Sunday, October 31, 2010

Politics and the right of publicity

A Republican in Kansas has created a billboard stating that "True Americans vote for Pompeo" (whose opponent is the son of Indian immigrants). The billboard also uses an image of John Wayne in front of a flag. Any problems?  If this is ok, why are musicians getting treated differently when politicians use or mock their songs?

Friday, October 29, 2010

Welch's claim against insurers squelched

Total Pom-advertising-related legal fees must be hitting eight figures, right?

Welch Foods, Inc. v. National Union Fire Insurance Co., 2010 WL 3928704 (D. Mass.)

Welch wanted its insurers to cover its defense against Pom over its “White Grape and Pomegranate” juice, whose label prominently pictures pomegranates when, in fact, the primary ingredients are white grape and apple juice. After Pom sued for false advertising, so did a putative class of consumers. Welch tendered the complaints to three of its insurers. Zurich American Insurance Company and National Union Fire Insurance Co. of Pittsburgh, PA denied coverage and declined to defend. Axis Surplus Insurance Company, denied coverage under two policies, but agreed to defend under a third while reserving its rights. (Maybe I am biased because I only read the litigated cases, but I’ve got to wonder: do insurers ever actually pay for a defense?)

Welch sued, seeking a determination of its rights. The insurer has a duty to defend when the allegations of the third party complaint are reasonably susceptible of an interpretation that they state a claim covered by the policy terms. The policyholder has the initial burden of proving coverage, at which point the burden shifts to the insurer to establish that an exclusion applies.

National Union covers loss arising from “a Claim ... for any actual of alleged Wrongful Act of [Welch]." It defines "[w]rongful act" as "any breach of duty, neglect, error, misstatement, misleading statement, omission or act by [or on behalf of the Organization]." However, the Antitrust Exclusion excludes claims “alleging, arising out of, based upon or attributable to, or in any way involving either directly or indirectly, antitrust violations, price fixing, price discriminations, unfair competition, deceptive trade practices and/or monopolies, including actions, proceedings, claims or investigations related thereto ...." The question was whether Pom’s action for "unfair, unlawful, and fraudulent business practices" and deceptive statements and the consumers’ claim for "unfair competition" and untrue and deceptive statements fall under "unfair competition" or "deceptive trade practices" in the exclusion. The policy didn’t define either term.

Welch argued that the exclusion should be limited to antitrust claims, noting its header and appealing to noscitur a sociis; the surrounding words relate entirely to antitrust claims. However, the contract specifically states that "[t]he headings in this policy are there purely for the convenience of the parties and they form no part of the definition of the scope of the coverage provided." “Moreover, the plain language of the exclusion is broad enough to include a variety of anti-competitive behavior. Nothing in the text of the exclusion limits it solely to antitrust claims. To the contrary, the fact that it includes a range of anti-competitive conduct suggests that its scope is broader than antitrust claims.” National Union had no duty to defend.

Exercise for the reader: think of a misleading statement by a company that could not be pled or construed as a deceptive trade practice.

On to Zurich, which provided an advertising injury policy. This policy covered injury arising out of “[o]ral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services” and “t]he use of another's advertising idea in your advertisement.”

Welch argued that both sets of plaintiffs alleged that Welch disparaged Pom’s product by falsely advertising that Welch’s product contained [a lot of] pomegranate juice, thereby damaging Pom’s reputation. However, the ads at issue here didn’t disparage Pom; they allegedly misrepresented Welch’s own product. This isn’t a false superiority or comparison case where there’s disparagement by implication.

What about use of another’s advertising idea? Pom’s complaint alleged that Welch attempted to "cash in on POM's idea of selling bottled pomegranate juice by marketing and selling to consumers products labeled as 'pomegranate juice' that in fact contain little or no actual pomegranate juice." However, "the phrase 'advertising idea' relates to the manner in which one advertises its goods"—Pom’s ideas about how to solicit business and customers—not to ad content. Zurich had no duty to defend.

Axis provided Welch with Media Wrongful Act Coverage and Professional Services Wrongful Act. A Media Wrongful Act covered wrongs “in connection with the creation or dissemination of the Covered Media, or in connection with the creation or dissemination of Advertising Material relating to the Covered Media, including but not limited to any of the following: [ ] disparagement, or any other form of defamation or harm to the character or reputation of any ... entity; misappropriation of ... information or ideas; error or omission in [c]ontent....” Covered Media is defined as the "[c]ontent of the publications, programs, films, broadcasts, internet sites ... including any electronic or digital versions...." "Content" is defined as "any communicative material" excluding several exceptions relating to the delivery of such content.

The court concluded that the underlying allegations do not arise from "errors or omissions in content ... in connection with the creation or dissemination of" covered media or advertising material. That is, the underlying complaints didn’t allege loss arising from the creation or dissemination of Welch's advertising material, only from the content thereof. (What, then, did the insurance cover? How could the creation or dissemination of ads ever have an error or omission in content, or for that matter constitute disparagement, separate from the content of those ads? I get the rest of the analysis, but shouldn’t an insurance contract be interpreted to provide coverage at least in some plausible scenarios?) Moreover, the underlying complaints didn’t claim disparagement etc. or misappropriation, as noted above.

The Axis policy defined a Professional Services Wrongful Act as “any actual or alleged negligent act, error or omission committed or attempted solely in the performance of or failure to perform Professional Services by any Insured in his, her or its capacity as such....,” and Professional Services was defined as "promotional and marketing services," including electronic and internet advertising.

The false advertising claims here didn’t fall under the definition. This provision is “usually intended to provide liability protection for insureds whose clients hire them to provide professional services.” Moreover, professional services coverage is not intended to cover claims by competitors. “Such claims pertain to how the insured does business rather than breach of professional duties.” So Axis prevailed as well.

Somebody should start the Pom litigation blog

I've got another one coming shortly!

POM Wonderful LLC v. Organic Juice USA, Inc., 2010 WL 3912222 (S.D.N.Y.)

Pom sued Organic Juice, which sells "100% Organic 100% Pure Pomegranate Juice" and "Natural 100% Pure Pomegranate Juice,” alleging that its scientific tests proved that the juices contained high-fructose corn syrup, grape juice, a foreign anthocyanin containing sweetener, and possibly apple juice. Organic Juice sought to amend its answer and counterclaims to assert various false advertising causes of action and to raise the unclean hands defense. This was based on the FDA’s actions against Pom’s claims about the health benefits of its product, and on the discovery that Pom’s "100% pomegranate juice" contained elderberry juice.

The court allowed the amended answer and counterclaims. Leave to amend is granted freely when justice so requires, but when it’s outside the time for filing amendments as set forth by a scheduling order, good cause must be shown. Here Organic Juice showed good cause for its delay, even though it was six months after the deadline set by the scheduling order. Organic Juice first discovered the elderberry juice issue by reviewing 30,900 documents produced in February; it filed its motion five days after making the discovery, so even if it took some time to uncover the documents, there was no delay after that.

Further, Pom didn’t show any prejudice from allowing the amendment. Significant delay in resolving the dispute or a requirement that the opponent spend significant additional resources on discovery and trial preparation can show prejudice, but here there was no trial date or pending motion for summary judgment at the time the motion was filed. “Moreover, the information upon which Organic Juice relies to assert its proposed new counterclaims is information best known to POM.” All the relevant information about Pom’s juice content is in Pom’s possession.

The FDA-based counterclaims were also allowed. Although the statements the FDA examined were publicly available when the initial lawsuit was filed, the foundation for the counterclaims is the FDA’s February finding that the statements violate the FDCA. (This will make for an interesting preemption/preclusion argument, though of course Pom is already somewhat constrained on that front by its litigation posture against other juice sellers.) The counterclaims are not futile. The new allegations that Pom marketed its juice as having special health benefits without the FDA's approval, advertised its product as containing "100% pomegranate juice" despite it also containing elderberry juice, and falsely advertised that all research on the health benefits of drinking pomegranate juice were conducted using POM WONDERFUL instead of another brand of pomegranate juice” sufficed to state claims under New York law and the Lanham Act.

Thursday, October 28, 2010

Ale House still generic; other claims no help either

Miller's Ale House, Inc. v. Boynton Carolina Ale House, LLC, 2010 WL 3943550 (S.D. Fla.)

Plaintiff Miller's has continuously operated a chain of over 40 restaurants in Florida for over 20 years. Each Miller’s uses a geographic prefix, typically the city, street, or neighborhood location, followed by “Ale House.” (From the website, there appear to be a bunch of locations using the term “Orlando Ale House.”) Miller’s operates several locations outside Florida with the same naming system. Each Miller’s location displays its name in red letters on the outside of the building, and “Ale House” appears regularly inside the restaurant, including on specific menu items.

Miller’s locations also have some other common features: “server uniforms consisting of a dark polo shirt and khaki pants, two persons present at the host station, dock wood on the walls, a centrally located rectangular peninsular bar with seating on both sides, a soffit over the bar, an open kitchen that allows customers to see food preparation, and high-top tables on the right hand side of the restaurant. Miller's claims copyright in a number of the common floor plans that it uses in its restaurants.

Miller’s promotes the “Ale House” restaurants through a shared website,, and other social media, and uses an “Ale House” brand on flyers, posters, and banners. Miller’s submitted testimony that as a result of its promotional efforts, many Florida residents associate “Ale House” exclusively with Miller’s restaurants.

In 2008, defendant BCAH opened the Carolina Ale House in Boynton Beach, Florida, about a mile from Miller’s Boynton Beach Ale House. BCAH operates under a license from an entity known as LMR, as do 12 other restaurants across North Carolina, South Carolina, and Florida licensed to use the Carolina Ale House brand. Like Miller’s, BCAH uses a red logo prominently featuring “Ale House,” prominently featured on the building and on employees’ uniforms. BCAH also sells menu items with the Ale House prefix. BCAH servers wear dark polo shirts with khaki shorts or slacks, and the floor plan is “similar” to Miller’s, with a centrally located bar area, an open kitchen, dock wood on the interior walls, and high-top seating on the right side.

