Minnesota S.Ct. rejects tobacco class action

Curtis v. Altria Group, Inc., --- N.W.2d ----, 2012 WL 1934726 (Minn.)

Curtis filed a class action against Philip Morris, alleging that the use of “light” and “lowered tar and nicotine” for cigarettes was false and deceptive under Minnesota’s consumer protection law.  The state’s highest court held that a prior settlement of a case brought by the AG under the same laws barred the class action.  The settlement agreed to “settle and resolve with finality all claims of the State of Minnesota relating to the subject matter of this action which have been or could have been asserted by the State of Minnesota.” The state “release[d] and forever discharge[d]” Philip Morris from any and all claims asserted in the state’s lawsuit, or that could have been asserted therein.

The court found that a private litigant’s right to bring a lawsuit was not separate from the state AG’s right.  The remedies and procedures available to the AG are broader than those available to a private litigant; the right to bring a private lawsuit was therefore part of the broader authority of the AG.  (I don’t really get how the conclusion follows from the AG’s broader powers.)  Private litigants must establish that their cause of action benefits the public, because they’re acting as private AGs.  So private litigants’ rights are limited by the role and duties of the state AG, whose rights to bring a specific lawsuit are superior to private litigants’ rights.

The state AG could bring claims and settle claims on behalf of the citizens of the state, acting “representatively” and “derivatively” for them.  Because the AG could seek not only the relief available to the state, but also the relief available to a private litigant, it could also settle and release the private claims.  A private litigant can’t settle or release the state’s claims without the state’s express consent, but it may settle its own claims, and a court can approve a settlement that binds all similarly situated private litigants.  (The court’s a bit unclear about whether such a settlement could bind the state to the extent the state sought relief available to private litigants such as restitution, rather than just relief available to the state.)

So, the question remained whether the state AG action released these claims.  The state alleged that Philip Morris made deceptive claims about light cigarettes, and the release language was “broad and comprehensive” as to any claims that the state had relating to the subject matter of the case (for past conduct) or for monetary claims “directly or indirectly based on, arising out of or in any way related to, in whole or in part, the use of or exposure to” tobacco products (for future conduct).  The court concluded that the state unambiguously released all of consumer protection claims against Philip Morris for past conduct; the case here was related to the AG’s case, which asserted violation of the same consumer protection statutes arising from the same fraudulent and deceptive misrepresentations regarding health risks.  Likewise, the future conduct claims were also unambiguously released; the claims here were related to the use of or exposure to tobacco products: plaintiffs’ theory was that Philip Morris’s “light” and “lowered tar and nicotine” claims were false because the cigarettes as used weren’t light and didn’t expose smokers to lowered tar and nicotine.  The dissent argued that a statutory consumer fraud claim doesn’t require a plaintiff to have bought or used the product.  But such a claim does require falsity, and the falsity here turned on how much tar and nicotine cigarettes delivered when smoked, making the claims “related to the use of and exposure to tobacco products.”

Because the settlement agreement released any and all claims of the state, “whether directly, indirectly, representatively, derivatively or in any other capacity,” that also covered plaintiffs’ rights as private litigants. 

The dissent, for two justices, also expressed doubt that the AG could release private claims because the statute appeared to provide private parties a cause of action independent of the AG’s right to sue.  (I wonder, for example, what would happen if the AG intervened in a private plaintiff case and desired to settle, or argued that the case didn’t meet the statutory requirements.  Would the court be required to dismiss the case or could it evaluate the plaintiff's contrary arguments?)  The dissent would have found that fraud claims don’t relate to the use of or exposure to tobacco products, the same way that the Supreme Court has found that false advertising claims aren’t preempted by the federal law that preempts product liability claims as to cigarettes.

eBay case involving pay-for-featured-status program survives motion to dismiss

Custom LED, LLC v. eBay, Inc., 2012 WL 1909333 (N.D. Cal.)

Plaintiff sued eBay, Inc. (and a couple of international eBay versions that were dismissed from the case) for breach of contract and fraud related to “Featured Plus!” listings on eBay sites.  It alleged that eBay uses entry points including ebay.com, motors.ebay.com, stores.ebay.com, etc.  These are interconnected, and a search for an item on eBay Motors can begin from many pages, including ebay.com; consumers can’t readily tell which subsite they’re using.  The eBay Motors fee schedule includes optional fees, including Featured Plus!, which costs as much as $39.95 per listing.  The description: “Your item appears in the Featured Items section at the top of the search results list page.”

Plaintiff argued that the plain meaning of this was that any Featured Plus! Item should appear in the Featured Items section at the top of any search list, whether the search was conducted from eBay Motors, ebay.com, or some other subsite.  But, plaintiff alleged, Featured Plus! didn’t actually work that way; if a consumer searched from ebay.com no Featured Plus! items would be shown at the top of the search list, even though eBay Motors listings would be displaye, and if a search conducted from eBay Motors was for products across all categories, the result was the same.  Further, if an eBay Motors searcher chose to view results by any criteria other than “Best Match,” no Featured Plus! entries would be shown at the top.  Plaintiff also alleged that for certain periods, including the second half of 2011, Feature Plus! didn’t work, but eBay continued to market it.  Plaintiff filed a putative class action alleging breach of contract, unfair competition/false advertising, and unjust enrichment.

The court found the contract language ambiguous.  The parties didn’t identify any provision of the contract defining Featured Plus! or how it was supposed to operate.  eBay’s argument that the contract didn’t promise priority if consumers used ebay.com or sorted by anything other than Best Match ignored that the terms did promise to list Featured Plus! items in a “section at the top of the search results page” without any limitation or description.  True, this was part of the “eBay Motors listing upgrades” and was included only on eBay Motors' Fees Schedule, but that didn’t make the meaning of “Featured Items section at the top of the search results page” unambiguous. Further factual development of the objectively reasonable expectations of eBay sellers (and perhaps eBay consumers, though I don’t see why) was required.

The court turned to the UCL/FAL/fraud claims.  eBay argued that plaintiff couldn’t allege justifiable reliance because of the plain terms of the contract—but the terms were ambiguous.  The UCL/FAL claims survived, but not the common law fraud and deceit claims because plaintiff didn’t identify any damage other than that caused by the alleged breach of contract, which is just economic loss and not actionable in fraud.  The unjust enrichment claim also failed because such claims don’t work where a plaintiff alleges that there is a valid and enforceable contract between the parties.

Amicus brief in Hart v. EA

The Organization for Transformative Works submitted an amicus brief, joined by the Digital Media Law Project and the International Documentary Association and ten law professors, arguing that EA's use of college football players' data/descriptions in its games can't be covered by the right of publicity.

High fructose corn syrup is still HFCS

FDA response to petition to change the name to "corn sugar."  Notably, the FDA didn't address the evidence submitted that people were confused into thinking that HFCS was worse than other forms of sweetened calories; it relied instead on its definition of sugar as a crystallized substance and not a syrup, and on the presence in the market of people whose health conditions allowed them to consume fructose (aka corn sugar) but not HFCS, who could be harmed by the switch.

Of possible interest to international IP types

My colleage Alvaro Santos introduces an online symposium on his article on Carving Out Policy Autonomy for Developing Countries at the WTO.

Lifewater "all natural" claim not deceptive, other challenges preempted

Hairston v. South Beach Beverage Co., Inc., 2012 WL 1893818 (C.D. Cal.)

Hairston brought a putative class action asserting the usual California false advertising and warranty claims based on SoBe’s sales of Lifewater, no-calorie, vitamin-enhanced, flavored water drinks; he alleged that he was a frequent purchaser of the MacIntosh Apple Cherry, Strawberry Kiwi Lemonade, and Black Cherry Dragonfruit flavors, though not the B–Energy Strawberry Apricot flavor.

