Friday, September 27, 2019

small wonder: sleeve undergarment isn't valid trade dress/innovation claim isn't false advertising

R and A Synergy LLC v. Spanx, Inc., No. 2:17-cv-09147-SVW-AS, 2019 WL 4390564 (C.D. Cal. May 1, 2019)

The court dismissed trademark and false advertising claims brought by R&A based on their “Sleevey Wonders” sleeved undergarments designed to be worn under sleeveless tops.  Note that it seems pretty bold for “Sleevey Wonders” to bring IP claims!

“Plaintiff claims that no other similar sleeved undergarment product existed before the Sleevey products were introduced.”  Defendant ordered two Sleevey products and then made its own Spanx-branded undergarment sleeve products.

Like Sleevey, Spanx products are allegedly made in different colors, textures, and combinations thereof, similarly advertised as being able to “Transform your wardrobe!,” advertised using paper dolls wearing sleeved undergarments with interchangeable outfits in order to demonstrate the different variations that are possible with the product. Like Sleevey, Spanx allegedly uses a bullet point list to showcase the Spanx products’ features, and allegedly uses equations to show how combinations of the Spanx products and outergarments can create new outfits. It allegedly uses the tagline “#Madewithlove” to advertise the Spanx products, similar to Sleevey’s claims to be made “with love.”

Spanx allegedly claimed to have come up with the idea for the Spanx products on its own, including by representing that the Spanx products are new, that the Spanx products fill a “white space” in the market, and that the Spanx products are “unlike any other layer options” in the market. This allegedly misleads the public into thinking that Spanx operates its business with the intention of supporting women in their entrepreneurial pursuits.

Trade dress infringement: Sleevey failed to properly identify a protectable trade dress. It cited similarities in “colors, shapes, fabric materials and material arrangements” between Sleevey and Spanx products. Sleevey products include “basic, bell, bandeau, flutter, waterfall, halter, shirred, tunic, and trellis” and are available “in a variety of colors including black, white, grey, coral, pink, mint, cobalt blue, periwinkle blue, apple green, olive green, forest green, navy, red, silver, turquoise, eggplant, brown and off-white.” This failed to sufficiently identify a precise and non-generic trade dress, and thus failed to provide proper notice to competitors. “Concerns of imprecise trade dress definitions include the risk that jurors will interpret the same trade dress differently, the possibility that jurors or courts will be unable to determine functionality or secondary meaning, the likely overbreadth of the trade dress claim, and the difficulty in crafting narrowly-tailored injunctive relief.”

As alleged, the design was generic and uprotectable even on a showing of secondary meaning. It was far too broad/generalized, and it was also the basic form of a product. To the extent that Sleevey sought to claim the concept of a “sleeved undergarment” as trade dress, that’s “nothing more than a basic description of the product and its function.”

Nor did the packaging and promotional materials fit within the description of product design; allegations about the similarities in packaging weren’t contained in the trade dress claim.

For the same reasons, the features Sleevey sought to protect were functional. The sleeved undergarment design, combined with various colors, shapes, fabrics, and material arrangements, was essential to the Sleevey products’ purpose, “which is to provide women with a variety of sleeved undergarments to pair with other short-sleeved apparel in order to create the appearance of sleeves.” Sleevey pled that the purpose of Sleevey is to cover “bare, flabby arms,” and to “give the appearance of the sleeveless over garment having sleeves.” The “form-fitting” nature of the sleeved undergarments “serves an important function as it relates to the overall look of the wearer’s outfit, beyond a mere aesthetically-unique design. The same can be said of the particular material used for each individual Sleevey product; consumers buy a particular item of clothing not just because of its overall look but also because of its comfort and fit.” Because Sleevey sought protection for the entire product line, “the general design and look of each individual Sleevey product is undoubtedly functional.” Sleevey’s competitors, reciprocally, would be placed at a significant disadvantage if the Sleevey product line were treated as protectable trade dress.

Independently, Sleevey failed to plausibly allege secondary meaning. (The court mentions inherent distinctiveness but of course that’s not possible under Wal-Mart v. Samara.) Allegations that the Sleevey product line has generated over $5.8 million in revenue, and that Sleevey products have been worn by celebrities, showcased at trade shows, and featured in magazines, were insufficient. Evidence of sales is not dispositive and “does not in itself create legally protectable rights” in the product being sold; success in promoting Sleevey as brand didn’t equate to secondary meaning in any feature of the products themselves. “Plaintiff has not alleged that it sufficiently urged consumers to associate any particular feature of the Sleevey products with the Sleevey brand, other than by promoting the general design and purpose of sleeved undergarments in its advertisements.”

Likely confusion: Sleevey didn’t plausibly plead likely confusion.  It provided two examples of alleged consumer confusion, one of which was allegedly consumer comments on Spanx’s Instagram page regarding the similarities between Sleevey products worn by an actress in a television show and Spanx products. There was also a comment on Spanx’s Facebook page, where a consumer wrote that Spanx products “look a lot like Sleevey Wonders.” These allegations didn’t support a confusion claim but were consistent with the opposite conclusion: that consumers could readily distinguish the Sleevey products from the Spanx products based on packaging, manufacturing, and even product design. “The online comments Plaintiff alleges were made by consumers were made on Defendant’s clearly-labeled corporate accounts, refuting the notion that any consumer visiting those accounts would believe that Defendant’s sleeved undergarment products were identical to Plaintiff’s Sleevey products.” The marketing and packaging materials attached to the complaint were also easily distinguishable.

False advertising: There were two categories alleged: Spanx’s claims of innovation, e.g. its CEO being quoted in a newspaper article as saying “[t]ights have been around for our legs for so many years, I was thinking, ‘Why aren’t there tights for our arms?’ ” and its claims that its mission is to support entrepreneurial women and to “help women feel great about themselves and their potential.” This was allegedly false because Spanx hurt Sleevey and other “small, women owned” businesses, rather than elevating those women.

Nothing in the complaint alleged literal falsity, and the statements weren’t misleading because they were puffing. “Merely advertising a product as being new, invented, filling a white space, and being unlike other layering options does not amount to an assertion of fact” and was puffery.  Likewise, statements that Spanx products are “unlike any other layering options” was unquantifiable puffery.

Likewise, statements about Spanx’s mission to support women in business were also clearly puffery:  “vague and abstract goals in conducting business” that couldn’t be falsified. Plus, the falsity claim put the cart before the horse by assuming infringement.

Puffery, of course, can’t be material. And “the Supreme Court has directly addressed the question of whether representations about which company came up with the idea for a product materially influence consumers” in Dastar, which stated that claims under the Lanham Act “should not be stretched to cover matters that are typically of no consequence to purchasers.” It was clearly immaterial as a matter of law to consumers whether Sleevey or Spanx was the original source of the general concept of sleeved undergarments.

False designation of origin: Unsurprisingly, no. Allegations about similarities in the marketing and advertising materials were too conclusory. The exhibits attached to the complaint “reveal that Defendant uses clearly distinguishable advertising materials, packaging, and other brand recognition materials under the Spanx brand, even if the substance and style of those materials overlap with those Plaintiff uses for its Sleevey products.”

