Thursday, September 27, 2018

Non-TM owner can plead false advertising claim for confusing use of TM it used to own

Desmond v. Taxi Affiliation Services LLC, 2018 WL 4589999, No. 17 C 8326 (N.D. Ill. Sept. 25, 2018)

Desmond is the Chapter 7 Trustee for the Bankruptcy Estate of Yellow Cab Affiliation, a former Chicago taxicab affiliation with over 1600 dues-paying members who licensed the design mark from YCA. He sued a bunch of defendants for allegedly engaging in a scheme to render YCA insolvent, so that it could not pay its creditors, and then establishing a new company that appropriated YCA’s valuable trade dress. After a passenger was injured in a taxi and sued YCA as a defendant, some of the defendants here allegedly established defendant TAS to prevent creditors from reaching YCA’s assets. For example, TAS collected and retained all payments from YCA members pursuant to their affiliation agreements with YCA, then transferred some of that money, disguised as “management fees” and “referral fees,” to YCA’s officers and directors; some defendants bought and sold taxicab medallions using YCA’s money but failed to distribute any of the profit to YCA.

After the injured passenger got a $26 million judgment against YCA in 2015, YCA filed for bankruptcy and TAS refused to provide further services, forcing YCA to shut down. Certain defendants quickly formed New YCA (Yellow Cab Association, Inc.) to solicit members away from YCA. New YCA used mobile data terminals and other taxicab equipment that belonged to YCA. New also YCA used the same color scheme and design mark that YCA had used, merely replacing “Affiliation” with “Association.” This allegedly tricked customers into believing that New YCA and YCA were one and the same.

Lanham Act and coordinate state claims: Trademark ownership is required for a likely confusion claim, but not for a false advertising claim. YCA doesn’t own the design mark at issue, so this was a false advertising claim. The allegations here satisfied Rule 9(b): the use of the color yellow, the design mark, and a similar name plausibly constituted a false statement of fact implying YCA’s affiliation with New YCA, and the other elements were sufficiently alleged, at least as against New YCA.

Another malware misattribution claim fails

PC Drivers Headquarters, LP v. Malwarebytes, Inc., 2018 WL 2996897, No. 18-CV-234-RP (W.D. Tex. Apr. 23, 2018)

PC Drivers “offers software designed to help customers optimize the processing speed of their computers and identify software drivers ready to be updated.” Malwarebytes sells software that blocks various programs on its customers’ computers, including software deemed malicious or potentially unwanted (the latter of which are called PUPs). PC Drivers contends that, in January 2018, Malwarebytes inappropriately branded one or more of its programs as a PUP, which can make PC Drivers’ software inoperable and block access to PC Drivers’ website. This happened before, and when the software received certification from a newly developed third-party certifier called AppEsteem, Malwarebytes stopped labeling the programs as PUPs. PC Drivers alleged that it continues to carry AppEsteem certification and that its programs have not changed substantially.  PC Drivers sued for false advertising, trademark infringement [what?], trademark dilution, tortious interference with contractual relations; promissory estoppel; and related claims.  (Similar litigation against Malwarebytes discussed here: §230 blocked liability.)

The court declined to grant a preliminary injunction, despite evidence that Malwarebytes has not been cooperative with PC Drivers as PC Drivers has attempted to figure out the problem. PC Drivers also argued that it was the victim of an act of retaliation taken by Malwarebytes against AppEsteem in response to AppEsteem’s threat to list Malwarebytes as a “deceptor.” But that wasn’t enough.

Malwarebytes argued that §230’s statutory Good Samaritan protection for blocking and screening of offensive material rendered it immune to all these claims.

PC Drivers argued that Malwarebytes wasn’t an “interactive computer service” under the statute, but it was, because the phrase is to be broadly applied using the definition “any information service, system, or access software provider that provides or enables computer access by multiple users to a computer server ....” Malwarebytes “provide[s] users with access to the new malware definition content that is available on its servers.”

PC Drivers also argued that the immunity didn’t apply to Malwarebytes’ own statements, but “this requirement is present only in § 230(c)(1).”  I’m not sure this is responsive: Malwarebytes might be immune for the blocking and any consequences proximately caused by the blocking itself, but not immune for things it said about the blocking, which could independently cause damage.

Finally, PC Drivers alleged that Malwarebytes did not act in good faith. But § 230(c)(2)(A)’s good-faith requirement (for “any action voluntarily taken in good faith to restrict access to or availability of material that the provider or user considers to be obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable, whether or not such material is constitutionally protected”) doesn’t extend to § 230(c)(2)(B) (“any action taken to enable or make available to information content providers or others the technical means to restrict access to material described in paragraph [A]”) under the statute.

Malwarebytes argued that PC Drivers’ federal unfair competition claim fell under the safe harbor because it wasn’t an IP claim. “Although the specific provision does not address intellectual property, it is a part of the Lanham Act, which as a whole ‘pertain[s] to intellectual property,’” so some courts call all 43(a) claims clawed back from §230 immunity, while others don’t. The court didn’t resolve the issue because there was no likely success on the merits regardless.

PC Drivers alleged that Malwarebyte’s designation of PC Drivers’ software as a PUP was misleading. But this wasn’t false: the designation “potentially unwanted program” “inherently carries with it the acknowledgment that it is only a guess as to whether the program is or is not unwanted,” and “unwanted” “looks more like a subjective opinion than a factual assertion.”

Dilution: There was no evidence of fame.

Infringement: PC Drivers alleged that there was likely confusion about association, authorization, endorsement, affiliation, or sponsorship. Understating the matter, “the Court notes that this claim is strange when viewed in conjunction with PC Drivers’ other claims.” Malwarebytes invoked nominative fair use. There was no evidence that Malwarebytes used PC Drivers’ mark in any way other than listing the name of the website to explain what it is blocking. The PUP label “implies anything but endorsement; customers told by Malwarebytes that PC Drivers’ software might be unwanted are not likely to think that PC Drivers endorses Malwarebytes.” There was only one reference: to the domain name It was unclear how Malwarebytes could the user of the name of the website it was blocking without using the domain name. [Another case where “use as a mark” would also be useful to explain why this is ok.]

Blast from the past: nominative fair use avant la lettre

Polyglycoat Corp. v. Environmental Chemicals, Inc., 509 F.Supp. 36 (S.D.N.Y. 1980)

Found this in an unrelated search and it made me think about the utility (if any) of the nominative fair use category. Plaintiff sued defendant for advertising of defendant’s automotive silicone paint finish remover called POLYCRACKER. Plaintiff’s Polyglycoat, a protective paint finish sealant for automobiles, was heavily referenced on Polycracker’s label and its launch ad in Auto Body Repair News, a trade journal:

The words “Polyglycoat TM Remover” appear conspiciously on the POLYCRACKER label, one page of the ad consists solely of the bold-lettered statement “WIPE AWAY POLYGLYCOAT TM”, and the body of the ad contains such statements as “There’s nothing more troublesome for auto body shops than silicone finishes like Polyglycoat” and “Take off Polyglycoat with the wipe of a cloth.”

In terms of the Polaroid factors, the court found strong secondary meaning in the relevant market, the use of an identical mark, product relatedness sufficient to generate confusion, and an intent to “capitalize on the popularity of the POLYGLYCOAT mark and product in the field.” There was no evidence of actual confusion, but “a reasonable likelihood of confusion is inferred from defendant’s use of plaintiff’s exact trademark to promote its related product, the absence of a viable alternative explanation by defendant for its appropriation of the POLYGLYCOAT mark, and other circumstances of the relevant market.”

