Thursday, August 29, 2019

benefit of the bargain damages can be measured by cost of repair in car class action

Nguyen v. Nissan North America, Inc., 932 F.3d 811 (9th Cir. 2019)

Nguyen bought a new 2012 Nissan 370Z with an allegedly potentially catastrophic design defect hidden in the vehicle’s hydraulic clutch system. “After the clutch purportedly malfunctioned—and Plaintiff spent more than $700 replacing it—he filed a putative class action” asserting consumer protection and warranty claims. The court noted evidence supporting the idea of a general defect of which Nissan was aware since 2007 or so, such as a project engineer’s internal email: “This issue is great enough that it warrants a serious look by R&D as to how we can improve the feel, and function of the clutch system. ... Customers are universally dissatisfied with the feel and performance of the system even when it is performing as designed. ... Combine that with the frequent claims of clutch pedal sticking to floor and you’ve taken a dissatisfaction item and made it into a breakdown item.” Nguyen’s son experienced a scary instance of this when the clutch stopped working on the highway, though fortunately he was able to move to the shoulder without physical injury.

The district court denied class certification based on what it saw as inadequacies in Nguyen’s damages model based on the cost of repairing the clutch to fix the problem.  The district court reasoned that the benefit of the bargain would only equal the cost of replacing the defective clutch if consumers would’ve deemed the defective part valueless, which was implausible because even Nguyen drove the vehicle for nearly 27,000 miles before replacing the part.

The court of appeals reversed, finding that a benefit-of-the-bargain model as measured by the average cost of replacing the allegedly defective clutch system was appropriate to satisfy Rule 23(b)(3)’s predominance requirement. The Supreme Court has emphasized that “at the class-certification stage (as at trial), any model supporting a ‘plaintiff’s damages case must be consistent with its liability case.’ ”

Damages under the CLRA, the Song-Beverly Act (California’s warranty law), and the Magnuson-Moss Act could all be measured using a benefit of the bargain theory.  And that was consistent with Nguyen’s liability theory. “Plaintiff’s legal theory is not based on the performance of the allegedly defective clutch system, but instead the system itself, which he claims is defective. Had Plaintiff alleged that performance problems constituted the defect and caused his and the class members’ injuries, then the benefit of the bargain would not be the appropriate measure of damages because, as the district court noted, class members might have received varying levels of value based on if and when they experienced a sticky clutch problem.”  But under Nguyen’s theory, the defect exists whether or not the symptoms have manifested.  Further, he alleged, “a reasonable person would have considered [the fact of the alleged defect] to be important in deciding whether to purchase or lease Class Vehicles,” and thus that Plaintiff and class members “would not have purchased or leased Class Vehicles equipped with transmissions, or would have paid less for them.” Thus, “under both causes of action, the sale of the vehicle with the known defect is the liability-triggering event, not when the [defect] manifests.” It’s at that point that a consumer paid more than she would’ve paid had she known the truth. “[T]he focus is on the difference between what was paid and what a reasonable consumer would have paid at the time of purchase without the fraudulent or omitted information.”  Thus, it was incorrect to say that repair costs wouldn’t measure the harm unless consumers would’ve deemed the defective part valueless. 

Cases from other circuits have also found similar questions “amenable to classwide resolution,” explaining that “a manufacturer’s misrepresentation may allow it to command a price premium and to overcharge customers systematically. Even if an individual class member subjectively valued the vehicle equally with or without the accurate [information], she could have suffered a loss in negotiating leverage if a vehicle with perfect safety ratings is worth more on the open market.”  Technically, I can see why the cost-to-fix might not completely match up with the price drop in the overall negotiated price—though that’s how it works in buying a house, buying a car might be different—but the court noted that cost-to-fix “is a proxy for [his] overpayment of the vehicle at the point of sale.”  In reality, probably many people would’ve gone with a different car instead of one with a clutch so potentially nonfunctional it needed to be replaced, but since we can’t rewind that transaction the cost-to-fix seems like a decent proxy for what they would’ve demanded to take this car instead.

Anyway, Nguyen was seeking to vindicate “the right to take a product free from defect. The defect did not cause the plaintiffs’ injury; the defect was the injury.”  Damages for actual faulty performance would indeed require an individualized analysis that might defeat predominance. The faulty design, however, didn’t pose that problem for class treatment. Reversed and remanded.

Wednesday, August 28, 2019

When is a sale worth $100,000? court is generous to real estate brokerage ad

At World Properties, LLC v. Baird & Warner Real Estate, Inc., 2019 WL 4034636, No. 18-cv-01973 (N.D. Ill. Aug. 27, 2019)

B&W and plaintiff @properties are real estate brokerage companies serving Chicago and the surrounding area. B&W advertised its accomplishments in 2017, allegedly falsely touting $8.8 billion in sales and 32,000 transactions in violation of the Lanham Act and the Illinois Uniform Deceptive Trade Practices Act. @properties alleged that, in fact, in 2017, B&W’s total volume for properties listed and sold was approximately $5.7 billion and its total number of sales was 17,168, while @properties’s total volume for properties listed and sold was approximately $8.5 billion and its total number of transactions was 17,153. B&W allegedly inflated its sales and transactions figures by including not just its real estate brokerage sales and transactions, but also mortgage originations and refinances performed by its affiliate, Key Mortgage Services, and title searches, title insurance services, and other title-related services performed by its affiliate, BWT, as well as two other companies, Starck Title and Landtrust National Title. Those figures also allegedly included property rentals and leases for which B&W acted as the agent.

B&W allegedly inflated its sales and transactions figures by double- or triple-counting certain transactions, for example: “if B&W acted as the real estate broker for the purchase of a property for $100,000, the purchasers of the property obtained a mortgage from Key Mortgage in the amount of $80,000, and the purchasers of the property used BWT as their title company, B&W would have: (a) considered those three distinct transactions for purposes of the 32,000 transactions figure; and (b) added the $100,000 for the property purchase, the $80,000 for the mortgage origination, and $100,000 for the title insurance or other services into the ‘$8.8 billion in sales’ figure, such that $380,000 would have been added to the ‘sales’ figure for what was a $100,000 transaction.” That does sound hinky.

The ad first appeared in an email from Chicago Agent Magazine, a publication catering to Chicagoland’s top real estate agents, brokers, developers, and mortgage professionals claiming “Our 2017 Stats Are Pretty Interesting” and “IT’S OFFICIAL. WE CRUSHED 2017.” The ad didn’t explain its methods or sources, or mention other related companies. The email linked to a blog post on B&W’s website repeating the claims and adding that, “[i]t’s almost hard to believe everything that happened, and not just with our residential sales company, but with our mortgage and title companies, too.” It stated that the “$8.8 billion in sales and more than 32,000 transactions [B&W] did last year is evidence that [B&W’s] clients and [B&W’s] agents across Chicagoland are onto something.” Four paragraphs in, the blog post notes that “[t]he other businesses in our family had impressive results too,” expressly identifying BWT and Key Mortgage. There were similar ads elsewhere.

Were the sales and transactions numbers literally false? Literal falsity depends on how the statement would be understood by a “linguistically competent person,” and a statement that is ambiguous cannot be literally false. “Sales” and “transactions” were at least ambiguous about whether they included property rentals, leases, and mortgage and title services, which seemed like “transactions,” and revenue derived from these actions pretty clearly would count as “gross receipts” (a key definition of “sales”). [That doesn’t seem to deal with counting the amount of title insurance in sale amounts—insuring a property for $100,000 doesn’t mean you’ve made $100,000 in sales/receipts.]

@properties alleged that “sales” and “transactions” are understood in the real estate brokerage industry to refer “to the exchange of ownership interest and title of a parcel of real property from one person or entity to another person or entity.” But that would make this an implicit falsity claim, which @properties disavowed. “It is not the domain of a literal falsity claim to evaluate the specialized understandings of consumers in a particular market; rather, a literal falsity claim asks only how an advertisement would be understood by a ‘linguistically competent person.’”

[This disturbs me as a blanket statement—the linguistically competent person has to be competent in something.  And English is probably too broad a category; otherwise it wouldn’t be possible to literally falsely advertise to watchmakers that one had tourbillons for sale.  Be truthful: most of you had to look that one up!  It also conflicts with some older cases (albeit not in the 7th Circuit) allowing for literal falsity when a term (a) has a specific meaning to the trade and (b) is directed at the trade; I think falsity in those cases should be provable by expert testimony.]  The court here wanted survey or other evidence to establish that potential real estate brokerage clients have a specific understanding of the words “sales” and “transactions.”

Thus, a literal falsity claim based on the fact that B&W’s $8.8 billion in sales and 32,000 transactions numbers are not limited to real estate brokerage sales couldn’t proceed, and the court concluded that the alleged double- and triple-counting didn’t change things, since the actual property sale, mortgage origination, and purchase of title insurance are each discrete sales and transactions. [But as pled, the title insurance sale was a sale of $100,000 in title insurance, not a receipt of $100,000!  How can it be truthful to count receipts of a couple of hundred dollars as $100,000 in an aggregate sales amount?  The real problem is that each individual definition of “sales” might be truthful but the effect of adding the dollar numbers given for those sales together is not truthful because no single definition of sales can produce the total advertised number.]