Suffolk University IP Conference, Oct. 29-30

Webpage here.  Draft schedule (subject to change) is available to download.
Current Confirmed Speakers and panelists include:
  • Erich Anderson, Corporate Vice President and Chief Intellectual Property Officer, Microsoft
  • Eric. E. Bensen, Co-Author, Milgrim on Trade Secret
  • Deepika Bhayana, Senior Managing Director, IP at Dell Technologies
  • Larissa Bifano, Partner, DLA Piper
  • Carolyn Blankenship, Director, IP, Thomson Reuters
  • Tom Brown, Senior Legal Direct, Dell Technologies
  • Margaret Chon, Donald and Lynda Horowitz Professor for the Pursuit of Justice, Seattle University School of Law
  • Robert K. Coughlin, President & CEO, Mass Bio
  • Daniel Dardani, Technology Licensing Officer, MIT
  • Chad Davis, Partner, Dechert
  • Jeffrey Francer, Senior Vice President & General Counsel, Association for Accessible Medicines (AAM)
  • Stefania Fusco, Senior Lecturer, Notre Dame University Law School
  • Adam Kessel, Principal, Fish & Richardson
  • Bruce Leicher, former General Counsel, Momenta Pharmaceuticals, Inc.
  • Travis McCready, President & CEO, Massachusetts Life Sciences Center
  • Michael Meurer, Professor of Law, Abraham and Lillian Benton Scholar, Boston University School of Law
  • Byron Olsen, Vice President, Chief Patent Counsel at Dicerna Pharmaceuticals, Inc.
  • Scott Peterson, Red Hat
  • Alexandra Roberts, Associate Professor of Law, University of New Hampshire School of Law
  • Hans Sauer, Deputy General Counsel for Intellectual Property, BIO
  • David Schuler, Chief Intellectual Property Counsel, Bose Corporation
  • Jacob S. Sherkow, Edmond J. Safra/Petrie-Flom Centers Joint Fellow-in-Residence, Harvard University; Professor of Law at the Innovation Center for Law and Technology, New York Law School
  • Ofer Tur-Sinai, Senior Lecturer, Ono Academic College, Israel
  • Craig Smith, Partner, Lando & Anastasi
  • Christine Taft, Ph.D., Senior Licensing Manager at Partners HealthCare
  • Rebecca Tushnet, Professor of Law, Harvard Law School
  • James H. Velema, Partner, Lathrop Gage
  • Saurabh Vishnubhakat, Associate Professor of Law, Texas A&M University School of Law
  • Maria Laccotripe Zacharakis, Partner, McCarter & English

Innovation, Justice, and Globalization: A Celebration of J.H. Reichman

Harvard Law School

Opening Keynote
Yochai Benkler, Harvard University
How do we understand what we do in our field against the background of profoundly increased inequality and stagnation for all but the top 5%, including an unprecedented increase in death rate among US whites from diseases of dispair? The economy functions in relation to power. Prior stories that have failed us: Mainstream economics treated technology as exogenous; it has become skill-biased. Monotonic story: the more skilled people are, the more they can adapt to tech, so college degree gets a premium. Fit the 1980s US data beautifully. Institutions played a relatively limited role in this theory and we were supposed to educate workers. But that story didn’t work in the 1990s.  Early 2000s: “tasks framework”: technology still exogenous, deterministic (some things are easier to automate than others). Middle class jobs—people in the back office of the CPA—were now being done by Excel. People on assembly line replaced by robots. Nonroutine jobs—the janitor dealing with irregular floors, the CPA using Excel—still had demand.  But that still didn’t fit the overall differences b/t different countries, all at the same tech frontier—substantial empirical threat.

Then the story became: robots will take jobs, cause sustained levels of structural unemployment; all work will be Uber.  Insitutionalists fought back: politics led to sustained shift of bargaining power b/t labor and capital, b/t financial sector and others; free movements of goods/capital but not people across borders created new methods of offshoring, outsourcing, etc. Tech plays no independent role in the institutional story.

So, where do we stand, who do law/institutions but also believe that tech has an important role?  Innovation economics/IP scholarship has some familiar forms. E.g., Classic/neoclassical incentives/access model; Schumpeterian: market structure is more important, antitrust is the key area of law; industrial policy intended to have exogenous effect. Institution design can seek better innovation w/o attention to distributional effects. Or you can have distribution sensitive innovation policy—primarily about access; accepting a market society and looking for redistribution through rules. Market systems will predictably not deliver access to certain goods, e.g. treatments for tropical diseases. Central to Reichman’s work. How to structure markets and more importantly innovation systems to deliver outcomes that are not maldistributive.

Next to this: people looking at tech rather than at IP, sounding more in STS than in economics or law (Winner, Do Artifacts Have Politics?, Nissenbaum, Bias in Computer Systems/Values in Design, Lessig, Code), focusing on the fact that technologies settle politics, whether in the form of bridges that block access to public beaches or machines that were less productive than workers but still managed to break unions, tech is used to resolve social conflict in favor of the party implementing the tech.

Look at ©, patent, TRIPs, WIPO treaty wars: the experience is of active, knowing, strategic action both by firms and individuals, alone and collectively, to shape the contest they understand will give them greater or lesser market power. Rent seeking, particularly on the side of firms seeking to increase the value of first mover advantages. (For Schumpeterians, rents aren’t inherently bad—they drive innovation—but it matters how long they will last before competition comes in.) Individuals come in with: freedom oriented and other social values. Trying to nullify state capture. Strategic lobbying on DRM, WIPO, etc. to create technologies that allow incumbents to control entrants. Today: surveillance capitalism, dark patterns/manipulating consumer demand.

Markets are arenas where power is negotiated in context—actors spend some of their rents to create the context that will make it easier to extract rents next time. Tech is endogenous and plastic.  There’s enough play in the joints that how it’s designed makes a huge difference including for bargaining and distributions. Markets are usually not efficient and power therefore matters. Institutions, tech, and ideology each shape policy.  Hired scholarship on one side justifying extractive practices; academics trying to do something else—like Reichman on the relationship b/t academic science and innovation. Shapes knowledge framework to shape the institutional framework.

New institutionalism in sociology: models of practice are imitated/normalized across groups.

Microfoundational component, just looking at the firm: every firm faces a choice of action in any given context. It can increase productivity (becoming more competitive) or decrease competitiveness (make products for which demand is less elastic). Tech and institutions are part of the investment pathways. Each pathway has an ideology too. They’re constantly trading off options to shape future rents. Options: increase entry barriers, prevent entry by innovators, increase competition among workers in the labor market and decrease competition among employers, increase monitoring of employees, disrupt collective action among employees/consumers, manipulate demand among consumers. DRMs, terminator gene, rent maximizing price discrimination are all mechanisms to control demand and disable competition. Older work on ways in which tech is used to deskill and homogenize, to monitor labor, to decrease labor’s bargaining power. “Ghost Work” by Mary Gray—platform organization makes it harder for workers to organize, and that’s part of the point. It’s not just about extraction; it’s in part about productivity and it’s also about ability to strategically grab rents.  In each relation, the objective is to decrease competition/entry, increase the size and lifetime of the strategies and the rate of rents; larger rents give you more bargaining power to capture more.

All this explains dramatic tech innovation/growth in one sector along with higher rents, more markups, more concentration of firms and wealth and increasing economic insecurity for everyone else—once the state is removed as counterbalance through regulation, once unions are weakened through labor law, then firms can dedicate more resources to rent seeking and rent extraction over productivity.

Q from Reichman: What is to be done?

A: (1) Knowledge production is part of the process and having a different story about how tech works opens up different avenues; many regulators today are highly constrained by fear of upsetting the applecart by regulating/pressuring tech firms. That’s changing a bit.  Having a better story that understands structural/distributive things at play in tech policy, not just more is better, is one part of moving forward. Invite distribution sensitive innovation theorists to look more at extraction and competition. (2) Invite a multisystem approach: look in the mirror and worry. He’s spent plenty of time being skeptical about the state, trying to find self-organizing approaches like free software. That’s not good enough. That’s not to be nostalgic for the 1950s and 60s—there are excellent reasons that model of regulation lost out in the developing world. We need to find new ways to make regulation more effective—democratically accountable but flexible sources of counterpower. Consider: who can actually do this? What kind of actors can serve as counterpower? What innovations will undermine the financial power of certain actors?

Maggie Chon: building on rent extraction being not inherently bad—is it reinvested in R&D and innovation generation that might lead to more growth/inclusion of labor?

Q: rate of innovation v. direction of innovation—are we even capable of directional?

