Thursday, October 31, 2019

Lack of personal jurisdiction leads to fee award in (c)/false advertising case

International Inst. of Management v. Organization for Econ. Cooperation & Development, No. 2:18-cv-01748-JCM-GWF, 2019 WL 5578485 (D. Nev. Oct. 29, 2019)

Not gonna lie, I’m here for the defendants, the OECD and Joseph Stiglitz.   IIM, a small Nevada think tank, alleged that they “stole credit” for IIM’s work on using non-GDP factors to measure the well-being of countries. In 2005, IIM published a two-page paper titled “Gross National Well-being (GNW) Index” that “generally discusses the idea of using non-GDP factors to measure the well-being of countries and provides seven factors that such an index might use,” but doesn’t show how to use them. A second six-page paper in 2006, “The American Pursuit of Unhappiness,” is similar.

The OECD’s Commission on the Measurement of Economic Performance and Social Progress conducts research on measuring the well-being of countries. Stiglitz, a resident of New York, is its chair and substantially contributed to various reports and articles that the commission published. In 2009, it published a 291-page report titled “Report by the Commission on the Measurement of Economic Performance and Social Progress,” “which discusses the limits of GDP as an indicator of economic performance. The report also extensively addresses problems with various measurement techniques and how to improve upon existing methods to determine the well-being of countries.”  In 2011, the OECD created the Better Life Index, which uses non-GDP factors to measure the well-being of countries, and published an interactive website that millions of people have used to compare the well-being of countries. Stiglitz also allegedly sells a book on which contains material from IIM’s works. IIM sued for copyright infringement, vicarious/contributory copyright infringement, unfair competition, and false advertising in violation of the Lanham Act (*cough*Dastar*cough*). 

Although this could’ve been a case testing what it means to creatively compile facts, the court instead granted defendants’ motion to dismiss for lack of personal jurisdiction. Defendants sought a fee award.

Defendants were prevailing parties under the Copyright Act even though they didn’t get dismissal on the merits or dismissal with prejudice. The relevant factors for whether there should be an award: objective unreasonableness, degree of success obtained, absence of chilling effect, and the need to advance considerations of compensation and deterrence. A claim is objectively unreasonable where the party advancing it “should have known from the outset that its chances of success in th[e] case were slim to none.”  Here, “IIM sought to hale a New York citizen and a foreign organization into a Nevada federal court based on the bare allegations that defendants operated the Better Life Index on a website, sold a book with allegedly infringing materials on, and published the 2009 report online.” And, relying on “unambiguous Ninth Circuit authority,” the court held that “merely uploading materials on a passive website and placing products in the stream of commerce are not affirmative acts that directly target Nevada.” Thus, the suit was objectively unreasonable.

Degree of success on the merits: “This dismissal does not bar IIM from refiling in another jurisdiction, but it does terminate further litigation in Nevada. While this is likely not defendants’ preferred outcome, it is without question that they have obtained at least a modicum of success.”

Chilling effect: IIM didn’t argue that it lacked the resources to pay an award or that it will be deterred from seeking to enforce valid copyrights in the future. But IIM argued that an award would deter suits against large-pocketed defendants. The court disagreed.  “That this case may have been brought in good faith and was not dismissed on the merits has little bearing on whether victims of copyright infringement will continue to bring suit. An award of attorney’s fees here serves only to discourage suits without an objectively reasonable basis for jurisdiction.”

Compensation and deterrence: “A successful defense furthers the purposes of the Copyright Act just as much as a successful infringement suit does.”

Overall, a fee award for the copyright claims was warranted.

Was this an exceptional Lanham Act case? Doesn’t matter, because fees were warranted under the Copyright Act (and I infer that, because the jurisdictional issue was the same for both, all work counts as work done on the copyright claims).  But the court found that fancy New York prices were unreasonable and instead used a lodestar of $400/hour for counsel who charged more than that, and it also found that the total hours billed were unreasonable for stating the hours of each individual in a single, large increment of time, so it reduced the lodestar by 10%.  Total award for Stiglitz: a bit shy of $58,000 (plus costs).  For OECD: over $52,000 (plus costs).

Wednesday, October 30, 2019

Trademark overprotection panel, Suffolk

Second Annual Intellectual Property & Innovation Conference Suffolk University Law School

The State of Trademark “Overprotection” by Courts and the PTO. What Happens When Institutions Overprotect Trademark Rights?