However, @properties did successfully plead literal falsity in alleging that it was false to include sales and transactions consummated by Key Mortgage, BWT, Starck, and Landtrust. B&W argued that including those companies’ sales wasn’t literally false because they are B&W affiliates.  That would be a closer question if only Key Mortgage and BWT had been included; “[e]specially with respect to BWT, which includes “Baird & Warner” in its own name, a linguistically competent person may well understand B&W’s sales and transactions figures to include BWT’s sales and transactions.” And the blog post expressly named them as businesses in the family (although in a way that seemed to me to suggest that their successes were separate from the beginning claim). “Ultimately, the issue may turn on the exact nature of the corporate relationship between the affiliates,” and the complaint didn’t allege that all of these were in fact affiliates. “[I]f, in fact, B&W included sales and transactions from wholly unaffiliated entities in its $8.8 billion in sales and 32,000 transactions figures, it would have made a literally false statement.”  [I was just reading about why one might want to transact with a particular company in a group, given the use of corporate structure to limit liability risks.]

Materiality: The complaint cited an article stating that a “real estate broker’s sales volume and position in the real estate market are material to a consumer’s decision regarding which real estate brokerage firm to choose.” Kirk Wakefield, et al., What Do Consumers Expect From Real Estate Agents?, Keller Ctr. Research Report (Nov. 2008). B&W argued that this was about a consumer’s selection of an individual agent rather than a brokerage firm. But the article also recognizes how the reputation of the brokerage company can boost an agent because it “can lead to greater attractiveness or demand for the brand.” And it was reasonable to infer “that one sign of a well-established agency is its number of sales and transactions, and thus a potential client would be more likely to select a real estate brokerage company that has a high volume of sales and transactions.” Materiality is generally an issue of fact, though the court noted that, to survive summary judgment, “@properties would be well-advised to adduce better evidence than a single article.”

Injury: The complaint successfully pled that there was a trend following the publication of the ads in which B&W’s real estate sales volume or number of real estate transactions in both the City of Chicago and Chicagoland markets did one of the following: (i) increased at a higher rate than @properties’s sales volume or number of transactions as compared to the same month of 2017, (ii) increased while @properties’s sales volume or number of transactions decreased, or (iii) decreased at a smaller margin than @properties’s sales volume or number of transactions decreased. This was sufficient at the pleading stage, though @properties would need more “evidence that directly links the trends shown in the charts and any claimed reputational damage with B&W’s deceptive advertising” to prevail.

district court ignores Empire, decides that Rogers doesn't cover nonfiction

IOW, LLC v. Breus, No. CV18-1649-PHX-DGC, 2019 WL 4010737 (D. Ariz. Aug. 26, 2019)

Every time I think I’ve seen it all .... Here, the court decides that Rogers doesn’t apply if the challenged book title isn’t itself “expressive,” which means something other than “conveys meaning.”  I feel like Old Luke.

Breus “is a clinical psychologist … who studies how his patients’ chronobiologies [natural circadian rhythms] effect their treatment.” He’s written three books and more than eighty blog posts discussing chronobiology and circadian rhythms.  Breus met Randy Miller, the sole member of plaintiff IOW and the majority shareholder of plaintiff WEC. Miller told Breus about his business, WHEN, and shared his ideas for an online counseling platform named “If or When” or “If not Now When,” “where coaches would help customers achieve their goals based on the concept of: ‘If I don’t do it now, when will I do it?’” They entered into a Confidentiality Agreement regarding their discussions, but Breus provided no services to plaintiffs and was never identified as an associate by their promotional materials.

This dispute is about Breus’s third book, The Power of When (initially titled The Overnight Solution), which “posits that an individual can be healthier and more productive by adjusting when she accomplishes certain tasks.” In 2015, Breus acquired to promote the book; it went live in August 2016. Id. at 5. He also registered to publish his Bio-Time Quiz, which went live in July 2016. Plaintiffs claimed that Breus, in developing the concept for his third book, used and incorporated information that he discussed with Miller and that was subject to the Confidentiality Agreement and trade secret protections.

Breach of contract:  WEC argued that Breus “utilize[d] the confidential materials received from [WEC], which included the confidential proposed trademarks and branding of WHEN selected by Mr. Miller.” Miller requested his attorney perform a trademark search on Power of When, and stated that he and his attorney “considered that phrase to be highly confidential” until it was publicly disclosed in an August 2016 trademark application. But this didn’t show that Breus violated the agreement, nor did the evidence show that The Power of When or its marketing materials mimicked the WHEN programs, ideas, and brand models.

As for the origin of the book title, defendants cited evidence that Breus’s publisher, LB, “conceived the title in a meeting where Dr. Breus was not present and later suggested the title to him via email.” The emails in the record didn’t controvert LB’s employee’s sworn testimony that she and LB conceived the title without input from Breus; indeed, the emails stated specifically that Breus had different title suggestions. The employee testified that she disliked the book’s working title; another person came up with The Science of When, but the publisher found the word “science” too technical-sounding so she suggested “power.” There was no contrary evidence; credibility issues couldn’t preclude summary judgment without evidence undercutting the truthfulness of the email exchange or the participants’ testimony about it.

WEC argued that even if Breus did not suggest The Power of When as a book title, he had a duty under the Agreement not to use it, but didn’t establish the existence of such a duty. Nor was there a breach of the implied covenant of good faith and fair dealing on this record; plaintiffs weren’t claiming misuse of confidential information, but “misappropriation of use of ‘WHEN,’ ‘Power of WHEN,’ and other uses of ‘WHEN’ throughout the book.” [Ugh.]

Trade secrets: a similar fate. Plaintiff’s principal Miller testified that the trade secret disclosed in Dr. Breus’s book is “WHEN” and “Power of WHEN”; that he did not own the trademark Power of WHEN until August 2016 when he filed a public trademark application [pro tip: the application isn’t “ownership”]; that the information disclosed in Dr. Breus’s book was “not confidential information”; and that it was no secret that he used “when” in connection with his business. Nor did anything identified as confidential by the plaintiffs show up in the book.

And yet the trademark claims survive, the court becoming entangled in various doctrinal thickets.

Claims based on WEC’s Power of When trademark: Defendants pointed out that Breus told Miller the title of his book in December 2015, and the title was conceived, domain names acquired, websites published, promotions began, and more than 15,000 copies of the book were shipped to retailers, all before WEC filed its ITU application on August 28, 2016. 

Plaintiffs’ argument was to cite cases that “the title of a single book cannot serve as a source identifier” and that “the publication of a single book cannot create, as a matter of law, an association between the book’s title (the alleged mark) and the source of the book.” The court thought the Ninth Circuit might be more flexible, and that the presence of “several promotional activities and the shipping of 15,000 books to retailers” might also matter.  However, the court thought that plaintiffs might be able to establish priority.  But priority isn’t the best way to describe the issue: even after the registration issued (2017), plaintiff shouldn’t be able to prevent uses that began before the filing date of the ITU. Prior users shouldn’t need to have “trademark rights” that would enable them to suppress others’ uses in order to have rights to continue use. 

The court reasoned that the trademark application constitutes “prima facie evidence of the validity of the registered mark” [also not true as stated; only as of 2017, when the registration issued, did the claims of the registration—not the application—constitute prima facie evidence of validity] and so a fact-specific inquiry was required.  “[A]n issue of fact exists regarding whether Defendants’ pre-August 2016 activities rebut Plaintiffs’ presumption of ownership… “A reasonable jury could weigh the factors and determine that Defendants’ pre-registration activities – most of which appear to have occurred out of the public eye – were not sufficiently public to identify the mark in an appropriate segment of the public mind as Defendants’ mark.”  [This is also an instance of Bill McGeveran’s observation that multiple overlapping doctrines allowing defenses can actually impair defendants’ chances—a §33(b) prior user defense might have worked here, subject to the court deciding that defendants would need to have had a valid mark as opposed to a use; descriptive fair use might also have worked. But the real problem is that defendants, in apparent good faith, began using the phrase before plaintiffs filed their ITU. But don't worry; it gets worse.]

Now, on to Rogers.  The court characterized the test as follows: “Under Rogers, a defendant must first ‘make a threshold legal showing that its allegedly infringing use is part of an expressive work protected by the First Amendment.’ Gordon v. Drape Creative, Inc., 909 F.3d 257, 264 (9th Cir. 2018).”

Defendants, completely correctly, argued that using a phrase as the title of a book satisfies that threshold showing because it’s the title of a book, which is an expressive work. Appallingly, the court disagreed because the book is a nonfiction book. Although the word “artistic” appears many times in Rogers cases, the First Amendment concerns about using trademark to suppress speech are no different for nonfiction. In addition, and in contradiction to Empire, the governing law of the circuit (cited several times in this opinion and yet somehow completely ignored on this point), the court required that defendants show that the phrase had “cultural significance or meaning beyond its source-identifying function” in order to invoke Rogers. [And by the way, even if you did require that, the descriptive meaning of the phrase is clearly meaning “beyond its source-identifying function”—when the title was chosen, there was no source-identifying function because even the ITU was not yet filed.]

