Friday, November 30, 2018

Copying others' claims without substantiation for one's own services can be false

TRUSTID, Inc. v. Next Caller, Inc., No. 18-172-LPS, 2018 WL 6242493 (D. Del. Nov. 26, 2018) (report and recommendation)

The magistrate addressed trade secret and false advertising claims, though there are also patent claims in the case. The relevant facts for the false advertising bit: TRUSTID alleged that it “invested significant time and millions of dollars to test, measure, and validate the performance of its [own anti-spoofing and caller-authentication] technologies[,]” and that such “technologies can [only] be reliably tested ... in real-world situations[.]” It was thus allegedly able to advertise truthfully that it (i) saved customers $0.50 per call, (ii) achieved a 10% increase in IVR [interactive voice response, meaning that human customers talk to an automated menu] containment, and (iii) saved 30 seconds per call. Last Caller allegedly claimed the same capabilities for its own caller-authentication system: “‘increase 10% IVR Containment Rate,’ ‘[s]ave $0.50 per call,’ and ‘save 30 secs handle time.’ ” TRUSTID alleged that these statements must be false because Last Caller did nothing to substantiate these claims but merely copied TRUSTID’s own assertions. Without citing the Third Circuit Novartis case holding that complete lack of substantiation can be literal falsity, the magistrate reached the same result: though this only barely crossed the line to plausibility, “[i]t seems likely that a party who makes claims about its own product’s attributes—without ever taking any steps to confirm whether those claims are true, and instead simply parroting assertions that its competitor made about the competitor’s own products—is making false statements about its product.”  

Wednesday, November 28, 2018

Restaurant can't bring unfair competition claim against Trump Old Post Office claim for using Trump's name to draw business

K&D, LLC v. Trump Old Post Office, LLC, No. 17-731 (RJL), 2018 WL 6173449 (D.D.C. Nov. 26, 2018)

Plaintiff owns Cork Wine Bar, located in the downtown Washington, D.C. area. Cork argued that it faced unfair competition from the Trump Old Post Office due to the desire of people to curry favor with the Administration by getting restaurant services (including both hosting and catering) there, encouraged by statements from people in the Administration.

The court found that this advantage, while perhaps looking bad (and, you know, violating the Emoluments Clause), was not unfair competition.  Even though D.C. common law doesn’t have specific elements, it’s understood to include “various acts that would constitute the tort if they resulted in damage.” These acts include “defamation, disparagement of a competitor’s goods or business methods, intimidation of customers or employees, interference with access to the business, threats of groundless suits, commercial bribery, inducing employees to sabotage, [and] false advertising or deceptive packaging likely to mislead customers into believing goods are those of a competitor.’ ”  But none of this was pled—interference with business isn’t anything that harms the business; it means tortiously interfering with access to the business. [After all, the problem doesn't seem to be commercial bribery, as such.]

Somewhat uncharitably, the court characterized Cork’s objection as being to “the process known as competition, which though painful, fierce, frequently ruthless, sometimes Darwinian in its pitilessness, is the cornerstone of our highly successful economic system.”  Prominent people are allowed to have equity in the companies they promote.  More to the point, given that a government official might be thought to have more power worth courting via purchases as opposed to simply a popular image, a forty-year-old case is (almost) directly on point.  In Ray v. Proxmire, 581 F.2d 998 (D.C. Cir. 1978), Ray alleged that Proxmire’s tour and hospitality service unfairly competed with Ray’s similar business by trading on the prestige and contacts that Proxmire had as the wife of the senior sitting United States Senator from Wisconsin. The court of appeals there held that “simple use of one’s status in society is not itself illegal .… financial success does not become unlawful simply because it is aided by prominence; nor could it be, without locking the famous out of the economy.” “[H]owever reprehensible it might be through political influence to use public [office] for private gain, that evil cannot provide a basis for” Cork’s unfair competition claim here.

Cork argued that the common law evolves, but provided no case law indicating that D.C. common law had evolved so far as to reject Ray.

Monday, November 26, 2018

Honey Badger don't care for different reasons: court fixes artistic relevance but still doubles down on transformativeness

Gordon v. Drape Creative, Inc., No. 16-56715 (9th Cir. Nov. 20, 2018)

Previous opinion discussed here; amicus brief that may have influenced the court to withdraw that opinion and put out a superseding one here. The court found a triable issue of fact on whether defendants’ “Honey Badger Don’t Care” greeting cards were explicitly misleading; it transferred much (though not all) of the nonsense it previously said about artistic relevance to its explication of what counts as explicitly misleading.  I have a few questions and a couple of suggestions.

“Defendants have not used Gordon’s mark in the creation of a song, photograph, video game, or television show, but have largely just pasted Gordon’s mark into their greeting cards.” This passed the low threshold for being an expressive work, meaning that Gordon had to show a triable issue of fact on artistic relevance or explicit misleadingness in order to avoid summary judgment.  Use of the phrase as a punchline had relevance to the jokes of the cards, so there was no triable issue on the former.  What about the latter?  Explicit misleadingess is not the same as the general likely confusion test, which shouldn’t be used to “dilute” Rogers, but other circuits have treated it as “essentially a more exacting version of the likelihood-of-confusion test. A plaintiff who satisfies the ‘explicitly misleading’ portion of Rogers should therefore have little difficulty showing a likelihood of confusion.”

The court of appeals rejected the district court’s “rigid” requirement that, to be explicitly misleading, the defendant must make an “affirmative statement of the plaintiff’s sponsorship or endorsement”:

In some instances, the use of a mark alone may explicitly mislead consumers about a product’s source if consumers would ordinarily identify the source by the mark itself. If an artist pastes Disney’s trademark at the bottom corner of a painting that depicts Mickey Mouse, the use of Disney’s mark, while arguably relevant to the subject of the painting, could explicitly mislead consumers that Disney created or authorized the painting, even if those words do not appear alongside the mark itself.

Emphasis added, because this analogy is how the court makes the magic happen, and yet this analogy is inapposite.  The court’s concern is for situations where the defendant puts the symbol at issue in the place on a work where a trademark goes as a matter of convention.  That’s not the punchline of a joke.  If defendants put “Honey Badger Don’t Care” in the back center of the greeting card, where Hallmark puts its mark, sure, find a triable issue of fact.  But this analogy cannot support saying that there’s a triable issue when the use is part of the overall expressive work.

The court of appeals reiterated that “the mere use of a trademark alone cannot suffice to make such use explicitly misleading.”

But each time we have made this observation, it was clear that consumers would not view the mark alone as identifying the source of the artistic work. No one would think that a song or a photograph titled “Barbie” was created by Mattel, because consumers “do not expect [titles] to identify” the “origin” of the work. But this reasoning does not extend to instances in which consumers would expect the use of a mark alone to identify the source.

The above would be understandable, if a bit dangerous.  The next language encourages plaintiffs to claim the content of their works—like, say, Mickey Mouse—as their marks, and then sue for use of the content in another expressive work.  As we said in the amicus, that’s copyright’s job, not trademark’s.  Here we go: “A more relevant consideration is the degree to which the junior user uses the mark in the same way as the senior user.” Prior Rogers cases, the court said, involved different contexts or markets—Barbie in a song or photos [Barbie wasn’t in art before?], a strip club in a video game, a record label v. a TV show. [*Cough*Rogers was a case about a dancing movie star suing a movie about dancers*cough*.]  Such “disparate use of the mark” was at most “only suggestive” of the product’s source and therefore didn’t outweigh the junior user’s First Amendment interests.

“But had the junior user in these cases used the mark in the same way as the senior user—had Twentieth Century Fox titled its new show Law & Order: Special Hip-Hop Unit—such identical usage could reflect the type of ‘explicitly misleading description’ of source that Rogers condemns.” [… Didn’t the opinion just say that consumers don’t use titles that way? I guess they don’t, unless they do.]  Rogers implements this insight with its rule that “misleading titles that are confusingly similar to other titles” can be actionable.  [The American failure to theorize “use as a mark,” it seems to me, has gotten us to this place.  I accept that titles can be confusingly similar.  I do not accept that punchlines should be treated as serving as marks (and thus capable of being “confusingly similar”) when they are serving as punchlines; the fact that one trademark owner might use its mark as a punchline shouldn’t prevent anyone else from using it as a punchline.  Dastar and Rogers are, as Mark McKenna says, inherently linked.]

Disney, by the way, will love this sentence: “Indeed, the potential for explicitly misleading usage is especially strong when the senior user and the junior user both use the mark in similar artistic expressions.”  If we applied Rogers, “an artist who uses a trademark to identify the source of his or her product would be at a significant disadvantage in warding off infringement by another artist, merely because the product being created by the other artist is also ‘art.’”  [Emphasis added to show how the court is still conflating the claimant’s expressive use as a punchline with use as a mark.]

And now the part McKenna understandably hates most: the reintroduction of transformativeness.  The court says that another consideration relevant to explicit misleadingness is “the extent to which the junior user has added his or her own expressive content to the work beyond the mark itself.” Misleadingness is less likely “when the mark is used as only one component of a junior user’s larger expressive creation, such that the use of the mark at most ‘implicitly suggest[s]’ that the product is associated with the mark’s owner…. But using a mark as the centerpiece of an expressive work itself, unadorned with any artistic contribution by the junior user, may reflect nothing more than an effort to ‘induce the sale of goods or services’ by confusion or ‘lessen[] the distinctiveness and thus the commercial value of’ a competitor’s mark.” Here, there was “a triable issue of fact as to whether defendants simply used Gordon’s mark with minimal artistic expression of their own, and used it in the same way that Gordon was using it—to identify the source of humorous greeting cards in which the bottom line is ‘Honey Badger don’t care.’” 

