Thursday, June 28, 2018

Dr. Pepper gets an upset tummy: Court approves conjoint analysis/price premium model in ginger ale class action

Fitzhenry-Russell v. Dr. Pepper Snapple Group, Inc., 2018 WL 3126385, No. 17-cv-00564 (N.D. Cal. Jun. 26, 2018) (magistrate judge)

Canada Dry Ginger Ale allegedly deceived consumers with the phrase “Made From Real Ginger” when, in fact, Canada Dry does not contain the type of, or amount of, ginger consumers would expect (ginger root). Instead, Canada Dry contains a ginger derivative, ginger oleoresin. Plaintiffs alleged that Dr. Pepper was wrongfully able to charge a 4% price premium on Canada Dry as a result. The court certified a class and rejected challenges to plaintiffs’ expert declarations in support of class certification on the usual California claims.

Plaintiffs’ survey expert, Dr. Dennis, looked at consumer understanding of “Made from Real Ginger” and materiality/price premiums. Respondents were asked “what is your understanding of the statement ‘Made From Real Ginger’ on the Canada Dry Ginger Ale?” and provided options:

[1.] Ginger oil, which is extracted from the ginger root using steam
[2.] Ginger root, which is part of the ginger plant, not an extract
[3.] Ginger oleoresin, which is extracted from the ginger root using a solvent
[4.] None of these

78.5% of California Canada Dry consumers answered that the product was made from ginger root, while 4.8% of consumers picked ginger oleoresin and 8.6% picked ginger oil. (The truth is oleoresin.)

Before answering the materiality question, respondents were presented with the definitions of “ginger root” and “ginger oleoresin.” Ginger oleoresin was defined almost as above, but with the additional information that a solvent, such as ethanol, could be used to extract the ginger. In the survey, 92.4% of respondents preferred to purchase a version made with ginger root over one made with oleoresin.

For the price premium survey, Dennis used a choice-based conjoint survey, which asked respondents to express preferences by choosing from a set of product profiles (i.e., choosing a product from a group of products). The price premium survey was restricted to respondents who recently purchased ginger ale, and presented respondents with mixes of six attributes.  The results were fed into Bayesian models that allegedly allowed Dennis to calculate a price premium from “Made with Real Ginger” for the marginal consumer; he found a 4% price premium.

Plaintiffs’ expert Weir opined on whether it would be possible to determine damages on a class-wide basis using common evidence, and provided a framework for/estimate of damages to the California class. Weir multiplied the total California sales of Canada Dry in the class period by 4% to calculate damages, resulting in a figure of $10,778,477.

Dr. Pepper didn’t challenge the experts’ qualifications or the reliability of their methods.  Instead, it focused on the argument that Dennis didn’t properly apply the methodologies behind his consumer understanding survey and price premium analysis.

As to the consumer perception survey, “survey evidence should be admitted as long as it is conducted according to accepted principles and is relevant.” “[T]echnical inadequacies in a survey, including the format of the questions or the manner in which it was taken, bear on the weight of the evidence, not its admissibility.”  Dr. Pepper pointed to its rebuttal expert’s “vastly different results” in his replication survey of consumers. That expert recreated Dennis’s consumer understanding survey, but changed the descriptors of ginger oil, ginger oleoresin, and ginger root. But even where “simple language” was used to describe ginger oil, ginger oleoresin, and ginger root, 40.59% of respondents still believed “Made From Real Ginger” meant that Canada Dry was made using “ginger root” as its ginger ingredient. “This is still a legally significant percentage of people who would be misled.” 

The rebuttal expert also did a replication survey using “technical” descriptors of ginger oil, ginger oleoresin, and ginger root, but this different language proved the point that Dennis’s survey needed to go to a fact-finder, who could determine if plaintiffs’ survey was unduly biased. “This is because the replication survey using technical language seems to be designed to confuse respondents, and encourage them to answer that they ‘don’t know’ or are ‘unsure’ of what the ginger ingredient behind the ‘Made From Real Ginger’ claim is. After all, which layperson has ever heard of the ginger root powder they purchase in stores being referred to as ‘triturated ginger’ [defined in the survey as ‘a coarse powder obtained from the ginger root using a bleaching process’]?”  [I agree that the “not an extract” language in the original survey has some biasing potential; I also wonder about the “not sure/don’t know” option—but at the same time “triturated ginger” isn’t how I would think about ginger root powder either.]

The court found Dr. Pepper’s criticisms of the price premium survey and simulator to be more substantive.  Dr. Pepper argued that despite Dennis’s representation in his declaration that his survey only contained six features or attributes— brand, type, flavor, nutrition facts, description on front of the package, and price—he instead used 11 factors, because the description on the front of the Canada Dry packaging wasn’t one attribute but six: (1) “100% Natural Flavors,” (2) “The Original Ginger Soda,” (3) “Barrel-Aged,” (4) “Made with/from Real Ginger,” (5) “Caffeine Free,” and (6) “Since 1904/1873.” The more attributes in a conjoint survey, “the higher risk that it simply becomes too complex for respondents.” Also, it may be that the reason a person considered the descriptors on the product packaging was because he or she thought the “100% Natural Flavors” claim was important, rather than the “Made From Real Ginger” claim.  

Dennis’s reply declaration didn’t assuage the court’s concerns: He argued that grouping the different product descriptions under one attribute “likely led to a dilution of the respondents’ attention (in contrast to showing only one product description for each product option), and therefore reducing possible risk from focalism bias.” If he hadn’t included the four product descriptions on the Canada Dry can on the price premium survey, the survey would have been criticized on that basis. The court understood that, but wasn’t convinced. Still, even if the survey overestimated the value consumers placed on “Made From Real Ginger,” it wasn’t excludable excludable. Dr. Pepper could attack it at trial.

Dr. Pepper argued that one of its other ginger ale products, Schweppes, didn’t have the ginger claim, and it sold in stores at either the same price or for less. Plaintiffs responded that legal authorities agree that using a side-by-side comparison is “bunk.” The court agreed that as a matter of common sense, such comparisons don’t account for any of the range of other possible reasons for these products to be priced so similarly. Even the possibility that another survey might have used side-by-side comparisons didn’t make this survey excludable.

Most substantively, Dennis considered willingness to pay in the conjoint survey, not a price premium; thus, Dr. Pepper argued, it couldn’t calculate restitution, which is the difference between what consumers paid and the true market price, which also takes into account supply-side factors. However, the study used past market prices, which reflect supply factors. The study can get insight into price premium by looking at the marginal consumer: the one who is indifferent between buying and not buying the infringing product. That consumer’s WTP is “equivalent to the price premium associated with the infringing level of the attribute; this marginal consumer can be identified by offering respondents a ‘no buy’ option.”  The model asks “At what price in that actual market in which [defendant] sold the offending products could [defendant] have sold the equivalent number of products without the false claim(s)?” The marginal consumer’s WTP discloses that price, tethered to the real market because the conjoint survey used actual market-clearing prices as the basis for the prices in its survey and actual competitor products.  Thus, the price premium study satisfied Daubert.

After that, the class certification discussion was lengthy, but largely foreordained.

Dr. Pepper argued that “Made From Real Ginger” couldn’t be material to consumer decisions because there was no common understanding of the term, as courts have ruled for “All Natural” and “100% Natural.” The court found the challenged phrase to be far less vague; almost 80% of people thought “Made From Real Ginger” meant that Canada Dry was made using ginger root. Plus, Dr. Pepper’s internal documents showed that Dr. Pepper thought the “Made From Real Ginger” claim was material. E.g., Dr. Pepper sought to capitalize on the alleged health halo ginger products have to consumers by encouraging people to believe that “Canada Dry Ginger Ale is a [carbonated soda drink] that fits into your healthy lifestyle because it is made from real ginger.” When respondents were asked their reasons for drinking Canada Dry five years later, the top five reasons were: (1) “I trust and respect the Canada Dry Brand (28%)”, (2) “Drinking Canada Dry makes me feel better by soothing my stomach (26%)”, (3) “Canada Dry is easy to find in stores (26%)”, (4) “Canada Dry tastes good with food (25%)”, and (5) “Canada Dry is made with real ginger (25%),” even though previously lots of people hadn’t believed that ginger ale had real ginger. Thus, “through its marketing, it orchestrated a change in consumer perceptions.” Another document claimed that the “Made From Real Ginger” program “is working: - New news - Strong POD and message relevant to target consumer - Consumer awareness and brand equity increased - Purchase frequency and volume growth escalated to +8.5%.” “Clearly, if a quarter of Canada Dry consumers were listing the ginger claim as a top five reason why they bought the product, the claim is material. Dr. Pepper cannot walk back evidence contained in its own documents.”

