could be enjoined to ensure that Google ads pertaining to unbookable hotels clearly say as much. And … Expedia could be ordered to take measures to better comb its system to ensure that unaffiliated hotels are not being listed in the first place.”

The court declined, however, to certify a Rule 23(b)(3) class to seek disgorgement Expedia’s profits for want of predominance. Plaintiffs “failed to proffer a model or a legitimate theory for how those damages would be estimated, let alone disseminated among class members.” They couldn’t explain how they’d prove sales related to Expedia’s false advertising. An earlier model estimated the percentage of all hotels in Expedia’s inventory that were actually unaffiliated and were marked, like the plaintiffs’ hotels were, as “sold out.” Plaintiffs’ counsel previously proposed that their disgorgement award should be that percentage of Expedia’s total revenue, but that percentage wasn’t logically connected to consumers’ reaction to the false advertising here.  Nor would the court certify a limited class action to decide common issues of liability under Rule 23(c)(4) class, because that wouldn’t advance the disposition of the litigation as a whole.

consumer successfully pleads falsity for "weight management" supplement


Nathan v. Vitamin Shoppe, Inc., 2019 WL 1200554, No. 17-cv-01590-BEN-KSC (S.D. Cal. Mar. 12, 2019)

Vitamin Shoppe sells Garcinia Cambogia Extract with a label promising “Weight Management” and “Appetite Control.” Nathan alleged that this was false and misleading, since GCE (also known as HCA) can’t deliver those benefits over placebo. Dismissing a previous complaint, the court emphasized a distinction between “Weight Management” and “Appetite Control” and the alleged misrepresentations about weight loss, which the court thought was completely different. (Given the reasons most, perhaps all, people take supplements to manage their weight and control their appetites, I consider that exactly the kind of legalistic distinction that consumer protection law is supposed to protect consumers against.)

In the amended complaint, Nathan added references to more studies and alleged misrepresentations about weight management and appetite control specifically.  

First, this wasn’t a pure lack of substantiation claim.  “[A]n advertising claim is false if it has ‘actually been disproved,’ that is, if the plaintiff can point to evidence that directly conflicts with the claim.” Nathan did so here because her cited studies tested, among other things, whether the supplement might affect body weight regulation by inducing satiety and reducing food intake, and found no statistically significant difference from placebo, showing that it was ineffective “with respect to satiety and energy intake.”  The study measured variables relevant to “Appetite Control” and “Weight Management” (e.g., hunger, appetite, anticipated food intake, desire to eat, fullness, satiety, and thirst) and reached a conclusion contradicting the label claims.

Nathan further alleged that, “for a supplement to be effective in aiding weight management, it must help users either (1) lower their energy intake, (2) increase their energy output, or (3) otherwise alter the manner in which the body processes the energy they consume.” As pled, her cited studies indicated that the supplement did none of these things: the supplement didn’t change calorie intake, metabolism or energy expenditure, or fat oxidation (the only relevant mechanism for (3)).  The court declined to parse the studies further on a motion to dismiss.

Vitamin Shoppe argued that no reasonable consumer would be deceived because the label didn’t include words like “weight loss” or “appetite reduction,” and provided a disclaimer: that its “statements have not been evaluated by the Food and Drug Administration,” and it “is not intended to diagnose, treat, cure or prevent any disease.” Nonetheless, it was still plausible that a consumer would be misled by “weight management” and “appetite control.” Nor would the disclaimer (which of course doesn’t actually disclaim any of the allegedly false/misleading parts of the statement, even if it goes indirectly to the level of proof behind them) suffice on a motion to dismiss.

Vitamin Shoppe argued, as the awful and now-rejected-in-the-9th-Circuit In re GNC case did, that “the mere existence of scientific support and an acknowledgement that the issue is not settled are fatal to Plaintiffs claims.” That was a weighing of the evidence inappropriate on a motion to dismiss.

The court also declined to stay the case under the primary jurisdiction doctrine. This was “a typical false advertising case well within the province of the courts,” and there was no evidence that the FDA had any level of interest in regulating GCE products in this context.

Under settled law, though, Nathan couldn’t assert claims for injunctive relief because she alleged the product was worthless, so she’d have no reason to buy it if the labels were trustworthy.

Rule 9(b): it was enough to allege that in approximately “February 2017 in San Diego,” she “purchased a 180-caplet bottle of [the Product] for approximately $20 from Vitamin Shoppe” without identifying the exact address, date of purchase, purchase price, or whether she paid cash or credit. Nor was she required to allege that she consumed the product, that she took it as directed, or her weight and exercise habits, none of which were relevant to the alleged mislabeling.