Moderator: Leah Chan Grinvald, Associate Dean for Academic Affairs and Professor of Law, Suffolk University Law School

Alexandra Roberts, Associate Professor of Law, University of New Hampshire School of Law
Overprotection. One type is granting protection to matter that hasn’t earned protection—doesn’t actually function as a mark; aren’t used in a TM way. Second, scope: matter that does qualify for protection but maybe narrowly so.  Rule of doubt is a way to wear PTO down.  Many examples: Apple store layout; many Trump marks that are ornamental/informational.

Validity takes over in the courts: applicants and the PTO spend a lot of time crafting an exquisite origami crane, and courts then ask “is this paper folded?” They don’t ask what the mark is for, whether it’s a design/word mark, etc.   Roberts calls it “rounding up” in terms of rights, broadening the registered matter unwarrantedly.  Famous cases: Park ‘n Fly case: that was a design mark, not a word mark. TM lawyers know the secret: if a mark is borderline, it’s easier to register as a stylized mark—in blue and cursive when the word alone is unregistrable.  By the time courts look at it, they say the mark is Park ‘n Fly, which it is not: it is a design mark including Park ‘n Fly.

Problems: deadwood on the register; chills competition; chills competitor and consumer speech; bad litigation/TTAB outcomes that don’t serve TM’s goal of protecting consumers and competition; bullying/things done in the shadow of the law. Olympics has said that only official sponsors are allowed to use #olympics. Overprotection + incontestability in particular is a really good way to bully.

Rebecca Curtin, Associate Professor of Law, Suffolk University Law School
Stakes for consumers/creators: focusing on a couple of recent/pending cases in the doll industry. Artisan dollmaker/embroiderer on Etsy who focuses on folk art dolls, including those depicting Frida Kahlo (sometimes as she depicted herself in self-portraits). One showing her w/spinal injury was taken down b/c of takedown from Frida Kahlo rights-claiming company. If it was ©, we could discuss transformativeness, but that’s not the issue b/c the corp doesn’t hold any © or right of publicity interests; what it does claim is a TM for Frida Kahlo for games, playthings, and dolls, assigned by Kahlo’s niece.  Repeated takedowns can get her banned from Etsy; she filed a declaratory judgment. This artist isn’t alone in depicting Kahlo in multiple media, including dolls; enforcement efforts threaten diversity.  Ironically (?), the corp licensed the creation of Frida Kahlo Barbie, which outraged the family b/c it depicted her as lightskinned, and erased her unibrow and mustache and prosthetic limb. They successfully enjoined sale of the doll in Mexico. Meanwhile, the artist is forced to bear the expense of litigating to use Kahlo’s name to accurately describe her works. 

Overreach both of existence of protection and its scope. Names of historical figures/public domain characters are descriptive at best for dolls that depict them. Secondary meaning? Unlikely where the figure looms large in the public imagination, but there are complications about how to describe descriptiveness and also incontestability limits the ability to use descriptiveness to cancel a mark. Also, approaching this as distinctiveness is unsatisfying, b/c it fails to consider cultural value of name in relation to the goods—it’s not just a semantic Q of name’s relationship to the good.  Failure to function as a mark, genericism are other alternatives. The dolls embody the character: I bought my daughter a Cinderella last Christmas.  Also descriptive fair use: this is a Frida Kahlo doll.

If there are so many doctrines preventing the granting/enforcement of such rights, why is there a case here?  The toy industry is where art and merchandise collide forcefully—sometimes the merchandise comes first and often generates more revenue than the sale of the underlying expressive works, b/c the industry has learned that toys with a backstory sell better. 

In the middle of opposing “Rapunzel” for dolls/toy figures.  Fairy tale appropriation strategy: has tried this with Snow Maiden, which was issued w/o an Office Action even though it’s a Russian folktale; Snow Queen for dolls likewise (Hans Christian Anderson); Little Mermaid for dolls, though that was refused as descriptive and TTAB affirmed.  TMEP now cites the Little Mermaid case to say that public domain character names are at best descriptive of dolls depicting the character.

The key here is consumer interest in receiving expression.  Giving one company a monopoly on Rapunzel makes it harder for others to interpret the fairy tale’s legacy.  A registration is a powerful tool.

Rebecca Tushnet, Frank Stanton Professor of First Amendment Law, Harvard Law School

Empirical work: are we running out of trademarks?  Jeanne Fromer & Barton Beebe have shown that yes, we appear to be, across pretty much all classes of goods and services.  You can’t have your cake and eat it too: you can’t have over 100,000 new registrations a year and have broad rights for them too, but the system has too long pretended that’s not the case.  PTO has seemingly gotten more attentive to some of the use questions Professor Roberts has focused on. TM lawyers are unhappy with the trend and I get why they feel “why are our clients being asked to provide better specimens of use and proof of use as a mark when it didn’t happen to clients 10 years ago?” but I don’t think the answer is to stay with the old standards.