A: one of the outcomes of understanding things this way is to get comfortable nudging tech development into different structures. There’s no reason to think we should focus on rate; if we focus only on rate based on letting market actors choose whatever they want we aren’t doing our jobs. Social/political consequences can be vastly different and disruptive. Power of labor, 15 years after you go to robot nurses versus PAs with computers in their pockets, is completely different. Understanding how that relates to the broader framework may make you demand to see the interactions b/t “rate” and the power of incumbents.

Reichman: but where does the counterpower come from?

A: Democratic party in the US has changed a bunch in 20 years.  Green New Deal.  EC’s willingness to regulate tech now compared to its willingness to hand out monopolies in database rights 15 years ago is different.

Reichman: so institutional tools can evolve into counterpower.

Do antitrust and competition law trust intellectual property law too much?
Rebecca Tushnet, Harvard University, session chair

Graham Dutfield, The evolving role of branding in pharmaceutical management: how should competition law respond?

Are there things other than patents that raise issues with pricing/competition? Looking at TMs. Norlutin: on the market in UK since 1936.  Pfizer sold marketing authorization to Flynn; Flynn debranded the product and escaped all price controls. Pfizer became the sole supplier of the active ingredient to Flynn; Pfizer raised the price and Flynn did as well (and then some). Then Flynn sought to block importation of Norlutin from Italy based on its rights.  Competition authority imposed a fine, but they appealed and won.  Trademarks do matter.

In historical work, patent based rights are often subordinate to brand based rights. Dyestuff/chemical companies onward. 

What about the science?  Plain packaging of pills conveys little info.  Text/visuals affect how consumers perceive and even react to the products. Bayer puts its cross on its aspirin.  When TM litigated, Learned Hand says “aspirin” has two meanings. Nowadays pharmacos use colors as well. When it’s transferred to a me-too product that has a completely different price, what happens?  Zantac product expansion.

Looked at old cases on visual aspects of pills, UK case in 1972: court recognizes rights in “getup” or coloring.  Some problems: AstraZeneca, which has gotten in trouble w/competition authorities over Nexium, has used color to protect rights.

How does this matter?  Tentative conclusions: Look further than patent system. Competition law should reflect this broader focus.  Branding can actually generate confusion about the product provenance/uniqueness, and that’s a problem.

Maybe shape/color shouldn’t be protected/shouldn’t be enforceable against authorized generics for the same conditions. Placebo & nocebo effects are relevant here; if the color matters, it should be transferred to the generic drug to avoid artificial creation of nonsubstitutability. The consumer may reject/experience less effect from the generic.

Sean Flynn, Enforcing Fair Following Rights Through Competition Law

Confronted an argument in assisting South Africa: you can’t use competition law to force licensing of patent rights b/c they are completely separate fields.  Reichman was foundational in response to that. Also relevant to ©: rights to education and research w/in the © system can also be seen as competition issues.

How do we craft the interface b/t IP and competition? Louis Kaplow has done work on finding a realist/realistic proposal. US courts have looked at the “scope of the patent” but that’s what Felix Cohen would call transcendental nonsense. If competition law cabins the power of the patent holder, you can’t use the scope of the patent to determine when competition law operates: it has to have the ability to operate on the core of the rights, including the right to exclude. Kaplow said it’s basically a ratio. The more you have a small patent reward and a large monopoly loss, the more competition law should bear on the situation and vice versa.  Can we identify scenarios where one or the other will typically be the case?

Where monopoly power is on essential goods/services w/ highly inelastic demand curve, and a country has extremely high income inequality, it will almost always be the case that full exercise of monopoly power will create small monopoly reward and huge deadweight loss. Edmund Kitsch was wrong: we didn’t see, after TRIPs, proportional reductions in prices in countries with less income.  It turns out that charging high prices in India is still what happens. In the US if you charge a price that only the top 10% can afford you make less than if you charge a price to allow 60% to afford it. In South Africa, though, there’s a small # of people who earn global high incomes and a large # who have very low incomes, and the profit maximizing price turns out to be to serve only the small #.  You might even make more profit having a higher price in a poorer country because you’re not serving much of it.

We also have textbook examples: books, like drugs, have essentially zero marginal cost to distribute. But b/c you’re not trying to serve the entire market, a higher price earns more profit. Exclusionary pricing: more profit through massive deadweight loss. 2-3x more than monopoly profit. We should be restraining that through competition law (or other means).

How to do it?  Competition, fair use, international law.  In South Africa, they forced the licensing of AIDS drugs, and after that the advice IP lawyers began giving to drug suppliers was that any pharmaco has to give at least 4-5 licenses to local producers to enter the market.  So we shouldn’t look at the scope of the patent, but at whether there’s massive exclusion in the market. 

For ©, in South Africa there are affordable locally produced textbooks, but not for niche topics. They can be 10-20x higher priced than normal. Current SAfrican bill, on the President’s desk now, adds a competition standard to fair use, allowing use of entire work where authorized copies can’t be obtained at a price reasonably related to the normal price for textbooks in South Africa.  Used language from the Berne convention that was highlighted by Reichman.

Duncan Matthews, A Pro-Competitive Strategy for Developing Countries: Do we still need this and where do we go from here?

Reichman’s work on flexibilities in TRIPs.  Not just the use of competition law per se, but invoked Art. 7 & 8 of TRIPs. Art. 8 para. 2 creates potential to prevent abuse of IP rights. UN panel on access to medicines referred to this as underutilized.  OECD: competition committee, where national enforcement agencies are looking closely not only at excessive pricing and pay for delay and vexatious litigation but also at patenting strategies, patent thickets, defensive patenting, divisional applications causing noise & confusion to increase uncertainties for generics.  TRIPs council: South Africa has taken the lead, supported by China, India and Brazil, acknowledging that competition law is one of the least discussed flexibilities and asking for information gathering.

European perspective: the EC is led at WTO/TRIPs council by DG Trade, which has pushed back against discussion of this topic, which is somewhat surprising given what DG Competition has been doing in Brussels.  Pharma inquiry by DG Competition raised patent strategy issues as recently as Jan. 2019.  Policy incoherence in the EU prevents the issues from being discussed in progressive way at TRIPs council; can be harmful to regional/EU discussions as well. For developing countries, simple information gathering is being blocked. Reichman’s ideas remain as topical and crucial as they did when TRIPs was new.

Pam Samuelson, The Infusion of Competition Policy in Copyright Law
When they were starting out, the idea of considering competition policy in © was relatively new. Reichman’s work on computer software as applied knowhow was significant. Reichman argued against overprotection via patent/©. At the time, Whelan v. Jaslow had suggested that only the general purpose or function of a computer program was unprotected by © and everything else was protectable look and feel.  Nimmer’s treatise tried to rewrite the statute, which is not the way it’s supposed to go. Reichman & Samuelson started writing amicus briefs and getting more active—Lotus v. Borland, where the dct protected the command menu hierarchy of a program even though the dct also said that was the fundamental part of the functionality of the system.  The SCt blew it by splitting 4-4 when it got to them, and we wouldn’t be in this Oracle mess if it hadn’t, but at least the 1st Circuit got it right. Likewise, worked on Sega v. Accolade to allow decompilation to get access to un©able subject matter.  This was an uphill battle!  The 9th Circuit tracked their amicus, yay.  The court said that decompilation was important to innovation and competition—likewise the Altai case.  The cycle of overprotection seemed to have come to an end.

But then there’s a threat of underprotection; recent decisions in CAFC in Oracle v. Google overreacts to give us Whelan v. Jaslow all over again.  So it’s still amicus work for Samuelson et al.  Wrote a paper: if we’re worried about cycles of over and underprotection, we should think about what kind of protection programs really need—the industrial compilation of applied knowhow is what’s valuable about them.  She’s still convinced that’s right. They’re not suitable for ©; they should be protected, if at all, through a sui generis right. She’s not expecting that, but we should think it through regardless.