The most interesting argument Dr. Pepper presented against the price premium survey under predominance is that “it does not match [plaintiffs’] theory of liability. The survey purports to calculate a price premium associated with misleading consumers to believe the drink contains powdered or chopped ginger, but it does not do so—it calculates the premium associated with all possible meanings of the claim.” Canada Dry does contain traces of real ginger, in the form of ginger oleoresin. But the complaint still properly alleged that these traces weren’t “real ginger” as a reasonable consumer would understand it and that the flavorings contained none of the health benefits of real ginger.  Plaintiff’s rebuttal expert reported that the concentration in parts per million of 6-gingerol and 6-shaogal, which are ginger-derived compounds, in Canada Dry was far below what a person would be able to detect when drinking the ginger ale. Even if it is literally true that Canada Dry has ginger in it, the ginger is not what a reasonable consumer would expect.

The worth of the “Made From Real Ginger” claim would only matter in the future if a jury does find that the claim is misleading. Thus, plaintiffs’ damages model fit the theory of the case.

Direct competition + literally false advertising don't equal standing without more

Brave Law Firm, LLC v. Truck Accident Lawyers Gp., Inc., No. 17-1156-EFM-GEB, 2018 WL 3122172 (D. Kan. Jun. 26, 2018)

Brave sued its personal injury law firm rivals (TALG) under the Lanham Act and Kansas state law based on allegations of false and deceptive advertising. The court ruled that Brave hadn’t sufficiently alleged injury—furthering my suspicion that Lexmark reasoning has made it easier to proceed against disparagement and harder to proceed against false claims a defendant makes about itself, even though the latter was the core of what the Lanham Act false advertising provisions tried to cover.

Brave and TALG offer competing legal services in the same geographic area. An example of the allegedly false advertising is an ad depicting a woman holding a check with the words “$2.4 MILLION” displayed in bold text, with a disclaimer stating, in part: “Amounts are gross recovery before fees and expenses.” Brave alleged that this ad was false because the actual “gross recovery” before fees and expenses was $387,018, or 16% of what was advertised.

The court found that Article III wasn’t satisfied. The allegations of injury were conclusory, alleging mostly that the false advertising was intentional. The court declined to apply a presumption of injury to standing even if the advertising was literally false.  Brave failed to allege that it lost potential clients to TALG, that it lost revenue from the false ads, or that TALG strengthened its market position through the ads. The motion to dismiss on standing was granted with leave to amend.

Because of the leave to amend, the court addressed zone of interests/proximate causation under Lexmark as well. As with standing, Brave failed to sufficiently allege injury to a commercial interest in reputation or sales (zone of interests). Brave argued that it was seeking injunctive relief, so it didn’t have to show injury. But that’s not right. However, if Brave successfully amended to assert an injury to a commercial interest in reputation or sales, the proximate cause test would most likely be met, given that Brave’s scenario would fit into the “classic Lanham Act false-advertising claim.”

Finally, Brave’s pleadings didn’t satisfy FRCP 9(b) in identifying the when, where, and how: though it provided a screenshot of an alleged ad, it didn’t allege when or how the ad was disseminated, or when/how (in terms of medium) other ads were or who ran those or what those other ads specifically said.

Tuesday, June 26, 2018

Lie of Pablo: Churchillian tweet gets Kanye West in trouble

Baker-Rhett v. Aspiro AB, 2018 WL 3094921, No. 16-cv-5801-GHW (S.D.N.Y. Jun. 22, 2018)

“On February 15, 2016, Kanye West tweeted that his new album—The Life of Pablo—‘will never never never be on Apple. And it will never be for sale ... You can only get it on Tidal.’ Six weeks later, the album was on Apple, and was for sale on sites other than Tidal, the online streaming service operated by defendant Aspiro.”  [Should have left in some caveats for "honour and good sense," Churchill might have told him.] Aspiro launched in 2014, but struggled for survival despite its backing from its artist-owners such as West.  West’s 26 million Twitter followers were exposed to his tweet, and the official Tidal account also tweeted “It’s streaming exclusively on” Within the first ten days of the release of The Life of Pablo, Tidal’s subscription numbers tripled from 1 million to 3 million, and  West boasted to his Twitter followers about their impact.

Baker-Rhett allegedly relied on West’s tweet, and lost $9.99 as a result (he cancelled after learning that the album would be available on Spotify, to which he already subscribed).  He sued on behalf of a putative class. The court found that he lacked standing to assert NY GBL claims because the challenged transactions didn’t happen in New York (Baker-Rhett is Californian) and the NY choice of law provisions in the Tidal terms & conditions didn’t cover all aspects of his dealings with defendants, but that fraudulent inducement was plausibly pled.

Fraudulent inducement under New York law “requires a showing that ‘(1) the defendant made a material false representation, (2) the defendant intended to defraud the plaintiff thereby, (3) the plaintiff reasonably relied upon the representation, and (4) the plaintiff suffered damage as a result of such reliance.’ ”  West argued that his tweet was true, because the album was “updated and remixed numerous times, with different vocals, lyrics, and arrangements,” and that only those “ ‘newly updated, remixed and remastered version[s]’ of The Life of Pablo have been made available for purchase or streaming on platforms other than Tidal.” This “tenuous” argument certainly wasn’t enough on a motion to dismiss, given reasonable inferences about what an “album” is.  The complaint also plausibly alleged that West was Aspiro’s agent for these purposes.

For scienter, a plaintiff must “allege facts giving rise to ‘a strong inference of fraudulent intent,’ ” which requires either (a) alleging facts to show that the defendants had both motive and opportunity to commit fraud, or (b) alleging facts that constitute strong circumstantial evidence of conscious misbehavior or recklessness.  Here, the complaint satisfied (b) by describing in detail the dire financial condition of both Aspiro and West at the time of the album release of his album and the tangible benefits of an increase in Tidal’s subscriber base for both of them, and alleging that both knew at the time of the tweet that the album soon would be available elsewhere. Combined with the fact that the album was available elsewhere a “mere” six weeks later, that was strong circumstantial evidence of conscious misbehavior.

By contrast, Aspiro’s tweet and silence alone weren’t enough. Baker-Rhett pled reliance on West’s tweet, not on Tidal’s. The press stories touting the exclusivity of Tidal’s platform focused on the content of West’s Tweet; also the Tidal tweet didn’t contain an express commitment that the album would be available exclusively on Tidal in the future. Instead, Tidal made its exclusivity claim in the present tense, which was true at the time. A claim of fraudulent inducement can be based on a material omission as well as a material misstatement, but Baker-Rhett alleged no special relationship or fiduciary obligation requiring a duty of full and complete disclosure by Aspiro to its prospective customers.

Monday, June 25, 2018

false patent marking doesn't presumptively cause injury even in 2-player market

John Bean Technologies Corp. v. Morris & Assoc., Inc., No. 15-CV-02211, 2018 WL 3039734 (W.D. Ark. Jun. 19, 2018)

JBT’s predecessor asserted Patent Act false marking claims, Lanham Act false advertising claims, and various North Carolina and Arkansas State law claims against Morris, its sole competitor in selling auger chillers to poultry processors in the United States. An auger chiller takes chicken carcasses in the middle stages of the butchering process and cools them to prevent contamination.  Cold water runs from the far end to the receiving end and the auger slowly rotates on a shaft, driving the chickens against this current to the far end of the tank, where they enter the next stage of the processing line. These are expensive and durable machines; sales are therefore rare and lucrative.  

Morris uses vertical openings in the auger blades of its chiller to increase the flow of water (a desirable feature) and advertised its chiller as patented (the ’529 patent). JBT’s chiller also had openings for water in the blades, though its didn’t run to the edge of the blade as Morris’s did.

Morris’s website advertised that its auger chiller was patented. It also included caricatures of the parties’ chillers (JBT’s recognizable from the openings in the auger blades) and a statement that “In other systems, water circulates only around the shaft and through a narrow gap between the auger flights and the tank wall.” JBT alleged that the openings on the caricature were disproportionately small compared to their size on an actual JBT chiller, and that the image plus the statement about water flow in “other systems” were literally false comparative ads.

The false marking claims failed because JBT couldn’t show competitive injury, as is now required:

If an article that is within the public domain is falsely marked, potential competitors may be dissuaded from entering the same market. False marks may also deter scientific research when an inventor sees a mark and decides to forego continued research to avoid possible infringement. False marking can also cause unnecessary investment in design around or costs incurred to analyze the validity or enforceability of a patent whose number has been marked upon a product with which a competitor would like to compete.

