Friday, August 23, 2019

timeshare company adequately pleads case against timeshare exit promoter

Wyndham Vacation Ownership v. Reed Hein & Assoc., LLC, No. 18-cv-02171-GAP-DCI, 2019 WL 3934468 (M.D. Fla. Aug. 20, 2019)

This is another lawsuit over timeshare exit companies’ allegedly false advertising of the ease of exiting a timeshare. Defendant TET allegedly published false and misleading advertisements to convince Wyndham timeshare owners that it has a “safe,” “legitimate,” or “guaranteed” means of “exit[ing]” them from their timeshare contracts; the ads were allegedly created, at least in part, by defendant Happy Hour. TET would then allegedly instruct owners to stop making payments on their timeshare contracts, without disclosing that the results include breach of their contracts, foreclosure of their timeshare interests, and other adverse consequences. The lawyer defendants would then allegedly get a fixed fee from TET “to engage in fruitless negotiations with Wyndham,” without speaking to any owner.  Wyndham sued for false advertising and contributory false advertising under the Lanham Act, tortious interference with contractual relations (and civil conspiracy to do that), and violation of Florida’s Deceptive and Unfair Trade Practices Act (FDUTPA).

Lanham Act: TET argued that Wyndham didn’t satisfy Lexmark’s zone of interest/proximate cause requirement. Originally, Wyndham failed to adequately “allege that [its] injury flow[ed] directly from TET’s advertising.” But it fixed the pleading problem in this amended complaint.  “TET cites no authority to support its contention that false advertisements must expressly tell viewers to withhold trade from a plaintiff or that the false advertising must be the only reason behind a consumer’s actions for a plaintiff to prevail on a false advertising claim.”  Proximate causation is required, not sole causation or predominant causation.

Wyndham’s alleged lost sales and injury to its reputation were “precisely the sort of commercial interests that the Lanham Act seeks to safeguard.” And it alleged proximate cause by alleging false and misleading advertising statements concerning TET’s services and about Wyndham that deceived identifiable Wyndham owners into retaining TET, who then instructed them to stop satisfying their contractual obligations to Wyndham.  These ads also allegedly caused owners to believe that Wyndham engaged in unlawful conduct and would not voluntarily release them from their timeshare contracts. [That last part sounds … true, unless Wyndham itself determines there’s no more money to be had by squeezing, based on Wyndham’s own description of its conduct in these cases, but ok.] When “a defendant harms a plaintiff’s reputation by casting aspersions on its business, the plaintiff’s injury flows directly from the audience’s belief in the disparaging statements.”

The court also rejected TET’s arguments that its ads were directed at the “timeshare industry” as a whole and do “not expressly or implicitly nam[e] any one timeshare company,” thus could not proximately cause Wyndham’s injury. But “common sense dictates that an entity can plausibly be harmed by disparaging statements directed at the industry it occupies.” Also, the amended complaint alleged that TET made false statements specifically targeted at Wyndham.

TET then argued that its ads didn’t constitute “commercial advertising or promotion” under the Lanham Act because there is no “commercial competition” between Wyndham and TET. Lexmark abrogated that prong of the test for advertising or promotion.

Next, TET argued that its statements were nonactionable opinion.  But whether the statements were false or misleading was a fact-intensive inquiry not suitable for a motion to dismiss.  [Note that many, many courts would at least examine the statements to see if they plausibly conveyed specific, falsifiable facts.] Here, the court accepted as true the factual allegations that the ads were “either literally false or deceptively misleading” and that those statements caused owners to (1) believe that Wyndham engaged in unlawful activity and would not release them from their timeshares, (2) hire TET, and (3) cease payment on their timeshare contracts.  [Note also that doctrinally speaking, (1)-(3) don’t necessarily bear on whether the statements were specific enough to be falsifiable—the genius of puffery (or opinion) is that it can both be persuasive enough to get consumers to act and also not specific or falsifiable enough for a court to deem it actionable.]

Contributory false advertising against other defendants: This requires primary false advertising plus contribution to the primary conduct. The plaintiff must allege that the defendant: (1) “had the necessary state of mind — in other words that it ‘intended to participate in’ or actually knew about’ the false advertising”; and (2) “actively and materially furthered the unlawful conduct — either by inducing it, causing it, or in some other way working to bring it about[,]” such as through the “provision of a necessary product or service, without which the false advertising would not be possible.” Courts should consider: (1) “the nature and extent of the communication between the third party and the defendant regarding the false advertising;” (2) “whether or not the [defendant] explicitly or implicitly encouraged the false advertising;” (3) “whether the false advertising is serious and widespread, making it more likely that the defendant kn[ew] about it and condoned the acts;” and (4) “whether the defendant engaged in bad faith refusal to exercise a clear contractual power to halt the false advertising.”

Wyndham adequately alleged that “the advertisements run by TET were made and created, at least in part, by Happy Hour,” which was apparently enough, even without more specifics about who was responsible for the falsity. Legal services providers SGB and Privett were allegedly aware of TET’s false advertising due to its widespread dissemination [standing alone, this just can’t be right—they need to be aware of the falsity, not just of the advertising], and it sufficed to allege that “SGB[ ] and Privett explicitly or implicitly encourage the false advertising because they knowingly accept legal representation of the consumers deceived by the false advertising” and “derive much, if not all, of their revenue from the consumers solicited through TET’s false advertising.” “Without ... SGB[ ] and Privett’s willingness to accept those consumers as clients,” Wyndham alleged, “TET could not advertise what they do.”

In a sign of how things are going for defendants, the FDUTPA claim survived too, despite defendants’ argument that the pleadings didn’t survive Rule 9(b)—the court wasn’t even convinced the complaint was grounded in fraud, which is somewhat surprising given how 9(b) analysis in similar cases usually goes. But anyway, Wyndham sufficiently pled the who, what, when, why, and how.  

failure to disprove other possible sources of sales defeats irreparable harm in false ad/patent case

Citrix Systems, Inc. v. Workspot, Inc., 2019 WL 3858602, No. 18-588-LPS (D. Del. Aug. 16, 2019)

Citrix sued Workspot for patent infringement as well as false advertising/unfair competition under the Lanham Act, the Delaware Deceptive Trade Practices Act, and common law. Here, the court denied a preliminary injunction.

Lanham Act: Four of the challenged statements characterized Workspot’s products as being significantly faster to “roll out” or having significantly less “time to value” than Citrix’s products – minutes versus months. Citrix argued that this was literally false because some Citrix products can be rolled out in minutes or hours. The court found no literal falsity; the statements “only vaguely refer to Citrix products (leaving it to the audience to determine which products are comparable) and use terms like ‘time to value’ and ‘roll-out’ that have no clear and unambiguous meaning (at least on the record developed to this point).” Citrix even admitted that these terms were “subjective and require the customer’s input, so there is no way to quantify them.”

Other challenged statements characterized Workspot as having a feature velocity (the pace of adding new features) of days, as against Citrix’s feature velocity of months or more. Citrix again argued literal falsity because some cloud-hosted Citrix products are updated on a daily to two-weekly basis, but admitted that at least some of its products were undisputedly on a 12-month release cycle when the statements were made, and the Citrix comparison didn’t specify, so there wasn’t literal falsity. [Note that if the statements had remained in the market, they could have become false without further action on Workspot’s part if Citrix had upped the feature velocity of all its products.] There were similar disputes about when Citrix acquired “automatic scaling.”

Anyway, there was no irreparable harm, either for the patent infringement or the false advertising. For patent, Citrix presented no evidence directly tying  demand for Workspot products to the allegedly infringing features. Citrix relied on Workspot marketing materials, which promoted allegedly infringing features of Workspot’s product. “At best, Citrix has demonstrated that Workspot considers the touted features important to customers. This, by itself, does not satisfy Citrix’s burden on the causal nexus requirement.”

For false advertising, too, Citrix failed to show a causal nexus between the allegedly false statements and the purported harm, such as evidence that a Citrix customer has or likely would switch to Workspot because of the allegedly false statements. Direct competition + comparative advertising + the fact that a majority of Workspot customers are Citrix customers + evidence that “Workspot has successfully pursued ‘Citrix refugeees’ and [has] taken ‘Citrix technology off the table’ through its use of ‘BS’ advertisements” wasn’t enough. None of this showed that it was the false ads, “as opposed to, for example, better prices or better non-patented technology,” that likely caused Citrix customers to switch to Workspot. Workspot didn’t characterize its own advertisements as “BS;” instead, the employee Citrix quoted stated that “no one has called BS on our [total cost of ownership] slides.”

To me, disregarding companies' own marketing materials and internal beliefs about what drives sales is pretty extreme--and note the contradiction with how it works in trademark, where bad faith (often quite broadly defined) will be presumed to have succeeded.