The allegedly deceptive statements on the label were: (1) “All natural,” because Lifewater contains six ingredients that are “synthetic or created via chemical processing.”  (2) Flavor names, because Lifewater doesn’t contain any actual fruit or fruit juice, but the names allegedly contribute to the “all natural” image.  (3) Use of the common vitamin name such as B12, again because the vitamins in Lifewater are synthetic or created via chemical processing.

First, the court found that the claims based on fruit names and common vitamin names were preempted.  Hairston apparently conceded that those claims standing alone were preempted, but argued that they contributed to the deceptive “all natural” message.  The court didn’t buy that distinction, since the FDCA/FDA have regulated the circumstances under which a product can use the name of a “characterizing flavor” and the common names of vitamins.  Hairston wasn’t allowed to avoid preemption by characterizing these as part of his “all natural” claims, which might result in a patchwork of different state standards.

As to the remaining “all natural” claims, though questions of deceptiveness are usually not amenable to motions to dismiss, sometimes a court can resolve such claims based on its own review of the allegedly deceptive material.  Once the preempted claims were removed, Hairston’s claim was “based on a single out-of-context phrase found in one component of Lifewater's label.”  Such selective interpretation of individual words or phrases couldn’t support a CLRA, FAL, or UCL claim.  The “all natural” language on the label was immediately followed by the additional statement “with vitamins” or “with B vitamins.”  Because the phrase isn’t used in a vacuum, it would be impossible to allege how the language was deceptive without relying on preempted statements about fruit names and vitamins.  (This seems like a necessarily limited conclusion based in fact on an underlying puffery/lack of falsifiability determination rooted in the uncertain definition of “all natural.”  If the statements about vitamins/flavors had, for example, instead been about their geographic source, or even had been a specific nonpreempted health claim, it seems implausible to conclude that preemption would extend beyond allowing the use of the vitamin name/characterizing flavor name to other statements about the product, even if they were linked on the label.)

Additionally, the court found that no reasonable consumer would read “all natural” as modifying “with vitamins” and believe that the added vitamins are supposed to be “all natural vitamins.”  (Hunh?  It means “all natural except for the vitamins”?)  Any ambiguity was clarified by the ingredient list, which reasonable consumers expect to contain more detailed information that confirms other representations on the packaging.  Here, the ingredient list was consistent with the front label of “all natural with vitamins,” as well as with the idea that Lifewater was a flavored water beverage and not a juice. 

The court also dropped a footnote saying that Hairston lacked Article III standing to challenge the B-Energy product, which he didn’t buy.

Finally, Hairston’s breach of express warranty claim failed because the California warranty statute is inapplicable to any written warranty the making or content of which is otherwise governed by Federal law, and FDCA/FDA regulations governed the challenged labeling.  Even if they didn’t, Hairston failed to allege sufficient facts to establish that the label created a “written warranty” because it didn’t promise a defect-free product or guarantee a level of performance over a specific time period.  The challenged statements were “product descriptions” rather than promises related to defects or performance.  Indeed, because Lifewater would be consumed immediately and not used repeatedly over time, it would be impossible to allege a temporal element.  (“Guaranteed fresh”?)  It also wasn’t a warranty because it didn’t promise refund, repair, or replacement if the product failed to meet specifications.

Delayed but long post on LV v. Hyundai

Louis Vuitton Malletier, S.A. v. Hyundai Motor America, 2012 WL 1022247 (S.D.N.Y.)

Eric Goldman’s take.

During the post-game show of the 2010 Super Bowl, Hyundai ran a 30-second commercial that its counsel later described as “a humorous, socio-economic commentary on luxury defined by a premium price tag, rather than by the value to the consumer.” It consisted of brief vignettes that show “policemen eating caviar in a patrol car; large yachts parked beside modest homes; blue-collar workers eating lobster during their lunch break; a four-second scene of an inner-city basketball game played on a lavish marble court with a gold hoop; and a ten-second scene of the Sonata driving down a street lined with chandeliers and red-carpet crosswalks.”  The inner-city basketball game scene included a one-second shot of a basketball decorated with a pattern resembling Louis Vuitton’s toile monogram on a chestnut-brown background.  On the Luxury ad basketball, the LV was changed to LZ, and the proportions of the other designs were slightly altered.  The ad aired five times over a month. The court granted summary judgment in LV’s favor on trademark dilution.

Hyundai wanted to offer “luxury for all … by poking fun at the silliness of luxury-as-exclusivity by juxtaposing symbols of luxury with everyday life (for example, large yachts parked beside modest homes).”  LV’s mark was a symbol of “old” luxury, and Hyundai said it was trying to distinguish those old symbols, including LV’s, and redefine luxury during a recession to include the Hyundai Sonata. 

The court emphasized the deliberateness of Hyundai’s evocation of LV’s mark.  One former marketing executive, for example, testified that Hyundai designed “a brown basketball as you'd expect with some gold emblems on it to represent luxury definitely laddering and borrowing equity from Louis Vuitton. And I believe we changed as much as we could to make it so it wasn't a complete logo. But [we] tried to make it look like that so we would get that quick reference to luxury and people would get the luxury reference quickly. It was the simplest thing.”  Hyundai was trying to fight its own lower-quality brand image, and the court thought it was doing so by grabbing on to LV’s image.  As Mark McKenna has noted, this reads “use as a mark” out pretty much entirely—Hyundai didn’t adopt LV’s mark as its own, even though it referred to it.  It’s almost a European concept of free riding, which doesn’t do much to explain why we still allow comparative advertising in the US.  The court also didn’t like that Hyundai sought, but didn’t get, royalty-free permission to display 13 luxury brands in the ad.  Six brands said no and the others, including LV, never responded.

As Eric Goldman explained, the court found blurring based on the six-factor TDRA test.  The mark and the basketball design were virtually indistinguishable.  The one-second duration of the basketball clip heightened the similarity because the speed made it hard to discern any differences, but was intended to “register luxury with the snap of the fingers.”

LV also had high distinctiveness and exclusive use.  Hyundai argued that LV permitted unlicensed, third-party uses in a Black Eyed Peas video and in promotional material for musicians Dwight Yoakam and Jim Jones. LV sent a C&D to the Black Eyed Peas and was unaware of the other uses until they were raised in a deposition.  At most, this was “two minor lapses in enforcement.”  (Argh!  Unless these were commercial uses, they didn’t interfere with LV’s legitimate rights, and not going after them shouldn’t matter at all—it’s offhand comments like this one that lead TM owners to claim they “have” to control any representation of our pervasively branded world, and have the right to do so besides.)  Hyundai also argued that LV engaged in self-dilution by licensing Tiffany jewelry and providing celebrities with LV products, but the court thought that requiring royalties in the former case and deliberately using celebrities as a marketing strategy in the latter was sufficent control.

Hyundai’s undisputed intent to create an association with LV weighed in favor of dilution.  Hyundai argued that the association was expressive in nature and wouldn’t impair the LV marks, but the court thought this was “ipse dixit” (even though there are a number of cases that have recognized that unauthorized uses that refer back to the famous mark can increase the single-source meanings of the famous mark).

In addition, LV submitted evidence of actual association between the marks.  (Note the assumption that the basketball is functioning as a mark… for what?)  The Charbucks case concluded that a survey showing that 30.5% said that Starbucks was the first thing that came to mind on hearing Charbucks (and 3.1% reporting Starbucks as a possible source of Charbucks) was evidence of actual association.

LV pointed to Hyundai’s own expert, Dr. Jerry Wind, who used the Luxury ad and a basketball-less control.  In the test group, 19% identified LV as one of the brands shown.  Ninety percent of the test group noticed the basketball, and 30% stated it reminded them of LV, while 58% noticed a pattern or design on the basketball.  When asked to list which brand or product was advertised, 79% mentioned Hyundai first, and 5% mentioned LV first.  No respondent thought less favorably of LV, and only 2% believed the two were affilated.  Nine percent said the basketball made them more likely to buy a Hyundai.  “Other participants believed that the commercial advertised non-specified car manufacturers, caviar, lobsters, basketballs, yachts, Spaulding, the police or chandeliers.”  (Did we live and fight in vain?  (reference)).

