Actual confusion provides evidence of irreparable harm

Home Comfort Heating and Air Conditioning, Inc. v. Ken Starr, Inc., 2018 WL 3816745, No. 18-cv-00469-JLS-DFM (C.D. Cal. Jul. 24, 2018)

Home Comfort Heating & Air Conditioning provides HVAC services in Los Angeles County and the surrounding area; it asserted rights in marks “wholly or partially comprised of the word elements ‘HOME COMFORT,’ ” including “HOME COMFORT SERVICES,” and “HOME COMFORT HEATING AND AIR CONDITIONING.” It had some registrations.  Ken Starr Inc. subsequently began operating an HVAC business under the name “Home Comfort USA” in Southern California, including Los Angeles County and the surrounding area.

Notable findings: The court found strong evidence of confusion from negative online reviews, including one negative Yelp review, and oral complaints with regard to products and services that were supplied by KSI. In the prior year, Home Comfort received five attempts by customers seeking to return products purchased from KCI, two refund requests arising out of KCI’s services, thirty inquiries about KCI’s special pricing offers, and forty inquiries about available services from customers who saw KCI’s ads. A few of the voicemails were generic requests for quotes, but the majority reference specific accounts, appointments, and issues with prior work done by KCI.

The district court applied the 9^th Circuit’s screwed-up “can you determine the product just from knowing the mark?” test to determine that the marks were suggestive.  Twenty-six HVAC businesses around the nation that use some combination of the terms “home” and/or “comfort” in connection with their services didn’t diminish the strength of the mark, especially without more evidence of use and given that “HVAC customers will, necessarily, seek a local source for these products and services.” Of the three businesses that did serve California, each used other distinguishing words as well: “Stephan’s Home Comfort Services,” “Engineered Comfort,” and “US Comfort.” Nor did Home Comfort’s addition of “Heating & Air Conditioning” to its marks, KCI’s slogan “Call the Comfort Guys, We’re There!” or the parties’ different colors deminish the likely confusion. The word marks “Home Comfort” and “Home Comfort USA” were essentially indistinguishable and adding generic words didn’t create a meaningful distinction “from the perspective of a consumer.” The stylized marks included “Home Comfort” as their dominant portion and had a depiction of a house and appeared substantially similar; the colors and the slogan weren’t how consumers would make a primary identification.

Purchaser care was neutral because almost everyone needs HVAC services, making the target market average, but they tend to be expensive, increasing consumer care.

Given that the factors favored a finding of likely confusion, was there irreparable harm? The rule is that “[e]vidence of loss of control over business reputation and damage to goodwill could constitute irreparable harm,” and the court found that the actual confusion shown here satisfied that standard.  However, delay works against a finding of irreparable harm, and Home Comfort delayed 20 months after discovery of the problem to seek relief.  The court found that the delay was sufficiently explained by Home Comfort’s oppositions to KCI’s trademark registration applications and extensive settlement discussions. In addition, the dates of the voicemails indicated that confusion was increasing over time, making delay less probative.  With that, the other requirements for injunctive relief were easily satisfied.

Almond milk name isn't deceptive to reasonable consumers

Painter v. Blue Diamond Growers, No. 17-55901, 2018 WL 6720560, --- Fed.Appx. ---- (9th Cir. Dec. 20, 2018)

Painter alleged that Blue Diamond mislabeled its almond beverages as “almond milk” when they should be labeled “imitation milk” because they substitute for and resemble dairy milk but are nutritionally inferior to it. The court of appeals affirmed the district court’s finding of FDCA preemption. “The FDCA sets forth the bare requirement that foods imitating other foods bear a label with ‘the word “imitation” and, immediately thereafter, the name of the food imitated.’”  Painter’s argument that Blue Diamond needed either a nutritional comparison of almond milk to dairy milk or cease using the term “milk” on the label of its almond milk products thus conflicted with the FDCA.

Separately, the claim was properly dismissed as implausible.  No reasonable consumer would be deceived into believing that Blue Diamond’s almond milk products were nutritionally equivalent to dairy milk based on their package labels and advertising, which was unambiguous and factually accurate. Nor were the products plausibly mislabeled under federal law.  Almond milk wasn’t an “imitation” of dairy milk: “almond milk does not involve literally substituting inferior ingredients for those in dairy milk,” and a reasonable jury couldn’t conclude that almond milk was nutritionally inferior to dairy milk within the meaning of the law, because it wasn’t plausible that a reasonable consumer would “assume that two distinct products have the same nutritional content.”

Court sanctions plaintiffs for inaccurate images of product labels in complaint

Hunt v. Sunny Delight Beverages Co., No. 18-cv-00557-JLS-DFM, 2018 WL 6786265 (C.D. Cal. Dec. 18, 2018)

Some Sunny Delight beverages bear names derived from fruits, such as “Orange Strawberry,” “Orange Pineapple,” “Strawberry Guava,” and “Watermelon,” while others are less fruity, such as “Smooth & Sweet” or “Blue Raspberry.” Plaintiffs alleged they bought several different varieties, including the “Orange Strawberry” and “Orange Pineapple.” They brought the usual California claims, alleging that none of the Products “contain any or all of the actual juices from the displayed fruits,” and that the labels failed to disclose this. They alleged that that the following images were true and accurate representations of the “Orange Strawberry” and “Orange Pineapple” labels:

Sunny Delight sought to introduce evidence that the images weren’t in fact true and accurate depictions of the labels. The court agreed that this was improper at the pleading stage and denied the motion to dismiss. Sunny Delight later moved for Rule 11 sanctions, alleging that plaintiffs knowingly included inaccurate images and induced the court to rely on them.  The labels it proffered “include much, if not all, the information that Plaintiffs allege is unlawfully missing, including disclosures that the Products are ‘artificially flavored.’” Its chief marketing officer submitted a declaration that

Sunny Delight has never sold a product labeled as the ones [depicted in] the First Amended Complaint are labeled. Sunny Delight product labels have always included more information about the products than shown in [the FAC]. The images in [the FAC] that Plaintiffs claim are the true labels they read and relied on are actually just images from an old version of Sunny Delight’s website. Those were stylized images used on the website only. They lack numerous details on the actual labels because people looking at the website have trouble reading all the things that are on the actual labels given the size of the images. Sunny Delight has never sold any products with the labels reflected in [the FAC].

In addition, if plaintiffs bought Orange Strawberry within the last 5 years, it would have had a front-of-pack statement disclosing artificial ingredients. Deposition testimony from the named plaintiffs corroborated Sunny Delight’s argument that these were stylized images.  Counsel “intimated to them that the stylized online labels were identical to the in-store labels on the Products Plaintiffs had purchased; neither [plaintiff] could fully recall the actual contents of the labels on the purchased Products.”

The court found that plaintiffs and their counsel had knowingly made false factual contentions in the first amended complaint, including the allegation that the embedded image was a “true and accurate representation” of the labels, as well as numerous allegations that likewise incorrectly described those labels in ways that are central to the claims in the litigation. “These falsehoods were not the product of reasonable mistake and were not mere inaccuracies that would ‘likely have [had] evidentiary support after a reasonable opportunity for further investigation or discovery.’”  Plaintiffs’ counsel acknowledged at the hearing that they based the complaint on Sunny Delight’s website, not on the labels on the actual products. “That approach might have been acceptable had Plaintiffs purchased the Products based on a website image, but they did not…. It is apparent that Plaintiffs’ counsel did not undertake the most fundamental of investigations— namely, examining the actual Product labels—before filing the First Amended Complaint.”  Counsel had the opportunity to acknowledge the problem when Sunny Delight identified it, but they compounded it instead, arguing that the court should take the allegations as true.  This wasted the court’s and Sunny Delight’s time and resources, and was sanctionable under Rule 11.