The parties have offered similar promotions, such as $5 off $25 coupons. BCAH's coupons say they are valid at "participating Palm Beach area locations," even though there is only one Carolina Ale House location in Palm Beach County. The parties both advertise pay-per-view mixed martial arts "fight nights," though other Carolina Ale House locations outside of Florida apparently don’t advertise these events. The parties both advertise day-specific dining discounts such as lunch specials, "Kids Eat Free Nights" and "Ladies Night."

There have been a number of instances of customer confusion and questions about whether the restaurants are related. Customers with take-out orders have come to the Carolina Ale House instead of Miller’s, and Carolina Ale House patrons have asked for menu items only available at Miller’s. Customers have arrived at Miller's expecting to meet friends or family who are actually waiting for them at the Carolina Ale House, and vice versa. People have attempted to redeem Carolina Ale House coupons at Miller's.

Miller’s sued for trademark and trade dress infringement, copyright infringement, unfair competition, and state-law trademark dilution.

Unfortunately for Miller’s, in 1998, its predecessor in interest sued another LMR licensee, Raleigh Ale House, for trademark/trade dress/copyright infringement and unfair trade practices. Affirming summary judgment for the defendant, the Fourth Circuit held that “ale house” was generic for Miller’s services. Ale House Management, Inc. v. Raleigh Ale House, Inc., 205 F.3d 137 (4th Cir. 2000).

Since the 1998 suit, more than 20 new Miller’s locations have opened, and Miller’s now appears to be the predominant user of the term in Florida. Local dining guides don’t use “ale house” as a category. However, other parties in South Florida use “Ale House,” including another LMR licensee in Weston and an unrelated restaurant in Palm Beach County. BCAH’s expert, a professor of English at Duke, examined several dictionaries and found that they
defined the word "alehouse" as an "establishment that serves ale," and identified numerous restaurants outside of Florida that use the term "ale house" or "alehouse" in their names. (Query whether this is appropriate expert testimony.)

BCAH moved for summary judgment, arguing that Miller’s was bound by the Fourth Circuit’s holding on genericness. Miller’s argued that the decision only covered genericness to North Carolina consumers then, not Florida consumers now.

The law is that a generic term can’t be protected even if it has some secondary meaning. In rare instances, courts have allowed “recapture” of a term previously categorized as generic. (“Recapture,” though, indicates a key point—never “capture.” That is, a trademark that suffered genericide may be recaptured under this precedent, but not a term born generic.)

But the first question was whether issue preclusion prevented Miller’s from relitigating the protectability of the term. Issue preclusion operates when (1) the issue at stake is identical to the one involved in the prior litigation; (2) the issue was actually litigated in the prior suit; (3) the determination of the issue in the prior litigation was a critical and necessary part of the judgment in that action; and (4) the party against whom the earlier decision is asserted had a full and fair opportunity to litigate the issue in the earlier proceeding. (Part (4) was satisfied because Miller’s was the direct successor in interest of the plaintiff in the Fourth Circuit case; they were either in privity or had a substantive legal assignor-assignee relationship permitting issue preclusion to apply.)

Miller’s relied on Opryland USA Inc. v. Great American Music Show, Inc., 970 F.2d 847 (Fed. Cir. 1992), which allowed a party to present evidence of public perception before the TTAB despite a prior finding of genericness. There, Opryland was allowed to show the public perception of “opry” as a significant component of its asserted marks as part of an opposition and cancellation proceeding. The court found Opryland USA of limited value, since the Federal Circuit “stopped well short of holding that Opryland had recaptured the generic term ‘opry,’ instead only concluding that Opryland was entitled to oppose a trademark registration with evidence of public perception.”

Changed circumstances can avoid issue preclusion. And consumer perception of words and symbols can change over time. However, relitigating trademark validity is onerous, and claimants should show a significant intervening factual change before being allowed to do so. For genericness, a plaintiff must present evidence that the term has “ceased” to have generic meaning. Here, Miller's didn’t do that.

To start with, BCAH met its initial burden by providing substantial evidence that “ale house” continues to be generic, including third party uses and dictionary definitions.

There were two critical problems with Miller’s contrary evidence. First, virtually all of its consumer perception evidence was confined to Florida. It couldn’t divide the country into regions where the mark is generic and regions where it’s not. (The court cited only registration cases—registration provides nationwide rights, so this is not on point for a §43(a) claim—but I think there’s some force to this argument even under §43(a) given the policies that refusing to protect generic terms promotes.) Miller’s was unable to show changed consumer perception nationwide, even though it operates several locations outside Florida. Miller’s expansion was “markedly different” from that in the classic Singer case, where the Singer company spent half a century selling its brand of sewing machines nationwide before the court found it had recaptured the mark. Without “pervasive, prolonged presence in the national restaurant market,” there was genuine issue of material fact about changed consumer perception.

The second problem was that Miller’s evidence was insufficient to raise a genuine issue of material fact as to whether a significant intervening factual change occurred. The absence of "ale house" from the category headings of phone books and web directories did nothing to raise a question of fact as to whether "ale house" no longer carried any generic meaning for the relevant dining public. Many common restaurant terms, such as "café" or "bistro," may be absent from such category headings, but they’re still generic.

The actual confusion evidence was irrelevant unless the mark is protectable in the first instance. Moreover, Miller’s anecdotal confusion evidence was “much less comprehensive and much less reliable than a traditional, systematically conducted consumer survey.” It shed little light on genericness in particular, given that the people being surveyed were already dining at Miller’s and might not have had the same perception as the general dining public. No reasonable jury could find that the anecdotal evidence proved that “ale house” had lost all generic meaning to the public.

The trademark infringement claim was barred by issue preclusion.

Miller’s also claimed infringement of its trade dress in its interior décor, layout, and red logos. The Fourth Circuit case held that Miller’s interior floorplan was neither “unique” nor “unusual,” and that Miller's had "not advanced sufficient evidence to support its claim to a proprietary interest in the appearance and service it employs in the interior of its facilities." In this case, Miller’s added menu design (use of “ale house” on menu items), red logo signs, interior décor, and service staff appearance to its claim of distinctiveness, and so its current claim was not barred by issue preclusion. (Can the elements the Fourth Circuit found nondistinctive count at all in the definition of the trade dress? Of course, adding new elements to the claimed trade dress may make it harder to show that defendant has copied enough to cause confusion.)

To win, Miller’s would have to show distinctiveness, nonfunctionality, and likely confusion. First, the court found that the trade dress lacked inherent distinctiveness. Distinctiveness of (non-product design) trade dress depends on whether the claimed trade dress is a "common" basic shape or design, whether it is unique or unusual in a particular field, and whether it is a mere refinement of a commonly-adopted and well-known form of ornamentation for a particular class of goods viewed by the public as a dress or ornamentation for the goods. The overall impression must be examined, not little pieces.

Here, there was nothing unique or unusual about the claimed interior elements. “Numerous restaurants have a centrally located bar, two hosts at the host station, an open kitchen, servers with dark Polo shirts and khaki lower garments, and wood on the walls.” The centrally located bar and open kitchen were also arguably functional. There was nothing noteworthy about the menu design, red signs, or promotional materials. The claimed trade dress was “merely a refinement of the commonly-adopted form of ornamentation for sports bars and casual restaurants.”

There was also insufficient evidence to create a factual issue on secondary meaning in the trade dress. All Miller’s secondary meaning evidence was about “ale house”; none referred to interior appearance or décor.

Miller’s further alleged false advertising through BCAH’s coupons, which stated that they were "valid at participating Palm Beach Area locations” and thus falsely traded on Miller’s goodwill, since BCAH’s is the only Carolina Ale House in Palm Beach County. BCAH argued that the coupons weren’t false because there’s a Carolina Ale House in Weston, in Broward County. Miller’s disagreed: Weston isn’t part of the “Palm Beach Area.”

Analyzing the message as a whole, the physical addresses and phone numbers of both Carolina Ale House locations in South Florida were printed prominently by the coupons, accompanied by the "Carolina Ale House" logo and website address. Thus, there was no literal falsity in context. Anecdotal evidence that BCAH customers sometimes attempted to use Miller's coupons and vice versa couldn’t substitute for “reliable consumer or market research” showing that a significant part of the audience was deceived. Summary judgment was also appropriate here.

Miller’s further claimed that BCAH unfairly copied its promotions and special events such as its “fight nights.” Even assuming intentional copying, this isn’t unfair as a matter of law. Unless protected by an IP right, anything can be copied, including dining specials and lunch promotions.

Copyright infringement in the floor plans: The court also rejected the copyright claim for want of substantial similarity between the parties’ floor plans. (No issue preclusion because BCAH’s floor plan wasn’t litigated in the Fourth Circuit case.) Though summary judgment is sometimes disfavored in copyright cases, it’s appropriate when no reasonable jury could find two works substantially similar, and this is particularly so when the infringement claim “involves an architectural work that is merely a compilation of common design ideas.” Because of the Copyright Act’s narrow definition of “architectural work,” which covers "the arrangement and composition of spaces and elements in the design" but excludes "individual standard features," such as windows, doors, and other common architectural features, "modest dissimilarities are more significant than they may be in other types of art works." As there are only so many ways to divide up a rectangle into rooms, "similarities in the general layout of rooms can easily occur innocently."

At a broad level of generality, the two floor plans were arguably similar: both feature restrooms at the rear left and a kitchen on the rear right, a central bar with booth seating on the left side, and "high-top" tables and stools to the right accompanied by pool tables. But the question was substantial similarity in protected expression. There were numerous differences in arrangement. The centrally located bars were in different locations relative to each restaurant's entryway. Much of the interior seating was markedly dissimilar. BCAH’s bathroom entrances were divided from the dining area with a solid wall and Miller’s weren’t. The arrangement of the pool tables and video games inside each restaurant was different: Miller's put its pool tables in a column between the dining tables, while BCAH separated the pool tables from the diners. BCAH had a separate outside corner bar and outside seating, while Miller's floor plan didn’t specify any outdoor seating at all, creating a “dramatic[] differen[ce].”