Thus: “The Court must determine therefore whether Plaintiffs’ mark, Power of When, has assumed cultural significance such that Defendants’ use of the mark in Dr. Breus’s book title is expressive, rather than simply commercial use or advertising for his non-fiction work.”  Defendants, again completely correctly, pointed out that the book was a creative work with a lot of expression.  “But this evidence addresses the book’s contents, not whether the book’s title is expressive or artistic.” But of course that’s not even close to the test: the test is whether the putative infringer is using the claimed mark as part of a work; a title is part of a book just as it is part of a movie for First Amendment purposes.  The court cites Rogers’ statement that purchasers have the right not to be misled about the source of books without noting, as Rogers does, that titles [like other components of expressive works that aren’t the publisher’s imprint] don’t usually indicate source, which is why we have a special test.

And defendants didn’t show that the Power of When mark has “transcend[ed] [its] identifying purpose,” “enter[ed] public discourse and become an integral part of our vocabulary,” “assume[d] [ ] cultural significance,” been imbued “with a meaning beyond its source-identifying function,” or “evinces an intent to convey a particularized message” that “would [likely] be understood by those who viewed it.” [Cue endless screaming.]  Thus, “no evidence shows that Dr. Breus’s allegedly infringing use of The Power of When as a title is an expressive, creative, or artistic choice, rather than ordinary commercial speech that describes the content of his non-fiction self-help book.”  [Endless screaming continues; the court said it right there: the phrase describes the content of his book!  That is a particularized message!]

Thus, the use of The Power of When implicated ordinary trademark concerns, not the First Amendment.  Rogers didn’t apply.

Defendants sought to cancel WEC’s fourteen registered marks covering “personal growth and motivation consulting services,” all filed as ITUs with subsequent statements of use. However, the claimed use dates seemed creaky (most were in 2016; a few in early 2017), while “members of a beta test that presumably used services related to the marks did not complete surveys until 2017 and 2018. WEC produced a WHEN member status page showing no activity earlier than June 30, 2017, and produced communications with members of the beta test group in 2017.”  The court noted the authority holdign that uses that are sufficient to establish priority are not necessarily good enough to merit registration, which requires actual use and not analogous use. However, the Ninth Circuit still applies a totality of circumstances test to determine “whether a service has actually been ‘rendered in commerce.’”

WEC argued that it had “genuine, commercial, pre-sales activities before it launched its business, including presenting its service offerings to 10-15 prospective customers in Powerpoint presentations and in online and in-person meetings; creating branded apparel and websites; creating and distributing sales materials; creating and using training manuals and customer tools, including health journals; creating and marketing various service levels; raising investor capital; getting evaluations of trainings, performing beta tests and compiling surveys; and issuing press releases.” Query whether any of that would have had any chance of satisfying the PTO had it known that was what WEC called “use.”  The PTO requires the services to be actually rendered in commerce, and none of that sounds like rendering services.  Also query whether it makes any sense to think that this company was using fourteen marks—is it really plausible that there were fourteen symbols serving to designate the source of these services?

But anyway, there was evidence that on December 14, 2016, WEC conducted an online interactive team meeting with a prospective client using a document that bore the Power of When mark; that WHEN Advisors were trained in Fall 2016; and that WEC used the marks in actual sales after its launch. “WEC’s training schedule from September 2016 repeatedly includes the WHEN mark, and the 2016 Training Manual includes Find Your When. WEC’s other cited evidence, which appears to include internal documents and promotional materials, contains references to the other registered marks, including WHENness, WHEN Advisor, WHEN Way of Life, WHEN is Now, MyWHEN, and FYW.”

Because the Ninth Circuit test “specifically instructs the Court to consider pre-sales activities in determining whether a trademark owner uses its marks in connection with services rendered in commerce,” there were issues of fact about whether WEC’s activities “distinguished the marked services and were a commercially reasonable attempt to market their services.”

failure to disclose vaping's extra risks over smoking could be deceptive; no arbitration for Juul

Colgate v. Juul Labs, Inc., 2019 WL 3997459, No. 18-cv-02499-WHO (N.D. Cal. Aug. 23, 2019)

Juul makes e-cigarettes and nicotine cartridges/pods. “Plaintiffs seek to represent a nationwide class and numerous subclasses in claims for false advertising, fraud, unjust enrichment, several forms of product liability, several types of negligence, violation of Magnuson-Moss Warranty Act, breach of express and implied warranty, and violation of the unfair and unlawful prongs of various state consumer protection statutes.” A lot goes on here; the court partially grants and partially denies Juul’s motion to dismiss and denies its motion to compel arbitration because plaintiffs did not have inquiry or actual notice of the arbitration provision.

Previously, the court had found that some but not all of the plaintiffs’ claims were preempted by the FDCA as amended by the Tobacco Control Act: claims based on the allegation that Juul’s labelling fails to warn consumers that its nicotine formulation is more addictive than other methods of nicotine ingestion were expressly preempted. Claims based on the mislabeling of the percentage of nicotine per pod were not preempted because the plaintiffs had sufficiently alleged that Colgate relied on Juul’s representation that the pods contained 5% nicotine when they allegedly contained 6.2% nicotine. Also, a clause in the TCA expressly excepts advertisements from preemption, so claims based on ads’ failure to warn consumers about the potency and addictiveness of Juul’s formulation or the amount of nicotine could be repleaded.  Many of the previous consumer protection claims didn’t satisfy Rule 9(b), but claims based on identified state consumer protection statutes, unjust enrichment, design defect, manufacturing defect, breach of implied warranty of merchantability, and negligent misrepresentation were sufficiently pled. This new complaint added allegations in an attempt to satisfy Rule 9(b).

At the base of the claim: Juul’s formulation is allegedly more addictive and dangerous than a normal cigarette because it delivers more nicotine up to four times faster, and causes less throat irritation, which in cigarettes slows consumption and inhibits use.  Juul’s formulation allegedly “delivers doses of nicotine that are materially higher than combustible cigarettes,” producing “higher nicotine absorption than expected for the advertised formulation,” or about 30% more nicotine per puff than a traditional cigarette. Juul allegedly touted data to claim that it delivered approximately 25% less nicotine to the blood than a cigarette, creating the false impression that it is less addictive. Advertising claims that a “JUULpod is designed to contain approximately 0.7mL with 5% nicotine by weight at time of manufacture which is approximately equivalent to 1 pack of cigarettes or 200 puffs” was therefore false and misleading because (as Juul allegedly knew) what is important is the amount of nicotine that enters the bloodstream, which is as much as twice as much as that delivered via a pack of cigarettes. Worse, each cigarette in a pack must be separately lit, but Juul can be inhaled continuously and used indoors without detection, eliminating the need for smoke breaks.

The court ruled that plaintiffs satisfied Rule 9(b) with respect to named plaintiffs who remembered which ads they’d seen, but not as to named plaintiffs who didn’t.  Without identifying specific ads, they didn’t properly plead the “where” required by 9(b).  Attaching representative ads to the complaint wasn’t enough, as it would be for the FTC as plaintiff.

Juul next argued that plaintiffs didn’t plausibly allege misleadingness, in part because the risks of nicotine have been well known for decades. The court found that plaintiffs sufficiently stated both an omission claim and an affirmative misrepresentation with regards to Juul’s advertising that one pod has as much nicotine as a pack of cigarettes. “Although the dangers of nicotine are known to the community, it would go too far to say that JUUL need not to warn consumers that using JUUL’s product will cause their bodies to absorb twice as much nicotine as they would from a pack of cigarettes. It is also irrelevant that certain plaintiffs were smokers before using JUUL. Being a smoker of combustible cigarettes would not impart knowledge that JUUL’s liquid nicotine formulation might be twice as potent.”

Thus, claims related to Juul’s pharmacokinetics survived, though the aesthetics of its marketing (“bright” colors, “clean lines,” “minimal text,” “eye-catching graphics,” FDA-regulated flavors, attractive adult models, and other common advertising practices) wouldn’t themselves constitute misrepresentations, and “claims based on themes and vague terms in JUUL’s advertising are, as JUUL argues, nothing more than non-actionable puffery.” Nor did plaintiffs state a claim based on Juul’s statement that a user may cancel the autoship service at any time (which allegedly misrepresented their ability to cancel given the likelihood of addiction) because none of the plaintiffs alleged that they used the service.

Some products liability/warranty claims also survived, as did UCL unlawfulness and unfairness claims (the latter based on alleged targeting of minors).

The analysis in Sperry is both analogous and persuasive. Plaintiffs have stated an “unfair” claim under state consumer protection law because they have sufficiently alleged that JUUL’s targeting of minors meets the requirements of Sperry. The allegations also state an unfair claim under the tethering test because the public policy at issue is tethered to state laws prohibiting the sale of e-cigarettes to minors.

