Wednesday, November 13, 2019

Colorado labeling doesn't dispel potential falsity of "Kona" for coffee

Corker v. Costco Wholesale Corp., 2019 WL 5887340, No. C19-0290RSL (W.D. Wash. Nov. 12, 2019)

Plaintiffs, coffee farmers in the Kona District of the Big Island of Hawaii, alleged that defendant Boyer’s falsely designates the geographic origin of its coffee products as “Kona,” prominently placing the word Kona on the front of its packaging despite the fact that the product contains little to no coffee from the Kona District. One of Boyer’s coffee products is labeled “CafĂ© Kona” and another is labeled “Kona Blend.” In lab tests, ratios of various metal (strontium to zinc, barium to nickel, cobalt to zinc, and manganese to nickel) are allegedly well outside the range of that which is found in authentic Kona coffee. Even if there were some Kona coffee in Boyer’s products, it is allegedly not the meaningful percentage that a consumer would expect based on the packaging.

Boyer’s argued that the Lanham Act false advertising claims should fail because plaintiffs didn’t allege that that they, individually or as a group, have a protectable trademark in the word Kona. But “false designation of origin,” even before its expansion to cover unregistered trademarks, always covered geographic origin.

Boyer’s then argued that the claims were implausible because its packaging clearly showed that it was a Colorado company. But none of the statements about the Colorado-ness of the company “dispels the notion that the coffee roasted or crafted in Colorado was grown in the Kona district, a notion that is arguably conveyed by the use of the otherwise gratuitous word ‘Kona’ in the name of the product.” (Does anyone think, even with climate change, coffee roasted in Colorado is grown there?)

Finally, Boyer’s argued that the mere presence of a geographic reference on its packaging cannot give rise to claim for false designation of geographic origin. If, in context, the use of “Kona” was plausibly misleading, which it was, the claim could proceed.  (Citing Pernod Ricard USA, LLC v. Bacardi USA, Inc., 653 F.3d 241(3rd Cir. 2011)), which rejected a claim based on “Havana Club” for rum that clearly, to the court, also said it was from Puerto Rico).

Monday, November 11, 2019

claims for ab exercise device going beyond FDA clearance are actionable

Loomis v. Slendertone Distrib., Inc., 2019 WL 5790136, No. 3:19-cv-854 - MMA (KSC) (S.D. Cal. Nov. 6, 2019)

Loomis brought the usual California claims based on ads for the Flex Belt, a purported ab-exercise device. While denying standing for injunctive relief and finding a bunch of the challenged claims to be puffery, there was still enough to continue, and the court also rejected an FDA preemption argument.

Preemption: Slendertone argued that the Flex Belt had been FDA cleared [NB: not approved] “for Toning, Firming and Strengthening the stomach muscles,” and thus the claims were preempted. States can adopt FDCA rules for their own law, but parallel state “consumer protection laws, such as the UCL, FAL, and CRLA, are nonetheless preempted if they seek to impose requirements that contravene the requirements set forth by federal law.” But Loomis didn’t challenge whether the FDA should have cleared the Flex Belt or whether the specific FDA-cleared statement is misleading, and this was a case involving a Class II medical device, not FDA approval.

Actionable statements: because the FDA cleared the Flex Belt as an EMS device for toning, firming, and strengthening abdominal muscles, “such representations cannot be deceptive to a reasonable person.” But it would be deceptive to market an EMS device as cleared by the FDA “for weight loss, girth reduction, or for obtaining ‘rock hard’ abs.” Much of the advertising Loomis cited was puffery, such as the testimonials:

With my schedule I can’t do an ab workout every day, but with The Flex Belt® I’ll put it on every day because I’m doing things at the same time. So it’s really just being smart. It’s easy, I wear it every day and my abs are there to show for it! My abs feel like I’ve had the most amazing workout and I just wore The Flex Belt® around the house for 30 minutes.
The Flex Belt® tightens, tones, and strengthens my stomach without me even having to think about it. It has taken my abs to a whole new level... it does all the work, and I get the results.

These statements were “highly subjective to the individuals giving the statements,” although I think they’re misleading. There was nothing actionable about the claims on Amazon to “stimulate all your major stomach muscles at the same time providing you with the perfect abdominal contraction ….You don’t have to worry about your form or come up with the time to get it done.” That didn’t claim that the Flex belt alone will result in weight loss, girth reduction, or an attractive appearance. [I don’t think it’s “alone” that’s the problem. I think the problem is that the Flex belt doesn’t produce a marginal effect on any of these, and the implication is that it does.]  “GREAT ABS START HERE,” “Maximum Core Strength,” and “Ultimate Toning Technology” were also puffery.  [But if it doesn’t work at all, then it’s not exaggeration, it’s just … not true.]

In the ads, “any reference to fat loss is accompanied by disclaiming language that the Flex Belt is insufficient to achieve weight loss and that a more attractive abdominal area requires proper diet and exercise,” e.g., the “Flex Belt does not remove inches of fat but it tones, tightens, and strengthens your stomach muscles. Using The Flex Belt in conjunction with your dedication to Diet, Nutrition and Exercise can help you achieve your goals of a more attractive stomach as well!”

Still, there were specific statements, in context, that were plausibly deceptive to a reasonable person.  E.g., “Who Should Use the Flex Belt®?...Anyone that wants more attractive abs, regardless of current fitness levels”; “With The Flex Belt®, it doesn’t matter what your current exercise status is because there will always be time to build firmer, stronger abs. This product is perfect for … anyone that wants more attractive abs, regardless of current fitness levels”; and touting the product “[f]or those looking for a convenient way to tone, strengthen and flatten the abdominal area.”

These claims made it “probable that a significant portion of the general consuming public or of targeted consumers, acting reasonably in the circumstances, could be misled” to believe the Flex Belt could help consumers achieve more attractive abdominal muscles. It was contradictory to make misleading statements as to improved abdominal appearance while simultaneously disclaiming that “The Flex Belt does not remove inches of fat.” In addition, although the testimonials and pictures of six-pack abdominal muscles were puffery, they “contribute[d] ‘to the deceptive context of the packaging as a whole.”

UCL unlawful and unfair claims also survived, as did claims for breach of express warranty, despite a limited warranty addressing product defects stating that “THIS LIMITED WARRANTY IS THE ONLY WARRANTY FOR THE PRODUCT, AND THERE ARE NO OTHER EXPRESS WARRANTIES, ORAL OR WRITTEN, PROVIDED BY [Slendertone].”

Under California law, “[w]ords or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit warranty shall be construed wherever reasonable as consistent with each other.” Limitation of warranties are allowed “only by means of [w]ords that clearly communicate that a particular risk falls on the buyer.” Further, disclaimers or modifications “must be strictly construed against the seller.” “Noting the presumption of construing warranties as consistent with one another, the burden against the seller, and the fact the limited warranty was included in the packaging for the Flex Belt after Plaintiff purchased it, the Court finds that the limited warranty does not upset Plaintiff’s alleged express warranty cause of action.”

Thursday, November 07, 2019

nontestifying students are entitled to relief from for-profit's false advertising

State v. Minnesota School of Business, Inc., --- N.W.2d ----, 2019 WL 5778078, No. A17-1740 (Minn. Nov. 6, 2019)

How do you decide whether nontestifying members of a class have been harmed? A majority here, over two dissenting Justices, finds that it was appropriate to conclude that nontestifying victims of a fraudulent educational scheme were harmed.  If there are to be fraud class actions at all, this is a necessary rule, and changing the common law rules that prevented such inferences was the basic reason that states enacted consumer protection laws in the first place. I have to admit, I find it depressing that even AG-led efforts against frauds that left students with thousands of dollars in debt for worthless credentials, diverting their life plans, couldn’t convince an appellate court and a full slate of state supreme court justices to infer that the natural consequence of the fraud occurred for each victim.  The dissenters also try to turn the recent FTC losses on the scope of section 13 relief into reasons not to award relief under state law; expect more of this, too.