The court struck the first amended complaint rather than parsing the allegations for any that were salveageable. However, the court wouldn’t strike the complaint with prejudice.  Plaintiffs argued that at least some of their claims still had merit, and the court didn’t rule on whether the presence of a front disclaimer would preclude the claims as a matter of law. The court was also wary of confusing attorney honesty with the merits; sanctions address only the former.  Nonetheless, to serve Rule 11’s deterrent purposes, the court also awarded reasonable attorneys’ fees for preparing this motion and the second motion to dismiss, where the misrepresented labels formed the core of the dispute and were the primary basis for the court’s ruling.  Fees for general casework, or for the first motion to dismiss—which was primarily about jurisdiction—were not included.

9th Circuit easily rejects In re GNC's "all scientists must agree" standard for falsity

Sonner v. Schwabe North America, Inc., --- F.3d ----, No. 17-55261, 2018 WL 6786616 (9th Cir. Dec. 26, 2018)

Happy holidays to me!

Sonner sued the sellers of two Ginkgold nutritional supplements for violations of the UCL and CLRA and breach of express warranty. Sonner alleged that the products were falsely labeled as capable of improving various cognitive functions when in fact they provided no such benefits, citing expert opinion and other scientific evidence (including evidence from randomized controlled trials showing no difference from placebo) in support.  The district court granted summary judgment, relying on In re GNC to hold that she couldn’t proceed on a literal falsity claim because she didn’t show that all scientists agreed that the claims were false.  Instead, it reasoned, where “both sides have produced expert testimony and scientific research in support of their claims,” but Sonner failed to critique the expert testimony and each of the scientific studies proffered by defendants by “challenging the methodology, structure, or independence of [Schwabe’s] studies,”  the evidence was “insufficient to allow a reasonable juror to conclude that there is no scientific support for [Schwabe’s] claims.”

The court of appeals reversed: “UCL and CLRA claims are to be analyzed in the same manner as any other claim, and the usual summary judgment rules apply.”  The plaintiff has the burden of proving falsity or misleadingness by a preponderance of the evidence. “Therefore, to defeat summary judgment, Sonner need only produce evidence of a genuine dispute of material fact that could satisfy the preponderance of the evidence burden at trial. Sonner easily met her burden by producing expert testimony and other scientific data that Ginkgo biloba has no more of an effect on mental sharpness, memory, or concentration than a placebo.” Requiring her to do more than that—to foreclose any possibility that the products worked—wrongly elevated her burden far beyond that applicable to summary judgment. Arguments going to the bases of experts’ opinions go to the weight of the evidence in the fact-finder’s evaluation, “an inquiry that is not proper at the summary judgment stage.”

Schwabe argued that the Ninth Circuit should follow In re GNC, 789 F.3d 505 (4th Cir. 2015), which required—at the pleading stage—a plaintiff to allege that “all scientists agree that [the products] are ineffective at providing the promised [ ] benefits” in order to allege falsity under California law.  This holding was always dumb—among other things, it rested on a misreading of the Lanham Act’s distinction between literal falsity and implicit falsity—and the court of appeals here rejected it.  “We are unpersuaded by the notion that a plaintiff must not only produce affirmative evidence, but also fatally undermine the defendant’s evidence, in order to proceed to trial.” That’s not how civil—or even criminal—litigation works.  “If the plaintiff’s evidence suggests that the products do not work as advertised and the defendant’s evidence suggests the opposite, there is a genuine dispute of material fact for the fact-finder to decide.”  

Nor were Sonner’s claims essentially “lack of substantiation” claims, which private plaintiffs are prohibited from pursuing under California law. “Sonner has the burden of proof as to her claims, unlike a substantiation claim where the onus is on the defendant to substantiate the assertions in its advertisements.” 

The breach of express warranty claims were reinstated for the same reasons.

PS: Since In re GNC purported to interpret California law, can we now defer to the 9th Circuit to say that the case isn't even right in the 4th Circuit?  I know, it would be better for a California state court to point this out--I can hope, though.

Amicus Brief of Scholars of Corpus Linguistics in Rimini Street v. Oracle

Just found this use of linguistics super interesting. Abstract:

The question presented in Rimini Street v. Oracle is whether the Copyright Act's allowance of "full costs" is limited to the categories and amounts of costs enumerated in 28 U.S.C. 1920 & 1821, or whether it refers to all litigation expenses. Because Congress and the Supreme Court have stated that the word "costs" is a term of art, the question turns on whether the word "full" -- as the Ninth Circuit held -- can cause "costs" to lose its technical meaning. This brief, filed on behalf of eleven corpus linguistics scholars, presents empirical evidence derived from corpora -- electronically searchable databases of texts -- that shows that it cannot. The meaning of adjectives is determined by the nouns they modify, not the other way around. That is why we judge a "tall seven year old" by a different standard of tallness than a "tall NBA player" and why the word "long" means one thing when modifying "story" and something else entirely when modifying "table." Furthermore, the linguistic evidence shows that "full" in Section 505 should be considered a "delexicalized" adjective -- meaning its purpose is to draw attention to and underline an attribute that is already fundamental to and embedded in the nature of the noun. "Full" often serves to emphasize the completeness of an object that is already presumed to be complete, like "full deck of cards," "full set of teeth," and "full costs."

Avvo's Pro designation is opinion/puffery

Davis v. Avvo, Inc., --- F.Supp.3d ----, 2018 WL 6629269 (S.D.N.Y. Dec. 19, 2018)

Davis, an attorney, sued Avvo for false advertising in violation of the Lanham Act and NYGBL § 349. Avvo hosts profiles of attorneys for consumers to use; the profiles often contain client and peer reviews, as well as a numerical “Avvo rating,” which is derived by criteria defined by Avvo. Avvo includes profiles for attorneys who pay for advertising and related services and attorneys who do not. Davis alleged that lawyers who pay Avvo (1) receive higher Avvo ratings than similarly qualified nonpaying attorneys, although the defendant represents its ratings as objectively calculated; (2) receive a badge reading “Pro” laid on top of the profile headshot; (3) are touted in Avvo’s advertising as “highly qualified,” “the right,” or the “best” attorneys; and (4) have positive client reviews spotlighted and negative client reviews removed or blocked.  [For the last, Eric Goldman will almost certainly disagree but I think that a bar could reasonably determine that attorneys shouldn’t pursue partnerships with entities that cook the books in the manner alleged.]

The court dismissed the claim; the challenged practices/statements were nonactionable opinion and puffery. Quoting McCarthy: “Under both the Lanham Act and the Constitutional free speech clause, statements of opinion about commercial matters cannot constitute false advertising ....” Also true of GBL §349.

First, the court ruled that the allegedly misleading features of the defendant’s website, including its Avvo ratings, weren’t commercial speech because Avvo’s consumer-facing side was

an informational directory of attorneys, which consumers can consult whether or not they intend to hire an attorney. And the complained-of website features simply provide information; they might be considered in making, but do not themselves propose, a commercial transaction. Moreover, that sponsored advertisements appear on the defendant’s website does not morph the website’s noncommercial features into commercial speech.

So that put the profiles outside of the Lanham Act anyway.

Second, these were statements of opinion, incapable of being proven false and thus constitutionally protected:

The defendant’s rating system is inherently subjective. The defendant chooses the inputs for its system and decides how to weigh them. … A reasonable consumer would view an Avvo rating as just that – the defendant’s evaluation. What factors the defendant believes to be important in assessing attorneys, and the result of the defendant’s weighing of those factors, cannot be proven false.