JBT argued that competitive injury necessarily occurred from false marking in a two-player market because Morris’s auger chillers gained value from being marked as patented, causing the value of JBT’s chillers to decrease. In addition, JBT argued that its reputation and goodwill with a customer were injured when the customer declined to purchase a JBT auger chiller with openings because Morris’s auger chillers were marked as patented, but subsequently asked JBT to retrofit the auger chiller with openings.

The two-player market supported a rebuttable presumption of economic injury in false advertising cases where a two-player market necessarily makes ads comparative. But such a presumption was inappropriate for false marking, given that the Patent Act now affirmatively requires a plaintiff to demonstrate competitive injury as part of a false marking claim.

The evidence about the one customer who wanted a retrofit was just hearsay and speculation. (Even if it had been admissible, it tended to show that Morris’s past patent litigation practices led to the request, not false patent marking.)  Anyway, JBT made that sale, and additional sales to that customer, meaning that there wasn’t evidence of lost reputation or goodwill.  (It seems like retrofitting was likely to be more costly than initially manufacturing the auger with the openings, but I guess JBT didn’t say that?)  There was no other evidence of deterred market entry, deterred research, design-around investments, or costs incurred to analyze the validity or enforceability of the marked patent.

Likewise, there was insufficient evidence of harm on the false advertising claims. Again, even assuming the customer experience above were admissible, there was no evidence the customer was affected by Morris’s advertising.  The “two-player market” principle created a rebuttable presumption of economic injury, but such presumptions serve only “to control the result where there is an entire lack of competent evidence.” When sufficient proof has been offered to rebut a presumption, “it falls out of the case.” Even assuming that JBT was entitled to the presumption of injury, Morris rebutted it: “Multiple deponents familiar with selling auger chillers testified that whether equipment is advertised as patented is all but meaningless to customers seeking to purchase.”  There was also evidence that customers do not make equipment purchases based on websites. There was also evidence that Morris didn’t hurt JBT’s reputation or goodwill, and that any relevant decline happened because JBT’s predecessor was sold to JBT, whose sales remained strong nonetheless. All this rebutted any presumption of injury and of irreparable harm.

Morris won summary judgment on these claims; the coordinate state claims also failed.

Friday, June 22, 2018

When is a literally false statement claiming 35% savings immaterial?

SourceOne Dental, Inc. v. Patterson Cos., No. 15-cv-5440, 2018 WL 3038503 (E.D.N.Y. Jun. 19, 2018)

This is an interesting case to contrast to yesterday’s Seventh Circuit case finding that “monster” imagery making no specific health claims was false advertising. Here we have literal falsity, but the court finds that the gap between the truth and the falsehood wasn’t material, even though it was pretty big.  Perhaps these are the correct rules, insofar as they don’t incentivize advertisers to avoid specifics, but I feel nervous about this one. It’s also worth noting that the two materiality standards—the FTC’s “whether this is the kind of topic that affects purchasing decisions,” applied in many a Lanham Act case as well, and the standard applied here, “whether the difference between the truth and the claim about this topic would affect purchasing decisions,” is rarely articulated.

The parties compete in the market for dental supplies and equipment. SourceOne sells manufacturer-direct products directly to dentists. The key falsity issue: SourceOne sought endorsements by state dental associations (state-based trade organizations for dentists), making numerous statements that dentists’ savings were about 30-35%, either in general or on average; its attempts to gain endorsements were successful in some states.  The parties’ experts, however, calculated an average of 19-19.5% savings, making these claims literally false (under 6-10% of customers, depending on which expert you credit, saved 35% or more).

SourceOne argued that its claims could mean that such savings were possible, rather than that such savings were standard.  (The FTC has a lot to say about this, none of it in agreement with SourceOne.) “A reasonable purchaser reading the statement ‘save more than 35% on dental supplies’ would not read it to mean that the purchaser may, but is highly unlikely to, save 35% or more.”  The “average” savings claims were even more obviously literally false.  SourceOne apparently argued that it believed that its customers would save that amount in the future, but that did nothing to render the statement true or even ambiguous.  Also, it didn’t matter that the statements didn’t disclose methodology; “a reasonable consumer would have no basis to infer that the stated ‘average’ referred only to certain products.”  Given these facts, it was also literally false to say that SourceOne’s programs were “projected” to save dentists an average of more than 35%, and even to say that they were “projected” to save 35% (without the “average”).  The full statement necessarily implied that “more than a negligible number of members will save 35% or more.” 

However, SourceOne prevailed on materiality.  Patterson failed to show that average savings of 19-20% as opposed to SourceOne’s advertised savings of 35% would be likely to influence dentist consumers’ or organizations’ purchasing decisions. [I sense a counter-advertising campaign possibility: a federal court found they overstated the savings by nearly double…] [Another way of framing the issue: though courts impose a materiality requirement, material compared to what is the real question. Had SourceOne advertised itself without making savings claims at all, it seems inarguable that it would have made many fewer sales.  Usually, courts assessing materiality ask whether the presence of the false claim made a difference, implicitly assuming a null there.  Once you start positing alternative factual claims, things get a whole lot more difficult.]

Here, there was testimony that a discount of 5% to 10% could induce dentists to switch suppliers.  So the extra promised discounts were “just gravy.” The court continued:

[I]t is not sufficient for defendants to presume materiality simply on the basis that purchasers generally like to spend less instead of more. This is because price sensitivity turns on the marginal price difference and the nature of the product at issue. Purchasers who see a product that they have purchased advertised for 33% less, but who have received excellent customer service from their current seller, might be well inclined to take an “if it ain’t broke, don’t fix it,” approach. On the other hand, the same or other customers might also decide that it would be worth switching to a new distributor for even a 10-15% savings. 

Perhaps there is some level where materiality can be found as a matter of law – e.g., where customers were promised 90% savings over a competing product. But in the absence of that kind of obvious disparity, defendants were required to introduce some form of evidence – usually, although not necessarily, survey evidence or expert testimony based on it – to raise a factual question as to whether the differential between advertised and actual prices was material in this market.

Kudos to the court here for thinking about the issue, but this approach seems to create real problems when there aren’t specific numbers involved.  Consider, for example, how one could possibly judge the “materiality gap” in the rBST monster case using the standards applied here.  The FDA has said that rBST doesn’t affect human health/safety, but lingering questions remain about compositional differences in the milk, not to mention effects on the treated cows.  How would you measure exactly how scary the monster claims were, and how would you reliably measure whether they’d affect purchase intentions more than the more nuanced truth?  With respect to non-numerical claims, the obvious comparator seems to be “no claim about the issue at all,” with the likely effect of making materiality easier to find when claims are vaguer.  Maybe this is the right approach, but it seems to me we could use some more thinking about it.

Remaining claims had even less success: Patterson argued that SourceOne’s claims about “leveraging” buying power of dentists’ associations to create savings were untrue because SourceOne didn’t have contractually volume-based pricing agreements. But these were ambiguous claims.  SourceOne’s prices on its websites branded for state dental associations were approximately 5% lower than the prices it charged for the same products on its publicly available website. SourceOne argued that its suppliers agreed to provide this additional discount for members of state dental associations based on the suppliers’ expectation that their sales would increase through SourceOne’s affiliation with state dental associations. Thus, the prices were “leveraged” based on the predicted increased sales volume of association members. It was also ambiguous whether the leveraging statement was a cause-and-effect statement about lower prices; without evidence of deception, Patterson couldn’t win.

Patterson also challenged statements (1) that a particular person was “VP [of] Product Sourcing and Supplier Relations” of SourceOne, when that hire was contemplated but never happened; and (2) that SourceOne has 14 full-time support personnel and 10 part-time support personnel, when it had only between six and three employees in 2013-2014 and added two more by 2017. These were literal falsities, but Patterson didn’t show materiality for (1) and there was a genuine fact issue on (2) based on testimony about contractors. 