The court found that the complaint didn’t successfully plead that Juul was vicariously liable for the acts of third party @JUULnation on Instagram. @JUULnation “posted tips on how to conceal JUUL devices in school supplies; ridiculed efforts to combat use in schools; promoted videos of JUUL influencers; sold JUULpods directly through its Instagram account; and promoted other sites selling JUUL products to its 650,000 mostly teenage followers.” The complaint alleged that, because @JUULnation used JUUL’s hashtags in its posts, “JUUL, which monitors its hashtags, was aware of @JUULnation’s conduct and could have stopped and condemned @JUULnation’s youth-targeted activity. Id., CAC at Instead, JUUL repeatedly promoted @JUULNation’s hashtag (“#JUULnation”) through its own social media accounts, giving an externally observable indication that it consented to @JUULnation’s activities and reaped the benefits of free marketing and increased sales.”  That wasn’t enough when the third party wasn’t an agent and didn’t purport to be one.

Juul also argued that the minor plaintiffs’ claims should be dismissed because of the intervening unlawful acts of third parties who sold Juul products to them. The court pointed out that some of the claims didn’t stem from Juul’s allegedly minor-targeted ads (theories of product liability, implied warranty, and failure to warn). Anyway, at this stage, the acts of the third parties here were plausibly alleged to be foreseeable and therefore did not constitute an intervening cause were Juul allegedly specifically targeted minors and had reason to know that its conduct would encourage illegal use and trade of its products.

As for arbitration for plaintiffs who signed up using Juul’s website, the signup page had a hyperlink to the terms and conditions, but it was too inconspicuous to say that plaintiffs had gotten proper inquiry notice. The link wasn’t in a “different color, underlined, italicized, or in any way visually distinct from the surrounding text…. Users cannot be reasonably expected to click on every word of the sentence in case one of them is actually a link.”  Prior cases have found more conspicuous links to be insufficient. A later version of the signup page changed the color of the links, but that wasn’t enough without more (underlining, highlighting, all caps, or in a separate box), especially given the greater prominence of the “forgot password?” link on the same page:

A reasonable user scanning the page would first see the “Forgot Password?” hyperlink and would observe that it is a different color, underlined, and of a particular font size. That user would not then see the “Terms and Conditions” and “Privacy Policy” hyperlinks and conclude that they were clickable. They are not underlined, they are the same size as the sentence they are in, and the color is different from the initial hyperlink they would see.

Tuesday, August 27, 2019

Dastar bars Lanham Act claims against unauthorized copying of photo for album cover

Patterson v. Diggs, No. 18-CV-03142 (NSR), 2019 WL 3996493 (S.D.N.Y. Aug. 23, 2019)

Patterson is “an internationally known photographer” who took photos of “a nickel-silver casing created by nonparty Moroccan company Yahya Creation” without a written contract and without being paid, spending over 80 hours doing so. The relevant photo was registered in 2017, though the metadata referred to 2013.  This casing, as far as I can tell, is the cover of the unique copy of the Wu-Tang Clan album “Once Upon a Time in Shaolin,” although the complaint alleged that the album uses Patterson’s work as cover art, so I'm a bit confused.  He sued the Wu-Tang Clan and others for using the work as cover art, advertising the album for sale [though the album is famously not available for ordinary sale], and using the work to market and advertise musical concerts and tours.

The copyright claims survived, but not Lanham Act claims.  CMI removal claims also survived because Patterson alleged that defendants, without authorization, “intentionally remov[ed] and/or alter[ed] the copyright information, in the form of metadata, on the copy of at least Plaintiff’s copyrighted photograph, and distribut[ed] copyright management information with knowledge that the copyright management information had been removed or altered ... and distributed and publicly displayed the material, knowing that copyright management information had been removed or altered.” This was supported with an exhibit purporting to show the alleged metadata included in one photograph, which lists Patterson as the author of the photograph, marks the status of the photograph as “Copyrighted,” contains a “Copyright Notice” that reads, “image © 2013 Warren Wesley Patterson,” and includes a “Copyright Info URL” box listing Patterson’s website.  [If it’s metadata, how is it supposed to persist in analog copies? I can also imagine some other courts being pickier about alleging which defendants did what given 1202's nested knowledge requirements. This issue may instead be the subject of targeted summary judgment, if the case gets that far.]

Likewise, vicarious copyright infringement claims survived because Patterson alleged the right and ability to supervise plus direct financial benefit, “including without limitation [through] revenue sharing and/or royalty payments for each infringing version [of the Album] sold.” It was at least arguable that Patterson’s work, “which is prominently featured in advertisements for the Album and in entertainment articles describing the Album, has played a role in the Album’s marketability, reaping Defendants direct financial benefits in the form of album sales.”  [Unless I misunderstand what’s going on with the album entirely, this allegation seems misleading, since there’s only one copy, now in the hands of the government, whose marketability is focused on its uniqueness in an age of mechanical reproduction.] 

Contributory infringement claims were also sufficiently pled. Defendants allegedly “induced, caused, and/or materially contributed to the direct infringement of Plaintiffs’ [W]ork ... by, among other things, commissioning and/or licensing the electronic versions of the Plaintiff’s photograph, and providing galley proofs or similar high-quality source material for rendition into electronic format.” Though allegations of constructive or actual knowledge were “a legal conclusion not entitled to a presumption of truth,” there were sufficient allegations related to knowledge—Patterson provided email exchanges between himself and one of the defendants related to the work and referring to the Album. [Which sounds like there’s going to be a strong implied license defense for at least some uses.]  “[D]rawing all reasonable inferences in Plaintiff’s favor, it is plausible that the remaining Defendants, as the recording artists and distributors of the Album, would have reason to know of the infringing use of Plaintiff’s Work on the Album cover.”  [FWIW, many of the members of Wu-Tang  ultimately said, apparently even before this lawsuit, that they didn’t even know their contributions were going to be worked into an album.  I also learned that at least one of the 120 members of the venire who said they couldn’t give Martin Shkreli a fair trial explained that it was because  “He disrespected the Wu-Tang.”]

Lanham Act claims: Patterson alleged both source/endorsement confusion and false advertising.  For the former, Patterson alleged that using the cover misrepresented the origin of the art.  “However, the author of a photograph that is reproduced in tangible products or goods such as a musical album cover is not the ‘origin of goods’ within the meaning of the Lanham Act.” Shepard v. European Pressphoto Agency, 291 F. Supp. 3d 465 (S.D.N.Y. 2017), [wrongly] held that the author of a “communicative product” such as a photograph who is also the producer of tangible goods offered for sale may assert a Lanham Act claim for false designation of origin. This case was distinguishable because Patterson didn’t allege that he advertised or sold any of his photos, even though he alleged that the parties’ “products and services” target the “exact same consumers.” Anyway, the underlying theory was “meritless, as the Amended Complaint clearly states that Defendants created the Album, and consumers who purchased the Album were not falsely informed about the origins of the Album because Defendants did in fact produce it.”

And you can’t restyle the exact same Dastar-barred facts as false advertising to avoid Dastar. Allegations that defendants gave the false impression that Patterson authorized the reproduction and distribution of the work didn’t allege a misrepresentation of “the nature, characteristics, qualities, or geographic origin” of defendants’ goods. “The import of Dastar that an author’s recourse for unauthorized use is in copyright cannot be avoided by shoe-horning a claim into section 43(a)(1)(B) rather than 43(a)(1)(A).”

conventional pharmacy achieves limited relief against marijuana dispensary

White Hall Pharmacy LLC v. Doctor’s Orders RX Inc, No. 19-cv-00366-KGB, 2019 WL 3939357 (E.D. Ark. Aug. 20, 2019)

In this cannabis case, the court granted a preliminary injunction against a dispensary.  White Hall operates two pharmacies under the trade names “Doctor’s Orders” or “Doctor’s Orders Pharmacy” in the Pine Bluff area; the first has existed since 2009. It uses a red font, a red logo, and a white backsplash.  Its principal testified to efforts to become known in Arkansas. It website has “over 40,000 hits, 45,000 plus hits on one single ad that went out” and it has approximately 12,000 total patients It has sent prescriptions to “[a] little over 130 cities total” and that “[a]bout 12 of those are out-of-state cities.” “Not many” customers who live in Little Rock drive down to Pine Bluff to use the pharmacy, and “about 20 to 30” customers reside in the Hot Springs, Arkansas, area, while approximately 150 customers have second homes in the Hot Springs area.
plaintiff's logo
Defendants run a medical marijuana dispensary in Garland County, Arkansas, using the name “Doctors Orders,” “Doctor’s Orders Pharmacy,” and “Doctors Orders RX,” “roughly one hour away” from White Hall’s pharmacies.  White Hall’s principal testified to “seeing posts on Facebook asking ... kind of are we involved in it, asking for directions to the store.” He denied affiliation Facebook around “20 or 30 times” during the first day. He also said they’d received around 60 phone calls “[i]n the first few days” and that the pharmacies have received “probably closer to a hundred phone calls ... since then,” while they normally receive “about a hundred phone calls per pharmacy” a day for the prescription business. An affidavit from an employee also said they received 8-9 calls/day about marijuana “for a while” after the dispensary opened. An employee also asked him if he was in the medical marijuana business, as did employees at the local hospital, a city councilman, a reporter, local news stations, multiple physicians, his banker, and people at his country club. Three or four people showed up at the pharmacies trying to buy marijuana, and one job seeker looking for a job selling marijuana contacted White Hall.
defendant's sign
He testified that he hadn’t seen an immediate change in revenues, though he notes that revenue in the pharmacy business is “delayed 60 to 90 days ....” He also stated that “[n]o one said they were going to no longer use my pharmacy once I clarified the issue they wanted to know.”