Peter Yu, Revisiting the Historical Lines of Demarcation: Competition Law, Intellectual Property Rights, and International Trade When TRIPS Hits 25

EU proposal on data producer’s right for anonymous data. Japan actually did change its law in 2018 with respect to big data.  “Data is the new oil”: misleading but persuasive description. Unasked important question: should data be owned in the first place? Reichman & Samuelson have addressed this in an important article dealing w/ the modality of protection. There are methods of regulation between nothing and property rights, including unfair competition law.

Complementary operation of competition law: US filed an IP complaint against China, its second under TRIPs, 2 years ago, that could have shed light on these important issues. National treatment (art. 3) and about license/contract in patent law. Some of the potential defenses come from art. 40, abuse of IP rights. Technology transfer and joint venture issues have been important for decades, before TRIPs.  In June, however, they suspended the complaint so we won’t have a ruling.

Traditional knowledge: do people overstate the importance of protection?  Does competition law have the same relation to TK as to other IP—do we want to encourage more competition in this space?

Reichman’s 1983 article on design and the law: foundational.

Justin Hughes: is Altai about as good as sui generis would’ve been?

Samuelson: yes, given that there would’ve been issues w/sui generis protection too.  Cases mandating filtering algorithms out as unprotectable procedures; interoperability as unprotectable procedures improved the Altai standard. As long as there’s meaningful effort to filter out the functional, it’s not so bad an outcome. The software industry is doing well. Microsoft endorsed flexible fair use in its amicus supporting cert in Oracle, which is not where Microsoft was in the 1990s.  Fed Cir threw out 102(b), merger, and fair use, and you can get to the Fed Cir by alleging a patent claim; there are no defenses left in (c) (they would get rid of the scenes a faire doctrine too if given the chance).

Q: PTO asked for comments on protection of AI. Asked if we need data protection. Seems quite concerning: comment period extended to Nov. 8.

Samuelson: she’s heard noises that extensive protection for structure, sequence and organization is necessary because patents are being invalidated under Alice; she thinks it’s healthy and that the industry doesn’t need patents as much as all that.  There should be a layer that is unprotectable except for trade secret; that’s the most sensible.

Reichman: was puzzled by Alice, which seemed like a move to the European approach (technical step/solution) but stopped short of it, which makes it conceptually worse.

Samuelson: Alice involved 10 judges with 7 opinions, which was part of the problem.  Fed Cir reacts by saying that SCt threw out patent, so © must step into the void.

Thursday, September 26, 2019

Allergan gets small damages award in case against compounder

Allergan USA, Inc. v. Imprimis Pharmaceuticals, Inc., 2019 WL 4546897, No. 17-cv-01551-DOC-JDE (C.D. Cal. Aug. 2, 2019)

Previous discussion of liability issues in this pharmaco v. compounder false advertising case. After the court awarded partial summary judgment to Allergan (falsity and materiality, not damages), the court excluded Allergan’s expert report that based all its damages estimates on the Imprimis business model, not on the impact of the particular statements at issue. And the jury was to rule on Lanham Act damages only (there were also UCL violations, but the relief there is equitable and Allergan couldn’t get disgorgement). The jury awarded Allergan $48,500 in damages and zero in disgorgement of profits.

Imprimis renewed its motion for judgment as a matter of law, which the court denied. Imprimis argued that Allergan presented no credible evidence linking the false advertisements to lost Allergan sales. Mot. at 3. It relied on Out of the Box Enterprises, LLC v. El Paseo Jewelry Exchange, Inc., 732 Fed. App’x 532 (9th Cir. Apr. 30, 2018), where the jury found in favor of the plaintiff and awarded $1.5 million in lost profits due to false advertisements. The Ninth Circuit held that the plaintiff’s expert’s testimony “established only a correlation—not a causal relationship—between [the] advertisements and a decline in Out of the Box’s projected profits.” The testimony also “did not provide the jury with a way to determine by a preponderance of evidence the amount of any lost profits … In short, the record provides ‘no way to determine with any degree of certainty what award would be compensatory,’ as required by our precedent.”

Imprimis likewise argued that Allergan’s references to a drop in its sales established a correlation, not a causal relationship, making both (1) the fact of damage and (2) the amount of damage unproven.

As for the fact of damage, the Ninth Circuit has “generally presumed commercial injury when defendant and plaintiff are direct competitors and defendant’s misrepresentation has a tendency to mislead consumers.” “The Court instructed that the parties are in direct competition and consumer deception existed; the jury could therefore infer that the false statements caused some injury to Allergan.”

As for the amount, a court “must ensure that the record adequately supports all items of damages ... lest the award become speculative or violate [the Lanham Act’s] prohibition against punishment.” For jury awards, courts accept “crude” measures of damages based upon reasonable inferences so long as those inferences are neither “inexorable ... [nor] fanciful.” The Court instructed the jury: “Allergan does not need to quantify its damages in any particular way or provide expert testimony; many sources can provide the requisite information upon which you may calculate damages. Only the fact of damages must be established with reasonable certainty. You need not calculate the amount of damages with absolute exactness but there must be a reasonable basis for computing the amount of damages.” The jury was allowed to consider both direct and circumstantial evidence.

There was no direct testimony from a relevant consumer that she purchased from Imprimis rather than Allergan due to the false advertisements; and there was no survey of relevant consumers indicating actual confusion or economic harm. But Allergan presented sufficient circumstantial evidence. For example, a medical practice requested information on Imprimis’s FDA report from July 2017, and in response, Imprimis’s VP of Quality stated that “FDA found our products and services to be safe and effective.” A doctor from the practice placed an order with Imprimis only two weeks later. An Imprimis sales rep told another practice that Imprimis’s drugs combine “FDA-approved” component before the practice made a purchase. There was also evidence that Allergan lost market share during the time in which Imprimis made the false promotional statements at issue.

Allergan argued to the jury that it should use the following methodology: (1) begin with Imprimis’s unit sales during the time period the jury believed that Imprimis’s false advertising had an effect; (2) multiply that number by the percentage of Imprimis’s sales the jury found was attributable to false advertising; (3) discount the product of that calculation by Allergan’s market share for that drug to determine Allergan’s lost sales units caused by false advertising; and (4) multiply that by Allergan’s per-unit profitability. Imprimis disagreed, but this was a reasonable way to ask the jury to think about the case. The jury asked the Court for the “summary document showing the market share of Allergan Products,” and the jury could reasonably have reached the $48,500 figure from this information and circumstantial evidence before it.

It’s true that other factors affected the market, and Allergan’s sales trends in the pre-wrongdoing period might have supported a different conclusion.  “But that does not mean that the jury could not infer any connection between lost sales and false advertisements.” Imprimis mostly convinced the jury that there wasn't much in the way of lost sales, but not entirely.

chilling effect: competitor's name in text of keyword ad requires extreme care

TSI Prods., Inc. v. Armor All/STP Prods. Co., 2019 WL 4600310, Nos. 17-cv-01131, 18-cv-1682 (MPS) (D. Conn. Sept. 23, 2019)

TSI sued defendants for trademark infringement, unfair competition, and false advertising under the Lanham Act; for Sherman Act violations; and for violations of the Connecticut Unfair Trade Practices Act (CUTPA). Astonishingly, all claims survived a motion to dismiss.

The parties compete in the market for do-it-yourself refrigerant products and recharge kits, which permit car owners to recharge their vehicle air conditioning (AC) systems on their own. They’re sold in specialty automative stores and automotive departments of stores such as Walmart. “[T]he non-value-added refrigerant category consists mainly of cans of R-134a refrigerant, without any included additives, tools, gauges, or hoses.... [T]he category of value-added automotive AC recharge kits consist of cans of R-134a refrigerant that also typically contain some combination of additives, lubricants, hoses, gauges, or other tools.” The parties compete in both categories.