A couple of additional points: Amazon/ICANN and private rights are having the same sets of struggles, including rounding up for domain names.  Abuse is already happening—rounding up for design marks in ICANN; manipulation of Amazon.  Legitimate businesses should not celebrate the existence of these new mechanisms if they aren’t going to be transparent and provide procedural protections.

Second, legal doctrine tends to get more complicated over time, developing what I call epicycles.  This is bad for people who don’t have much money: it means they are less able to assert valid claims and less able to defend against invalid claims.

My poster child: Gordon v. Drape Creative: Honey Badger Don’t Care
Problem of granting rights too readily in the first place: it’s not a trademark, it’s a punchline, it doesn’t serve a trademark function
Use as a mark
But also, because the court rounded up and accepted the validity of the mark, a problem of adding complexity to doctrines designed to protect free speech: it decided that because the defendant’s use was also use as a punchline, it might not be protected by the First Amendment as an expressive use; maybe it was explicitly misleading.

Grinvald: what do you do?

RT: We have tools for giving the benefit of the doubt to one side if we care about the social interest at stake. Qualified immunity; defamation doctrine. We can do the same thing for nonadvertising uses.

Curtin: a number of principles as suggested in the discussion of dolls.

Roberts: failure to function at the PTO could be handled better; abolish incontestability; eliminate the rule of doubt/reverse it. Wait for a showing of secondary meaning, don’t publish it. Close scrutiny of statement of use: more than ½ of applications are ITUs and the PTO doesn’t seem to pay as much attention to the specimen of use.  Give the PTO the chance to indicate explicitly in the file wrapper the contours of the mark, and courts should pay attention to those limits. Remember that the presumption of validity is rebuttable; courts think that failure to function and descriptiveness are moot if marks have been in use for a while but that’s not true.

Grinvald: is there real change now?

RT: I think the PTO’s official policy on some of this has clearly changed and examiners are picking up on it but right now the system is so big that you need big data analysis to be sure, w/500,000 applications pending at any given time.

Grinvald: how (if at all) can we help small businesses like the Etsy artist?

Roberts: Student clinics.  Every school could have a small business clinic, which is a good fit for TM law b/c the timing works.

Curtin: organizations like Volunteer Lawyers for America.

RT: Nothing in the TM space is going to solve the problem of vast resource disparities between large and small. That said, rules offer different paths to exploitation than standards.

Curtin: relevant Q: can we expect large corporations to do the work of vindicating interests?  Why didn’t Disney oppose the Rapunzel application? Probably because Disney reasonably expects not to be sued by the TM claimant, and so it’s not worth the opposition.

Grinvald: is it really grant of registration or overenforcement?  [It’s both.]

Q: is there systematic underprotection of TM owners?  11th Cir. case: Savannah College of Art & Design v. Sportswear Inc.  If you put Suffolk Univ. on T-shirts, you get their apparel store.  It’s a good business model—they stay away from big schools like Harvard or MIT, but not from small schools. Before this case, SCAD sent C&Ds; they sell t-shirts w/ the name of the school, sometimes with the color of the school, sometimes w/info like established 1989 or whatever.  They generally last out the schools/settle w/them.

RT: I think it’s not TM confusion: consumers generally think they’re showing their own commitments when they buy the merchandise; they don’t generally think they’re buying authorized stuff, but they do think it’s morally right to give the school some of the money. I don’t hold the view that the school should morally get paid, but one can; I just don’t think it’s a confusion issue.  Where I do think TM owners are underprotected is phishing, though I couldn’t off the cuff write a rule that would be limited to phishing and not easily abused.

Curtin: what matters is if they think the website is authorized/they’re pretending to be authorized by SCAD.  [I don’t think that’s what matters unless it’s material to consumers—and it may be, though the empirics of this aren’t strong.]

Tuesday, October 29, 2019

ThermoLife continues mixed record in pleading competitive injury from other supplements

ThermoLife International LLC v. Compound Solutions Inc., No. CV-19-01473-PHX-SMM, 2019 WL 5448804 (D. Ariz. Jul. 30, 2019)

ThermoLife develops “amino acid nitrates used in dietary supplements to increase vasodilation,” and alleged that vasodilators are “included in nearly every pre-workout product on the market.” ThermoLife has over 16 patents that protect its use of amino acid nitrates, and one involves Creatine Nitrate for use in dietary supplements to promote vasodilation. Compound Solutions sells a patented green tea extract called VASO6 as a vasodilator. It allegedly falsely marked and advertised VASO6 as patented, because the patent with which VASO6 is marked is not being practiced, according to independent testing.