Minnesota’s AG sued two for-profit universities, the Minnesota School of Business, Inc. and Globe University, Inc., alleging that they misled prospective students about the value of criminal justice degrees offered by the schools in violation of the Minnesota Consumer Fraud Act (MCFA) and the Uniform Deceptive Trade Practices Act (DTPA). Most prospective students who signed up for such degrees wanted to be a probation or police officer.  The schools targeted people interested in policing careers. As advertised, the curriculum focused on police work like crime scene investigations and many classes were taught by former or current police officers. “In marketing materials and through admissions practices, the Schools made statements to prospective students that graduates of their criminal justice program were qualified to become a police officer, or at least qualified to enter programs providing the additional training required to become a police officer.… The Schools also advertised that an associate’s degree from their criminal justice program qualified a student for a career as a probation or parole officer.” E.g., “.... And you can be sure, as a graduate of a Globe University/Minnesota School of Business criminal justice program, you will have those qualifications.” But that wasn’t true. The schools didn’t provide the credentials necessary for police jobs in Minnesota, and their credits didn’t transfer to any school that offered the relevant certification; similarly, the associates’ degree in criminal justice didn’t provide the bachelor’s degree required for probation officers.

To prevail, the AG had to establish a “causal nexus” between the uncontested violations of the MCFA and the harm suffered by students. Fifteen students testified, out of about 1200 affected. The trial court and the Supreme Court majority agreed that was enough. “For example, one student testified that he transferred into the criminal justice program because the school ‘assured him that the program would allow him to become a Minnesota police officer’ and that he would not have pursued that program had he known the school was not [relevantly] certified.”

The district court found a knowing violation of the MCFA both in affirmative misrepresentations and in failure to disclose material facts. The economic harm inflicted on students “is an inevitable and foreseeable consequence of the misrepresentations and obfuscations in [the Schools’] marketing of the program.” Thus, the AG proved a causal nexus between the Schools’ misrepresentations and the harm suffered by the criminal justice program students, as required under the MCFA. “There can be no question that [the Schools’] fraudulent practices caused significant public injury to any students ... who enrolled in the criminal justice program with the goal of becoming a Minnesota police or probation officer.”  The court rejected the schools’ argument that it could not consider the nontestifying students to be similarly situated to the testifying students.

The court issued an injunction, imposed civil penalties, and ordered equitable restitution requiring the schools to disgorge the tuition collected from the criminal justice program students. Claimants who represented that they enrolled in the program based on an understanding they could become a police officer in Minnesota or a parole or probation officer in Minnesota with an associate’s degree would be entitled to a rebuttable presumption of injury and causal nexus. The restitution would cover tuition; payments to the schools for books, enrollment or student expenses or fees; and any interest or finance charges incurred by the claimant for student loans taken out to pay for tuition, expenses, or fees.

The court of appeals upheld the restitution order for the students who testified at trial but reversed as to nontestifying students for failure to prove a causal nexus to their harm.  When the AG sought review, the schools argued that even the testifying students didn’t deserve restitution.

The parties agreed that the schools made false claims, and that “enrolling in, and paying tuition for, a degree that does not provide what is promised is harm.” So was there a causal nexus between the falsity and the harm? This is a factual question that a district court is best positioned to assess. Causal nexus/reliance can be established by direct or circumstantial evidence.

Consumer protection statutes “are remedial in nature and are to be liberally construed in favor of protecting consumers.” E.g., State by Humphrey v. Alpine Air Prods., Inc., 500 N.W.2d at 788, 790 (Minn. 1993) (“In passing consumer fraud statutes, the legislature clearly intended to make it easier to sue for consumer fraud than it had been to sue for fraud at common law. The legislature’s intent is evidenced by the elimination of elements of common law fraud, such as proof of damages or reliance on misrepresentations.”). The MCFA “ ‘reflects a clear legislative policy encouraging aggressive prosecution of statutory violations’ and thus should be ‘generally very broadly construed to enhance consumer protection.’ ” It allows the AG to seek restitution.

Past precedent established that “proof of individual reliance” is not needed to prevail under the MCFA “where a defendant’s misrepresentations were directed at and affected a broad group of consumers.”  The nexus requirement “is a more relaxed requirement than the strict showing of direct causation required at common law…. [T]here are times when the materiality and pervasiveness of consumer fraud is relevant to support a court’s finding that a causal nexus exists between the fraud and the consumer’s decision to purchase the product.” (This isn’t a fraud on the market theory, the court said; fraud on the market is just another example of where individual proof requirements are relaxed.)  Likewise, the seller’s own intent can be “decisive” in substituting for proof of direct reliance by each individual purchaser.  If the defendant intends potential consumers to rely on the representations, that is itself “important and relevant evidence to establish a causal nexus.”  This is especially true for AG-brought cases.

Similarly, the FTCA (a broad statute, even if it doesn’t explicitly authorize restitution in section 13(b)), doesn’t require proof of individual reliance by each consumer.  The FTC presumes reliance “where the FTC has demonstrated that the defendant made material misrepresentations, that they were widely disseminated, and that consumers purchased the defendant’s product.” “The reason is plain: ‘requir[ing] proof of each individual consumer’s reliance on a defendant’s misrepresentations would be an onerous task with the potential to frustrate the purpose of the FTC’s statutory mandate.’”  So too here.

Instead of directly proving reliance for each individual, “all the facts surrounding the consumer fraud should be taken into account: Was the fraud longstanding, pervasive, and widespread in communications directed to consumers of the product? Did the seller intend and understand that consumers would rely on the misrepresentations? Was the information of a kind on which consumers would typically rely?”  This wasn’t a matter of “judicial notice,” as the dissent accused. Instead, “a district court sitting in equity and as a factfinder may broadly consider several common-sense factors when assessing whether a causal nexus exists under the MCFA.”

There was thus sufficient evidence of a causal nexus both for the testifying students and for the non-testifying students.  The false advertising was widespread and pervasive; the schools intended for students to rely on it and targeted prospective students who wanted to be a police officer or a probation officer. “The Schools would not have spent a total of $120 million in advertising and made law enforcement marketing materials available where they did if they did not believe that prospective students would rely on them.” The false advertising was “precisely the type of information a reasonable prospective student would rely on in deciding whether to pursue a criminal justice degree at the Schools. And the evidence at trial showed that prospective students did so rely.”

Choosing a school is a serious decision:

We reasonably expect a person to look at materials provided by a potential school to assess whether the education program is consistent with his or her career objectives. It is reasonable to conclude that a person who wants to become a police officer or a probation officer will make such an investment of money and time only if the person believes that the classes will provide the requisite qualifications for that career. Moreover, the record shows that the Schools took advantage of the “unwary”—nontraditional, first-generation college students who usually attend for-profit schools.

The evidence established a causal nexus between the misleading statements and the harm suffered by the nontestifying students. “The Schools should not profit from fraudulently providing a useless degree to their students.”

The majority also rejected challenges to the restitution process established by the district court. There was no need for a “rebuttable presumption” of reliance—the AG satisfied the causal nexus requirement without the need for any presumption.  And the district court had broad discretion to order equitable restitution and to fashion the appropriate restitutionary remedy. The goal of such remedies is “to force a wrongdoer to divest money improperly gained at the expense of another party. It is aimed as much (or more) at preventing the wrongdoer from profiting from its misdeeds as it is to make the injured party whole.”

Nor did the process violate due process. A special master would oversee the determination of the overall amount of restitution, which would be a product of the number of students who sought a criminal justice degree and the total tuition, fees, and other costs they paid to the schools. There were procedural safeguards, including requiring students to declare under penalty of perjury “that they were enrolled in the Schools’ criminal justice program based on an understanding that they could become (a) a police officer in Minnesota or (b) a parole or probation officer in Minnesota with an associate’s degree.” The schools could contest that. Disputes not resolved by the parties would go to the special master and thence to the district court for final decision.  That satisfied due process.

Justice Anderson dissented in relevant part (and the Chief Justice agreed): It wasn’t right to conclude that the nontestifying students had been harmed, despite the “appalling” conduct of the schools (at least as to the testifying students):

The court implicitly adopts a rebuttable presumption based on assumptions about intent, i.e., the existence of pervasive fraud or an intent that consumers would rely on the misrepresentations. Alternatively, the court appears to deploy a form of judicial notice based on assumptions about what information consumers typically rely on or the importance and cost of the purchase decision. Then, the court endorses the use of “mini trials” to determine the amount of restitution, if any, owed by the Schools to the nontestifying students. I cannot join this decision because even defendants who engage in appalling behavior are entitled to require the Attorney General to prove his claims. The Attorney General did not do.