For the reasons discussed above, she also properly alleged a breach of express warranty claim: these were plausibly affirmations of fact or promise, not “merely indications of use for the Product.” So too with the implied warranty of merchantability; her claims plausibly indicated that the product was “not ‘fit for the ordinary purposes for which such goods are used’ or fails to ‘conform to the promises or affirmations of fact made on the container or label.’” She wasn’t required to try the product to bring these claims.

mere market participation insufficient to allege standing in noncomparative advertising case


AAVN, Inc. v. Westpoint Home, Inc., 2019 WL 1168102, No. 17-CV-8329 (N.D. Ill. Mar. 13, 2019)

AAVN sells woven textile fabrics, including fabrics made from a cotton-polyester blend. AAVN’s president owns patents that teach a method of manufacturing a cotton-polyester blended textile to successfully achieve high thread counts. WestPoint sells bed sheets it advertises as 1,200 thread count sheets, but that allegedly have a 257 or 236 thread count according to a third-party laboratory test of two samples.

The court found that AAVN lacked standing.  AAVN didn’t allege that it markets or sells high thread count sheets, and it didn’t connect how the alleged false advertising on WestPoint’s sheet packaging harms AAVN. Nor did it allege how deception of WestPoint customers would harm AAVN’s reputation for purposes of proximate cause.  [Lexmark has the potential to contract standing in non-concentrated markets, which this may well be.]  Even if AAVN had a subsidiary selling high thread count textiles, that didn’t conver standing on the parent corporation, and even if it could sue on behalf of a subsidiary, there was still no link alleged between WestPoint’s alleged false advertising and its own sales or reputation. “Although under some circumstances a plaintiff may present a viable complaint without alleging specific damages, AAVN’s failure to allege how influence of WestPoint’s customers actually impacts AAVN’s business proves fatal.”

Then, and quite unnecessarily, the court said that AAVN “fails to assert any specifics regarding the process by which Vartest determined that WestPoint’s sheets had a lower thread count than advertised.” That doesn't seem required by Twiqbal.

misrepresentation that OSHA rules required certain tools was literally false


Louisiana-Pacific Corp. v. James Hardie Building Products Inc., 2018 WL 7272047, No. 18-cv-00447-JPM (M.D. Tenn. Dec. 20, 2018)

“This is an unfair trade practices action between two fierce competitors in the residential and multi-family home siding market.” Defendant JH is the dominant producer of cement board (Hardie Board), though the court redacted details about its percentage in that category. LP is the industry leader for OBS, “a type of engineered wood siding and a product which is synonymous with its brand.” It uses agents such third party defendants The Kruse Brothers to provide training seminars across the U.S. that compare LP’s products with others in the industry including JH.

The court granted a preliminary injunction against one LP sales sheet but not against the other claims challenged by JH (both parties were challenging each other’s ads).  Respirable crystalline silica (RCS) is a potentially dangerous dust byproduct from cutting fiber cement, and OSHA standards explain when levels of RCS require additional safety measures. An Action Level (25 micrograms per cubic meter of air averaged over an 8-hour work day) triggers a specific standard, which includes a suggested table of safety measures meant to assess and limit exposure.  Some of the options include not using a circular saw, warning other people nearby, and, in certain circumstances, using a respirator.

LP and The Kruse Brothers made statements in English and Spanish that circular saws are now prohibited and respirators are a requirement when cutting fiber cement. LP’s OSHA sale sheet included a summary of the requirements of new OSHA Regulations and included a heading “Special Tools Now Required For Cutting Fiber Cement,” under which it listed specific anti-dust features for saws and respirators. JH argued literal falsity because those measures don’t apply if RCS does not rise to the Action Level or if the employer assess and limits exposure below the permissible level. The court agreed. “LP’s language conveys that a worker cannot comply with OSHA regulations without following each of the bulleted requirements. Labeling those bullets points as requirements is literally false” because an employer can do other things to limit exposure (though the court doesn’t explain how likely that is to be possible).  Without qualifications such as “if an employer chooses to follow the Table 1 safe harbor they may be required to...” the bulleted statements “would be understood as categorical.”

An LP rep sent an email to various third parties, customers, and potential customers after the new OSHA silica rule came out likewise claiming that “OSHA regulations prohibit the utilization of a standard circular saw for cutting fiber cement siding. Doing so, could result in an OSHA imposed citation,” though he later acknowledged that a circular saw could be used with a dust collection system to cut fiber cement siding.  OSHA gives specific recommendations as to how circular saws can be used within the Table 1 safe harbor provisions; his statement was literally false, though the statement that using a standard circular saw “could result in an OSHA imposed citation” was neither literally false nor misleading.