LV’s expert also did a survey, with the control group seeing a standard orange basketball instead.  Seventy-two percent of the test group noticed the basketball design, 5% in control, and 15% of the test group recognized the design as LV’s, while 29% recognized it as some type of luxury mark.  That 15% was consistent with the percentage of the buying public that’s aware of the LV mark.  (This would seem fatal to “household name” status, but no.)  Among those who recognized the design as LV’s, 62% believed that LV authorized the use.  Large percentages of both groups thought the ad promoted Hyundai’s luxury qualities.  LV also submitted unedited tapes of focus groups on the ad, but the court wasn’t going to wade through them and LV didn’t provide a guide for what the court should look for.  LV also pointed to tweets reacting to the ad, e.g., “I think a Louis vuitton football or basketball would be gangsta,” “Dyd yall See tht Louis Vuitton Basketball? Lols iWant ^___^,” and “were they just playing ball with a LV basketball lol.”

Although the survey showed only 19% unguided recognition of LV in the ad, that was “evidence” of association in light of the Charbucks case, and anyway LV wasn’t requried to prove actual confusion, but whether a famous mark’s power had been whittled away by unauthorized use or its distinctiveness blurred.  LV’s expert said that, among those who recognized the LV mark, 62% believed the ad was approved by LV (which we conventionally call confusion); this was probative evidence of association of LV with Hyundai and with the Luxury ad.  (Adding to the roster of mathematically confused courts, the court said that it was “statistically significant” that 19% of respondents identified LV without prompting, as was the 30% who, when asked to focus their attention on the basketball, said it reminded them of LV.  I wish there were some sort of Microsoft alert that would pop up and ask “are you sure you don’t mean ‘significant’?”)  The tweets also provided “substantial and unrebutted” evidence of actual association reflecting “interest and enthusiasm about a Louis Vuitton basketball.”

Thus, weighing the statutory factors, LV was ahead on each one, and Hyundai failed to produce evidence that would enable a reasonable jury to find in its favor, including considerable evidence of intent to create an association.  Hyundai argued that LV’s use wasn’t exclusive because two recording artists used LV marks in promotional images, but LV didn’t know about those until this case, and it had a record of aggressive enforcement against counterfeits, and the marks’ appearance in a video for My Humps and in a use by Tiffany led to a C&D and a royalty agreement.  On similarity, the basketball design was virtually indistinguishable from LV’s marks, and the brevity of the appearance in the ad made it more difficult to distinguish the two.

Hyundai argued that the TDRA didn’t apply because it didn’t use LV’s marks to designate its own products.  Unlike in Tiffany v. eBay, however, the court said, Hyundai used the LV marks for “its own branding goals” (question: as eBay didn’t when it ran ads saying Tiffany jewelry could be found on its site?), “and, in the minds of some consumers, created actual association between Hyundai and Louis Vuitton.”  (But the TDRA specifies how actionable dilution must take place; we know that a number of things that might create associations are excluded from its scope, and before relying on the creation of association a court should first decide whether the type of behavior at issue falls within the TDRA’s categories.) 

The ad’s creators testified that the ad was “definitely laddering and borrowing equity from Louis Vuitton.” The court thus rejected Hyundai’s argument that the pattern wasn’t being used to designate Hyundai’s own goods or services—dilution is not a false designation of origin claim.  A blurring claim can arise even if a mark doesn’t designate origin.  (Then … is it a mark?)  LV established blurring as a matter of law.

LV also established willfulness, given a record “replete” with statements that Hyundai intentionally used the LV marks to promote the Sonata and draw on LV’s image in consumers’ minds.  Hyundai also believed it needed permission to use other luxury brands in the ad: it asked 13 companies, six of whom declined and others, including LV, never responded.  Even after LV’s C&D, Hyundai ran the ad through the NBA All–Star Weekend and, after LV sued, the Academy Awards.  Further, the deliberate alteration of the LV pattern “demonstrates a consciousness that Hyundai could not lawfully use the marks.”  The aim was to evoke LV in particular, but also to change the mark enough to avoid a permission requirement.  This was a “conscious intent within Hyundai to ladder and borrow from the equity of Louis Vuitton marks.”  (I’m sure “ladder” is some branding jargon, but all I can think of are stockings with runs in them.)

Hyundai argued that its intent was expressive, but that was a matter for its fair use defense.  (Why isn’t a belief, even a wrong one, in a fair use defense sufficient to avoid willfulness?  Because it’s a commercial, I guess.)  No reasonable juror could find for Hyundai on willfulness.

Unsurprisingly, LV also established blurring under NY law, which does not require fame but has a “substantial” similarity requirement.

The court then turned to the fair use defense, which could be available in a commercial context: “identifying, parodying, criticizing, or commenting upon the famous mark owner or the goods and services of the famous mark owner.”  Charbucks found no parody where there was, at most, a subtle satire of Starbucks.  Here, the record showed that Hyundai had no intent to parody, criticize, or comment on LV.  Hyundai argued that the presence of the design reflected a broader social commentary designed to “challenge consumers to rethink what it means for a product to be luxurious.”  But Hyundai disclaimed comment etc. on LV specifically and thus could not, as a matter of law, invoke fair use.  Individuals involved in the ad’s creation testified in response to questions, for example, that they weren’t commenting on LV. E.g., “It wasn't the intent to try to—the intent wasn't specific to—the same reason why we didn't use specific brands on any of the other things we did. It was just to convey luxury.”  They could have used other brands, and had nothing to say about LV specifically.  Hyundai argued that “The symbols of ‘old’ luxury, including the [Louis Vuitton] Marks, were used as part of the Commercial's humorous social commentary on the need to redefine luxury during a recession, even though the Commercial's overall intent was not to comment directly on [Louis Vuitton] or the other luxury symbols.” And since some symbol had to be chosen to evoke luxury, Hyundai chose LV.  The court understood this to mean that there was no commentary on LV at all; LV and other brands were only “proxies” for a broader observation about “old” luxury.  That wasn’t comment on the famous mark owner or its goods or services.  Thus, no reasonable trier of fact could sustain the fair use defense.

Comment: I think Barton Beebe might have interesting things to say here about how the idea that LV, as a luxury brand, could stand in or for luxury brands generally, and be subject to commentary on luxury brands generally, is inherently offensive to LV’s supposedly unique status, and yet at the same time LV does very much want to be known as a luxury brand.  Why you can’t criticize or comment on a genus by identifying some members thereof remains unclear to me (if I comment on American presidents with examples, aren’t I commenting on the examples?, but the court thought its conclusion was a standard application of the rule that comment/parody must be directed to the plaintiff’s mark.  It also cited Rogers v. Koons for the proposition that fair use arguments have been rejected when the use is directed at “expansive social criticism” rather than “targeted” comment or parody.  This is wrong on a number of levels, not least of them that Blanch v. Koons indicates a rather different subsequent view of fair use—and Blanch has it right, since a court has no business telling a speaker “use a better example” or “if you target a general phenomenon, you have to make up a hypothetical example instead of using a real one” (at least in the absence of defamation or false advertising, not implicated here).