Weight Watchers competitor wins dismissal of TM claims over "millennials are calling [it] Weight Watchers 2.0" ad

Weight Watchers Int’l, Inc. v. Noom, Inc., 2019 WL 3890139, No. 18-cv-9637 (PKC) (S.D.N.Y. Aug. 19, 2019)

Noom markets “weight-loss services based on nutrition and lifestyle advice dispensed through a mobile app.” It ran some ads that mentioned Weight Watchers. “Broadly characterized, these advertisements described Noom as offering effective, modern weight-loss services that compared favorably to those of Weight Watchers.”  WW sued for false advertising and trademark infringement.  Almost astoundingly for a court in the Second Circuit, the court dismissed the trademark infringement claims as nominative fair use. It also dismissed some of WW’s false advertising theories but found that claims based on Noom’s statement that its service is “backed by 8 years of research and proven to be effective by several medical journals” were sufficiently pled.

One Noom Facebook ad stated: “You aren’t still on MySpace, so why are you doing Weight Watchers®?” and used the phrase, “A healthier you in 16 weeks.” Another: “I’ve tried Weight Watchers and nothing has worked!” Other Noom ads featured phrases like, “Lose weight for good,” and, “Most weight loss programs are based on unsustainable dieting” and “crash dieting.” Some Facebook ads included the text, “The program that millennials are calling Weight Watchers® 2.0” and “Millennials are calling it Weight Watchers® for the 21st century.”

False advertising:  The “... so why are you doing Weight Watchers®?” ads allegedly implied the false message that “consumers would lose more weight in 16 weeks using Noom that they would using Weight Watchers, or, alternatively, that Weight Watchers customers would lose no weight in 16 weeks.” The ads included the text, “A healthier you in 16 weeks,” followed by, “Join 45 million+ regular people learning to push past plateaus and tame temptation without starving or stressing out. Noom’s 16-week course gives you the behavior change tools to forgive, practice, and (finally) stick to a plan.” Additional phrases varied, but included “A smarter way to lose weight,” “noom. Weight loss for millennials” and “Lose Nothing But the Weight.”

The court found WW’s reading of the ads “strained.”  The challenged statements were puffery. They mentioned WW only in the context of comparing it to MySpace’s obsolescence. The ads didn’t imply that a Noom customer would lose more weight in 16 weeks than a WW customer would. The analogy between WW and MySpace was simply a vague claim of superiority.

“The Review of Sally W.”  A Noom Facebook ad quoted “Sally W.,” stating “I have lost more weight with Noom in 5 weeks than I lost in 10 months on Weight Watchers.” It apparently used a stock photo and didn’t state an original source for the review.  [The FTC would not be happy with this ad.]  WW argued that the ad falsely implied that Sally W.’s experience was typical. The court found this allegation implausible. The court thought that a reasonable consumer would perceive this as a review from a single customer with no special expertise in weight loss or other relevant areas.  “The Court takes judicial notice that customer reviews of businesses, products and services have become common on many websites and mobile apps, including Google, Facebook and Yelp. Reviewers frequently express their views in strong, personal terms.” 

The court reached this conclusion despite WW’s deployment of the FTC’s Endorsement Guide, which itself was based on consumer research indicating that a substantial percentage of consumers did receive typicality messages from similar ads.  [The court didn’t cite the FTC’s factual basis for its conclusions, just the relevant what-to-do guidance.] While it’s true that “courts have held that a ‘plaintiff may and should rely on FTC guidelines as a basis for asserting false advertising under the Lanham Act,’ ” it’s also true that “there is no private right of action under the FTC Act, and its disclosure obligations do not apply to Lanham Act claims.”  Even according “some weight” to the FTC’s guidance, it didn’t render the claim here plausible because the FTC was concerned with disclosures and disclaimers, not with the underlying ad statements themselves. 

[This reasoning is just wrong.  (1) The FTC disfavors “not typical” disclosures for ads of this type because its research showed that ads of this type are still misleading to many consumers, even with the disclosures, and (2) even if the FTC Guide was “about” disclosures, the point of the FTC guidance here is that, without sufficient disclosure to actually convey atypicality to consumers, these kinds of ads are misleading.  The FTC is substantively concerned with consumer deception under §5, not with disclosure in the abstract.  Given the evidence developed by the FTC—not for nothing, much of it in the weight loss context—it is at least plausible that the ad conveyed a typicality message.  Even taking judicial notice of the prevalence of reviews shouldn’t change that, especially since reviews are not the same thing as reviews endorsed and disseminated by the advertiser, who consumers may indeed consider to have (1) special expertise and (2) some constraints imposed by advertising law against deceiving them, thus making the advertiser’s selection of a review more trustworthy than a random review.]

“Lose Weight for Good” and “Permanent weight loss in the palm of your hands.” The relevant ads included the line “Noom’s 16-week course gives you the behavior change tools to forgive, practice, and (finally) stick to a plan.” And some touted “life-changing results.” WW argued that these ads conveyed a false message “that consumers will not regain the weight they lose by using Defendant’s Program for only 16 weeks, even after they stop using it.” But it wasn’t plausible that a reasonable consumer encountering the ads as a whole “would conclude that Noom guarantees permanent, lifelong weight-loss simply by subscribing to Noom.” This was just puffery.

The December 2018 Ads: These ads included the statements that “Most weight loss programs are based on unsustainable dieting,” “Most weight loss programs are based on crash dieting,” and a purported consumer stating, “I’ve tried Weight Watchers and nothing has worked.” This allegedly conveyed the false messages that WW used crash-dieting techniques and that the customers of WW would regain any weight that they lost. Noom argued that there was a 12-second gap between the “crash dieting” statements and a reference to WW. The court agreed that the challenged statements were puffery: “I’ve tried Weight Watchers and nothing has worked!” was too vague and broad to be falsifiable, and its “hyperbolic” character was reinforced by the next exaggerated statement: “Noom has literally been life-changing!”

Earlier references to “crash” or “unsustainable” dieting and results that “DON’T last” didn’t change matters. They were references to “unnamed weight-loss programs” but didn’t impute particular methods to WW, especially given the accompanying images of a woman eating pasta and a multi-layer chocolate cake being sliced and served, which served to make the claims more exaggerated.

“I yoyo dieted for years ....” This ad continued: “I counted the points. I followed the rules and it didn’t help me long term. I was just so tired of losing the weight and gaining it all back. But I found something new. It’s called Noom. It’s not a diet. It’s a totally different personalized program that uses psychology and small goals to change your habits so that you can lose the weight and keep it off for good.” WW argued that this ad impliedly conveyed a false message that the WW program is based on diet alone. The court disagreed; there was no express reference to WW, and even assuming that points/rules identified WW, the ad still didn’t plausibly convey that WW programs were “based on diet alone”; the relevant statements were about Noom not being a diet, not WW.

The “Coach Heather” E-Mail. This email from Noom had the subject line, “Why Weight Watchers failed you.” The email stated, “Weight Watchers doesn’t have an app which means it’s not only more expensive, it costs more time making room for it in your life.” The complaint alleged that this statement was literally false (since 2009!). However, the ad didn’t sufficiently allege that this email was commercial advertising or promotion, or even identify to whom it was sent.

Finally, WW’s allegations about Noom’s claims about research did survive. Noom’s website allegedly stated that its weight-loss program is “backed by 8 years of research and proven to be effective by several medical journals.” A Noom ad also stated: “Your course is backed by 8 years of research and proven to be effective by several medical journals.” WW alleged falsity/misleadingness because the Noom program has not been subject to “randomized, controlled studies, and at least three of the studies relied upon by [Noom] are preliminary or pilot studies involving only small groups of people,” rendering the “proven effective” statement false and misleading.

For a “tests prove” claim, a plaintiff can show falsity by showing the tests aren’t “sufficiently reliable to permit one to conclude with reasonable certainty that they established the claim made.” By contrast, “[c]onclusions drawn from non-fraudulent data about subjects of legitimate scientific disagreement ‘are not grounds for a claim of false advertising under the Lanham Act.’” Noom’s arguments that it should be protected by the latter principle were more appropriate for summary judgment.  [And those arguments expose the very shaky foundations of ONY, the case cited by the court—deciding which science is more likely than not to be a correct account of the world is a basic judicial function in the modern age.  Among other things, ONY’s scope is/should be limited by the fact that the case involved (1) full disclosure of the underlying data and its limits (2) to doctors who understood the import of that disclosure and thus could draw their own conclusions about whether the results were real.  Previous courts interpreting ONY have understood those limits and I hope that if this case continues the court here does as well.] “The Court is unable to resolve at the pleading stage whether the research submitted by Noom proves the effectiveness of its weight-loss programs, whether that research is reliable, or whether the journals publishing the research are considered credible.”

Trademark infringement: The challenged ads were one with the text, “The program that millennials are calling Weight Watchers® 2.0” and a second stating, “Millennials are calling it Weight Watchers® for the 21st century.” Both ads were identified as “Sponsored” by Noom.  Noom argued nominative fair use.  In the Second Circuit, that’s evaluated by using the multifactor LOC test plus the Third Circuit NFU test as additional factors.  [Sigh.]