Similar, but more disputed, claims were allegedly made by the Kruse Brothers at LP training sessions.  If phrased as absolutes, they’d be literally false, but statements that workers might have to warn neighbors or use respirators wouldn’t be literally false or misleading, and it was hard to say because the people listening didn’t necessarily take exact notes.  [Interesting question: how does the court know that statements about what might be necessary aren’t misleading, absent more information about probabilities/the circumstances under which such measures would be necessary?  More interesting question: assume that they said “might,” but many people—like the witnesses here—took away “must.”  Why isn’t that misleading?  I think there’s a possible answer having to do with the cost-benefit analysis of providing useful information to people even if some misunderstand that information, but more is needed than just assuming that the modality of the verb is dispositive.]

The court also found that it wasn’t literally false or misleading to emphasize that no respirator was required to work with LP products; nothing about that suggested that a respirator was required to install other materials.

JH also challenged various social media statements:
• We are definitely making Hardie nervous (in response to one of its contractor’s statements that OSHA is cracking down on the Silica dust created from cutting James Hardie Fiber Cement Siding)
• Use of a circular saw could result in an OSHA imposed citation
• Moral of the story. Don’t want to be stung by OSHA. Use LP Smartside as your exterior cladding of choice (made when forwarding an article stating that silica citations hit 116 in 6 months, allegedly implying that those citations were issued to siding contractors using fiber cement products)

But these weren’t shown to be literally false. “Making Hardie nervous” was an opinion. And it was true that a circular saw could result in an OSHA imposed citation if it is not used according to the Table 1 safe harbors and the exposure limit was exceeded. Likewise with the 116 citations—that was a factual assertion not disputed by JH, and LP didn’t itself claim that the citations were issued for siding.

LP also used the slogan “the easiest way to operate safely with silica dust is don’t create it.” The court also thought that was fine: “LP is accurately describing one way of operating to avoid safety risks of silica dust,” and it wasn’t saying that was the only way.

Materiality: LP argued that its statements weren’t material because they didn’t specifically mention fiber cement or JH. That’s not necessary. Here, the evidence of deception also supported a finding of materiality; the OSHA sale sheet was created to convince people to use LP products, and its internal communications encouraged its sales team to distribute the LP OSHA sale sheet “as much as possible.”

The individual rep’s statements also produced evidence of actual deception; one person “informed JH that she intended to discontinue future work with JH because she believed from LP’s email that circular saws could not be used to cut fiber cement boards,” while another “forwarded the Rose email to other potential customers to inform them that circular saws are no longer an option when cutting fiber cement board.” That was evidence of materiality. This same evidence showed harm causation.

Thus, there was a limited likelihood of success on the Lanham Act claims, but not on the Tennessee Consumer Protection Act claims, since they required showing “an ascertainable loss of money or property under the TCPA.”  For this, “[s]tatements that customers said they were thinking about leaving but ended up staying with JH” were insufficient. Likewise, tortious interference claims require LP to know of specific relationships under Tennessee law, “and not a mere awareness of the plaintiff’s business dealings with others in general.” There wasn’t enough evidence of that here.

The court presumed irreparable harm from the risk to JH’s reputation from the OSHA sheet, specifically “due to an inability to quantify it and the difficulty in returning the injured party to the pre-injury position.” LP wouldn’t be prevented from talking about the OSHA standard, but only “from making specific statements that are false or misleading when made out of context.” Thus, an injunction wouldn’t unconstitutionally restrain its speech and the public interest weighed in favor of an injunction for the sale sheet. The court didn’t grant an injunction as to the rep’s email, which hadn’t been shown to be likely to be resent.

Monday, March 18, 2019

can a retailer be directly liable for false advertising on packages?


two cases (out of several involving this plaintiff)

Outlaw Laboratory, LP v. Shenoor Enterprise, Inc., 2019 WL 1040644, No. 18-CV-2299-B (N.D. Tex. Mar. 4, 2019)

Outlaw, which makes male dietary supplements, sued convenience stores because they “advertise and offer for sale” competing male dietary supplements, the Rhino products, that were allegedly falsely labeled “all natural” and state they contain “no harmful synthetic chemicals.” (The FDA has announced that certain products, including the Rhino products, contained potentially dangerous hidden drug ingredients.) The court found that displaying and selling the products weren’t enough for [direct] Lanham Act liability. [Secondary liability seems like a potential theory, though.]