Defendants’ operation allegedly used signs and advertising that contain red letters and a white backsplash similar in appearance to White Hall Pharmacy’s signs and advertising.  On defendant’s website, there was a logo in the shape of the state of Arkansas in white, with the following script: “DOCTOR’S ORDERS.” The background was dark green (though it looked blue to me when I checked).
my screenshot of defendant's site
Defendant’s owner submitted an affidavit that, at the time he filed his incorporation papers in 2017, he had “never heard of Doctor’s Orders Pharmacy” and didn’t know about Doctor’s Orders Pharmacy before he got a cease and desist letter on May 14, 2019.

White Hall presented the affidavit of Jeremy Lambert, a customer who learned that a medical marijuana dispensary named “Doctor’s Orders” was open in Hot Springs. At a hearing, he testified that learned about the dispensary from a customer who was in his office, and he also explained that he told the customer he “would assume it’s incorrect” that the dispensary was affiliated with White Hall, then confirmed that was the case. However, his affidavit averred that he was confused about the medical marijuana dispensary’s affiliation with White Hall. He testified that he was asked about the medical marijuana dispensary by three customers and “two to three employees” who worked with him, as well as other business owners and customers in Pine Bluff. He “truly believe[s] this has damaged the reputation of [ ] Doctor’s Orders Pharmacy.” Another Pine Bluff resident submitted an affidavit from a noncustomer who knew the pharmacy and who was confused, stating that “[i]t was a common belief in Pine Bluff that this dispensary was somehow affiliated with White[ ]Hall Pharmacy or [owner] Lelan Stice ....” There was other testimony in the same vein.

Highlighting the different evolution of false advertising and trademark doctrine, the court found no likelihood of success on the merits on the false advertising claim because of lack of evidence of harm.  The theory was misleadingness; though a full-blown consumer survey isn’t required at this stage of the proceedings, some sort of extrinsic evidence of deception was. And the deception must be shown to be likely to influence consumers’ purchasing decisions. There was record evidence of confusion, but not sufficient evidence of effect on purchase.  The parties don’t compete in what they sell—one sells only medical marijuana and the other legally can’t—and even if there was overlap, there was still no evidence of harm.  The argument that White Hall’s customers might abandon it because of a perceived association with defendants wasn’t supported by the record; discovery might be able to show such an impact, but it wasn’t yet apparent.  And even if marijuana is controversial, a majority of Arkansas voters voted to allow medical marijuana, so the net association might even be positive.

Also, the false advertising claim was really a false association trademark claim, to which the court turned.  White Hall relied on common-law rights, which are limited by the territory in which a trademark claimant has operated. Under Tea Rose/Rectanus, “the first user of a common law trademark may not oust a later user’s good faith use of an infringing mark in a market where the first user’s products or services are not sold.” There was no evidence of bad faith here.

Doctor’s Orders/Doctor’s Orders Pharmacy was descriptive.  White Hall presented evidence of continuous use since 2009 as well as of actual consumer confusion: “multiple individuals immediately thought of White Hall Pharmacy when they heard the name of defendants’ dispensary.” “Although this record evidence is not overwhelming, … White Hall Pharmacy has a fair chance to prevail on its argument that, due to its efforts and exclusive use, the phrases ‘Doctor’s Orders,’ ‘Doctor’s Orders Pharmacy,’ and ‘Rx’ when used in conjunction with “Doctor’s Orders” acquired secondary meaning by May 2019, at least for certain customers in certain markets.”

Geographic scope: White Hall argued that its market “includes the entire State of Arkansas and then some.” The record gave White Hall a fair chance of showing some competition, even though the competition wasn’t for the same goods. “[B]oth parties ostensibly offer medicinal services and products to the public.”  [How that bears on geographical scope is not super clear to me.]  White Hall didn’t show rights outside of the Pine Bluff area on this record. The court relied on the principle that, “[w]here the first user’s activities in a remote area are ‘so small, sporadic, and inconsequential’ that its market penetration is de minimis, the first user is not entitled to protection against a later user’s good faith adoption of the mark in that area.” About 20 to 30 patients living in Hot Springs (only five lived in Hot Springs at the time they were White Hall customers), and 150 with second homes there, out of 12,000 total wasn’t good enough, nor was having advertising and a website and belonging to some statewide organizations (as well as some in Pine Bluff, but not in Hot Springs).  There wasn’t sufficient market penetration outside Pine Bluff; the “possibility of potential sales” wasn’t enough on its own to establish rights. However, given that defendants’ dispensary was one of only two in the state, and given the evidence of confusion, it seemed likely that both parties served customers in the Pine Bluff area.

LOC: White Hall’s mark was somewhat distinctive; the marks were similar; the services were related enough to favor confusion; there was no evidence of intent to pass off; and the evidence of actual confusion favored White Hall. The amount of actual confusion has to be weighed against the number of opportunities for confusion. There was evidence of a lot of inquiries, though much of this evidence was “hearsay of a particularly unreliable nature given the lack of an opportunity for cross-examination of the caller or sender regarding the reason for the ‘confusion.’ ” The only evidence of marijuana seekers actually showing up at White Hall was hearsay—someone saying they’d heard of it happening.

Moreover, “many of the alleged incidents of actual confusion may be interpreted as proof that consumers note a distinction between White Hall Pharmacy and defendants’ dispensary”—the fact that the consumers knew they needed to ask, because they didn’t have enough information to be sure, can indicate lack of confusion rather than confusion. Some of the incidents reported clearly had that character, such as the customer who “assume[d]” that it was incorrect to associate the parties.

Still, there were “unambiguous incidents of actual confusion documented in the record,” such as the message from the job seeker and an instance in which someone “tagged” White Hall Pharmacy in a Facebook post related to defendants’ dispensary.  Considered in toto, actual confusion weighed in favor of White Hall.

Degree of care: it’s hard to buy medical marijuana in Arkansas; it requires a registry identification card. Medical marijuana is also not cheap. These aren’t impulse purchases, weighing against confusion.

Though it was a “difficult determination,” the court found that the test favored White Hall at this stage.

White Hall failed to show it was likely to succeed on its tortious interference claims.  The C&D letter wasn’t enough to show that defendants knew about any particular business expectancy of White Hall or that they intentionally sought to interfere with it. Nor was there record evidence of any loss of sales, revenue, or customers. Likewise, as to unjust enrichment claims, there was no record evidence that defendants have benefitted from White Hall Pharmacy’s advertising or customer goodwill.

Because it’s a trademark case, it’s not that surprising that the court then found irreparable harm despite what it said about the absence of harm above.  “Loss of intangible assets such as reputation and goodwill can constitute irreparable injury.” And because the Eighth Circuit hasn’t clearly abandoned the presumption of irreparable harm in trademark cases post-eBay, the court applied that presumption here. Without that presumption, the court noted, the case would be more difficult, given the absence of record evidence of competition and the differences in the parties’ geographic footprints. There was no record evidence of harm to reputation or goodwill.

Scope of relief:  White Hall was granted a preliminary injunction only in the Pine Bluff area (Jefferson County). Defendants were enjoined from holding themselves out using any combination of words that included “Doctor’s Orders” to the public within Jefferson County, including any signage and “any advertising that can be viewed by consumers within Jefferson County, Arkansas.” [Does this mean that they can’t advertise online unless they can geoblock? That seems … extreme. The court says the injunction shouldn’t interfere with other regulations on defendants’ advertising, but that doesn’t really answer the “can they have a website that doesn’t target Jefferson County but can be accessed from Jefferson County” question.]

Rogers question of the day, Grand Theft edition

Is an escape room sufficiently like a video game that we would expect a finding of explicit misleadingness (assuming that an escape room is an expressive enough experience, like a play in which the audience is invited to participate, for Rogers to apply)?  My prediction is yes.

Monday, August 26, 2019

first sale doesn't cover hardware w/embedded licensed software, but maybe Cisco misrepresented whether a license existed

Cisco Systems, Inc. v. Beccela’s Etc., LLC, 2019 WL 3944986, No. 18-cv-00477-BLF (N.D. Cal. Aug. 21, 2019)

Cisco offers various supports for its networking products, including a warranty program (from 90 days to lifetime) and a “more comprehensive suite of service and support offered to customers for a fee” called SMARTnet Service. It relies on independent “Authorized Channel Partners” or “Authorized Resellers” to distribute and sell its products. Authorized Resellers agree to purchase Cisco products only from Cisco or authorized distributors and to sell those products only to end users (not to other resellers).

BecTech sells Cisco products but is not a Cisco Authorized Reseller. BecTech allegedly sells Cisco’s products without, among other things, a manufacturer’s warranty or customer support, which would be material to a customer’s purchasing decision. BecTech allegedly sold 37 Cisco products advertised as “Brand New Factory Sealed” that were not in fact factory sealed, as well as reselling stolen Cisco products. Likewise, Arbitech allegedly had a history of selling counterfeit Cisco products. They allegedly sold a SMARTnet contract to an end user without authorization, and thus must have induced a Cisco Authorized Reseller to sell them the SMARTnet contract in violation of the Reseller’s contract with Cisco.