Strength and competitive proximity favored WW, but the other usual factors weren’t alleged/were neutral, and the parties’ marks were dissimilar. The alleged bad faith was only the prominence of the use of the WW mark, but those ads also were identified as being from Noom and used the stylized “noom.” logo.  As for the NFU factors, “Weight Watchers” was necessary to identify Weight Watchers, weighing in favor of nominative fair use.  [The court implicitly treats the Second Circuit’s use of the Third Circuit factor one, “whether the use of the plaintiff’s mark is necessary to describe both the plaintiff’s product or service and the defendant’s product or service, that is, whether the product or service is not readily identifiable without use of the mark,” as more like the Ninth Circuit version focusing only on whether the use identifies the plaintiff. Perhaps it would be even more likely to be NFU if Noom needed to use Weight Watchers to explain what Noom was, but it is enough that Noom needs to use the mark to identify Weight Watchers.  If NFU is going to be shoved into the multifactor, balancing LOC test, then it makes some sense that, like the other factors, this factor is a matter of degree.]

Next, “whether the defendant uses only so much of the plaintiff’s mark as is necessary to identify the product or service.” “Courts should consider whether the alleged infringer ‘stepped over the line into a likelihood of confusion’ by using a mark ‘too prominently or too often, in terms of size, emphasis or repetition.’” In these ads, the WW mark appeared once, in a sentence that runs above an image, with no additional marks or design elements owned by WW, and it included the “®” symbol, which the court apparently thought of as good faith-y (although its effect on whether consumers would think the ad came from WW is a bit ambiguous to me). “That the use of the mark is limited to one mention of the company name weighs in favor of nominative fair use.”

Finally, the court considered “whether the defendant did anything that would, in conjunction with the mark, suggest sponsorship or endorsement by the plaintiff holder, that is, whether the defendant’s conduct or language reflects the true or accurate relationship between plaintiff’s and defendant’s products or services,” giving weight not only to source confusion, but also to “confusion regarding affiliation, sponsorship, or endorsement by the mark holder.” Here, the ad text didn’t plausibly “suggest sponsorship or endorsement” of Noom by Weight Watchers. It attributed an opinion to a consumer demographic, suggesting that they “compared Noom to Weight Watchers” and perceived Noom to be “more contemporary.” That didn’t suggest endorsement or sponsorship, but rather that “Noom is a different and modern alternative to Weight Watchers.” Instead, this was “a comparative claim” … Weight Watchers is invoked once in the text, with a negative connotation that its services are outdated.  [Compare to the “if you like X, you’ll love Y” cases—though those cases split in result, and favor X when there are other indicators of similarity to X such as product trade dress; the court makes the point here that there aren’t any such indicators in these ads and instead a clear use of the Noom mark.]

TM claims dismissed. State law claims survived to the extent they matched up with the analysis above. Also, the NY §349 claim based on infringement was dismissed because it didn’t “plausibly allege a specific and substantial injury to the consuming public, beyond the purported infringement of the Weight Watchers mark.”

Monday, August 19, 2019

Supplement ingredient supplier lacks Article III standing against supplement seller

ThermoLife International LLC v. American Fitness Wholesalers LLC, 2019 WL 3840988, No. CV-18-04189-PHX-JAT (D. Ariz. Aug. 15, 2019)

Courts really, really like to call the Lexmark issue “standing.” Here, though, the court goes further by finding the noncompetitor plaintiff—who makes ingredients that are added to third party supplements—not to have Article III standing against the defendant supplement seller for its Lanham Act false advertising claim.

ThermoLife holds supplement-related patents and licenses them for use in supplements as well as selling ingredients.  Allegedly, “[w]ith few exceptions, anytime an amino acid is combined with nitrate(s) and sold and marketed to consumers[,] the product relies on [Plaintiff’s] patented technology.” Its patented creatine nitrate is an ingredient in the (alleged) world’s top-selling pre-workout product: Cellucor’s C4.  

Defendant sells supplements to consumers online. It advertises “C4” and other, non-ThermoLife-licensed creatine nitrate products, including APS Nutrition’s product, which is advertised as “a vastly superior patented creatine [nitrate].” ThermoLife alleged that defendant was falsely advertising as supplements ingredients that have been deemed to be “drugs” by the FDA, without disclosure. Defendant also allegedly falsely labeled products on its website as “patented.”

The court found that ThermoLife failed to plead injury in fact.  It alleged that it had a unique interest in the dietary supplement market and its business was tied to the general popularity of sports nutrition supplements. Thus, it was allegedly harmed “when consumers are misled into purchasing any falsely advertised product that competes with any product that contains ingredients that are sourced from [Plaintiff] and/or products that are licensed by [Plaintiff].”

The court cited Ninth Circuit precedent stating that direct competition is a strong indicator of injury in fact in a false advertising case.  A plaintiff can also “allege that it can provide witness testimony or survey material to show that false advertising would influence consumer choice and, therefore, ‘establish an injury by creating a chain of inferences’ that online advertising harmed a plaintiff’s businesses.”

The allegations here weren’t sufficient. The parties were at different points in the supply chain. The “attenuated link between one product sold by Defendant that contains creatine nitrate sourced from Plaintiff—Cellucor’s C4— and another product sold by Defendant that is not sourced from Plaintiff—APS Nutrition’s creatine nitrate product—does not put Plaintiff and Defendant in direct competition.”  Nor were there specific factual allegations of lost sales data, of specific licenses or ingredients for which sales decreased as a result of the advertising, or of testimony or surveys “that could demonstrate Defendant’s alleged false advertising influenced customer choices.”  [One would think that harm to plaintiff, not influence on consumer choices, would be the key thing here.]  The fact that defendant sells C4 (and calls it “top-selling”) as well as a competing product undercut any inference of diversion. Thus, ThermoLife failed to allege a “sufficiently concrete and particularized injury.”  [Is it just me, or is the court confusing traceability to the defendant’s conduct with the concreteness of the injury?]

In the alternative, the court found the complaint insufficiently pled under 12(b)(6) for basically the same reasons.  Under Lexmark, ThermoLife needed to allege a commercial or competitive injury; this is generally presumed when the parties compete, but couldn’t be presumed here.  And a plaintiff can’t plead a claim for damages just by pleading harm to the overall market in which it competes. Moreover, to allege a plausible commercial injury, a “plaintiff must allege some factual support for its allegations.” It wasn’t enough to plead “damage to its business, reputation and good will and … lost sales and profits that [Plaintiff] would otherwise have made.” ThermoLife didn’t allege “any facts to show that the use of its licensed technology or sales of patented creatine nitrate decreased, when the decrease occurred, where sales were diverted to, or how it correlated with Defendant’s false advertising.” [Call me when a court says any of these things in response to the same words being used to plead trademark infringement.] Nor did ThermoLife allege that companies who use its patented ingredients and licensed technology suffered a loss of sales.

The same defects doomed the false patent marking claim.

Arizona common law unfair competition: that too.

The court declined to award defendant its attorneys’ fees. “[T]he Court could conceive of a situation in which Plaintiff subjectively believed—even if erroneously so—that its Lanham Act claim was not wholly frivolous. … Plaintiff’s arguments do not rise to the high-level of frivolity required to award fees against it.”  [That sounds a bit pre-Octane Fitness, but the court properly cited Octane Fitness so it’s probably ok.]

Reading list: Julie Cohen on internet exceptionalism's failures

Julie E. Cohen, Internet Utopianism and the Practical Inevitability of Law, 18 Duke L. & Tech. Rev. 85 (2019)

From the Introduction:

Writing at the dawn of the digital era, John Perry Barlow proclaimed cyberspace to be a new domain of pure freedom. Addressing the nations of the world, he cautioned that their laws, which were “based on matter,” simply did not speak to conduct in the new virtual realm. As both Barlow and the cyberlaw scholars who took up his call recognized, that was not so much a statement of fact as it was an exercise in deliberate utopianism. But it has proved prescient in a way that they certainly did not intend. The “laws” that increasingly have no meaning in online environments include not only the mandates of market regulators but also the guarantees that supposedly protect the fundamental rights of internet users, including the expressive and associational freedoms whose supremacy Barlow asserted. More generally, in the networked information era, protections for fundamental human rights—both on- and offline—have begun to fail comprehensively.
 Cyberlaw scholarship in the Barlowian mold isn’t to blame for the worldwide erosion of protections for fundamental rights, but it also hasn’t helped as much as it might have. In this essay, adapted from a forthcoming book on the evolution of legal institutions in the information era, I identify and briefly examine three intersecting flavors of internet utopianism in cyberlegal thought that are worth reexamining: utopianism about platforms for distributed cultural and political production (and concomitant failure to reckon with the transformative force of informational capitalism); utopianism about anonymity as a force for institutional disruption (and concomitant failure to acknowledge the essential role of institutions in cabining the human capacity for malice and mayhem); and utopianism about the relationship between information and communication networks and human freedom (and concomitant failure to contend with the powerful and inherently informational mechanisms by which existing protections for human rights are increasingly outflanked and coopted). It has become increasingly apparent that functioning legal institutions have indispensable roles to play in protecting and advancing human freedom. It has also become increasingly apparent, however, that the legal institutions we need are different than the ones we have.