The court dismissed the complaint: the false patent marking claim didn’t properly allege competitive injury, and the false advertising claims failed Lexmark.  Specifically, ThermoLife didn’t identify any specific licensees of ThermoLife’s patents or allege that it “actually manufactures, markets or sells any dietary supplements or any ingredients” that compete with VASO6. Allegations that VASO6 is “in direct competition with ThermoLife’s patented ingredients and products that license ThermoLife’s patented ingredients,” that “numerous ThermoLife customers and potential customers have been fooled by Compound Solutions’ lies, having included VASO6 in their products and/or inquired with ThermoLife about VASO6 and how this ingredient compares to ThermoLife’s nitrates,” and that Compound Solutions’ false advertising “is likely to discourage or deter persons and companies from commercializing competing products or pursing research and development...which injures ThermoLife and the public by stifling competition and increasing the costs of goods” were no more than conclusory, showing again that Twiqbal is what you make it. 

Although ThermoLife alleged that the products had “at least one” similar purpose, ThermoLife failed to allege decreased sales due to competition with VASO6, or harm to its reputation, or harm to sales of specific nitrates, and failed to identify any licenses to a specific manufacturer who sells a competing product. “Generally alleging that ThermoLife and Compound Solutions are in the same industry is insufficient. To support a cognizable legal claim, ThermoLife must identify products that use Creatine Nitrate or identify sublicensees who use Creatine Nitrate in their products that compete with VASO6.”

For the same reasons, the state law claims were insufficiently pleaded. Although the shorthand is that Lanham Act and state law claims require the same elements, I think that’s potentially misleading, especially when it comes to doctrine from Lexmark, which relied very much on principles about federal statutory interpretation and applied them to a statute, the Lanham Act, that is worded very differently from the average state consumer protection law.  With that caveat, the court is certainly on solid precedential ground to say this (because so many federal courts before it have not been interested in doing a separate state law analysis, before or after Lexmark):  “Under Arizona law, an unfair competition claim requires a plaintiff to ‘either show that it was engaged in competitive business with [the defendant] ... or that [the defendant’s] actions were likely to produce public confusion.’ In the Ninth Circuit, common law unfair competition claims are ‘substantially congruent’ to Lanham Act claims and thus share the same analysis.”

DuraBlend leather-ish label not misleading

Razo v. Ashley Furniture Indus., Inc., No. 17-56770, 2019 WL 5543849, --- Fed.Appx. ---- (9th Cir. Oct. 28, 2019)

Ashley preserved its summary judgment win in this putative class action asserting the usual California claims against furniture with leather-ish components.  Under the reasonable consumer test, representations must be viewed “reasonably and in context” to determine whether the material as a whole is misleading. A court presumes that consumers will read “qualifying language [that] appears immediately next to the representations it qualifies.” However, consumers are not required to “look beyond misleading representations on the front of the [tag] to discover the truth ... in small print on the side of the [tag].”
front: "contents 57% polyurethane, 26% poly/cotton and 17% leather"

back: Durablend is a material that contains ground, pulverized, shredded, reconstituted,or bonded leather [ed. note: sounds delightful!] and is not wholly the hide of an animal and should not be represented as being 100% leather.

Here, the disclosures were “unambiguous and truthful” and on the front and back of Ashley’s DuraBlend hangtag. Neither of these disclosures was “hidden or unreadably small,” and the one on the front was “immediately next to” a list of DuraBlend’s features. [I would have said "immediately below" based on this picture but I doubt that makes any difference.] “A reasonable consumer reading that list of features would also read those disclosures and discover that DuraBlend is not genuine leather.” And the disclosures themselves were truthful and not deceptive (though that was also true of the ingredients list in Williams—the key point seems to be that the initial message was not “deceptive but arguably corrected by the disclosures”; rather the initial message was not deceptive in need of correction at all). The disclosures truthfully stated that DuraBlend (unlike other imitation products) “contains ... leather” “without deceptively suggesting that DuraBlend contains intact animal hides like genuine leather. The DuraBlend hangtag explicitly states that DuraBlend is not and should not be represented as 100% leather. No consumer, reading this disclosure reasonably and in context, would conclude that DuraBlend is genuine leather.”

Further, Ashley was not responsible for representations made by a furniture store salesperson about DuraBlend. Claims under California consumer protection law “cannot be predicated on vicarious liability.” Instead, only Ashley’s “personal participation in the unlawful practices and unbridled control” over those deceptive practices could produce liability; this wasn’t shown.

implied claims of FDA approval actionable under Lanham Act

Kurin, Inc. v. Magnolia Medical Technologies, Inc., 2019 WL 5422931, No.: 3:18-cv-1060-L-LL (S.D. Cal. Oct. 23, 2019)

Kurin developed the Kurin Lock, a “specimen diversion device that reduces the risk of blood culture contamination and associated false positive blood culture results.” Magnolia competes with Kurin, selling another blood collection device, the Steripath, which launched before the Kurin Lock.