What evidence is relevant to whether the use as a punchline served a source-identifying function for defendant’s greeting cards?  What instructions to the jury will assist them?  These aren’t in any way rhetorical questions—we now know that explicit misleadingness doesn’t have to mean explicit misleadingness.  So what are we looking for?  Transformativeness assesses what else has been added, but I don’t see how it helps figure out what serves as a mark in the work.

The court describes Gordon’s evidence as including evidence that “in at least some of defendants’ cards, Gordon’s mark was used without any other text; and that defendants used the mark knowing that consumers rely on marks on the inside of cards to identify their source.”  But that formulation presupposes what is supposed to be established: that the punchline was serving as a mark for defendant’s cards.  It seems that the question of use as a mark, in the end, is what the jury should focus on, in which case Rogers has done very little to protect smaller expressive works like greeting cards.  Indeed, the court then points out the obvious counter: defendants’ cards list defendants’ website on the back cover, where one would expect a trademark on a greeting card.  [I have to wonder how specific Gordon’s evidence is about consumers relying on marks on the inside of cards, especially when there is a mark on the outside back.]  A jury could find explicit misleadingness.

I may regret saying this, but there is one easy source of law to look at for further guidance on what constitutes “explicit” misleadingness: Lanham Act false advertising doctrine. I’ve been critical of the rigid explicit/implicit division because in general commercial speech it overstates the distinction between those modes of communication in terms of the impact on consumers. However, as a way of ameliorating the risks of suppressing noncommercial speech it makes a ton more sense.  If a court wanted to get better guidance on what “explicit” means, now that we’ve been told it doesn’t require an affirmative statement of origin other than use of the mark but also that not all uses of the mark will qualify, it would be reasonable to look at false advertising cases, given the nearly identical statutory language. There, the general rule is that a claim is explicit when it is unambiguous; ambiguity moves into implicit territory, which for false advertising requires a survey to show deceptiveness and for Rogers would mean no liability for the defendant.  The doctrine of falsity by necessary implication adds that a claim is explicit when the only reasonable interpretation is that the claim is being made even if not every step is spelled out.  This doctrine could help implement the Honey Badger panel’s concern for protecting uses of a mark in the place on an expressive work where marks usually go (as distinct from the content of the work itself, which will vary across works as the real trademark won’t).

Tuesday, November 20, 2018

Twitter's promise of free speech isn't false advertising just because it suspends abusive users

Kimbrell v. Twitter Inc., 2018 WL 6025609, No. 18-cv-04144-PJH (N.D. Cal. Nov. 16, 2018)

Kimbrell alleged that “Twitter employs twitter trolls who are responsible for goading Twitter users who support President Donald Trump into engaging in purportedly abusive conduct, which Twitter subsequently uses as a basis for banning those pro-Trump Twitter users,” contrary to Twitter holding itself out to be a “free and open” platform.  Allegedly, she replied to a @realDonaldTrump tweet with a “history of progressive talking points and where they originated.” Twitter’s trolls allegedly targeted plaintiff, who responded with tweets that used @ (apparently to respond to other commenters in the thread) and, somewhat incoherently, called at least some of them [presumably not Trump] "loons," "F**King trolls," "idiots," "crybaby losers," and some other stuff.

Twitter then suspended her account for abusive behavior [hey, could we get that done for misogynist trolls? asking for a friend], and then made the suspension permanent for targeted abuse. Kimbrell alleged that “abuse” was defined by Twitter employees to mean tweets that “disagree[ ] with them politically ... with the ultimate goal [of] suspend[ing] every POTUS supporter by targeting their accounts.”

The allegations, which dodged 230 because they were about Twitter's own statements, didn’t make out a claim of false advertising under California law.  While Twitter’s Rules say that Twitter “believe[s] in freedom of expression and open dialogue,” that sentence goes on to say “we prohibit behavior that crosses the line into abuse[.]” “That is not likely to deceive a reasonable consumer into believing that Twitter did not retain the right to suspend users who ‘cross the line into abuse.’” Separately and independently, Kimbrell lacked standing for want of an alleged economic injury.  The same problems prevented her from stating a claim under Illinois law.

This is personal: Diet Coke obesity suit dismissed even after repleading

Geffner v. Coca-Cola Co., 2018 WL 6039325, No. 17 Civ. 7952 (LLS) (S.D.N.Y. Oct. 31, 2018)

Plaintiffs alleged that, by marketing Diet Coke as “diet,” Coca-Cola misleads consumers into believing that drinking Diet Coke will assist in weight loss or healthy weight management. Scientific studies allegedly showed that the opposite is true:” nonnutritive sweeteners like aspartame interfere with the body’s ability to properly metabolize calories, leading to increased risk of weight gain and health problems.” They alleged a consumer survey showing that a majority of consumers expect diet soft drinks to help them lose weight or maintain/not affect their weight.  They brought claims under NYGBL §§ 349 & 350 and related common-law claims.  

The plaintiffs alleged that Coca-Cola’s ad campaigns reinforced the weight-loss/control message of the name.  “One longstanding 1980s advertising campaign claimed that Diet Coke ‘will not go to your waist’ and is ‘suitable for carbohydrate and calorie-reduced diets.’” Other ads depict slim people drinking Diet Coke, and one showed a slim Diet Coke bottle with its label hanging loose. The American Beverage Association, of which Coca-Cola is a member, allegedly funded a study of soft drinks which purported to show that “diet beverages can help with weight loss,” and published an article claiming that “low-calorie-sweeteners can help reduce calories and sugar intake and aid in maintaining a healthy weight - or even dropping some weight.”

Plaintiffs’ nationwide and California survey showed that over 60% of consumers believed that drinks labeled “diet” would help maintain/not affect weight, while up to 15% thought that it would help the drinker lose weight.  A bit over 20% had no expectations and only a few percent said that it would contribute to weight gain.

The cited studies concerned non-nutritive sweeteners (“NNS”) like aspartame; their findings include: “The addition of NNS to diets poses no benefit for weight loss or reduced weight gain without energy restriction”; “Data from large, epidemiologic studies support the existence of an association between artificially-sweetened beverage consumption and weight gain in children”; “While people often choose ‘diet’ or ‘light’ products to lose weight, research studies suggest that artificial sweeteners may contribute to weight gain”; aspartame consumption alters the intestinal microbes in a way that causes glucose intolerance; aspartame consumption by rats “resulted in hyperglycemia and an impaired ability to respond to insulin”; “There now exists a body of evidence, from a number of investigators, that animals chronically exposed to any of a range of LCSs [low-calorie sweeteners] … have exhibited one or more of the following conditions: increased food consumption, … increased weight gain, greater percent body fat, … and significantly greater fasting glucose, … compared with animals exposed to plain water or - in many cases - even to calorically-sweetened foods or liquids” “frequent use of diet beverages has been associated prospectively with increased long term risk and/or hazard of a number of cardiometabolic conditions usually considered to be among the sequelae of obesity: hypertension, metabolic syndrome, diabetes, depression, kidney dysfunction, heart attack, stroke, and even cardiovascular and total mortality”;  “Using different models and approaches to account for initial ‘indication’ and changing usage patterns, we consistently found low-calorie sweetener use associated with weight gain and expanding waistline.”  But … my addiction!

The Nutrition Labeling and Education Act of 1990 (NLEA) governs when a label containing nutrition content and health claims will be deemed misbranded. It provides an exception for the term “diet” used in soft drink brand names if the word was contained in the brand name of the soft drink, the name was in use before October 25, 1989, and the use was in conformity with the old CFR. However, such uses are still subject to the requirement that a “food shall be deemed to be misbranded” if “its labeling is false or misleading in any particular.” The FDCA preempts requirements that aren’t the same as those of the NLEA.

The FDCA didn’t authorize use of “diet” in Diet Coke; the exemption meant that it wasn’t required to follow certain labeling rules, but didn’t “affirmatively approve or require” the name. Nor would state law claims impose additional requirements, since federal law prohibits statements that are false or misleading in any way. (This also meant that the NYGBL safe harbor defense for conduct that is “subject to and complies with the rules and regulations” of any federal agency didn’t apply).

Nonetheless, plaintiffs still failed to state a claim. As shown in the plaintiffs’ survey, the majority of consumers expect diet soft drinks to not affect their weight, so the name wasn’t plausibly misleading. “Diet” generally means “fewer calories than the alternative.” Thus, regular consumers would understand this to be a calorie statement, and that “caloric reduction will lead to weight loss only as part of an overall sensible diet and exercise regimen dependent on individual metabolism.” [This seems to me to miss the point of the allegations, which is that consumers are mistaken to think that the only relevant thing that Diet Coke does is have fewer calories—the allegations are that it affects the body in ways that encourage weight gain.  The substantial majorities of consumers who expect it to be weight-neutral are thus deceived.]

I do agree that most of the ads didn’t add much: “Reasonable consumers understand that advertising will feature healthy and attractive consumers enjoying the subject products and will not star the unhealthy and unfit. Such advertising cannot be said to imply that a product will cause weight loss without regard to exercise and nutrition.” 