Friday, August 16, 2019

Rogers question: could this art be explicitly misleading?

One reason that Gordon v. Drape Creative is so concerning is that it reads "explicit" to be something other than explicit--maybe a version of falsity by necessary implication, but one that wants to pose transformativeness as the thing that avoids explicit falsity. So what do we do with art objects like this one?  Is the traditional porcelain decoration sufficient for there to be something more than the McDonald's M present?  The V&A certainly thinks so ... but who should decide?
Li Lihong, McDonald's #1, 2007 (V&A Museum) porcelain, transfer-printed in underglaze blue: the explanation says that it "comments on the recent floods of global brands into China by rendering the famous 'golden arches' of the fast food chain in traditional blue-and-white. While contemporary in theme, Li's piece also reminds us that Chinese porcelain has been a global product for centuries."

fake online review by competitor wasn't advertising/promotion, 10th Circuit says

Wilson v. AdvisorLaw LLC, --- Fed.Appx. ----, 2019 WL 3819604, No. 18-1441 (10th Cir. Aug. 15, 2019)

Wilson, a lawyer, had a relationship with AdvisorLaw that ended badly in November 2016. Later that day, a “Patrick Erickson,” allegedly from New York, posted a negative review of Wilson on the website accusing Wilson of serious and deliberate professional malfeasance. When Wilson discovered the review, he sued the defendants. The district court dismissed the Lanham Act claim and then dismissed the state law claims for civil conspiracy, defamation, and deceptive trade practices under the Colorado Consumer Protection Act without prejudice.

The court of appeals affirmed the finding that Wilson failed to show “commercial advertising or promotion” because of a failure to meet prong four [reminder, post-Lexmark, now prong three!]: the advertising/promotion “must be disseminated sufficiently to the relevant purchasing public to constitute ‘advertising’ or ‘promotion’ within that industry.” Though Ripoff Report receives up to 250,000 visitors a day, that wasn’t enough to show that a sufficient number of relevant clients received the message.

The court of appeals held that there wasn’t evidence that the review here “was disseminated to the relevant purchasing public—prospective clients in need of the type of specialized legal services that plaintiffs provide or others in that industry who might have influence over prospective clients.” It wasn’t enough to argue that it was disseminated to the public at large or to cite general evidence that customers look for online reviews. “While we don’t condone the posting of a false review on the Ripoff Report website, we agree with the Second Circuit that ‘[a]lthough the Lanham Act encompasses more than the traditional advertising campaign, the language of the Act cannot be stretched so broadly as to encompass all commercial speech.’”

Comment: While I understand why the court ruled this way, there’s a significant conceptual move that goes unannounced here, and I’m inclined to think it’s a mistaken one.  The early commercial advertising/promotion cases were about isolated statements by individual salespeople to specific individuals that by their nature were unlikely to travel beyond the few individual recipients.  By contrast, a national mailing would be easily understood as commercial advertising even though there was no evidence that a single person read the mailing on its way from the door to the trash.  Likewise, no evidence of how many people saw a TV commercial is ever required to find that it’s advertising/promotion, even though they may all have ignored it.  That is, the structural features of the communication—the intent and attempt to penetrate the market in an organized and widespread fashion—usually suffice to put it within (or outside of) the Lanham Act, and the way the standard test is worded is consistent with that understanding.  By requiring evidence of reception for online postings—and only online postings, even on review sites designed to reach consumers interested in a target’s commercial offerings—the court is raising the standard for what constitutes commercial advertising or promotion, but only with respect to online communications.  There are other cases finding fake reviews by competitors, and websites set up purporting to be independent and designed to be found in a search for the plaintiff’s name, to be actionable under the Lanham Act; I think that’s probably the better result.

Thursday, August 15, 2019

Reading list: once upon a time in student debt

Now that's how to get people reading:

Intergenerational Equity, Student Loan Debt, and Taxing Rich Dead People
Victoria J. Haneman Creighton University - School of Law

Once upon a time, there was a generation of indentured servants called Millennials. They were beautiful and mysterious and clever and feckless, in the way that all young people can sometimes be. The Millennials had dreams of future careers in which they were near-mystical, all-powerful protectors of the planet, brunching on avocado toast, driving in electric cars, and eradicating golf courses from the earth. Droves of Millennials applied to universities, believing that a diploma was a barrier for entry to advance the careers of which they dreamt. Most were confronted with a conundrum: borrow to subsidize the dream career, with decades of (potentially unaffordable) payments when they were finally employed. The Generation Who Stole the World, commonly referred to as the Baby Boomers, had decided that unlimited access to debt was the most economically sound approach by which to offer equal opportunity in higher education — and the delectable irony of this tale is that the availability of debt caused (or at the very least, accompanied) the skyrocketing of costs. A vicious cycle resulted in an entire generation of educated Millennials having mortgaged their futures, and visibly sagging under the weight of the chains of their debt.

This hyperbolic tale leans into stereotypes for dramatic effect, but is also strikingly accurate in its rendering of higher education financing in the United States. The Boomer gerontocracy inherited the benefits of New Deal policies, with substantial public investment into infrastructure and education, but then gradually shifted the financing of higher education away from grants and towards student loan debt. Millennials have taken on 300% more student loan debt than their parents, with those borrowers between the ages of 25 and 34 each having an average of $42,000 in student loan debt. Student loan debt has more than doubled since 2009 and can no longer be ignored: according to projections in this Article, assuming the same steady rate of growth from 2004 to 2019, outstanding student loan debt will exceed $13.5 trillion within the next twenty years, far outpacing the projected growth of the Gross Domestic Product (GDP) of the United States.

There is a glaring gap in academic literature with regard to the choice to primarily lean upon student loan indebtedness to finance higher education, the unsustainability of such an approach, and the intergenerational equity of shifting debt from this generation to the next. Those crafting public policy have implicitly shirked away from notions of intergenerational sustainability in its management of higher education financing — with the (perhaps unintentional) result that higher education financing is operating on Ponzi principles. Forward-looking higher-education policy must be rooted in notions of intergenerational equity: a society is intergenerationally just when each generation does its best to contribute its fair share towards succeeding generations, avoiding serious harm to future generations, with a consciousness of the needs that may exist in the future. This Article fills a gap by considering the way in which debt is used (and potentially abused) as a common pool resource and that the management of a common pool resource arguably carries with it intergenerational equity obligations. The first in a two part series, this Article proposes a way forward with a creative solution — the repurposing of the gratuitous tax system such that the revenues are earmarked and dedicated to the retooling of higher education finance in the United States.

a made-up credential implying a doctorate is inherently misleading

Wilson v. Ohio State Chiropractic Board, 2019 WL 3801546, No. 18AP-739, 2019 -Ohio- 3243 (Ct. App. Aug. 13, 2019)

The Board disciplined Wilson for deceptive advertising, and the court of appeals upheld the discipline.  Two bits of interest: (1) Wilson advertised that he was a “D.NMSc.” The court of appeals found this inherently misleading, which is the constitutional standard used to figure out when no disclaimer requirement need be attempted for commercial speech. The crucial difference between this formulation and the Lanham Act concept of falsity and misleadingness is that courts regularly use their common sense and expert testimony to decide what’s inherently misleading, rather than requiring the government to produce consumer perception evidence. Quoting other state court cases, the court here reasoned that a term is inherently misleading if it is “ ‘likely to deceive the public based upon the general public’s use of the term.’ … In general, a statement will only be inherently misleading if the statement, standing alone, will almost unavoidably lead to fraud, undue influence, intimidation or other duplicity.”

That was the case here. Wilson acknowledged that D.NMSc was supposed to connote that he is a Doctor of NeuroMetabolic Science.

That is simply not true. There is no such credential. Appellant admitted that the D.NMSc is not an academic degree; rather, it is a credential. However, the credential exists only because appellant and his colleagues created it. Moreover, the credential was bestowed upon appellant by the IANMP— an organization he and his colleagues formed—and one that is unlicensed by any Florida or Ohio entity governing academic accreditation of doctoral programs.

He and his colleagues created the D.NMSc credential to distinguish their “functional medicine and functional neurology” services from traditional chiropractic services. He testified that “I do functional medicine and functional neurology, and there’s no certification out there specifically that defines it.” Thus, it was clear that the general public was likely to be deceived by the use of the designation: “A member of the public upon hearing or reading that appellant holds a doctorate would assume that appellant has completed a standardized course of study to obtain the degree when in fact appellant created both the credential and the organization that bestowed the credential.” This was inherently misleading and a prohibition created no First Amendment problems.