Thus, an injunction was warranted to keep Polyglycoat off the Polycracker label “either as it now appears, or any other way by which the mark is singled out as the generic, shorthand term standing for the species of paint finish sealants which POLYCRACKER is said to remove.” Defendant was also enjoined from singling out the mark in ads, e.g., “WIPE AWAY POLYGLYCOAT,” “Take off Polyglycoat,” “normal prep solvents ... do not remove polyglycoat,” “The Polyglycoat wipes off easily,” and “say good-bye to Polyglycoat problems.”

However, in the absence of falsity or misleadingness, defendant couldn’t be prevented from advertising that its product could remove automotive silicone finishes including POLYGLYCOAT, “the most popular and perhaps the most durable brand.” Thus, it could continue using the name “in such conjunctive phrases as ‘silicone finishes like Polyglycoat R.’” In any such use, the mark couldn’t appear in letters which distinguish it from the other words in the conjunctive phrase by size, color, typeface or any other characteristic. And a long disclaimer was required:
POLYGLYCOAT R is a registered trademark of the Polyglycoat Corporation, Scarsdale, New York, for its protective coating and sealant for automotive finishes. The term Polyglycoat as used herein means the product manufactured and sold by that company, and is used without the permission of Polyglycoat Corporation. POLYCRACKER is neither manufactured nor in any way sponsored or authorized by Polyglycoat Corporation.

This disclaimer probably did nothing but increase defendant’s advertising costs, since consumers weren’t particularly likely to read it.  And aside from the required disclaimer, this seems like pretty much the result you’d get from nominative fair use today (since courts would probably interpret the initial ad, at least, as using “too much” of the mark, as in the Playboy v. Welles case). 

What, if anything, does having nominative fair use as a defined concept add?  The current Second Circuit treatment is worse than nothing, since the NFU factors actually negate the significance of the other key Polaroid factors, like strength and identity of the marks, and can’t be weighed against them in an understandable way.  “Weighing” implies that enough strength and similarity (always present in a NFU situation) ought to be able to overwhelm the NFU factors, but they really don’t. The original concept from the Ninth Circuit was a way to formalize the obvious fact that there are some cases in which the multifactor test factors (particularly strength, similarity, and relatedness of goods) don’t point to the correct result.  In particular, the multifactor test doesn’t match our understanding of cases in which the trademark is clearly being used as a comparator or subject of discussion. I haven’t fully figured out my take on this, but I do think we need some doctrinal indicator to judges that there are times when the multifactor test is a bad idea, so that we don’t have to rely on the variable common sense of individual judges and in particular district court judges’ understandable fear of getting reversed when courts of appeals say that you have to use the multifactor test no matter what (except with Rogers, in the Second Circuit).

Wednesday, September 26, 2018

Pa. Supreme Court fixes ridiculously overbroad holding of puffery

Commonwealth v. Golden Gate National Senior Care LLC, --- A.3d ----, 2018 WL 4570102, No. 16 MAP 2017 (Pa. Sept. 25, 2018)

The Pennsylvania Supreme Court reinstated a bunch of claims against a bunch of nursing homes under the state Unfair Trade Protection and Consumer Protection Law, though not unjust enrichment claims. In essence, the nursing homes allegedly made materially misleading statements about the nature and quality of the care provided to their nursing home residents. They allegedly knowingly failed to provide the level of care they advertised, as they purposefully understaffed the facilities so as to maximize their profits. Chain-wide misrepresentations included brochures, videos, websites, and video advertisements, with claims such as:

“Snacks and beverages of various types and consistencies are available at any time from your nurse or nursing assistant.”
“We have licensed nurses and nursing assistants available to provide nursing care and help with activities of daily living .... Whatever your needs are, we have the clinical staff to meet those needs.”
“Clean linens are provided for you on a regular basis, so you do not need to bring your own.”
“A restorative plan of care is developed to reflect the resident’s goals and is designed to improve wellness and function. The goal is to maintain optimal physical, mental and psychological functioning.”
“A container of fresh ice water is put right next to your bed every day, and your nursing assistant will be glad to refill or refresh it for you.’ ”
“We work with an interdisciplinary team to assess issues and nursing care that can enhance the resident’s psychological adaptation to a decrease of function, increase levels of performance in daily living activities, and prevent complications associated with inactivity.”

In truth, residents allegedly routinely have to wait hours for food, assistance with toileting, changing of soiled bed linens, and other elements of basic care, and sometimes must forego them entirely.

On the individual facility level, the AG alleged misrepresentations in the resident assessment and care plans created for each resident: services promised in the care plans were not provided because of intentional understaffing. Also, the facilities allegedly generated billing statements which indicated that certain care was provided when it was not, which were then paid by public funds when residents received Medicaid or Medicare. The facilities allegedly further deceived the Pennsylvania Department of Health by temporarily increasing the number of staff on hand during inspections and by willfully creating inaccurate and/or falsified resident care records for review.

The Commonwealth Court found the marketing and advertising materials to be mere puffery: too broad or vague, or merely expressing an intent. Then the court held that resident assessments, care plans and bills weren’t covered by the UTPCPL because they weren’t advertising but rather isolated statements to potential customers, or in the case of resident care plans were created after a customer was admitted to a facility. The court also found that the allegations about care deviating from promises were too conclusory and unspecific. The AG didn’t identify any  “particular care plan ... from which the Facility deviated, or ... identify[ ] any specific bill for services that were not provided.”  Further, the AG didn’t allege “how a consumer could be misled by a billing statement to believe that he received services or assistance that he had not in fact received, or how an un-itemized per diem charge could convey to a consumer that a particular service had been provided in the first place.”

Here, the state supreme court identified two types of puffery: (1) “hyperbolic boasting or bluster that no reasonable consumers would believe to be true” and (2) “claims of superiority over a competitor’s product,” though the examples are “statements that a laboratory imaging device provided ‘unprecedented clarity,’ or the advertisement of a product as ‘the complete sports drink,’” so I’m pretty sure “claims of superiority” is implicitly modified by “vague or general,” especially since the court continues by saying that a key characteristic of puffery is that “consumers understand that the statements are not to be takenliterally. … It is these characteristics – the patently hyperbolic or excessively vague character that dissuades any reasonable consumer from placing reliance thereon as fact – that render puffery non-actionable under the UTPCPL.”

Puffery is usually a question of fact. It was so here:

We hesitate to conclude that consumers seeking a nursing home would necessarily find statements promising to provide food, water, and clean linens to be hyperbolic in any respect, or to be vague statements of optimism or intent. To the contrary, for residents of nursing homes, many of whom are physically compromised and require assistance with day-to-day living activities, regular access to these items is essential, and there is no reason to think that a consumer would not take these statements seriously.

Plus, the lower court didn’t consider the overall context.  For example, it held that, “We believe that respecting your individuality and dignity is of utmost importance[,]” qualified as puffery “based on the preface alone” – that is, based on the use of the phrase “we believe,” which was impermissible slicing and dicing (something that’s also basic First Amendment defamation doctrine). Nor was “[a] container of fresh ice water is put right next to your bed every day, and your nursing assistant will be glad to refill or refresh it for you” mere optimism or vague, given the obvious message that “a resident will have ready access to water every day,” something that would be highly relevant to an immobile resident.