Still, the (2) statements weren’t “commercial advertising or promotion” within the meaning of the Lanham Act: they weren’t sufficiently disseminated, but made only to a single person representing a single state dental association.  “[M]aking a statement to one of fifty potential customers does not qualify as widespread dissemination.” Even if it were, Patterson again didn’t show materiality. Though the representative asked about employees “[t]o make sure that they had the infrastructure in place to be able to take orders [and] deliver products as promised,” none of the materials ultimately considered by the assocation’s board mentioned the number of employees as a consideration.  Instead, they mentioned things like the royalty rate the association would receive on gross receipts from the platform, SourceOne’s projected savings for dentists, and which other dental associations had endorsed SourceOne.

slicing and dicing claims about unapproved drugs, court allows challenge to some under Lanham Act

G&W Laboratories, Inc. v. Laser Pharmaceuticals, LLC, No. 17-cv-3974-BRM-DEA, 2018 WL 3031943 (D.N.J. Jun. 19, 2018)

G&W sells Anucort, a prescription drug for use in treatment of hemorrhoids. G&W alleged that its formulation delivers 25 mg of the active ingredient “in a reasonable amount of time.” Anucort isn’t FDA approved, and G&W has been “actively working” with the FDA to obtain an approved New Drug Application (NDA) for Anucort. G&W submitted an Investigational New Drug (IND) application, spending “millions of dollars conducting clinical studies of the safety and efficacy of Anucort for treating symptomatic internal hemorrhoids.” Despite its lack of approval, Anucort has been on the market for about thirty years, because the FDA has exercised enforcement discretion as to it.  Anucort is allegedly a leading prescription product for the treatment of hemorrhoids, selling one million units a year.

Laser sells Hemmorex as a competing product, but G&W alleged that “[l]aboratory testing shows that Hemmorex releases less than 20%—that is, less than 5 mg—of the 25 mg labeled amount of hydrocortisone acetate active ingredient into a two-hour period.” Laser markets Hemmorex to generic buyers at drug wholesalers and retailers as an “equivalent to and substitute for Anucort.” Laser also tells databases that Hemmorex is equivalent to Anucort and requests that the databases link Hemmorex to Anucort, communicating to subscribers that the products are equivalent and may be substituted for each other. G&W alleged that many wholesalers, retailers, and pharmaceutical chains purchase, stock, and dispense only one brand of hydrocortisone acetate 25 mg suppository, basing their purchasing decisions on price as between linked products; thus, G&W alleged that it lost sales to Laser.

Because G&W’s dissolution testing determined that Hemmorex doesn’t release its labeled active ingredient to the patient in the same amount of time, G&W argued that Hemmorex isn’t equivalent to or substitutable for Anucort. Laser also advertised “that the FDA allows Hemmorex to be marketed and sold as a ‘DESI drug’ – that is, a drug covered by an ongoing Drug Efficacy Study Implementation (‘DESI’) program.” G&W alleged that this was false. Laser also claimed that it has submitted a Pre-IND application to the FDA for Hemmorex, and that it is the only manufacturer of a 25 mg hydrocortisone acetate suppository to have done so. G&W alleged that Laser hadn’t “participated in a Pre-IND meeting with the FDA, nor has it submitted an IND application to the FDA for Hemmorex, nor has it done any predicate clinical toxicology or animal testing.” G&W is also currently working with the FDA to obtain NDA approval and submitted an IND application, making Laser’s statement false.

G&W also alleged that InvaDerm, which manufactured Hemmorex for Laser, knew about the falsity and continued to supply the product.

The court said some things about primary jurisdiction, which is essentially a discretionary doctrine that pauses a case for regulatory action, but really treated this as a preclusion case.  We know that the FDCA and Lanham Act can both apply to drugs.  But “where a claim requires interpretation of a matter that is exclusively within the jurisdiction and expertise of the FDA and FDCA, plaintiffs cannot use the Lanham Act as a run around to private enforcement.”

Laser argued that Anucort was unapproved, and thus couldn’t be a reference drug against which Hemmorex could be compared; thus no equivalency claim could be falsified.  Moreover, “the variety of very specific data-driven and medical-scientific determinations attendant to demonstrating ‘equivalence’” counseled in favor of letting the FDA act.  But the court agreed with G&W. The issue was whether advertising Hemmorex as “equivalent to or substitutable” for Anucort when the drugs allegedly didn’t contain the same active ingredients was false or misleading. G&W “is not relying on either explicit or implicit FDA enforcement or terms that only the FDA can define.”

However, G&W couldn’t argue that the label, stating that Hemmorex contains 25 mg of hydrocortisone acetate, was literally false because Hemmorex released less than 20% of its active ingredient in two hours, whereas Anucort releases 90% in the same time period.  Whether this was false or misleading was better left to the FDA; there was no standard for how much of a suppository’s active ingredient had to be released.  By contrast, had G&W alleged that Hemmorex didn’t produce or contain 25 mg of hydrocortisone acetate at all, that would be actionable, “assuming science could determine such an answer.”

Similarly, whether Hemmorex is a DESI drug was a question for the FDA, since answering it would require the court to determine whether Hemmorex is similar to a drug listed in a drug efficacy notice without permitting the FDA to do so first. The FDA leaves it to a manufacturer, in the first instance, to determine whether it is DESI approved as being “similar” to a product that was specifically reviewed. Under federal regulations, a determination as to whether a drug is identical, related, or similar can be made by “an individual who is knowledgeable about drugs and their indications for use,” but “[w]here the relationships are more subtle and not readily recognized, the purchasing agent may request an opinion by writing to the [FDCA].”

The court then turned to Laser’s alleged statements that it has submitted a Pre-IND application to the FDA for Hemmorex, and that it is the only manufacturer of 25 mg hydrocortisone acetate suppositories to have done so.  Laser, ridiculously in my opinion, argued that this couldn’t be material because INDs are confidential and so no reasonable purchaser would rely on a statement that an IND application had been submitted.  Among other things, why did Laser (allegedly) say this, if not to win consumers?  Also, people rely on credence claims all the time, and it should not be rule that consumers have to expect drug companies to outright lie to them.

Nonetheless, the court found that G&W sufficiently pled falsity on the “only” part of the statement, but not for the “Laser submitted a pre-IND application” part, because those allegations were conclusory. G&W failed to plead why it believed Laser “has not participated in a Pre-IND meeting with the FDA, nor has it submitted an IND application, nor has it done any predicate clinical toxicology or animal testing,” especially given that IND applications are confidential.

The court also rejected Laser’s unclean hands defense predicated on the argument that Anucort was currently unapproved, and shouldn’t be able to challenge the market presence of a competing unapproved drug product. “The unclean hands doctrine should not bar Lanham Act claims when the doctrine is premised on allegations of non-compliance with the FDCA because such a use of the doctrine would essentially permit a private enforcement action—a power reserved for the FDA.” Whether Anucort was on the market illegally was a matter for the FDA, and anyway Laser failed to allege or demonstrate how it was injured “as a result of [G&W’s] misconduct.”

The actual manufacturer, InvaDerm, argued that there was no basis for aiding and abetting liability under the Lanham Act, and the court agreed, but contributory infringement [for which read false advertising] was an available theory and was sufficiently pled.

seeking monetary damages can undercut irreparable harm claim

Rush v. Hillside Buffalo, LLC, --- F.Supp.3d ----, 2018 WL 2999905, No. 18-CV-00653 EAW (W.D.N.Y. Jun. 15, 2018)

Rush, pro se, alleged that he owned a registered trademark for “Crash-a-Rama,” an event “featuring men and women running old junk cars in exciting and entertaining events.” He alleged that he operated Crash-A-Rama at the Holland International Speedway for eighteen years. Hillside Buffalo recently acquired the Speedway, and offered their own “Crash-O-Rama” event. The court declined to issue a TRO enjoining it (it was scheduled for the day after the opinion issued) but allowed claims to proceed.

Irreparable harm: conclusory statements about irreparable harm aren’t enough without proof that monetary damages wouldn’t be a sufficient remedy.  It is true that “[i]rreparable harm ‘exists in a trademark case when the party seeking the injunction shows that it will lose control over the reputation of its trademark pending trial,’ because loss of control over one’s reputation is neither ‘calculable nor precisely compensable.’”  Still,  “conclusory statements of loss of reputation will not justify an irreparable harm finding.” Notably, Rush sought damages as compensation.  When there’s only been one event, it was unclear why money damages couldn’t be assessed based upon the number and price of the tickets and concessions sold, the number of patrons diverted, or any other revenue.

use of about half a publicly available photo was fair use

Brammer v. Violent Hues Prods., LLC, No. 1-17-cv-01009, 2018 BL 206017 (E.D. Va.
June 11, 2018)

Brammer took a time-lapse photo of the Adams Morgan neighborhood of Washington, D.C., at night, then posted it on image-sharing websites as well as his personal website. Violet Hues created a website intended to be used as a reference guide providing information about the local area for filmmakers and other attendees of a festival it ran and used a cropped version of Brammer’s photo on its website. Violent Hues removed the photo after receiving a C&D.
here's a blurry screengrab: the accused use is the middle
Brammer sued for copyright infringement and for removal and alteration of CMI under 17 U.S.C. § 1202, though he abandoned the latter claim. The court found that the use was fair. First, the use was transformative in function and purpose: Brammer’s purpose was promotional and expressive, while Violent Hues’ purpose was informational. The use was also noncommercial, because it wasn’t done to advertise a product or generate revenue. It was also in good faith: Violent Hues’ owner found the photo online “and saw no indication that it was copyrighted.”