Note: rebuttable presumptions aren’t proof-less; they’re ways of using probabilities to determine what is likely true in an individual case.  That might be accurate or not, depending on your other beliefs, but it’s not a wild innovation.

The dissent said that there wasn’t evidence that all program participants saw the ads offered as evidence or that, even if they did see them, the ads affected their decisions. “There is simply no basis to presume that just because 15 individuals relied on deceptive practices, 1,200 other individuals also relied on the same practices and suffered injury accordingly.”  (Other than the content of the ads, the knowledge of the advertiser that the claims mattered to potential students, and the usual reasons that people seek the relevant degrees.)

The FTCA also wasn’t helpful because the consumer protection laws in Minnesota are different. Also, the FTCA comparison favors a reversal because the Seventh Circuit has held that the FTC doesn’t allow restitutionary relief under section 13(b).  The Lanham Act is also different and anyway there was no evidence in the form of “actual consumer testimony,” “other than for 15 former students” (!) [what does the dissent think “actual consumer testimony” means?], and no consumer surveys, tests, or market research. [Given that the claims here were literally false, if you did apply the Lanham Act, no evidence of consumer reaction would be required.]

The majority wrongly assumed that no student would enroll in the criminal justice program unless they wanted to become a Minnesota police or probation officer.  This was essentially to take judicial notice of the defendant’s liability. [Query how this standard for what counts as factfinding would work in a standard trademark case. I do think courts do a lot of ad hoc factfinding in Lanham Act cases, but here it doesn’t seem like an assumption; it seems like a conclusion based on the evidence of how the programs were marketed and how the students who did testify reasoned—if they weren’t aberrations, then their experiences can be generalized, and I think it is possible to determine that a witness isn’t aberrant.]

The dissent didn’t want to do “mini restitution trials” at the restitution stage. There were legitimate due process concerns about the restitution process.  But other courts routinely hold that disputes about the amount of damages can be resolved individually after class treatment on liability.

Wednesday, November 06, 2019

pleading falsity can be done even with sophisticated consumers

10x Genomics, Inc. v. Celsee, Inc., 2019 WL 5595666, No. 19-862-CFC-SRF (D. Del. Oct. 30, 2019) (magistrate)

Skipping the patent parts.  “10x is a life sciences technology company that markets and sells its Chromium product line, which provides researchers with the ability to measure gene activity on a cell-by-cell basis for large numbers of cells in a single experiment.” Celsee’s Genesis System “is designed to capture and isolate single cells, … allowing the user to track a molecule and the cell of origin for that molecule.”

10x successfully alleged false advertising: Celsee advertised a 70% cell capture rate. Unconvincingly, Celsee argued puffery. And it argued that 10x failed to show an industry standard for making cell capture rate calculations, and that it didn’t specify how the 70% figure was calculated.  10x nonetheless sufficiently alleged literal falsity by alleging that “market participants evaluate the performance of single cell systems based on the cell capture rate, which the complaint defines as ‘a measure of the percentage of input cells that are assayed in each experimental run.’” 10x claimed to have a 65% capture rate. Celsee advertised using the tagline “Because every cell matters,” and Celsee ads and brochures claimed “[d]eep and accurate view of cell populations with >70% capture of input cells.” This figure allegedly measured only the percentage of cells caught in the teeny little wells it used that were actually analyzed, while not counting the cells put into the system that never make their way into the wells.   It was plausible that this was literally false because the calculation failed to account for all the cells put into the system, and that this was objectively inaccurate.

This was also plausibly misleading, since 10x alleged that cell capture rate is “[a] key criterion on which market participants evaluate the performance of single cell systems.” [Not to mention Celsee’s own tagline.] It was plausible that targeted consumers would presume the parties’ advertised cell capture rates were directly comparable, and that Celsee’s advertised 70% rate was intended to make its product seem superior.

Celsee argued that 10x didn’t sufficienly plead materiality “because researchers purchasing single cell technology would not plausibly base their purchase decision on a non-specific statement of capture efficiency without first understanding the method of calculation.” Nope. If (as alleged) there was a superiority misrepresentation that confused consumers, and if cell capture was a key criterion for customers, that was enough.

multimillion-dollar verdict in false advertising case, but no fee shift

Boltex Manufacturing Co. v. Ulma Piping USA Corp., No. 17-CV-1400, 2019 WL 5684201 (S.D. Tex. Nov. 1, 2019)

Previous coverage. A jury found in favor of plaintiffs Boltex and Weldbend on their flange-related false advertising claims.  The court noted that the Lanham Act has no statute of limitations and so borrows state law.  The majority of cases in Texas borrow the four-year period for common law fraud, but, because “a very credible argument could be made that the closest parallel in Texas law to a Lanham Act unfair advertising claim is Texas’ common law cause of action for unfair competition,” which has a two-year period, the jury verdict form asked the jury to separate out the relevant periods for damages purposes.

The jury awarded damages for federal false advertising and state unfair competition; the court required plaintiffs to elect (and based on the numbers they’re going to choose federal).  In addition, the jury findings supported disgorgement.  Ulma’s profits were found to be $26 million, but the court wasn’t going to award that entire amount, since plaintiffs had less than 25% of the flange market even after Ulma was hypothetically removed from the market. Using plaintiffs’ own experts, their share of the flange market in which they all competed was 11.6% for Boltex and 10.4% for Weldbend. Thus, the court determined to award a bit over $3 million to Boltex and a bit over $2.7 million to Weldbend in addition to the Lanham Act damages if they opted for Lanham Act damages.  The total was nearly $3.7 million/a bit over $3 million for the Lanham Act respectively, or $1.2 million/$600,000 under Texas common law.

The court also found that the case wasn’t exceptional, even though the falsity part of the case may have been easy, because the existence damages was reasonably litigatable:

Defendants quite legitimately argued and produced a fair amount of evidence that the Plaintiffs and Defendants did not compete and consequently Plaintiffs were not damaged by any actions of the Defendants and if damaged at a substantially lesser amount than claimed. While the jury did not totally agree with Defendants’ position, it did not completely agree with the amount of damages claimed by the Plaintiffs. Defendants have the right to litigate liability and damages and it is not an unreasonable litigation position—even in the face of what some might consider overwhelming evidence of liability—to vehemently contest whether a plaintiff has actually suffered any damages due to its alleged misconduct.

Thursday, October 31, 2019

Lack of personal jurisdiction leads to fee award in (c)/false advertising case

International Inst. of Management v. Organization for Econ. Cooperation & Development, No. 2:18-cv-01748-JCM-GWF, 2019 WL 5578485 (D. Nev. Oct. 29, 2019)

Not gonna lie, I’m here for the defendants, the OECD and Joseph Stiglitz.   IIM, a small Nevada think tank, alleged that they “stole credit” for IIM’s work on using non-GDP factors to measure the well-being of countries. In 2005, IIM published a two-page paper titled “Gross National Well-being (GNW) Index” that “generally discusses the idea of using non-GDP factors to measure the well-being of countries and provides seven factors that such an index might use,” but doesn’t show how to use them. A second six-page paper in 2006, “The American Pursuit of Unhappiness,” is similar.

The OECD’s Commission on the Measurement of Economic Performance and Social Progress conducts research on measuring the well-being of countries. Stiglitz, a resident of New York, is its chair and substantially contributed to various reports and articles that the commission published. In 2009, it published a 291-page report titled “Report by the Commission on the Measurement of Economic Performance and Social Progress,” “which discusses the limits of GDP as an indicator of economic performance. The report also extensively addresses problems with various measurement techniques and how to improve upon existing methods to determine the well-being of countries.”  In 2011, the OECD created the Better Life Index, which uses non-GDP factors to measure the well-being of countries, and published an interactive website that millions of people have used to compare the well-being of countries. Stiglitz also allegedly sells a book on which contains material from IIM’s works. IIM sued for copyright infringement, vicarious/contributory copyright infringement, unfair competition, and false advertising in violation of the Lanham Act (*cough*Dastar*cough*). 