The lower court also erred in holding that statements in patient assessments, care plans and billing statements weren’t actionable because they weren’t ads, applying the definition of advertising elaborated by judges under the Lanham Act. Though some provisions of the UTPCPL specifically mention advertising, the court pointed to two relevant UTPCPL provisions covering conduct other than advertising. Subsection (v) prohibits conduct “[r]epresenting that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits or quantities that they do not have or that a person has a sponsorship, approval, status, affiliation or connection that he does not have,” and subsection (xxi) prohibits “[e]ngaging in any other fraudulent or deceptive conduct which creates a likelihood of confusion or of misunderstanding.”  The court declined to rewrite the statute to impose the “advertising” limitation on all the provisions. It further pointed out that other subsections prohibit “failing to comply with the terms” of a written guarantee or warranty and “making solicitations for sales of goods or services” without first providing certain information, making clear that the statute overall wasn’t intended to be limited to “advertising” under the Lanham Act.

Likewise, the lower court erred in finding the complaint insufficiently detailed. The AG pled factual allegations based on interviews with former employees and residents’ family members, as well as on information from the Centers for Medicare and Medicaid services; the complaint included representative examples of the alleged failures.  “Pennsylvania is a fact-pleading jurisdiction; as such, a complaint must provide notice of the nature of the plaintiff’s claims and also summarize the facts upon which the claims are based.” But there’s no requirement to plead the evidence upon which the pleader will rely to later prove the claims. The defendants were informed of the claims against them, even without identifying particular patients, care plans, assessments, or bills.

In addition, the lower court erred in holding that the state couldn’t seek return of monies spent because it wasn’t a “person” under the statute. The relevant statutory phrase is “person in interest,” that is, “those whose interests were affected by the enjoined conduct, i.e., those who lost money or property because of the enjoinable conduct that was found to violate the UTPCPL.” This included the state when it was the one that lost money, especially given the rule of construction that this consumer protection statute is to be interpreted liberally.  

modifying a false advertising injunction is justified when likelihood that claim is false has changed

De Simone v. VSL Pharmaceuticals, Inc., No. TDC-15-1356, 2018 WL 4567111 (D. Md. Sept. 24, 2018)

De Simone sought modification of a preliminary injunction governing statements it could make about a probiotic product, VSL#3 and its relationship to De Simone’s now-competing product, Visbiome.  (I was a bit critical at the time.) They sought to be able to advertise that ExeGi Pharma was the exclusive provider of the “De Simone Formulation,” the term they have coined for the combination of probiotic strains developed by De Simone and first commercialized in the United States as VSL#3; to cite clinical studies with the term “VSL#3” in the title as part of their promotional materials; and to engage in other speech critical of VSL#3.

As relevant here, the prior order required ExeGi to refrain from “stating or suggesting that the license agreement” between De Simone and VSL had “expired,” or asserting that “VSL#3 will no longer be on the market.” At the time, both products, though differently branded, used the same formulation. Thus, Visbiome’s exclusivity statements were false advertising. The court also enjoined (apparently 100% truthful) Visbiome statements that studies with “VSL#3” in the title constituted studies relating to the “De Simone Formulation.”

The De Simone parties returned to court, arguing that the VSL product was no longer made under De Simone’s formulation, resulting in a clinically different composition; VSL agreed that production was now elsewhere but argued that the changes weren’t clinically significant, and that any changes were the result of De Simone’s breach of his fiduciary duty so they shouldn’t be allowed to be communicated to the public.  [You can tell my feelings about that last part.]

A court has the power “to modify an injunction in adaptation to changed conditions.”

The court didn’t let De Simone speak truthfully by citing studies that use the term VSL#3 in the title (while studying the De Simone formulation). The court previously found the extensive use of the citations to be confusing and concluded that “[e]ven if ExeGi has a reason to refer to those studies because Visbiome is, as a scientific matter, the same formulation that was subjected to those trials, that scientific equivalence cannot be used as an opportunity or excuse to erode VSL’s trademark.”  Again, “eroding” a trademark isn’t a thing, but the court determined that the change in the VSL product’s formulation didn’t constitute a relevant change for trademark purposes.  [Which is an interesting variant on the fact that trademark doesn’t actually protect the public from changes in quality initiated by the trademark owner.]  So now, the De Simone defendants are infringing if they truthfully refer to the studies, while VSL might be falsely advertising (if the formulation is indeed materially different) if they refer to the studies. 

However, conditions did change as to representations of exclusivity. At the time of the old order, while the license agreement between De Simone and VSL had recently expired, VSL continued to have inventory of product produced under that agreement, so De Simone’s statements at that time that they were the “exclusive” provider of the De Simone formulation constituted false advertising. That’s no longer true, and promotional materials including those touting VSL#3 as dairy-free, now made clear that VSL#3 and Visbiome were no longer exactly the same, removing the factual predicate of the injunction about exclusivity statements. At a minimum, the likelihood of success of a false advertising claim against the exclusivity statements had changed: though VSL had offered explanations for the composition discrepancies, and criticized De Simone’s published studies as biased, they hadn’t submitted a comparable published study indicating that the current versions of VSL#3 and Visbiome were identical or even functionally equivalent. Plus, the balance of equities had shifted because VSL#3 has been marketed as “the same quality product, containing the same genus and species of bacteria, in the same proportions that you have come to expect,” while ExeGi couldn’t dispute that.

Thus, the injunction would no longer bar assertions that the licensing agreement between De Simone and VSL has expired and that ExeGi is the exclusive provider of the De Simone formulation, but the court refused to declare broadly that ExeGi is free to “engage in commercial speech critical of its competitor’s products.” This was warranted particularly because the De Simone parties had a history of stretching the court’s orders to the breaking point, and also because a trial was upcoming to resolve the factual disputes. Until trial, the exclusivity statement would have to read: “We believe that ExeGi is the exclusive provider of the De Simone Formulation because it is our position that the current version of VSL#3 uses a different formulation. Whether VSL#3 presently uses the De Simone Formulation is the subject of pending litigation in federal court.”

Monday, September 24, 2018

falsity from former customer satisfies Lexmark standard; not so for once-potential customer

Frompovicz v. Niagara Bottling, LLC, No.. 18-54, 2018 WL 4465879  (E.D. Pa. Sept. 18, 2018)

Prior ruling covered here. Plaintiff (on behalf of a putative class) is a water extractor. Defendant Land is a directly competing extractor and the bottler/distributor defendants who use his water are Niagara, Ice River, and Crossroads. Land allegedly extracts well water, which “does not satisfy the FDA’s definition of ‘spring water’ ” and which is permitted by the Pennsylvania Department of Environmental Protection (DEP) as a “well water” site, and not a “spring water” site. Land’s water allegedly “has been extracted, handled, or treated with equipment or techniques that are inconsistent with a ‘spring water’ classification criteria” and “has tested as containing more particulates or trace elements than are otherwise permissible or recommended under industry standards for ‘spring water.’ ”  Niagara and Ice River sourced their spring water from plaintiff before switching to Land, and Crossroads also considered plaintiff’s water before choosing Land.  Plaintiff also allegedly bottled and sold his own water directly.

Plaintiff satisfied Lexmark’s zone of interests test by alleging that his spring water sales were depressed as a result of the misleading labels. Also, Niagara allegedly “falsely told industry participants that Plaintiff should not be dealt with, and has misrepresented to the public that Plaintiff’s spring contaminated.” Land also allegedly disparaged the plaintiff, which affected the necessary commercial interest in reputation or sales.

Proximate cause: simple as to Land, because they’re direct competitors. Lexmark also allows suits against indirect competitors, though the circumstances have to be relatively unique. Here, the alleged disparagement by Niagara qualified: “when a party claims reputational injury from disparagement, competition is not required for proximate cause.”  Plaintiff also alleged that if the bottler defendants wanted to meet the demand for spring water without Land’s “phony” spring water, they’d have to use his and other putative class members’ true spring water. The bottler defendants argued that this allegation was merely speculative because there was no reason to think they would have bought from Land instead. But as to defendants who formerly bought from Land, the theory that they would have continued to buy from him in the absence of the mislabeling was a plausible theory of proximate cause.  Crossroads never bought from Land, though, and it wasn’t enough to allege that they were in negotiations at one point.