TSI sells its refrigerant and recharge kits under the brand names AVALANCHE, AC AVALANCHE, and BLACK DIAMOND AVALANCHE. TSI has registrations for AVALANCHE and BLACK DIAMOND AVALANCHE. It claims rights in the mountain logos used with its word marks.

Armor All bought “AC AVALANCHE” as a Google ad word, putting an Armor All ad at the top of the search results. Armor All allegedly “made no effort to distinguish themselves and their products from TSI, either in the Google ad itself or on the linked AC Pro Website webpage.”

Prior to 2017, Armor All allegedly did not “utilize any mountain imagery in its packaging of ARCTIC FREEZE products,” but started using one that allegedly “looks confusingly similar” to the mountain logo on TSI’s products and “causes customer confusion as to the source of the goods.”

TSI also alleged that Armor All made a number of misrepresentations about its own products, e.g. “Our kits come with everything you need to recharge your system with no additional tools or equipment,” “fast, easy and accurate recharging,” and “just three easy steps.” For its refrigerant, it claimed “#1 Rated Coldest Air” and “#1 Coldest Air,” “Formula with 2X cooling boosters vs. the next leading brand of AC recharge kits: independently tested to deliver the coldest air from your vehicle’s AC,” and “A/C PRO ultra synthetic refrigerant kit features a specially designed formula that helps a vehicle’s A/C produce the coldest air.”

In the smaller “market for value-added auto AC recharge kits in the United States,” Armor All had an estimated market share of 88% in 2017. TSI is Armor All’s largest competitor in terms of market share, with approximately 10% share , and prior to TSI’s entry into the value-added AC recharge kit market in 2015, Armor All did not face substantial competition in that market. Armor All allegedly paid off retailer Advance Auto “to renege on its agreement with TSI and refuse to allocate shelf space to TSI’s products,” and made a similar deal with Pep Boys. 

Armor All also sent TSI a letter alleging infringement of two patents. TSI hired a lawyer and responded. Neither Armor All nor its predecessor allegedly had a “good faith belief that TSI infringed” either patent. Armor All allegedly “notified retailers within the relevant market” about the companion lawsuit consolidated with this one, which Armor All filed against TSI in 2017.

Keyword ads: although this is worded broadly, Armor All used TSI’s mark as the beginning of its ad text in a way that wasn’t explicitly comparative, and that’s clearly vital.  Edible Arrangements, LLC v. Provide Commerce, Inc., No. 3:14-CV-00250 (VLB), 2016 WL 4074121, at *11 (D. Conn. July 29, 2016), adopted the “perspective of a user of the internet search engine at issue,” and focused particularly on “(i) the strength of the plaintiff’s mark as a unique search term related to a distinct line of products, ... (ii) the similarity of the marks and whether the defendant’s mark draws a clear distinction as a competing brand.... [and] (iii) what the consumer saw on the screen and reasonably believed, given the context.” Armor All contended that “the purchase of a competitor’s marks as keywords alone, without additional behavior that confuses consumers, is not actionable.” TSI alleged that the displayed ad looked like this:

To be clear, A/C Pro is the competing product.  Armor All argued that the result was prominently labeled as an ad, that it was only one of several ads, and that the webpage hosted at the link address didn’t “any reference to TSI or its AVALANCHE products.” Mot. to Dismiss, ECF No. 102 at 16. Armor All it argued that the structure of the advertisement itself (“AC Avalanche – A/C Pro Saves You Time & Money –”) separated the search term (“AC Avalanche”) from Armor All’s “comparative advertising slogan,” making confusion unlikely.

The court disagreed, and I do too. Drawing all reasonable inferences in favor of TSI, the combination of keyword purchases plus ad text was plausibly confusing. “AC Avalanche” and “A/C Pro” weren’t presented as competing brands in the context of the advertisement. This was not, as alleged, a clear “three-part structure: ‘[search keyword] – [advertising slogan] – [website address].’ ” As the court pointed out, in the example shown, other sponsored advertisements use hyphens but follow different structures: the other two sponsored ads didn’t use the “AC Avalanche” search term at all, and neither appeared to use two competing brands or companies. “Try Pepsi – It is Better than Coca-Cola” or “Stop Collection Calls—is Allied Interstate Calling You” have been found nonconfusing, but the ad here made no clear distinction between the terms. “The overall context makes it plausible that the hyphen implies association rather than disassociation.”

Avalanche mountain logos

Armor All Arctic Freeze
The mountain logo unfair competition/infringement claim also survived. This one is a harder sell for me on plausibility—I would think that absent more similarity in the words, the use of the mountain concept in very different forms isn’t plausibly confusing—but Armor All focused on ownership (not suitable for resolution on a motion to dismiss) and argued that its 2014 registered copyright on its “ARCTIC FREEZE Mountain Label” used a mountain logo and preceded TSI’s alleged first use of the mountain logos in 2015. That failed because owning a copyright isn’t a defense to infringement (though that’s not exactly the claim here, which is priority-based, not copyright-ownership-based; the copyright registration is judicially noticeable evidence of use preceding plaintiff’s claimed first use).  The court nonetheless accepted the factual pleading that Armor All did not use any mountain imagery on its refrigerant products until 2017.  (I wonder about whether there’s any exposure to fees if in fact the 2014 use really reflects what was on the market and TSI persists in this claim.)

False advertising: The court can kick claims based on clearly subjective opinions out on a motion to dismiss, but should dismiss false advertising claims only if the statements “fall comfortably within the category of non-actionable puffery.”

Recharge kit statements: Armor All’s kits consist of refrigerant, a hose and trigger dispenser, and a gauge that measures the “pressure on the low side of the AC system” and indicates a “suggested fill range.” TSI alleged that measuring the pressure only on the low side of a car’s AC system can “lead to unusable and inaccurate pressure readings” for the “[m]any AC systems [that] use a BLOCK or TXV valve [to] regulate the flow of refrigerant.” This can lead consumers to overcharge their systems, which is are costly to repair. Based on these allegations, TSI alleged that statements such as “Our kits come with everything you need to recharge your system with no additional tools or equipment,” “Extends A/C/ Life,” “fast and accurate recharging,” and “The trigger dispenser and measuring gauge make filling your system to the proper level fast and easy” were literally false and misleading.

Some of these statements—such as “Extends A/C Life,” “Protects [A/C] System,” “just three easy steps,” and “Easy as 1, 2 ... Squeeze”—were non-actionable puffery, as did use of the terms “fast,” easy,” “convenient,” and “a breeze.” However statements were specific enough to be actionable. “All-in-One Kit” and “Come with everything you need to recharge your system with no additional tools or equipment” implied and outright stated, respectively, that “no additional tools” were needed to recharge an AC system. Based on TSI’s allegations, these statements were false because “[a]dditional tools and equipment are required to safely recharge AC systems with BLOCK or TXV valves” using Armor All’s kit.  Likewise, claims to provide “accurate” recharging and “make filling your system to the proper level fast and easy” were statements of measurable fact that were allegedly false.

Refrigerant formula: Armor All’s products contain lubricants and additives in addition to refrigerant. TSI alleged that other AC recharging products sold in the United States contain only refrigerant (R-134a), and that a can containing only refrigerant will create colder air than a can of equal volume that contains refrigerant along with lubricant and/or additives. Thus, it alleged that the following statements were false: “#1 Rated Coldest Air” and “#1 Coldest Air,” “Formula with 2X cooling boosters vs. the next leading brand of AC recharge kits: independently tested to deliver the coldest air from your vehicle’s AC,” and “A/C PRO ultra synthetic refrigerant kit features a specially designed formula that helps a vehicle’s A/C produce the coldest air.”

Armor All argued that many courts have found “referring to a product or service as ‘#1’ with regard to an industry or quality” to be puffery. But not so here. “#1” advertising statements are non-actionable “when it is unclear how a property should be measured.” But “coldest” is a statement of superiority in a specific, measurable attribute. Courts have indeed been skeptical of superlatives, but “coldest” is not the same type of superlative as “best” etc.  It is objectively verifiable. Armor All’s claims that its products ave been “independently tested to deliver the coldest air from your vehicle” and contain “a specially designed formula that helps a vehicle’s A/C produce the coldest air” stated even more specifics; “claims of testing are typically actionable.”