Although this could’ve been a case testing what it means to creatively compile facts, the court instead granted defendants’ motion to dismiss for lack of personal jurisdiction. Defendants sought a fee award.

Defendants were prevailing parties under the Copyright Act even though they didn’t get dismissal on the merits or dismissal with prejudice. The relevant factors for whether there should be an award: objective unreasonableness, degree of success obtained, absence of chilling effect, and the need to advance considerations of compensation and deterrence. A claim is objectively unreasonable where the party advancing it “should have known from the outset that its chances of success in th[e] case were slim to none.”  Here, “IIM sought to hale a New York citizen and a foreign organization into a Nevada federal court based on the bare allegations that defendants operated the Better Life Index on a website, sold a book with allegedly infringing materials on, and published the 2009 report online.” And, relying on “unambiguous Ninth Circuit authority,” the court held that “merely uploading materials on a passive website and placing products in the stream of commerce are not affirmative acts that directly target Nevada.” Thus, the suit was objectively unreasonable.

Degree of success on the merits: “This dismissal does not bar IIM from refiling in another jurisdiction, but it does terminate further litigation in Nevada. While this is likely not defendants’ preferred outcome, it is without question that they have obtained at least a modicum of success.”

Chilling effect: IIM didn’t argue that it lacked the resources to pay an award or that it will be deterred from seeking to enforce valid copyrights in the future. But IIM argued that an award would deter suits against large-pocketed defendants. The court disagreed.  “That this case may have been brought in good faith and was not dismissed on the merits has little bearing on whether victims of copyright infringement will continue to bring suit. An award of attorney’s fees here serves only to discourage suits without an objectively reasonable basis for jurisdiction.”

Compensation and deterrence: “A successful defense furthers the purposes of the Copyright Act just as much as a successful infringement suit does.”

Overall, a fee award for the copyright claims was warranted.

Was this an exceptional Lanham Act case? Doesn’t matter, because fees were warranted under the Copyright Act (and I infer that, because the jurisdictional issue was the same for both, all work counts as work done on the copyright claims).  But the court found that fancy New York prices were unreasonable and instead used a lodestar of $400/hour for counsel who charged more than that, and it also found that the total hours billed were unreasonable for stating the hours of each individual in a single, large increment of time, so it reduced the lodestar by 10%.  Total award for Stiglitz: a bit shy of $58,000 (plus costs).  For OECD: over $52,000 (plus costs).

Wednesday, October 30, 2019

Trademark overprotection panel, Suffolk

Second Annual Intellectual Property & Innovation Conference Suffolk University Law School

The State of Trademark “Overprotection” by Courts and the PTO. What Happens When Institutions Overprotect Trademark Rights?

Moderator: Leah Chan Grinvald, Associate Dean for Academic Affairs and Professor of Law, Suffolk University Law School

Alexandra Roberts, Associate Professor of Law, University of New Hampshire School of Law
Overprotection. One type is granting protection to matter that hasn’t earned protection—doesn’t actually function as a mark; aren’t used in a TM way. Second, scope: matter that does qualify for protection but maybe narrowly so.  Rule of doubt is a way to wear PTO down.  Many examples: Apple store layout; many Trump marks that are ornamental/informational.

Validity takes over in the courts: applicants and the PTO spend a lot of time crafting an exquisite origami crane, and courts then ask “is this paper folded?” They don’t ask what the mark is for, whether it’s a design/word mark, etc.   Roberts calls it “rounding up” in terms of rights, broadening the registered matter unwarrantedly.  Famous cases: Park ‘n Fly case: that was a design mark, not a word mark. TM lawyers know the secret: if a mark is borderline, it’s easier to register as a stylized mark—in blue and cursive when the word alone is unregistrable.  By the time courts look at it, they say the mark is Park ‘n Fly, which it is not: it is a design mark including Park ‘n Fly.

Problems: deadwood on the register; chills competition; chills competitor and consumer speech; bad litigation/TTAB outcomes that don’t serve TM’s goal of protecting consumers and competition; bullying/things done in the shadow of the law. Olympics has said that only official sponsors are allowed to use #olympics. Overprotection + incontestability in particular is a really good way to bully.

Rebecca Curtin, Associate Professor of Law, Suffolk University Law School
Stakes for consumers/creators: focusing on a couple of recent/pending cases in the doll industry. Artisan dollmaker/embroiderer on Etsy who focuses on folk art dolls, including those depicting Frida Kahlo (sometimes as she depicted herself in self-portraits). One showing her w/spinal injury was taken down b/c of takedown from Frida Kahlo rights-claiming company. If it was ©, we could discuss transformativeness, but that’s not the issue b/c the corp doesn’t hold any © or right of publicity interests; what it does claim is a TM for Frida Kahlo for games, playthings, and dolls, assigned by Kahlo’s niece.  Repeated takedowns can get her banned from Etsy; she filed a declaratory judgment. This artist isn’t alone in depicting Kahlo in multiple media, including dolls; enforcement efforts threaten diversity.  Ironically (?), the corp licensed the creation of Frida Kahlo Barbie, which outraged the family b/c it depicted her as lightskinned, and erased her unibrow and mustache and prosthetic limb. They successfully enjoined sale of the doll in Mexico. Meanwhile, the artist is forced to bear the expense of litigating to use Kahlo’s name to accurately describe her works. 

Overreach both of existence of protection and its scope. Names of historical figures/public domain characters are descriptive at best for dolls that depict them. Secondary meaning? Unlikely where the figure looms large in the public imagination, but there are complications about how to describe descriptiveness and also incontestability limits the ability to use descriptiveness to cancel a mark. Also, approaching this as distinctiveness is unsatisfying, b/c it fails to consider cultural value of name in relation to the goods—it’s not just a semantic Q of name’s relationship to the good.  Failure to function as a mark, genericism are other alternatives. The dolls embody the character: I bought my daughter a Cinderella last Christmas.  Also descriptive fair use: this is a Frida Kahlo doll.

If there are so many doctrines preventing the granting/enforcement of such rights, why is there a case here?  The toy industry is where art and merchandise collide forcefully—sometimes the merchandise comes first and often generates more revenue than the sale of the underlying expressive works, b/c the industry has learned that toys with a backstory sell better. 

In the middle of opposing “Rapunzel” for dolls/toy figures.  Fairy tale appropriation strategy: has tried this with Snow Maiden, which was issued w/o an Office Action even though it’s a Russian folktale; Snow Queen for dolls likewise (Hans Christian Anderson); Little Mermaid for dolls, though that was refused as descriptive and TTAB affirmed.  TMEP now cites the Little Mermaid case to say that public domain character names are at best descriptive of dolls depicting the character.

The key here is consumer interest in receiving expression.  Giving one company a monopoly on Rapunzel makes it harder for others to interpret the fairy tale’s legacy.  A registration is a powerful tool.

Rebecca Tushnet, Frank Stanton Professor of First Amendment Law, Harvard Law School

Empirical work: are we running out of trademarks?  Jeanne Fromer & Barton Beebe have shown that yes, we appear to be, across pretty much all classes of goods and services.  You can’t have your cake and eat it too: you can’t have over 100,000 new registrations a year and have broad rights for them too, but the system has too long pretended that’s not the case.  PTO has seemingly gotten more attentive to some of the use questions Professor Roberts has focused on. TM lawyers are unhappy with the trend and I get why they feel “why are our clients being asked to provide better specimens of use and proof of use as a mark when it didn’t happen to clients 10 years ago?” but I don’t think the answer is to stay with the old standards.

A couple of additional points: Amazon/ICANN and private rights are having the same sets of struggles, including rounding up for domain names.  Abuse is already happening—rounding up for design marks in ICANN; manipulation of Amazon.  Legitimate businesses should not celebrate the existence of these new mechanisms if they aren’t going to be transparent and provide procedural protections.

Second, legal doctrine tends to get more complicated over time, developing what I call epicycles.  This is bad for people who don’t have much money: it means they are less able to assert valid claims and less able to defend against invalid claims.