The court found that the cited studies didn’t plausibly allege that “consumption of aspartame increases the risk that a consumer will gain weight or develop hyperglycemia.” None of the cited studies showed a causal link between the aspartame in Diet Coke and risk of weight gain or health problems; “indeed, many caution against a finding of causality.” One cited study concluded, “In summary, the available evidence does not directly support a role of [artificial sweeteners] in inducing weight gain or metabolic abnormalities ...” Another study found that “observational data in humans cannot show causality.” Another found that, although use of low-calorie sweeteners was “associated” with weight gain, it “cannot rule out the possibility of unmeasured confounders.”  The studies supported a correlation between aspartame consumption and risk of weight gain or health problems, but that didn’t plausibly rule out other factors or plausibly support “risk” or causation.  [Query for civ pro types: under what non-probabalistic circumstances must allegations “rule out” other factors?  The idea of ruling out seems inconsistent with plausiblity even under Twiqbal.  I do understand the idea that, even if a lack of correlation would make a causal claim less plausible, the presence of correlation doesn’t establish causation.]

Monday, November 19, 2018

Pipe down: court awards minimal disgorgement where willful falsity was limited in time

Pipe Restoration Technologies, LLC v. Coast Building & Plumbing, Inc., 2018 WL 6012219, No. 13-cv-00499-JDE (C.D. Cal. Nov. 16, 2018)

The parties (defendant will be called PRPI) compete for pipe restoration work involving the use of epoxy in small diameter, potable plumbing applications in residential properties in Orange County. The idea is that dried epoxy covers the interior of the piping system, avoiding the need for full pipe replacement. Not shockingly, epoxy for drinking water systems has to be certified to the appropriate NSF/ANSI standard.  PRPI advertised that their epoxy was certified to the appropriate standard, but from late 2008 to early 2009, the 3M epoxy they used wasn’t certified for use in half-inch hot water potable pipe, although it did have a certification for use in one-inch cold water pipes. The court found that PRPI’s false advertising in this period was intentional, willful, and material. (There were other difficulties with using properly certified epoxy in later periods, but it seems that the court implicitly found that these were not shown to be willful/PRPI believed they were properly certified.) The court presumed harm to plaintiffs, as PRPI’s competitors. 

However, other challenged representations either weren’t willfully falsified or weren’t falsifiable. For example, PRPI claimed that its restoration would stop future corrosion; PRPI’s owner testified that this was true for the interior of the pipe, and plaintiff argued it was false because of the possibility of exterior corrosion, but (sitting in a bench trial) the court concluded that a reasonable consumer wouldn’t have interpreted the representation that way. PRPI advertised that restoration didn’t generate landfill waste; plaintiffs argued that the empty epoxy cartridges would generate waste, but the court again found that a reasonable interpretation of the claim related to waste from corroded metal pipes, not de minimis waste from epoxy cartridges. Finally, representations regarding PRPI’s service as “the only” company or service providing the specified service were, in context, puffery that would have been reasonably interpreted by consumers as mere general, subjective claims.

As a result of this violation of federal and coordinate state law, plaintiffs were entitled to PRPI’s profits from that time period, which was the only period for which plaintiffs met their burden of showing willfulness. The revenue from epoxy pipe restoration work for the relevant period was $9,560. PRPI didn’t establish allowable costs, but the court relied on principles of equity to allocate some.  At the time, PRPI was just starting business; PRPI’s owner estimated his general margins for his construction business at the time to be approximately 15%. “[I]t would be an unfair windfall to award Plaintiffs the entirety of Defendants’ revenue during the relevant period. The Court also notes, without casting blame, that the amount of time this case has taken to prosecute to trial, may partly be the reason why Defendants were no longer able to reconstruct costs incurred nearly ten years prior to trial.” Thus, the court awarded an estimated 25% in profit margin, or $2390.

Nor did plaintiffs get a permanent injunction. After 2009, there were no willful misrepresentations, and PRPI  “spent significant time and resources to attempt to ensure proper certifications accompany their services.”  Likewise, this wasn’t an exceptional case for fee-shifting; although the court found willfulness for 2½ months, plaintiffs sought to recover for a period totaling more than seven years and did not obtain injunctive relief. For similar reasons, and taking into account “the closeness and difficulty of the issues in the case, and the economic disparity between the parties,” the court also declined to award costs to plaintiffs.  All told, not a huge win given the likely costs of litigation, unless the costs inflicted on the defendant were enough to justify the lawsuit from the plaintiff’s perspective.

Monday, November 12, 2018

Bringing a false advertising claim with unclean hands leads to fee award

Certified Nutraceuticals, Inc. v. Avicenna Nutraceutical, LLC, 2018 WL 5840042, No. 16-cv-02810-BEN-BGS (S.D. Cal. Nov. 7, 2018)

The court awarded roughly $170,000 in fees in this Lanham Act false advertising case because the plaintiff engaged in the same conduct (falsely claiming that its product was patented) as its competitor in the market for collagen products, and still sued the competitor. The court previously granted summary judgment based on unclean hands; the briefing “brought to light filings by Certified that seemingly misrepresented the status” of one patent, leading the court to impose sanctions against Certified, its CEO, and its counsel.  (Basically, when Avicenna showed that Certified’s patent hadn’t issued before it advertised its “patented” status, Certified claimed that it was referring to another patent, but years before it had been enjoined from exercising that patent.)

Under Octane Fitness the exceptionality inquiry for fees requires a court to consider “factors, including frivolousness, motivation, objective reasonableness (both in the factual and legal components of the case) and the need in particular circumstances to advance considerations of compensation and deterrence.”

Frivolousness/unreasonability: “prior to filing its lawsuit, Certified knew or should have known that its unclean hands barred its Lanham Act claim and that it did not suffer any injury, barring its two state law claims.”  As for the California state law claims, Certified could only identify two customers it “lost” as a result of Avicenna’s statements, and those two customers’ decisions weren’t based on Avicenna’s false statements but on the customers’ beliefs in Avicenna’s product’s superior quality and consistency.  Even under more stringent older standards, there was no reasonable basis for bringing these claims.  Nor would the court refuse to award fees because Certified got Avicenna to stop making patent-related claims, in that Avicenna’s misrepresentation of its product as “patented” happened only twice, and Avicenna corrected both instances prior to Certified filing its lawsuit.

Objective reasonableness of litigation: the sanctions order provided the court’s basis for finding that litigation was conducted in an objectively unreasonable manner. Moreover, Certified’s decision to file a similar case in the district while the present case was pending additionally demonstrated objective unreasonability; that case was voluntarily dismissed after a motion to dismiss indicated that Certified didn’t own the second patent.

Deterrence: Certified has a history of litigation, including the lawsuit just mentioned (which targeted nearly a dozen competitors) and a case in which  the California Court of Appeal affirmed a sanctions award of $34,000 against Certified’s principal for advancing frivolous arguments in a lawsuit against another competitor. Certified also filed a second lawsuit alleging similar false advertising claims against Avicenna, but had yet to serve Avicenna with the lawsuit.  The court found that this conduct was relevant both for the Octane Fitness totality of the circumstances test and for the deterrence factor. Also, Certified failed to comply with the sanctions order by filing a notice that the sanctions were paid within three days of payment, which had been part of the order.  “To say the least, Certified’s brazen litigation tactics and utter disregard for this Court’s own order suggest a lack of respect for the rule of law that should be deterred.”

Avicenna could only recover for fees related to its work on the Lanham Act claim, not the two state law claims, but the claims here were “so inextricably intertwined that even an estimated adjustment [for the state law claims] would be meaningless.” They relied on the same factual allegations and had many of the same elements.

literal falsity still needs to be material, and court wants a survey or other direct evidence thereof

LivePerson, Inc. v. [24]7.AI, Inc., 2018 WL 5849025, No. 17-cv-01268-JST (N.D. Cal. Oct. 26, 2018)

LivePerson “provides online chat engagement services through a digital platform that it sells to website operators.” That is, it helps websites provide real-time text-based communications with website users directly on the website. Its platform tries to identify when initiating a chat with a particular user is most likely to produce a positive outcome, such as a sale, using rules based on variables such as the user’s navigation history.

[24]7 provides customer service agents to businesses, including customer service agents that participate in the type of online chats initiated through LivePerson’s chat platform. In 2006-2007, the parties agreed to market and provide services to mutual customers; at the time, [24]7 didn’t have its own chat platform, while LivePerson offered a chat platform, but did not have digital chat agents to staff that platform.  After the direct contractual relationship ended, the two companies continued to provide their services to mutual customers.

Then (curse your sudden but inevitable betrayal!) [24]7 introduced its own digital chat platform. It touted its platform, claiming that it was the “first smart chat” platform. Three mutual customers switched to using [24]7’s chat platform. Through these arrangements, [24]7 gained access to the rules and data developed for the customers, which LivePerson claimed as trade secrets in this action; the court denied summary judgment on the theory that LivePerson used improper means. I’ll focus on the false advertising claims.

The challenged statements touted [24]7 Assist as “the industry’s first smart chat that uses prediction and real-time decisioning with big data to drive customer experience,” “the first predictive, real-time customer assistance solution for chat,” and the “world’s first smart chat platform powered by prediction in real-time.”  The court declined to grant summary judgment on puffery, but did on materiality.