Given the thinness of the protection available, the differences here were overwhelming and the similarities only at a broad conceptual level. Summary judgment for BCAH.

Fruity Oaty Bars and false advertising

(I couldn't do just one Joss Whedon reference, now, could I?)

Chacanaca v. Quaker Oats Co., 2010 WL 4055954 (N.D. Cal.)

Plaintiffs filed a putative California class action under the UCL, FAL, and CLRA, arguing that Quaker’s Chewy Bars contain “dangerous amounts of trans fat,” but are labeled and marketed to suggest that they are in fact wholesome and healthful. They sought an injunction against the "0 grams trans fat" statement on the Chewy Bar label and other relief. The court granted Quaker’s motion for judgment on the pleadings based on preemption for all claims directed at the "0 grams trans fat" statement, the "good source" of calcium and fiber statements, and the statement indicating that the product contains whole grain oats but lacks high fructose corn syrup. In addition, plaintiffs, as noncompetitors, lacked standing to bring a Lanham Act claim. However, claims relating to the term "wholesome," to the phrase "smart choices made easy,” and to depictions of oats, nuts, and children survived.

Plaintiffs argued that trans fat is highly toxic to human health. Quaker’s label states that a single bar contains “0 grams trans fats,” and yet the bars include hydrogenated vegetable oil (trans fat) in the ingredient list. This is because federal regulations expressly instruct that any level of trans fat that falls below 0.5 gram per serving must be rounded down to zero. Plaintiffs conceded that the “0 grams” in the nutrition box complied with FDA regulations and that Quaker wasn’t allowed to state a decimal amount smaller than 0.5, but argued that the repeated “0 grams” statement, removed from the nutrition facts statement but plainly visible to consumers, was false and misleading.

Plaintiffs also alleged that the box’s use of the phrases "wholesome," "a good source of calcium and fiber," "made with whole grain oats," "no high fructose corn syrup," and "smart choices made easy," along with images of oats, nuts and children in soccer uniforms that also appear on the box, create the misleading impression that Chewy Bars are healthful or part of a healthful lifestyle.

Though it took a while to explain the statutory scheme, preemption was relatively easy: state law claims can survive only if they’re identical to those imposed by the FDCA and NLEA or don’t involve claims/labeling information as described in the relevant statutory sections, including “nutrient content” claims. “0 grams trans fat” was a nutrient content claim. Thus, plaintiffs’ attack on it would only survive if the claim could it be “misleading” outside the nutrient box and thus constitute misbranding in violation of the FDCA/NLEA. The side panel statement was voluntary, unlike the nutrient box. Nor were plaintiffs asking for Quaker Oats to make a different affirmative statement; they pointed out that at least the rounded-down number in the box is in close proximity to the ingredient list, which discloses the partially hydrogenated vegetable oil and provides serving information, allowing consumers to figure out that consumption of several bars could entail non-trivial amounts of trans fat. (Technically, pursuant to regulation, Quaker Oats was required to declare the "0 grams" trans fat in the nutrition box only because it made the content claim elsewhere, but the court didn’t consider that important.)

The court rejected Quaker’s argument that an express claim can’t be misleading if it simply restates the information in the nutrition box. But, noting that the FDA’s Final Rule on the matter states that even express claims can be misleading, the court refused to adopt such a categorical rule. No regulation specifically requires that express content claims have to use the rounded figures required in the nutrition label. Instead, it must "not in any way implicitly characterize the level of the nutrient in the food" and must not be "false or misleading in any respect." However, the FDA has also held that reference claims (claims that compare the nutrient level of a product to that in a prior version) can choose to use either rounded or actual values so long as the label is internally consistent. It has also reasoned that the difference between actual and rounded values is “nutritionally insignificant” and functionally provides identical information. “Accordingly, if ‘nutritionally insignificant amounts’ of less than 0.5 gram trans fats means the same thing, according to Agency regulations, as ‘0 grams,’ then the use of the latter language in an express nutrient content claim would not be misleading” within the meaning of the law. Thus, the state law claims sought to impose a non-identical burden on Quaker and were preempted.

Plaintiffs also challenged “contains whole grain oats” and “no high fructose corn syrup.” A statement of an ingredient is not necessarily a nutrient content claim, but may function as such depending on the circumstances. The FDA says that an absence claim can only be made if the food is specially processed or formulated to remove the nutrient; if a food in its natural state lacks the nutrient, the seller must indicate that. Plaintiffs argued that the presence of hydrogenated vegetable oil makes these claims, though true, misleading. But the FDCA has provided for this precise scenario: even true nutrient content claims are misleading if another “disqualifying” nutrient exceeds an amount established by regulation. The FDA has only imposed disqualifying levels for total fat, saturated fat, cholesterol, and sodium. In 2003, it declined to set disqualifying levels for trans fats. Because of this express decision, plaintiffs’ state law claim was inconsistent with the FDCA and regulations to the extent it depended on the presence of trans fats to render the content claims misleading. Similar reasoning defeated the claims against Quaker’s representations that Chewy Bars are a “good source” of calcium and fiber.

However, the pictures, “wholesome,” and “smart choices made easy” decal (part of an industry program) could not be categorized as nutrient content claims, and thus were not preempted. Though the FDA has expressed interest in such front of the box claims, until it acts there’s no preemption. “Wholesome” doesn’t describe any particular nutrient and the FDA has no formal or informal policy on the term.

Nor did the court apply the primary jurisdiction doctrine, which allows courts to kick initial decisions to the relevant agency. There are four relevant factors: “(1) the need to resolve an issue that (2) has been placed by Congress within the jurisdiction of an administrative body having regulatory authority (3) pursuant to a statute that subjects an industry or activity to a comprehensive regulatory authority that (4) requires expertise or uniformity in administration."

No dice. “Without question, the FDA has extensively regulated food labeling in the context of a labyrinthine regulatory scheme. Nonetheless, plaintiffs advance a relatively straightforward claim: they assert that defendant has violated FDA regulations and marketed a product that could mislead a reasonable consumer. As courts faced with state-law challenges in the food labeling arena have reasoned, this is a question ‘courts are well-equipped to handle.’" The remaining representations don’t entail technical questions or require agency expertise to interpret.

Quaker then argued that plaintiffs hadn’t suffered an injury in fact and lacked standing, because they failed to plead any health-related harm. But the harm for which plaintiffs sought redress was not health harm, but deception. Had they known about the trans fat content, they alleged, they wouldn’t have bought the product, which is adequate to allege an injury.

Quaker contended that the remaining statements are truthful or nonactionable puffery. Quaker relied on Tylka v. Gerber Products Company, 1999 WL 495126 (N.D. Ill. July 1, 1999), which found that "[the] most wholesome nutritious safe foods you can buy anywhere in the world" was puffery. But “wholesome” was only part of that phrase, whose superlative claim was what rose to the level of unbelievable exaggeration. By contrast, a representation that a product is “wholesome” could arguably mislead a reasonable consumer. The same analysis applied to “smart choices made easy.” Likewise, if plaintiffs are correct that trans fats are not safe in any amount as true, and if the images on the box imply that active, healthy children are fueled with Chewy Bars, the court couldn’t find puffery as a matter of law at this point.

Plaintiffs also pled with sufficient particularity under Rule 9(b).

However, as consumers and not competitors, plaintiffs lacked Lanham Act standing.

Wednesday, October 27, 2010

Fraudsters' liability upheld

Federal Trade Commission v. Direct Marketing Concepts, Inc., No. 09-2172 (1st Cir. Oct. 21, 2010)

“The Defendants in this case made millions off infomercials shilling purported panaceas, products that they claimed cured literally every disease, from cancer to Parkinson's to obesity.” The court of appeals was unimpressed by their challenges to the district court’s grant of summary judgment on liability for deceptive advertising and determination of damages after a bench trial.

The individual defendants Donald Barrett and Robert Maihos co-own ITV Direct, Inc. (ITV), which produces infomercials, and Direct Marketing Concepts, Inc. (DMC), which distributes them. BP International (BP) is a holding corporation “to which Barrett eventually (and secretly) transferred some of DMC's assets.” Barrett, Maihos, and DMC produced and distributed an infomercial marketing coral calcium. In the infomercial, a purported expert, Robert Barefoot, claimed that all diseases are caused by a condition called acidosis: “heart disease, cancer, lupus, fibromyalgia, multiple sclerosis. Name the disease, they're all caused by acidosis.” He then claimed that calcium derived from Okinawan coral cured these diseases: “[W]e've been studying the coral calcium and I can tell you there are tens of millions of people, millions of testimonials. I've had 1,000 people tell me how they've cured their cancer. I've witnessed people get out of wheelchairs with multiple sclerosis just by getting on the coral.” And so, depressingly, on. (Kevin Trudeau was also involved.) He claimed that “unspecified articles from the Journal of the American Medical Association and the New England Journal of Medicine ‘said that calcium supplements reverse cancer . . . that's a quote.’”

DMC-employed telemarketers were, among other things, directed to tell sick customers that they should take higher doses of Coral Calcium. From January 2002 to July 2003, the infomercial generated over $54 million in sales, of which approximately $575,000 were transferred to BP.

Defendants were similarly involved with an infomercial for “Supreme Greens,” AKA “Supreme Greens with MSM.” This one featured a “Dr.” Alejandro Guerrero, who claimed to be a “Doctor of Oriental Medicine” but had no such degree. It made similar claims about acidosis: “most chronic degenerative diseases – such as cancer, arthritis, diabetes, even the number one killer out there, heart disease – can and are being cured . . . .” He claimed to base his statements on clinical studies, and even claimed that Supreme Greens caused weight loss because "fat is your body's way of protecting itself from the acidic fluids." Telemarketers’ scripts directed them to ask potential customers about their health issues and tell them that Supreme Greens would help. “[I]f a customer said she had cancer, the telemarketer was supposed to respond that "cancer is acidosis of the body and Supreme Greens alkalizes the body, and that's what you need, so you really want to take this." From August 2003 to June 2004, Supreme Greens generated over $14.6 million in sales.