Nature of the work: “[I]f the disputed use of the copyrighted work ‘is not related to its mode of expression but rather to its historical facts,’ then the creative nature of the work is mitigated.”  The photo had creative elements, but was also “a factual depiction of a real-world location,” and was used purely for its factual content. And the work was previously published, favoring fair use.

Amount and substantiality of the portion used: it was cropped about in half, which was no more of the photo than was necessary to convey the photo’s factual content and serve Violent Hues’ informational purpose, also weighing in favor of fair use.

Market effect: there was no evidence of an effect on the potential market. Brammer was compensated for the photo six times, including three physical print sales and three usage licenses; at least two sales occurred after the challenged use began.  Brammer testified that he currently made no effort to market the photo. A transformative and non-commercial use is unlikely to cause market harm; Violent Hues didn’t sell copies of the photo or generate any revenue from it. It didn’t provide a market substitute for the photo, especially since it only used approximately half of the photo.

Thursday, June 21, 2018

Descriptive fair use and "use in a trademark way"

Sazerac Brands, LLC v. Peristyle, LLC, --- F.3d ---- , 2018 WL 2975995, Nos. 17-5933 & 17-5997 (6th Cir. Jun. 14, 2018)

Filed 7 days after argument, which is interesting given that the panel creates a bit of a mess—essentially disagreeing with circuit precedent on use as a mark, but not going en banc on it.  This is going to be a pain for district courts; I take it that the best response for them will be to apply un-overruled precedent and leave it to the court of appeals to go en banc if they’re so unhappy with current precedent.

Colonel Edmund Haynes Taylor, Jr., “the most remarkable man to enter the whiskey industry during the post-Civil War years,” built the Old Taylor Distillery in 1887. Once the “most magnificent plant of its kind in Kentucky,” the distillery fell into disrepair after the Colonel’s death, and production ceased there in 1972. In 2014, Peristyle bought the property, renovated it, and eventually resumed bourbon production there. Peristyle regularly referred to its location at “the Former Old Taylor Distillery” or “Old Taylor” during the renovation period, though the property has since been renamed “Castle & Key.” Sazerac, however, acquired the trademark rights to “Old Taylor” and “Colonel E.H. Taylor” for bourbon in 2009. The court of appeals affirmed the finding of descriptive fair use.

Descriptive fair use “tolerate[s] some degree of confusion.” Here, Peristyle used the Old Taylor name in a descriptive and geographic manner: “to pinpoint the historic location where Peristyle planned to make a new bourbon, not to brand that bourbon.” In four years, when that bourbon hits the shelves, Peristyle didn’t plan to put “Old Taylor” on the bottle.  Its uses included a flyer titled “The Historic Site of The Old Taylor Distillery,” whicht notes that “We are busy making history and restoring this bourbon ICON, the Historic Site of The Old Taylor Distillery.” A social media post invited followers to the “VIP Mailing List for the Former Old Taylor Distillery.” Another promotes barrel storage services at “the distillery formerly known as: Old Taylor.” These were uses of Old Taylor descriptively to identify a geographic location, the Old Taylor Distillery. As the district court correctly ruled, “Peristyle is not attempting to trade off the goodwill of Sazerac. Instead, Peristyle is enjoying the goodwill already ingrained in the property it purchased and is advertising itself for what it is: a distillery first built by Colonel Taylor, subsequently abandoned, but once again purchased, renovated, and restored to life as Castle & Key.”

Peristyle also acted in good faith: “One reason why Peristyle referred to the distillery by name so often was that it had yet to settle on a brand name for itself. That process was extensive, lasting over a year, in part because ‘the reverence for [Old Taylor] is tremendous ... and to find a name that would justify the spirit and architecture and history of this place was a really tall order.’” Once it decided on a name, Peristyle’s fliers featured that name.  Even though it didn’t always use “former” or “historic” to precede Old Taylor, but context still indicated references to the physical distillery in a descriptive manner, e.g., “We’re saving a seat for you at ... Old Taylor Distillery.”

Sazerac objected to a four-hundred foot “Old Taylor Distillery” sign on the distillery’s barrel storage warehouse and a twenty-foot “The Old Taylor Distillery Company” sign above the entrance to its main building. “But both signs adorned the building before Peristyle purchased it confirming that the company did not put them there or otherwise use them in bad faith.” Peristyle used the signs only to identify the location of a site that’s on the National Register of Historic Places as the “Old Taylor Distillery.”

Peristyle plans to put up a Castle & Key sign next to the historic signs; “[t]rademark law demands no more.” Peristyle’s commercial activities at the distillery, including hosting events and renting barrel-aging warehouse space to third parties, didn’t constitute use of Old Taylor as a trademark; they were use of Old Taylor as a place. “One way to make sure that people get to an event is to describe the location accurately.”

Sazerac spent a lot of time challenging the Sixth Circuit’s threshold “trademark use” test, requiring the plaintiff to show that the defendant is using a mark “in a ‘[ ]trademark’ way” that “identifies the source of their goods” before any confusion (or descriptive fair use) inquiry takes place. This panel seemed to agree with the critics.  But those critics exaggerated the consequences of the test, since trademark use “resembles in nearly every particular the fair use defense that we just applied.”  There might nonetheless be fact patterns where it would make a difference because of burden-shifting or because of an absence of inquiry into whether the non-trademark use was made “fairly and in good faith.”  However, the court of appeals decided just to affirm the district court not on its trademark use holding (which the panel specifically noted was faithful to circuit precedent) but by finding that Peristyle made descriptive fair use, which was supported by the record.

[Query whether this maneuvering is consistent with saying that the trademark use test doesn’t consider good faith—of course, if you don’t really have a distinct idea of what good faith is other than non-trademark, descriptive use, then this result becomes a lot simpler. Also, to the extent that the Sixth Circuit requirement also deals with nominative fair use, this characterization doesn't work; part of the temptation to talk about "use as a mark for one's own goods/services" is that you don't have to spend time parsing that kind of distinction.]

Monster imagery implies danger; no survey required to get preliminary injunction against it

Eli Lilly & Co. v. Arla Foods, Inc., No. 17-2252, 2018 WL 2998510, -- F.3d – (7th Cir. Jun. 15, 2018)

Arla launched a $30 million advertising campaign aimed at expanding its cheese sales in the US, using the theme “Live Unprocessed.”  The ads promise that Arla cheese contains no “weird stuff” or “ingredients that you can’t pronounce”—in particular, no milk from cows treated with recombinant bovine somato-tropin (rbST), an artificial growth hormone. “The flagship ad in the campaign features a vivid rhetorical flourish implying that milk from rbST-treated cows is unwholesome.” The ad opens with a caption: “Arla Cheese Asked Kids: What is r[b]ST?” A cartoon of a six-eyed monster and a fisherman appears and a seven-year-old girl named Leah narrates: “RbST has razor sharp horns. It’s so tall that it could eat clouds. You may want to pet it but the fur is electric.” The commercial then cuts to Leah enjoying a cheese sandwich, and an adult woman narrates: “Actually, rbST is an artificial growth hormone given to some cows, but not the cows that make Arla cheese. No added hormones. No weird stuff. Arla, live unprocessed.” A small written disclaimer appears for a few seconds toward the end of the commercial: “Made with milk from cows not treated with r[b]ST. No significant difference has been shown between milk derived from r[b]ST-treated and non r[b]ST-treated cows.”
the rBST monster has electric fur

And razor teeth

Arla defined “weird stuff” on its website:
No artificial additives. No ingredients that you can’t pronounce. No ingredients that sound confusing or in any way like a made-up word. No ingredients with names that sound like they may be aliens with nine arms, beasts with electric fur, gigantic robots[,] or bears in dis-guise. No artificial growth hormones like r[b]ST.* ... Nor anything else artificial[ ] because our cheese has always been made with simple ingredients and never anything weird.
The asterisk directs readers to another part of the website containing the same disclaimer that appears in small print in the television commercial.

Eli Lilly makes the only FDA-approved rbST supplement; it sued for false advertising, and won a preliminary injunction. The court of appeals affirmed, holding that “[c]onsumer surveys or other ‘hard’ evidence of actual consumer confusion are unnecessary at the preliminary-injunction stage.”  Its evidence of harm included confidential evidence that a major cheese producer chose to terminate its use of rbST partially in response to Arla’s ads. 