Third, the “Pro” badge appearing on the profile pictures of attorneys who pay Avvo is intended to convey a statement of fact: that an attorney has verified the attorney’s information as it appears on Avvo. Avvo’s website explains this meaning with an “i” icon next to the “Pro” badge. Hovering over the “I” discloses that “Attorneys that are labeled PRO have verified their information as it appears on Avvo,” and the website eventually explains the “Avvo Pro” subscription plan if you follow enough links elsewhere. Thus, the statement wasn’t false. Davis alleged that it was still misleading because it implied higher quality, and the disclosures weren’t sufficiently conspicuous to avoid that implication.  The court agreed with Avvo what this was puffery. “Pro” means, literally, a professional; that was true [though why that’s relevant to misleadingness, especially when others in the profession were not granted the dignity of that characterization if they didn’t pay, is unclear]. To the extent that consumers perceived it as “conveying that an attorney is especially experienced or skilled, the term is mere puffery.” Davis couldn’t prove that lawyers marked “Pro” were undeserving, “because in context the term has no definite meaning or defining factors.” Allegations about advertising “highly qualified,” “the right,” or the “best” attorneys failed for the same reasons, as did allegations that paying lawyers got enhanced visibility on the website.

Fourth, the court determined that spotlighting positive client reviews while removing or refusing to post negative client reviews in the profiles of attorneys who pay for the defendant’s services wasn’t false advertising. Initially, the website stated that Avvo could withhold reviews that didn’t meet its guidelines, and that negative reviews could be put through a dispute process at a lawyer’s request. “Consumers are therefore on notice that every client review might not be posted in an attorney’s profile.” [That’s really not the same thing as distorted selectivity, though—neither of those policies discloses discrimination in favor of paying lawyers.]  Anyway, “a collection of client reviews reflects subjective judgments. A reasonable reader would understand that each review is merely an opinion.” Thus, the absence of some reviews didn’t render the remainder misleading. [That doesn’t make a lot of sense to me. The overall ecosystem can be misleading even if each input is subjective, especially where the ecosystem is run by someone who purports to be independent.  Under the court’s reasoning, it wouldn’t be false advertising for a food producer to claim to “win” a taste test—taste being classically subjective—by removing the tasters who rated the product poorly and not disclosing that. The concern about deterring individual reviews, or even collections of reviews, is a real one, but so is the concern about undisclosed bias driven by payment from the reviewed.]  

Further, “spotlighting positive reviews is not false advertising. Not only are the positive reviews opinions, but simply indicating that a particular consumer was satisfied with a service plainly does not constitute a false or misleading statement.”  [Consider the FTC’s Testimonial Guidelines. Under what circumstances might a positive review imply that others can expect the same results? Or are the Guidelines also unconstitutional in this view?]

Finally, Davis did not sufficiently allege injury by offering facts that demonstrate a causal connection between his injury some misrepresentation made by Avvo. Conclusorily alleging lost fees and reputational damages, and diverted business, was insufficient absent facts indicating that consumers on the allegedly misleading Avvo ratings, pro badges, client reviews, or other statements “in choosing or gauging the reputation of an attorney.” “The only fact the plaintiff pleaded to support his theory of harm is that the defendant’s website holds a prominent presence on the internet, and thus consumers who perform a Google search with phrases like ‘top litigation attorney’ will see the website on the first page of results.” That wasn’t enough.

More B&B: Fraud on the PTO that led to years of extra litigation isn't "exceptional" for fee purposes

B&B Hardware, Inc. v. Hargis Industries, Inc., No. 17-1570 (8th Cir. Dec. 21, 2018)

H/T C.E. Petit. This comedy of errors might (might!) be ending. The court of appeals affirmed the district court’s judgment in favor of Hargis and its denial of Hargis’s motion for fees and costs.

For those of you who understandably haven’t followed the ins and outs, the opinion does an admirable job of summarizing:

In B&B’s trademark infringement action against Hargis in May 2000, a jury found that B&B’s “Sealtight” mark was not entitled to protection because it lacked secondary meaning. We affirmed. In June 2006, B&B filed for incontestability status for its trademark with the Patent and Trademark Office (PTO). The PTO issued a Notice of Acknowledgment in September 2006, concluding that B&B’s affidavit of incontestability met the statutory requirements.

… Immediately after its 2006 filing for incontestability, B&B brought suit against Hargis again for trademark infringement, unfair competition, trademark dilution, and false designation of origin. …

[T]he Supreme Court of the United States .. found that the district court should have given preclusive effect to a decision of the Trademark Trial and Appeal Board (TTAB) finding that there was a likelihood of confusion between “Sealtight” and “Sealtite.” …

At trial, Hargis argued that B&B obtained its incontestability status through fraud, presenting evidence that B&B failed to inform the PTO about the 2000 jury verdict that B&B’s “Sealtight” mark was merely descriptive.…

The jury found that Hargis infringed on B&B’s trademark but did not do so willfully, awarded B&B none of Hargis’s profits, and found for Hargis on its counterclaims and its affirmative defense of fraud. Based on the jury’s fraud finding, the district court found that “Sealtight” was not entitled to incontestability status, and that B&B therefore had not pled an intervening change in circumstances allowing it to relitigate claims raised inthe 2000 jury trial. The district court therefore entered judgment for Hargis on all claims.

B&B appealed, arguing that the jury verdict finding fraud and a lack of willfulness was clearly erroneous; and that the district court abused its discretion in refusing to disgorge Hargis of its profits. The court of appeals found no plain error.

Incontestability requires an applicant to file an affidavit with the PTO declaring that “there has been no final decision adverse to [his] claim of ownership of such mark . . . or to [his] right to register the same or to keep the same on the register . . . .” “At least one circuit treats a district court’s finding of mere descriptiveness at summary judgment as such an adverse decision.” [And I don’t see how one could conclude otherwise, since descriptiveness means that the symbol is not a mark and thus can’t be owned as a mark. Failure to disclose is important since the PTO doesn’t examine §15 affidavits on the merits as long as it’s facially complete. And the affidavit is “especially important because a defendant accused of infringing an incontestable trademark may raise an affirmative defense that ‘the registration or the incontestable right to use the mark was obtained fraudulently.’” Fraud on the PTO “consists of willfully withholding material information that, if disclosed, would result in an unfavorable outcome.”  Here, materiality means information that a reasonable examiner would have considered important.

Warning: bad argument alert, not fully called out by the court of appeals.  B&B argued that the 2000 verdict wasn’t a final adverse decision. The court of appeals responded that, in 2007, the TTAB explicitly stated that the 2000 jury verdict was an adverse decision that extinguished B&B’s common-law rights in the “Sealtight” name, so there was no plain error in the district court so finding. B&B then argued that its deception wasn’t willful because it didn’t realize the jury verdict was a final adverse decision and that it didn’t disclose that verdict based on the advice of counsel. The jury was entitled to disbelieve B&B’s owner’s testimony on this point. 

15 U.S.C. § 1065 specifies that the affidavit has to include statements that “(1) there has been no final decision adverse to the owner’s claim of ownership of such mark for such goods or services, or to the owner’s right to register the same or to keep the same on the register; and (2) there is no proceeding involving said rights pending in the United States Patent and Trademark Office or in a court and not finally disposed of.” B&B’s predicate to its defense, that “finality” was what mattered, is thus fatally flawed.  Of course, it is in theory possible that its counsel was so incompetent as not to understand this very clear provision of law, especially since courts of appeal apparently feel no need to mention it, but the true requirements for an incontestable registration might lend even more plausibility to the jury’s conclusion.

Given that incontestability was barred by fraud, the court of appeals affirmed the conclusion that collateral estoppel from the 2000 trial now applied again since there was no significant, nonfraudulent intervening factual change. Once Hargis proved the affirmative defense of fraud, B&B lost the benefits of incontestability, including the presumption of validity.  B&B argued that the 2000 district court lacked subject matter jurisdiction to determine whether “Sealtight” had secondary meaning because incontestability precludes any review of descriptiveness, but the mark wasn’t incontestable in 2000. “Absent any evidence that B&B’s mark has developed secondary meaning since the 2000 trial, we decline to allow B&B to relitigate that issue.”