After the FTC sued in 2008, the district court granted summary judgment on liability, holding that the challenged infomercials were misleading as a matter of law. In August 2009, the court permanently enjoined the deceptive infomercials and ordered disgorgement from the Defendants (excluding BP) of over $48 million and from BP in the amount of nearly $575,000.

The defendants made a bunch of bad arguments. They first challenged the basic liability standard applied by the district court. The FTC argued that defendants lacked a reasonable basis for their claims. This requires the FTC to show what evidence would in fact establish such a claim, and to compare the advertisers’ substantiation to that required by the scientific community. When advertisers lack adequate substantiation, they necessarily lack a reasonable basis for their claims, making their ads deceptive as a matter of law. Defendants argued that the FTC should be required to prove that the infomercials were actually false. That is not the law. Despite defendants’ “smattering” of First Amendment and DSHEA references, the court found any constitutional or statutory argument waived for want of context or developed argument.

Applying the reasonable basis standard, defendants created no factual issue on substantiation. The FTC produced four expert declarations which demonstrated that the infomercials’ claims could be substantiated by double-blind, placebo-controlled human studies. The court noted that other scientific evidence could be sufficient, but “some” scientific evidence is required for substantiation. Defendants “neither produced nor pointed to any evidence to raise even the tiniest of fact issues” on the type of evidence required to substantiate the claims. Then, the declarations compared defendants’ evidence to the available literature and concluded that it was “woefully inadequate.” There’s some evidence that calcium is good for you in various ways, but none that it cures cancer or heart disease or has any effect on autoimmune disorders. The claimed JAMA/NEJM references didn’t exist, and there was no evidence that any kind of calcium is “100% absorbed,” as claimed. There’s no evidence that any disease is caused by “an overly acidic body” or that alkalinity cures cancer or heart disease, and there’s no evidence that any Supreme Greens ingredient can prevent, treat, or cure cancer, heart disease, or diabetes, or cause weight loss.

Barefoot’s books were full of extrapolations, distortions, and utter fabrications. The books, along with his deposition testimony, Guerrero’s deposition testimony, “a number of popular science and pseudoscientific articles, and one preliminary study” did not come close to establishing an issue of fact as to reasonable basis. “It appears to be no accident that neither Barefoot, nor any Defendant, nor any of the Defendants' attorneys has at any point in these proceedings identified any particular scientific study or studies to support the specific claims presented in the Coral Calcium infomercial.” The best they had was a “grossly insufficient” double-blind, controlled, but also unpublished and preliminary study of sixteen people, which found that one of the ingredients in Supreme Greens might relieve arthritis pain and was therefore worthy of further study. The court also pointed out that “even the abstracts and excerpts from pseudoscientific articles, published in journals such as the non-peer reviewed and now-defunct Healthy & Natural Journal and Natural Way for Better Health, do not support the specific claims made in either infomercial.”

Even under the most lax standard of scientific reliability, defendants would lose, but the FTC’s evidence established a rigorous standard. This was deceptive advertising as a matter of law.

Defendants argued that their infomercials contained puffery, not specific health claims, and that general disclaimers prevented any deceptiveness. But specific and measurable claims aren’t puffery. The defendants made definite statements that coral calcium and Supreme Greens cured cancer, etc.—“far beyond puffery as a matter of law.” Disclaimers didn’t work either. Disclaimers or qualifications are inadequate unless they’re sufficiently prominent and unambiguous to change the apparent meaning of the claims. Anything less will just cause confusion by creating contradictions. Here, the disclaimers weren’t even sufficient to cause confusion, given how clear and concrete the claims were. The only disclaimers in the transcripts were that the infomercials were paid advertising. Defendants claimed that the infomercials said that the shows only expressed speakers’ “opinions,” and that the products weren’t intended to diagnose, treat, or cure any disease. The factual record did not support this, but even assuming those statements were present, they would only have caused confusion, not fixed the problem. “A statement that studies prove a product cures a certain disease, followed by adisclaimer that the statement is opinion and the product actually does not cure the disease, leaves an overall impression of nonsense, not clarity.” “[D]o-nothing disclaimers” couldn’t make a dent in the “bold and straightforward” health claims “presented by supposed
experts as testable observations backed up by clinical trials and studies.”

The court of appeals also affirmed individual liability for Maihos, a corporate officer with the capacity to make decisions regarding the challenged conduct who knew or should have known that there was no reasonable basis for the deceptive claims. Though he didn’t edit the content of the ads, that’s irrelevant: “The question is whether he could have nipped the offending infomercials in the bud; the FTC produced evidence that he could, and he has produced no evidence — even his own testimony — to indicate that he couldn't.”

He admitted in deposition that he knew that DMC lacked substantiation, and an email from his then-girlfriend, a registered dietitian even told him, apparently in response to his request, that "[c]alcium from anything cannot be 100 percent bioavailable" and that "[t]here's no evidence at all that Coral Calcium is better than ordinary calcium or has any special health-boosting properties." The girlfriend also asked Maihos, "do you think there is a product ([over the counter] no less) that can prevent heart disease, diabetes, arthritis AND cancer?" Plus, along with other indicators that the infomercials were deceptive, an attorney told him in October 2003 that the Supreme Greens infomercial made “BS” claims and required rigorous substantiation.

Maihos testified that he sincerely believed in the health claims, but even sincere belief was not sufficient to overcome the overwhelming evidence that Maihos knew or, at the very least, should have known that the infomercials lacked any reasonable basis in scientific fact. “This is particularly so given that the patent ridiculousness of the infomercials' health claims was presented multiple times by multiple people to Maihos, who chose to remain willfully blind.”

On to damages: the court of appeals approved gross receipts as a basis for calculating damages, despite defendants’ arguments that the award should have been limited to actual profits. The law allows broad discretion in remedies for deceptive advertising, including recission or restitution. Consumer loss, as represented by gross receipts, is an appropriate measure of damages.

In FTC v. Verity Int'l, Ltd., 443 F.3d 48 (2d Cir. 2006), a series of unrelated, non-party middlemen partook of the proceeds from the defendants' scheme before the defendants themselves got a bite. The court fashioned an exception to the general rule, limiting disgorgement to the defendant’s profits. But this was just an exception for an unusual multitiered structure with lots of non-party middlemen, not present here. Defendants took in proceeds directly, except for roughly one year when a fellow defendant, but non-appellant, Triad, processed coral calcium orders. The FTC introduced “ample” evidence of the overall proceeds from coral calcium during this period, but the parties’ records were in such disarray that the split among them couldn’t be determined, and the fault for that was primarily defendants’. Defendants claimed on appeal that Triad siphoned off the vast majority of the proceeds, but the court of appeals couldn’t verify this. Because every entity that had received consumers’ money was a defendant, gross receipts were an appropriate measure of damages, and because the records were unclear, the district court split the total receipts evenly between DMC and Triad for the relevant period, which was within the bounds of its remedial discretion.

Finally, the FTC presented sufficient evidence of a reasonable approximation of damages. Such a showing shifts to defendants the burden of demonstrating that the FTC’s figures are inaccurate, but their own bad bookkeeping can’t meet that burden. Among other things, defendants argued that their records were in such disarray that the FTC couldn’t connect the Supreme Greens receipts from August 2003 to June 2004 to the particular version of the infomercial that the FTC proved to be deceptive, because numerous other versions of the infomercial were supposedly aired at various times and places, “although no one knows which version was aired at what time in any given place.” The district court’s determinations were not erroneous.

Defendants “could not or would not produce an accounting that suggested even a rough approximation of what percentage of their Supreme Greens proceeds were based on the offending infomercial.” Instead, they told the FTC in response to an interrogatory that it was “impossible” to determine what sales were attributable to any specific version of the infomercial. The court commented that the FTC perhaps should have filed a motion to compel, but, in the “one hitch in an otherwise well-conducted case,” instead allowed the records on which version aired where and when to remain in disarray. But in the end, DMC’s own record-keeping caused the uncertainty; there was no clear error in estimating damages broadly based on the available information.

Format wars: EcoDisc v. standard DVD

EcoDisc Technology AG v. DVD Format/Logo Licensing Corp., 711 F. Supp. 2d 1074 (C.D. Cal. 2010)

EcoDisc is the licensor of a new technology for making thin optical discs. Defendant DVD Forum is the optical disc standard-setting organization, and defendant DVDFLLC licenses the DVD Format standard and DVD Logo to disc replicators worldwide. The key question was whether replicators breach their license agreements by using defendants’ proprietary technology to make EcoDiscs, or instead whether the EcoDisc, like a BluRay or DVD+RW disc, is simply not covered by the license. EcoDisc’s 0.6mm discs are half as thick as a conventional DVD and also recyclable and “environmentally friendly” (watch those claims under the new Green Guides!). EcoDisc alleged that its discs are compatible with standard DVD players and can be played in 132 different playback systems.

The complaint alleged that defendants threatened all disc replicators that if they make the thinner EcoDisc they’ll be in breach of their license agreement and no longer permitted to make standard DVDs or use the DVD Logo, and also disseminated false information about the EcoDisc. EcoDisc alleged a conspiracy to keep EcoDisc out of the market, suing for antitrust violations, false advertising, tortious interference, trade libel, and unfair business practices under California law.

DVD Forum, a Japanese trade association, prevailed on its motion to dismiss for want of personal jurisdiction, without leave to amend.