The trial judge found that milk from rbST-treated cows is equally safe and healthy for human consumption as other milk, something that Arla conceded for purposes of the appeal.  In a footnote, the court of appeals said that Arla would have trouble fighting on safety and health for humans anyway, since the FDA twice confirmed the safety of rbST-derived dairy products. A joint panel of the United Nations and World Health Organization also found “no evidence to suggest that the use of rbSTs would result in a higher risk to human health.” [But see International Dairy Foods Assoc. v. Boggs, finding that a ban on no-rbST claims violated the First Amendment and that there was evidence that milk from treated cows was compositionally inferior to milk from untreated cows.]

“A literally false statement will necessarily deceive consumers, so extrinsic evidence of actual consumer confusion is not required.” However, Arla’s ads didn’t make explicitly false claims about the composition or dangers of milk from rbST-treated cows. “Indeed, the explicit statements about rbST are factually accurate: RbST is an artificial growth hormone given to some cows, and Arla does not use milk from those cows.” Nonetheless, proof of actual deception isn’t required at the preliminary injunction stage.  “It’s not feasible to require a Lanham Act plaintiff to conduct full-blown consumer surveys in the truncated timeframe between filing suit and seeking a preliminary injunction.”  Eli Lilly’s evidence from the ads themselves, evidence about the quality of milk from treated cows, and evidence of decreased demand were enough to show likely success on the merits without a consumer survey.

“[T]he ad campaign centers on disparaging dairy products made from milk supplied by rbST-treated cows.…The use of monster imagery, ‘weird stuff’ language, and child actors combine to colorfully communicate the message that responsible consumers should be concerned about rbST-derived dairy products.” [Put that way, it sounds like another court could have found puffery.  I understand the impulse to protect against vague disparagement, but it is worth noting that the court doesn’t ask very much about what factual message exactly consumers will take away.]  It was reasonable to find these ads likely to mislead. 

The court of appeals also took comfort from FDA guidance warning that ads about rbST-free milk products “may be misleading if not placed ‘in proper context,’” including the disclaimer: “No significant difference has been shown between milk derived from rbST-treated and non-rbST-treated cows.” Arla’s ads put that disclaimer only in tiny print in the tv ad and in an “obscure location” on the webpage. “Neither disclaimer dispels the central message of these advertisements: that cheese made from milk supplied by rbST-treated cows is unwholesome.”

Evidence of decreased demand from a major cheese producer didn’t show actual confusion, but “given the cheese producer’s economic incentive to accurately predict consumer demand, its concern about the ad campaign’s impact on consumers supports the judge’s conclusion.”  This also made causation an easy question, since any false or misleading advertising regarding rbST that decreases demand for the supplement would necessarily harm Eli Lilly, the sole US supplier.

The court of appeals also approved of a modified injunction preventing Arla from disseminating any ad substantially similar to the accused ones that “claims, either directly or by implication,” that rbST is anything other than an artificial hormone that prolongs the lactation of dairy cows. That was specific enough, in the context of the rest of the order. The injunction also barred any ad that claims, “either directly or by implication,” that “consumers should not feel ‘good about eating’ or ‘serving to [their] friends and family’ dairy products made from milk of cows supplemented with rbST. That still allowed Arla to make claims about its own products; “[t]he prohibited negative inference can arise only if an Arla advertisement specifically mentions rbST … in a disparaging way.” [Nice to know that the Seventh Circuit is still really, really confident in its consumer-predicting prowess.]

Judge Rovner concurred, agreeing that no proof of confusion was required at this stage but declining to address the other merits of the Lanham Act claim.

Federal Circuit casts doubt on "association" question in survey

Royal Crown Company, Inc. v. Coca-Cola Co., No. 2016-2375 (Fed. Cir. Jun. 20, 2018)

The Federal Circuit remanded on the issue of whether COKE ZERO and similar marks could be registered without a disclaimer, instructing the TTAB to try again on the standard for genericity (which can include things that are integral to a subset of the relevant goods/services).  But I want to talk about an interesting bit in the court’s discussion of Coca-Cola’s survey, which it found to be not very probative of non-genericity.  The survey was old, but it also asked about the “associat[ion]” between ZERO and one or more companies, not about source or sponsorship. “[T]his question is not sufficient to demonstrate the public’s perception of the term ZERO; association does not imply that a consumer would be confused by seeing a ZERO-branded product under a different label, nor does it address what meaning consumers attach to the term ZERO.” Nice language to cite against the more overreaching surveys, although I recognize that the survey was trying to address secondary meaning rather than resulting confusion.  

Thursday, June 14, 2018

Three little words make a fair use

Oyewole v. Ora, 291 F.Supp.3d 422 (S.D.N.Y. 2018)

This case grants a motion to dismiss on fair use grounds, though it should have been on lack of substantial similarity in protected expression.

Oyewole is a founding member of the spoken-word group The Last Poets who created the song “When the Revolution Comes” in 1968. The song warns of a coming revolution when “guns and rifles will be taking the place of poems and essays,” with a back track of a drum beat and chants. Also: “When the revolution comes/ Transit cops will be crushed by the trains after losing their guns and blood will run through the streets of Harlem drowning anything without substance.” At the end of the song, the performers chant, “When the revolution comes (3x)/But until then you know and I know n*****s will party and bullshit and party and bullshit and party and bullshit and party and bullshit and party... Some might even die before the revolution comes” (ellipsis in original). Oyewole indicated that the “sole purpose” of the lyrics is to “challenge[ ] and encourage[ ] people to NOT waste time with ‘party and bullshit,’ but to move towards success.”

In 1993, The Notorious B.I.G. released the song “Party and Bullshit” celebrating his “hip hop lifestyle.” It begins: “I was a terror since the public school era / Bathroom passes, cuttin’ classes, squeezing asses / …” The chorus is: “Dumbing out, just me and my crew / Cause all we want to do is... / Party... and bullshit, and... (9x)” (ellipses in original). In 2012, Rita Ora released the pop song “How We Do (Party),” which begins, “And party and bullshit / And party and bullshit / And party and bullshit / And party, and party.” Further lyrics include “I get that drunk sex feeling/Yeah, when I’m with you/So put your arms around me, baby/We’re tearing up the town/‘Cause that’s just how we do.”  The opening lines recur several times throughout the song.  Oyewole alleged that the uses here “contrravened” the original purpose of the phrase as used in “When the Revolution Comes,” which was to discourage people from partaking in “party and bullshit.”

Understandably, the defendants maintained that “party and bullshit” was not protectable, but, following a pattern I find somewhat depressing, the court assumed otherwise and instead resolved the infringement issue as a matter of fair use.  Both songs transformed the purpose of the phrase “party and bullshit” “from one of condemnation to one of glorification,” … “in neither secondary work does it evince criticism or foreboding.” The Poets suggest that, as a result of the partying and bullshit, “[s]ome might even die before the revolution comes.” The phrase is “an expression of disgust and disappointment in those who are not readying themselves for the revolution.”  Not so for the accused songs, which embrace and exalt “party and bullshit” culture. Even the complaint recognized this by accusing the songs of contradicting Oyewole’s original purpose, which was to “encourage[e] people to NOT waste time with ‘party and bullshit.’ ”

Nature of the work: creative, which weighs against fair use, also published, which favors fair use.

Amount and substantiality of the portion used: one phrase. As for substantiality, “although the background track’s cutting out when the Last Poets chant ‘party and bullshit’ adds a level of gravity and importance to the phrase, the expression is not critically important to the song’s message. Instead, the song focuses on the upcoming revolution.”  [This seems like a pretty good reading, by the way; I just think it’s detrimental to the robust analysis of copyrightability/substantial similarity to do this as a matter of fair use.]

Market effect: transformativeness made market effect unlikely. Given the character and purpose from the original work, the target audiences were unlikely to be the same, and even if they were, the songs wouldn’t substitute for the original. [Note no explicit consideration of derivative markets, implicitly encompassed in the transformativeness discussion.]

Wednesday, June 13, 2018

Second Circuit rejects falsity by necessary implication claim for UL certification

Board-Tech Electronic Co. v. Eaton Corporation, Cooper Wiring Devices, Inc., --- Fed.Appx. ----, 2018 WL 2901336, No. 17-3829-cv (2d Cir. Jun. 11, 2018)

Board-Tech and Eaton compete in the market for decorative light switches. Underwriters Laboratories (UL) is an independent entity that tests, verifies, and endorses the safety of various electronic products; its imprimatur is commercially necessary for light switches in the US.  UL licenses the “UL 20” certification mark to products that meet its safety standards. Manufacturers must submit “representative samples” of their product to UL; if the samples pass the tests, UL authorizes the manufacturer to advertise and label its products as “UL 20” compliant.