My poster child: Gordon v. Drape Creative: Honey Badger Don’t Care
Problem of granting rights too readily in the first place: it’s not a trademark, it’s a punchline, it doesn’t serve a trademark function
Use as a mark
But also, because the court rounded up and accepted the validity of the mark, a problem of adding complexity to doctrines designed to protect free speech: it decided that because the defendant’s use was also use as a punchline, it might not be protected by the First Amendment as an expressive use; maybe it was explicitly misleading.

Grinvald: what do you do?

RT: We have tools for giving the benefit of the doubt to one side if we care about the social interest at stake. Qualified immunity; defamation doctrine. We can do the same thing for nonadvertising uses.

Curtin: a number of principles as suggested in the discussion of dolls.

Roberts: failure to function at the PTO could be handled better; abolish incontestability; eliminate the rule of doubt/reverse it. Wait for a showing of secondary meaning, don’t publish it. Close scrutiny of statement of use: more than ½ of applications are ITUs and the PTO doesn’t seem to pay as much attention to the specimen of use.  Give the PTO the chance to indicate explicitly in the file wrapper the contours of the mark, and courts should pay attention to those limits. Remember that the presumption of validity is rebuttable; courts think that failure to function and descriptiveness are moot if marks have been in use for a while but that’s not true.

Grinvald: is there real change now?

RT: I think the PTO’s official policy on some of this has clearly changed and examiners are picking up on it but right now the system is so big that you need big data analysis to be sure, w/500,000 applications pending at any given time.

Grinvald: how (if at all) can we help small businesses like the Etsy artist?

Roberts: Student clinics.  Every school could have a small business clinic, which is a good fit for TM law b/c the timing works.

Curtin: organizations like Volunteer Lawyers for America.

RT: Nothing in the TM space is going to solve the problem of vast resource disparities between large and small. That said, rules offer different paths to exploitation than standards.

Curtin: relevant Q: can we expect large corporations to do the work of vindicating interests?  Why didn’t Disney oppose the Rapunzel application? Probably because Disney reasonably expects not to be sued by the TM claimant, and so it’s not worth the opposition.

Grinvald: is it really grant of registration or overenforcement?  [It’s both.]

Q: is there systematic underprotection of TM owners?  11th Cir. case: Savannah College of Art & Design v. Sportswear Inc.  If you put Suffolk Univ. on T-shirts, you get their apparel store.  It’s a good business model—they stay away from big schools like Harvard or MIT, but not from small schools. Before this case, SCAD sent C&Ds; they sell t-shirts w/ the name of the school, sometimes with the color of the school, sometimes w/info like established 1989 or whatever.  They generally last out the schools/settle w/them.

RT: I think it’s not TM confusion: consumers generally think they’re showing their own commitments when they buy the merchandise; they don’t generally think they’re buying authorized stuff, but they do think it’s morally right to give the school some of the money. I don’t hold the view that the school should morally get paid, but one can; I just don’t think it’s a confusion issue.  Where I do think TM owners are underprotected is phishing, though I couldn’t off the cuff write a rule that would be limited to phishing and not easily abused.

Curtin: what matters is if they think the website is authorized/they’re pretending to be authorized by SCAD.  [I don’t think that’s what matters unless it’s material to consumers—and it may be, though the empirics of this aren’t strong.]

Tuesday, October 29, 2019

ThermoLife continues mixed record in pleading competitive injury from other supplements

ThermoLife International LLC v. Compound Solutions Inc., No. CV-19-01473-PHX-SMM, 2019 WL 5448804 (D. Ariz. Jul. 30, 2019)

ThermoLife develops “amino acid nitrates used in dietary supplements to increase vasodilation,” and alleged that vasodilators are “included in nearly every pre-workout product on the market.” ThermoLife has over 16 patents that protect its use of amino acid nitrates, and one involves Creatine Nitrate for use in dietary supplements to promote vasodilation. Compound Solutions sells a patented green tea extract called VASO6 as a vasodilator. It allegedly falsely marked and advertised VASO6 as patented, because the patent with which VASO6 is marked is not being practiced, according to independent testing.

The court dismissed the complaint: the false patent marking claim didn’t properly allege competitive injury, and the false advertising claims failed Lexmark.  Specifically, ThermoLife didn’t identify any specific licensees of ThermoLife’s patents or allege that it “actually manufactures, markets or sells any dietary supplements or any ingredients” that compete with VASO6. Allegations that VASO6 is “in direct competition with ThermoLife’s patented ingredients and products that license ThermoLife’s patented ingredients,” that “numerous ThermoLife customers and potential customers have been fooled by Compound Solutions’ lies, having included VASO6 in their products and/or inquired with ThermoLife about VASO6 and how this ingredient compares to ThermoLife’s nitrates,” and that Compound Solutions’ false advertising “is likely to discourage or deter persons and companies from commercializing competing products or pursing research and development...which injures ThermoLife and the public by stifling competition and increasing the costs of goods” were no more than conclusory, showing again that Twiqbal is what you make it. 

Although ThermoLife alleged that the products had “at least one” similar purpose, ThermoLife failed to allege decreased sales due to competition with VASO6, or harm to its reputation, or harm to sales of specific nitrates, and failed to identify any licenses to a specific manufacturer who sells a competing product. “Generally alleging that ThermoLife and Compound Solutions are in the same industry is insufficient. To support a cognizable legal claim, ThermoLife must identify products that use Creatine Nitrate or identify sublicensees who use Creatine Nitrate in their products that compete with VASO6.”

For the same reasons, the state law claims were insufficiently pleaded. Although the shorthand is that Lanham Act and state law claims require the same elements, I think that’s potentially misleading, especially when it comes to doctrine from Lexmark, which relied very much on principles about federal statutory interpretation and applied them to a statute, the Lanham Act, that is worded very differently from the average state consumer protection law.  With that caveat, the court is certainly on solid precedential ground to say this (because so many federal courts before it have not been interested in doing a separate state law analysis, before or after Lexmark):  “Under Arizona law, an unfair competition claim requires a plaintiff to ‘either show that it was engaged in competitive business with [the defendant] ... or that [the defendant’s] actions were likely to produce public confusion.’ In the Ninth Circuit, common law unfair competition claims are ‘substantially congruent’ to Lanham Act claims and thus share the same analysis.”

DuraBlend leather-ish label not misleading

Razo v. Ashley Furniture Indus., Inc., No. 17-56770, 2019 WL 5543849, --- Fed.Appx. ---- (9th Cir. Oct. 28, 2019)

Ashley preserved its summary judgment win in this putative class action asserting the usual California claims against furniture with leather-ish components.  Under the reasonable consumer test, representations must be viewed “reasonably and in context” to determine whether the material as a whole is misleading. A court presumes that consumers will read “qualifying language [that] appears immediately next to the representations it qualifies.” However, consumers are not required to “look beyond misleading representations on the front of the [tag] to discover the truth ... in small print on the side of the [tag].”
front: "contents 57% polyurethane, 26% poly/cotton and 17% leather"

back: Durablend is a material that contains ground, pulverized, shredded, reconstituted,or bonded leather [ed. note: sounds delightful!] and is not wholly the hide of an animal and should not be represented as being 100% leather.

Here, the disclosures were “unambiguous and truthful” and on the front and back of Ashley’s DuraBlend hangtag. Neither of these disclosures was “hidden or unreadably small,” and the one on the front was “immediately next to” a list of DuraBlend’s features. [I would have said "immediately below" based on this picture but I doubt that makes any difference.] “A reasonable consumer reading that list of features would also read those disclosures and discover that DuraBlend is not genuine leather.” And the disclosures themselves were truthful and not deceptive (though that was also true of the ingredients list in Williams—the key point seems to be that the initial message was not “deceptive but arguably corrected by the disclosures”; rather the initial message was not deceptive in need of correction at all). The disclosures truthfully stated that DuraBlend (unlike other imitation products) “contains ... leather” “without deceptively suggesting that DuraBlend contains intact animal hides like genuine leather. The DuraBlend hangtag explicitly states that DuraBlend is not and should not be represented as 100% leather. No consumer, reading this disclosure reasonably and in context, would conclude that DuraBlend is genuine leather.”

