Tuesday, January 30, 2018

New York GBL Section 349 covers ordinary trademark claims, court rules

Plaintiffs, eight professional models and actresses, alleged that the owners and operators of a strip club on Long Island (Summit) unlawfully used Plaintiffs’ images in social media advertisements in violation of the Lanham Act and New York General Business Law § 349.  The magistrate recommended rejecting Summit’s motion to dismiss.

As to the Lanham Act claim, Summit argued that plaintiffs failed to allege that they are sufficiently well known such that the misappropriation of their images would likely cause confusion. Beyond alleging that they were “well known professional models,” plaintiffs listed appearances in national magazines and television programs, as well as associations with other celebrities. “It is borderline facetious to suggest that Plaintiffs who purportedly have appeared on the Jay Leno Show, Chapelle’s Show, and Shark Tank, or who have appeared in magazines such as Vogue and Esquire, or who have publicly appeared with Kim Kardashian have failed to make plausible allegations of public recognition. And the purported extent of Plaintiffs’ social media following—as many as two million Facebook followers, seven-hundred thousand Instagram followers, and one-hundred thousand Twitter followers—further corroborates those allegations with factual specifics.” [Consider how revelations about fake followers might affect plausibility.]

Summit argued that plaintiffs’ claims were really right of publicity claims, but they could bring false endorsement claims too. “[T]here is no bright line level of ‘celebrity’ necessary to sustain a claim for false endorsement; rather, all that is necessary is that the plaintiff’s ‘identity carries some “level of consumer recognition.” ’ ” Even without the use of names or other identifying info in the ad, the plaintiffs plausibly alleged that the ads would be perceived as endorsements. [Interesting issue—usually an appearance in an ad, without substantial celebrity among the target audience or identifying information, is just perceived as an actor’s appearance, as the FTC Endorsement Guide indicates.  Is it different with strip club ads?]

In addition, the magistrate engaged in extensive analysis to conclude that the Section 349 claims shouldn’t be dismissed on the ground that consumer confusion was a sufficiently consumer-directed harm under the law, rejecting the majority view that “consumer-oriented conduct” under Section 349 requires something more than mere confusion.  The New York Court of Appeals has not ruled on the matter, and the court found that the lower New York courts and federal courts that had required something more than confusion were misguided.

Historically, the Little FTC Acts were designed to allow more enforcement of FTCA-type regulations than the FTC was actually engaging in.  Adding a private right of action stripped away various safeguards against overenforcement “such as political accountability, finite resources, and a statutory public interest requirement.”  Many courts didn’t like that and thus “invented limiting principles to restrict the scope of litigation,” but this response was lacking in principle.  Specifically, in New York, the 1970 version of Section 349 allowed only the AG to sue, while in 1980, the Legislature extended a cause of action to “any person who has been injured by reason of any violation of this section.”

This broad language clearly allowed both consumers and non-consumers to sue, but then “some businesses tacked Section 349 claims onto ordinary commercial disputes,” which went too far.  Thus,  courts limited standing to conduct that is “consumer-oriented,” a rule that “strikes an appropriate balance by preventing businesses from tacking deceptive practices claims onto their purely commercial disputes while also allowing affected businesses to act as vicarious defenders of consumers.”  But a practice commentary published in 1988 by Richard A. Givens, a former regional director of the FTC “invented the principle that trademark infringement actions fall outside of the scope of Section 349.”  Courts followed that commentary, making it the majority view.

The majority view was unpersuasive.  “The text of the statute outlaws all deceptive conduct, which would appear to include trademark infringement claims. The text may not be dispositive, but there must at least be a reason to depart from such clear language.” There was not.  First, there was reason to think that the legislature intended to include trademark infringement in the consumer protection statute, and certainly didn’t intend to exclude it. “The motivating concern behind Section 349 was the perceived inadequacy of the existing set of consumer protection laws targeted at specific conduct,” and so Section 349 was designed to be “an umbrella covering all forms of deceptive conduct.” The drafters even “intentionally chose not to reject other proposed legislation that included enumerated prohibitions,” to avoid any judicial limitation to acts of a similar nature. But included on that list—the list that drafters thought was too narrow!—were practices likely to cause “confusion or of misunderstanding as to affiliation, connection, or association with, or certification by, another.”  The drafters even included trademark in their survey of existing laws they “hoped to encompass and expand upon.”  “Given this background, the logical conclusion is that the legislature intended to include trademark infringement in the ambit of Section 349. After all, … trademark protections are a form of consumer protection.”

Second, the policy concerns were unpersuasive. Though Section 349 provides for one-way attorney fee shifting, such awards are discretionary.  And the minority view wouldn’t open the floodgates for trademark claims unrelated to consumer protection because the requirement of materiality would limit claims: “a plaintiff by definition cannot prevail without proving that deception is likely to misdirect consumers’ purchases, which is precisely the harm that the statute seeks to prevent.”

Third, courts in the majority have argued that consumer-oriented harm has to be enough to justify FTC intervention, but the Supreme Court has explicitly found that mere confusion is sufficiently within the public interest to warrant FTC intervention:

If consumers or dealers prefer to purchase a given article because it was made by a particular manufacturer or class of manufacturers, they have a right to do so, and this right cannot be satisfied by imposing upon them an exactly similar article, or one equally as good, but having a different origin. ... The result of respondents’ acts is that such purchasers are deceived into purchasing an article which they do not wish or intend to buy, and which they might or might not buy if correctly informed as to its origin. We are of opinion that the purchasing public is entitled to be protected against that species of deception, and that its interest in such protection is specific and substantial.

FTC v. Royal Milling Co., 288 U.S. 212, 216-217 (1933). Additionally, the FTC itself has been very interested in the deceptive use of endorsements, the precise conduct at issue here, regardless of the subject matter.

Although punitive damages aren’t allowed under the Lanham Act, they are under state law, so punitive damages claims based on Section 349 survived.

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