This wasn’t puffery because the implication of [24]7’s “first” claims was that LivePerson’s competing platform lacks some element of smart or predictive technology, or at the very least, had a less reliable version. Identifying whether the products possess certain technological features was specific enough to avoid puffery. Even if “smart” and “predictive” were vague in the abstract, in context,  [24]7’s statements introduced particular features as “smart” or “predictive.” “A reasonable consumer could understand [24]7’s ‘first’ statements as implying that other products available at the time lacked these features.” That’s falsifiable.

However, materiality wasn’t so easy. The court declined to presume materiality on the theory that [24]7’s statements were literally false; materiality is a separate requirement.

LivePerson offered a declaration from its Vice President stating that the claim of being “first” to develop a product is likely to influence purchasing decisions because “older technology that has been in the market longer is viewed as having had more time for refinement and development based on data collected over the years.” But “untested, generalized assumptions that a statement is likely to influence purchasing decisions” weren’t sufficient to demonstrate materiality.  In the continuing game of telephone courts have played with the relationship between falsity and materiality, we now hear that materiality “is ‘typically’ proven through consumer surveys,” which provide direct evidence of a statement’s impact. [Voiceover: materiality is not typically proven through consumer surveys. That's not to say the rule can't change--it may be changing through this process of doctrinal accretion--but materiality is quite often a matter of common sense where a claim is central to performance or related to health or safety, and that treatment makes plenty of sense.]

Here, there was no evidence of consumer reaction, and evidence that they didn’t simply take [24]7’s statements at face value in making purchasing decisions. The parties entering into multi-year contracts between companies; for example, Sears conducted an extensive head-to-head test before switching.

Friday, November 09, 2018

False patent marking claim fails in cannabis case despite clear falsity/motive to crush competition: mostly it didn't work

Kremerman v. Open Source Steel, LLC, 2018 WL 5785441, No. C17-953-BAT (W.D. Wash. Nov. 5, 2018)

This case involved cannabis distillation equipment. Kremerman sued OSS for design patent and trade dress infringement and related claims. OSS counterclaimed for false patent marking, false advertising under the Lanham Act, and violation of Washington’s Consumer Protection Act. After some claims were dismissed, Kremerman filed a motion to voluntarily dismiss the affirmative claims and submitted a terminal disclaimer to the PTO disclaiming the remaining term of his patents. (The court also says this disclaimer rendered his trade dress claims moot, which doesn’t seem right in itself.)  The court here dismisses the counterclaims.

OSS contends Kremerman claimed his distillation products were patented when they were not and that he falsely disparaged OSS and its owners with the intent to dissuade customers and suppliers from doing business with OSS and to put OSS out of business.  Basically, OSS had a Chinese manufacturer (along with some Kremerman suppliers) copy/reverse engineer the Kremerman distillation heads, which Kremerman found out about on social media: I kind of love that he found out by seeing an image of his distillation head on OSS’s Instagram page. One supplier’s employee testified that OSS told him Kremerman was a former employee of theirs and that OSS actually owned the rights in Kremerman’s designs.

Kremerman allegedly claimed on his website that his products were patented when there were merely pending applications, and in deposition he testified that he told a supplier that he had patents when in fact, the patents had not issued, because he felt he had to “protect himself.”  In addition, Kremerman allegedly claimed that he was in litigation with OSS before he filed suit, also to discourage others.  He made these kinds of claims in statements both to suppliers and potential customers, e.g., “I have 2 patents on distillation, and there is a reason why everyone tries to copy me!...Oh and we are involved in a federal lawsuit for counterfeiting because of them.” 

The statements were written from Summit Industrial’s email and posted on its webpage or were sent from Kremerman’s email and/or posted on his “Jonathan von Braun” Facebook page (he used several names to promote his products/communicate with customers and others in the industry). There was evidence he promoted his products on Facebook account, even though he maintained it was a private/friends-only acccount.

The court found that Kremerman’s statements specifically representing that he had patents on the distillation heads even though no patents issued until late December 2016 were clearly false as a matter of law. For example, “THIS GLASSWARE IS PATENTED” “is something that could easily have been proven false and is one that customers reading Summit Industrial’s webpage would rely upon due to Kremerman’s presence in the industry.”

Did Kremerman act with an intent to deceive?  He testified that he corrected his website when he was “alerted to it by his attorneys” and he came to understand he had “mistakenly used the word ‘patented’ rather than ‘patent pending.’ ” He also testified that he “did not understand the process…. I believed that when your name is put on an application the patent is yours. …” One supplier testified that Kremerman accurately informed him of the status of his patent applications and, even though Kremerman referred to his products as “patented” in certain communications, he did not believe Kremerman ever intended to mislead him. A C&D letter sent and then posted on Kremerman’s webpage specifically stated that Kremerman’s patent applications were filed and patents were pending. Kremerman also testified that he did not understand the lawsuit process and was “under the assumption that once you begin the process of suing someone, it is the same thing whether or not you have filed in federal court.”

However, when he made the statements at issue, he knew he did not have issued patents. Even if he failed to appreciate the difference between pending patents and granted patents, he claimed he had “granted patents” before he had filed any patent application. Nor did his alleged failure to understand the difference preparing for a lawsuit and actually being in a lawsuit explain his statement “I have 4 of my own patents, and I have already won cases with my counterfeiters,” at a time when no lawsuits had been filed and nothing had been won. He made other statements inconsistent with his claims of lack of understanding, such as “I just released my third patent two weeks ago. And my fourth patent is under final review.”

However, the false patent marking statute applies only to “advertising,” not “promotion.” Thus, “the expression ‘uses in advertising’ cannot refer to any and all documents by which the word ‘patent’ is brought to the attention of the public; it can only refer to use of the word ‘patent’ in publications which are designed to promote the allegedly unpatented product, namely, advertisements.” “Advertising” is defined as “the action of calling the attention of the public esp[ecially] by means of printed or broadcast paid announcements.” Most of the statements at issue were in one-on-one emails, not to the public, and not in paid announcements.

Still, there was a question of material fact about whether statements on the website, or on the Facebook page, were “advertising,” inasmuch as “it can hardly be disputed that companies (Kremerman’s included) use their websites to serve the function of advertising by targeting a specific market, trade, or class of customers seeking products in that marketplace.” But the court was not willing to conclude that a single email was “advertising” even when the relevant market was very small.   

Nonetheless, summary judgment against OSS was warranted because on the issue of whether it suffered a competitive injury, which requires “actual competitive harm.” OSS argued that direct competition allowed a general presumption of a competitive injury, but it didn’t show that anything Kremerman said “had a tendency to mislead consumers” [um, the false statements, which the court deemed plausible to consumers because of Kremerman’s market position?] and didn’t show loss of sales, goodwill or ability to market that was caused by the false marking. “This causation is a necessary element of … 35 U.S.C. § 292.”

OSS’s claim that “fielding inquiries from customers regarding the dispute with Kremerman has become a regular, and unfortunate, part of OSS’s business” was insufficient. “A party claiming ‘loss of goodwill’ must offer evidence of (1) the original value of its goodwill and (2) the scope and depth of the defendant’s harm to the plaintiff’s reputation.”  [Trademark owners might want to pay attention to this idea.] Part one can be done, for example, by considering “a plaintiff’s expenditures in building its reputation in order to estimate the harm to its reputation after a defendant’s bad acts.” But there was no evidence that fielding inquiries caused harm to OSS’s reputation in any appreciable manner.

Nor did OSS show lost business or profits, other than a failed attempt to establish a business relationship with an equipment dealer with whom Kremerman had an established relationship and to whom he said he didn’t want them dealing with OSS because they were “crooks” and “counterfeiters.” Though they began a relationship with OSS, the dealer soon told them, “As I [sic] result of pending litigation [we] will be removing your account from our active account base and suspending your account by end of business day.” However, there was no evidence that the dealer made any decision based on false or misleading information provided by Kremerman. Moreover, OSS acknowledged that it was able to secure an alternative supplier of the relevant equipment and didn’t quantify whether it made more or less money doing so.

Although a Lanham Act claim for injunctive relief may be viable even in the absence of proof of damages, OSS didn’t initially ask for injunctive relief, and such an “extraordinary” remedy wasn’t warranted, given that the last challenged statements were from 2016 and there was no evidence of a likely reoccurrence.

What about Lanham Act false advertising? “Courts may presume consumer deception and reliance if the defendant made an intentionally false statement regarding the defendants’ product, even if the statement entailed ‘little overt reference to plaintiff or plaintiff’s product.’” And a court may presume materiality for literally false statements. Here, the challenged statements were: (1) Kremerman’s premature and false statements that he had patents and was in a lawsuit against OSS; and (2) disparaging comments about OSS, its products, and its founders, also made in the same media as (1), e.g., “Pile of garbage counterfeit head”; “Boot the frauds. They are scammers”; “hide yo keys. Oss. Only stolen sh*t”; “…buyers beware, this is counterfeit glass and low quality….we have images of their glass imploding on customers as well as heads in our hands that are known not to work”; “Not to mention the class action suit building from other people they owe money to.” There were other comments about the conduct of OSS’s business; Kremerman in deposition later said that he “misspoke” about things like “We also have found out some dirt with investigators that they do not pay fed tax, or collect it, or give receipts. So the honest answer is they are f*cked. We filed a motion for a audit….”