(2) Wilson argued that it was wrong to hold that his use of the designation D.C. did not clearly identify him as a chiropractor in violation of Ohio law, which requires that “[a]ll advertisements and solicitations shall clearly reveal that the advertisement and/or solicitation is being made on behalf of a chiropractic physician.” The Board “determined in 2007 that the D.C. designation was insufficient to identify a chiropractic physician in advertisements and accordingly amended its administrative rules to require chiropractors to identify themselves using [chiropractic, chiropractor, doctor of chiropractic, or chiropractic physician].” A representative submitted testimony that the Board amended the rule due to consumer complaints that advertisements using only the D.C. designation did not sufficiently signal that the advertisement was for a chiropractor.  This didn’t constitute unconstitutional compelled speech because Zauderer allows disclosure requirements mandating “purely factual and uncontroversial information” where it avoids consumer deception.  Wilson argued that the Board needed to provide “empirical evidence” of deception to take advantage of this rule.  But Zauderer itself said that when the possibility of deception is “self-evident,” the state need not “‘conduct a survey of the * * * public before it [may] determine that the [advertisement] had a tendency to mislead.’” Here, the Board’s position “that it is deceptive to advertise for healthcare services without revealing the type of healthcare professional providing such services”  was reasonable enough to mandate disclosure, and that mandate was not unduly burdensome.

Kellogg's un-FDAMA-approved health claim was "unlawful" under UCL

Hadley v. Kellogg Sales Co., 2019 WL 3804661, No. 16-CV-04955-LHK (N.D. Cal. Aug. 13, 2019)

An important reminder that California’s UCL makes “unlawful” conduct a violation even without separate consumer deception (although consumer belief may be important for damages causation).  Hadley won partial summary judgment on UCL claims against certain Kellogg advertising that its cereal products supported heart health.  First, the court had previously ruled that preemption hadn’t been shown to apply to the labeling statements “Heart Healthy” or “+ Heart Health +” and declined to revisit the matter now.  (Among other things, Kellogg filed an answer to the operative amended complaint 149 days late without seeking leave to do so. Discovery had closed and the plaintiff had made a number of strategic decisions about what claims to pursue, and “Kellogg effectively asks the Court to reward Kellogg for not citing this regulation in three years of litigation in six versions of Kellogg’s preemption defense. In this Court’s []view, rewarding Kellogg for effectively sandbagging Plaintiff would be clearly erroneous and a manifest injustice.” FWIW, the court didn’t like the “unwieldy” number of products/claims challenged by the plaintiff either.)

Kellogg did succeed in avoiding punitive damages under the CLRA, which allows them upon “clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice.” Hadley’s theory was that “Kellogg knew long before consumers of the dangers of added sugar consumption, knew consumers were ignorant of those dangers, and intentionally obscured those dangers, misleading consumers through both affirmative misrepresentations and deceptive omissions, encouraging Class Members to consume its products, putting their health at risk in pursuit of profit.” But the FDA has taken the position that “inadequate evidence exists to support the direct contribution of added sugars to obesity or heart disease.” Hadley’s own expert admitted that he couldn’t find one study that finds that cereal consumption increases the risk of coronary heart disease, diabetes, or obesity. There wasn’t a triable issue of whether Kellogg met the high standard for punitive damages here.

Hadley sought summary judgment on the argument that two statements: (1) “+ Heart Health + / Kellogg’s Raisin Bran / With crispy bran flakes made from whole grain wheat, all three varieties of Kellogg’s Raisin Bran are good sources of fiber” and (2) “Heart Healthy / Whole grains can help support a healthy lifestyle” were unlawful under the UCL. The UCL borrows other statutes and regulations for unlawfulness. Federal regulations (which have been adopted as California law) govern health claims on food, defining a health claim as “any claim made on the label or in the labeling of a food...that expressly or by implication,...characterizes the relationship of any substance to a disease or health-related condition.” The regulations specify that “[n]o expressed or implied health claim may be made on the label or in the labeling for a food,” unless “[t]he claim is specifically provided for …”; the linking of “[d]ietary fiber and cardiovascular disease” is specifically listed as an unauthorized claim.

Statement 1 (+ Heart Health +/good source of fiber): Kellogg argued that this was two separate claims, each “expressly authorized by the FDA regulations” and that they weren’t required to be separated by any given distance.  Hadley responded that there is a separation requirement because the regulations bar making a direct link between cardiovascular health and fiber. The regs expressly prohibit health claims associating dietary fiber with heart disease and don’t contain an exception for “when the reference to dietary fiber, considered alone, is an otherwise authorized nutrient content claim.”  The court agreed.

Statement 2: “Heart Healthy / Whole grains can help support a healthy lifestyle.”  This statement links whole grains and cardiovascular disease and was not specifically authorized by any regulation, in violation of the statutory/regulatory scheme. Kellogg conceded that “the FDA has not promulgated a formal regulation authorizing food manufacturers to associate consumption of whole grains with cardiovascular disease” but argued that Statement 2 should be considered authorized because it was similar to two claims that the FDA approved via the streamlined process outlined in the Food & Drug Administration Modernization Act of 1997 (FDAMA).

The court disagreed. The FDAMA “provides an alternative avenue for obtaining approval of health claims that are not specifically authorized by FDA regulations,” where (i) “a scientific body” must have published an “authoritative statement” “about the relationship between a nutrient and a disease or health-related condition;” (ii) a manufacturer, “at least 120 days” before using a health claim, submits to the FDA “the exact words used in the claim,” as well as support for its validity; (iii) “the claim and the food must be in compliance” with other requirements; and (iv) the claim must be “stated in a manner so that the claim is an accurate representation of the authoritative statement,” and “so that the claim enables the public to comprehend the information provided in the claim and to understand the relative significance of such information in the context of a total daily diet.”

Under FDAMA, General Mills in 1999 submitted the statement: “[d]iets rich in whole grain foods and other plant foods and low in total fat, saturated fat, and cholesterol, may help reduce the risk of heart disease and certain cancers.” Kraft in 2003 submitted: “[d]iets rich in whole grain foods and other plant foods, and low in saturated fat and cholesterol, may help reduce the risk of heart disease.” By explicit statutory language, FDAMA requires submission of the “exact words” to be used; Statement 2 didn’t contain these exact words.  (And this case is why: preauthorization would be almost meaningless if the manufacturer could just get in the general target area and claim that it got close enough to be deemed authorized.)  It was not enough to argue that, when “read alongside the FDA-compliant disclaimer language,” the “message is substantively identical to an approved FDAMA claim.” (An asterisk referred to fine print: “[w]hile many factors affect heart disease, diets low in saturated fats and cholesterol may reduce the risk of heart disease.”)  Even assuming that it was ok to look to the fine print, that still wasn’t the exact words. Indeed, the asterisked statement “may reduce the risk of heart disease” was different from “may help reduce the risk of heart disease”; the former was simply not an approved statement, implicating the requirement that the manufacturer must submit “a balanced representation of the scientific literature relating to the relationship between a nutrient and a disease or health-related condition to which the claim refers.” Relatedly, Kellogg failed to cite any authority that it could rely on a FDAMA claim submitted by different manufacturers regarding different products and different product claims.

Kellogg argued that, regardless, there was no evidence that its statements were “likely to deceive reasonable consumers or that Kellogg acted with deceptive intent.” That’s not the law. The Ninth Circuit has explicitly held that the “FDA regulations include no requirement that the public be likely to experience deception,” and thus, the “reasonable consumer test” is not an element of a violation of FDA regulations. (Of course, reliance will also be an issue in assessing damages, so the reasonable consumer is not gone from the case.)

The court also denied Kellogg’s motion to strike the testimony of Bruce Silverman about consumer behavior and the challenged claims because he didn’t conduct a consumer survey. But his opinion could be based on his “many years of marketing experience and his review of Kellogg’s own internal consumer research and other documents.” In California state law cases, “surveys and expert testimony regarding consumer expectations are not required.”  Kellogg’s competing expert did do a survey, and that would also come in because the surveys were relevant to assessing materiality. Surveys are “typically ‘adequate evidence’ of whether consumers were deceived or injured by an advertisement.”

Bobby Brown's failed ROP claim shows some of the cracks in the current ROP tests

Brown v. Showtime Networks, Inc., No. 18 Civ. 11078 (CM) (JLC), 2019 BL 290214 (S.D.N.Y. Aug. 02, 2019)

Bobby Brown and the Estate of Bobbi Kristina Brown sued Showtime and the BBC (which got out of the case on jurisdictional grounds) and some other defendants, claiming they used allegedly unauthorized footage of the Browns in a documentary film on the life of Whitney Houston, Whitney: Can I Be Me. They alleged violations of 43(a) of the Lanham Act, as well as state law claims of right of publicity violations and tortious interference with contractual relations; the court dismissed the Lanham Act claim on grounds that applied to the ROP claims and declined to exercise supplemental jurisdiction over the tortious interference claim.