The Pennsylvania unfair competition claims were preempted by the FDCA, which has promulgated
 a standard of identity for bottled water, including a definition of “spring water.” The allegation that it was misleading to market Land’s water as “spring water” when the Pennsylvania DEP permit identified the source as a “well water” site was precisely the kind of claim prohibited by the FDCA.  The FDCA also impliedly preempts a state law claim based on conduct that is wrongful only because it conflicts with the FDCA or FDA regulations.  Land’s allegations were, in effect, a prohibited attempt to enforce alleged violations of the FDCA and FDA regulations.

Thursday, September 20, 2018

failure to detail harm dooms medical food complaint despite plausible falsity

Alfasigma USA, Inc. v. Nivagen Pharmaceuticals, Inc., 2018 WL 4409350, No. 2:17-cv-01974-MCE-GGH (E.D. Cal. Sept. 17, 2018)

Somewhat surprisingly, failure to tell a detailed harm story torpedoes this complaint; given the specific allegations of falsity, I wonder if it will be successfully amended (as the court allowed).

Alfasigma makes “medical foods,” which can be prescribed but do not require prescriptions. They are not eligible for reimbursement by Medicaid, Medicare, or many private insurers. Breckenridge makes a purportedly generic version of Alfasigma’s Foltx called Folbic. Pharma databases allegedly link generic foods to name brand equivalents on the honor system, without verification by any independent entity. Thus, relying on a company’s representation that its product contains the same active ingredients in the same amounts as a listed brand or equivalent generic product, industry databases will represent to the pharmaceutical industry that the generic product is pharmaceutically equivalent to the listed products.

Nivagen began marketing a generic—Niva-Fol— that it represented was equivalent to Alfasigma’s branded product, Foltx, and Breckenridge’s generic, Folbic. However, Nivagen allegedly characterized its product as a prescription drug that requires an “Rx” on the label, thereby entitling users to reimbursement. Nivagen allegedly caused Niva-Fol to be shown as having a National Drug Code (“NDC”) or National Health Related Items Code (“NHRIC”) number, which identifiers are provided for approved drugs and medical devices only. Those identifiers also appear to qualify Niva-Fol for federal reimbursement. Finally, Nivagen allegedl falsely designated its product as “Made in the USA.” This allegedly gave Nivagen a competitive advantage over non-reimbursable products offered by Alfasigma, allowing it to capture market share.

Even applying Rule 9, the complaint sufficiently pled false advertising (except for the “Made in the USA” part, which didn’t even pass Rule 8 scrutiny).

Nivagen argued that the complaint failed to allege the factual basis for Alfasigma’s belief that Niva-Fol lacks the same active ingredients as Alfasigma’s products, or why it is not substitutable, or why any of the challenged representations would be misleading, or how Nivagen got the NDC/NHRIC designations if that wasn’t ok.  None of that was a problem; the allegations Alfasigma did make sufficed. “Though Plaintiff does not allege the exact statements made to the FDA, or even who made them, this case does not lend itself to Plaintiffs having those kind of details at this point. If the allegations are to be substantiated, that information is known only to Defendant at this time, and is not required to be pleaded up front.”  Arguments about whether Niva-Fol really was entitled to an Rx designation were not suitable for judgment on the pleadings. The only exception was “Made in the USA,” where Alfasigma didn’t allege any factual basis for the claim that the slogan was false or misleading—the allegation that the product wasn’t actually made in the USA was conclusory and devoid of supporting facts.  Alfasigma could amend to fix this problem, if it could do so.

Then, the court found that the complaint failed to sufficiently allege injury in fact by failing to allege anything more than that Alfasigma had been harmed by the falsity.  [Query: without Breckinridge in the picture, shouldn’t it have been enough to allege the falsity and materiality of the claims? In that case it would follow almost automatically that business gained by Nivagen would have been lost by Alfasigma, unless you believe that a generic substitute is going to grow the market somehow.]

only "laconic" resellers allowed: court refuses to dismiss complaint against reseller of Chanel goods

Chanel, Inc. v. WGACA, LLC, 2018 WL 4440507, No. 18 Civ. 2253 (LLS) (S.D.N.Y. Sept. 14, 2018)

Depressing but unsurprising: Chanel’s claims against used goods-seller What Goes Around Comes Around proceed because WGACA may have been too forward in telling the world that it could provide legitimate Chanel products.  Chanel is appalled that WGACA “uses the Chanel trademark and brand in its advertising and promotions, although WGACA is not an authorized Chanel retailer or affiliated with Chanel.”  Its retail stores “prominently feature the Chanel brand. Its store in East Hampton is decorated with a facsimile of a giant Chanel No. 5 perfume bottle as a promotional advertisement, and the sign in front of its SoHo store lists several brands, but lists ‘Vintage Chanel’ at the top of the sign in larger print than the other brands, and its window display items are all Chanel-branded.” WGACA’s website “offers more Chanel-branded products for sale than those of any other brand,” features a Chanel sale, and lists Chanel first under the non-alphabetical heading “Shop by Brand.” WGACA’s social media includes quotations of Coco Chanel, photographs of Chanel-branded products, and photographs of models and public-opinion influencers wearing or carrying Chanel handbags, including photographs from previous Chanel ads. They tag photos of Chanel-branded products with “#WGACACHANEL” and refer to Chanel-branded products as “our #WGACACHANEL.”

WGACA’s website contains a section titled “Authenticity Guaranteed,” which states, “Any piece purchased at What Goes Around Comes Around or one of our retail partners has been carefully selected, inspected and is guaranteed authentic.” WGACA also provides letters of authenticity to its customers, e.g., “This letter confirms that item Q6HCHK00KB000 Chanel Black Long Tissue Box is an authentic Chanel decoration.” But the guarantee comes from WGACA; Chanel has not inspected or authenticated WGACA’s inventory.

Chanel plausibly stated a claim.  For example, #WGACACHANEL might create the impression that WGACA is affiliated with Chanel or is an authorized Chanel retailer. Also, WGACA’s extensive unauthorized use of the Chanel brand and trademarks might constitute false advertising or endorsement, given the extensive use of Chanel images and marks. Nominative fair use is no help because this is the Second Circuit. “WGACA’s Chanel-branded items would be readily identifiable as Chanel without the #WGACACHANEL hashtag and the multiple uses of Chanel’s name and trademark in the hashtags,” and the special prominence it gave to Chanel made it plausible that WGACA caused confusion by using the mark too prominently or too often. And #WCAGACHANEL and WGACA’s guarantees of authentication “of themselves” might suggest sponsorship or endorsement by Chanel.

First sale also didn’t help because WGACA “did much more than laconically resell Chanel-branded products: its presentations were consistent with selling on Chanel’s behalf.”  I didn’t realize that one had to be John Wayne to take advantage of first sale (and there is probably a useful gender analysis to be done here; fashion is excessive, but WGACA is apparently not allowed to be).

State common law unfair competition claims are nearly identical but require bad faith; the court found that the complaint didn’t plausibly allege bad faith intent to confuse.  “If anything, the amended complaint shows that WGACA’s intent was to display the Chanel brand conspicuously, and emphasize that their source was Chanel.” Section 349 and 350 claims were, however, plausibly pled; they don’t require bad faith, only deceptive/misleading conduct. 