Further, Ashley was not responsible for representations made by a furniture store salesperson about DuraBlend. Claims under California consumer protection law “cannot be predicated on vicarious liability.” Instead, only Ashley’s “personal participation in the unlawful practices and unbridled control” over those deceptive practices could produce liability; this wasn’t shown.

implied claims of FDA approval actionable under Lanham Act

Kurin, Inc. v. Magnolia Medical Technologies, Inc., 2019 WL 5422931, No.: 3:18-cv-1060-L-LL (S.D. Cal. Oct. 23, 2019)

Kurin developed the Kurin Lock, a “specimen diversion device that reduces the risk of blood culture contamination and associated false positive blood culture results.” Magnolia competes with Kurin, selling another blood collection device, the Steripath, which launched before the Kurin Lock.

Kurin alleged that Magnolia’s representations that Steripath is registered and listed as a Class I device and Steripath’s “Rx Only” packaging falsely implied FDA review and approval.  Magnolia argued that this was a matter for the FDA’s primary jurisdiction.

POM Wonderful explicitly noted “that analysis of other types of labels, i.e. drug labeling, may be different than food and beverage labeling due to statutory requirements.” And “actions in direct conflict with an FDA policy choice are barred.” Still, consumer protection justifies allowing Lanham Act claims in many circumstances.

The Lanham Act claim was precluded to the extent it relies on allegations that the Steripath device was misclassified. “Congress placed classification and re-classification of medical devices within the FDA’s regulatory authority under the FDCA’s comprehensive regulatory scheme.”

By contrast, to the extent Kurin’s allegations merely implied that the market or consumers has been misled by Magnolia’s representation that the Steripath device was “listed and registered” as a Class I device, those allegations remain.

Magnolia also argued that the FDCA requires Magnolia to include the “Rx Only” statement on its device labeling, so it couldn’t be the basis of a claim. The court disagreed: if the public was misled about the implications the Lanham Act was triggered, even though “any remedial measures involving the label [are] likely in the FDA’s domain.” However, the “Rx Only” allegations were conclusory.

Monday, October 28, 2019

it's hard to frame the right cause of action for Amazon seller-on-seller misbehavior

Factory Direct Wholesale, LLC v. iTouchless Housewares & Products, Inc., 2019 WL 5423450, No. 19-CV-01228-LHK (N.D. Cal. Oct. 23, 2019)

The parties compete to sell stuff on Amazon. They agreed to the Amazon Seller Agreement, which requires the seller to represent and warrant that “any information at all times accurate and complete.” The Amazon Code of Conduct requires that sellers “not engage in any ‘unfair behavior’ or activities that (a) intentionally damage another seller, including its listings or ratings, or (b) manipulate or game the selling or buying process, including Amazon’s search results or sales rankings.” “Sellers are further prohibited from contributing false, misleading or inauthentic content.”

Amazon identifies each new product  “through a unique combination of 10 letters and numbers, referred to as an Amazon Standard Identification Number or ‘ASIN’ designation.” Factory Direct allegedly discovered “false, deceptive, and unauthorized changes” to its product advertisements and listings, including changing product descriptions, providing improper ASIN numbers, and changing the product’s listing category (thereby moving the product from Amazon’s Home & Kitchen category). A third party (allegedly iTouchless) was requesting Amazon to make these changes, merging Factory Direct’s products’ ASINs into other products.  Factory Direct sued in the Northern District of Georgia, and then discovered that iTouchless was using Factory Direct’s BESTOFFICE trademark (registered on the Supplemental Register) to advertise a trash can.

During the pendency of the Georgia action, the listing changes allegedly ceased, but were renewed afterwards. For example, Amazon allegedly ended up advertising a Factory Direct trash can as an iTouchless trash can, changing the product image, title, and description.  Factory Direct also alleged that iTouchless falsely submitted an unfavorable review and deceptively removed Factory Direct from Amazon’s vendor control.  [If I were interested in increasing regulation of Amazon, I might invite a representative of Factory Direct to testify about why a lawsuit was necessary here/what they did and didn’t get from Amazon in the way of help.]

In the Georgia action, the court granted iTouchless’s motion to dismiss because the Lanham Act claim didn’t allege any falsity of the advertisements, or that the changes made by Amazon at the defendant’s request deceived or had the capacity to deceive consumers.

The complaint here alleged additional details about Amazon’s rules and policies. It alleged: (1) violations of the Lanham Act; (2) intentional interference with contract; (3) intentional interference with prospective economic advantage; (4) negligent interference with prospective economic advantage; (5) violations of California’s UCL; and (6) trademark infringement.

The court found no claim preclusion of the Lanham Act claim, but claim preclusion of UCL and tortious interference claims.  Claim preclusion doesn’t apply when the relevant conduct hadn’t occurred yet when the first suit was brought, and that was the case with the Lanham Act false advertising claims based on post-Georgia suit conduct. Likewise with trademark infringement.

However, the UCL claim was based on a more than that. While California courts have allowed continuous accrual in cases of periodic, recurring obligations like misstated rent, a  “continuing obligation to avoid anticompetitive behavior is not a periodic, recurring obligation such as a monthly payment or monthly bill.” Thus, the UCL claim accrued during iTouchless’s previous course of alleged misconduct. So too with tortious interference.

What about issue preclusion?  Factory Direct previously alleged “false or misleading statements of fact” without describing them, but provided more specific allegations here about how changes to its listing “falsely advertised” or misrepresented its products as products “manufactured and branded by Defendant,” and misrepresented characteristics “including the product title, image, brand, manufacturer, and description of the 13-gallon trash can.” These new factual allegations weren’t actually litigated or decided in the prior proceedings.

As for the false advertising claim under 12(b)(6), the claim was adequately pled with respect to a specific listing for a trash can. With literal falsity/intentional deception, actual deception is presumed; that was appropriate here.

Allegations that iTouchless attempted to merge two more listings, however, failed, because Factory Direct didn’t allege that the attempts succeeded. Even if statements to Amazon were false, they weren’t made in a commercial advertisement, and they didn’t result in a false advertisement to the public because they failed.

There also wasn’t enough detail about allegedly false changes to other listings/the unfavorable review/removing Factory Direct from Amazon’s vendor control. Factory Direct didn’t explain why any of the “changes” or “unfavorable review[s]” were “false and deceptive,” as required by Rule 9(b). The court did grant leave to amend.

Creating a Facebook page for a rival and leaving fake reviews for them is a bad idea

We often tell students that one risk of bringing a false advertising claim, as a competitor, is that there might be counterclaims if you don't have your own house in order. Here, the plaintiff fails to give enough specifics of the alleged false advertising, while the defendant shows evidence of a fake review/complaint scheme. Practice tip: don't leave fake reviews or hire anyone to leave fake reviews. The FTC is also not a fan of the practice.  Whether or not the defendant did the things it was accused of doing, this is not the way to fight back.

StoneCoat, LLC v. ProCal Stone Design, LLC, 2019 WL 5395569, No. 4:17CV303 (E.D. Tex. Jul. 25, 2019) (magistrate) (not clear to me if there was further motion practice on these points; everyone was very focused on the trade secrets part of the case)

There is a lot of stuff going on in this case that I will ignore, including trade secret claims. StoneCoat makes and sells spray-on stone facing, which will probably make the McMansion Hell writer sad; ProCal competes with it. StoneCoat alleged Lanham Act violations and ProCal counterclaimed likewise. The counterclaims included allegations that StoneCoat falsely claimed that its founder invented “Spray on Limestone” with a patent or patent pending on the formula and/or process; that StoneCoat created a fake PROCAL STONE Facebook page containing false or misleading information about ProCal and directing customers to StoneCoat’s website; and StoneCoat directed employees and/or representatives to submit fake complaints/reviews about ProCal to the Better Business Bureau, and Google Business (under the name Don Henley, no less)  and post fake positive reviews about StoneCoat.