Standing: the court expressed concerns about Article III standing—whether plaintiff’s injury was traceable to the defendants’ alleged conduct—as well as Lanham Act standing—whether the injury was proximately caused by that conduct. I’m pretty surprised by the former, without more discussion; if plaintiff allegedly lost sales when a consumer bought the products defendants stocked, then defendants’ conduct was at least a but-for cause of those losses. But the court disagrees: “it is difficult to see how merely placing products on display and selling them qualifies as conduct that caused Plaintiff’s injuries under Article III or the Lanham Act.”

Can a defendant “who merely sells a product at a retail outlet” be held liable for false advertising under the Lanham Act? Start with the text:

Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any...false or misleading description of fact, or false or misleading representation of fact, which...in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person’s goods, services, or commercial activities, shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.

The test has been reframed as requiring “that the defendant made a false statement of fact about its product in a commercial advertisement.” The court didn’t believe that it had been alleged that defendants “made” a false statement of fact by offering the falsely labeled products for sale; only the nonparty manufacturer “made” statements in commercial advertising or promotion, even with allegations that defendants knew of the falsity.

Outlaw argued that selling the products necessarily involved the “use[ ] in commerce” of a “false or misleading description of fact, or...representation of fact” “in connection with any goods or services, or any container for goods[.]” [A trademark case would have zero hesitation concluding that defendants made a “use in commerce” of the Rhino mark, which was on the very same packages as are at issue here.] But false advertising also requires a misrepresentation “in commercial advertising or promotion.”

Outlaw didn’t cite binding caselaw supporting its claim.  [Basically, the court rejects trademark cases as inapplicable because in trademark cases it’s retailers’ “use” (which is to say placing on sale) of an infringing mark that causes confusion.  The court doesn’t discuss any policy basis for the divergent treatment, and if the retailers are “causing” confusion in those cases even though they don’t create the infringing goods or copy the infringing mark, then why aren’t they “causing” deception here?  But the court understandably returns to its conclusion that the defendants must have “made” false statements.]

Another case, JST Distrib. v. CNV, et al., 2:17-cv-06264 (C.D. Cal. Mar. 7, 2018), was factually similar to this one, where the defendant argued that it hadn’t made the allegedly falsely advertised products or the ads, but just posted them on its website and sold the products. The district court held that the website owner could still be held liable because the plaintiff alleged that the website owner “disseminated the false advertising through its website.” The court agreed that placing products on sale in a brick-and-mortar store isn’t “disseminating” false advertising.

The court found other nonbinding cases more persuasive. Cohn v. Kind, LLC, 2015 WL 9703527 (S.D.N.Y. Jan. 14, 2015) (under NY law, retailers’ sale of allegedly falsely labeled power bars wasn’t advertising); Optimum Technologies, Inc. v. Home Depot USA, Inc., 2005 WL 3307508 (N.D. Ga. Dec. 5, 2005) (displaying a competitor’s product under signs labeled with the plaintiff’s product name wasn’t commercial speech for Lanham Act purposes); and a number of state false advertising law cases that hold “that a defendant should not be liable, whatever the cause of action, for merely selling a product affixed with a false label, so long as the defendant had no role in creating the label.”  These were only minimally persuasive because of the different legal regimes, but still better than plaintiff’s cases.  Burger v. Lowe’s Home Centers, LLC, 2016 WL 1182266 (Cal. App. 4th Dist., 2016), reh’g denied (Apr. 26, 2016) (“The trial court agreed with [the retailer’s] argument a retailer cannot be held liable for the statements of others by merely placing the product on its shelves for resale. The court determined the false advertising claim was based solely on the product’s packaging, which was produced by the manufacturer or distributor and not [the retailer].”); In re Hydroxycut Mktg. & Sales Practices Litig., 801 F. Supp. 2d 993 (S.D. Cal. 2011) (“Plaintiffs suggest that the Defendant Retailers can be held liable under the consumer protection laws for placing the falsely advertised Products on the shelf and failing to disclaim the Manufacturer Defendants’ representations. However, none of the cases cited by Plaintiffs...supports this legal proposition.”); Fagan v. AmerisourceBergen Corp., 356 F. Supp. 2d 198 (E.D.N.Y. 2004) (drugstore was not liable for negligent misrepresentation for selling mislabeled drugs without evidence that it “itself, made any false statement or material misrepresentation” or that it “affixed the label, which contained the alleged misrepresentation”).