The antitrust claims survived too—surprise!

Tuesday, September 24, 2019

Inability to quantify damages justifies finding irreparable harm

Harbor Breeze Corp. v. Newport Landing Sportfishing, Inc., 2019 WL 4570033, No. SACV 17-01613-CJC(DFMx) (C.D. Cal. Aug. 26, 2019)

Harbor Breeze won a jury verdict of false advertising against Newport, a competitor in the whale watching tour business, but received $0 in damages (and $0 in an advisory verdict on disgorgement).  The court declined to order disgorgement of profits or award attorneys’ fees, but did grant a permanent injunction because damage had been shown but wasn’t sufficiently quantifiable to allow legal remedies, making injunctive relief appropriate.

Harbor Breeze operates in Long Beach and San Pedro in Los Angeles County, and Newport operates in Newport Beach in Orange County.  The false advertising at issue: (1) A consumer who searched online for “Long Beach whale watching” would get Newport’s website, which made repeated use of the phrase “Long Beach residents and visitors,” suggesting that its cruises depart from Long Beach, not Newport Beach. (2) Newport advertised, for example, a “$10 whale watching special,” but consumers could never get on its whale watching cruise for only ten dollars; there was also a $2.50 fuel surcharge and a 2% wharfage fee. “There was also evidence that calling these extra charges a ‘fuel surcharge’ or ‘wharfage fee’ was misleading because these fees were a way to get extra revenue, not tied to actual expenses, and Defendants did not disclose these fees until late in the process.”

In the Ninth Circuit, unless and until the Supreme Court changes things, disgorgement under the Lanham Act requires willfulness.  The court agreed with the jury.  It was reasonable to find no willfulness; one of Newport’s owners testified that Newport made changes to websites and ads following state court litigation in 2012 over false advertising and afterwards, they thought they were in compliance. And the evidence indicated an intent to optimize search results, not to deceive. One change was language on every webpage that Newport’s boats departed from “beautiful Newport Beach.” Also, a jury could reasonably find that Newport’s profits weren’t attributable to false advertising. “There was evidence that, even including the extra fees, Defendants offered cheaper whale watching cruises than Plaintiffs…. Consumers might care more about getting a good deal than where the cruise departs or whether a few dollars get added to the ticket cost.”  And there wasn’t evidence of intent to mislead about ticket prices because they ultimately disclosed all the fees prior to purchase, even if that turned out to be misleading.  [Note: this is terrible reasoning. The point of bait and switch is that you draw the consumer in with one price, then disclose the extra cost when they’re psychologically and perhaps otherwise committed to the purchase.  This may not be an appropriate case for disgorgement, but the fact that they successfully carried out the bait and switch does not mean they had nondeceptive intent.]

Permanent injunction: The jury found that the false advertising caused or was likely to cause damage to the plaintiffs. Harbor Breeze’s VP of operations testified that they regularly received calls from customers who are confused by the false advertising and who believed that Harbor Breeze offers Newport’s $16 whale watching special. A customer once attempted to board Harbor Breeze’s whale watching cruise with a Groupon voucher from Newport and became upset enough at learning the truth that they let him take the cruise for free. Other employees similarly testified about confused and angry customers, harming Harbor Breeze’s business reputation and goodwill.

Legal remedies were inadequate because this kind of harm “is difficult to quantify,” as the jury’s verdict denying damages demonstrated. The balance of hardships/public interest also favored an injunction to keep defendants from returning to their old ways.

However, to protect truthful commercial speech, the court limited the relief granted. Rather than requiring Newport to put a statement of its location on all ads or webpages, it would only require disclosure of Newport’s location for “webpages and advertisements that repeatedly use the name of another city, making it seem as if Defendants’ whale watching cruises depart from a city other than Newport Beach. It is not misleading, for example, for Defendants to state on their website that they are about twenty miles away from Long Beach. But a repeated reference to Long Beach, without a clear disclosure regarding Defendants’ location of departure, may mislead or confuse consumers.”

Nor would Newport have to edit its webpages’ source code to include the text “Newport Beach Cruise Operator” in the title tag or the phrase “All Cruises Depart from Newport Beach” in the description tag. To do so, the court thought, would “significantly burden protected speech,” though it didn’t explain how.  The analogy was to the splash screen in the case, but that case involved a clickthrough that interfered with reaching any web page at all on the website; the proposed mandatory language might not have done much good, but it’s a standard disclosure that wouldn’t prevent search engine indexing or require a consumer clickthrough and thus doesn’t appear burdensome at all. The court thought that the required text would “unfairly impair Defendants’ ability to optimize their search engine results,” but why?  If they can only maximize their results by not using the name Newport, that seems like it’s pretty closely connected to the falsehoods at issue here.

Nor would defendants have to give up domain names with other city names. There were lawful uses for those; they might want to reserve a particular domain name, for instance, in case they expand to other cities.

And Newport wouldn’t be enjoined from buying the names of geographic locations other than Newport Beach on pay-per-click advertising systems like Google AdWords. There was nothing wrong with that, “so long as consumers understand the cruises depart from Newport Beach.” There was also nothing wrong with outbidding other operators for ads.

Finally, the court was “concerned about the administrability and feasibility of an injunction that attempts to enjoin what appears in organic Google search results or third-party websites like Groupon,” and thus the injunction wouldn’t hold Newport responsible for content created by third parties.

Separately, Newport “must advertise a price for a ticket that is the entire final cost of the ticket, excluding any legally collected sales tax or any optional, add-on services or goods.”

For attorneys’ fees, this wasn’t an exceptional case; defendants turned out to be right that plaintiffs couldn’t prove [the amount of] any damages. “Although the injunction confers some public benefit, stopping misleading advertising about whale watching does not ameliorate a serious public harm.”

"studies prove" as puffery?

Sorry for the photo quality, but I was quite struck by the claim:
"Studies Prove That Live Shows Add Years to Your Life. Who Are We to Argue with Science?"

Query whether reasonable consumers would receive a "tests prove" message.  I do note that there is industry-funded research claiming that live shows improve attendees' well-being, which they then connect to lifespan--though "years to your life" is misleadingly based on the further claim that people with high well-being live nine years longer than people with low well-being, without any evidence that concert attendance takes people from high to low.  And of course it's pure correlation, rather than causation--I suspect that people who are able to regularly see live music differ in some significant ways from people who don't. But the advertising law question of perhaps broader interest: does the fact that there is a real study, however flawed, allegedly behind this bear on whether people are likely to receive a "tests prove" message?  As it turns out, this is a studyable thing.

Laches bars Peloton Magazine's claim against Peloton

Move Press, LLC v. Peloton Interactive, Inc., No. LA CV18-01686 JAK (RAOx), 2019 WL 4570018 (C.D. Cal. Sept. 5, 2019)

It’s hard to prove reverse confusion!  Featuring a cameo by IP’s own Orly Lobel.

Move Press uses PELOTON in connection with its print/digital magazine, Peloton, featuring articles designed to appeal to the cycling community. The first issue was distributed nationally in 2011. Move Press also allegedly uses the mark in connection with its website, blog, documentary films, mobile applications and social media and sells clothing, bags, footwear, hats and drinking containers on its website. The initial 2010 application to register PELOTON for “magazines in the field of bicycles” was denied on grounds of descriptiveness; it was added to the Supplemental Register in July 2011. Move Press filed again on August 14, 2014, and got PELOTON on the Principal Register for magazines and online magazines “featuring cycling, racing, food, travel, clothing shoes, sports equipment, sports apparel, health, nutrition, film, and photography.”