True, the court noted, the TDRA contemplates commercial parody etc.  But “[i]n other contexts” (citing state law and FTDA dilution cases), promotional use weighs against fair use.  Hyundai itself cited copyright and non-TDRA cases, but those didn’t involve “subtle” satires.  Rather, they were “over-the-top, umistakable parodies” (citing, e.g., Cliffs Notes, Inc. v. Bantam Doubleday Dell Publishing Grp., Inc., 886 F.2d 490 (2d Cir. 1989); Tommy Hilfiger Licensing. Inc. v. Nature Labs. LLC, 221 F. Supp. 2d 410 (S.D.N.Y.2002)).  While it clearly wouldn’t make a difference in this case, I’m fascinated by the way that precedents work here: the parody is clear in retrospect, but the plaintiffs certainly didn’t think so, and readers are invited to make their own assessments:

The court also denied Hyundai’s motion for summary judgment on the TM infringement claim.  Hyundai argued that the strength of the LV mark made confusion less likely in a case involving commentary, but the court found that the “jest or commentary” was less apparent than in the Old Farmer’s Almanac case on which Hyundai relied for this proposition.  The court accepted that the competitive proximity between the parties was minimal and that LV was unlikely to bridge the gap to automobiles, but enough other factors favored LV to avoid summary judgment.

LV argued sponsorship/approval confusion, and there was some evidence of tweets that “misapprehended the authenticity” of the LV-like ball, and other posts mentioning an “apparent nexus” with Hyundai.  E.g., “Did I just see a Louis Vuitton basketball in a Hyundai commercial? ? ?”; “That luxury hyndai sonata commercial is hard body. LV basketball wit marble & gold backboard was so sick!”; “in one of Hyundai's ad, there is a guy holding a basketball with the LV logo.”  I don’t know why any of this is evidence of sponsorship confusion, but apparently it is, though tweets that mentioned the instant litigation were not.  “While anecdotal and limited, the postings to Twitter reflect some actual confusion as to Louis Vuitton's role in the Hyundai ad, in the same fashion as letters or phone calls.”  LV’s reliance on focus group statements was insufficient to provide other evidence of confusion.

Hyundai’s expert testified that its survey showed net 8% of likely Sonata consumers, the relevant group, either believed that Hyundai and LV were affiliated or that LV granted permission to use its marks.  Ten percent said they were more likely to buy a Sonata because of the presence of the basketball.  (!)  LV challenged the control group for using a ball with an “atypical” chestnut-brown color “that mimics the Louis Vuitton marks.”  The survey also asked “In creating the commercial, do you think the company that produces the advertised brand or product [X] got or was required to get permission from any other company or brand?”  But this is a compound question that requires participants to draw a legal conclusion, and other cases have found similar questions to deserve little weight.  (Why this formulation doesn’t drive up yes responses, making LV’s case weaker, is unclear to me.)

LV’s own expert opinions weren’t directed to likely Sonata purchasers, but instead looked at misapprehension among all consumers who recognized the LV mark.  This might be relevant to dilution, but carries little or no weight for confusion.  In the end, the Hyundai survey’s flaws were better assessed by a jury, to be weighed against “a scattering of Twitter postings by unknown users”; actual confusion favored neither party.

Bad faith certainly didn’t favor Hyundai as a matter of law: intentional copying/evocation of LV; failed attempts to seek permission; refusal to stop airing the ad.

Proving once again that, if we’re going to have a multifactor confusion test for everything, the Second Circuit should really get rid of “product quality” as a factor, the court also agreed that it was irrelevant in this case because of the lack of competitive proximity, even though LV argued that its luxury reputation was at risk.

Though both parties’ consumers were sophisticated, the close similarity of the marks could still lead a sophisticated consumer to conclude that the design in the ad originated with LV (which of course is exactly the same as being confused about sponsorship … sigh), or could distinguish between the marks.

The court also rejected Hyundai’s First Amendment arguments as relevant to confusion, because of the “subtle” commentary in the ad and the “broader social critique” it offered.  Such motivations are “unworthy of protection,” though I would have thought broad commentary justified more First Amendment protection—newsworthy topics, after all, are regularly illustrated with examples, often of people or institutions who didn’t choose to become examples for others.

Hyundai also moved for summary judgment on damages, because even with willfulness no reasonable juror could conclude that even one Sonata was sold because of the presence of the basketball.  LV argued instead that damages could be measured by the $3.2 million Hyundai spent to produce and air the ad, or instead by the estimate of its expert, who opined that the LV designs were “integral” to the Luxury ad (seriously?), that the ad caused a spike in visits to Hyundai's website, and that “approximately $14.5 million” in profits could be attributed to the ad.  This was, the court held, a dispute best submitted to the finder of fact. 

If a drug manufacturer pays the publication fee, is an open access article an ad?

This case doesn’t resolve the issue, but it’s an interesting one to contemplate.

Ony, Inc. v. Cornerstone Therapeutics, Inc., 2012 WL 1835671 (W.D.N.Y.)

Ony sued over defendants’ publication of an article containing allegedly false and misleading statements about its product, an animal derived surfactant known as Infasurf, which is used to treat Respiratory Distress Syndrome (“RDS”) in premature infants.  Such infants often suffer from inadequate lung development, including naturally produced surfactants.  The parties compete with animal-derived surfactants.

The complaint alleged that Chiesi commissioned a study to support the claim that Curosurf was superior.  Chiesi hired defendant Premier Research Services to “provide a database to support the desired conclusion,” and hired three defendant-authors (Ramananthan, Bhatia, and Sekar) to submit the findings to pediatric medical societies.  The authors and Ernst, a Premier employee, submitted a study for publication in the Journal of Perinatology that included allegedly false claims that Curosurf-treated infants had a lower mortality rate than Infasurf-treated infants, e.g., “Result: Calfactant [Infasurf] was associated with a 49.6% greater likelihood of death than poractant alfa [Curosurf].”  The article claimed that this relationship held up even adjusting for patient and hospital characteristics.  The complaint further alleged that the Journal (whose parent was also a defendant) was perceived as a reliable source by neonatologists.

Ony alleged that the data used for the article weren’t based on an actual clinical study, but rather from various reporting hospitals and doctors, making the study retrospective and “subject to selective distortion.”  Specifically, the mortality data were unreliable because of deliberate omission of length of stay data, since length of stay is inversely proportionate to mortality.  Allegedly, if the length of stay data had been included, it would have been obvious that the differences in results came from differences in patients treated.  Ony further alleged that the authors didn’t cite at least one article contradicting their findings, despite knowing about it, and tha the defendants submitted the article for publication knowing that it was deficient.  In fact, Ony alleged, it didn’t think the doctor-authors actually wrote the article; some other agents of the manufacturer/seller did.

Premier allegedly benefited economically from submitting and publishing the article, which “served as advertising for Premier's database and related services, and announced to pharmaceutical companies and other providers of medical products and services ... that the engagement of Premier in connection with similar self-serving ‘studies' would be to their economic benefit as well.” 

One of the two reviewers found the article’s conclusions unreliable, but the journal published it anyway.  Ony alleged that this was based on part on the fact that Bhatia was an associate editor at the journal and Sekar was on the editorial board.  The manufacturer/distributor defendants then allegedly paid the publication fee for the article, which enabled it to come out in open access format available to nonsubscribers.  They then issued a press release touting the article and began distributing it to current and potential customers.  Because the journal refused to retract the article at Ony’s request, Only alleged that the journal and its publisher the American Academy of Pediatrics “are sanctioning and condoning scientifically unreliable information which influences purchasing decisions by hospitals and prescribing decisions by neonatologists.”

Ony therefore alleged that publication and distribution of the article violated the Lanham Act, NY GBL § 349, and constituted tortious interference as to the manufacturer/distributor, and also constituted injurious falsehood as to every defendant.

The authors, including Ernst, contested personal jurisdiction.  None of them were domiciled in NY, and the article was written and researched outside of NY.  Publication was not negotiated within NY; publication was not negotiated at all but rather conditioned on peer review and left to the editorial discretion of the defendant editor.  The authors weren’t paid.  Ony argued that defendant Nature Publishing Group requires all authors to sign a license prior to submitting any papers for publication, which contains a choice of law provision choosing NY law and submitting to the non-exclusive jurisdiction of the courts of NY.  But choice of law provisions are insufficient on their own to confer jurisdiction, and a forum selection clause is meaningless without express consent to personal jurisdiction.  The agreement language referred only to “non-exclusive jurisdiction” and had no express consent to personal jurisdiction.