Eaton markets its light switches as UL 20 compliant. Board-Tech alleged that its in-house engineers independently tested UL 20 compliance of eight sets of six light switches and that each of the 48 light switch units failed. Thus, it alleged false advertising, despite Eaton’s authorization from UL to use “UL 20.” Board-Tech didn’t send its test results to UL, and UL has taken no relevant action.

Board-Tech’s allegations couldn’t establish literal falsity, because they didn’t negate the fact that the product was indeed certified by UL.  Board-Tech argued falsity by necessary implication: UL 20 certification necessarily implies that the product purchased will hold up to the UL 20 standard.  But UL certification represents that a sampling of products complied with UL standards when UL tested the products, not that every single unit will perform the same way when tested by different entities. “To satisfy literal falsity under a theory of necessary implication, Board-Tech needs to allege sufficient facts to show that Underwriters Laboratories considers Eaton’s products non-compliant—not just that someone else does…. Board-Tech’s testing, absent additional indicia of non-compliance, does not render Eaton’s use of the UL 20 mark literally false.”  This contrasted to a previous case where the competitor’s product was altered and found on retesting by UL to be non-compliant.  In that case, “[h]olding [a product] out to be UL approved” after materially changing it “constituted a false representation.” “Without any indication that UL decertified the defendant’s product—or (perhaps) that the defendant’s product had materially changed since certification—there would be no plausible allegation of a false statement.” This has a Twiqbal twist: “To merit discovery into its competitor’s product lines and tradecraft, Board-Tech must ‘raise a reasonable expectation that discovery will reveal evidence’ tending to show UL would find Eaton’s products non-compliant.”

[Query: would Volkswagen’s defeat devices for emissions tests satisfy the court’s qualifications?  I can see it argued either way.  The problem is what it would mean for UL to “consider[]” (present tense) products non-compliant.  Is it literally false once you allege facts that, if true, would establish that no reasonable entity could consider its standards satisfied? That seems to be one reading of the “additional indicia” line. Or do you have to allege that the entity has come to a decision on the matter? I think the court wants to preserve space for the Volkswagen situation to be literally false by necessary implication, but it’s a bit tricky to do! Certainly the VW product didn’t materially change since certification; it just acquired that certification through falsehood.]

What about misleadingness? That requires extrinsic evidence, and the complaint didn’t offer other than conclusory allegations that consumers had been misled or confused.

Monday, June 04, 2018

Industry magazine publisher can be sued under Lanham Act due to allegations of financial interest in competing businesses

NY Machinery Inc. v. Korean Cleaners Monthly, No. 17-cv-12269, 2018 WL 2455926 (D.N.J. May 31, 2018)

Plaintiff Lee is the President of NY Machinery (NYM), which sells washing machines and dry-cleaning products, and also owns Kleaners LLC, a magazine publication for the Korean dry-cleaning industry. Defendant Chung owns defendant TKCM, a monthly trade publication that also targets the Korean dry-cleaning industry.

NYM previously advertised in TKCM, but stopped and formed Kleaners to advertise NYM’s products in his own industry magazine. TKCM, in retaliation, allegedly began a “malicious defamatory campaign” against NYM to damage their businesses and simultaneously boost their competitors’ businesses, some of which Defendant Chung allegedly has an ownership interest in. In an August 2017 issue of TKCM, NYM was allegedly referred to as “crooks” and a “fraud” in an article, and on the magazine’s cover.  This allegedly hurt plaintiffs’ goodwill, leading customers to cancel orders of NYM products or refuse to deal with NYM, and harming Kleaners’ subscription and ad sales. 

TKCM argued that its statements weren’t commercial advertising or promotion for Lanham Act purposes. The court used the Lexmark-modified Gordon & Breach test, noting that plaintiffs pled commercial competition by alleging that Chung has an ownership interest in some of NYM’s competitors, and that TKCM is a competitor of Kleaners. Although it doesn’t appear that the challenged speech was in a conventional ad, alleging that defendants falsely criticized plaintiffs’ goods and services in order to promote NYM’s competitors for defendants’ benefit was enough to allege commercial speech made in commercial advertising or promotion. New Jersey statutory unfair competition claims likewise survived, as did tortious interference and defamation per se claims.

The actual malice standard did not apply; protection for “matters of public concern” applies “to businesses that are of such inherent public concern[,]” and not to “businesses like ... the cleaning of clothes, and numerous other local businesses that involve everyday products or services.” TKCM’s articles concerning plaintiffs’ dry-cleaning and magazine publishing businesses didn’t involve matters of public concern. Anyway, plaintiffs sufficiently pled malice by alleging knowing dissemination of falsehood. This also adequately pled a false light claim.  Trade libel claims were dismissed for failure to plead special damages with the requisite particularity. Plaintiffs said they were willing to provide specific names under a confidentiality agreement, but they’d have to amend the complaint to do so.

Right of publicity: Legislative initiatives

Legislative Initiatives:  What matters
Moderator:   Daniel Kummer, NBCUniversal Media, LLC

Panelists:     Vans Stevenson, Motion Picture Association of American, Inc.
Uniform Law Comm’n has a project this year to create a uniform draft law for all 50 states. We, among others, have opposed that program. We don’t want to have to lobby in all 50 states at once.  NY: pending bill; Louisiana also, w/bill sponsored by IP lawyer who’s looking at NY for what happens. Trying to solve an issue for a locally famous French Quarter musician.  Last 20 years, 14 states have worked on ROP litigation MPAA engaged w/directly. Cal. 1999: Fred Astaire’s widow went crazy on a ruling on an instructional video clip of Astaire protected by 1A. Could have dealt w/digital avatars back then but then didn’t.

Kummer: postmortem extension is the biggest issue—why is that?

Stevenson: biopics; dealing w/the heirs of famous people esp those who aren’t actors.

Gena Feist, Take Two Interactive Software, Inc.: We didn’t see a digital avatar problem; don’t fix something that doesn’t exist.  Lohan/Gravano: ruled that the current statute applied and that we didn’t violate it.  Pending legislation rewrites 2 sentences into 4 pages, adds postmortem element, and adds digital recreations of actors. There’s been over 100 years of litigation over 2 sentences; don’t change if there’s not a current problem. If there is a problem, it’s that there is no fee-shifting or motion to strike procedure to get rid of these cases quickly.  [anti-SLAPP law!]  There’s extortion from people who say “that looks like me!” and T2 can afford litigation but small game makers, of which there are many, can’t.  The games people are unclear about expressiveness are simulation sport games, not games like Grand Theft Auto where there are 100 hours of storyline.  The Lohan/Gravano argument focused on “disguised advertising”—can you put something in the game and then use it for advertising/mugs?  Going forward, that’s an interesting issue. Another issue resolved in the opinion: though sufficient similarity may be an issue for a factfinder, there is a threshold issue of whether there’s enough to get to a factfinder that a court can and should resolve on a motion to dismiss.

Edward Rosenthal, Frankfurt Kurnit Klein & Selz PC: NY has generally gotten it right; dangers to NY industries if there’s a big change. [Solution in search of a problem.] If you really want a postmortem right, that’s a 1 sentence fix to the statute, not a total rewrite.

Feist: a postmortem right doesn’t necessarily protect creators. Perhaps a nontransferable right for families would go a long way—avoid ROP trolls as there are patent troll groups, copyright troll groups.

Kummer: worry is that young performers will be forced to sign away rights early in their careers.  Are exemptions counterproductive by suggesting that everything else is subject to ROP?

Stevenson: exemptions for expressive works are designed to increase certainty. We don’t want the cases brought in the first place against motion pictures, magazines, etc.

Feist: if it encompasses all 1A rights, there’s no argument against it. But she can’t imagine a bill that expands the right and then carves out 1A protected rights that increases certainty unless it is incredibly clear and incredibly strong and includes fee-shifting/motions to strike—people are suing [T2] now based on a law that’s already really clear.

Stevenson: generally works well for us. [yes, b/c you are representing legacy media, and Feist isn’t.]

Kummer: countering emotional appeal of actors/players claiming rights over their digital avatars?

Stevenson: Paul Newman: if you are a producer (as he is) how are you going to do certain kinds of stories w/o a real exemption? Much high-level talent also works as producers, writers, and you explain that.

Kummer: deepfakes?