Hargis also wanted its fees, and I sympathize (we haven’t even talked about the other facts B&B played fast & loose with, no pun intended), given that it’s been fighting this ridiculous case for decades.  Despite the fraud finding, the court concluded that “[t]his case does not present an example of groundless, unreasonable, or vexatious litigation, as it has arguable merit on both sides—evidenced by the fact that both parties have prevailed at various times throughout its 12-year history. We cannot say that B&B pursued litigation in bad faith, as it received a favorable Supreme Court ruling and reasonably believed it could prevail.” This conclusion demonstrates the importance of selecting a starting point.  I would have started instead with B&B’s decisions to go to the PTO seeking a workaround to the failure of the first case, to fail to disclose that material adverse result to the PTO, and to deliberately leverage that wrongly granted incontestability as the sole reason to relitigate the whole case.  I would have thought that taking a matter to the Supreme Court on a premise that itself was based in fraud was “exceptional.”  It’s probably also true that Hargis could have disposed of the matter earlier had its attorneys been unusually attentive to the actual requirements of incontestability and had the district court also understood incontestability, but as between the parties I would attribute the responsibility to B&B.

"soluble" coffee case grinds on

Suchanek v. Sturm Foods, Inc., 2018 WL 6617106,  No. 11-CV-565-NJR-RJD (S.D. Ill. Jul. 3, 2018)

I don’t know why this took so long to show up in my searches, but: this is a consumer protection class action arising from Sturm’s ill-fated decision to put instant (which it labeled “soluble”) coffee into pods that fit into Keurig coffeemakers, to get a jump on the competition for nicer ground coffee pods once the pod patent expired. This lawsuit was filed in 2011; the district court dismissed it on the theory that consumers should have known that “soluble” meant “instant,” and the court of appeals reinstated it, after which a class was certified on liability. Sturm didn’t take my unasked-for advice of that last post; instead, it seems determined to litigate to the bitter end, no pun intended.

Plaintiffs brought claims under the consumer protection laws of Alabama, California, Illinois, New Jersey, New York, North Carolina, South Carolina, and Tennessee. This opinion details the court’s trial plan dealing with key elements of the claims.

Sturm waited seven years to raise a FDCA preemption argument and did so in a few sentences; nope.  The court also emits a bit of impatience with Sturm’s re-raising of previously rejected arguments.  More generally, case law about class certification establishes whether certain issues can be resolved with class-wide evidence at trial. And the fact that the Seventh Circuit said that “[e]very consumer fraud case involves individual elements of reliance or causation” in its earlier opinion in this case does not mean that class-wide proof is impermissible to establish reliance or causation under any and all circumstances.

The parties agreed that individual proof was needed to show causation under the statutes of Tennessee and South Carolina, but not on the other laws.

The Alabama Deceptive Trade Practice Act, for example, bans “[e]ngaging in any other unconscionable, false, misleading, or deceptive act or practice in the conduct of trade or commerce.” The court found that causation was clearly a required element: a deceptive act or practice is not actionable unless the defendant’s conduct “causes monetary damage to a consumer ....”  However, reliance could be presumed upon a showing of material falsehood.  Although common law fraud requires individualized proof of reliance, the ADTPA was a Little FTC Act intended to replace the common law and provide a stronger remedy; the legislature also directed courts to look to the FTCA for guidance in interpreting the law, and FTC practices supported a presumption of reliance from material falsehood.  Alabama bars consumer class actions under the ADTPA, but that procedural rule is only applicable in state court, not in federal courts governed by Rule 23; Alabama also allows the AG to bring classwide claims. Thus, the court wouldn’t impose a requirement to show justifiable reliance on an individual basis in order to implement an anti-class action policy. “Plaintiffs are entitled to a rebuttable presumption of reliance if they show Defendants made a uniform and material misrepresentation to the class. Moreover, causation and reliance are “twin” concepts that are often intertwined in the context of fraud.… Plaintiffs also are entitled to a presumption of causation if they establish the elements necessary for a presumption of reliance.”

California’s CLRA: “When the consumer shows the complained-of misrepresentation would have been material to any reasonable person, he or she has carried the burden of showing actual reliance and causation of injury for each member of the class. As some courts have put it, the plaintiff may establish causation as to each by showing materiality as to all.” Unless “the record will not permit” that inference, as when a named plaintiff testifies that she didn’t have the posited reaction to the claim or where it was “likely that many class members were never exposed to the allegedly misleading advertisement.”  Thus, inferences of causation, reliance, and injury arise under the CLRA “where plaintiffs can establish that the defendants made a uniform and material misrepresentation or omission to the entire class.”  The UCL “is much more straightforward” and doesn’t require individualized proof of deception, reliance and injury.

Illinois: ICFA claims require individual inquiries into proximate causation, except that “where the representation being challenged was made to all putative class members, Illinois courts have concluded that causation is susceptible of classwide proof ...” Causation can be presumed if there’s a uniform misrepresentation to all class members and “there is no other logical explanation for the class members’ behavior in response to the representation.”

New Jersey has applied a presumption of causation where a misrepresentation was material, in writing, and uniformly made to each plaintiff, and also where “all the representations about the product [were] baseless.” The application of a presumption of causation also may depend on whether plaintiffs could have known the truth behind the alleged fraud (why that is relevant is not clear to me) and whether plaintiffs reacted to information about the product in a similar manner.

New York doesn’t require reliance on a misleading act or practice, but does require plaintiffs to show they suffered a loss because of the defendant’s deceptive act. Causation can be shown class-wide “where the misrepresentation or omission was uniformly made to the entire class, crucial to the purchasing decision, and misrepresented the product’s very essence.” By contrast, individual proof is necessary where the product had “a number of characteristics that customers might value.”

North Carolina requires a showing of proximate causation, which itself requires a demonstration of actual and reasonable reliance. “While this inquiry may be difficult to conduct on a class-wide basis, the Supreme Court of North Carolina has held that circumstantial evidence may be sufficient for a factfinder to infer reliance.” For example, a material misrepresentation that went to the sole point of the product could justify a class-wide finding of causation, as could a sufficiently material misrepresentation uniformly made to the class.

The court concluded that the target consumers, Keurig owners, faced a “more-or-less one-dimensional decision making process” when they purchased the accused product. They hoped to buy single-servings of premium, ground coffee they could brew in their Keurig machines. “There is no other logical explanation as to why consumers would purchase instant coffee, at a premium price, in a K-Cup, that they had to brew.” It doesn’t make sense to buy a product three or four times more expensive than typical instant coffee to use a specialized machine to heat water for instant coffee. “This is simply not a case where the plaintiffs had a number of reasons for purchasing” the product.

The allegations were of a complete misrepresentation of instant coffee as ground coffee, “obviously crucial to Plaintiffs’ purchasing decisions as Keurig owners.” There was no evidence that plaintiffs would have purchased the product even if they “knew the truth” about the product, or that any significant part of the class had access to all the information they needed before they bought. “Here, numerous experts conducted surveys and concluded that few consumers understood that GSC [the product] contained instant coffee at all based upon either the initial or modified packaging. Even if some consumers did understand GSC consisted of instant coffee, they had no way of knowing GSC was actually more than 95% instant coffee.”  The record also showed a virtually unanimous reaction: “a uniform outpouring of dissatisfaction with the product…. Essentially, Plaintiffs received a useless product.”

Ultimately, though a jury would determine deceptiveness and proximate causation of injury, it could do so on a class-wide basis, without individual inquiries.

The court reasoned similarly with respect to how plaintiffs could show ascertainable loss under the relevant state laws.  Where plaintiffs allege that they bought a product at a price greater than a truthfully advertised product could have charged, class-wide evidence can establish injury.  Plaintiffs offered both a refund model (they bought a valueless product, since they did not want ground coffee at all) and a price premium model for showing damages, both of which the jury could consider.  For states providing statutory damages—Alabama and New York—those models could also establish damage-triggering injury (both states require a showing of some damage before awarding statutory damages).  Here, the plaintiffs’ injuries didn’t vary from person to person; “the focus is on what the defendants said on their packages and whether the product is different from what was promised.”