The court also analogized to Baldino’s Lock & Key Serv., Inc. v. Google, Inc., 88 F. Supp. 3d 543 (E.D. Va. 2015) (Google not liable for misrepresentations made by third parties in ads), aff’d, 624 F. App’x 81 (4th Cir. Dec. 4, 2015), and Lasoff v. Amazon.com, Inc., 2017 WL 372948, at *8 (W.D. Wash. Jan. 26, 2017) (Amazon could not be held liable for “truthfully depict[ing]” products of third-party sellers that were labeled with false representations). Lasoff involved a party, Amazon, who was actually selling the third-party products, like the defendants here, though it was also a summary judgment case and might not have reached the same result if Amazon had actual knowledge of the falsity, as alleged here. [Which is why secondary liability is a better theory.] But Lasoff involved little or no record evidence, and the allegations of knowledge here were conclusory.

The court was more convinced by the policy implications: “Defendants undoubtedly sell many products—should they be responsible for scrutinizing and determining the veracity of every claim on every product label in their stores simply because they sell the product?”  [Who should be?  In a globalized economy, are we so sure that we can always grab the manufacturer?]  The court answered “no” for false advertising.  It’s not that retailers or sellers can never be held liable for false advertising, but they can’t be held liable based solely on display and sale of the Rhino products in their stores.
“[I]f these claims are permitted, the scope of the Lanham Act would be dramatically expanded. False-advertising cases like this one would turn retailers into the guarantors of manufacturers that falsely label their products. The Court declines to construe the Lanham Act so broadly.” [Note that it’s all right for some: contrast the trademark rule.]

The court allowed leave to replead, but cautioned that “re-litigating the issues raised in the instant motions through future frivolous, repetitive filings will result in the imposition of sanctions, including dismissal, monetary sanctions, and restrictions on the ability to file pleadings in this court.”

Outlaw Laboratory, LP v. Trepco Imports & Distribution, Ltd., 2019 WL 1173347, No. 18-cv-00369-JAD-CWH (D. Nev. Mar. 11, 2019)

Outlaw sued two wholesalers and eight retailers of competing male-enhancement products for falsely advertising “all natural” composition while containing synthetic ingredients like sildenafil nitrate, aka Viagra.  The remaining defendants moved to dismiss on standing grounds. The court found standing, but also that Rule 9(b) hadn’t been satisfied, and dismissed the complaint without prejudice.

In the abstract, defendant-wholesaler Trepco could be sued under the Lanham Act even though it didn’t  manufacture or make packaging. Disseminating the false advertising on the products’ packaging could fall within the language of the Lanham Act (relying on Grant Airmass Corp. v. Gaymar Indus., Inc., 645 F. Supp. 1507, 1512 (S.D.N.Y. 1986) (finding that defendant who independently distributed and presented false report that it used against plaintiff competitor could still be liable for false advertising)), a contributory infringement case not cited by the other Outlaw opinion above.  Nonetheless, the specific allegations here weren’t enough; the complaint lumped the defendants together too much and didn’t specify which claims are made by which product or what products Trepco allegedly sold.

Claims against the retailer defendants failed for similar reasons, though the court also rejected their Article III standing argument. “In a false advertising suit, a plaintiff establishes Article III injury if some consumers who bought the defendant’s product under a mistaken belief fostered by the defendant would have otherwise bought the plaintiff’s product.” To do so, a plaintiff may “provide direct proof such as lost sales figures, or may rely on ‘probable market behavior’ by establishing a ‘chain of inferences showing how defendant’s false advertising could harm plaintiff’s business.’”  Outlaw’s allegations that the sales of the accused products hurt sales of its competing products sufficed, even without “solid data,” at the pleading stage.  It properly alleged that the retailer-defendants’ acts of putting the accused products out for sale harmed its own sales.  Likewise, Outlaw pled statutory standing, even though the parties aren’t direct competitors.  (Actually, it sounds like they are—Outlaw alleged that it both made and sold its products directly to consumers, which sounds like it’s in competition with anyone in the chain.)  The court accepted that, as manufacturer of these sexual performance supplements, Outlaw was in direct competition with “those who manufacture, sell, distribute[,] and market sexual performance enhancement products” and targeted the same customers, which allegations were enough for Lanham Act standing.

Outlaw, however, made insufficiently specific allegations about how it knew the retailer-defendants sold the products, when the retailers stocked them, or how they disseminated the allegedly false messages: “were the products merely on a shelf available for purchase, or did the retailers display them in some prominent way?” Rule 9(b) required more.