Were these statements “commercial advertising or promotion”? Statements contained in a few emails to prospective customers weren’t “disseminated sufficiently to the relevant purchasing public”; there was no evidence that the market was small enough for that to be the case. What about the website/FB statements? They “arguably” reached a wider audience (and several were explicitly false), they weren’t widespread ads, and there wasn’t evidence about the size of the relevant market and their exposure to the statements.

“And most importantly, there is no evidence that OSS has or will suffer any injury from the false statements,” as the court discussed above. This also doomed the Washington state unfair business practices claim.

Wipe on, wipe off: after survey excluded, plaintiff wins jury verdict on false advertising windshield protector claim

Illinois Tool Works Inc. v. Rust-Oleum Corporation, 2018 WL 5810327, No. H-17-2084 (S.D. Tex. Jun. 21, 2018)

 ITW’s Rain-X and Rust-Oleum’s RainBrella water repellant product compete in the market for use on vehicle windshields. Rust-Oleum advertised that RainBrella lasted twice as long as Rain-X, as proved by use that lasted over 100 car washes.

The parties sought to exclude each other’s experts’ testimony.  ITW’s expert Berger offered a survey to show consumer perception of Rust-Oleum’s “Last Over 100 Car Washes” statement.  Respondents were qualified if they: (1) were eighteen years of age or older; (2) owned or leased a personal motor vehicle; and (3) had purchased in the past twelve months an automotive product to maintain or enhance the exterior of their vehicle. The test group was shown a static image of a modified RainBrella package from which the phrase “Lasts 2X Longer” had been digitally removed and in a perspective in which only certain portions of the package were viewable.

The test group was asked: “One of the claims on the package is that it ‘lasts over 100 car washes.’ Do you see this in the ad?” If they said yes, they were asked: “In terms of time (weeks, months, years), how long do you believe that the RainBrella product will last?” The test group respondents were given four answer choices: (1) between zero and fifty years; (2) between one and eleven months; (3) between zero and four weeks; and (4) “Don’t Know.” The average answer was 110.6 weeks. The respondents in the control group were shown the same image used in the test group, but also without “Lasts Over 100 Car Washes.” The average duration answer in that group was 19.8 weeks.

A survey validator fully screened seventy-seven of the 359 respondents with working numbers and found that thirty-seven of the seventy-seven screened respondents didn’t recall taking the survey.

Rust-Oleum hired Akron Rubber Development Laboratory, a third party independent laboratory facility, to test how long the RainBrella and Rain-X products lasted on an automotive windshield. ARDL applied the products to a clean windshield. ARDL mounted the windshield onto a test frame, turned on a water spray, and ran the wiper blades. It continued, checking every 10,000 cycles, until water droplets no longer beaded on approximately 50% of the wiper area. ARDL concluded that “RainBrella and its repellent properties last on average, at least two times longer versus the leading competitor ....”

An in-house ITW test also sought to measure the hydrophobicity (water repellency) of each product and concluded that RainBrella did not last twice as long as Rain-X. Rust-Oleum retained a mechanical engineer to review the parties’ test.

Rust-Oleum succeeded in excluding the survey.  First, the survey didn’t adequately replicate market conditions because it omitted the statement “Lasts 2X Longer” from the image of the RainBrella package, which was important to consumer’s perception.  [Interesting question why the control group didn’t control for this difference—I can see arguments either way.] Second, the universe was overinclusive, because it selected for people interested in protecting their car’s exterior, not the windshield in particular.  Third, the 48% validation failure rate strongly indicated the survey was unreliable.

The question form—suggestive of temporal terms, but not leading—was relevant to the issue in the case and thus didn’t “greatly” affect the survey’s reliability, nor did drawing respondents’ attention to specific language on the package. Still, the other flaws rendered the survey “fundamentally flawed and unreliable.”

ITW’s motion to exclude Rust-Oleum’s expert didn’t fare so well.  Although Dr. Brani was not a chemist and lacked experience testing hydrophobicity, he used lab coursework in his teaching and worked at an independent law where he “routinely draft[ed] scientifically based testing protocols and execute[d] this testing to provide greater insight for various clients including insurance adjusters, attorneys, manufacturers of products, and designers of products.”  Thus, his knowledge of and experience with laboratory testing enabled him to assist the trier of fact here.

However, that was limited to his first set of opinions: conclusions regarding generally accepted methods of scientific testing, including qualitative and quantitative testing.  He also offered conclusions regarding the reliability of the ARDL Test and the ITW Test, and the ultimate conclusion that the ARDL Test substantiated Rust-Oleum’s claim that RainBrella “Lasts 2X Longer.”  At the Daubert hearing, he indicated that he couldn’t testify as to whether the ARDL Test procedures were superior to other test procedure, nullifying his written opinion that the ARDL Test was implemented in a reliable way and the ITW Test was not. His final conclusion that the ARDL test substantiated Rust-Oleum’s claim also conflicted with his testimony that he could not opine as to the actual implementation or execution of the ARDL Test, and Rust-Oleum’s counsel represented to the Court that he wouldn’t be testifying as to whether the ARDL Test results are proper. This discrepancy showed that his report’s conclusions on this point were unreliable.

Illinois Tool Works Inc. v. Rust-Oleum Corporation, --- F.Supp.3d ----, 2018 WL 5810326, No. H-17-2084 (S.D. Tex. Oct. 30, 2018)

The jury found in Rain-X’s favor even without the survey.

Here, the court granted a permanent injunction. “The potential for ongoing harm if a defendant continues to make similar false or misleading statements and the likely impossibility of quantifying the extent of harm suffered as a result of false or misleading statements weigh in favor of finding irreparable injury.” There was testimony that ITW’s reputation and brand were harmed as a result of the challenged claims, which supported a finding of irreparable injury.  The balance of hardships weighed in favor of an injunction, but not a recall; the public interest in truthful advertising also supported an injunction.

The jury was instructed that “can award ITW the profits Rust-Oleum earned as a result of its false advertising if [it] finds ITW has shown by a preponderance of the evidence that Rust-Oleum benefited from its false advertising” and that it “may award Rust-Oleum’s profits even if Rust-Oleum’s costs exceed its profits.” The jury awarded profits in the amount of $392,406, and also found Rust-Oleum “acted maliciously, fraudulently, deliberately, or willfully.”

There was no direct evidence of sales diversion, which weighed against a profit award, but there was a strong public interest in making false advertising unprofitable and there was no unreasonable delay in ITW asserting its rights. The court wouldn’t touch the jury award of profits.

The jury also awarded a bit over $925,000 for corrective advertising. Rust-Oleum argued that ITW didn’t engage in pretrial corrective advertising and there was no evidence ITW it would do so in the future. But there was no evidence that it wouldn’t, and the evidence showed Rust-Oleum spent $1,318,023 on advertising. Though the jury could award money for corrective advertising, the size here was punitive, and instead awarded 25% of Rust-Oleum’s ad expenditures, according to the principles of equity: a shade under $330,000.

In which I appear as a sideshow (but ABC gets the right result on TM/(c) claim based on news report)

Manigault v. ABC Inc., 17-CV-7375 (KNF), 2018 WL 5818101 (S.D.N.Y. Oct. 10, 2018)

I show up in this opinion because I wrote a blog post and the pro se plaintiff decided that I was some sort of publicist for ABC (I am not). Manigault sued ABC for trademark infringement/dilution, false advertising, and copyright infringement for running a news story displaying the logo of his software, KeyiCam, which takes a picture of a key and displays the “biting code” for the key.  ABC here won summary judgment.

Relevant uncontested facts: the news report at issue “examined a smartphone application for a key duplication service called KeyMe, explained how KeyMe works and showed several tests performed to assess how well KeyMe works with two positive and one negative result. The news report also showed materials published by KeyMe.” The reporter stated: “KeyMe isn’t the only game in town, though; there’s also Keys Duplicated and KeyiCam” and the report showed a screenshot from each business’s website for about one second. A text version included hyperlinks to the websites of each of the companies mentioned in the news report.

“ABC’s brief use of the KeyiCam mark in its news report did not suggest in any way that KeyiCam: (i) is affiliated, connected or associated with ABC; (ii) originates from ABC; or (iii) is sponsored or approved by ABC.” Likewise, there was no evidence that ABC engaged in materially misleading consumer-oriented conduct or commercial speech, dooming the false advertising claims. Nor was there dilution or tarnishment. The news report reported on KeyMe; no reasonable finder of fact could conclude that ABC used the KeyiCam logo “in an unwholesome or unsavory context likely to evoke unflattering thoughts about” KeyiCam’s services. [And even if the news report had been unflattering about KeyMe, it would be unconstitutional to bar nonfalse unflattering statements!]

The challenged use was fair. News reporting “is specifically exempted from copyright infringement by statute.”  Not exactly, but the court then quoted the more accurate rule that “there is a strong presumption that factor one [of the fair use factors] favors the defendant if the allegedly infringing work fits the description of uses described in section 107.” Nature of the work was neutral: creative, but already published. Amount: the extremely brief showing was “reasonable and consistent with the news report’s purpose, which was to inform viewers about the existence of key duplication services other than KeyMe.” Market effect favored fair use becaue a news report does not compete with and has no effect on any market for the KeyiCam logo.

And me?  I’m just irrelevant to the issues here.