Accurate statement that SPLC called a group a "hate group" isn't plausibly misleading without more

Liberty Counsel, Inc. v. GuideStar USA, Inc., --- Fed.Appx. ----, 2018 WL 4339716 (Mem), No. 18-1157 (4th Cir. Sept. 11, 2018)

Who controls procedure controls substance.  The district court granted GuideStar’s motion to dismiss Liberty’s Lanham Act false advertising claim against it.  GuideStar is a nonprofit organization that maintains an online directory of profiles on other nonprofits, including Liberty, an organization dedicated to advancing Christian causes. After the Southern Poverty Law Center designated Liberty as a hate group, GuideStar added a banner to Liberty’s profile revealing this designation.  Liberty sued and the district court determined that there was no commercial speech.

The court of appeals affirmed on alternate grounds: failure to properly allege misleadingness. Liberty conceded that the SPLC had in fact designated it as a hate group. Liberty alleged that this designation was misleading, but “a complaint must state facts demonstrating that the defendant’s liability is plausible, not merely possible.” “Here, other than identifying a broad swath of people whom the banner allegedly deceived, Liberty baldly alleged customer confusion without providing ‘further factual enhancement.’”  But what additional facts would demonstrate misleadingness?  The court doesn’t say, probably because to say would get require explaining what it would take for “designated as hate group” to be false (since misleadingness ultimately depends on consumers reaching false, that is falsifiable/verifiable and untrue, conclusions from non-facially false statements).  How could the implication of this truthful statement about the designation be anything other than opinion?  The court might be suggesting that it’s not impossible that some story could be told about this, but it would require a lot more in the way of detailed allegations.  I have to say it’s a bit weird to me that the same court that refused to recognize a claim in the GNC case is less decisive about hate groups.

Friday, September 14, 2018

New verse, same as the first in Sony/Michael Jackson case

Serova v. Sony Music Entertainment, 2018 WL 4356891, --- Cal.Rptr.3d ----, No. B280526 (Ct. App. 2018)

The court amends its opinion finding that Sony’s advertising that Michael Jackson was the performer of all the songs on the posthumous Jackson album Sony released wasn't commercial speech, but the amendment doesn’t make things any better.  This provides an interesting contrast to the other day’s One A Day opinion.  The court here adds a footnote arguing that it didn’t matter whether consumers would have understood Sony’s advertising to make factual claims about the singer’s identity. What mattered instead was Sony’s lack of personal involvement in creating the recordings [pretending that “Sony” is the kind of entity that can have personal involvement]. It’s not that Sony’s statement is opinion (in which case consumer understanding of what claim was being made would be relevant), it’s that Sony’s lack of personal knowledge of its own business operations makes the speech noncommercial.

Obviously, this creates pretty bad incentives for corporations, but I think it’s worth reiterating that this is also inconsistent with Kasky, on which the court of appeals purportedly relies, since Nike was making statements about its subcontractors’ practices that the California Supreme Court concluded were commercial speech. [Nike’s defenders even argued that, precisely because it was talking about its subcontractors, the argument that commercial speech has greater verifiability than other kinds of speech shouldn’t apply.]  Nike’s statements were the kinds of factual claims, including claims about Nike’s outsourcing practices and their results, that it was in a better position to verify than consumers. Consumers were also likely to rely on Nike’s expertise and greater relative access to knowledge, as the Bayer court observed with respect to Bayer.  To the extent that Nike may have lacked “actual” knowledge, that was (1) a creation of Nike’s own choices to subcontract rather than to do the work itself, for which it was responsible (the analogy between that and the situation here is fairly strong), and (2) a reason that Nike should have verified its statements rather than just saying them. [In the actual situation involved in Nike, Nike maintained that it took steps to substantiate its advertising claims—it simply took the position in the California and US Supreme Courts that it didn’t have to do so and should be able to win dismissal even assuming it had made those claims without knowing if they were true.]

Wednesday, September 12, 2018

2 week difference leads to $10 million in damages in pregnancy estimator case

Church & Dwight Co. v. SPD Swiss Precision Diagnostics GmbH, No. 14-CV-585 (AJN), 2018 WL 4253181 (S.D.N.Y. Sept. 5, 2018)

Church & Dwight won an injunction, affirmed by the Second Circuit, against SPD’s advertising of its “Clearblue Advanced Pregnancy Test with Weeks Estimator,” and the court here awarded nearly $1 million in damages, but not fees, SPD’s profits, or treble damages/punitive damages under state law.

While “causation must first be established,” a court may engage in “some degree of speculation” in determining the amount of damages. “[T]he district court may take into account the difficulty of proving an exact amount of damages from false advertising, as well as the maxim that ‘the wrongdoer shall bear the risk of the uncertainty which his own wrong has created.’ ”  Thus, the plaintiff’s burden is to show
 “that its damages calculation is a ‘fair and reasonable approximation’ of its lost profits.”

“C&D’s leading home pregnancy test brand, First Response, has been the market leader for many years, and SPD’s leading brand, Clearblue, has been First Response’s primary competitor.” C&D’s damages expert used all of SPD’s sales of the accused product to estimate damages, then calculated lost profits by using C&D’s market share to estimate how many of SPD’s sales would have gone to C&D had the Weeks Estimator not been sold, and multiplying that by C&D’s per-test stick incremental profit margin, resulting in an estimate of $9,955,018.

SPD’s expert agreed that market share allocation was an appropriate approach, but calculated lost profits of only [redacted, which is annoying but not dispositive because his calculation was ultimately rejected].  The “large” difference between the two calculations came from SPD’s expert’s use of the consumer reaction survey as a proxy for loss causation and his use of a lower per-stick profit margin.

C&D’s expert assumed that all of the sales of the Weeks Estimator were connected to the false advertising of the product’s key differentiating feature, despite his admission that he cannot be sure that every person who bought the Weeks Estimator bought it because of the advertising or because they were deceived by the advertising.  C&D argued that this assumption was warranted because: (1) Every consumer who bought the Weeks Estimator was exposed to at least part of SPD’s marketing campaign, and weeks estimation was both SPD’s key message and the key feature differentiating the product, which was more expensive than C&D’s competing Clearblue product.  (2) Retailers’ decisions about whether to stock the Weeks Estimator, how much shelf space to give it, and where to place it on store shelves likely were influenced by false advertising, affecting purchasers.  C&D’s expert assumed that, but for that false advertising, the launch of the Weeks Estimator SKU “would not have had an incremental effect on [SPD’s] First Response stick sales.”

The court found C&D’s expert’s assumptions to be reasonable: “this is a competitive market in which the parties own the top two brands; and there is one key distinguishing feature between the Product and similar test sticks—a feature that was the subject of false advertising directed at both consumers and retailers.” Also, evidence suggesting that some subset of consumers were unaffected by the advertising wasn’t persuasive.

SPD offered a survey in which prospective pregnancy test buyers were asked about their willingness to purchase two product concepts, which found that 81% of respondents would “definitely purchase” the product estimating pregnancy from the last menstrual period, and 84% of respondents would “definitely purchase” the product that estimates pregnancy from ovulation, which they understood to be different from a doctor’s estimate. Thus, SPD argued, the key differentiating feature—the test’s ability to estimate the number of weeks since ovulation—would still induce purchases even in the absence of false advertising. But that survey used statements describing how pregnancy duration was measured, not how that duration was expressed, which was the key problem with Weeks Estimator. Also, the survey offered only two extremes—would definitely purchase, and would not purchase—and showed each participant only one product description, unlike the real world offering options for comparison.  It isn’t surprising that both descriptions were popular, compared to nothing else.