Kurin alleged that Magnolia’s representations that Steripath is registered and listed as a Class I device and Steripath’s “Rx Only” packaging falsely implied FDA review and approval.  Magnolia argued that this was a matter for the FDA’s primary jurisdiction.

POM Wonderful explicitly noted “that analysis of other types of labels, i.e. drug labeling, may be different than food and beverage labeling due to statutory requirements.” And “actions in direct conflict with an FDA policy choice are barred.” Still, consumer protection justifies allowing Lanham Act claims in many circumstances.

The Lanham Act claim was precluded to the extent it relies on allegations that the Steripath device was misclassified. “Congress placed classification and re-classification of medical devices within the FDA’s regulatory authority under the FDCA’s comprehensive regulatory scheme.”

By contrast, to the extent Kurin’s allegations merely implied that the market or consumers has been misled by Magnolia’s representation that the Steripath device was “listed and registered” as a Class I device, those allegations remain.

Magnolia also argued that the FDCA requires Magnolia to include the “Rx Only” statement on its device labeling, so it couldn’t be the basis of a claim. The court disagreed: if the public was misled about the implications the Lanham Act was triggered, even though “any remedial measures involving the label [are] likely in the FDA’s domain.” However, the “Rx Only” allegations were conclusory.

Monday, October 28, 2019

it's hard to frame the right cause of action for Amazon seller-on-seller misbehavior

Factory Direct Wholesale, LLC v. iTouchless Housewares & Products, Inc., 2019 WL 5423450, No. 19-CV-01228-LHK (N.D. Cal. Oct. 23, 2019)

The parties compete to sell stuff on Amazon. They agreed to the Amazon Seller Agreement, which requires the seller to represent and warrant that “any information at all times accurate and complete.” The Amazon Code of Conduct requires that sellers “not engage in any ‘unfair behavior’ or activities that (a) intentionally damage another seller, including its listings or ratings, or (b) manipulate or game the selling or buying process, including Amazon’s search results or sales rankings.” “Sellers are further prohibited from contributing false, misleading or inauthentic content.”

Amazon identifies each new product  “through a unique combination of 10 letters and numbers, referred to as an Amazon Standard Identification Number or ‘ASIN’ designation.” Factory Direct allegedly discovered “false, deceptive, and unauthorized changes” to its product advertisements and listings, including changing product descriptions, providing improper ASIN numbers, and changing the product’s listing category (thereby moving the product from Amazon’s Home & Kitchen category). A third party (allegedly iTouchless) was requesting Amazon to make these changes, merging Factory Direct’s products’ ASINs into other products.  Factory Direct sued in the Northern District of Georgia, and then discovered that iTouchless was using Factory Direct’s BESTOFFICE trademark (registered on the Supplemental Register) to advertise a trash can.

During the pendency of the Georgia action, the listing changes allegedly ceased, but were renewed afterwards. For example, Amazon allegedly ended up advertising a Factory Direct trash can as an iTouchless trash can, changing the product image, title, and description.  Factory Direct also alleged that iTouchless falsely submitted an unfavorable review and deceptively removed Factory Direct from Amazon’s vendor control.  [If I were interested in increasing regulation of Amazon, I might invite a representative of Factory Direct to testify about why a lawsuit was necessary here/what they did and didn’t get from Amazon in the way of help.]

In the Georgia action, the court granted iTouchless’s motion to dismiss because the Lanham Act claim didn’t allege any falsity of the advertisements, or that the changes made by Amazon at the defendant’s request deceived or had the capacity to deceive consumers.

The complaint here alleged additional details about Amazon’s rules and policies. It alleged: (1) violations of the Lanham Act; (2) intentional interference with contract; (3) intentional interference with prospective economic advantage; (4) negligent interference with prospective economic advantage; (5) violations of California’s UCL; and (6) trademark infringement.

The court found no claim preclusion of the Lanham Act claim, but claim preclusion of UCL and tortious interference claims.  Claim preclusion doesn’t apply when the relevant conduct hadn’t occurred yet when the first suit was brought, and that was the case with the Lanham Act false advertising claims based on post-Georgia suit conduct. Likewise with trademark infringement.

However, the UCL claim was based on a more than that. While California courts have allowed continuous accrual in cases of periodic, recurring obligations like misstated rent, a  “continuing obligation to avoid anticompetitive behavior is not a periodic, recurring obligation such as a monthly payment or monthly bill.” Thus, the UCL claim accrued during iTouchless’s previous course of alleged misconduct. So too with tortious interference.