The court thus indicated its intent to subclass based on the initial and modified packages, further divided by state law.  The first planned jury trial would be bifurcated.  The first part would assess whether defendants committed a deceptive act or omission that would be materially misleading to a reasonable consumer. If the jury so found, the court would then decide whether those acts were materially deceptive under North Carolina law (which treats whether acts are unfair or deceptive as a question of law) and California law (because UCL and FAL claims are equitable in nature). The jury would then answer the same question for the remaining state subclasses.  If the jury said yes, it would proceed to answer questions about whether the conduct occurred in the course of trade or commerce [that one seems a gimme]; whether the conduct affected the public interest; whether the non-Tennessee/South Carolina/California classes suffered injuries/damages/ascertainable losses in reliance on, or as a proximate cause of, the deception; and whether defendants intended for that last group to rely on their deceptive acts or omissions. A second jury trial would then determine the remaining elements of ascertainable loss, proximate cause, and damages for the Tennessee and South Carolina subclasses.

Program on Private Law call for fellowship applicants in private law and IP

PROJECT ON THE FOUNDATIONS OF PRIVATE LAW

POSTDOCTORAL FELLOWSHIP IN PRIVATE LAW AND INTELLECTUAL PROPERTY, 2019

CALL FOR APPLICATIONS

PURPOSE: The Project on the Foundations of Private Law is an interdisciplinary research program at Harvard Law School dedicated to scholarly research in private law.   Applicants should be aspiring academics with a primary interest in intellectual property (especially, patent, copyright, trademark and trade secret) and its connection to one or more of property, contracts, torts, commercial law, unjust enrichment, restitution, equity, and remedies. The Project welcomes applicants with a serious interest in legal structures and institutions, and welcomes a variety of perspectives, including economics, history, philosophy, and comparative law. The Qualcomm Postdoctoral Fellowship in Private Law and Intellectual Property is a specifically designed to identify, cultivate, and promote promising IP scholars early in their careers. Fellows are selected from among recent graduates, young academics, and mid-career practitioners who are committed to spending one or two years at the Project pursuing publishable research that is likely to make a significant contribution to the IP and private law, broadly conceived. More information on the Center can be found at: http://www.law.harvard.edu/programs/about/privatelaw/index.html.

PROGRAM: The Qualcomm Postdoctoral Fellowship in Private Law and Intellectual Property is a full-time, one- or two-year residential appointment, starting in the Fall of 2019. Like other postdoctoral fellows, IP Fellows devote their full time to scholarly activities in furtherance of their individual research agendas in intellectual property and private law. The Project does not impose teaching obligations on fellows, although fellows may teach a seminar on the subject of their research in the Spring of their second year. In addition to pursuing their research and writing, fellows are expected to attend and participate in research workshops on private law, and other events designated by the Project. Fellows are also expected to help plan and execute a small number of events during their fellowship, and to present their research in at least one of a variety of forums, including academic seminars, speaker panels, or conferences. Through organizing events with outside speakers, helping to run programs, and attending seminars, fellows interact with a broad range of leading scholars in intellectual property and private law. The Project also relies on fellows to provide opportunities for interested students to consult with them about their areas of research, and to directly mentor its Student Fellows. Finally, fellows will be expected to blog periodically (about twice per month) on our collaborative blog, New Private Law (blogs.harvard.edu/nplblog).

STIPEND AND BENEFITS: Fellows have access to a wide range of resources offered by Harvard University. The Center provides each fellow with office space, library access, and a standard package of benefits for employee postdoctoral fellows at the Law School.  The annual stipend will be $55,000 per year.

ELIGIBILITY: By the start of the fellowship term, applicants must hold a J.D. or other graduate law degree. The Center particularly encourages applications from those who intend to pursue careers as tenure-track law professors in intellectual property and private law, but will consider any applicant who demonstrates an interest and ability to produce outstanding scholarship in the area. Applicants will be evaluated by the quality and probable significance of their research proposals, and by their record of academic and professional achievement.

APPLICATION: Completed applications should be addressed to Bradford Conner, and must be received at conner@law.harvard.edu by 9:00 a.m. on February 15, 2019. Please note that ALL application materials must be submitted electronically, and should include:

1. Curriculum Vitae

2. PDFs of transcripts from all post-secondary schools attended.

3. A Research Proposal of no more than 2,000 words describing the applicant’s area of research and writing plans. Research proposals should demonstrate that the applicant has an interesting and original idea about a research topic that is sufficiently promising to develop further.

4. A writing sample that demonstrates the applicant’s writing and analytical abilities and ability to generate interesting, original ideas. This can be a draft rather than a publication.  Applicants who already have publications may also submit PDF copies of up to two additional published writings.

5. Three letters of recommendation, emailed directly from the recommender. Letter writers should be asked to comment not only on the applicant’s writing and analytical ability, but on his or her ability to generate new ideas and his or her commitment to pursue an intellectual enterprise in intellectual property and private law. To the extent feasible, letter writers should provide not just qualitative assessments but also ordinal rankings. For example, rather than just saying a candidate is “great,” it would be useful to have a statement about whether the candidate is (the best, in the top three, among the top 10%, etc.) among some defined set of persons (students they have taught, people they have worked with, etc.).

All application materials with the exception of letters of recommendation should be e-mailed by the applicant to conner@law.harvard.edu. Letters of Recommendation should be emailed directly from the recommender to the same address.

For questions or additional information, contact: Bradford Conner, Coordinator, conner@law.harvard.edu.

"As seen on TV" can be false advertising if seller hasn't been seen on TV

E. Mishan & Sons, Inc. v. Smart & Eazy Corp., 2018 WL 6528496, No. 18 Civ. 3217 (PAE) (S.D.N.Y. Dec. 12, 2018)

Plaintiff Emson sued defendants Masterpan and S&E for false advertising.  The parties compete to sell pots and pans.  Emson’s Gotham Steel pots and pans are made of aluminum and have a copper-colored, non-stick ceramic and titanium coating; it uses direct response TV commercials and as “As Seen On TV” logo on its packages and other ads.

S&E and Masterpan sell “The Original Copper Pan” which allegedly deceives the public by falsely and deceptively conveying to consumers that its cookware is the first of its kind and that Emson’s (and other’s) products are not the originals but are instead mere imitations. In addition, defendants allegedly falsely advertised certain versions of the OCP as being made of, and not merely coated with, copper. “Although each pan has a copper-colored cooking surface, Emson alleges that it ran tests on samples of the 12-inch OCP,” and found that “the cores of each of the tested Original Copper Pans had undetectable levels of copper” and that the inner coating on the samples also lacked the presence of copper.  Finally, defendants allegedly “use an ‘As Seen On TV logo in their advertising,” without having advertised on TV, or only minimally doing so.

The court found that false advertising was plausibly alleged against Masterpan, in terms of copper construction, use of “original” to suggest it was first of its kind, and use of “As Seen on TV.”  The court noted that the allegations on the last one were tenuous, and that discovery might deterimine whether there was literal truth/any TV advertising.  Masterpan tried to distance itself from statements on the main website and on Groupon, but while it was conceivable that Masterpan had no control over or awareness of those statements, the court wouldn’t assume so on a motion to dismiss. It was plausible that Masterpan “controls or is party to the marketing statements regarding its products that appear on both websites.” The OCP website “bears the name of the product that Masterpan manufactures and sells,” and even if it wasn’t registered to Masterpan, it was plausible that “Masterpan has had a say in the words used to market its products as sold through that website.” Masterpan’s control over Groupon advertising was even more plausible, since the OCP Groupon page “explicitly states that the product is ‘[s]old by Master[p]an’ and that ‘the merchant is solely responsible to purchasers for the fulfillment, delivery, care, quality, and pricing information of the advertised goods and services.’”