Peloton is the Peloton you’ve heard of, established in January 2012. “It sells indoor exercise equipment and subscriptions to its on-demand fitness classes.” A peloton is “a group of riders working collaboratively while bicycling together,” and the name was chosen to “evoke the supportive group environment the company sought to foster through its virtual group fitness classes.”

In November 2012, Peloton filed to register PELOTON for use in connection with “stationary bicycles equipped with interactive computer systems, video players, and body bars,” “downloadable software in the nature of an application for use by individuals participating in exercise classes, physical training, and exercise instruction,” and “streaming of audio and video materials on the Internet featuring physical fitness classes, training, and instruction.” The registration issued on the Principal Register on August 5, 2014.  Peloton has additional registrations for (i) sports apparel; (ii) as a service mark for retail and online store services in the field of sports apparel, fitness equipment, and fitness classes; and (iii) for its stylized “P” logo.

Peloton’s Kickstarter accepting bicycle orders launched on June 24, 2013, as did Peloton began shipping bicycles in January 2014.

The court granted summary judgment to Peloton on laches. The most analogous limitation period was the four-year statute of limitations under California law. When did the period begin to run? The court noted that Peloton’s 2013 launch “received national media coverage in The Wall Street Journal and Time Magazine,” and the application was published in September 2013. After the launch, Move Press’s creative director received an email about it from a former employee, and forwarded it to a principal in late 2013. The principal visited Peloton’s website and saw that Peloton was using the PELOTON mark and offering an indoor exercise bicycle with the name Peloton. 2013 was thus the point at which the limitation period began. Anyway, even if it began only when Peloton first shipped its products, that was also more than four years before this action was filed. There was therefore a rebuttable presumption of laches.

Move Press argued that the doctrine of progressive encroachment justified its delay in bringing this action because Peloton now sells clothing and has a blog and digital content that was independent of its stationary bicycles, and because Peloton now targets a broader audience with an advertising budget that has at least doubled since it started its business operations. But “[a] junior user’s growth of its existing business and the concomitant increase in its use of the mark do not constitute progressive encroachment.”  Peloton had been selling PELOTON-branded apparel and accessories since it launched its Kickstarter campaign in 2013, and producing video content in the form of fitness classes since its inception, always targeting “almost everyone who has any interest in fitness.” That wasn’t progressive encroachment.

Was the delay unreasonable? The Ninth Circuit has identified six relevant factors: (i) strength and value of trademark rights asserted; (ii) plaintiff’s diligence in enforcing mark; (iii) harm to senior user if relief denied; (iv) good faith ignorance by junior user; (v) competition between senior and junior users; and (vi) extent of harm suffered by junior user because of senior user’s delay.

The first two factors weighed in favor of Peloton. The marks were relatively weak: descriptive or suggestive. But Peloton’s mark was substantially more valuable due to its “rapid and continuing growth” relative to that of Move Press. And Move Press was not diligent in protecting its mark; despite actual and constructive knowledge in 2013, Move Press did not file an opposition or seek to cancel any of Peloton’s federal registrations. Move Press also didn’t seek to enforce its rights in the PELOTON mark against other companies using PELOTON in connection with bicycle-related goods and services (there were a couple). And there was a three-and-a-half-year delay between July 13, 2014, when it sent Peloton a C&D, and initiation of suit on February 28, 2018.

As for the harm to Move Press if relief is denied, that turned on likely confusion, on which there were genuine factual issues (see below).  The same with factor five (whether the parties compete). Those couldn’t be weighed either way.

Factor four “focuses on whether Peloton had prior knowledge of Move Press when it decided to adopt the mark PELOTON.” There was an email to Peloton’s founder and CEO from his mother, on August 18, 2012, stating, “Just saw at my grocery store the magazine Peloton.” “Although this provides some evidence as to Peloton’s awareness of the existence of Move Press in 2012 prior to announcing or selling its products, there are undisputed facts showing that Peloton selected the name PELOTON [in 2011] before it was aware of Move Press.”

The final factor was the harm to Peloton from Move Press’s delay.  Peloton’s investment in the brand was substantial during the period of delay. It had invested millions of dollars, hired a lot of people, opened PELOTON-branded retail showrooms across the US, received numerous awards and widespread media coverage, and overall developed substantial good will and recognition in the fitness market. The prejudice would be “substantial” if Peloton were to lose rights to the PELOTON name.

Overally, the weighable factors weighed heavily in favor of Peloton, entitling it to summary judgment on whether the delay was unreasonable. For the same reasons, Peloton would be prejudiced by allowing suit.  “[A]t least some reliance on the absence of a lawsuit” is necessary to show prejudice.

When Peloton filed its trademark application for PELOTON, the PTO initially rejected it, citing Schwinn’s PELOTON registration for outdoor bicycles. Thereafter, Peloton contacted Schwinn, which led to an agreement between the two that allowed Schwinn to maintain its registration for its mark for its outdoor bicycle while allowing Peloton to use the mark in connection with home fitness products and services. The PTO then approved Peloton’s amended application. This evidence supports an inference that Peloton would have acted differently had Move Press challenged Peloton’s use of the PELOTON mark when Peloton filed its trademark application.

There was also no triable issue on prejudice.

Move Press argued that willful infringement wasn’t subject to laches. This requires knowledge on the defendant’s part that its conduct constitutes infringement. The record was insufficient to allow a jury to conclude that there was willful infringement. Numerous courts have found that “[p]rior knowledge of a senior user’s trademark does not necessarily give rise to an inference of bad faith and may be consistent with good faith.” There was no evidence of wrongful intent to capitalize on Move Press’s goodwill, and when the founder learned of Move Press, he believed there was no likelihood of confusion between PELOTON Magazine and Peloton’s goods and services. “[A] knowing use in the belief that there is no confusion is not bad faith.”  Nor was it bad faith to continue using PELOTON after receiving the C&D.  Peloton responded by rejecting Move Press’s claims and concluded by stating “[w]e trust that this resolves the matter; however, if you have questions, please contact the undersigned.” There was no response, until Move Press sued three and a half years later. “By failing to respond to Peloton’s response letter, Move Press reinforced Peloton’s belief that it was not infringing on the Move Press mark.”

Turning to Move Press’s motion for summary judgment, Peloton argued that Move Press couldn’t establish priority, which would have to be based on common law rights preceding Peloton’s Nov. 9, 2012 filing date. “According to Move Press, by the end of 2011, 25,000 print copies had been distributed nationwide and Move Press had 15,000 digital subscribers.” Move Press also relied on statements by Peloton’s founder’s mother about seeing a copy of the PELOTON magazine in a grocery store in Texas.

Move Press was not entitled to summary judgment on whether it had sufficient nationwide market penetration to give it common-law rights. The evidence of use included only copies of 2014 magazines, not 2011 magazines. Internal emails about promotional reach weren’t enough to show that the use was “sufficiently public” as of 2011. Sufficient penetration had to be assessed considering “volume of sales and growth trends, the number of persons buying the trademarked product in relation to the number of potential purchasers, and the amount of advertising.”  There wasn’t any evidence about the actual location of its subscribers or the actual sales in each state.

There were also triable issues on likely confusion sufficient to reject Move Press’s motion for summary judgment on confusion.

Even if the Move Press mark was suggestive, “suggestive marks are presumptively weak,” and there were several other PELOTON-related marks in the cycling market.  Although there was some evidence of Move Press’s commercial strength (in 2018, it distributed 12,000 printed copies of the magazine, and the number of digital subscribers dropped to 7000; over eight years it had “approximately one billion online responses to its social media content”), Peloton’s was substantially stronger. There was a potential for reverse confusion, making the strength of the mark factor favor Move Press. [Other courts would say that higher-than-suggestive conceptual strength is required to make the strength factor favor the plaintiff in a reverse confusion case.]

Relatedness/proximity of goods: triable issues on how close they were.