The claim against the authors sounded in defamation, and courts considering NY’s long-arm statute have concluded that something more than the distribution of a defamatory statement within the state is required to establish long-arm jurisdiction.  For Ernst and Ramanthan, the only New York contact alleged was the submission of the article itself, and that wasn’t enough. What about Bhatia and Sekar as participants in the journal’s editorial activities?  An employee’s contacts with a forum state are assessed individually rather than according to his/her employer’s activities.  Their duties were limited to reviewing articles emailed to them and returning comments.  This was also insufficient to justify personal jurisdiction in NY.

Under the facts, defendants’ submission of the article to a NY publisher was akin to a mere solicitation or placement of an ad, which is insufficient to constitute doing business in NY.  There was no personal jurisdiction over the four author-defendants.

The court then turned to the motion to dismiss for failure to state a claim.  Statements of opinion can’t support claims under the Lanham Act, GBL § 349, or injurious falsehood/defamation.  This includes a hypothesis or opinion offered after a full recitation of the facts on which it is based.  The claims here were based on an academic article in a scientific journal, and academic freedom is a special concern of the First Amendment.  Still, there’s no license to make false statements.  The fact/opinion divide can be assessed by considering (1) whether the specific language in issue has a precise meaning that is readily understood; (2) whether the statements are capable of being proven true or false; and (3) whether either the full context of the communication in which the statement appears or the broader social context and surrounding circumstances are such as to signal that the statement is opinion or fact.  Could a reasonable reader have concluded that the article was conveying facts about the efficacy of Ony’s product?

Ony pointed to the article’s conclusions that calfactant (Infasurf) was associated “with a 49.6% greater likelihood of death” or a “significantly greater likelihood of death” than poractant alfa (Curosurf).  But Ony didn’t allege that calfactant was in fact more effective.  (Not clear why that’s the standard, as opposed to “not significantly less effective.)  Instead, it alleged that the article’s conclusions were unreliable and therefore misleading.  Thus, the court framed the issue as whether the article sufficiently stated the facts on which its conclusions were based or impermissibly implied that the conclusions were supported by additional undisclosed information. 

Commentary: this is a defamation analysis, but applying it in this way is completely inconsistent with the Lanham Act caselaw about establishment/“tests prove” claims, where showing unreliability of the tests used to make the assertion is a well-recognized path to liability.  Had Ony picked its defendants better, and brought only Lanham Act claims against a competitor, the court might not have been led to apply this standard.  While that would still leave the article out there even if Ony fully succeeded, it was never very likely that Ony would completely suppress the article, and more reasonable to imagine that Ony might be able to stop its use in advertising and promotion.

Once the court applied this standard, Ony’s claim was doomed.  The peer-reviewed journal at issue was directed to a highly specialized group familiar with the issues.  The article contained an initial section detailing the patient data and research methods used.  Though it didn’t mention length of stay data, it did disclose the patient criteria considered.  Thus, there was no implication of undisclosed facts.  The context also supported the conclusion that an average reader would perceive the statements as “debatable hypotheses” rather than “assertions of unassailable fact.”  The authors acknowledged that the retrospective nature of the study posed limitations and that there could be additional factors affecting the stated conclusions.  They specifically stated that the findings prompted an inquiry into the reasons for the outcomes, and that “[t]he most likely explanation may be due to different surfactant doses administered to the infants included in the database,” as doses of poractant alfa tended to be twice as large as doses of the other two surfactants. Thus, the court couldn’t conclude that a reasonable reader would have received a message that the article was conveying proven facts about the efficacy of Ony’s product.  “[A]ny perceived fault in the method by which the authors reached their conclusions should be subjected to peer review rather than judicial review.”

Ony alleged that the manufacturer/distributor defendants paid Premier and the authors to compile data to support a favorable conclusion, but that was clearly indicated in the article under the heading “Conflict of Interest.”  There, the authors acknolwedged that the “study was sponsored by Chiesi Farmaceutici SpA, the manufacturer of poractant alfa. Frank R. Ernst is an employee of Premier, which contracted with Chiesi Farmaceutici SpA to conduct the study. Rangasamy Ramanathan, Kris Sekar and Jatinder Bhatia have served as consultants to Ciesi Farmaceutici SpA.”  This clearly signalled that the authors weren’t disinterested, leaving a credibility assessment to the reader and reinforcing that the conclusions were opinion.

The tortious interference claims also necessarily failed, even after Ony identified specific hospitals whose relations were allegedly interfered with; a defendant can advance its own economic interests unless it employs wrongful means.  Since promoting and distributing the article wasn’t misleading, there was no wrongful conduct alleged.

Not really a surprise: Pom disagrees with my reading of the FTC decision

Apparently its new ad campaign will focus on claims like "supports prostate health," in stated reliance on the ALJ's ruling.  Not clear whether Pom has consumer reaction evidence indicating that consumers do not receive a treatment/prevention message from such claims--like "heart therapy," below.  (Who are you going to trust, the government or the business that makes money when you buy its stuff?)  But I suppose if you're in a hole, there's no reason not to keep digging, and again you can't deny the chutzpah of using the ALJ as a citation for your "benefit" claim.

"unlawful" conduct causes actionable harm even without deception in Cal.

Medrazo v. Honda of North Hollywood, 140 Cal. Rptr. 3d 20 (Ct. App. 2012)

Medrazo sued HNH on behalf of a putative class under the UCL and CLRA for failure to comply with California law that required new motorcycles to be sold only with a label disclosing the recommended retail price and the dealer’s added charges.  After the court of appeals directed the class be certified, the trial court granted HNH’s motion for judgment, finding that Medrazo failed to establish that she, or any other class member, was injured by HNH's conduct.  The court of appeals reversed as to the UCL, but affirmed as to the CLRA because Medrazo failed to adequately address that law in her appeal briefs.

Medrazo presented evidence that: when she bought a motorcycle from HNH, there was no label attached; more than $2000 in dealer charges were added to the cost of the motorcycle she bought; HNH as a matter of consistent practice failed to attach labels to Suzuki and Yamaha motorcycles, failed to attach labels to some Honda motorcycles, and didn’t include the dealer charges on all the labels that were attached; and that HNH sold more than 3000 motorcycles in the relevant period.  The court of appeals ordered certification despite the individual issues (each Honda purchaser would have to establish that there was no tag attached to the motorcycle she bought and/or the dealer added costs weren’t disclosed on the tag, and restitution amounts might differ) because those were manageable issues overwhelmed by the commonality of issues.

The evidence suggested that customers would at first only hear the manufacturer’s suggested retail price, but if a customer wanted to buy, a salesperson would negotiate the terms of sale. At that point, the salesperson would complete a worksheet disclosing any dealer-added charges. 

As for Medrazo’s specific purchase, HNH produced the hanger tag for the motorcycle she bought; given that HNH still had it, HNH’s witness conceded that it probably hadn’t been attached to the motorcycle when she bought it, and also it showed the MSRP but not the dealer-added charges.  After the lawsuit was filed, HNH started creating its own hanger tags, laminated them to keep them from being destroyed or blown off, and had a salesperson look for and replace missing tags every day.

The trial court accepted HNH’s argument that Medrazo wasn’t injured because she was adequately informed of the dealer-added charges before she entered into the purchase contract, failed to show that she was misled or injured by HNH’s failure to comply with the law, and failed to establish the amount of restitution allegedly owed to herself or any other class member.

The court of appeals ruled that the trial court had incorrectly applied the law to the facts.  Medrazo wasn’t required to show actual reliance to be entitled to restitution based on the “unlawful” prong of the UCL, and she showed economic injury.  To violate the UCL, it’s enough that a practice is unlawful, even if not deceptive.  An actual reliance requirement doesn’t apply to UCL actions not based on a a fraud theory; the only requirement is that a plaintiff must show lost money or property caused by the violation.