Brown is a famous singer and also well-known for being Houston’s ex-husband; they had a daughter, Bobbi, who died in 2015 in Georgia. Brown pled that information about him, Houston, and Bobbi Kristina is “very valuable and of interest to the public.” Defendants Tracey Baker-Simmons and Wanda Shelley were the executive producers of the reality television program Being Bobby Brown, which starred Brown and aired on Bravo for one season in 2005. An agreement with Brown’s company Brownhouse authorized the filming and included a confidentiality clause.

Brown declined a request to be interviewed for the Showtime/BBC documentary.  “The film, which lasts one hour and forty-four minutes, contains approximately thirty minutes of footage depicting Brown and his late daughter Bobbi Kristina, all of which was derived from Being Bobby Brown.”

Brown and the Estate alleged that Showtime and BBC wrongfully used their names, likenesses and personas without their consent in the film; the credits of the film; and the marketing and promotion of the film. The film allegedly contained unauthorized footage of musical performances of Brown and Bobbi Kristina. The film’s end credits listed “B2 Brownhouse Entertainment in Association with Simmons Shelley Entertainment LLC,” which Brown argued falsely suggested that he consented and authorized the use of his image and voice in the film.  Brown submitted as exhibits reviews of the film that mentioned him, arguing that this demonstrated confusion as to the origin, sponsorship, and approval of the film.

Brown’s ROP claim was under California statutory and common law. But “Whitney: Can I Be Me is an expressive work and a report on a matter of public interest, such that it is immune from suit under both the First Amendment and California law.” The documentary was not commercial speech; “[u]nder the First Amendment, a right of publicity cause of action may not be maintained against ‘expressive works, whether factual or fictional.’” [But see Comedy III, sigh. Later, the court says that “[c]elebrities have successfully pursued right of publicity claims for the usage of their images, likenesses, and catchphrases, but only in the limited context of commercial advertisements and product sales,” without noting the contradiction between saying that the right of publicity is limited to commercial speech and saying that it extends to “products” that incorporate celebrity likenesses.] 

This wasn’t a hard case. The First Amendment “safeguards the storytellers and artists who take the raw materials of life—including the stories of real individuals, ordinary or extraordinary—and transform them into art, be it articles, books, movies, or plays.”  Likewise, “[t]he appropriation of a celebrity’s likeness may be important to uninhibited debate on public issues, particularly debates about culture and values.” The court noted that one of Brown’s own cited reviews commented on “the film’s important role in ‘preserving a necessary account of the truth behind the tabloids.’” Another review stated that the film “delivers...[a] tragic lesson in the toxic mix of fame, talent and children; it should be required viewing for all those who seek to follow this diva’s path to fame and fortune.”

Brown argued that he never signed a release form authorizing the use of his likeness. “However, no such agreement is necessary where, as here, the film and its portrayal of Brown are protected under the First Amendment.” Any industry custom of paying for such releases was not relevant to the legal standard.  The court (not at all uniquely!) uses the idea of “appropriation” to hide a legal conclusion in what sounds like a factual claim: “Here, Brown’s name, likeness, and persona were not appropriated to sell products, were not used in commercial advertisements, and did not appropriate the economic value of Brown’s performance or persona.”  Well… not exactly: they did use his image in advertising the film, but that’s ok because the film itself was constitutionally protected. “The fact that expressive works, including films, plays, books, and television shows [but not greeting cards, lithographs, or T-shirts], generate income for their creators does not diminish their constitutional protection.”

The Estate’s claim was brought under Georgia law.  I find it rather puzzling that a federal court would use the underlying state’s idea of what the First Amendment requires to determine the constitutional scope of that state’s ROP.  Nonetheless, the court proceeded to do a slightly different First Amendment analysis, following the Supreme Court of Georgia’s holding that “where an incident is a matter of public interest, or the subject matter of a public investigation, a publication in connection therewith can be a violation of no one’s legal right of privacy.”  The Georgia ROP claim had to be dismissed because the use here was newsworthy under Georgia law. Likewise, advertising a protected use is also protected under Georgia law.

The Lanham Act claim failed under Rogers. The use plainly had artistic relevance.  Brown tried to use Gordon v. Drape Creative, Inc., 909 F.3d 257 (9th Cir. 2018), to argue otherwise. Not only was Gordon not binding, that case found artistic relevance present even when the defendant “recreated plaintiff’s trademarked catchphrases on the front covers of greeting cards, without any other text” and went off instead on part 2 of Rogers.  (In an unfortunate and likely-to-be-repeated shorthand, the court described this case as holding that the use of the “mark” alone was “sufficient” to find explicit misleadingness, but didn’t note that even Gordon said there was a triable fact issue.)  Anyway, the use here was artistically relevant.

Was there explicit misleadingness?  Sadly, we’ve now arrived at the same kinds of gyrations courts sometimes perform with explicit/implicit falsity in §43(a)(1)(B) cases: “Although this determination is based on the same considerations as the likelihood of confusion factors for trademark infringement, only a ‘particularly compelling’ finding of likelihood of confusion can overcome the First Amendment interests.”  A couple of comments: First, this formulation comes from Twin Peaks, a case about expressive work-v-expressive work contests, which the Second Circuit doesn’t actually apply Rogers to; instead it tightens the usual LOC test to account for First Amendment concerns.  Twin Peaks shouldn't have been relevant here, because Brown is a performer in exactly the same position as Ginger Rogers and should have gotten pure Rogers treatment. Second, and relatedly, this formulation makes a mockery of the “explicit” requirement in Rogers.  

Despite all this, courts can still get rid of trademark claims “where simply looking at the work itself, and the context in which it appears, demonstrates how implausible it is that a viewer will be confused into believing that the plaintiff endorsed the defendant’s work.”  Brown argued that the film’s credits were explicitly misleading. This wasn’t plausible, let alone “particularly compelling.”  The end credits listed “B2 Brownhouse Entertainment in Association with Simmons Shelley Entertainment LLC” as one of dozens of archival sources for the film. The credit was visible on screen for about eight seconds. “It is not plausible that a significant number of people watching the film would pay much attention to the end credits of the film, let alone the long list of archival sources presented near the very end of the end credits. … It is even more implausible that viewers of the film interpreted ‘B2 Brownhouse Entertainment in Association with Simmons Shelley Entertainment’ as understanding that Bobby Brown endorsed, produced, sanctioned, or approved of the film.”

Brown alleged that defendants’ “marketing strategy” capitalized on his fame by providing advance copies of the films to members of the press, giving the press the opportunity to view the film and write reviews before the release date, allegedly in the hopes that the reviews would mention Brown and thus would draw more attention to the film. But that wasn’t sufficient to plead explicit misleadingness. “Put otherwise, Defendants specifically identify the persons responsible for the film, and Bobby Brown is not among them.” None of the reviews Brown identified even stated the mistaken belief that Brown endorsed the film. As Rogers held, “[t]he slight risk that...use of a celebrity’s name might implicitly suggest endorsement or sponsorship to some people is outweighed by the danger of restricting artistic expression.”

With all that out of the way, the court turned to tortious interference. The non-B2 defendants allegedly tortiously interfered with Brown’s confidentiality agreement with B2 after he declined the interview, negotiating to use footage from Being Bobby Brown in the film.  Though choice of law wasn’t clear, the elements of a tortious interference with contract claim under New York and California law were, for all practical purposes, identical: “(1) the existence of a valid contract between the plaintiff and a third party; (2) the defendant’ knowledge of the contract; (3) the defendant’s intentional procurement of the third-party’s breach of the contract without justification; (4) actual breach of the contract; and (5) damages resulting therefrom.”

(3) was ambiguous. Brown specifically alleged that he notified defendants of the existence of the agreement in 2017, after the film already began airing, which would mean the alleged breach necessarily occurred before Brown notified them of the agreement.  The court was troubled by whether defendants could have intended to procure a breach of a contract they did not know existed, but at this stage it declined to grant the motion to dismiss, which would have to be without prejudice anyway. Discovery was a better place to hash this out.

However, without the Lanham Act claim there was no longer a basis for federal jurisdiction (complete diversity was lacking).  The court declined to exercise its supplemental jurisdiction.  

Monday, August 12, 2019

click tracking makes online false advertising harm reparable, preliminary injunction inappropriate

Carson Optical, Inc. v. Alista Corp., 2019 WL 3729460, No. 19-cv-1725 (SJF)(AKT) (E.D.N.Y. Aug. 8, 2019)

Carson sells three products on Amazon that have a magnifying mirror: a folding compact lighted mirror, a round lighted mirror with suction cup base, and a square lighted mirror with stand. According to defendant RQ’s principal Zheng, before February 2019, Carson didn’t advertise a cosmetic makeup mirror. RQ sells beauty products online, including the ten magnifying mirrors. Both parties buy magnifying products “from factories overseas—mostly in China—and brand them as their own for sale at wholesale (Carson) or direct-to-consumers (RQ).”