SPD also argued that international versions of the same product were successful absent the false advertising, and that C&D understood even without looking at the ads that the Weeks Estimator would take business from it regardless of the false advertising.  As for the different international marketing, “the absence of a formal finding of falsity by a court does not necessarily mean that the international advertising was not false or misleading.” While some international versions had more descriptive names—principally, “Clearblue Digital Pregnancy Test with Conception Indicator”—and/or contained a chart on the packaging that compared the product’s measure of weeks since ovulation to a doctor’s estimate, other foreign ads touted the product as being “As Accurate as a Doctor’s Test” and featured language and imagery similar to those found misleading in the US.  As for the impact of the innovative nature of the product itself, C&D argued that its documents and internal discussions reflected its fear of the commercial strength of the product with attendant misleading advertising. The court agreed.

Finally, SPD tried to use C&D’s survey, conducted by Hal Poret, which C&D used to show an actionable level of consumer confusion, as a measurement of how many sales were attributable to the at-issue advertising or at least as evidence that not all sales of the product were attributable to false advertising. But given that every purchaser and retailer was exposed to intentionally misleading advertising about the key differentiating feature of the product, and that the evidence about other reasons for purchase was speculative, considering all the sales was not just reasonable, it was the most reasonable assumption.

The Poret survey wasn’t intended as a proxy for tying the false advertising to the lost profits. It found roughly 20% net deception, defining deception as answering both that the product estimates the number of weeks a woman is pregnant and that the product’s estimate is the same as a doctor’s estimate of weeks pregnant.  Poret had never taken the position that the results of a study like this could be used to predict the percentage of actual purchasers who were deceived.  He contended that you can’t treat prospective purchasers as if they were actual purchasers; it is even possible, though unlikely, that 100% of the actual purchasers could have fallen within the subset of prospective purchasers who were misled. He further testified that his survey didn’t account for the impact of non-package advertising, and that survey likely understates the degree of deception among respondents. For example, the control package he used still identified the product as the “Clearblue Advanced Pregnancy Test with Weeks Estimator,” which might have led some in the control group to make the same mistake as confused people in the test cell.  It is possible to use survey results as a proxy for damages causation, but C&D’s market share was a better proxy in this litigation.

SPD also argued that the Weeks Estimator disproportionately cannibalized Clearblue products rather than harming C&D’s products in proportion to its market share.  C&D offered a regression analysis reaching the opposite conclusion. SPD’s criticisms were “atmospherically compelling in that they lay bare some of the difficulties in finding a way to calculate the effect of the unlawful activity—SPD’s false advertising—while controlling for all other forces affecting market share.” But these criticisms were undermined by its own expert’s reliance on a market share allocation methodology, which “inherently accounts for a range of market factors.”  In any event, C&D’s expert’s conclusions, backed by his regression, were reasonable.

“While it is likely that some consumers bought the Weeks Estimators for reasons disconnected from the false advertising, SPD has not supported any one of these alternative reasons, or even the totality of these other reasons, with evidence sufficient to overcome the evidence of the reasonableness of [C&D]’s core market share assumption. SPD pervasively falsely advertised the Product from its launch, never advertised it in a truthful manner, and has not affirmatively offered any of its own data regarding the number of purchasers who were not deceived ….” Most crucially, the false advertising was about the key feature differentiating the Weeks Estimator from other products, making this methodology and core assumptions that much more reasonable.

The court denied disgorgement in addition to lost profits, because that would be overcompensatory. Nor did the court treble the award under the Lanham Act, even assuming that the false advertising was willful (at the liability stage the court found that SPD knew that consumers would misunderstand the weeks estimation claim).  “Whatever the ‘intangible’ harm caused by SPD’s false advertising, the Court finds that its award of nearly $10 million is both adequate compensation to C&D for all harm done and adequate deterrence against any future false advertising by SPD.” Punitive damages under N.Y. Gen. Bus. Law § 349 likewise require “clear, unequivocal and convincing evidence that [the defendant’s] conduct was gross, involved high moral culpability, and was aimed at the general public,” and SPD’s conduct wasn’t sufficiently egregious. Nor was this an exceptional case for fee purposes. SPD’s litigation positions were reasonable and the court previously rejected C&D’s attempt to get sanctions for disobeying the injunction.

In plagiarism/false attribution case, use was de minimis, fair, and protected by 1A

Israel v. Strassberg, 2018 WL 4290394, No. 2:15-CV-741 (D. Utah. Sept. 7, 2018)

Israel entered the Ph.D. Psychology program at the University of Utah, which required a master’s thesis, and Strassberg was her advisor. Israel’s master’s thesis turned on the concept of relying on viewing time to measure a subject’s sexual interest. To carry out a study for her thesis, Israel selected and arranged a set of images, wrote instructions and survey questions, and created the syntax necessary for the study to be administered by a computer program.  Strassberg felt that her work was important to the field of study and, after the thesis was approved, Strassberg submitted it for publication in an academic journal with his name included as second author. Their relationship eventually became strained.

Strassberg was also defendant Rullo’s advisor, and he allegedly shared Israel’s work with Rullo without authorization.  Rullo’s subsequent master’s thesis used Israel’s study materials and methods, building on it by examining gay and lesbian populations where Israel had only looked at heterosexuals.  Strassberg likewise submitted this thesis for publication, where it included Strassberg as second author and Israel as third author, allegedly without her consent.

Israel “left the University on contentious terms without completing her Ph.D. program.” But Strassberg’s graduate students continued to build on her original research.

Copyright infringement: Israel registered: (1) the arrangement and compilation of the images used in the viewing time study; (2) the written instructions and surveys included in the viewing time study; and (3) the computer syntax, which allowed her to administer the study via computer. Baker v. Selden instructs: “[W]hilst no one has a right to print or publish his book, or any material part thereof, as a book intended to convey instruction in the art, any person may practice and use the art itself which he has described and illustrated therein.”  This was Baker redux. Israel’s ideas—“the use of images of attractive individuals and scenery, tracking viewing time as a measure of sexual interest, asking participants to rate images on a scale, inquiring as to participants’ sexual orientation and/or sexual interests and comfort levels, and other elements related to the process and method of the study”—were free for all to use.

What about Israel’s specific expression of the ideas?  Rullo’s thesis allegedly copied the “substance” of Israel’s literature review; explained the same stimulus and procedure as Israel did; used her data; copied her methods; and recited her original ideas, all while citing her numerous times.  None of this constituted infringement of protectable elements.  There was direct copying of three sentences from the registered works:

We would like you to rate each of the following pictures in terms of how sexually appealing you find the picture to be. Please make your ratings on a scale of 1-7 where 1 is “not at all sexually appealing” and 7 is “extremely sexually appealing.” We are interested in your rating of each picture, not how you believe others might rate the picture.

This copying was not significant enough to qualify as infringement, and even if it had been, it would be fair use.  [Yay!  Separate analysis of the two reasons!]  Fair use: (1) nonprofit educational purpose; (2) the original was highly factual, not highly expressive; (3) only a minimal amount was copied word for word and the qualitative significance was low because the copying “merely explains a process used in conducting the study”; and (4) unrestricted copying of the type Rullo engaged in would not have a substantially adverse impact on the potential market for the original.  Rather, “[a]cademic studies and publications often flow from previous studies and publications. Overlap and building upon research materials is critical to the advancement of science.”  Even if Israel had registered more of her work and could thereby claim more copying as infringement, that copying too would be insufficient to infringe and also fair.

The same rationales also protected the published articles and Rullo’s dissertation; specifically, the dissertation simply said that “the stimuli and procedures in the present study were identical to those used with the heterosexual” and cited Israel.  “A description of the copyrighted materials” couldn’t create a factual issue on substantial similarity, nor could use of Israel’s materials in conducting the studies underlying the findings contained in other documents/publications.