Straight-up falsity can't get preliminary injunction where lost sales can be calcuated

Vault Cargo Management, LLC v. Rhino U.S.A., Inc., No. 18-cv-01517-H-LL, 2018 WL 5809516 (S.D. Cal. Nov. 6, 2018)

The parties compete to sell products, including a variety of vehicle straps. Rhino allegedly created the false impression that its products are made in the United States, even though import records show that the products are shipped from China. In response to a customer question on Amazon Marketplace, Rhino said that its products are manufactured overseas, but Vault also pled examples of Rhino explaining that its products are American made, “hundreds” of examples of Rhino republishing, approving, or endorsing customer reviews that state that its products are made in the United States; and one example of Rhino answering a consumer question on explaining that its products are made in Naperville, Illinois.

That looks pretty bad, but Vault didn’t show irreparable harm for preliminary injunction purposes.  Vault showed that its sales varied depending on Rhino’s market activity, e.g., when Rhino began selling ratchet straps, Vault’s sales declined by 50 percent and when Rhino’s ratchet strap listing is not active, Vault’s ratchet strap sales double. But those are “simply economic harms that may be recovered in the ordinary course of litigation.”  As to loss of goodwill and damage to reputation, Vault didn’t provide enough evidence that Rhino would enjoy brand loyalty built on the false statements even if Vault wins. A declaration from Vault’s CEO to this effect was insufficient without further evidence/explanation. In addition, Vault itself pled that there were “many different sellers of cargo and vehicle recovery accessories, offering varying levels of product quality across a wide array of price points[.]” There wasn’t enough evidence that customers concerned with the manufacturing origins of a product wouldn’t instead choose to purchase the product from one of the other “many different sellers” of similar products.

Thursday, November 08, 2018

A watered-down finding of TM infringement: prevailing party gets $0 and no injunction, court tells it to go home

Evoqua Water Technologies LLC v. M.W. Watermark, LLC, No. 16-cv-14, 2018 WL 5784073 (W.D. Mich. Nov. 5, 2018)

Eric Goldman will probably appreciate the court’s takeaway here: “Plaintiff and Defendants are not only business competitors, but also stepchildren, in a way, fighting about the original business of a common corporate ancestor, JWI, Inc. Maybe the original family connections help explain why the parties appear locked in perpetual and mortal combat over what seems to outside observers—including most importantly, the jury—to be of limited economic value. In the Court’s view, both sides would be better served by ending their litigation and re-focusing their competitive energies in the marketplace.”

Evoqua sued Watermark for trademark infringement, false advertising, and copyright infringement (the last of which went out on summary judgment for failure to prove ownership). A jury held that Watermark was liable for trademark infringement, which caused damages of $0, and that the infringement was not willful; it also rejected the false advertising claim.

The parties compete in the de-watering business; they sell equipment such as sludge dryers and filter presses that makes waste easier and less expensive to manage. They also sell replacement parts for used de-watering equipment made and sold by themselves or by other companies.

Evoqua claimed that Watermark infringed Evoqua’s J-Mate trademark by selling sludge dryers named “DryMate” and by using the terms “J-Mate” and “JMate” on Watermark’s website. Evoqua inherited the J-Mate mark but its predecessor Siemens decided to “exit” the market for J-Mate sludge dryers. Evoqua continued this plan and told its sales representatives about it. As a result, Evoqua did not advertise or sell any J-Mate dryers in 2014 or 2015.

Watermark refurbished and sold used J-Mate dryers. Some of its customers complained that they could no longer purchase a new J-Mate dryer, so Watermark decided to develop and sell its own new sludge dryer that was similar to the J-Mate. Since it hadn’t settled on a name, its sales representatives used different names when pitching the dryer to customers; some called it a “DryMark,” others called it a “DryMate,” and others simply referred to it as a sludge dryer. Eventually, they settled on the name DryMate. Watermark received only six orders for new sludge dryer using that name, and in 2016 it changed the name to the “M.W. Watermark Continuous Sludge Dryer,” in response to concerns raised by Evoqua. Only the first dryer shipped to the customer under the DryMate label; the others shipped under the other name. Watermark sold that first dryer at a loss.

Watermark also used the terms “J-Mate” and “JMate” on its website in a few places, such as a blog post comparing the DryMate dryer to the J-Mate dryer. Another page discussing the DryMate dryer was titled, “Is it time to replace your sludge dryer?” and tagged with terms including J-Mate and JMate. Despite the obvious utility to consumers of such references, Watermark removed all references to J-Mate from its website before trial, in response to Evoqua’s concerns.

Watermark also sold replacement parts for Evoqua equipment. That equipment contains parts that are made by third-party manufacturers, such as a filter pump made by Haskel. When Watermark acquired replacement parts from the same third-party manufacturers who supplied the equivalent parts to Evoqua, Watermark sold those parts as “OEM parts” for Evoqua equipment. Evoqua argued that this was literally false and its employees expressed their opinions that, in the de-watering industry, the “OEM” is the manufacturer and seller of the equipment that uses the component parts, even though anyone can buy the same part directly from the third-party manufacturer and then resell it, as Watermark did.  Watermark’s witness testified to the contrary, and Evoqua own website advertised the sale of “OEM parts” for filter presses made by other entities.

The court declined to disturb the trademark infringement holding; the evidence allowed a reasonable jury to go either way. The finding of no willfulness was also reasonable, given that even Evoqua’s own sales reps thought that Evoqua was abandoning the business and directed customers interested in a J-Mate sludge dryer to Watermark. Also, Watermark “had reason to use J-Mate fairly and lawfully. It sold replacement parts for J-Mate dryers, as well as refurbished J-Mate dryers. It also sold a sludge dryer that was similar to the J-Mate dryer. The jury could have reasonably concluded that Watermark intended to use the term J-Mate to fairly describe or compare its own products and services, rather than to confuse customers.” Likewise, given the cost and lead time of a sludge dryer purcase, the jury could reasonably have found that customers were unlikely to be confused.  On the theory that DryMate infringed, the jury could reasonably have found that this was unintentional because Watermark “decided on this name through an informal process at a time when they believed Evoqua was abandoning the dryer business” and avoided any use of the “J-” prefix that is characteristic of Evoqua’s trademarks. Watermark’s discontinuance of its use soon after hearing from Evoqua could also support lack of willfulness.

Likewise, it was reasonable to find no damge. There was no concrete evidence of harm, and the jury wasn’t required to accept self-interested testimony that Watermark’s actions harmed Evoqua’s business and goodwill. For the use of DryMate, the jury could reasonably have found that Evoqua wasn’t entitled to any disgorgement, which was its only damages theory. Evoqua claimed it was entitled to Watermark’s gross revenue for all six dryers, but it was reasonable to limit any disgorgement to Watermark’s profits (or lack thereof) from the sale of the first sludge dryer, because that was the only dryer that shipped to a customer with a DryMate label. Evoqua argued that it should prevail on an initial interest confusion theory, but it presented no evidence of IIC, and the core question is the same anyway, consumer confusion: “A reasonable jury could conclude that customers ordering a sludge dryer would take particular care, and would not be misled about its source after receiving one with Watermark’s label on it.”

The false advertising claim “boiled down to a credibility contest”; the jury’s choice of Watermark’s testimony was reasonable, especially given Evoqua’s own uses of “OEM.”

Evoqua asked for the court to multiply the damages award according to the principles of equity, but three times $0 is still $0, so the statute does not permit enhancement here, even if equity supported an enhancement, which it did not.  

What about a permanent injunction? Though the court quoted old precedent that irreparable injury “ordinarily follows when a likelihood of confusion or possible risk to reputation appears” from trademark infringement, Watermark stopped using the term DryMate in 2016 and removed pages on its website referring to J-Mate. The two-year gap in any questionable conduct diminished the risk of future harm and obviated the need for an injunction to remedy past harm. Evoqua argued that Watermark was a repeat offender; the Watermark did enter into a settlement agreement and consent judgment with a predecessor in 2003, in which it agreed not to use marks containing a “J-” prefix. But that wasn’t the result of a court ruling; here too Watermark stopped the complained-of conduct when Evoqua complained. Thus, the court saw no need for an injunction.

The balance of hardships also disfavored an injunction, insofar as Evoqua sought to impose stringent restrictions on Watermark’s use of Evoqua’s trademarks, even where such use would not be confusing because it fairly describes products sold by Watermark, including replacement parts for the J-Mate dryer and refurbished J-Mate dryers. Likewise, “[t]he public would not be served by a judicial order hindering Watermark’s ability to fairly compete with Evoqua in the marketplace.”

Watermark couldn’t get its fees for the copyright claim. Although Evoqua failed to prove ownership of the copyrights, “its litigating position was not objectively unreasonable.” It acquired some IP from the previous owner of its business, even though it couldn’t show that it acquired the particular assets necessary to bring its copyright claim, a question resolved only after the court asked for further briefing. Nor was Evoqua’s motive “wholly improper.” “By its own admission, Watermark obtained many materials from former Siemens/Evoqua employees, and possessed a trove of manuals for Evoqua products that Watermark copied, rebranded, and sold to its own customers.” Even if Evoqua was in part seeking to squash a smaller competitor, it wasn’t unreasonable to view this particular conduct as a concern: “Even if Watermark is a mosquito to an Evoqua elephant, the elephant is entitled to swat the mosquito when it tries to bite.”