Cisco sued for copyright infringement, trademark infringement and counterfeiting, unfair competition under California law, and other state law claims.

Defendants counterclaimed that they sell genuine Cisco products on a lawful “secondary market” of resellers relying on first sale, and that Cisco unfairly and anticompetitively attempts to control the secondary market by attempting to shut down these lawful sales of its goods. Cisco allegedly embeds its hardware with software that it licenses to consumers through its EULA, so customers can’t actually use the hardware without complying with the software EULA, which requires end users to purchase the software from an “Approved Source” (i.e., not on the secondary market). Cisco allegedly “does not require end users to acknowledge, read, or accept a license agreement before using Cisco goods sold by [Defendants],” and that Cisco does not inform customers of this limitation until “after their purchases.”

Cisco allegedly misrepresents to consumers that they cannot use the software without a license, even though they have purchased the hardware.  It also allegedly engages in various other attempts to squash the secondary market, including by “selectively classif[ing] genuine, lawfully obtained Cisco products as ‘used,’ ‘stolen,’ ‘counterfeit’ or ‘scrapped,’ simply because these products were traded on the secondary market.” It allegedly tells customers that products sold on the secondary market are used, which it defines as “previously owned equipment that is now owned by a party other than the original customer,” including both “opened and unopened equipment,” misleading consumers into thinking that all products sold on the secondary market have previously been opened and deterring them from buying. It allegedly wrongfully denies warranty coverage for products sold on the secondary market on grounds of deterring counterfeiting, knowing that most of these products are genuine. Defendants sought a declaratory judgment that they weren’t violating the Lanham Act; alleged false advertising under the Lanham Act and violation of NY GBL § 369-b and California’s UCL; and alleged that Cisco’s terms were unenforceable in New York.

NY GBL § 369-b states that “A warranty or guarantee of merchandise may not be limited by a manufacturer doing business in this state solely for the reason that such merchandise is sold by a particular dealer or dealers....Any attempt to limit the manufacturer’s warranty or guarantee for the aforesaid reason is void.” But it doesn’t create a private right of action, so there was no declaratory judgment claim available.

As for the Lanham Act claim, it was “certainly not unreasonable as a matter of law” that a consumer would believe the term “used” doesn’t apply to unopened goods, and thus consumers could be misled by Cisco’s private definition of the term.  As for the alleged misrepresentation of the binding effect of the EULA, the court first held that a copy of the software could just be licensed and thus not subject to first sale even if it was embedded in hardware that was sold, which is not a great rule.  However, there were questions of fact regarding whether consumers of Cisco’s goods sufficiently agreed to the software license, such that it would bind them.  [And it’s not super clear whether the court thought there were also factual issues about whether these copies had been sold or merely licensed, though one would think that the fact that consumers don’t have to agree to the “license” to buy the hardware with the software embedded would also bear on whether there was really a license.] Though silence can be consent, an offeree’s silence does not constitute acceptance “when the offeree reasonably did not know that an offer had been made.” There was a question of fact whether consumers reasonably knew of the EULA such that they could accept it (or return the product if they did not accept). Defendants alleged that Cisco didn’t inform consumers until “after their purchases” that they will have to license the embedded software and that Cisco “does not require end users to acknowledge, read, or accept a license agreement before using the Cisco goods sold by [Defendants].” Thus, first sale might apply, and Cisco might therefore have misled consumers about it.

Defendants also sufficiently alleged deceptiveness/materiality in that the misrepresentations “successfully deter consumers from purchasing Cisco goods on the secondary market” and that defendants “on information and belief...lost sales of products that would have been made but for Cisco’s false representations to consumers.”  For the same reasons, they pled proximate cause [which is often easier to do in cases of disparagement].

This also allowed UCL unlawfulness/fraudulent counterclaims to continue, and also unfairness because Cisco’s conduct allegedly “unfairly stifles competition by forcing consumers to purchase products from it and not from resellers on the secondary market,” at least requiring further facts to resolve.

proof of lost market share needs something extra to be irreparable harm

BioTE Medical, LLC v. Jacobsen, 2019 WL 3943166, No. 18-cv-866 (E.D. Tex. Aug. 21, 2019)

“BioTE provides hormone replacement therapy … through a method called Pellet Therapy,” using an allegedly custom and proprietary formula using “bio-identical and natural ingredients that act to maintain a patient’s hormone levels throughout the day.” It sued defendants, alleging that they were unlawfully manufacturing and selling unapproved new drugs instead of lawful “compounding” and were engaging in false advertising in violation of the Lanham Act. (It also alleged RICO violations which we can ignore because they are RICO allegations.)

Defendants allegedly misrepresented that defendant EvexiPEL had developed an exclusive, proprietary hormone replacement pellet; that defendant Terri DeNeui participated in the development of the allegedly proprietary hormone pellet; that defendant Farmakeio had a federally required 503B “registration pending,” when there is no such thing and no paperwork for any such registration had been submitted; that their Pellet “has been shown to produce better outcomes for patients too” and similar claims; that Farmakeio was “a leading pharmacy in the U.S.” when it had just been formed and started operating; etc.

BioTE failed to get a preliminary injunction for want of irreparable injury.  Some courts have held that false comparative ads can be presumed to cause injury and even irreparable injury. Here, the court held that, even assuming false comparisons, irreparable harm shouldn’t be presumed after eBay and Winter.  Anyway, cases presuming irreparable harm in the Lanham Act context are mostly trademark cases, and trademark is special because no proof of injury is required to succed in a trademark case. [Sigh.] 

BioTE also argued that it lost market share to defendants; lost market share due to false advertising can result in irreparable harm, at least in an industry where consumers are brand loyal. But BioTE didn’t provide evidence that its lost customers couldn’t be redressed with damages; it provided no “affidavits, declarations, or any other support, that shows imminent harm that is difficult to quantify.” Proof of lost market share and lost sales alone didn’t show irreparable harm.

District court makes up a new, worse test for TM claims against noncommercial speech

Stouffer v. Nat’l Geographic Partners, LLC, 2019 WL 3935180, No. 18-cv-3127-WJM-SKC (D. Colo. Aug. 20, 2019)

Stouffer, who (with his coplaintiff production company and his brother, who is not a plaintiff) produced the Wild America nature documentary series, sued National Geographic for trademark infringement, copyright infringement, and unfair competition for its “Wild” productions. The court developed a new test for evaluating the trademark claims and thus denied NG’s motion to dismiss without prejudice to a new argument under the court’s test; granted NG’s motion to dismiss with prejudice as to Stouffer’s trade dress claim; and granted NG’s motion without prejudice as to Stouffer’s copyright cause of action. On trademark, the court brilliantly diagnoses the current cracks in Rogers and then comes up with a much worse alternative, because it loses sight of the reason to have a First Amendment-protective test for noncommercial speech in the first place: to prevent unwarranted suppression of speech in the absence of very clear reasons to expect consumer deception.

For 14 years starting in 1982, PBS regularly broadcast the Wild America series. It was very popular for a PBS show.  The Stouffer brothers allegedly “developed a unique filming style for the show, which utilized slow motion, close-ups, and time lapses to give viewers a more immersive experience than other nature and wildlife documentary programming.” The series also allegedly became known for an image of two bighorn rams butting heads. After Wild America’s run ended on PBS, the brothers continued to produce direct-to-video nature documentaries under the “Wild America” mark and produced a feature film titled “Wild America,” which depicted their childhood and the origins of their passion for nature and filmmaking. The original episodes are still available on DVD, streaming, and syndication on TV.  The production company has a registered trademark for “Wild America.”

National Geographic has TV channels, Nat Geo TV and Nat Geo WILD (the latter launched in 2010) that feature nature-oriented documentary programming. Stouffer and National Geographic allegedly “engaged in numerous discussions regarding [National Geographic] potentially licensing or purchasing” Stouffer’s Wild America film library. In 2010, a Nat Geo TV executive e-mailed Stouffer, asking permission to title an upcoming natural history miniseries “Wild Americas” or “Wildest Americas.” Stouffer declined, and National Geographic ended up airing the series in 2012 under the title “Untamed Americas” within the United States, and “Wild America” outside of the United States. Although the series “can be purchased under the title Wild America and shipped into the United States,” Stouffer didn’t allege that National Geographic had any control over such sales.
Stouffer version and foreign National Geographic version
In 2013, National Geographic released a television series titled “America the Wild.” Stouffer alleged that America the Wild “replicat[es] the most minute details of Wild America in its production,” as shown by “virtually indistinguishable” titles; “several episodes” of both series in which the host interacts with a grizzly bear that he raised from a cub (in the following still shots, Marty Stouffer/Wild America is on the left and Casey Anderson/America the Wild is on the right) [“interacts” is a word unambiguously signalling that there will be no substantial similarity in expression]; 

Two interactions with bears, including a high five

interacting with rams, supposedly “invoking the imagery from Wild America’s introductory scene, in which two rams butt heads dramatically” (though the court noted that ram with which Casey Anderson butts heads is stuffed); 
"interacts with rams"
actual “copy[ing]” of “many iconic images from Wild America, including, among others, the image of two big horn sheep head-butting one another”; a similar “structure” in “many” episodes, namely, “introducing an animal, following said animal, recording footage of the animal in conflict, and providing information about the animal” [you can guess how well this allegation is going to go]; “elements” such as “animal point of view camera shots, slow-motion action shots, anthropomorphized story-telling and presentation; [wide-angle nature] transition scenes between segments; and close-up shots of animals in their native habitats” [hoo boy]; the hosts “pos[ing] for a photo shoot” in the middle of an episode in a similar way [as a viewer, I can confidently state that shirtless v. not shirtless is not similar]; 
a shirtless man with camera equipment and a man in full gear with camera equipment
“an uncanny similarity between each show’s host,” with Casey Anderson adopting an “appearance and persona [that] closely resemble[s] the distinctive look and style of Marty Stouffer” [oh my]; 
two white men with facial hair and backpacks
and “a similar mark and style for DVD packaging” [I can’t decide whether this or the persona allegation is the wildest, no pun intended, based on the images in the complaint].
they're both boxes?
In 2014, National Geographic premiered “Surviving Wild America,” featuring “two Australian hosts exploring the Okefenokee Swamp, located in the Southeastern region of the United States.” In 2018, National Geographic premiered another nature documentary series, “America’s Wild Frontier.” The four series are the accused series.