DVDFLLC, which I’m going to call “defendant,” Defendant allegedly threatened all licensed replicators that making any 0.6mm disc would breach the license agreement and could lead to early termination. It represented that 0.6mm discs had caused damage to playback apparatus. It said similar things on its website. In 2009, it sued two licensees in the SDNY for making EcoDiscs, and distributed copies of the complaint to other licensees. After EcoDisc filed this lawsuit, defendant sent a letter to licensees offering an amendment to the license that would allow them to replicate 0.6mm discs if the packaging says “This disc is not a standard DVD, and may not operate in some drives or players” and if the licensee agrees to indemnify defendant for any costs or liabilities incurred in relation to the manufacture or sale of such discs.

Defendant argued that it was only seeking to prevent licensees from using the DVD Format and proprietary technology to make optical discs not fully compliant with its specifications. It further contended that playability problems of noncompliant discs damage the DVD Logo brand. EcoDisc, by contrast, alleged that the EcoDisc was awarded a 99.2% payability rating and can be safely played in the same manner as a standard DVD; ejection problems with certain Apple notebooks with slot-in drives came from the fact that the drives didn’t meet DVD specifications, and EcoDisc printed a visual warning on each EcoDisc against using them in Apple slot-in drives. As of November 2009, it alleged, EcoDiscs no longer have any known ejection issues on any disc drives, and it no longer puts warnings on its products.

Noerr-Pennington immunity protects against liability for petitioning the government; the court considered only its application to the antitrust claims, but observed that it has been applied to other contexts, including claims for intentional interference with prospective economic advantage. The immunity extends to conduct that’s incidental to petitioning activities, including presuit demand letters and settlement offers. Defendant’s communications with licensees and website announcements were sufficiently connected to litigation—given that defendant did in fact sue—to be covered.

There’s an exception to Noerr-Pennington immunity when litigation is a mere sham to cover an attempt to interfere with a competitor’s business, but it’s hard to invoke and EcoDisc didn’t succeed here. It would have to show that (1) defendant’s alleged threats were objectively baseless in the sense that it could not have reasonably expected to prevail in litigation and that (2) defendant’s subjective motivation was to interfere with EcoDisc’s business relationships. EcoDisc didn’t manage to plead that defendant’s conduct was objectively unreasonable. In fact, EcoDisc conceded that using the DVD Format specifications to produce noncompliant discs violates the license agreement, and that the EcoDisc is noncompliant. EcoDisc argued that licensees don’t need to use defendant’s format to create an EcoDisc, but didn’t adequately explain how EcoDiscs can be played on a standard DVD player without using defendant’s format standards. (Isn’t that also true of the DVD+RW? Then again, I have always had trouble figuring out the difference between the + and -.) EcoDisc even alleged that its discs have the same data structure and data layer as a conventional DVD-5. It did not adequately allege directly that replicators don’t use defendant’s proprietary information to make EcoDiscs. Thus, the allegations of the complaint don’t suggest that defendant’s belief that its proprietary standards were being improperly used by replicators was unreasonable.

The court left open the possibility that Noerr-Pennington immunity applied to Lanham Act claims because the false advertising claim was not pleaded with sufficient particularity under Rule 9(b). The 9th Circuit hasn’t ruled that 9(b) applies to Lanham Act claims, but many district courts have so held, and this one agreed. Though EcoDisc identified three separate communications containing allegedly false statements and thus satisfied the requirements of describing the time, place, and parties, it didn’t specify which particular statements were false or why they were false/misleading.

The motion to dismiss was granted with leave to amend. The court reserved decision on the state-law claims until plaintiff pleads a viable federal cause of action.

Tuesday, October 26, 2010

Broken monitor, broken promise

Lima v. Gateway, Inc., 710 F. Supp. 2d 1000 (C.D. Cal. 2010)

Lima filed a putative class action on behalf of everyone who bought a Gateway XHD3000 monitor, advertised as "the world's first 'Quad-HD' display, delivering more than four times the resolution of standard 720p high definition along with advanced display technology"; offering a "visually intense" gaming experience designed "to avoid skipped graphics or screen stutter"; and "providing maximum investment protection and long-term functionality." It also advertised that users could watch HD video and movies and high-speed graphics free of visual artifacts, including HD picture-in-picture display. The monitor “would purportedly function as a single, high-quality viewing device for the user's computer and video appliances, including desktop computer, notebook computer, Microsoft Xbox360, Sony PlayStation 3, Nintendo WII, Blu-ray, TiVo, and DirecTV.” Ads stated that there was "not much" that would not connect to the XHD3000 and that a user "can connect 6 devices simultaneously using an array of connectivity options that include HDMI, DVI, component video and S-video." They further claimed that all connected devices could play at "1600p, thanks to our XHD3000's upsampling prowess." Gateway also claimed that the XHD3000's replaceable LCD screen had a minimum lamp life of 50,000 hours, equivalent to approximately five years of continuous use. LCD monitors are expected to have a duration of at least the stated lamp life.

In fact, Lima alleged, problems developed relatively soon after purchase included “flickering images, green tint or bars over the entire screen, vertical multicolor lines, green lines, blanking, severe banding, screen flutter, side button issues, blackouts, red flickering lines, and complete screen failures,” making the monitor useless. Moreover, Gateway didn’t disclose that the monitor wouldn’t achieve its maximum advertised resolution of 2560x1600 pixels unless the consumer purchased a second video card; Lima alleged that, given the ads, Gateway knew or should have known that consumers expected their XHD3000 monitors to perform at this capability without the purchase of additional accessories.

Furthermore, Gateway doesn’t provide video drivers for certain devices, which means that Windows will “identify the monitor as ‘generic’ and constantly remind the user that a driver needs to be installed. Lima further alleged that Gateway failed to restore defective monitors to the advertised specifications whether or not they were under warranty, and fobbed off complaints to local technicians who couldn’t repair the monitor.

Lima alleged that he was deceived by Gateway’s ads. Before purchasing the monitor, he visited Gateway’s website, read ads, and researched the monitor on the internet, comparing its purported capabilities with those of competing high-end monitors (the monitor sold for roughly $1700 initially). He relied on Gateway’s various representations, but experienced trouble with missing drivers and visual artifacts, including opaque green bars and streaks running across the display. He alleged that his monitor was useless for the purposes for which it was purchased: high-resolution, high-speed graphics, cinema-quality video, and high-quality HD TV. The monitor would not even work dependably as a computer monitor. Gateway refused to repair the monitor and offered to replace it with an inferior $200 Acer monitor. His experience was allegedly typical.

Lima argued that Gateway violated the CLRA by (1) representing that its goods had characteristics, ingredients, uses, benefits, or quantities which they did not; (2) representing that its goods were of a particular standard, quality, or grade, when they were of another standard, quality, or grade; and (3) advertising its goods with the intent not to sell them as advertised. In addition, he alleged violation of the FAL through representations and failures to adequately disclose material information that Gateway knew or should have known were deceptive. And he alleged violation of the UCL through the “unlawful” prong via the CLRA and FAL violations, as well as “unfair” business practices because Gateway’s acts immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers, and/or because any utility from such practices was outweighed by the harm caused consumers.

Gateway moved to dismiss, alleging that Lima failed to plead with particularity under Rule 9(b). Under Iqbal and Twombly, he needed to plead enough facts to make his claim to relief plausible.

However, the court concluded that Lima didn’t need to state when his monitor broke. Gateway argued that a manufacturer can’t be liable for simple failure to disclose a defect that manifests after the warranty expires. However, the alleged CLRA violations here weren’t grounded in rights derived from the warranty; instead, Lima alleged affirmative representations that were either false or misleading in light of other representations. So the date of malfunction need not be alleged. Moreover, it wasn’t clear that there was a single moment in time when the monitor “broke,” since Lima alleged that the monitor failed to perform as advertised out of the box and then got worse, failing totally just as the warranty expired. Anyway, Gateway’s warranty arguments were affirmative defenses, which must be pled by the defendant; Lima had no obligation to allege facts related to Gateway’s proposed warranty-based defenses.

More generally, Lima alleged the factual basis of his claims with sufficient specificity under Rule 9(b), which applied to all his claims. The complaint provided the necessary who, what, when, where, and how. It included many direct quotations of Gateway’s statements, provided the timeframe and the location of the statements (packaging, press releases, Gateway’s site, and online review sites such as Amazon, CNET, and, and described in detail why the alleged representations were false or misleading.

Moreover, although some of the representations were individually non-actionable puffery, they contributed to the totality of the alleged misrepresentations. Satements that the monitor offered a "visually intense" gaming experience or "über-universal functionality" were not quantifiable and subjective. But they couldn’t be considered in isolation, given the context of the advertising as a whole, with its promises of 2560x1600 resolution and connection to almost any device.

Motion to dismiss denied.

Bad horse

(I also considered "getting back on the horse," since I hope to resume a more regular blogging pace shortly, but the Joss Whedon reference won out.)

Famous Horse Inc. v. 5th Avenue Photo Inc., --- F.3d ----, 2010 WL 4117673 (2nd Cir.)

Famous Horse, which operates a chain, V.I.M., that sells name-brand jeans and sneakers at low prices, bought some Rocaware brand jeans from 5th Avenue at a discount, but then discovered that the jeans were counterfeit. 5th Avenue, however, allegedly continued to sell the counterfeit jeans to other stores, telling potential customers that V.I.M. was a satisfied customer. Famous Horse sued under §32 and §43(a) of the Lanham Act, and the district court dismissed the complaint for failure to state a claim.

The court of appeals reversed. The district court had ruled that trademark infringement under §32 requires alleged confusion as to the source of a product, and §43(a) false endorsement requires likelihood of confusion between the parties’ products. The court of appeals held that “likelihood of customer confusion” is indeed a requirement, but that confusion need not be as to the origin of the product under either provision. Section §43(a) “specifically defines misrepresentation causing confusion as to affiliation, association, or sponsorship as infringing activity.” The Second Circuit has already applied this principle to claims that one company falsely portrayed another as a satisfied customer. See Courtenay Commc'ns Corp. v. Hall, 334 F.3d 210 (2d Cir. 2003). So Famous Horse sufficiently alleged that 5th Avenue used a "word, term, name, symbol," or a "false or misleading representation of fact, which is likely ... to deceive as to the ... sponsorship, or approval of [its] goods ... by another person." 15 U.S.C. § 1125(a)(1)(A).