Lanham Act: Israel argued that defendants falsely attributed authorship to her in presentations and papers and failed to appropriately attribute her authorship in [possibly other?] presentations and publications. Rather than pointing to Dastar, the court ruled that her name wasn’t used “in commerce” because the articles and presentations at issue weren’t “commercial” but rather scientific and educational. “Academic publications fall outside of the purview of congressional reach under the commerce clause because they include non-commercial speech, which is entitled to the highest levels of protection by the First Amendment.”  Even if the publications had paying subscribers, that didn’t make individual articles into commercial speech subject to the Lanham Act.  Plus, her name wasn’t used/misused “in commerce” because including or excluding her name didn’t provide any commercial benefit to defendants or to the publications.  [This is really “use as a mark,” but ok.]  Israel also provided no evidence that she suffered a loss as a result.  Summary judgment granted.

There was a state law false advertising claim, over which the court declined to exercise its supplemental jurisdiction, though given the First Amendment rationale of the Lanham Act result I might’ve gone a different direction with that.

"One A Day" conveys that consumers need take only one a day, Cal. court holds

Brady v. Bayer Corp., G053847, 2018 WL 4275356, --- Cal.Rptr.3d ---- (Ct. App. Sept. 7, 2018)

Judge Bedsworth was not pulling any punches in this opinion. I’ll probably quote too much but outraged rhetoric can be fun.  To summarize:

[W]hen consumers find a reputable company offering them vitamins – a company with 75 years of brand recognition, now owned by an international pharmaceutical company respected all over the world – they can be expected to adhere to that company’s advice. And when that company suggests, as it has with its products since 1949, that one vitamin pill a day is sufficient, it cannot then rely upon individual consumers reading the small – indeed miniscule – print on the back of its label to learn that instead of ONE A DAY, they should be taking two.

There are two federal district court decisions that hold to the contrary, but they don’t care as much about consumers as California courts do.  I mean, they accepted “an untenable proposition: that the market for vitamins is undifferentiated; that the hypothetical ‘reasonable consumer’ would, as a matter of law, examine the makeup of a daily vitamin supplement; that such a consumer would not rely upon the expertise of pharmacologists and doctors but would instead analyze the various concentrations of vitamins and minerals in each brand and draw a personal conclusion about which ingredients he/she needed in a daily vitamin supplement.”

Despite the One A Day brand name, “Vitacraves Adult Multivitamin” gummies require a daily dosage of two gummies to get the recommended daily values; the plaintiff thus brought the usual California claims. Here’s the bottle:

“While we cannot provide photos large enough to enable the reader to make it out, the line above the words ‘Supplement Facts’ (the listing of vitamins and­ minerals provided by each gummie) says – in the smallest lettering on the bottle, an ocular challenge even when the bottle is full-sized and held in good light – ‘Directions: Adults and children 4 years of age and above. Chew two gummies daily.’” That disclosure wasn’t enough to grant (the state law­ equivalent of) Bayer’s motion to dismiss.

The factual problem with Bayer’s reasonable consumer argument was that it was reasonable to conclude that consumers rely on “the expertise of One A Day.” One A Day’s marketing tells consumers “You will never know as much about vitamins as we do, but you can rely on us,” and that may well be true—except for the idea that “one a day” will provide the optimum amounts.  “And it appears the consumers of California have concluded that One A Day is a company they can trust: You don’t hang around for 75 years if people don’t buy your product.”  But Bayer was arguing that reasonable consumers don’t trust it, but instead carefully read and analyze the amounts shown on the labels.  

Even if the court were willing to buy that argument—and it was skeptical—it could not do so on a demurrer/California equivalent of 12(b)(6). “Not all reasonable vitamin buyers can be said to be alike as a matter of law…. [O]ther reasonable consumers will consider the daily dosages recommended by Bayer and the FDA to be just fine – they might even consider those numbers a safe way to avoid against any danger of ingesting too much – and will rely upon the name they have come to trust.” As a matter of common sense, “[i]f the label prominently displays the words ‘One A Day’ there is an implication that the daily intake should be one per day.” In context, that statement was literally false.

Sometimes the back of the package can help a defendant avoid a falsity claim, but not here. Williams v. Gerber Prods. Co. (9th Cir. 2008) 552 F.3d 934, offered an “exceptionally perceptive” view of California law, reasoning that ingredient lists on the back can confirm material implied representations on the front, but can’t lawfully contradict them. “[B]rand names by themselves can be misleading in the context of the product being marketed. That’s not surprising given that … marketing theory emphasizes the use of descriptive brand names” that require little thought on consumers’ part and little demand for explanation on producers’.

Bayer argued that consumers would have to look at the back of the bottle because that was the only place to learn the serving side, the vitamins at issue, or the amount in each gummy. But the product wasn’t called Gazorninplat Gummies or Every Day Gummies. “The front label fairly shouts that one per day will be sufficient.”  Bayer’s idea that a reasonable consumer would ascertain precise amounts [and make the requisite calculations] couldn’t be accepted as a matter of law.  It wouldn’t be “wishful thinking” for a reasonable consumer to think that, in this day and age, a full day’s supply of vitamins could come in one gummy.  Perhaps the very sophisticated—judges and lawyers, for example—would do so, but “other consumers – knowing they have very little scientific background – would rely upon the representation of a known brand with 70 years of goodwill and credibility behind it. We think it likely they would consider that known brand – presumed to be the employer of doctors, biologists, and pharmacologists – to be a better judge of what vitamins and minerals should be taken than they are.”  It was safe to assume that the market for vitamins was at least heterogenous in this regard. And the very name of One A Day was Bayer’s invitation for consumers to outsource their decisions about which vitamins and how much to take.  Bayer didn’t seem to target sophisticated consumers:

Not only are two different kinds of sugars (glucose syrup and sucrose) listed as the most prominent ingredients, but each gummie – depending upon flavor – contains one of three kinds of artificial dye. That is not the sort of ingredient list that is likely to appeal to skeptical consumers scrutinizing labels in a health food market. These are mass-market products.

Nothing on the front of the label revoked the implicit misrepresentation—the court imagined, for example, a front label stating: “One A Day Brand Gummies: Get your classic one a day by chewing just two gummies.” The court refused to assume that “the illegible little dot off to the bottom of ‘One A Day’ on the label – the ‘®’” was sufficient, as a matter of law, to warn consumers that “One A Day” didn’t mean what it said; “[e]ven sophisticated consumers who might recognize the trademark symbol as indicating a brand name qua brand name still might take the brand name as indicating a promise about the product’s content,” as with a brand using “Organics” in its name.

Similar reasoning rescued the warranty claim; the front of the bottle implied a warranty that its contents were fit to last 100 days.

Thursday, September 06, 2018

court requires survey evidence in consumer protection case, importing Lanham Act doctrine

Hughes v. Ester C Company, --- F.Supp.3d ----, 2018 WL 4210139, No. 12-CV-0041 (E.D.N.Y. Sept. 4, 2018)

Ester-C dietary supplements contain a patented form of vitamin C in the form of calcium ascorbate. Plaintiffs alleged that the advertising for the supplements misleadingly represented that this provides a form of immune system defense that protects users from illnesses, and decreases one’s likelihood of getting or remaining ill.  They brought standard consumer protection claims, including under California law.