Carson alleged that the RQ defendants falsely advertised their products with “grossly overstated” magnifying powers. Though the complaint didn’t explain how Carson was harmed by RQ’s statements on its own website, RQ conceded that it predominantly “sell[s] mirrors and ... advertises on Amazon.” According to Zheng, “RQ received the magnification listed on its mirror products directly from its glass suppliers[,] ... simply uses the magnification given to it by its manufacturers and/or displayed in catalogs produced by the glass supplier for its manufacturer[,] ... [and] had no input on the magnification listed.” Defendant Alista sells the same mirrors as the RQ defendants and allegedly used the same false advertising claims.

Carson argued that it was harmed because, when the advertisements “are positioned on the product pages of Carson’s magnifying mirror products on[,] ... consumers are presented with the false [sic] choice of buying Carson’s product or buying the … falsely advertised product[,]”and (ii) they “falsely cause Carson’s products to appear technically inferior and over-priced, when compared to Fancii’s products.”

Carson’s attempt to get a preliminary injunction on its Lanham Act claims failed for want of irreparable harm. Under Salinger v. Colting, “the court must not adopt a ‘categorical’ or ‘general’ rule or presume that the plaintiff will suffer irreparable harm (unless such a ‘departure from the long tradition of equity practice’ was intended by Congress).” Salinger was a copyright case, but the Second Circuit found that eBay applies unless the relevant statute instructs otherwise; the Lanham Act does not, and indeed specifies that injunctions should be based on the principles of equity, and “eBay strongly indicates that the traditional principles of equity it employed are the presumptive standard for injunctions in any context.”

Still, though “general historical practices in comparative advertising cases do not necessarily entitle plaintiff to injunctive relief based upon a presumption of injury, they may be ‘helpful and instructive’ in discerning and applying the eBay standard for granting injunctive relief ‘when the circumstances of a case bear substantial parallels to litigation the courts have confronted before’” (citing Kennedy’s eBay concurrence). Although often “[i]t is virtually impossible to prove that so much of one’s sales will be lost or that one’s goodwill will be damaged as a direct result of a competitor’s advertisement[,]” that’s not true here. Even assuming that there’s way to track “the precise number of customers” within the Amazon marketplace who ultimately elected to buy defendants’ product over plaintiff’s product “after being confronted with the false … advertising on Carson’s product pages[,]” when a consumer clicks on one of defendants’ challenged ads appearing on the page listing Carson’s product, Amazon apparently does track at least the number of clicks. That maximum number means that “plaintiff’s losses are measurable and can be sufficiently remedied by an award of monetary damages.”

Carson’s “conclusory” assertions of irreparable harm to its goodwill and the value of its products in the minds of the consumer, without more, were insufficient. And its claim was further weakened “by the lack of any apparent causal connection between the advertisements and its own sales position,” since Carson only hired its optics expert because, three years ago, it discovered that RQ’s magnifying glasses were being sold with overstated magnifying power claims and it wanted to know whether the mirrors were doing the same. Although the expert opined in January 2019, Carson waited more than two months to sue, and sought injunctive relief a week later, suggesting a lack of irreparable harm.

anti-tanning public service campaign targeted all tanning salons, thus couldn't disparage them

JB & Associates, Inc. v. Nebraska Cancer Coalition, --- N.W.2d ----, 303 Neb. 855, No. S-18-719, 2019 WL 3756342 (Aug. 9, 2019)

Appellants, several tanning salons, appealed their dismissal of defamation and product disparagement claims under Nebraska’s Uniform Deceptive Trade Practices Act (UDTPA). The NCC said negative things about tanning beds generally, not anything about any specific tanning salong.  This wasn’t enough to satisfy the requirement that defamatory or disparaging statements be “of and concerning” appellants.

Appellants “allegedly accounted for between 68 to 71 percent of the known tanning salons in the Omaha and Lincoln, Nebraska, markets and approximately 14 to 18 percent of all the entities in Nebraska that provide indoor tanning services.”  In 2014, NCC started a campaign named “The Bed is Dead” to educate the public on the dangers of indoor tanning. Statements included: “Tanning Causes More Cancers than Cigarettes”; “Tanning beds have been proven to cause skin cancer”; “Just one indoor tanning session increases your risk of melanoma by 20% and each additional use during the same year boosts risk by another 2%”; and “Tanning is addictive. One study produced withdrawal symptoms in frequent tanners with narcotic antagonists such as are used in emergency rooms. Studies find higher rates of alcohol, tobacco, and drug use in females that tan.” The website also said: “Tanning facilities do not require a license to operate in Nebraska. ... In 2010, the U.S. Federal Trade Commission ordered the Indoor Tanning Association to cease false advertising claims: 1) that tanning is safe or healthy, 2) that tanning poses no danger, and 3) that tanning does not increase risk of skin cancer.... Yet, a congressional investigative report two years later found:... Nine out of ten salons DENIED KNOWN RISKS of indoor tanning.”  NCC promoted its websites in many ways, including dermatologist partners who visited Omaha schools and encouraged students to go to the website.

“According to managing staff and employees of appellants, customers asked questions about appellants’ facilities and the dangers of indoor training after visiting appellees’ The Bed is Dead website.”

The district court construed the UDTPA, which states that “[a] person engages in a deceptive trade practice when, in the course of his or her business, vocation, or occupation, he or she ... [d]isparages the goods, services, or business of another by false or misleading representation of fact” (emphasis added).  The state Supreme Court agreed that this language requires reference to a specific producer’s product, rather than to an entire industry as a whole.  “[T]he Legislature’s use of the ‘of another’ language indicates an incorporation of the same ‘of and concerning’ element present in common-law actions aimed at unfair and deceptive trade practices.” [What about statements that “our widget is 15% better than every other widget”?  Presumably that doesn’t target an entire industry in the same way, and it could also be a falsehood about the speaker’s own goods, so construing it as disparaging isn’t required for false advertising liability.]

Likewise, defamation requires statements to be “of and concerning” the plaintiff, rather than about a group as a whole. A group libel claim can meet the “of and concerning” requirement “if either the group is so small that the matter can reasonably be understood to refer to the member or the circumstances of publication reasonably give rise to the conclusion that there is a particular reference to the member.” But that wasn’t the case here. The Bed is Dead campaign was statewide; the website was available to anyone in Nebraska and elsewhere. “Regardless of what internal documents said, which were unavailable to recipients of NCC’s statements, nothing in the surrounding content implied NCC was targeting appellants’ tanning salons, specific locations in the state, or appellants’ specific customer base.”  Affidavits about customer questions in response to the website didn’t indicate that customers believed the statements were about appellants specifically, but rather that they understood that the statements were aimed at indoor tanning in general.

statements about guest's supposed misbehavior at fan convention aren't actionable under Lanham Act

Alexander v. Falk, 2019 WL 3717802, No. 16-cv-02268-MMD-GWF (D. Nev. Aug. 7, 2019)

Randi Alexander and Jackson Young sued a bunch of entities mostly for defamation and disparagement under federal and Nevada laws. “Alexander is an erotic romance novelist and Young is a romance novel cover model.” Defendant RT’s business is to promote romance and particularly promote/review romance books. “Falk is the owner of RT and publisher of RT’s magazine—which later dissolved—and is considered a pioneer of romantic fiction. Falk held a yearly convention tailored to both readers and writers in the romance novel industry,” which was over 35 years old.

The RT Convention held in 2016 in Las Vegas claimed “3,500 attendees, 200 seminars, countless parties, 700 authors signing books, and unforgettable evening extravaganzas in the spirit of Sin City,” at which Falk “looked forward to meeting people in her suite during the convention.”  The testimony was that defendant Wilson and Young had a confrontation at a bar during the convention; Wilson reported the incident and related matters to Falk and stated that she “didn’t feel safe.” Falk told some attendees that she had received complaints about Young and indicated that Young would not be invited back as a result. One witness testified that she suggested Falk talk to Alexander because Alexander was Young’s business partner and Falk stated “Well, from what I’ve heard, she probably wouldn’t care” and that she’d been told that Young and Alexander were more than business partners. “Young testified that he was told the conversations between Falk and Wills and Williams included claims of extortion and blackmail.”
Falk “testified about attendees—readers and writers—who came up to her complaining about Young, including about Young’s work”; she was unwilling to identify anyone but Wilson, and wasn’t sure about the total number. She also testified that she did not see or speak with Young at the RT Convention and that she didn’t receive any complaints about Alexander.  After Wilson talked with Falk, Wilson posted to Facebook, "asserting sexual harassment by [Young], [and] that he had threatened to ruin her career and had asked her to sign a deal to get royalties from her books.” 

Falk also sent a message to Young: “I advise you to not have anything to do with [third-party] and his event ... [B&N] says they will no longer cooperate with him again ... his conference last year was a disaster ... Bow out or you will get your name sullied.” But that was in May 2015—not in relation to the RT Convention.