I’m going to do the trade dress/copyright issues first, because they are far more straightforward.

Trade dress: Stouffer also alleged infringement of “[s]ome of Wild America’s most iconic imagery and branding, including but not limited to, the image of two big-horn rams butting head[s] and host Marty Stouffer’s on-screen persona” and the packaging of the DVDs. As to the packaging, Stouffer didn’t clearly identify the elements of the trade dress that were allegedly protectable. “Moreover, although he claims ‘a similar mark and style for DVD packaging,’ his side-by-side comparison plainly shows otherwise.” Comparisons to outside-the-US packaging were also irrelevant, since there was no allegation that National Geographic could be liable for its actions outside of the United States. “Indeed, inclusion of these particular side-by-side comparisons in the complaint seems intentionally designed to mislead.” The relevant side-by-side comparison—“presumably one of the most salient examples he could provide”—showed that he couldn’t.

As for the intangible elements, “the image of two big-horn rams butting head[s],” “host Marty Stouffer’s on-screen persona,” and “the overall atmosphere of [the Wild America] programming,” that also failed.  Stouffer seemed to be referring to the allegedly “uncanny similarity” between himself and Casey Anderson, and/or in his interactions with a grizzly bear he raised from a cub, as Casey Anderson allegedly also did. As for “overall atmosphere,” the court considered that a reference to elements such as “animal point of view camera shots, slow-motion action shots, anthropomorphized story-telling and presentation; [wide-angle nature] transition scenes between segments; and close-up shots of animals in their native habitats.”

First, this wasn’t a clear and definite list, as required.  Second, Stouffer just couldn’t plausibly allege that “his entire style of documentary-making” was protectable trade dress. “Stouffer is claiming a set of aesthetic choices with no obvious source-identifying role.”  Relatedly, the elements alleged seemed super functional, and Stouffer neglected to respond to National Geographic’s arguments on that point.

Copyright: Stouffer’s claim focused on an Untamed Americas episode titled “Mountains” and a Wild America episode titled “Bighorn!” The alleged copying:

a. [T]he introduction to the episode, where two rams head-butt one another as the introductory music crescendos;
b. Voice-over narration of the episode by an iconic individual [Marty Stouffer and actor Josh Brolin, respectively]. The narration in both episodes begins immediately following the introductory credits;
c. Segments focused on specific animals. Bighorn! includes a segment about a mouse taking care of its young; Mountains includes a segment about [a] beaver taking care of its young. Both Bighorn! and Mountains include a segment on bighorn sheep mating season;
d. Both episodes use the iconic nature slow-motion action shot popularized by Wild America, particularly during the segments on bighorn sheep. During those segments, both episodes feature a slow motion shot of two bighorn sheep ramming one another.

National Geographic successfully argued that these elements were “merely ideas, non-protectable tropes, and scènes à faire common in nature programs.” Stouffer argued that the court should watch the episodes, but that was no substitute for pleading actionable similarities.

Stouffer argued that he adequately pleaded infringement because an original selection and arrangement of unprotected elements is protectable.  Though courts have sometimes allowed claims to proceed based on “a significant number of unprotectable elements” in “a particular sequence,” Stouffer didn’t allege as much here. He only alleged a little bit about sequence, and “barely a handful” of relevant comparisons, which were, “with the possible exception of an introductory head-butting-with-musical-crescendo sequence element, … qualitatively very weak even as compared to other unprotectable ideas.” Voiceover narration by an iconic individual that begins immediately following the credits, “[s]egments focused on specific animals,” segments about animals taking care of their young, and “slow-motion action shot[s]” “are so standard as to essentially define the nature documentary genre.”

Wild America might’ve made these elements standard, but even so, they’re still unprotectable ideas or procedures under §102(b). He didn’t plausibly allege that National Geographic’s selection and arrangement amounted to copyright infringement.

National Geographic argued that the First Amendment protected its titles against all trademark claims. The Tenth Circuit hasn’t adopted Rogers, or rejected it, so the court went through an extensive history of Rogers and its related offshoots.  “No party has cited a case in which a court rejected the Rogers approach when presented with an artistic use of a trademark. But see PAM Media, Inc. v. Am. Research Corp., 889 F. Supp. 1403, 1406 (D. Colo. 1995)” [rejecting Rogers in the context of a dispute over the name of a radio talk show, because a talk show doesn’t have fixed content (and thus is apparently not expressive in the same way as a movie)]. Cardtoons, L.C. v. Major League Baseball Players Association, 95 F.3d 959 (10th Cir. 1996), didn’t reject Rogers, it just said that good parodies weren’t confusing and cited Rogers “with approval (but without elaboration) for the general notion that ‘the public’s interest in free expression’ needed protection in the context presented.” Utah Lighthouse Ministry v. Foundation for Apologetic Information & Research, 527 F.3d 1045 (10th Cir. 2008), applied the traditional circuit LOC test to a parody website and found no triable issue on confusion.  Stouffer argued that the Tenth Circuit thus used the usual LOC test, rather than Rogers, where artistic expression was at issue, but Utah Lighthouse was another parody case, not an “artistic expression” case and had “nothing to say directly, and barely anything to say indirectly, about the Rogers test.”

But what kind of Rogers test should the court consider? It evaluated Parks v. LaFace (artistic relevance; hardly a barrier here); Twentieth Century Fox Television v. Empire Distribution, Inc., 875 F.3d 1192 (9th Cir. 2017) (Rogers applies to title v. title disputes as to other artistic uses); Cliffs Notes, Inc. v. Bantam Doubleday Dell Pub. Grp., Inc., 886 F.2d 490 (2d Cir. 1989) (Rogers doesn’t apply directly to expressive work v. expressive work cases, but a First Amendment-sensitive LOC test accommodating Rogers-type concerns should); and Gordon v. Drape Creative, Inc., 909 F.3d 257 (9th Cir. 2018) (“explicitly misleading” doesn’t mean “explicitly misleading”).  As the court read Gordon, the Ninth Circuit no longer requires “an overt claim or explicit reference.” Gordon announced that “[i]n some instances, the use of a mark alone may explicitly mislead consumers about a product’s source if consumers would ordinarily identify the source by the mark itself.” “This is a significant innovation, given the Ninth Circuit’s previous statement that ‘the mere use of a trademark alone cannot suffice to make such use explicitly misleading.”” E.S.S. Entm’t 2000 v. Rock Star Videos, 547 F.3d 1095, 1100 (9th Cir. 2008) (emphasis added). Gordon “narrowed that principle to its factual context by saying that ‘it was clear [in E.S.S., which involved the use of a mark on a building depicted in a videogame] that consumers would not view the mark alone as identifying the source of the artistic work.’”

[Given the damage done by Gordon, which the court here seems to understand, I am more convinced than when I started to think about this that the §43(a)(1)(B) case law on literal versus implicit falsity could do some good to explain what the hell is going on.  “Literal falsity by necessary implication” is treated as explicit falsity where there is no ambiguity about the message being conveyed—where every linguistically (etc.) competent consumer would understand what claim is being made.  Gordon can be made coherent, if not great, by reference to that idea, in contrast to the idea of ambiguity.]

The court here also noted that Gordon said both that “consumers ‘do not expect [titles] to identify’ the ‘origin’ of the work,” or in other words, that titles are not among the uses of marks that can be inherently “explicitly misleading” but also approvingly quoted Rogers’ statement “that ‘misleading titles that are confusingly similar to other titles’ can be explicitly misleading, regardless of artistic relevance.” Gordon held that a “relevant consideration” in deciding whether the use of the mark alone can be explicitly misleading “is the degree to which the junior user uses the mark in the same way as the senior user.” Thus, a TV series “Law & Order: Special Hip-Hop Unit” might be explicitly misleading. Another relevant consideration is “the extent to which the junior user has added his or her own expressive content to the work beyond the mark itself.” [That is, transformativeness.] In Gordon, there was a triable issue of whether defendants simply used Gordon’s mark with minimal artistic expression of their own, and used it in the same way that Gordon was using it.