Nor could Watermark get its fees on the false advertising claim; the parties “simply disagreed about the definition of a term that could mean different things in different contexts,” and Evoqua survived summary judgment on the issue. Both sides presented only self-interested witnesses, not objective expert testimony or evidence. Evoqua couldn’t provide evidence of damages, but those aren’t always easy to prove, and so it wasn’t unreasonable to pursue injunctive relief even without concrete evidence of monetary harm.

Nor did Evoqua’s asserted anti-competitive purpose justify a fee shift.  Though Evoqua arguably made overbroad discovery requests, there wasn’t evidence that this meaningfully increased Watermark’s burden; it simply objected and didn’t comply. “There was definitely some evidence at trial suggesting that Evoqua thought that litigation was warranted simply because Evoqua could absorb the costs more easily than Watermark. But even if true, this does not detract from the good faith basis Evoqua had to pursue its claims.”

Rally 'round the difference between valid and merely descriptive: 8th Circuit gives claimants much to ponder

Sturgis Motorcycle Rally, Inc. v. Rushmore Photo & Gifts, Inc., --- F.3d ----, 2018 WL 5726690 2018 WL 5726690, No. 17-1762, No. 17-1869, No. 17-2712, No. 17-2731 (8th Cir. Nov. 2, 2018)

The court says some very interesting things about descriptiveness, the legitimacy of non-trademark claimants' use of descriptive terms for a well-known event, and the standard for finding infringement based only on visual inspection.

“Since 1938, a motorcycle rally has occurred almost every August in and around the City of Sturgis, South Dakota…. In 1986, Tom Monahan, a local artist and vendor, donated a composite mark for the rally to the Sturgis Area Chamber of Commerce, which had recently accepted a central role in promoting the rally ….” Next year, the Chamber began licensing the mark, which included the shape of a circle horizontally bisected by two motorcycles and the word “Sturgis.”  Other elements include the words “Black Hills Motor Classic,” “Rally & Races Black Hills S.D.,” ten stars, the head of a bird of prey in profile, six buffalo walking, and a couple of feathers.  [Nothing exceeds like excess!] The Chamber advertised that products displaying the mark could be called “officially licensed.” The Chamber registered the mark in 1996 and, in the 2000s, acquired two registered word marks from rally vendors: “Sturgis Bike Week” and “Take the Ride to Sturgis.” Vendors have used many names to associate their goods and services with the rally, which itself has been referred to by many names, including just “Sturgis.”  “The Sturgis motorcycle rally is now the largest such rally in the world, bringing several hundred thousand people and many millions of dollars into the region each year.” 

The Chamber’s marks are now licensed by plaintiff SMRI.  Read this description and guess what might happen to SMRI’s most expansive claims: SMRI’s sales pitch is that profits from the licensing support the City; the chamber “used that sales pitch for decades to convince vendors to buy a license to display the Monahan mark on their rally-related goods. Today, however, the licensing program seeks to control virtually all rally-related merchandise, asserting that if a vendor wants to sell an item using the geographic terms ‘Sturgis’ or ‘Black Hills’ in conjunction with the rally, he must first apply for and receive a license from SMRI that will cost him about eight percent of the wholesale price of each item sold.”

Rushmore Photo & Gifts, Inc., a souvenir provider in Rapid City, South Dakota, sold goods related to the rally, including some that it used to advertise were “officially licensed” even though they were not. Many of the products used the word “Sturgis” or the name “Sturgis Motor Classic.” In 2011, after it got a registration for the word mark “Sturgis” for goods and services related to the rally, SMRI sued Rushmore and other defendants.

A jury returned a verdict in favor of SMRI, awarding it $912,500 in damages, but the district court held that SMRI was estopped by laches and acquiescence from recovering damages from the remaining defendants. It also entered a permanent injunction and awarded SMRI costs, but not fees.

SMRI argued that Rushmore’s prior licensing of the Monahan mark from the Chamber should estop it from challenging the validity of the marks. But Rushmore licensed only the Monahan mark, not the terms whose validity as marks it challenged. The license’s preamble claimed rights in “the protected language ‘Black Hills Motor Classic’, ‘Sturgis Rally & Races’ and ‘Black Hills Motorcycle Rally & Races.’” But estoppel at most covers only the mark that the licensee has agreed “to use,” and even then the assumption that licensing recognizes validity is “problematic because there are many reasons someone might seek to license a property the validity of which he doubts: It may, for example, be more economically efficient to agree to a license in the short term than to litigate the mark’s validity immediately.” (Citing Campbell v. Acuff-Rose.) “It would be antithetical in any event to the pro-competitive purposes of trademark law to allow a licensor to lay claim to marks that its licensees have not used by inserting superfluous language into its licensing agreements.”

The jury found that the defendants as a whole infringed five of SMRI’s marks: its federally registered “Sturgis” and “Sturgis Bike Week” word marks, its federally registered Monahan mark, and its unregistered “Sturgis Motorcycle Rally” and “Sturgis Rally & Races” marks.  The Sturgis mark was registered under §2(f), which operated as a concession that the mark wasn’t inherently distinctive; nor was the registration incontestable.  The registration provided a rebuttable presumption of validity, but not as against a purported infringer who started to infringe before the registration date (2011); here infringement was alleged at least as early as 2006.  The court of appeals thus found that there was insufficient evidence to allow a reasonable jury to find that the Sturgis mark was valid.

SMRI did not present any direct evidence of secondary meaning such as consumer testimony and surveys. SMRI argued that it and the Chamber had used the mark in relation to the rally since 1987; and that consumers associate the mark with the rally, which the Chamber “hosted.” Many of the historical uses to which SMRI pointed “cannot reasonably be viewed as uses of the word as its mark.” SMRI presumed that any use of the word “Sturgis” to refer to either the rally or the City of Sturgis was use as a mark. “But if the word was being used descriptively (e.g., to refer to ‘Sturgis’ the city or ‘Sturgis’ the rally), it was not being used primarily to identify a specific source of rally-related products and services.” SMRI’s own testimony was that it wasn’t until around 2000 that the Chamber decided that Sturgis was the “magic” word behind all its marks.  Given that fact, “we do not see how the jury could reasonably infer from any earlier uses of the word ‘Sturgis’ that consumers had started to associate it with one of the many sources of ‘Sturgis’ goods and services existing at the time.”

SMRI pointed to use of the word “Sturgis” in its other marks, including the Monahan and “Sturgis Bike Week” marks. But that was apparently a descriptive component of those marks, referring to either the rally or the city, not Sturgis the brand, and SMRI didn’t explain why consumers would “view those uses of the word inside of another mark as a distinct mark.”

Nor could SMRI tack all uses of “Sturgis” on rally-related goods or services by someone who subsequently became its licensee, as it tried to do. For example, one vendor made yearly patches using “Sturgis” and the date on his souvenirs since the late 1970s, but he didn’t take a license until 2001. That license didn’t retroactively turn all of his pre-2001 uses into (1) uses as a mark or (2) uses as SMRI’s mark. “The very fact that McNenny had independently used the word ‘Sturgis’ on his own rally-related goods for decades indicates that consumers had no reason to think that the word’s presence on such goods indicated that they all came from a single source.” Indeed, that vendor’s reasons for taking a license for “Sturgis” showed why the jury couldn’t infer validity from licensing. Like other vendors, including the primary licensee, he said they were licensees “because they like giving back to their community and selling customers on the idea that their purchases also give back to it.  But in that case, “the jury had no basis to infer from their licenses and sales that consumers associate SMRI’s marks with a single source of rally-related goods and services.”

Though the Chamber’s then-president submitted an affidavit in 2001 claiming “continuous and substantially exclusive” use of the mark “in connection with the marketing and promotion of the Rally since ... July 1, 1987,” the evidence showed that he “purposely and categorically excluded from his assessment relevant third-party uses of the mark” by defining only Chamber-approved uses as uses in connection with the rally. This logic “was so incoherent and self-serving that no reasonable jury could accept it. If there were two shirts that said ‘Sturgis 2000,’ but only one of them was produced through the Chamber, there were still two rally-related shirts displaying the word ‘Sturgis.’”  Whether the unaffiliated product was using “Sturgis” as a mark or descriptively, either way it prevented the Chamber/SMRI from claiming substantially exclusive use.

Since the jury could not reasonably have found that the Chamber/SMRI were substantially exclusive users of the “Sturgis” mark for the rally or rally-related products and services, there was no way the jury could have found that the mark had “become so associated in the public mind with [the Chamber’s and SMRI’s] goods that the mark serves to identify the source of the goods and to distinguish them from those of others.” Without evidence of the effect on consumers, the jury could not have found secondary meaning on this record.

Nor was “Sturgis” distinctive because consumers associate it with the rally. “Everyone could know of the rally as ‘Sturgis’ and find that the City is now synonymous with the rally without also associating the word ‘Sturgis’ with only one of the many sources of rally-related products and services.”  [This is one of the points we made in our Honey Badger amicus, too.  The Statue of Liberty is famous; it’s not famous as a mark for something else.] Indeed, even if the record had showed that SMRI had a valid service mark for the word “Sturgis” in relation to the organizing and conducting of the rally (which it did not), it would still have needed to show that the word operated as its mark in other contexts. Owners of a mark “have no right in gross.”   