In April 2017, in response to posts about Young, Falk posted to the Facebook group “Early Arrivals RT2017 Atlanta” that Young was banned from RT events. The first response in the thread came from a woman who stated: “A certain cover-model had been removed from the group due to multiple allegations of abuse and blackmail... I’m not letting him back in.”

Plaintiffs asserted claims under the Lanham Act and various disparagement-related claims.

The court sua sponte found that plaintiffs lacked Lanham Act standing against the RT defendants (which is a step beyond continuing to call it “standing” after Lexmark).  Citing pre-Lexmark precedent, the court reasoned that Lanham Act standing requires a plaintiff to show “(1) a commercial injury based upon misrepresentation about a product; and (2) that the injury is ‘competitive’ or harmful to the plaintiff’s ability to compete with the defendant.” “[W]hen [a] plaintiff competes directly with [the] defendant, a misrepresentation will give rise to a presumed commercial injury that is sufficient to establish standing.”

This is perfectly consistent with Lexmark, but the formulation omits the relevant “commercial activities” language of the Lanham Act—§43(a)(1)(B) isn’t just a product disparagement statute. And that leads the court into perhaps harmless error, given the evident problems with calling the accused statements commercial advertising or promotion (the only thing that even requires serious thought is the Facebook statement, which is plausibly commercial promotion but doesn’t have enough details to imply anything specific).  The court reasoned that there was no evidence “that connects those statements to any particular product.”  At least some of the challenged statements, though, should have been analyzed with relation to Young’s “commercial activities” and maybe even his “services” as a conference personality, though it's not clear to me he was paid for that. Nor was there direct competition between plaintiffs and the RT defendants; though plaintiffs alleged that Alexander was conducting a different romance writers’ and readers’ convention, that was in 2017 and 2018. They sued in 2016, so there was no competition at the time of the alleged misrepresentations.  Again, Lexmark doesn’t require competition, and, as that case indicates, disparagement is exactly the kind of thing that can harm a plaintiff who’s not in direct competition with a defendant.  This is really an “advertising or promotion” failure (and §230 prevents RT from being liable for a comment posted by someone else on Facebook, unless she was acting on RT’s behalf).

Nevada claims for consumer fraud/deceptive trade practices: Similarly, none of the accused statements disparaged plaintiffs’ “goods, services or business” as statutorily required.

Disparagement/trade libel/defamation: A reasonable juror could conclude that “Falk’s statements informing [others] of the complaints she received about Young likely lowered the view of Young so as to be defamatory.” But the testimony didn’t establish falsity: there was testimony that she did receive complaints, and no testimony that she didn’t.  Nor did insinuations that the plaintiffs were having an affair amount to defamation.  And the ban from RT events, and announcement of the ban, weren’t actionable. “The ban is not a statement, and the statement is not otherwise established as having been false.” Statements in the Facebook thread about the ban—made several months after this suit was filed—weren’t enough. And Falk’s “2015 advice to Young regarding his name being sullied cannot reasonably be considered defamatory—if at all relevant to this action.”

The business disparagement/trade libel claim failed against there RT defendants because there is no evidence that they made statements about the quality of any relevant products or services.

Nor could a reasonable juror infer malice by those defendants. Even if Falk didn’t investigate the complaints she testified to receiving, that wasn’t knowing falsity or reckless disregard for the truth. Falk testified that she “took [the complaints] to heart,” “suggesting she was not subjectively reckless or acted maliciously,” and she had no duty to investigate before responding in conversations where Young’s name was mentioned to her or before banning him from RT events.

False light claims failed for similar reasons. Tortious interference claims failed for want of proof of interference/intent. IIED and negligent infliction of emotional distress claims failed for want of sufficient medical evidence or objectively verifiable evidence of harm; seeking mental health treatment wasn’t enough.

The evidence also didn’t support a claim that the RT defendants engaged in civil conspiracy based on Wilson’s specific calling-out Facebook post.  The testimony indicated that they spoke; Falk only told Wilson to “do what you [want] to do” after Wilson told Falk “I don’t know what’s going on, but I’m going to have to do something because I’m literally being dragged through the mud.” Both parties’ testimony indicated that Falk attempted to warn Wilson regarding what Wilson wanted to do. No reasonable juror would infer tacit or explicit agreement to violate the law between Wilson and Falk.

Wilson received sua sponte summary judgment for her on the claims against her for intentional and negligent infliction of emotional distress, and civil conspiracy/concert of action because of the insufficiency of those claims.

ownership of building doesn't convey ownership of (once related) tenant's TM

Long Grove Investments, LLC v. Baldi Candy Co., No. 18-cv-5237, 2019 WL 3716841 (N.D. Ill. Aug. 7, 2019)

Plaintiff Long Grove owns a building in Long Grove, Illinois, “in which a beloved bakery, the Long Grove Apple Haus, once thrived, selling goods such as apple pies and ciders.”  It claimed that, because it bought the building, it acquired trademark rights in the name Long Grove Apple Haus. Baldi set up shop next door and sold goods bearing the putative mark, and Long Grove sued for violation of the federal Lanham Act and the Illinois Deceptive Trade Practices Act. The court granted summary judgment because buying a building, in itself, doesn’t confer rights in the name used by a building tenant.

From 1977 through 2011, non-party Long Grove Confectionary Co. (LGC) owned and operated the Long Grove Apple Haus, after which the building remained vacant. For at least some time, LGC used a pie box like this:

And it sold apple cider like this:

LGC operated two retail stores near Chicago and sold to wholesalers. After closing the Apple Haus Store, LGC continued selling apple pies for some time at its two other suburban retail stores, at Long Grove festivals, and to its wholesale customers.

In 2013, Baldi bought certain assets, properties, and rights related to LGC’s business. It took over and continued operating LGC’s other retail stores. In 2017, it bought a property near Long Grove’s and opened a coffee shop, and a store with a commercial kitchen and bakery. When it opened in 2018, it sold baked goods that used the Apple Haus name and red apple design:

Long Grove is a real estate investment firm that acquired the old Apple Haus building, via special warranty deed, in September 2014. It has never itself sold any goods or products. In 2017, Long Grove executed a lease for the building with a person who intends to open a store there named “Long Grove Apple Haus,” but who (wisely) waited on the resolution of this case.  In that year, Baldi filed an application to register “LONG GROVE APPLE HAUS” for unspecified goods/services that probably can be guessed at; Long Grove opposed and the PTO proceeding was stayed pending this litigation.

Actual use is required to own a trademark, and first use gives priority in ownership. “Plaintiff admittedly cannot demonstrate continuous use, or indeed any use, of the Apple Haus Mark.” Buying the building with which the mark is associated wasn’t enough.  Long Grove relied on Plitt Theatres, Incorporated v. American National Bank & Trust Company of Chicago, 697 F. Supp. 1031 (N.D. Ill. 1988), which held that trademark ownership “passes impliedly with ownership of the pertinent building or business with which the mark is associated, absent express provision to the contrary.” In that case, each successive owner to the historic Esquire Theatre—beginning with the original owners who established the “Esquire” mark—was held to have passed its ownership rights to that mark when it sold the building to the next buyer. The building’s original construction included a marquee and vertical sign containing the name “Esquire,” which has remained on the fa├žade throughout time. Likewise, in Helpful Hound, L.L.C. v. New Orleans Building Corporation, 331 F. Supp. 3d 581 (E.D. La. 2018), t the City of New Orleans established continuous and prior use over the trademark “St. Roch Market” even though the City never actually operated services in the building housing the St. Roch Market. Instead, the City owned the building housing the market (which had been known as the “St. Roch Market” since the late 1800s), designed and built the market, chose its lessees, and significantly restored it after Hurricane Katrina. A food hall tenant’s argument that it held priority over the City as to the “St. Roch Market” mark thus failed.

But those cases were vastly different. “In both of those cases, the original property owners: (1) actually established first use of the marks; and (2) demonstrated that they or their successive owners continuously used the marks at the properties.” [Note that doesn’t quite describe the New Orleans situation, where the city didn’t itself “use” the marks—but I certainly agree that the entity that chose multiple simultaneous tenants over time plainly has a better claim than a single nonexclusive tenant.] Here, the original owner of the building didn’t create, or have any involvement with establishing, the Apple Haus Mark. LGC, a tenant, did so by, among other things, selling products bearing the Apple Haus Mark. In addition, instead of continuous use of the marks at the properties, the building had remained vacant since 2011 and Long Grove made no use of the mark when it acquired the building in 2014. More apposite was Russell Rd. Food & Beverage, LLC v. Galam, 180 F. Supp. 3d 724 (D. Nev. 2016), which held that the owner of the property where a former strip club had been didn’t own the associated mark. It “purchased only the real property” upon which the club was built, not “a going concern.” There was no authority “that the mere purchase of real property that was once associated with a trademark in the past can confer ownership.”

With the trademark claim gone, all other claims failed. There was no false advertising because the Apple Haus mark didn’t refer to or otherwise identify the building, nor was there other evidence that the labels suggested that Baldi’s products came from the building.