Defendant S&E, however, fared better. Emson alleged sufficient facts to plausibly conclude that Masterpan markets and sells the OCP, as noted above and by providing documentary evidence that Masterpan shares directors with Dreambiz, Ltd., which owns the trademark “The Original Copper Pan.” But there was nothing so specific as to S&E, only allegations that it shared an address with Masterpan.

Cheezit, the food cops! 2d Circuit reinstates claim over "made with whole grain" where most grain content is white

Mantikas v. Kellogg Co., No. 17-2011 (2d Cir. Dec. 11, 2018)

Plaintiffs bought Cheez-It crackers that were labeled “whole grain” or “made with whole grain.” They alleged violation of New York and California consumer protection laws because such labeling would cause a reasonable consumer to believe that the grain in whole grain Cheez-Its was predominantly whole grain, when, in fact, it was primarily enriched white flour. The district court held that the whole grain labels would not mislead a reasonable consumer, and the court of appeals (in some tension with its recentholding on Trader Joe’s truffle-flavored oil) reversed.

The challenged packages used “WHOLE GRAIN” in large print in the center of the front panel of the box, and “MADE WITH 5G OF WHOLE GRAIN PER SERVING” in small print on the bottom or “MADE WITH WHOLE GRAIN” in large print in the center of the box, with “MADE WITH 8G OF WHOLE GRAIN PER SERVING” in small print on the bottom. Both packages also contained a “Nutrition Facts” panel on the side of the box, which stated in much smaller print that a serving size of the snack was 29 grams and that the first ingredient on the ingredients list (in order of predominance, as required by federal law) was “enriched white flour.” “Whole wheat flour” was either the second or third ingredient.

The district court held that both the “MADE WITH WHOLE GRAIN” and “WHOLE GRAIN” labels would not mislead a reasonable consumer, because both statements were true and were “qualified by further accurate language detailing the number of grams of whole grain per serving.”

False advertising or deceptive business practices under New York or California law requires that the deceptive conduct was “likely to mislead a reasonable consumer acting reasonably under the circumstances.” Context is crucial, including disclaimers and qualifying language. The district court reasoned that “a reasonable consumer would not be misled by a product’s packaging that states the exact amount of the ingredient in question.” But the packaging here allegedly implied that the product was “predominantly, if not entirely, whole grain,” and it wasn’t. This was plausibly misleading because they falsely imply that the grain content was entirely or at least predominantly whole grain.

The ingredient list didn’t help, even though it indicated that a serving size of Cheez-Its was 29 grams and the list of ingredients names “enriched white flour” as the first (and thus predominant) ingredient. The serving size didn’t “adequately dispel the inference communicated by the front of the package that the grain in ‘whole grain’ crackers is predominantly whole grain because it does not tell what part of the 29-gram total weight is grain of any kind.” Plus, adopting the Ninth Circuit’s Williams rule, the court of appeals agreed that “reasonable consumers should [not] be expected to look beyond misleading representations on the front of the box to discover the truth from the ingredient list in small print on the side of the box.” The Nutrition Facts panel and ingredients list plausibly contradicted, rather than confirmed, the “whole grain” representations on the front of the box.

Other cases dismissed on the pleadings involved plaintiffs who alleged deception because a product label misled consumers to believe, falsely, that the product contained a significant quantity of a particular ingredient. Here, however, the deceptiveness was the implication that, of the grain content in the product, most or all of it is whole grain, as opposed to less nutritious white flour. In addition, in most of the other cases, “plaintiffs alleged they were misled about the quantity of an ingredient that obviously was not the products’ primary ingredient.” No reasonable consumer would think that crackers “made with real vegetables” were made primarily with fresh vegetables.  Here, “reasonable consumers are likely to understand that crackers are typically made predominantly of grain. They look to the bold assertions on the packaging to discern what type of grain.” Thus, the front of the package could have misled them. The court declined to adopt a rule that would allow any “made with X” advertising when the ingredient X was in fact present, no matter how deceptive (e.g., if the crackers here were 99.999% white flour).

low volume of confused callers doesn't establish irreparable harm

TrueNorth Companies, L.C. v. Trunorth Warranty Plans, LLC, No. C17-31-LTS, --- F.Supp.3d ----, 2018 WL 6438370 (N.D. Iowa Dec. 7, 2018)

TrueNorth sued TN Warranty for trademark infringement and related claims based on the parties’ respective design logos:

  

plaintiff's logo

defendant's logo

TrueNorth provides financial and insurance services, including products and services to commercial transportation companies and drivers including “transportation risk management, transportation property insurance and transportation equipment insurance. TrueNorth originated in eastern Iowa and now has offices in Tennessee, Texas, Illinois, Michigan and Colorado.”  TN Warranty sells commercial truck warranties, specifically “extended warranty services for mechanical components for used commercial vehicles manufactured by others whose original manufacturer’s warranty has expired.” It markets through independent truck dealers or “authorized retailers,” and the end user is a truck owner or fleet owner who owns the truck(s) covered by the warranties. About 80 percent of its authorized retailers are used truck dealers who sell TN Warranty products at the point of sale at or near the same time they close a deal for the sale of a used truck, while about 15 percent of its warranties are sold by finance companies that provide the financing for the truck and approximately 5 percent of its warranties are sold by repair facilities. Sales to end consumers (individual truckers) are under 1 percent of sales.  TN Warranty argued that “in training new authorized retailers, it emphasizes that it is not selling insurance, but a limited warranty. It does not compete with providers of insurance products and does not market its warranty products through insurance brokers or agents.”  According to TN Warranty, neither it nor its retailers have encountered TrueNorth in the marketplace and was unaware of any other entities that market insurance to the end user in the same way that TN Warranty markets its products; its clients don’t offer insurance. Also, TN Warranty said, “most customers are interested in coverage, cost and convenience rather than the provider of the warranty.”

TrueNorth registered three marks in 2006, including the one shown above, a word mark for TRUENORTH, and the following logo:

TN Warranty started as CompassOne Warranty in 2015, with a mark derived from an earlier company with a mark called Vector Compass. 

In 2015, another entity sued alleging that “Compass” infringed its rights, so (apparently after a contempt order) the founder formed TN Warranty instead, using “TrüNorth” to pay homage to its CompassOne Warranty and Compass Group roots. “It chose to use a dieresis (ü) in its mark to give the brand an international feel, consistent with the company’s international aspirations.”  TN Warranty applied to register the mark; TrueNorth opposed and TN Warranty defaulted.  (Seems like a B&B v. Hargis issue here.)

In early 2016, TrueNorth sent a C&D; in mid-2016, it received an application for insurance from one of its clients in the trucking industry, and among the forms submitted with the application was a Component Breakdown Limited Warranty Agreement form for TRÜNORTH™.  TrueNorth ultimately sued at the end of March 2017. TN Warranty states that it then voluntarily redesigned its mark as follows:

TN Warranty also argued that a non-party, Premium 2000+, was run by an ex-business partner turned rival of TN Warranty’s founder, who’s filed various lawsuits against that founder.  Premium 2000+ allegedly offered to do business with TrueNorth, but cited TN Warranty’s name and mark as a “road block” to doing business, indicating TrueNorth’s lawsuit was premised more on Premium 2000+’s animosity towards the founder rather than on true confusion in the marketplace. TrueNorth disagreed, citing emails and phone calls from truck drivers and professionals within the trucking and insurance industries that allegedly demonstrated confusion.

Preliminary injunction: though the Eighth Circuit has not yet ruled on the Lanham Act consequences of eBay and Winter, those cases lead to the conclusion that a presumption of irreparable harm upon showing likely success on the merits (via confusion) is not warranted.