Feist: it’s a solution looking for a problem. Actors say they don’t want to be cast against their will, that’s very sympathetic but it’s not happening outside of porn—deal w/specific and narrow problem, not all movies/video games. Also, the problem w/that industry is that it is unlikely to respect any laws NY might write against it.

Rosenthal: identity theft doesn’t need to be addressed through the ROP at all. Likewise revenge porn. So too with “deepfakes.”

Stevenson: Legislators often want to make a name; don’t care about whether an existing law or another law would work [SESTA/FOSTA!].  Also they don’t care about the 1A: they say let the courts figure it out; they’ll get the credit for the law regardless.

Kate Klonick: wants to push back on ROP as inappropriate for deepfakes—there absolutely is going to be a big deal in which people want to watch Harry Potter & Hermione Granger as played by the movie actors having sex.  There are dignitary and expressive harms that occur.

Feist: but then you can’t have an expressive works exemption (for regular movies, video games, etc.) as opposed to having a special targeted statute.

Stevenson: political advertising is exempt, but deepfakes for politics are going to be a big problem.

Q: digital avatars: Tom Cruise doesn’t need to be in Mission Impossible 8. That’s sympathetic.

Stevenson: we drafted language with SAG-AFTRA that could cover that, but in reality it’s covered by union agreements/contracts.

Q: similar to sports games: you’re having them do what they do for a living and not paying them.

Feist: for living actors, that makes some sense, but for dead ones it doesn’t. You’re not taking the dead one’s salary. A dead actor’s “right” to earn for their families is different from a family interest in not seeing a dead parent endorsing products 30 days after their death.

Stevenson: great advice: if you don’t understand it, kill the bill!

Rosenthal: a couple of other things about last year’s NY bill. It abandoned domicile and allowed anyone to bring claims in NY. Extended statute of limitations from one to three years, and adopted a discovery rule. We know from © how difficult this can be.

Right of Publicity, Litigating the Claims

Litigating the Claims

Rick Kurnit: told the story of litigating the White case, in which the author of the panel opinion didn’t know what a letter-turner was. Had to go to trial with a jury, all of which regularly watched Wheel of Fortune.  Jury found that robot was Vanna White, and that she was endorsing the TV being advertised.  Awarded more on the Lanham Act claim than on the ROP claim.  What about parody?  Spent no time on that, parody wouldn’t help b/c parody just means they’re the same [parity].

Nathan Siegel, Davis Wright Tremaine LLP: Cultural trend favoring celebrities, and willingness to view a celebrity’s “story” as quasi-property of the celebrity. This has become pervasive, so more judges go into cases w/ a presumption, almost incredible to 1A advocates, that people have a right to control the marketing of their story. Cardtoons case: additional inducement for achievement from ROP often inconsequential, b/c most personalities are adequately compensated. Even w/o ROP, the rate of return in entertainment & sports is high enough.  I agree, but that’s not a shared sentiment today. People don’t seem bothered by a billionaire like Michael Jordan winning $10 million for a congratulations taken out in Sports Illustrated.  Opposing speech interests are discounted more often than 20 years ago.

Cultural backlash against the media. In this genre we’re seeing a particular tendency to view sports/entertainment as fluffy and avaricious.  Exploitative in some fundamental sense. Not really worthy of deference in the same way as news & political speech. Judges issuing the worst decisions in this area, such as trial court in de Havilland, Porco, NCAA—relatively liberal judges. Feels like, in an era where people feel the need to attest to their anti media bona fides, that’s one way it happens on the liberal side.

Things to think about: temptation is to argue w/intellectual abstractions, such as transformative use. Need to frame in appealing, common sense way. Why does the breadth of the right not make sense?  Pitch it as a matter of control before the fact. The cases always come up after the speech, so it looks like we’re arguing over “why didn’t they get paid?” But the right is a right of personal control before the fact, and that looks a lot different. Everyone shown in a clip could control the right to broadcast the clip ever again. [This was an important point in the FanDuel amicus that Mark McKenna & I recently wrote.] Rarely just about the P; usually there’s a significant group of people involved who could theoretically bring the same claims. How could every single person have an individual right of control? [aka anti-commons property] If everyone had a right to control how their image was going to be depicted in advance, that’s a veto for everyone.  De Havilland isn’t just about de Havilland. If you have two people feuding, should each one be able to say “you can depict the feud as long as I win it”? Seems to be a notion among some judges that docudramas are icky—neither fish nor fowl, taking documentaries one step too far by quasi-fictionalizing them.  Just a modern TV version of historical fiction, a genre that’s been around for 100 years. 

We should think of the 1A as the last resort, not the first resort.  It’s an extremely defensive way to frame the case. The 1A only comes into play if there is a right under state law. So we are conceding that the states are saying that celebrities do have that right, and we’re asking for special protection. That’s generally unnecessary b/c most state cts w/common law or state laws didn’t intend to call docudramas and sports programming into question, whether or not they put a specific exemption in. Think first about pushing back on scope.  Copyright preemption is another potentially successful argument.

Push back on the notion that this is an IP right.  Take all the Nobel prize winners for science & ask what the value of their ROP and match that against the ROP of Al Capone’s estate—the latter is more valuable, though he didn’t contribute anything creative or useful. ROP doesn’t award effort, just fame.

In the long run, need to push that Zacchini wasn’t a ROP case. Confusion in the case itself and subsequently.  It’s a common-law © case: broadcast rights of event producers.  Not in the short run, that’s the best chance to cut the legs out of this area.

David Schulz, Ballard Spahr LLP: what judges lack is clarity about a structure for the theory: what is protected and why. Most judges think they’re working w/in the law and want to do justice. Start to be very clear about the structure we’re building and the societal interests at stake. Should frame things in Rogers/Gugliemi terms: how we describe what’s being challenged here. Is it something that can be fairly called public discourse, news, entertainment—things intended to convey information—or is it an effort to sell/advertise a product. Whichever world you’re in, 1A principles differ but also state law principles differ.

Spahn: case in which P alleged that a book about him was fiction despite being advertised as fact; similar to Eastwood case in California.  Can justify a claim under this as a kind of “sham petition” claim—not really nonfiction as advertised.  Subsequent case law (Arrington) about using pictures to illustrate articles: Is there a reasonable relationship b/t the picture and the content?  If so, no claim.  Messenger case: girl sued for use of her picture in an article about a letter writer who’d gotten drunk & had sex w/men. Court agrees, but the P argued that it was more like Spahn—Court of Appeals doesn’t want to say Spahn got it wrong so it adds bad language to distinguish them; Spahn holds that ROP applies to totally invented biography, as if that was a special category, and was only trading on the persona, but then adds loose language: Sec. 50 applies when an article purporting to be newsworthy is so embellished/fictionalized that it can’t be said to fulfill the purpose of newsworthiness.  Porco: movie about a young man who killed his father/tried to kill his mother—sued b/c they used his real name and argued that he had a claim b/c it was substantially fictionalized.  Appellate court allowed that to proceed to discovery. Would be better to start w/asking if something was for purposes of public discourse, not purposes of trade; if so, no NY right. We know total fiction is protected, as is total truth; there’s no sense and no predictability in saying that somewhere in the middle there is a claim.

Annie Pell, NFL
Dryer case: building a record on newsworthiness. Experts opining that NFL Films weren’t ads.  Survey of consumers showing that more than 90% saw these programs as sports/entertainment and not as ads/infomercials. Marketing prof opined they weren’t ads—longer, no explicit sales message, not paid spots, listed in TV Guides, won Emmys for TV and not awards for ads. Branding and advertising are two very different things—enhancing the value/brand was no different than the way in which a celebrity bio enhances value of brand. Like pre-game and post-game shows, always treated like that by networks. Sports marketing agent for ROP licensing who said they weren’t recognized w/in the industry as ads or endorsements and that players don’t expect compensation for these types of appearances.

How to deal w/handful of internal NFL docs produced in discovery that Ps argued showed that the NFL’s intent was to build brand?  Value derived was as great as a big ad budget.  Sports Illustrated described NFL Films as a really effective propaganda arm.  But they were so not b/c they proposed a commercial transaction but b/c they were really good content.

Finally, distinguishing Facenda, which 3d Cir found to be commercial speech: separate product references, countdown to release of the game described in the “infomercial.”

Spiegel: Fictionalization doesn’t fit within Section 50/51, but it’s hard to go before a court & say we have a right to fictionalize (where a state, like NY, lacks a false light claim).  Easier to focus on disclaimers: show that it’s based on a true story. As w/ Messenger, where defamation claim failed b/c the letter was signed “Anonymous” and reasonable readers would not think that the depicted model was the author of the letter; no reason to override that conclusion w/a ROP claim.