Likewise, Famous Horse sufficiently alleged that 5th Avenue “used its marks in connection with the false representation that it was a satisfied customer, a use that is plainly likely to deceive and create confusion and mistake regarding the relationship between Appellees' goods and services and Famous Horse,” and §32 doesn’t specify the type of confusion required. But how can this make sense of the traditional multifactor confusion test? The people to whom the representations were made aren’t Famous Horse’s customers, they’re competitors; Famous Horse can’t possibly lose any relevant goodwill even if competitors end up thinking “what dupes!”

And then: Famous Horse didn’t sufficiently allege use in commerce with respect to goods, because the mark at issue wasn’t placed in any manner on the goods, etc., as required by §1127. However, it sufficiently alleged that 5th Avenue used its mark in commerce for 5th Avenue’s services. However, “in order to prove the claim, Famous Horse must present evidence of what services the Appellees provided and subsequently advertised using the V.I.M. mark.” (Again, I don’t really get it. 5th Avenue seems to be a provider of goods, not services.) Moreover, §43(a) isn’t limited by the §32 requirements (citation provided), including §1127’s definition of “use in commerce” (no citation provided), so Famous Horse states a valid §43(a) claim.

Say what now? §43(a), it should be noted, requires that a defandant “uses [some misrepresentation] in commerce,” not just “uses,” and so this decision goes beyond Rescuecom in abandoning the statutory definition of “use.” Given the angsting in Rescuecom, I would have expected more out of such a ruling than a terse paragraph offering no justification for why “use in commerce” means something different in §43(a) than it does in §32.

Reaching out in another way to give Famous Horse a remedy (because §43(a) false endorsement just wasn’t enough!), the court then ruled that Famous Horse could sue for unfair competition under the Lanham Act based on 5th Avenue’s sales of counterfeit Rocawear jeans even though it did not own the Rocaware brand.

Famous Horse argued that it was injured by (1) losing sales of genuine Rocawear jeans to 5th Avenue when customers mistakenly buy counterfeits from 5th Avenue or 5th Avenue’s customers; (2) suffering harm to its reputation as a discount seller of genuine brand-name jeans. The Lanham Act’s language is extremely broad, stating that “any person who believes that he or she is or is likely to be damaged by” conduct violating the law can sue. But courts have universally narrowed this language to protect only people with a commercial interest, not consumers. (Why? The court does not provide a rationale, and given decades of precedent there’s no reason it should; who wants consumer plaintiffs, anyway?)

Having disposed of consumers, we turn to commercial plaintiffs, as to whom courts have split. Note that a §43(a)(1)(B) claim would require Famous Horse to allege (1) “commercial advertising or promotion” and (2) materiality, but no one seems interested in that right now.

Anyway, what the court then says is: none of the various tests for standing hold that only the owner of a trademark has standing. This is a beautiful rhetorical move. That statement is undoubtedly true. But: standing for what? Traditionally, only the owner of a trademark has standing to sue for trademark infringement, which is the basis of Famous Horse’s alleged harm under this theory, which is separate from its false endorsement claim. See Kam Lee Yuen Trading Co. v. Hocean, Inc., 2010 WL 3155812 (N.D. Cal.). Mark McKenna’s work on channeling claims into various doctrines is of relevance here; courts regularly cabin false advertising law to protect copyright’s and patent’s spheres of influence; why not trademark?

The “categorical approach” of the 7th, 9th, and 10th circuits require the plaintiff bringing an unfair competition claim to be in competition with the alleged false advertiser. The 3rd, 5th, and 11th Circuits use a more flexible standard. (Pause here to complain that this is not true: in fact the Phoenix of Broward test is more often used to disable plaintiffs from suing than to enable them.)

“On at least one occasion, we have applied the strong categorical test that in order ‘to have standing for a Lanham Act false advertising claim, the plaintiff must be a competitor of the defendant and allege a competitive injury.’” Telecom Int'l Am., Inc. v. AT & T Corp., 280 F.3d 175, 197 (2d Cir. 2001) (alterations omitted). And other Second Circuit cases have stressed the importance of competition. However, this merely strongly favors standing; it is not an absolute requirement. Instead, “a plaintiff must demonstrate (1) a reasonable interest to be protected against the alleged false advertising and (2) a reasonable basis for believing that the interest is likely to be damaged by the alleged false advertising. Competition is “a strong indication of why the plaintiff has a reasonable basis for believing that its interest will be damaged by the alleged false advertising.”

Here, Famous Horse and 5th Avenue were “in essence competitors.” Thus, Famous Horse had standing, and its lost sales were sufficient competitive injury. “Although Famous Horse sells at retail, and Appellees primarily sell at wholesale, the goods they sell are in direct competition in the marketplace, and Appellees' products are supplied to retailers in direct competition with Famous Horse.” (Interestingly, this was the theory of standing rejected in the 3rd Circuit’s Conte Bros. case, later extended by Phoenix of Broward.)
Famous Horse [sufficiently] alleges that Appellees' conduct directly undermines its competitive standing in the marketplace…. Famous Horse asserts a specific interest because it has a particular market niche that is especially likely to be harmed by counterfeit sales …: first, its reputation as a discount store was harmed because consumers believed that it sold Rocawear jeans at inflated prices compared to counterfeit jeans supplied by Appellees; and second, consumers who learn of counterfeit Rocawear jeans on the market will believe that V.I.M. similarly peddles counterfeit clothes.

The court analogized to PPX Enters., Inc. v. Audiofidelity, Inc., 746 F.2d 120 (2d Cir. 1984), in which holders of royalty interests in Jimi Hendrix recordings alleged that Audiofidelity falsely advertised recordings as featuring Hendrix when Hendrix actually appeared only as a background performer. This was a straightforward commecial interest and plaintiffs would lose money if consumers bought Audiofidelity recordings instead of plaintiffs’. Comment: Of course, there the plaintiffs had an ownership interest in the underlying subject matter; here Famous Horse does not. But “lost sales and a unique harm” suffices. Even though the allegedly misleading statements about the origins of 5th Avenue’s products don’t attempt to associate the jeans with Famous horse, it’s still sufficient to allege that “defendants' presentation of counterfeit goods undermines the plaintiffs' ability to market genuine products.” Thus, Famous Horse properly stated a false advertising claim under the Lanham Act.

The court held that Famous Horse had alleged a reasonable interest to be protected against Appellees' alleged false advertising as well as a reasonable basis for believing that this interest will be damaged by the alleged false advertising, and had properly stated a false advertising claim under the Lanham Act. The majority rejected the dissent’s use of Conte Bros. as unnecessarily “complicat[ing] the inquiry without clarifying the result” (which means that this decision starts and ends with points on which I wholeheartedly agree—there’s a legitimate false endorsement claim here, and Conte Bros. as it's been applied of late is nonsense). The majority would reach the same result under Conte Bros. “[W]e find no reason to bar Famous Horse--the only party to have demonstrated the necessary interest, initiative, and resources to do so-- from bringing suit to remedy these harms.” (Don’t we usually require trademark owners to look after themselves? What would happen if the “counterfeiting” claim were that 5th Avenue had copied the unregistered designs on Rocawear jeans, which Famous Horse alleged were protectable trade dress? Allowing third parties to decide when infringement has occurred may be a regrettable move.)

Finally, the court noted that the claim “may well be difficult to prove at trial.” In principle, it might be plausible that Famous Horse was harmed by Rocawear counterfeiting, but “proof of actual losses will be difficult given that plaintiff's V.I.M. stores operate in a large market that includes luxury retailers selling name brands at full price, discounters of various stripes, and numerous counterfeiters selling fake versions of name brands.” Still, Famous Horse did enough to survive a motion to dismiss. (I’m intrigued by the absence of two names I would have expected in this discussion: Iqbal and Twombly. Not that those cases should have changed the result, but this seems like a good case to discuss what plausibility really means.)

Judge Livingston concurred on everything but the false advertising claim. The dissent would have applied Conte Bros., and also picked up on the fact that the majority was curiously unwilling to come out and say that this was a §43(a)(1)(B) claim, despite the fact that it used the term “false advertising” a lot. The dissent expressed uncertainty whether this was a false advertising or false association claim, but considered the standing test to be the same either way, so that it didn’t matter.

So, applying Conte Bros.: (1) Nature of the alleged injury: Famous Horse alleged both commercial injury (lost sales) and competitive harm (its reputation as “the place to go for discount genuine designer jeans” was undercut by the availability of less expensive and seemingly genuine designer jeans elsewhere. This was squarely within the category of harm the Lanham Act was designed to remedy, and favored standing. Judge Livingston noted that the Second Circuit hasn’t focused as strongly as other circuits on requiring “competitive” harm, allowing “commercial” harm to qualify, or potential competitive harm (as when competition in the future is likely); she would have adapted the Conte Bros. factors for greater consistency with circuit precedent.

(2) The relative directness or indirectness of the asserted injury. Here, a more substantial showing should be required when the parties are not obviously in competition. Famous Horse is a retailer, while 5th Avenue sells primarily wholesale. While it’s possible for parties operating at different market levels to compete, as in antitrust, there was here little reason to think that the parties were competitors in “every relevant economic sense” (quoting Areeda’s antitrust treatise). In fact, such a claim is hard to credit here where Famous Horse is also complaining that 5th Avenue told other retailers that Famous Horse was a satisfied customer. As a result, the alleged injury here is both “significantly less obvious and more indirect” than when the parties compete, because it relies not on misrepresenting the nature of the jeans to people who would otherwise be Famous Horse customers but on inducing third-party retailers to buy and sell the jeans as if they were genuine Rocaware at a lower price. This indirectness disfavors standing.