What about issue preclusion?  Factory Direct previously alleged “false or misleading statements of fact” without describing them, but provided more specific allegations here about how changes to its listing “falsely advertised” or misrepresented its products as products “manufactured and branded by Defendant,” and misrepresented characteristics “including the product title, image, brand, manufacturer, and description of the 13-gallon trash can.” These new factual allegations weren’t actually litigated or decided in the prior proceedings.

As for the false advertising claim under 12(b)(6), the claim was adequately pled with respect to a specific listing for a trash can. With literal falsity/intentional deception, actual deception is presumed; that was appropriate here.

Allegations that iTouchless attempted to merge two more listings, however, failed, because Factory Direct didn’t allege that the attempts succeeded. Even if statements to Amazon were false, they weren’t made in a commercial advertisement, and they didn’t result in a false advertisement to the public because they failed.

There also wasn’t enough detail about allegedly false changes to other listings/the unfavorable review/removing Factory Direct from Amazon’s vendor control. Factory Direct didn’t explain why any of the “changes” or “unfavorable review[s]” were “false and deceptive,” as required by Rule 9(b). The court did grant leave to amend.

Creating a Facebook page for a rival and leaving fake reviews for them is a bad idea

We often tell students that one risk of bringing a false advertising claim, as a competitor, is that there might be counterclaims if you don't have your own house in order. Here, the plaintiff fails to give enough specifics of the alleged false advertising, while the defendant shows evidence of a fake review/complaint scheme. Practice tip: don't leave fake reviews or hire anyone to leave fake reviews. The FTC is also not a fan of the practice.  Whether or not the defendant did the things it was accused of doing, this is not the way to fight back.

StoneCoat, LLC v. ProCal Stone Design, LLC, 2019 WL 5395569, No. 4:17CV303 (E.D. Tex. Jul. 25, 2019) (magistrate) (not clear to me if there was further motion practice on these points; everyone was very focused on the trade secrets part of the case)

There is a lot of stuff going on in this case that I will ignore, including trade secret claims. StoneCoat makes and sells spray-on stone facing, which will probably make the McMansion Hell writer sad; ProCal competes with it. StoneCoat alleged Lanham Act violations and ProCal counterclaimed likewise. The counterclaims included allegations that StoneCoat falsely claimed that its founder invented “Spray on Limestone” with a patent or patent pending on the formula and/or process; that StoneCoat created a fake PROCAL STONE Facebook page containing false or misleading information about ProCal and directing customers to StoneCoat’s website; and StoneCoat directed employees and/or representatives to submit fake complaints/reviews about ProCal to the Better Business Bureau, and Google Business (under the name Don Henley, no less)  and post fake positive reviews about StoneCoat.

The court found that the evidence sufficiently tied StoneCoat to the allegedly fake customer reviews. First, the founder admitted creating the fake ProCal Facebook page, though he denied allegations about the content/his motives.  Second, there was evidence that StoneCoat employees were posting positive Google reviews about StoneCoat during the same period without disclosing their connection to StoneCoat. Third, one Jason France, who owns a company that handles online business marketing, posted the fake review and the fake BBB reviews under the pseudonym “Don Henley.” (Both the BBB and Google were apparently subpoenaed for their records.) Although this was disputed, StoneCoat’s founder allegedly shows up in cell phone records having a 130 minute call with France two days before the fake reviews were posted. Fourth, one BBB complaint was submitted using the name and e-mail address of a person working at StoneCoat, and the founder had access to that person’s laptop. There was a genuine issue of material fact on whether he submitted or directed the submission of the Google/Ripoff Report/BBB Dallas complaints.  [This case looks like it could be a good practical demonstration of how this kind of tracking can actually be done, with sufficient effort.]

ProCal alleged both false designation of origin and false advertising.  StoneCoat argued that there was no evidence of infringement or injury, including no evidence that anyone saw the Facebook page.  Given the confusion factors, there was sufficient evidence of confusion, although I think the court erred in considering the BBB/Rip Off Report fake reviews here—no one could have been confused about affiliation with ProCal after reading those reviews; the problem was false advertising, not trademark infringement.

The court found the Facebook page to be “confusing on its face.” Although it purported to be the Facebook page for ProCal, in the “About” section, it states “Stonecoat is the one and only original” and then provides a link to StoneCoat’s website. “The fake Facebook page does not provide any contact information for ProCal and could leave the impression that ProCal is no longer in business or was bought out by StoneCoat.”