Medrazo’s evidence that there was no hanger tag and that she wasn’t informed of the dealer-added charges or the total price of the motorcycle until she was presented with the sales contract sufficed to establish that she suffered a concrete, particularized, and actual invasion of an interest legally protected by California law, which requires disclosure before a consumer makes the decision to purchase a specific motorcycle.  Her economic injury was that she bought a motorcycle that HNH allegedly “was not legally allowed to sell (or at least was not allowed to sell at the price for which it was sold) because it failed to disclose the dealer-added charges on a hanger tag attached to the motorcycle.”  This was enough to constitute lost money or property as a result of the UCL violation, assuming there was in fact a violation of the disclosure law.

Likewise, Medrazo presented sufficient evidence of restitution amounts; HNH refused to disclose certain information about class members, citing privacy concerns.  Thus, when the trial court ruled that Medrazo was unable to show each class member’s dealer-added charges at the time HNH moved for judgment, it erred. Medrazo could show the amounts HNH charged for each type of motorcycle, and thus could easily establish the amounts owed as restitution if there was a violation of the law once HNH disclosed the necessary information.

Clive Thompson on the importance of fan fiction and fanworks

This Wired story goes a bit beyond the "training wheels" metaphor that undervalues fanworks, and celebrates them as a way to access, develop, and sustain creativity in a variety of ways.  Some very intriguing creativity research suggests that many great ideas come from boundary crossing: taking ideas from one field and moving them to another.  Fans are pretty good at that.

Via OTW News.

direct targeting of ads confers personal jurisdiction

Man-D-Tec, Inc. v. Nylube Products Co., LLC, 2012 WL 1831521 (D. Ariz.)

Man-D-Tec is an Arizona corporation, and Nylube is a Michigan corporation.  They compete in the market for elevator light fixtures and replacement lamps.  Man-D-Tec sued for false advertising, and Nylube arged that there was no personal jurisdiction in Arizona. 

Nylube sells throughout the US, but doesn’t regularly advertise in Arizona.  About 0.5% of its total sales over the past two years were to Arizona customers.  The challenged material was an ad circular attached to the invoices of nine of Nylube’s Arizona customers.

Nylube’s contacts with Arizona were not sufficiently continuous and systematic to subject it to general jurisdiction in Arizona.  Having its website hosted on an Arizona server was merely fortuitous, nor did the fact that its interactive website was accessible in Arizona create general jurisdiction.  A small number of Arizona residents receiving ads was also insufficient.  Though Nylube maintained at least 14 customers in Arizona over the last two years, continuous activity alone is insufficient.  Nylube wasn’t licensed to do business in Arizona, didn’t maintain offices, telephone numbers, or bank accounts here, and had no sales personnel or agents for service of process in Arizona. Arizona customers represented only about 0.5% of Nylube’s total sales. Nylube’s small Arizona customer base was insufficient to justify suit against it for unrelated activities.

Specific jurisdiction, by contrast, was present.  Nylube argued that the ad flyers went to customers throughout the US and thus weren’t purposely directed to Arizona or any particular forum.  But because the flyers were directed to particular prior customers, and Nylube apparently knew that some were Arizona residents, there was purposeful direction to Arizona (as well as other states).  Nationwide ads in journals or magazines that happen to be read in a forum state may not constitute purposeful direction.  But cases so holding involved defendants who didn’t thesmselves direct ads to particular forum residents, but rather advertised in national periodicals that happened to be received in the forum state. Direct targeting of particular consumers in a known forum, by contrast, is purposeful direction.

The claim here also arose out of Nylube’s forum-related activities: the ads.  And Nylube did not show that the exercise of jurisdiction was otherwise unreasonable.  The court also denied Nylube’s motion to transfer.

What is the limitations/laches period for Lanham Act false advertising claims?

The court doesn't fully resolve the issue here, but provides a nice overview of the 9th Circuit case law at least.

ThermoLife Intern., LLC v. Gaspari Nutrition, Inc., 2012 WL 1752977 (D. Ariz.)

The parties compete to market dietary supplements.  ThermoLife alleged that Gaspari falsely marketed Novedex XT, Halodrol Liquigels, Halodrol MT, and SuperPump 250 products—as safe, natural, containing certain ingredients (Halodrol: 95% 3,4–divanillytetrahydrofuran; SuperPump: terkesterone), compliant with the federal Dietary Supplement Health and Education Act of 1994 (DSHEA), and legal.  In 2010, however, the FDA stated that Novedex XT and Halodrol products were not DSHEA compliant.  ThermoLife also alleged that the products contained unsafe materials that were not naturally occurring.  It also alleged that, according to its tests, commercial production of 95% 3,4–divanillytetrahydrofuran was cost prohibitive, and that therefore Halodrol could not actually contain that concentration.  Further, ThermoLife alleged that its tests of SuperPump didn’t detect any turkesterone, and that if there was in fact any in the product it couldn’t be enough to be an effective dose.  It claimed to have an exclusive distribution agreement with the only company known to produce turkesterone for use in dietary supplements.

ThermoLife also alleged that Gaspari improperly prevented it from attending and exhibiting at the 2009 Mr. Olympia Weekend Expo bodybuilding competition and trade show by contacting American Media, Inc., the organizer of the event, and threatening to pull its advertising if ThermoLife was allowed to exhibit at the event, causing ThermoLife lost business opportunities and unrecoupable preparatory costs.

Gaspari began with, sigh, a standing argument that ThermoLife didn’t sufficiently allege direct competition or anything beyond speculative injury.  To the contrary, ThermoLife specifically alleged that it sold directly competing products.  Gaspari attempted to narrowly define the universe of “competitive” products to “only products which are effectively identical and advertised as such is unavailing. Plaintiff's allegations that both Plaintiff and Defendant sold dietary supplements containing similar ingredients, serving similar purposes, and targeting a specific audience (here, competitive and amateur bodybuilders) is sufficient to allege direct competition and justify the presumption of competitive injury at the motion to dismiss stage.”  The allegations raised a presumption of injury through sales diversion and loss of goodwill to Gaspari sufficient to confer standing.

Gaspari then argued that the claims were barred by the statute of limitations, borrowed from the one-year period under the Arizona Consumer Fraud Act.  Ninth Circuit precedent suggests but does not mandate that the proper analysis is laches instead of an absolute bar, but the court didn’t need to resolve that because the court agreed that Arizona’s 3-year fraud limitations period was instead the proper period.  Though ThermoLife alleged false statements as far back as 2007, the pleadings didn’t disclose that it discovered then that the statements were false. It was plausible to infer that ThermoLife discovered the falsity when recalls of Gaspari’s products began in 2009 and 2010, and ThermoLife conducted its independent tests in 2009, all of which fell within the 3-year period (the suit was filed in 2011).  Thus the complaint couldn’t be dismissed as time-barred.

On tortious interference, Gaspari argued that ThermoLife failed to allege any specific party with which it expected to do business or any specific damages (though Gaspari didn’t move to dismiss the claim of tortious interference with ThermoLife’s relationship with American Media, Inc.).  The court agreed: the only assertions that ThermoLife would have earned business at the Expo were conclusory; the mere hope of business is insufficient.

Pom takes another pounding

Pom Wonderful LLC v. Coca-Cola Co., --- F.3d ----, 2012 WL 1739704, (9^th Cir. May 17, 2012)

Pom sued Coca-Cola over its “Pomegranate Blueberry” or “Pomegranate Blueberry Flavored Blend of 5 Juices” product.  (Coca-Cola argued that the latter was the product’s name, as if any consumer in the entire world would call it that.)  Pomegranate Blueberry contains about 99.4% apple and grape juices, 0.3% pomegranate juice, 0.2% blueberry juice, and 0.1% raspberry juice.