With that summary, the court began its analysis by agreeing that the Lanham Act needs a limiting construction to protect First Amendment interests. In addition, to avoid chilling effects, this test must be readily applicable before trial and, ideally, before a full LOC multifactor analysis:

The First Amendment requires that likelihood of confusion be tolerated in some circumstances, but if the test is too simple and mechanical, it creates the risk that senior users of a mark end up with essentially no protection every time the junior user claims an artistic use. On the other hand, the traditional likelihood-of-confusion test often creates a fact question that cannot be resolved without a trial. If a junior user must wait that long to find out if the First Amendment protects his or her use of the mark, it might unduly chill expression. It might also provide an incentive for a senior user to bring a so-called “SLAPP,” or strategic lawsuit against public participation, in the guise of a trademark dispute. Thus, the First Amendment-based limiting construction on the Lanham Act should provide a test that can be applied as early as possible in the lawsuit, to the extent consistent with both parties’ interests.

Parks and Gordon, however, convinced the court to avoid adopting Rogers in its exact formulation.  Parks, uniquely, treated artistic relevance as a question of fact, rather than an objective question of law.  The court here pointed out that the holding that “Rosa Parks” might not have artistic relevance to a song with the lyric “move to the back of the bus” was dumb (except the court used much nicer words).  Instead, the Sixth Circuit was motivated by the suspicion that Outkast chose its title to grab attention rather than from an “artistic motive” [which is not incompatible with attention seeking in the slightest!]. But Rogers forced the Sixth Circuit to cram that concern into artistic relevance. The court here agreed with “the Sixth Circuit’s broader implicit point, namely, that there must be some way of addressing instances where there appears to be a demonstrable lack of artistic motive.”  [So far, this analysis has been really careful, although I definitely don’t agree with all of it.  But the court here utterly fails to explain why an artist can’t seek to gain attention through the use of an artistically relevant symbol that is also a mark, whether or not the use is a reference to the trademark owner (yes in Parks, no in Empire, not really in Gordon).  The First Amendment has long respected the right of noncommercial speakers to choose their topics, even if they seek to profit by their choices.]

Gordon was likewise “analytically messy and divorces ‘explicitly misleading’ from its plain meaning— converting it into a mere label applied to uses of a mark that satisfy the first Rogers inquiry but not the second. But Gordon, like Parks, was constrained by precedent while trying to prevent what it suspected to be an abuse of Rogers. Gordon therefore makes its point through an awkward attempt to avoid looking like it is overruling what it does not have the power to overrule.”  [Or, Gordon contradicts precedent without going en banc to do so.]  But the court here also agreed with Gordon’s motivation: “it seems intuitively incorrect that the junior user may always lawfully use the senior user’s mark where there is minimal artistic relevance, objectively speaking, and a lack of any overtly misleading claim about source, sponsorship, etc. Gordon is also correct at least to suspect non-artistic motives where the junior user uses the mark in the same channels, and in basically the same way, as the senior user.” 

[This analysis highlights the problem with trying to use scope to constrain rights granted to “trademarks” that are fundamentally just ornamental/communicative.  Gordon is a bad case at bottom because the defendant was using “honey badger don’t care” as a punchline, which is a communicative use. The Gordon court didn’t notice that the fact that the plaintiff was using it the same way was a reason the plaintiff didn’t have a real mark/at best owned a mark whose scope didn’t extend to the punchline of a greeting card, not a reason that the defendant was a bad guy.  The facts of the instant case likewise show the problem with suspecting “non-artistic motives” on the defendant’s side when the parties’ uses are both artistic/communicative uses: there’s self-evidently an artistic reason to call nature documentaries about American animals some variant of “wild America.”  The issue is that the term is highly descriptive. And we might nonetheless want to provide Stouffer with narrow rights—but it’s not because National Geographic lacks “artistic motives” for its choice.  If anything, Gordon plus this case suggest that the Second Circuit might’ve had the better idea in carving out title-v-title disputes from Rogers coverage because of the analytical difficulties presented.]

So the court here formulates its own test:

Did the junior user have a genuine artistic motive for using the senior user’s mark or other Lanham Act-protected property right? Among the relevant questions a court may ask when discerning the junior user’s motives include the following:
• Do the senior and junior users use the mark to identify the same kind, or a similar kind, of goods or services?
• To what extent has the junior user “added his or her own expressive content to the work beyond the mark itself” [Citing Gordon and then Hart v. Elec. Arts, Inc., 717 F.3d 141 (3d Cir. 2013), making clear that the court here understood that Gordon wanted to add transformative use to Rogers despite not using the term]?
• Does the timing of the junior user’s use in any way suggest a motive to capitalize on popularity of the senior user’s mark?
• In what way is the mark artistically related to the underlying work, service, or product?
• Has the junior user made any statement to the public, or engaged in any conduct known to the public, that suggests a non-artistic motive? This would include “explicitly misleading” statements, as defined before Gordon, but is not confined to that definition.
• Has the junior user made any statement in private, or engaged in any conduct in private, that suggests a non-artistic motive?

Given the court’s incisive analysis of the precedents above, this new test is profoundly misguided—it’s worded to require discovery and keep cases going, even if the court here purports to want to apply it in a way that doesn’t often require discovery and a full merits inquiry.  Among other things, the questions appear to require the court to engage in art criticism to evaluate the quality of the artistic reference.  As the court explains, “artistic relevance to the underlying work, service, or product is only a factor to consider here, not a threshold inquiry.”  [Note the reference to services or products—by losing the connection to noncommercial speech the court has wandered even further from the point of modifying the infringement test.] 

The court then criticizes the “minimal artistic relevance” prong in ways I find correct but deeply inconsistent with the test it came up with.  First, artistic relevance can disfavor abstract works:

If a jazz trio writes a wordless piece titled ‘Rosa Parks,’ how does one judge the artistic relevance of that title? Is the title obviously irrelevant (because there are no words in which to ground a finding of relevance) or is it at least arguably relevant (because there are no words through which to confirm a finding of irrelevance)? If it is arguably relevant, what do the arguments turn on? Is one style of jazz more reminiscent of Rosa Parks than another? As these rhetorical questions illustrate, “artistic relevance” sometimes raises more problems than it resolves.

Second, incongruity, irrelevance, and randomness can themselves be artistic choices. Imagine that the jazz trio names a suite of new pieces after toothpaste brands that a member of the trio encountered one day at the grocery store. It is difficult to say that the trio’s choice to associate itself with the randomly mundane can never have artistic or expressive value. Thus, “artistic relevance” is one factor to consider when evaluating whether the junior user acted on a genuine artistic motive or, in contrast, on a desire to profit from the senior user’s goodwill.

You might have noticed the sudden swerve into bad intent!  The court did too, and it didn’t really want to go there, at least where defendants were likely to have pure hearts.  “[T]o adequately protect First Amendment interests, the objective facts may sometimes excuse further inquiry into the junior user’s subjective motives.”  In Rogers, the obvious artistic relevance to the story of the film, “which is almost entirely Fellini’s original expressive content,” combined with lack of evidence of misleading marketing of the film, would be enough to satisfy the court’s test.  Rogers also didn’t involve a competing product or service with which the film might conflict, “nor evidence that Fellini was attempting to ride any wave of popularity.”  [I will note that Ginger Rogers’s films were in fact competing products, but the court apparently didn’t think of them as directly competing in the proper way.  So if you are persistently well-known like Ginger Rogers, then there’s more scope for expressive uses about you than if you’re a sudden success?  Seems weird and fact-intensive in a way that is not likely to work out well for avoiding a full merits inquiry.]  “[E]ven if it had been proven that Fellini’s true motivation all along was a desire to tap into Ginger Rogers’s fame, the title is protected by the First Amendment.” But then a plaintiff should get discovery into the motives of the jazz trio because the artistic relevance is less obvious?  That seems bizarre and not helpful to abstract art in the way the court hopes.  Perhaps the court likewise assumes that the lack of competition will make a difference in the toothpaste-jazz example, but that just shows how multifactor balancing makes cases unpredictable in ways counter to the First Amendment/anti-speech-chilling motivations for Rogers-like tests.

A core problem with the distinction the court wants to make, to find the black-hearted defendants, is that Fellini’s true motivation was to make a film about two dancers who were called Fred and Ginger—and one sensible way to characterize that motivation is that it at least includes “a desire to tap into Ginger Rogers’s fame” to make the story intelligible.  If you slice artistic motivation into true artistry and desire to get attention, you both misdescribe the world and bake incoherence into the test.

Anyway, if the defendant passes this test, no liability; if it fails, then we go on to the LOC test, with no additional weight to the expressive use and no requirement that the likelihood of confusion be “particuarly compelling” as in Twin Peaks, because that approach would be “ultimately unworkable in practice.”

Because the parties couldn’t anticipate this new test, they get another chance—Stouffer to amend the complaint and National Geographic to move to dismiss under the new test.  National Geographic might also win on descriptive fair use and similar concepts (specifically the narrowness of Stouffer’s highly descriptive mark).