The court found that the evidence sufficiently tied StoneCoat to the allegedly fake customer reviews. First, the founder admitted creating the fake ProCal Facebook page, though he denied allegations about the content/his motives.  Second, there was evidence that StoneCoat employees were posting positive Google reviews about StoneCoat during the same period without disclosing their connection to StoneCoat. Third, one Jason France, who owns a company that handles online business marketing, posted the fake review and the fake BBB reviews under the pseudonym “Don Henley.” (Both the BBB and Google were apparently subpoenaed for their records.) Although this was disputed, StoneCoat’s founder allegedly shows up in cell phone records having a 130 minute call with France two days before the fake reviews were posted. Fourth, one BBB complaint was submitted using the name and e-mail address of a person working at StoneCoat, and the founder had access to that person’s laptop. There was a genuine issue of material fact on whether he submitted or directed the submission of the Google/Ripoff Report/BBB Dallas complaints.  [This case looks like it could be a good practical demonstration of how this kind of tracking can actually be done, with sufficient effort.]

ProCal alleged both false designation of origin and false advertising.  StoneCoat argued that there was no evidence of infringement or injury, including no evidence that anyone saw the Facebook page.  Given the confusion factors, there was sufficient evidence of confusion, although I think the court erred in considering the BBB/Rip Off Report fake reviews here—no one could have been confused about affiliation with ProCal after reading those reviews; the problem was false advertising, not trademark infringement.

The court found the Facebook page to be “confusing on its face.” Although it purported to be the Facebook page for ProCal, in the “About” section, it states “Stonecoat is the one and only original” and then provides a link to StoneCoat’s website. “The fake Facebook page does not provide any contact information for ProCal and could leave the impression that ProCal is no longer in business or was bought out by StoneCoat.”

The alleged fake reviews were also likely to lead to consumer confusion [about what, is the key question]. “There is evidence indicating they falsely claim that ProCal was fired for doing a poor job and that StoneCoat replaced ProCal and did a better job for less money.” And there was evidence of actual confusion: the manager of construction services of ProCal Stone Design declared personal knowledge of at least eight lost sales caused by the “fake reviews wherein the customer requested a bid from ProCal, specifically brought up the fake reviews, and then chose StoneCoat to do the work.”

Unsurprisingly, because those are mostly false advertising harms, the false advertising claim was also valid. The additional allegedly false statements relate to StoneCoat’s claims about invention, patenting, trade secrets, etc. That should pose a Dastar problem but that argument wasn’t addressed here.

StoneCoat’s founder testified in other litigation that it would be false for him to say to the public that he had acquired a patent on a formula or a process because he did not have one at that time, but the website did claim to have a patent. ProCal also argued that the fake reviews were literally false because there were no such customers.  This was enough to create a genuine issue of material fact on literal falsity.

But StoneCoat also argued that no harm had been shown. It is possible to show liability for false advertising without being able to show tangible harm as a result.  ProCal was seeking disgorgement but hadn’t yet gotten StoneCoat’s financial information; for now, the court thought ProCal’s claims shouldn’t be kicked out for failure to show harm, especially since injunctive relief or disgorgement were possible remedies.

Lanham Act trademark dilution via disparagement (statutorily excluded) and the fake Facebook page (probably not diminishment in distinctiveness because it’s confusing): laughably, the court found that there was a genuine issue on fame (and on everything else), although understandably it didn’t recite any evidence ProCal might’ve submitted about fame.  A victory for the idea of throwing every possible claim in the hopper, I guess, but I disapprove.  When you’ve got really good claims (the false advertising here) it is unnecessary and dangerous—to your credibility, to the overall system that now has this nonsense in Westlaw—to add really unfounded claims.

StoneCoat, LLC v. ProCal Stone Design, LLC, 2019 WL 5391178, No. 4:17CV303 (E.D. Tex. Aug. 12, 2019) (magistrate; later adopted by district judge as to these claims)

Meanwhile, StoneCoat has some claims of its own, including that ProCal falsely advertised that it “invented” sprayed limestone and had been in the sprayed vertical limestone business for “over 17 years,” while in fact ProCal wasn’t opened for business until January 2016.  But StoneCoat didn’t submit any ads for review. StoneCoat’s founder said that he relied on “television ads made by Defendants, YouTube advertisements, websites and printed advertisements” as well as videos on the ProCal website in identifying false claims. But this affidavit wasn’t enough to carry StoneCoat’s burden at the summary judgment stage. “Importantly, Plaintiffs have not submitted a specific advertisement (or more informal type of promotion) for the Court’s review. Thus, there is no evidence from which the Court could apply the relevant criteria” for whether there was a false statement in interstate commerce in commercial advertising or promotion.

law firm blog about somebody else's case isn't commercial speech

Wexler v. Dorsey & Whitney, LLP, --- F.Supp.3d ----, 2019 WL 5485265, No. 18-CV-3066-SJB (E.D.N.Y. Oct. 25, 2019)

Wexler, a lawyer proceeding pro se, sued Dorsey (a law firm that does defendant-side Telephone & Consumer Protection Act work) and a former employee, Betpera, for a blog post on Dorsey’s blog about consumer financial services law.  The blog post discussed a putative class action Wexler filed as counsel in the Eastern District of New York under the TCPA against AT&T. In that case, a judge found the putative class representative to be inadequate as a matter of law because she was Wexler’s wife; for the case to proceed as a putative class action, Wexler would have to withdraw as counsel and renounce any interest in a future fee award.  Wexler v. AT&T Corp., 323 F.R.D. 128, 129 (E.D.N.Y. 2018). (Wexler was joined by co-counsel after the suit was filed.) Although Wexler was willing to do that, he wanted the ability to seek fees for work up to that point based on quantum meruit. The court thought that was still a conflict because that would come out of class recovery, and therefore struck the class allegations.

Dorsey’s blog claims that “Dorsey’s attorneys have handled dozens of nationwide TCPA class actions. They know the tricks used by class action lawyers and how best to thwart them at the outset.”  After the opinion issued, Dorsey published a “Legal Update” by Betpera, headlined “TCPA Class Certification Denial Exposes Major Spousal Scheme.” After discussing Betpera’s own hobbies with his wife, then summarizing the case, it concluded, “Maybe the Wexlers should try salsa dancing instead.” A different website linked to the blog post with the title “Husband Lawyer Tried Using His Spouse as Class Representative in TCPA Case,” and offered, “Having read [the Dorsey article], my only question is, for how long did they think they could get away with it?”

Defamation: “Major Spousal Scheme” can’t be defamatory; it’s just opinion, especially in context.  “Scheme” doesn’t necessarily mean deception or impropriety, even with “expos[ure]” also in the headline. Overall, “major spousal scheme” “is not capable of precise and specific meaning.” A law blog is like an editorial or op-ed page, and thus the context “encourag[es] a freewheeling, anything-goes writing style” “characteristic of opinion writing, not factual recitation.” Given that the post “begins and ends with the author’s tongue-and-cheek musings about how he would like to spend time with his wife (camping and going to Greece) and what the Wexlers should do (try salsa dancing) …. [N]o one could reasonably read the article and its headline as anything other than the author’s opinion and editorial gloss on a court decision.” Nor did the headline or article imply the existence of undisclosed facts.

Lanham Act false advertising: the blog was not “commercial advertising or promotion.”  The post was on a website titled “Consumer Financial Services Legal Update,” “with a web address different than Dorsey’s firm website.” It was attributed to Dorsey and used Dorsey’s logo, but the post’s content didn’t relate to Dorsey and didn’t mention by name or implication any services Dorsey provides. Dorsey wasn’t involved in the underlying case, which did not mention Dorsey. “While Dorsey’s motivation in having a blog, and publishing this particular article, may be to attract new clients, such motivation does not transform the article—describing a court’s decision in a case unrelated to Dorsey—into commercial speech.”

Heart of darkness: hedonic regression damages model allows certification in flushable wipes case

Kurtz v. Kimberly-Clark Corp., --- F.Supp.3d ----, 2019 WL 5483510, Nos. 14-CV-1142, 14-CV-4090 (E.D.N.Y. Oct. 25, 2019)

Here, the consumer class action concerns allegedly false advertising of “flushable” wipes that have generated municipal lawsuits around the country. After remand to address concerns about whether plaintiffs can establish injury and causation with common evidence, the court reaffirmed its conclusion that plaintiffs’ damages model could provide common evidence of harm, based on hedonic regression analysis.