The alleged fake reviews were also likely to lead to consumer confusion [about what, is the key question]. “There is evidence indicating they falsely claim that ProCal was fired for doing a poor job and that StoneCoat replaced ProCal and did a better job for less money.” And there was evidence of actual confusion: the manager of construction services of ProCal Stone Design declared personal knowledge of at least eight lost sales caused by the “fake reviews wherein the customer requested a bid from ProCal, specifically brought up the fake reviews, and then chose StoneCoat to do the work.”

Unsurprisingly, because those are mostly false advertising harms, the false advertising claim was also valid. The additional allegedly false statements relate to StoneCoat’s claims about invention, patenting, trade secrets, etc. That should pose a Dastar problem but that argument wasn’t addressed here.

StoneCoat’s founder testified in other litigation that it would be false for him to say to the public that he had acquired a patent on a formula or a process because he did not have one at that time, but the website did claim to have a patent. ProCal also argued that the fake reviews were literally false because there were no such customers.  This was enough to create a genuine issue of material fact on literal falsity.

But StoneCoat also argued that no harm had been shown. It is possible to show liability for false advertising without being able to show tangible harm as a result.  ProCal was seeking disgorgement but hadn’t yet gotten StoneCoat’s financial information; for now, the court thought ProCal’s claims shouldn’t be kicked out for failure to show harm, especially since injunctive relief or disgorgement were possible remedies.

Lanham Act trademark dilution via disparagement (statutorily excluded) and the fake Facebook page (probably not diminishment in distinctiveness because it’s confusing): laughably, the court found that there was a genuine issue on fame (and on everything else), although understandably it didn’t recite any evidence ProCal might’ve submitted about fame.  A victory for the idea of throwing every possible claim in the hopper, I guess, but I disapprove.  When you’ve got really good claims (the false advertising here) it is unnecessary and dangerous—to your credibility, to the overall system that now has this nonsense in Westlaw—to add really unfounded claims.

StoneCoat, LLC v. ProCal Stone Design, LLC, 2019 WL 5391178, No. 4:17CV303 (E.D. Tex. Aug. 12, 2019) (magistrate; later adopted by district judge as to these claims)

Meanwhile, StoneCoat has some claims of its own, including that ProCal falsely advertised that it “invented” sprayed limestone and had been in the sprayed vertical limestone business for “over 17 years,” while in fact ProCal wasn’t opened for business until January 2016.  But StoneCoat didn’t submit any ads for review. StoneCoat’s founder said that he relied on “television ads made by Defendants, YouTube advertisements, websites and printed advertisements” as well as videos on the ProCal website in identifying false claims. But this affidavit wasn’t enough to carry StoneCoat’s burden at the summary judgment stage. “Importantly, Plaintiffs have not submitted a specific advertisement (or more informal type of promotion) for the Court’s review. Thus, there is no evidence from which the Court could apply the relevant criteria” for whether there was a false statement in interstate commerce in commercial advertising or promotion.

law firm blog about somebody else's case isn't commercial speech

Wexler v. Dorsey & Whitney, LLP, --- F.Supp.3d ----, 2019 WL 5485265, No. 18-CV-3066-SJB (E.D.N.Y. Oct. 25, 2019)

Wexler, a lawyer proceeding pro se, sued Dorsey (a law firm that does defendant-side Telephone & Consumer Protection Act work) and a former employee, Betpera, for a blog post on Dorsey’s blog about consumer financial services law.  The blog post discussed a putative class action Wexler filed as counsel in the Eastern District of New York under the TCPA against AT&T. In that case, a judge found the putative class representative to be inadequate as a matter of law because she was Wexler’s wife; for the case to proceed as a putative class action, Wexler would have to withdraw as counsel and renounce any interest in a future fee award.  Wexler v. AT&T Corp., 323 F.R.D. 128, 129 (E.D.N.Y. 2018). (Wexler was joined by co-counsel after the suit was filed.) Although Wexler was willing to do that, he wanted the ability to seek fees for work up to that point based on quantum meruit. The court thought that was still a conflict because that would come out of class recovery, and therefore struck the class allegations.

Dorsey’s blog claims that “Dorsey’s attorneys have handled dozens of nationwide TCPA class actions. They know the tricks used by class action lawyers and how best to thwart them at the outset.”  After the opinion issued, Dorsey published a “Legal Update” by Betpera, headlined “TCPA Class Certification Denial Exposes Major Spousal Scheme.” After discussing Betpera’s own hobbies with his wife, then summarizing the case, it concluded, “Maybe the Wexlers should try salsa dancing instead.” A different website linked to the blog post with the title “Husband Lawyer Tried Using His Spouse as Class Representative in TCPA Case,” and offered, “Having read [the Dorsey article], my only question is, for how long did they think they could get away with it?”