Harm to reputation can, however, be irreparable.  TrueNorth argued that TN Warranty has received negative consumer reports from the Better Business Bureau and Trucker’s Report (an online forum used by truck drivers). Some of TrueNorth’s trucking industry partners contacted TrueNorth on behalf of drivers with warranty claims in an attempt to resolve warranty issues. It explained its delay in seeking a preliminary injunction stems with an increase in calls about warranties that it received in 2018. TrueNorth argued that it started recording calls in January 2018 due to the “increasing number of calls and other instances of confusion among TrueNorth customers.” It recorded six calls in February 2018, four calls in March 2018, one call in April 2018, three calls in May 2018, no calls in June 2018, two calls in late July 2018 and six calls in August 2018. Its witness described the harm as follows: “Just verbal communications that have been relayed to me that they think that the presence of having su[ch] a similar logo is creating challenges and confusion that is disruptive to our working together to market to owner operators and truck lessees.” The witness further described the situation as creating challenges with how TrueNorth tries to market to leasing companies, but could not provide any specific examples and was not aware of any specific loss of business with the company under discussion.

The court found this evidence of irreparable harm insufficient. Under Eighth Circuit law, a party must show that “the harm is certain and great and of such imminence that there is a clear and present need for equitable relief.” Though TrueNorth showed some level of confusion through phone call recordings and email communications, that didn’t rise to the level of irreparable harm (such as loss of customers or decline in sales) based on this confusion. The time addressing confusion and explaining that TrueNorth provides insurance services and not warranty services “can be addressed through monetary means.”  As to call volume, TrueNorth didn’t provide context; apparently each of the 28 to 30 individuals who take calls in TrueNorth’s call center receive 25 to 30 calls per day (and up to 100 calls per day during peak season). “Six calls per month is hardly so disruptive that TrueNorth is suffering irreparable harm that cannot be addressed through monetary means.”

Nor did TrueNorth show that the alleged harm was more than a possibility. Though reputational damage can constitute a threat of irreparable harm and is difficult to measure, there was still no showing that it was likely. TrueNorth argued that its reputational damage came from (1) customers upset about their warranties and (2) industry partners who have commented on TN Warranty’s presence. But TrueNorth doesn’t sell truck warranties, and there was no record evidence that upset TN Warranty customers would tell fellow truck drivers to avoid business with “True North” or fail to go to TrueNorth for insurance based on a negative impression stemming from their warranty.  This was possible, but merely speculative. And the only industry partners at issue were Lone Mountain Leasing (which raised the alarm on the logo in the first place) and Premium 2000+ (“which competes with TN Warranty and has its own arguable agenda for pursuing business with TrueNorth”).  And the relevant witness couldn’t establish any specific harm as to those partners.  As to Premium 2000+, it sought out TrueNorth to do business, not the opposite, and its reason for not going forward was “questionable based on the record,” which included an email stating that they couldn’t do anything unless TrueNorth got rid of TN Warranty’s founder. “TrueNorth has demonstrated only that its affiliates have acknowledged the presence of another entity named “True North.”

TrueNorth had dealt with other True North entities, and had previously entered into coexistence agreements with one that provided financial consulting services to large banks and credit reporting agencies and another that provided advertising and public relations services. “TrueNorth’s willingness to co-exist with other entities using the same name, albeit in arguably different industries, tends to lessen the alleged harm.”

Finally, its delay in seeking relief weighed against finding irreparable harm. TrueNorth waited 17 months after filing its complaint to bring its motion for preliminary injunction, and even longer if you measure from the time TrueNorth learned of TN Warranty. “TrueNorth’s only explanation for the delay was that it was collecting sufficient evidence to support its motion. If the harm was truly as serious, imminent and irreparable as alleged, TrueNorth should not have needed 17 months to bring a properly supported motion.”

Pleading compliance w/test rules doesn't plausibly plead compliance for consumer plaintiffs

Anglin v. Edgewell Personal Care Co., 2018 WL 6434424, No. 4:18-CV-00639-NCC (E.D. Mo. Dec. 7, 2018)

Are there people who believe that Twiqbal improved consistency?  Because I do not understand the level of detail required. Here, the magistrate holds that pleading that one’s testing complied with FDA regulations is not sufficient to plausibly plead that one’s testing complied with FDA regulations.  I would have thought that, if it’s enough of a fact to be determined by a court and not trigger preemption, then it’s enough of a fact to be pled on its own, even if it is a potentially dispositive issue.  But I don’t see non-advertising Twiqbal cases, so I might be overly critical.

The plaintiffs sought to represent a class of Banana Boat “SPF 50” or “SPF 50+” product purchasers. They alleged that “rigorous scientific testing has revealed that the Products do not provide an SPF of 50, much less ‘50+’.” Consumer Reports magazine reported in May 2016 that “its own testing had revealed that Banana Boat Kids SPF 50 sunscreen lotion had an SPF of only 8.” Further, plaintiffs alleged that their own independent testing using FDA methods demonstrated the Products had SPFs lower than listed on the label. They brought various state law false avertising claims.

The court rejected defendants’ primary jurisdiction argument. The FDA published a “sunscreen Final Rule” allegedly “mandating a whole host of highly specialized, highly scientific, and precise technical and scientific protocols that manufacturers must follow relating to testing and labeling.”  Agency expertise is “the most common reason for applying the doctrine,” which is also used “to promote uniformity and consistency with the particular field of regulation.” Other cases have rejected applying the doctrine to sunscreen labeling, given that plaintiffs allegedly relied on long-established SPF testing procedures and standards, rendering their labels false and misleading, which is a routine factual question for courts. Defendants argued that the court would have to determine whether the parties’ tests followed the technical and scientific requirements of the sunscreen Final Rule. But “this Court is equipped to address such technical and scientific questions, as this and other courts routinely do on a regular basis.” Even if the FDA was in the “best” position to interpret the Final Rule, the court could do so too.  In terms of uniformity and consistency, it was merely speculative that the FDA would be taking further action, much less formal action, or that any such action would be retroactive. Though the FDA had solicited bids for testing sunscreens over two years ago, there was no indication that further action was forthcoming.

However, the preemption argument did better in that it helped kick out the case, although not definitively. The court found that the FDA testing requirements meant that no non-FDA compliant testing could be used to establish the true SPF of a sunscreen, making the Consumer Reports testing irrelevant. If and only if plaintiffs’ testing was FDA-compliant, then their claims were not preempted.  The relevant allegations:

…. Plaintiffs conducted their own independent testing of the Products, utilizing the methodology for SPF testing mandated by the FDA.

Specifically, the independent testing conducted by Plaintiffs was conducted in compliance with all FDA testing methods embodied in FDA Final Rule, 21 CFR Parts 201 and 310, (Federal Register/Vol 76, No 117/Friday, June 17, 2011/Rules and Regulations, including 21 CFR 201.327).

The results of the independent testing conducted by Plaintiffs were consistent with the results suggested by Consumer Reports’ test results and confirmed that the Products had actual SPFs substantially lower than the claimed SPF 50 or “50+”.

Plaintiffs’ investigation concluded that all three products, clearly labeled as containing SPF 50 or “50+”, contained an SPF of less than 37.8 and no more than a 30.1.

This wasn’t sufficient (though plaintiffs said they were prepared to file an amended pleading). The complaint was 34 pages long and only 4 paragraphs were devoted to this crucial issue (this comparison strikes me as a bad measurement tool). Only one paragraph mentioned the specific methodology. There was a need for more than a “conclusory statement that the testing complied with the FDA Final Rule, an ultimate question this Court may be called upon to decide in the future.” And it was unclear whether plaintiffs had FDA-compliant test results relating to all three challenged products. Thus, the court found it prudent to allow an amended complaint.

The court also commented that plaintiffs would likely have difficulty satisfying the predominance requirements on their nationwide claims, but declined to dismiss the class certification parts of the case at this time.