As a result, the court reversed the jury’s finding of dilution of the “Sturgis” mark and vacated its holding that the defendants engaged in cybersquatting; this claim was submitted to the jury based in part on the theory that “Sturgis” was a valid mark.

What about the unregistered marks “Sturgis Motorcycle Rally” and “Sturgis Rally & Races”? They had the same problems of proof of validity. The evidence indicated that these were names used to describe the rally in the 70s, but that weighed against validity as marks. “Evidence indicating that one of the marks had acquired secondary meaning does not necessarily show that any other mark had acquired it as well.” The ads in the record “rarely use the words in the unregistered marks as a mark. They instead use ‘Sturgis Motorcycle Rally’ mostly to refer to the rally itself and only use ‘Rally & Races’ as part of the Monahan mark, the federal registration for which disclaims the exclusive right to use ‘Motor Classic’ or ‘Rally & Races.’” Most of the products in the record likewise didn’t use the purported marks as standalone marks, but rather as part of a more elaborate name or mark. The jury could not reasonably infer from such uses “that consumers had latched onto those words and now associate them primarily with a specific source of rally-related goods and services.”  Nor was there any direct evidence of consumer perception, and without that, the fact that these terms were common names for the rally itself precluded protection. “If consumers view SMRI’s marks simply as indicating ‘an association with’ the rally, then they are not viewing them as identifying a specific ‘brand’ of rally-related things and thus are not viewing them as a mark.” [This is an example of “association” which is not trademark association—again the Statue of Liberty provides a good example for most goods and services.]

At some point, SMRI/the Chamber used “Sturgis Motorcycle Rally” and “Sturgis Rally & Races” on hangtags with ownership claims. At some point, the Chamber also distributed shopping bags to vendors that told consumers to “Look for the Tag!” But the evidence about the scope of these programs was minimal, and didn’t indicate any effect on actual consumer perceptions.

Then, the court turned to SMRI’s six federal registrations for “Sturgis Bike Week,” none of which were registered under 2(f); SMRI was thus entitled to a presumption that the mark was valid even if the alleged infringement began before the mark’s date of registration.  That seems weird and the defendants contested it, but the registrations “constituted prima facie evidence of the mark’s validity” and the evidence that “Sturgis Bike Week” was a common name for the rally was not overwhelming. The evidence supported a finding that the first registrant used the phrase as a mark for t-shirts for decades and ultimately assigned it to SMRI. Nor did the defendants prove genericity so strongly that no reasonable jury could refuse to accept that conclusion; at most they showed descriptiveness.

The defendants accepted the validity of the Monahan composite mark, but challenged the sufficiency of the evidence of infringement/counterfeiting. It was certainly not the case that any uses of “Sturgis,” “Sturgis Rally,” or “Sturgis Motor Classic” on a product could reasonably have been found to infringe. The dominance of “Sturgis” in the marks/terms didn’t make them all similar, especially given the descriptiveness of the word for the rally. Only one product that did more was identified: a shot glass with the words “Genuine Article-Accept No Substitutes” on the top, with “Quality” below on the far left and “Brand” on the far right. In the middle was a broad horseshoe on which “Sturgis Motor Classic™” is written in an arc. “Within the horseshoe is a bird of prey facing right in three-quarter view in front of a billowing U.S. flag on which ten stars can be seen. Under the bird and the flag, right between the horseshoe’s heels, is a motorcycle. A feather-shaped leaf rises next to each heel.” “1938” was under the motorcycle, and then “South Dakota.” The bottom left said “Founder ‘Pappy’ Hoel,” and on its bottom right, “Oldest & The Biggest.”

In some cases, “visual inspection, without any corroboration from consumer surveys or examples of actual confusion,” can prove likelihood of confusion: “If, for example, the purportedly infringing mark appears confusing or deceptive on its face, and relevant consumers do not bring to their purchasing decisions atypical or specialized knowledge, a visual inspection might represent a bare-bones way of proving likely confusion. Otherwise, it would appear beyond the ken of a jury to deduce from a visual examination that has not been informed by direct evidence of consumer associations that a challenged use would likely confuse or deceive the ordinary, prudent consumer” (emphasis added).

Nonetheless, the jury found not just infringement, but willful and intentional infringement. The definition used by the jury for “willful” required “the conscious intent to benefit from the goodwill or reputation of SMRI’s trademark.” This would also necessarily be intentional. And the evidence supported the finding that the defendants’ infringement of the composite mark on the shot glass was willful and intentional. The Monahan mark was widely used in connection with the rally since the mid-1980s and some consider it, whether rightly or wrongly, the “official” logo of the rally; Rushmore knew about the mark, as evidenced by its 1999 license to use the mark for a year on postcards. “The many similarities between the dominant design on the shot glass and the longstanding Monahan mark also provided the jury with a reason to conclude that Rushmore had consciously intended its glass to benefit from the goodwill that consumers may associate with the Chamber’s and now SMRI’s civic-minded mission statements.” Along with the image similarities, the use of the words “Genuine Article-Accept No Substitutes” allowed the jury to infer that Rushmore consciously intended consumers to confuse the dominant design on the glass with the closely similar “official” Monahan mark.

Was this also counterfeiting? “A counterfeit is thus far more similar to the registered mark than a mark that barely infringes it, and so an infringing mark is not necessarily also a counterfeit.” The shotglass was the only item infringing the Monahan mark, and (this will warm Mark McKenna’s heart) nothing on it “could be reasonably viewed as substantially indistinguishable from the Monahan mark.” The words on top were different, in different fonts, and the images showed different animals in different configurations. The differences were too obvious to allow the jury to find counterfeiting.

The court turned to the related claims for deceptive trade practices, false advertising, and unfair competition. South Dakota allowed SMRI to recover only actual damages suffered as a result of deceptive acts and practices. The record clearly supported a finding of such actual damages, because rom around 2006 to 2011 Rushmore advertised that its rally-related goods were “Officially Licensed Sturgis,” and there was evidence that Rushmore put that slogan on its products’ hangtags alongside the phrase, “Look For The Tag!,” mimicking the Chamber’s ad campaign. Rushmore’s co-owner admitted that their goods were neither official nor licensed, and that no one other than SMRI and Rushmore had designated its rally-related products as officially licensed. At least one person was misled: the manager of the apparel department at a local Wal-Mart called SMRI’s licensing agent to ask whether Rushmore’s products were actually “official Sturgis Motorcycle Rally products.” That was the first year that the record showed Wal-Mart carrying Rushmore products, and the jury could have inferred that SMRI lost those sales to Rushmore.

Nor did the invalidity of most of the marks above matter to this conclusion, which didn’t depend on the validity of the marks.

However, after the jury’s verdict, the district court ruled on defendants’ equitable defenses, finding that SMRI was estopped by laches and by its acquiescence from recovering damages. SMRI argued that it had a Seventh Amendment right to have a jury decide those defenses, but it didn’t.  SMRI also argued that the jury’s finding of willful infringement constituted unclean hands, precluding equitable relief.  To bind the court’s equity powers, a jury’s findings have to be on a common issue; otherwise the findings are merely advisory.  But willfulness “is a multifarious concept like causation or intent: The definition of willfulness that the district court gave the jury was only one of the many that courts have used.” The equitable and statutory definitions of willfulness can vary even though they use the same word.  The district court found that the defendants used “Sturgis” in the good faith belief that SMRI’s “Sturgis” word mark was invalid. This isn’t necessarily in conflict with the jury’s finding that the defendants’ use of the word was willful in the sense that they had acted with “the conscious intent to benefit from the goodwill or reputation” associated with that word. “A defendant … can intend to benefit from the goodwill associated with a word—'Sturgis,’ for example, as a fun and memorable motorcycle rally—without intending to infringe a valid mark based on the word.” Thus, some courts have held that, when a party “uses an intellectual property in the face of disputed title,” the party’s use of it, if in good faith, does not constitute “willful infringement.”

Anyway, even if willfulness was a common issue, the district court’s findings still might not have conflicted with the jury’s finding of willful infringement of the Monahan mark and the “Sturgis Bike Week” mark. First, the district court still has discretion over the application of the unclean hands doctrine. For unclean hands, it “might not be sufficient that the wrongdoing was willful if it was not also substantial to an appropriate degree…. Equity demands flexibility and eschews mechanical rules.”  Second, though the district court largely denied defendants’ motion for judgment as a matter of law, it later held that SMRI did not carry “its burden of proving that [defendants] subjectively and knowingly intended to use [their marks] for purpose of deriving benefit from [SMRI’s] goodwill,” which might be a finding about the record.  Though the record supported the jury’s finding that the defendants willfully infringed the Monahan mark, the court of appeals didn’t opine on “Sturgis Bike Week.”

Remand was appropriate here, however, because the district court’s order granting the equitable defenses relied in part on its findings that Rushmore had sold rally-related products bearing the word “Sturgis” to both the Chamber and its agents, so they knew about the conduct at issue. But since rally-related products using the word “Sturgis” were not infringing (even though SMRI argued that they were), it was no longer clear whether acquiescence and laches would apply. On remand, if the district court still thought so, it should clearly say which claims were covered (not just the Lanham Act claims) and why.

The injunctive relief would also have to be revisited.  SMRI wanted the defendants enjoined from selling anything that uses the word “Sturgis,” “including presumably a state map,” but that’s not going to happen. Instead, a revised order would have to account for the invalidations above.