(3) Proximity to the allegedly injurious conduct: “[I]t is clear that in this case there is a party more proximately affected than Famous Horse by the Appellees' alleged dealing in counterfeit Rocawear jeans--namely, the owner of the Rocawear label--whose self-interest will lead it to respond to unfair competition taking the form of misuse of its trademark.” In fact, Famous Horse’s complaint alleged that it found out about the alleged counterfeiting from Rocawear’s attorneys. Judge Livingston shared my skepticism about the analogy to PPX Enterprises, because Famous Horse couldn’t claim an equivalent level of interest in Rocawear jeans. The “unique” harm to their reputation and prices is actually a theory that a number of retailers could claim. This factor disfavored standing.

(4) Speculativeness of a damages claim: The majority conceded that Famous Horse’s stores operate in a large market, and that it may be difficult to prove that their sales are specifically affected by 5th Avenue’s behavior. Famous Horse’s second theory of injury, that it would be harmed because counterfeit jeans sold at lower prices by others will give it a reputation for inflated prices, was particularly speculative, and in tension with some of its other theories. This weighed against standing as well.

(5) The risk of duplicative or complex damages: This also weighed against standing, for the same reasons. Luxury retailers selling at full price, discounters, Rocaware, “and perhaps even the makers of competing brands of designer jeans” might plausibly claim that counterfeiting causes them commercial injury. Famous Horse’s alleged reputation as a discount purveyor of genuine brand-name jeans was also not unique: other discounters and maybe even luxury retailers could claim competitive harm in that counterfeits make their jeans seem overpriced. Though this case involved a local rather than national market, and an allegedly unique market position, it still raised the specter of granting standing “to every retailer with a bare claim of commercial injury … only now with the addition of a highly speculative claim as to harm suffered due to a unique position in the market.”

Judge Livingston considered the case a close one, but on balance the case was too tenuous, especially given the ability of Rocawear to sue. “Ultimately, I do not think the principles of prudential standing counsel hearing the claim of a party whose only distinguishing feature from any other retailer of a counterfeited good is a speculative one as to harm to its purported reputation.”

Tuesday, October 19, 2010

Organization for Transformative Works fundraising drive

It’s the OTW’s October fundraising drive!  Some really nice swag this time—I myself am going for the diner mug—and your donation supports a nonprofit open-source archive that can survive in the long run, which is among other things one of the largest majority-female open source projects around, as well as many other great endeavors ranging from the journal Transformative Works & Cultures to the Fanlore wiki to our legal advocacy project, which in only 2 years is going to have to go back to the Copyright Office and ask for another vidding exemption.

18-25 October 2010 OTW Donation Drive graphic

In other news, posting will return to a more regular pace once the AALS hiring meeting is over. A lot of interesting cases in the pipeline!

Friday, October 15, 2010

Review: Clay Shirky, Cognitive Surplus

Clay Shirky, Cognitive Surplus: Creativity and Generosity in a Connected Age: Free LibraryThing Early Reviewer book. (Seriously, this program is amazing. If it exists in your country, you should sign up.) Flippant capsule review: great book, too bad about its adoption of the Geek Hierarchy.

Less flippant review: Shirky’s typical wit and verve are on display here as he passionately advocates for the value of online engagement; he’s particularly good on the ridiculous dismissiveness of “where do people find the time to do all this trivial stuff online?” Sample line: “Did you ever see that episode of Gilligan’s Island where they almost get off the island and then Gilligan messes up and they don’t? I saw that one a lot when I was growing up.” That’s the cognitive surplus—all the free time that internet-enabled citizens have and can use to watch and talk and tweet and share.

Unfortunately, while Shirky gets the Sturgeon’s Law defense of online content absolutely right—it’s not just that 90% of everything is crap, but that in any given genre you don’t get the good stuff without the crap—he seems uninterested in performing the same analysis on varieties of online participation. Of course lolcats are dumb and irrelevant, he argues, but the tools that produce them also allow direct political engagement, and that’s what we should care about.

Thus: “making and sharing open source software creates value for more people than making and sharing Harry Potter fan fiction.” I’m pretty sure that this incorporates the Sturgeon’s Law mistake—the average open source software project is as unsuccessful as the average work of fan fiction, and while I’ll happily celebrate the immense value of open source, I’m not quite sure how to measure it against the literacy benefits of even average fan fiction, the community benefits of fandom (help_haiti and help_pakistan come to mind), and the New York Times-best-selling authors (plural!) I know who came out of fandom.

More to the point, why do I have to choose? (The whole point of fandom as I know it is having one’s cake and eating it too.) The relationship between lolcats and Tea Parties is more complex than lolcats being a mere epiphenomenon of the really significant uses of online tools. Shirky identifies a “spectrum” of forms of creation that range from creating personal value to creating civic value, but his conception seems static: each person’s activity emits light at a certain frequency only.

I would argue instead that “trivial” social spaces are an on-ramp for engagement of all kinds: seeing oneself as a producer is an important way of seeing oneself as a citizen. As Mimi Ito puts it, “[i]n fact it is the flow between the serious and the playful where we are seeing so much energy and engagement.” Shirky even uses Ito’s example of South Korean protests against American beef imports, significant enough that they threatened the entire South Korean government and led to the firing of the cabinet, along with an apology from the president for moving too fast without consulting the public. The protesters numbered over a million, an estimated 60-70% teens, mostly teenage girls. And a lot of them organized using fannish spaces—many were fans of a boy band, Dong Bang Shin Gi. Ito reports, “young women fans of this boy group were mobilizing to attend the protests. They carried placards saying ‘We don't want our boys to get sick because of mad[] cows.’ Their participation in the protests was grounded less in the concrete conditions of their everyday lives, and more in their solidarity with a shared media fandom.” As Ito concludes, “you should never underestimate the power of peer-to-peer social communication and the bonding force of popular culture. Although so much of what kids are doing online may look trivial and frivolous, what they are doing is building the capacity to connect, to communicate, and ultimately, to mobilize.” (This is also true of another story to which Shirky returns several times, the charitable fundraising performed by (female) fans of Josh Groban, without giving significance to the fact that it was founded out of fannishness.)

Shirky says that one thirteen-year-old Korean protester said outright, “I’m here because of Dong Bang Shin Ki.” (I note that I couldn’t find that quote in the cited Ito piece.) That resonated strongly with me, because I’m here because of Kirk and Spock, and Sime/Gen, and Mulder and Scully. Fandom taught me that if I had something to say, I could say it, and if that I wanted something to exist, it was worth trying to build it. The run-it-up-the-flagpole attitude I learned in fandom was what convinced me to start the IP Teaching Resources Database, and, five years down the road, it’s now recommended by many major casebooks and used by teachers around the world, equalizing access and, I strongly believe, enhancing students’ understanding of the material.

Anyway, key examples of social /civic participation in Shirky’s account involve women coming from fandom. And yet Shirky reassures us that we don’t have to worry about organizing our social or technological worlds to support fannish engagement, because it will naturally be provisioned (if I were being snarky, I’d say, “like housework and childcare”): it’s not that there’s anything wrong with lolcats and fan fiction, but “anything at the personal and communal end of the spectrum isn’t in much danger of going away, or even of being underprovisioned.”

If only that were true, I wouldn’t be as troubled as I am by Shirky’s rhetorical choice to throw fandom under the bus. But laws like the DMCA and anti-anonymity measures taken by multiple governments (not for nothing, including South Korea) don’t leave fannish spaces untouched. A culture or a legal system that discourages you from commenting on and remixing the things you love, in communities who love the same thing you do, also discourages you from commenting on and remixing everything else.

This problem is related to another vital silence in Shirky’s book: the role of government. I know Larry Lessig already told us about West Coast Code versus East Coast Code, but hey, East Coast Code is still around. Take another prominent example Shirky uses to show the power of (women) organizing online: a Facebook group, the Association of Pub-going, Loose and Forward Women, organized to fight back against anti-woman violence perpetrated in the Indian city of Mangalore by the religious fundamentalist group Sri Ram Sene. As Shirky tells it, “women communicated their shared resolve to politicians in Mangalore and to the regional government of Karnatka. Unfortunately politicians and police tend to react to threats more readily if there is evidence of public concern. Participation in the Pink Chaddi [underwear] campaign demonstrated publicly that a constituency of women were willing to counter Sene and wanted politicians and the police to do the same…. [T]he state of Mangalore arrested Muthali and several key members of Sene … as a way of preventing a repeat of the January attacks.” (Emphasis mine.)

Shirky emphasizes the need for hard work by participants to sustain effective groups, and that’s clearly correct. A lot of that, government can’t help with. But there are definitely ways that it can hinder—and, as the Mangalore example suggests, those groups that get things done will often in the end get them done at least in part by getting government on their side. I’m sure Shirky would have some fascinating things to say about that. I’m just left wondering what they’d be.

Wednesday, October 06, 2010

Latest political ad with copyright implications

A Republican candidate hired an actor to play a disgruntled steelworker.  The Democrats responded with a mashup of the ad with some of the actor's other roles.  Any predictions on the fair use defense?

Sunday, October 03, 2010

Variances in attribution norms

The New York Times on a controversy over whether a recent article was properly credited.  Of note: (1) The author denies even reading the allegedly similarly structured pieces, but the article proceeds mostly as if he did, or might have.  (2) The similarities are pretty clearly what copyright calls scenes a faire; the question is whether norms of attribution were violated, not copyright.  But the author's defenders argue that such norms were not violated because the topics are scenes a faire, such that any treatment of the subject--the effect of linguistic differences on thought--would cover the same ground.  (3) The norms of scholarship are not the norms of journalism; journalists treat citation as minimally required for aesthetic reasons.  Should aesthetics weigh against attribution in this way, as Zahr Stauffer argues it should weigh against disclosure of commercial sponsorship in many cases?  (Aesthetic here means readability, but then don't aesthetic claims often really mean "not as many people will like/watch this if I do it differently?)  (4) The article concludes that web versions of articles can do better in giving credit--which in this specific case would bring us back to question (1), whether the author had read the other scholar's work.