Similarity of the marks: though the words were the same, the visual appearances differed. Move Press began with a serif font in all lowercase letters, underlined with the caption “fuel the ride” beneath it. It later changed to a non-serif font and in all capital letters. At all times, it was black and white and was often preceded by “Move Press” and followed by “Magazine.” Peloton, meanwhile, uses a san serif font in all capital letters, frequently in conjunction with its registered “P” logo in bright red. This was enough to create a triable issue of fact on visual dissimilarity. And a reasonable jury could find a difference in meaning between PELOTON alone (used as a metaphor for a body of riders) and PELOTON Magazine (which could be reasonably understood as a publication about bicycle races).
Peloton with logo

Peloton Magazine with slogan

Actual confusion: Move Press cited nine examples of customer confusion, five of them Peloton Magazine being tagged in posts about Peloton.  E.g., Orly Lobel tweeted “Hugh giving all the rest of us in the #Peloton family goals to aspire to @onepeloton @pelotonmagazine though I bet he doesn’t have near 500 @classpass classes yet!”; in response to the tweet “Follow us for cycling news, photos, features and RT’s of intrigue,” a user wrote “I think I will pass.. You pulled your ads from @Hannity #diseasedLiberals don’t get my $$$$”; “Stay away from Peloton spin bikes ... worst customer service ever @pelotonmagazine #peloton #spinning @PelotonBikes Paid for now two weeks with no show appointments.... shop elsewhere.”  One person wrote to Move Press seeking to feature a Peloton spin bicycle on a show; one entity sent a vehicle for review to the magazine along with a personal note stating, “My coworker just took delivery of a new Peloton bike today.” The owner of a cycling industry insurance agency asked about PELOTON Magazine’s affiliation with the PELOTON bicycle and whether Peloton paid Move Press a licensing fee to use PELOTON, and one talent/media agency approached Move Press to discuss providing PELOTON-branded cycling packages and global live racing; when Move Press said there was no affiliation, the executives ended the meeting.

This wasn’t enough to avoid a triable issue on actual confusion. “Given that the two marks have been in the market for more than four years and that both parties use Twitter, ‘a handful of examples of anecdotal confusion are insufficient to support a finding confusion.’” The four non-Twitter examples were insufficient show “persuasive evidence that a significant number of consumers have formed a similar mental association” to demonstrate actual confusion.

Marketing channels: it wasn’t enough to both advertise on the internet (everyone does) or at the Tour de France (only one marketing channel among many for both parties). Weighed against likely confusion.

Degree of care: Although Move Press argued that its consumers were unsophisticated, it also contended that its magazine “is trying to reach a high-end cycling male-dominated base of consumers” with an “average household income of 175 [thousand]” who are “highly-educated.” And Peloton’s customers “exercise a higher standard of care when deciding whether to spend $2000 on an exercise bicycle or $4,000 on a treadmill.” Triable issue of fact.

Peloton’s intent: in a reverse confusion case, bad intent could be shown with “evidence that a defendant deliberately intended to push the plaintiff out of the market by flooding the market with advertising to create reverse confusion,” or that “the defendant knew of the mark, should have known of the mark, intended to copy the plaintiff, failed to conduct a reasonably adequate trademark search, or otherwise culpably disregarded the risk of reverse confusion ....”  But there was no particularized evidence of purposeful disregard for the risk of reverse confusion. Peloton’s declaration said that it discovered several companies that were using “Peloton” as their brand name or in connection with their products and services, but none used “Peloton” for interactive home fitness products. There was a triable issue on bad faith.

Product expansion: The triable issue of fact as to the relatedness of the goods made this factor neutral.

Overall, Move couldn’t prevail on summary judgment of likely confusion.

Monday, September 23, 2019

pharmaco gets summary judgment against compounder on falsity/unlawfulness

Allergan USA, Inc. v. Imprimis Pharmaceuticals, Inc., 2019 WL 4545960, No. 17-cv-01551-DOC-JDE (C.D. Cal. Mar. 27, 2019)

The parties compete in the market for ophthalmic drugs. Imprimis sells its ophthalmic drugs pursuant to Sections 503A and 503B of the FDCA (compounding and outsourcing). None of its ophthalmic drugs are approved by the FDA. Imprimis has exceeded FDA limits on compounding/outsourcing in various ways, including by using the unapproved component artesunate to prepare drugs until it received a letter from FDA and by using bulk drugs that weren’t on the FDA-issued lists of bulk drugs for 503B.

Imprimis advertised that its pharmacies “only use FDA-approved ingredients,” and that its Cyclosporine-based formulations are “made from FDA-approved drug components,” and told a potential customer in Kansas that “In simpler terms, FDA found our products and services to be safe and effective.” A video on its Go Dropless website included the statement, “The patient is protected from infection and inflammation even more effectively than can be achieved with expensive, inconvenient and irritating topical medications.” Also, a press release claimed “Imprimis Pharmaceuticals Go Dropless™ Video Interview Survey Reveals 95% of Leading Cataract Surgeons Surveyed Would Prefer Dropless Therapy.” Though Imprimis didn’t have the details of the survey, it “understands” that survey participants were asked “Would you prefer your patients not to have to take topical eye drops following an ocular surgery,” rather than identifying a specific formulation such as its Dropless Therapy injectables. When the survey was conducted, Imprimis “probably had less than ten customers” for its injectable Dropless formulations, and, of the 21 surgeons surveyed, only “a handful” had used them. Up to 20 months later, Imprimis was advertising these “recent” survey results and indicated that they referred to Imprimis’s product specifically.

Allergan sued for false advertising under the Lanham Act and violations of the UCL’s unlawful and unfair prongs. A related case shows how this is going to go.   Previously, even in the presence of unlawful statements regarding “FDA approval” that generated Lanham Act liability, the Court declined to hold the defendants liable under the Sherman Law and UCL “so long as the compounder complied with FDA’s interim guidance, especially in light of the agency’s ongoing implementation efforts.” Where it didn’t comply with the interim guidance, there could also be Sherman Act/UCL liability.  There was noncompliance here—among other things, Imprimis wasn’t requiring individual prescriptions before compounding when it should’ve been.

However, Allergan couldn’t get restitution under the UCL based on disgorgement of Imprimis’s profits. “The profits obtained by Imprimis come from third parties rather than from Allergan. They were never in Allergan’s possession.” Only injunctive relief was available for this claim.

Lanham Act claims: Imprimis claimed that its pharmacies “only use FDA-approved ingredients” and were “made from FDA-approved drug components.” That was literally false because FDA does not approve individual “ingredients” or “components” of drugs. “In simpler terms, FDA found our products and services to be safe and effective” was also literally false because Imprimis “does not subject its drugs to the FDA approval process that would support such a finding.”  Likewise, Imprimis’s claim that it “Meets requirements under Section 503B of the FD&C Act” was literally false based on the findings above.

Superiority claims: The survey/surgeon preference claim was a “tests prove” claim that could be falsified by showing that “such tests ‘are not sufficiently reliable to permit one to conclude with reasonable certainty that they established’ the claim made.” Even without expert testimony, the court found literal falsity.  “No reasonable jury could determine the survey was sufficiently reliable to conclude with reasonable certainty that 95% of cataract surgeons surveyed prefer Dropless Therapy.” The survey didn’t even ask about Imprimis’s specific product. So too with the video claiming “the patient is protected from infection and inflammation even more effectively than can be achieved with expensive, inconvenient, and irritating topical medications.”  This wasn’t “merely a professional opinion; it is a promotional statement published by the company, and Dr. Lewis appears to have been a consultant paid by Imprimis to speak with ophthalmologists and investors.” Imprimis’s witnesses knew of no basis for the video’s claim.

Literal falsity created a rebuttable presumption of actual, material deception. “Regardless, the uncontroverted facts also establish that the statements were material. Some of the false commercial promotions were even made in direct follow-up to consumer questions about quality and FDA compliance.”

Whether there was harm to Allergan, and the extent of that harm, was for the jury.