The court granted summary judgment because plaintiffs provided no extrinsic evidence of how consumers actually interpret Ester-C’s “immune support” representation in isolation, and also no evidence of actual falsity in terms of “the immune benefits of vitamin C or lack thereof, the ability or inability of vitamin C to treat or prevent the common cold or influenza virus, or the relative bioavailability or absorbability of Ester-C and other forms of vitamin C.”  Without an expert, their cited evidence about vitamin C was just hearsay.

That could have been enough to get rid of the case, but the court also found that the plaintiffs couldn’t prove that consumers received the allegedly misleading messages.  In another example of Lanham Act doctrines creeping into state consumer protection doctrine, the court found that the reasonable consumer standard of state consumer protection laws required plaintiffs to prove that the alleged claims “were, in fact, conveyed to ‘a significant portion of the general consuming public ... acting reasonably in the circumstances.’” This requires “extrinsic evidence—ordinarily in the form of a survey—to show how reasonable consumers interpret the challenged claims.” 

A footnote noted that “California courts have held that proof of deception does not require expert testimony or consumer surveys,” but the court here reasoned that “in such cases, the plaintiffs were also clearly able to substantiate their allegations with admissible evidence regarding the actual material falsity or misleading nature of the implied statements and were able to demonstrate named Plaintiffs’ reliance on such statements.” By contrast, here plaintiffs didn’t prove the material falsity or misleadingess of the statements on the supplement’s labeling, and the individual plaintiffs (after denial of class certification) never testified that they saw or relied upon any of the purported implied disease claims on the producer’s website.  Comment: saying that falsity and reliance is required is a completely different thing than saying that survey evidence of consumer perception is required.  This is how doctrine changes: a shift of emphasis, and after a few rounds of judicial telephone, the elements required to succeed are different.

Tuesday, September 04, 2018

Using part of an "anticipated order" from a competitor's supplier constitutes reverse passing off, despite Dastar

OTR Wheel Eng'g, Inc. v. West Worldwide Servs., Nos. 16-35897 16-35936, 2018 U.S. App. LEXIS 20520 (9th Cir. Jul. 24, 2018)

OTR Wheel and West compete to sell industrial tires. “West asked one of OTR’s suppliers to provide him with sample tires from OTR’s molds, and he asked the supplier to remove OTR’s identifying information from the tires.” This constituted reverse passing off.

Specifically, West asked the supplier, Superhawk, for 16 of the relevant tires for testing by a potential customer. Superhawk said it would take 50 days to make a mold for the tires. West responded, “I really need it much sooner. . . .  Could you buff off the [OTR] name on the sidewall or just remove the plate and let me get the tire tested? … If we take out the nameplate and all the sidewall information, nobody will know.”  It appears that spring plates used with the molds were used to prevent imprinting of OTR’s mark onto the tires, as the molds otherwise would have done.

A jury found West liable for reverse passing off and for tortiously interfering with a contract between OTR and Superhawk, as well as with related business relationships. West was not found liable for trade dress infringement, trade dress counterfeiting, trade secret misappropriation, or tortious interference with a contract between OTR and one customer, Genie.  The jury also found that OTR’s claim for protected trade dress on its tire tread was invalid (either because the design had functional, self-cleaning properties or because it lacked distinctiveness from other tread designs) and that the trade dress registration had been obtained through fraud on the PTO, though the last finding was set aside by the trial court because of failure to meet the stringent standards for proving fraud by clear and convincing evidence.  The jury awarded OTR actual damages of $967,015.

West argued that Dastar precluded the finding of reverse passing off, but the court held that, instead of simply copying OTR’s design, West used tires from an “anticipated OTR order” and passed those tires off as his own, meaning that the claim survived Dastar. 

This does strike me as troubling.  We have an underlying design that, per the jury’s findings, is not itself protectable as trade dress.  Assume something more standard, like a paper clip.  If reseller X ordered a bunch of paper clips from a supplier who had previously only done business with reseller Y, and thus “anticipated” more orders from Y, then it would be ridiculous to think that X engaged in reverse passing off.  I don’t think it would change things if the paper clip design had Y’s trademark automatically stamped on in the ordinary course of production, such that the supplier had to change its production methods to produce paper clips for X.  Here, OTR claimed rights in the design, and West knew that and had to cajole Superhawk into using the molds to make tires for it.  Nonetheless, OTR didn’t actually have rights. In such circumstances, I would have found Dastar to apply.

The court of appeals reasoned that it didn’t have to decide whether simple use of the OTR mold would create a mere copy or a “genuine” OTR tire. Instead, West passed off “actual OTR tires” because West asked Superhawk to make tires “to fill an anticipated order” for OTR’s partner and to hold most of the tires until the order was actually placed; West then wanted to take ten of the tires to provide to West’s potential customer.  “The jury could therefore conclude that the development tires were taken from part of an anticipated OTR … order and were genuine OTR products, not just copies.”  I think this doesn’t really distinguish the case from my paper clip hypothetical because all of that could have happened with standard paper clips too, even if it was only economical to do a full production run and hope/expect that Y would buy the rest of the paper clips.  Still, the panel purports not to create a conflict with Kehoe Component Sales Inc. v. Best Lighting Products, Inc., 796 F.3d 576 (6th Cir. 2015), in which the manufacturer continued to use the same molds that it used for one customer to make additional units that it sold in competition with the customer. Dastar precluded a reverse passing off claim in that case, but there “the manufacturer did not pass off products that had been produced as part of the customer's order. West did. ‘The right question, Dastar holds, is whether the consumer knows who has produced the finished product.’ Here, the product was produced for OTR, and West attributed it to himself.”  This seems to be playing linguistic games with “produced for”—based on the timing, the product was produced when it was produced for West, not for OTR, even if OTR was a but-for cause of the production. 

Trader Joe's truffle flavored oil was too cheap for reasonable consumers to think it real

Brumfield v. Trader Joe’s Co., 2018 WL 4168956, No. 17 Civ. 3239 (LGS) (S.D.N.Y. Aug. 30, 2018)

Brumfield alleged that Trader Joe’s “Black Truffle Flavored Extra Virgin Olive Oil” contains no actual black truffle, but instead contains 2,4-dithiapentane, a petroleum based synthetic injection that imitates the taste and smell of truffles, in violation of New York and California law as well as the Magnuson-Moss Warranty Act. “Truffles are a very rare and expensive type of fungus, which have sold for as much as $100,000 per pound.”  [They are also delicious.]  All the claims were dismissed for failure to allege an actionable misrepresentation.

“Black truffle” is printed in large black letters on the product; “flavored” and “extra virgin olive oil” are printed in smaller cursive letters underneath.

The court found that the product was clearly labeled “Black Truffle Flavored,” which didn’t necessarily entail the use of actual black truffles.  [I'm not sure I agree that this is particularly clear.  The best argument is that the EVOO label is also in that font, so a consumer who wanted to make sure that it was olive oil would have to read it all.] Given the rarity and cost of truffles, a reasonable consumer wouldn’t expect the $4.99 bottle of olive oil at Trader Joe’s to contain actual truffles.  Plaintiffs didn’t reach plausibility by alleging that “Trader Joe’s sells numerous products labeled ‘X-flavored’ that actually contain the referenced flavor as an ingredient,” because “reasonable consumers are not so naïve as to believe that including actual ‘X’ in the product is the only way to make the product ‘X-flavored.’” Nor did it help to allege that Trader Joe’s “is renowned for selling gourmet products at relatively low prices,” and consumers are unlikely to know how expensive truffles are or how much truffle is required to make real truffle oil.” “A hypothetical reasonable consumer of truffle flavored oil would know something about the expense and rarity of truffles, signaling that the $4.99 price for Trader Joe’s truffle flavored oil is too good to be true for actual truffle infused oil.”