The front label displays the product’s name and a vignette depicting each of those fruits:

The district court ruled that the Lanham Act claim against the name and fruit vignette was barred by FDA regulations, though Pom could challenge other advertising and marketing of the product.  Also, Pom’s state law claims were preempted to the extent they would impose requirements not identical to federal ones on Coca-Cola.  Also, the court held that Pom lacked statutory standing to pursue its state law claims because it hadn’t not shown that it was entitled to restitution.

Pom appealed, and the court of appeals largely affirmed.  “[T]he Lanham Act may not be used  as  a vehicle to usurp, preempt, or undermine FDA authority. That teaching, however, operates as a presumption or a general principle—not as an automatic trump or a firm rule.”  Courts must attempt to give as much effect to both statutes as possible.

Here, the naming aspect of Pom’s claim was barred “because, as best we can tell, FDA regulations authorize the name Coca-Cola has chosen.”  Under the regs, a manufacturer can name a beverage using a name of a flavoring juice that is not predominant by volume.  For example, a  raspberry-and-cranberry-flavored product whose predominant juice is not raspberry or cranberry can be called “‘Raspcranberry’; raspberry and cranberry flavored juice drink.”  If the juices provide the characterizing flavor, and if Coca-Cola states that the juices aren’t predominant, then the name is ok.  Thus, allowing Pom’s claim to proceed would conflict with the FDA’s apparent authorization of names like “Pomegranate Blueberry Flavored Blend of 5 Juices.”  The same went for the labeling component of Pom’s claim, which focused on the presentation of the words on the label (Pom didn’t spend meaningful time on the fruit vignette on appeal).  Pom apparently sought to make Coca-Cola change the size of the words on its labeling so that the words “Pomegranate  Blueberry” no longer appeared in larger, more conspicuous type on Coca-Cola’s label than “Flavored Blend of 5 Juices.”   But that too would undermine the FDA’s regulations, which specify what words must or may be included on labels and how prominently and conspicuously they  must appear: in such a way “as to render [them] likely to be read and understood by the ordinary individual.”  Despite this, the FDA hasn’t required that all words in a juice blend’s name appear on the label in particular sizes; if the FDA thought that such a regulation were necessary, “it could have said so. If the FDA believes that more should be done to prevent deception, or that Coca-Cola’s label misleads consumers, it can act.”  But here, to act when the FDA hasn’t would risk undercutting its expertise and authority.

Previous district court decisions allowing similar Lanham Act claims to proceed, on the ground that the claims didn’t require the court to interpret or apply FDA regulations, couldn’t be harmonized with governing 9^th Circuit precedent.  “Although these courts were right to recognize that a Lanham Act claim is barred when it would require a court to interpret ambiguous FDA regulations, that is not the only circumstance in which such a claim is barred…. [C]ourts must generally prevent private parties from undermining, through private litigation, the FDA’s considered judgments.” 

How do we know when the FDA has made a considered judgment, as opposed to not making a judgment?  Good question, to which you will not find a great answer here!  The court reiterated that the FDA could determine that Coca-Cola’s label is misleading, but that it hasn’t to date done so, “even though it has acted extensively and carefully in this field. (The FDA has not established a general mechanism to review juice beverage labels before they reach consumers, but the agency may act if it believes that a label in the market is deceptive.)  As best we can tell, Coca-Cola’s label abides by the requirements the FDA has established.”  However, “mere compliance with the FDCA or with FDA regulations will [not] always (or will [not] even generally) insulate a defendant from Lanham Act liability.”  Compliance with FDA’s regulations alone was not enough, but rather the court found compelling “Congress’s decision to entrust matters of juice beverage labeling to the FDA and by the FDA’s comprehensive regulation of that labeling.”  The FDA apparently didn’t impose the requirements Pom wants, and the court lacked the FDA’s expertise in guarding against deception in the context of juice beverage labeling.  (Does the FDA have expertise in assessing likely deception, as opposed to scientific evidence on safety and efficacy?  I don’t think the D.C. Circuit thinks it does.)

Turning to the state law claims, the district court dismissed on standing grounds: it found that Pom hadn’t lost money or property because it wasn’t entitled to restitution directly from Coca-Cola.  But the California Supreme Court has made clear that standing doesn’t depend on eligibility for restitution, so the court remanded for further proceedings, which would restart the preemption issue and also raise the question whether California’s safe-harbor doctrine for regulatory compliance insulated Coca-Cola from liability.  So it seems unlikely that Pom can get much traction on state-law claims either.

Review: False Advertising and the Lanham Act

Thomas M. Williams, False Advertising and the Lanham Act: Litigating Section 43(a)(1)(B): Oxford sent me a review copy of this short, practice-oriented book.  If Lanham Act cases are core elements of your practice, this book is not for you, but it might be a useful reference for in-house counsel who encounter Lanham Act cases on occasion.  I have only two substantive quibbles (and they go to the fact that this is very much a “this is what the cases say” book): (1) Williams says “1+1=many” is an example of an ambiguous claim whereas “1+1=3” is false; absent further context, I don’t see how the former is any less false.  (2) Williams, consistent with what many courts say, characterizes Conte Bros. as a test that expands standing beyond the "competitors/competitive interest" rules of other circuits. I think if you ran the numbers on this you'd find that courts actually applying Conte Bros. are at least equally likely to deny standing to competitors than to grant it to noncompetitors, as in Phoenix of Broward; the prospect of expanded standing is largely illusory.  Anyway, the chapters provide overviews of important procedural matters like prudential standing, pleading under Iqbal/Twombly, injunctions after eBay/Winter, etc., as well as the substantive elements of a Lanham Act false advertising claim and some discussion of instances when 43(a)(1)(B) won’t work (the TM/false advertising line, Dastar, FDA preemption, etc.).

FTC ALJ rules many Pom ads misleading, unsubstantiated

In the Matter of POM Wonderful LLC and Roll Global LLC, FTC File No. 082-3122 (May 21, 2012)

Bottom line: while rejecting complaint counsel’s arguments that double-blind, randomized clinical trials were required to substantiate health claims of the sort made by Pom, the ALJ found that Pom didn’t meet the somewhat lower standard of reliable and competent scientific evidence either with respect to claims about heart health/disease, prostate health/disease, and erectile function/dysfunction.  Though I don’t think the opinion explicitly says so in so many words, it implicitly acknowledges what I think any honest observer of the general consumer market would have to: ordinary consumers are unlikely to regularly distinguish between a “supports health” claim and a “prevents disease” claim in any relevant way, meaning that the DSHEA’s framework is fundamentally rotten.  At the very least, the proceeding against Pom helps to make that point to advertisers trying to finesse the distinction, though of course I expect an appeal.

With respect to a number of ads, set out in the appendix available on the FTC’s site, the ALJ found that reasonable consumers would receive an implied claim that the Pom products treated, prevented, or reduced the risk of heart disease, prostate cancer, or erectile dysfunction, and some of the ads conveyed the further message that these effects were clinically proven.  With or without the explicit "clinically proven" language, these claims weren’t sufficiently substantiated.  The appropriate level of substantiation is “competent and reliable scientific evidence.”  When a disease treatment/prevention/risk reduction claim is made in connection with a safe food product not being offered as a substitute for medical treatment, that doesn’t require double-blind, randomized, placebo-controlled clinical trials (RCTs), but it does require some sort of clinical studies adequate to show that the product does what it claims.  Here, the weight of the expert testimony was against the implied disease claims in the ads.

Crucially, whether the substantiation was adequate to support either “highly qualified or generalized health claims” or “the express language of the advertisements” didn’t matter.  Advertisers are responsible for (material) implied messages too.  Pom argued that its ads were exaggeratedly humorous and simply provided a general “healthy” message; to the extent the ads made specific claims, Pom argued, they disclosed that the evidence came from preliminary studies.  The ALJ was unimpressed given the specific health benefits mentioned, the claims of scientific support, and sometimes references to clinical studies.  Humor might draw attention to the ads at the outset, but the presence of humor didn’t make every factual claim in the ads into puffery.  Likewise, the weasel words in the ad didn’t help: whether a consumer interprets “can” help health as “will” help health depends on context.  