Without going into too much detail, hedonic regression was acceptable and defendants’ criticisms, while deserving of consideration, went to weight rather than admissibility. “Regressions should not be excluded on the ground that they fail to meet arbitrary thresholds of statistical significance. In the current case, there are high degrees of statistical significance and any dispute about economic conclusions goes to weight not admissibility.” Developing a hedonic regression is “an art,” as one of defendants’ experts said, and none of defendants’ experts developed their own hedonic regression from scratch; “their second-guessing of [the expert’s] choices in attempting to demonstrate that the methodology is unreliable is unpersuasive.”

Under Comcast Corporation v. Behrend, 569 U.S. 27 (2013), it was sufficient that the model measured the damages according to plaintiffs’ theory of the case: consumers paid more because of the flushable label. “Disagreement about … judgments in developing and performing the model, as well as disagreement about whether [the expert’s] judgment about extrapolation of the results of his model to certain time periods or products, are questions answerable by admitted evidence. [The expert] made reasoned decisions about how to actually construct and run a model testing Plaintiffs’ theory of liability. The model fits the theory of Plaintiffs’ case.”  Individual issues, such as variations in the understanding of the term “flushable,” did not predominate.  [I believe that the reasonable consumer model is normative as well as descriptive, and a normative reasonable consumer should not think “it’s flushable if it won’t destroy my pipes but will destroy municipal infrastructure.” I can put pretty much anything I want into the recycling bin without suffering any individual consequences. That doesn’t make whatever I put in the bin “recyclable” and it would be specious for me to claim that I reasonably understood “recyclable” to mean “you can put it in the recycling bin without doing any harm to yourself.”]

Disputes about how many consumers bought the wipes for some other purpose than flushing didn’t weigh against predominance. Evidence about the average relationship between price and the flushable label was the point of the price inflation theory. Plaintiffs argued that there was “a marketwide inflation of price by a particular calculable percentage. For every flushable wipe product purchased, the consumer paid more because of the flushable misrepresentation. There is no need for individualized inquiry as to causation or injury.” And if liability was found, statutory damages could be awarded on a classwide basis (because of a prior Supreme Court case). “The single question of whether plaintiffs paid more than they would have for the good because of the deceptive practices of the defendants-sellers in labeling their products as ‘flushable’ predominates over any individualized damages inquiries.”

In closing, Judge Weinstein commented that nationwide resolution under some sort of government supervision would be a good idea; non-New York class claims have already been settled. A common market needs common labeling. Moreover, the weird situation in which $50 per incident is available classwide may well be a quirk of federal court/state procedure interaction. Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co., 559 U.S. 393 (2010). “Complex Erie problems raising and intermingling substantive and procedural issues will need thorough consideration as this class action proceeds.” [Given the ruling on predominance, will they, though? Isn’t it now a question of what plaintiffs can prove? I read this more as exhortation to settle—in a way consistent with the non-NY settlement—than identification of specific troubling issues.]

Friday, October 25, 2019

company claiming rights in "overhead doors" makes little headway against challenger

OGD Equipment Co. v. Overhead Door Corp., No. 17-cv-00898-ALM-KPJ, 2019 WL 5390589 (E.D. Tex. Jul. 15, 2019)

This is the magistrate judge’s R&R, subsequently adopted by the court. OGD is a Texas “residential and commercial door repair and installation company” with offices throughout Texas; it does business nation-wide. Overhead “is the largest manufacturer, marketer, and distributor of residential and commercial overhead doors and operators in the North American market,” and defendant Overhead-Lubbock is an authorized distributor for Overhead.

Overhead has, appallingly, a registration for OVERHEAD DOOR for garage door openers (one reason a broad definition of genericity including generic adjectives is important--a narrow definition allows exactly the kind of foolery here, where the registration is used to claim extra rights), as well as a registration for a wordless banner.

How anyone is likely to perceive that as a mark is beyond me.  It also claims trademark rights in “OVERHEAD DOOR,” “OVERHEAD DOOR COMPANY,” and “OVERHEAD,” “as used without any other words.”

Meanwhile, OGD registered its logo, prominently featuring “Overhead” with a curved letter shape:

(Also not much there to register.)  OGD argued that the shape of the logo, and the logo’s prominent use of the word “Overhead,” were used frequently in the garage door industry.

OGD alleged that Overhead was unfairly using its registration to “expand its reach from electronic controls to overhead door products.” Among other things, Overhead uses the designation “TM” after each use of the term “Overhead Door” on the Overhead website, regardless of whether the term is used in its protected form, and used lawsuits, unfair business practices, and letters to competitors to threaten them. OGD alleged that “Overhead Door” was generic for products in the overhead door industry. Overhead disagreed and alleged that OGD was using a deceptive name and logo to pass itself off as an Overhead distributor. Further endearing them to me, Overhead argued that the use of its claimed names in “unfair search engine marketing and search optimization techniques” was deceptive, and alleged that multiple customers have expressed confusion.

OGD previously bought over $750,000 in products and services from Overhead and its affiliates. In April 2017, Overhead sent OGD a letter regarding use of the Trade Names in paid internet advertisements, but didn’t raise any concerns related to OGD’s name, trademark, or stylized logo. In July 2017, Overhead sent a C&D claiming “it held a protectable trade name and trademark over the words ‘Overhead Door,’ ” and claiming that OGD’s uses constituted “ ‘clear trademark infringement violations ... under Texas and Federal law,’ ... as well as violations of Texas unfair competition laws.” The letter stated that Overhead “has regularly taken legal action to prevent use by others of OVERHEAD DOOR or OVERHEAD, as company names.”  OGD found Overhead’s claims overbroad and sought a declaratory judgment as well as bringing affirmative claims.

The court found that there was an actual controversy between the parties. Not only had Overhead alleged that OGD infringed, but OGD alleged that Overhead’s actions violated the Lanham Act and the Sherman Act. The parties’ claims about the rights to use the claimed marks were incompatible.

Overhead argued that the court couldn’t determine whether OGD infringed Overhead’s registered marks because Overhead didn’t claim infringement based on its registrations. The court disagreed. There was an objective possibility of litigation, and the C&D didn’t claim rights only under §43(a); rather, it attached the federal registration for OVERHEAD DOOR. There was also a concrete dispute between Overhead and OGD about §43(a) and state claims, although there wasn’t a dispute about Overhead-Lubbock’s trademark or trade name rights, since that entity didn’t claim any such rights.

The Lanham Act claim was properly pled: Overhead allegedly knowingly misrepresented to consumers that: (1) they, along with other Overhead distributors, are the only companies that can lawfully use the Trade Names; (2) OGD is using the Trade Names with the intent to trade on Defendants’ brand names and purposefully confuse consumers; (3) OGD is not a reputable company; (4) OGD is affiliated with a company called “GDS” or “Garage Door Services,” which has been the subject of negative articles and lawsuits; and (5) OGD is a deceptive company that intends to confuse consumers. OGD alleged specific communications by defendants in online advertising and marketing and a specific blog entry by Overhead-Lubbock, allegedly written by a person employed both by Overhead and Overhead-Lubbock.

Texas doesn’t have a separate false advertising common law tort, but it does have unfair competition. “Unfair competition includes a number of types of objectionable trade practices, including trademark infringement, dilution of good will, misappropriation of business value, palming off, passing off, and theft of trade secrets.” “To prevail on its unfair competition claim, OGD must show an illegal act by Overhead and Overhead-Lubbock which interferes with OGD’s ability to conduct its business.” The allegations here (as above, along with alleged misrepresentation that OGD doesn’t have a physical location in Lubbock) sufficed. Although defendants argued that this was just false advertising, the court found the allegations “akin to a claim for dilution of good will.”  [I would have thought trade disparagement.] And because the Lanham Act claim survived, the unfair competition claim was properly premised on independent substantive torts. [This seems weird. Is it an independent reason? If not, then can trademark infringement be actionable under state common law if you don’t bring, or for lack of interstate commerce don’t have, a §43(a) claim?]

Sherman Act claims failed (they are, after all, antitrust claims) for want of a sufficiently good market definition, though Overhead ought to look out for 1-800-Contacts given its attempt to control internet advertising.