HT: Francesca Coppa.

Friday, October 01, 2010

Judge to energy drink sellers: out of my courtroom, fight it out in the market

Innovation Ventures, LLC v. N.V.E., Inc., 2010 WL 3743652 (E.D. Mich.)

Plaintiff sells a 2-ounce “5-hour ENERGY” beverage.  Defendant sells a 2-ounce “6 Hour POWER” beverage.  Plaintiff sued for common-law infringement.  Defendant counterclaimed on various grounds.

Counterclaims first (I am omitting some): Plaintiff has a registration on the Supplemental Register; defendant counterclaimed to cancel it on the ground of fraud.  The court ruled that defendant lacked standing because it had suffered no harms from the presence of the mark on the Supplemental Register, which confers no substantive rights (but does show up in searches and does provide a basis for refusing registration to others).  Plaintiff didn’t rely on the supplemental registration (as it couldn’t) in this litigation; even if defendant had standing, the court would decline to exercise its discretion to cancel the mark in the absence of a cancellation petition to the PTO.

Defendant also counterclaimed for false advertising based on a letter entitled “Legal Notice” that plaintiff distributed.  In 2008, plaintiff sued N2G Distributing and Alpha Performance Labs based on their sale of a competing 2-ounce “6 Hour ENERGY” shot.  It obtained a preliminary injunction directing a recall and enjoining the defendants from distributing etc. the product.  Plaintiff then sent the following legal notice to over 100,000 retailers, i.e., convenience stores and truck stops, which provided in relevant part:

Court orders immediate stop to manufacturing, distributing and sale of 6 Hour Energy shot.
Dear Customer,
We are pleased to announce that we won a decision against a "6 Hour" energy shot that closely mimicked 5-Hour Energy®. The United States District Court, in Case No. 08-CV-10983, issued a preliminary injunction ordering the immediate recall of all the "6 Hour" product, and told its manufacturer to stop making, distributing and selling it.
If you have any of the "6 Hour" energy shots in your store(s) or warehouse(s) contact the product's manufacturer or your distributor to return the product immediately.
DO NOT RETURN ANY 5-HOUR ENERGY®. It can be difficult to tell 5-Hour Energy® apart from the "6 Hour" knockoff product. If you have any questions, please call us at 248-950-1700 ext. 217.

In other litigation against another competitor making “6 Hour ENERGY!,” BDI Marketing, BDI Marketing received a preliminary injunction from another judge in the Eastern District of Michigan related to the legal notice, pursuant to BDI’s false advertising counterclaim. Defendant claimed that the legal notice caused it approximately $3.4 million in damages.

Defendant argued that the notice was literally false, so deception could be presumed.  The court first declined to rely on the BDI case because it involved “different parties and circumstances” (how?) and took place at the preliminary injunction stage.  Anyway, the district judge there only found the legal notice misleading.  And the court disagreed with the conclusion that the notice was false.  According to the magistrate judge in the BDI case, the plaintiff didn’t win a decision against a “‘6 Hour’ energy shot’ as stated, but rather against a specific product from N2G whose overall trade dress was confusingly similar.  Here, however, the court concluded that it was undisputed that plaintiff won an injunction against the producer of an energy shot using the name “6-Hour,” as stated in the notice. 

Comment: Well, not exactly.  Part of the name of the product that was enjoined was “6-Hour.”  Why didn’t plaintiff provide the full name of the product?  This is why the false/misleading distinction is so mischevious.  The omission of the full name was misleading, there’s an obvious reason for the omission, and—crucially—providing the truth would have been just as easy as providing the misleadingly incomplete information.  Given that the costs of telling the truth are so low here, we shouldn’t make a Lanham Act claimant run an expensive and no doubt hotly contested consumer survey to show that the misleading omission did what it was likely to do.  Where removing the misleadingness without decreasing the provision of truthful information would be harder, there may well be reason to make it harder for challengers to prevail.

But no: “Stating that the decision was based on the use of an overall product image would have, perhaps, provided more clarity, but the absence of the explanation for the injunctive relief does not render the statement literally false.”  As a result, defendant needed to show actual deception of a substantial portion of the intended audience, retailers.

This was lacking.  Defendant had numerous statements from employees, distributors, and brokers, who reported being confused, but that doesn’t show how retailers reacted.  (Because retailers are entirely different classes of human being, and likely to be more expert in distinguishing types of 6-hour energy drinks than distributors!)  Defendant also offered statements from the same sources about confusion among retailers, but this was hearsay.  (There are a bunch of cases reaching this conclusion; interestingly, this is not a uniform rule, because some courts apply a state of mind exception.)  Defendant further offered direct testimony from one distributor about lost accounts and sales following the legal notice, but “given that the legal notice was distributed to over 100,000 retailers nationwide, this hardly constitutes evidence that a significant portion of the intended audience was actually deceived.”  Successful claimants usually provide a consumer survey, but there wasn’t one here.  (Note also the implications for Lanham Act claims in specialized markets: if you think a consumer survey of the general public is expensive, you should see what it costs to survey only a subset.)

Anyway, deception means being tricked into believing an untruth about a product; mere confusion and inquiry are insufficient.  Defendant’s evidence only went to confusion and inquiry, which cost defendant time to clear up.  Thus, defendant didn’t show actual deception sufficient to get damages.  Likewise, because the court found that “a plain reading of the legal notice would not trick a reasonable viewer into believing that 6 Hour POWER had been recalled,” and nowhere stated or implied that “all” 6 Hour products had been recalled, defendant wasn’t entitled to injunctive relief.  “At worst, the legal notice should have caused the intended audience to inquire as to which product bearing the name ‘6 Hour’ had been recalled; there was no language that could have tricked a reasonable viewer into believing that it applied specifically to 6 Hour POWER.”  But this was simple ambiguity, which was insufficient to find a tendency to deceive.  Summary judgment for plaintiff.

Plaintiff also won summary judgment on the interference with contractual relations counterclaim because defendant couldn’t show specific facts that a jury could find showed actual malice.  And antitrust counterclaims failed because, when such claims are based on advertising, a claimant has to allege facts sufficient to overcome a presumption that false advertising has a de minimis effect on competition.  Thus, it must demonstrate that the advertising was clearly false and that it would be difficult or costly for the victim to counter the false advertising.  (This is black letter law, but I don’t know why.  These factors have little to do with monopolization or attempted monopolization; if we want to make antitrust claims harder to win, as we clearly do, shouldn’t we look to something more tied to antitrust principles?)  Anyway, defendant failed to show that the notice was clearly false.

Plaintiff’s claim for infringement of the 5-Hour ENERGY trademark, however, failed.  The products are the same, they’re sold in similar marketing channels, and they’re often impulse buys made without great care.  However, the mark was not strong—it was highly descriptive.  Secondary meaning alone wasn’t enough to make a mark strong.  (I think the court meant that “secondary meaning merely sufficient to allow the term to count as a mark doesn’t make a mark strong,” because a highly descriptive mark can be strong in the marketplace, like American Airlines.  And this is obviously true, otherwise there would be no such thing as a weak mark.)

The key factor was the dissimilarity of the marks.  The only shared term was “hour,” the least prominent word.  The fonts are very different.  Defendant also uses its house mark, STACKER 2®, lessening the potential for confusion.

Plaintiff’s evidence of actual confusion was insufficient.  Where the parties have been doing business for some time and have advertised extensively, isolated instances of confusion are not entitled to great weight.  In fact, the existence of only a handful of instances of actual confusion after significant time or concurrent sales may even lead to an inference that confusion is unlikely.  And confusion that is short-lived or on the part of individuals casually acquainted with a business is worthy of little weight.

Plaintiff argued that its survey found a 38.5% likelihood of confusion, but defendant argued that the questions were highly leading.  Plaintiff merely argued that this went to weight rather than admissibility—so the court didn’t give it much weight.  Nor did inquiries from customers about whether the same company made the two products count as actual confusion—they don’t show actual belief, and in fact indicate that consumers may have been aware that the sources were different. 

There were also three third-party witnesses.  One, who’d never purchased either product but had seen 5-hour ENERGY in ads and at stores, complained to plaintiff about a 6 Hour POWER TV ad.  Another emailed plaintiff to complain when he felt nauseous after consuming 6 Hour POWER. The third was a retail buyer who stated that she believed that her store sold “5 hour power,” and later said “I guess I thought they were interchangeable terms.”  This was entitled to little weight.  The first two were only casually acquainted with the products at the time, and the second said in his deposition that he mistakenly contacted plaintiff and didn’t actually believe that plaintiff made 6 Hour POWER at the time.  The court didn’t explain why it discounted the testimony of the third witness.

Finally, plaintiff offered an admission log with reports of 40 instances of confusion.  Defendant argued that many were inadmissible hearsay and that they were de minimis in light of the millions of products sold over the years.  The court agreed on both counts.

On intent, the court found that defendant didn’t adopt the mark with the intent of benefiting from plaintiff’s reputation.  Defendant argued that it used “POWER” due to its previous success with energy products sold under the rhyming name TOWER OF POWER, and that it chose “6 Hour” based on research indicating that one of the product's ingredients, caffeine, has effects in the human body lasting approximately six hours and because it desired another rhyming name. This was credible evidence that plaintiff did not choose the 6 Hour POWER mark to intentionally copy Plaintiff's mark. The court was unwilling to infer intent based on defendant’s knowledge of plaintiff’s mark, given the dissimilarities. 

The court was unwilling to find a likelihood of confusion merely because defendant's mark, like plaintiff's mark, describes the number of hours of energy that it will provide.  “To hold otherwise would, in essence, give Plaintiff a monopoly on the use of all marks in connection with energy products that describe the amount of hours or other denomination of time for which the products function.”  The marks here were similar to those used in “dollar” stores.  Marks including the word “dollar” describe the kind of store, and multiple “dollar” marks aren’t thereby confusingly similar.  Summary judgment for defendant.