Juxtaposition of claims about protein amounts and sources plausibly creates falsity

Hi-Tech Pharmaceuticals, Inc. v. HBS Int’l Corp., --- F.3d ----, 2018 WL 6314282 , No. 17-13884 (11^th Cir. Dec. 4, 2018)

Hi-Tech sued HBS, alleging that the label of its protein-powder supplement HexaPro misled customers about the quantity and quality of protein in each serving, in violation of the Georgia Uniform Deceptive Trade Practices Act and the Lanham Act.  The district court dismissed the Georgia claims on FDCA preemption grounds and found that it wasn’t plausible that the label was misleading. The court of appeals affirmed the first conclusion, but reversed the second, and declined to find that the FDCA precluded Lanham Act claims here.

The front of the label identifies the product as an “Ultra-Premium 6-Protein Blend” with “25 G[rams] Protein Per Serving,” and it touts the product’s “6 Ultra-High Quality Proteins” and “5 Amino Acid Blend with BCAAs [Branch-Chain Amino Acids].” The left side repeated “an Ultra-Premium, Ultra-Satisfying Blend of 6 High-Quality Proteins” and identified those six whole-protein sources, stating that the product “is also fortified with 5 Amino Acids to enhance recovery.” The right side features the nutrition-facts table, which states that HexaPro contains 25 grams of protein per serving, and the list of ingredients. This side also has a table labeled “Amino Acid Profile” whose heading indicates that HexaPro contains 44 grams of amino acids per serving, while the table itemizes only 25 grams.

Hi-Tech alleged three kinds of deception.  First, HexaPro contains free-form amino acids and other non-protein ingredients as well as whole proteins; an analysis that excludes these “spiking agents” and counts only “total bonded amino acids”—which alone are molecularly complete proteins—allegedly yields an “actual protein content” of “17.914 grams per serving,” not 25 grams per serving. However, the applicable FDA regulation permits “[p]rotein content [to] be calculated on the basis of the factor 6.25 times the nitrogen content of the food,” even if not all of a product’s nitrogen content derives from whole-protein sources.

Second, Hi-Tech argued that the label and in particular the use of “Ultra-Premium 6-Protein Blend” suggests that the product’s entire stated protein content derives from the whole-protein sources identified on the left side of the panel. Third, Hi-Tech alleged that the front of the label was misleading about both the quantity and the source of the product’s protein content: the proximity of “Ultra-Premium 6-Protein Blend” to the phrase “25 G Protein Per Serving” misled consumers into believing that HexaPro “contains 25 grams of the ‘Ultra-Premium 6-Protein Blend’-type protein per serving,” but it has only roughly 18 grams from those sources.  The district court rejected these claims because HexaPro’s label “provides a detailed breakdown of all ... ingredients, including the mix of amino acids.”

Georgia law: The FDCA expressly preempts state laws that “directly or indirectly establish ... any requirement for nutrition labeling of food that is not identical to the requirement of section 343(q) of this title, except [for sales of food at some restaurants], or ... any requirement respecting any claim of the type described in section 343(r)(1) of this title made in the label or labeling of food that is not identical to the requirement of section 343(r) of this title.” In turn, section 343(q) regulates “nutrition information” that must be disclosed about certain nutrients in food products, including the “total protein contained in each serving size or other unit of measure.”  Section 343(r) governs all other statements about nutrient content that “expressly or by implication” “characterize[ ] the level of any nutrient.”  

Hi-Tech’s state-law claim was therefore preempted. Federal regulation expressly allows “[p]rotein content [to] be calculated on the basis of the factor 6.25 times the nitrogen content of the food,” and Hi-Tech didn’t dispute that HexaPro’s labeling complied with this regulation. Alleged misleadingness about the nature, source, and quality of the whole proteins, free-form amino acids, and other ingredients that make up HexaPro’s advertised 25 grams of protein per serving would have to be fixed by changing the advertised amount of protein or itemizing each source’s contribution, but the FDCA and its regs don’t require that. “[T]o avoid preemption, Hi-Tech’s state-law claim must be identical, not merely consistent, with federal requirements. To the extent that the Georgia Uniform Deceptive Trade Practices Act would require changes to HexaPro’s labeling, it would ‘directly or indirectly establish’ requirements that are ‘not identical to’ federal requirements.”

Lanham Act: Initially, the court of appeals rejected the argument that Hi-Tech’s allegation about the true whole-protein content was “conclusory” because it didn’t explain HexaPro’s chemical composition; Twiqbal doesn’t require a plaintiff to provide evidence for its factual allegations.  Courts can disregard legal conclusions and “threadbare” recitals of the elements, but an allegation about how much protein is actually in a product isn’t a legal conclusion.  That’s “a specific assertion about physical and chemical fact that is either true or false, no matter what legal conclusions it may or may not support.”

Given that, the complaint plausibly alleged that the label was misleading. “Considering the label as a whole and taking its statements in context, we find it plausible that a reasonable consumer would be misled to believe that a serving of HexaPro contains 25 grams of protein derived from the ‘6-Protein Blend’ comprising the ‘6 High-Quality Proteins’ listed on the label.” Even an additional prominent statement that the product contained an amino acid blend wasn’t enough to avoid this conclusion. The allegation was not that consumers would be misled to believe that the only ingredient is the “Ultra-Premium 6-Protein Blend.” Rather, Hi-Tech argued that the label would induce a reasonable consumer to believe that the protein in HexaPro derives exclusively from the six-protein blend, and this was at least plausible. The label doesn’t indicate that the claimed 25 grams came from any other source than the whole-protein ingredients; other than in the 25-gram claim, it never used the word “protein” to refer to anything other than the whole-protein ingredients, and instead consistently treated “amino acids” as separate from and providing distinct nutritional benefits from “protein.” The “Amino Acid Profile” on the right side of the label listed 25 grams of amino acids, but provided no explanation of how this figure related either to the product’s 25 grams of protein per serving or the 44 grams of amino acids per serving advertised at the top of the table.

“Based on the total impression given by the label, it is plausible that only sophisticated consumers schooled in federal regulations or nutrition science would understand or even suspect that free-form amino acids or other non-protein ingredients form any part of HexaPro’s stated 25 grams of protein per serving.” While the FDA permits protein calculations based on free-form amino acids and other nitrogen-containing non-protein ingredients, Pom Wonderful established that the FDCA “does not generally bar claims of false advertising of food under the Lanham Act.”

HBS’s specific arguments for preclusion also failed. HBS argued that application of the Lanham Act would create “a genuinely irreconcilable conflict” with the federal regulation governing protein calculations because it couldn’t simultaneosuly disclose both 25 grams of protein to satisfy the requirements of the FDA and 18 grams to satisfy Hi-Tech. But that wasn’t the only way to cure the misrepresentation. “[I]t would suffice to clarify on the HexaPro label how much protein in each serving derives from the six-protein blend and how much derives from free-form amino acids and other non-protein ingredients”; there was no federal law against that.

HBS also argued that the Lanham Act claim would be barred barred “if determining the truth or falsity of the [challenged] statement would require a court to interpret FDA regulations, which is generally left to the FDA itself.” And HBS alleged that Hi-Tech was asking the court “to substitute its own judgment regarding the most appropriate way to measure protein for the FDA’s judgment.” But the conclusion didn’t follow from the premise. The no-interpretation rule involves claims trying to “circumvent the FDA’s exclusive enforcement authority by seeking to prove that [d]efendants violated the FDCA, when the FDA did not reach that conclusion.” Hi-Tech’s claim doesn’t require the court to question the FDA’s conclusion that protein content may be calculated on the basis of the factor 6.25 times the nitrogen content of the food. Instead, the question was whether the HexaPro label was misleading “in the context of the label’s failure to specify the sources of the nitrogen measured by the federal test.”