Pom argued that, in the context of a food ad, consumers wouldn’t receive a “clinically proven” or other disease treatment/risk reduction message, but would think of it more like “exercise reduces your risks” instead of “drug Z reduces your risks by targeting a specific disease mechanism.”  I’m really not clear why there’s a legally relevant difference between these, and the ALJ pointed out that in either case the factual claim would still be within the scope of the FTC’s complaint here.  Nor did the qualifiers “preliminary,” “promising,” “encouraging,” or “hopeful” change the message to make it nondeceptive in the overall impression that the ads were claiming clinical proof.

Ultimately, the ALJ concluded, a significant minority of consumers acting reasonably would receive the message that there was scientific support for the disease claims.  The ads offered basic syllogisms as a way of implying their claims.  For example: free radicals cause or contribute to heart disease; Pom products contain antioxidants that neutralize free radicals; thus, the words and images of the ad implied that Pom products would be effective at fighting heart disease.

Along the way, the ALJ made some other rulings of note: first, TV appearances by one of Pom’s principals, during which she promoted the health benefits of Pom’s products, weren’t ads within the jurisdiction of the FTC if Pom didn’t pay for or sponsor them.  Given the jurisdictional limit, it wasn’t necessary to reach any First Amendment argument.

Also: an intent to convey a message alone isn’t evidence that the message was conveyed, since intent isn’t required for a violation of the FTCA and it would be “incongruous” to make intent a sword but not a shield (hmm, wish some trademark cases would think of that…).  It was unnecessary here to examine Pom’s intent because of the other evidence showing what messages were conveyed.

So, when are RCTs required?  The ALJ found that the best evidence was that RCTs would be required substantiation for a nutrient supplement if the advertiser claimed that the product treated/prevented/reduced the risk of a disease and offered it as a replacement for medical care.  But RCTs aren’t required where the safety of the product was known, it created no material risk of harm, and it wasn’t being sold as an alternative to following medical advice.

It didn’t matter whether the claim was presented as “the product reduces the risk of X” or “tests prove the product reduces the risk of X.”  In either case, experts in the relevant scientific communities would require the same level of substantiation.  (Courts sometimes recognize this in the Lanham Act context as well: in the modern world, some types of claims—health claims prominent among them--are inherently/necessarily based on scientific evidence.)

Okay, if not RCTs, then what?  The amount of substantiation experts in the field would agree is reasonable is one factor to determine the appropriate level of substantiation required for non-establishment claims.  (Except that, as the ALJ’s findings indicate, these are functionally establishment claims whether they use the words “tests prove” or not, so one would think we ought to look upward and not downward for the standard ….) 

The other factors are the products involved, the type of claim, the benefits of a truthful claim, the ease of developing substantiation for the claim, and the consequences of a false claim.  The product involved (a well-known food generally known to be safe and not claimed as a substitute for conventional therapies) weighed in favor of a less-than-pharmaceutical-grade standard.  The type of claim (health), by contrast, weighed in favor of a high standard.  The difficulty and expense of substantiation through randomized double-blinded trials (potentially hundreds of millions of dollars), combined with the potential benefits of truthful health claims, weighed against requiring full-scale clinical trials for substantiation where the product was a safe, natural food that had been in use for centuries.  Nor did the risks of falsity loom large given these same product characteristics and given that Pom wasn’t promoting its products as an alternative to conventional treatment.  Economic injury in spending on a useless product is significant, but not as important as health harms, especially since this juice would be considered a “premium” product anyway. 

Taken together, the factors led the ALJ to conclude that “competent and reliable evidence” must include clinical studies, though not necessarily RCTs, showing that Pom products would treat, prevent, or reduce the risk of the claimed conditions.  But Pom lacked such substantiation, according to the greater weight of the expert testimony.

Pom, amazingly, argued that these claims weren’t material.  The FTC usually begins with the presumption that the fact that a claim was made makes it material—you only have so much time and money for advertising, so you try to spend it wisely.  But the presumption was unnecessary here given the other evidence of materiality.  Not only did common sense support the materiality of health claims like these, Pom was well aware of the direct link between providing a scientific reason to believe and sales, e.g. an article reporting that “every time a new study [was] released touting” a health benefit, there was a “spike in sales.”  Pom sponsored over 100 studies costing over $35 million over more than a decade; it used those studies for marketing purposes as part of its “unique selling proposition.”  “[I]t defies credulity to suggest that Respondents would advertise study results related to these conditions if such advertising did not affect consumer behavior.”  Pom’s survey evidence, which purportedly found that consumers were interested in general “health” benefits rather than specifics, didn’t sufficiently inquire into their underlying beliefs and thus didn’t rebut the other evidence of materiality.

The ALJ ordered specific relief against the individual defendants found to have participated in the deceptive advertising, as well as restraints on Pom.  The order applies to Pom’s products as well as any other food, drug, or dietary supplement sold by Pom entities (they also sell citrus fruits, nuts, Fiji water and wine).  This multi-product order was justified given the transferability of the conduct.  Pom argued that their other products didn’t involve pomegranates and were so “dramatically different” that they wouldn’t use Pom research to “understand” any components of the other products.  The ALJ noted that this argument was “beside the point because the advertising technique, i.e., sponsoring research of a product’s health benefits and using the results to make disease claims, is readily transferable to advertising any food, drug or dietary supplement.”  Indeed, respondents have already sponsored research “exploring” the health benefits of Wonderful Pistachios and Fiji Water.  They argued that they had a history of “not advertising those benefits until the science is sufficiently developed.”  (Now that's chutzpah!)  The ALJ pointed out that this very case demonstrated that “Respondents’ judgment … has not always been exercised appropriately.”

The seriousness and deliberateness of the violations also supported a multi-product order covering all foods, drugs, and dietary supplements sold by Pom entities.  The ALJ specifically pointed to the seriousness of the health conditions at issue, consumers’ inability to evaluate the evidence for themselves, and the extent of the advertising.  Pom argued that the ALJ should give weight to Pom’s internal ad-vetting procedures, but those hadn’t stopped a bunch of the ads at issue here.  Thus, respondents will be barred from making representations that any covered product was effective in the diagnosis, cure, mitigation, treatment, or prevention of any disease, unless at the time they were made the representations were non-misleading and they possessed and relied upon competent and reliable scientific evidence, sufficient in quality and quantity to substantiate the representations, based on standards generally accepted in the relevant scientific fields when considered in light of the entire body of relevant and reliable scientific evidence.

The ALJ rejected complaint counsel’s request for an order requiring FDA pre-approval for any direct prevention/treatment claim (as opposed to “clinical studies suggest that …” claims otherwise supported by competent and reliable evidence).  The FDA standard was too high for these particular claims about a safe, known food not being promoted as an alternative to conventional medical treatment.  Complaint counsel argued that an FDA standard would provide clear and precise guidance, but the ALJ didn’t accept that as a sufficient justification for these products, especially given that complaint counsel's proposed standards have their own uncertainties and difficulties of interpretation, such as what would count as an unqualified disease claim v. a qualified health benefit claim.  Anyway, there was no reason to think that “competent and reliable evidence” was unclear.

Other parts of the order generally prohibited misrepresentations and provided a safe harbor for claims approved by the FDA.

Overall, while a defeat for the FTC’s most aggressive position, this case affirms that food etc. producers making health claims need good clinical evidence substantiating their claims.  Always assuming the order holds up (and, because it adopted a less-than-RCT standard, I expect it is likely to do so), it’s unlikely to represent much of a retreat in this area, where concerns about consumers’ health and inability to evaluate scientific evidence for themselves will remain persuasive.