Defamation: “Major Spousal Scheme” can’t be defamatory; it’s just opinion, especially in context.  “Scheme” doesn’t necessarily mean deception or impropriety, even with “expos[ure]” also in the headline. Overall, “major spousal scheme” “is not capable of precise and specific meaning.” A law blog is like an editorial or op-ed page, and thus the context “encourag[es] a freewheeling, anything-goes writing style” “characteristic of opinion writing, not factual recitation.” Given that the post “begins and ends with the author’s tongue-and-cheek musings about how he would like to spend time with his wife (camping and going to Greece) and what the Wexlers should do (try salsa dancing) …. [N]o one could reasonably read the article and its headline as anything other than the author’s opinion and editorial gloss on a court decision.” Nor did the headline or article imply the existence of undisclosed facts.

Lanham Act false advertising: the blog was not “commercial advertising or promotion.”  The post was on a website titled “Consumer Financial Services Legal Update,” “with a web address different than Dorsey’s firm website.” It was attributed to Dorsey and used Dorsey’s logo, but the post’s content didn’t relate to Dorsey and didn’t mention by name or implication any services Dorsey provides. Dorsey wasn’t involved in the underlying case, which did not mention Dorsey. “While Dorsey’s motivation in having a blog, and publishing this particular article, may be to attract new clients, such motivation does not transform the article—describing a court’s decision in a case unrelated to Dorsey—into commercial speech.”

Heart of darkness: hedonic regression damages model allows certification in flushable wipes case

Kurtz v. Kimberly-Clark Corp., --- F.Supp.3d ----, 2019 WL 5483510, Nos. 14-CV-1142, 14-CV-4090 (E.D.N.Y. Oct. 25, 2019)

Here, the consumer class action concerns allegedly false advertising of “flushable” wipes that have generated municipal lawsuits around the country. After remand to address concerns about whether plaintiffs can establish injury and causation with common evidence, the court reaffirmed its conclusion that plaintiffs’ damages model could provide common evidence of harm, based on hedonic regression analysis.

Without going into too much detail, hedonic regression was acceptable and defendants’ criticisms, while deserving of consideration, went to weight rather than admissibility. “Regressions should not be excluded on the ground that they fail to meet arbitrary thresholds of statistical significance. In the current case, there are high degrees of statistical significance and any dispute about economic conclusions goes to weight not admissibility.” Developing a hedonic regression is “an art,” as one of defendants’ experts said, and none of defendants’ experts developed their own hedonic regression from scratch; “their second-guessing of [the expert’s] choices in attempting to demonstrate that the methodology is unreliable is unpersuasive.”

Under Comcast Corporation v. Behrend, 569 U.S. 27 (2013), it was sufficient that the model measured the damages according to plaintiffs’ theory of the case: consumers paid more because of the flushable label. “Disagreement about … judgments in developing and performing the model, as well as disagreement about whether [the expert’s] judgment about extrapolation of the results of his model to certain time periods or products, are questions answerable by admitted evidence. [The expert] made reasoned decisions about how to actually construct and run a model testing Plaintiffs’ theory of liability. The model fits the theory of Plaintiffs’ case.”  Individual issues, such as variations in the understanding of the term “flushable,” did not predominate.  [I believe that the reasonable consumer model is normative as well as descriptive, and a normative reasonable consumer should not think “it’s flushable if it won’t destroy my pipes but will destroy municipal infrastructure.” I can put pretty much anything I want into the recycling bin without suffering any individual consequences. That doesn’t make whatever I put in the bin “recyclable” and it would be specious for me to claim that I reasonably understood “recyclable” to mean “you can put it in the recycling bin without doing any harm to yourself.”]

Disputes about how many consumers bought the wipes for some other purpose than flushing didn’t weigh against predominance. Evidence about the average relationship between price and the flushable label was the point of the price inflation theory. Plaintiffs argued that there was “a marketwide inflation of price by a particular calculable percentage. For every flushable wipe product purchased, the consumer paid more because of the flushable misrepresentation. There is no need for individualized inquiry as to causation or injury.” And if liability was found, statutory damages could be awarded on a classwide basis (because of a prior Supreme Court case). “The single question of whether plaintiffs paid more than they would have for the good because of the deceptive practices of the defendants-sellers in labeling their products as ‘flushable’ predominates over any individualized damages inquiries.”

In closing, Judge Weinstein commented that nationwide resolution under some sort of government supervision would be a good idea; non-New York class claims have already been settled. A common market needs common labeling. Moreover, the weird situation in which $50 per incident is available classwide may well be a quirk of federal court/state procedure interaction. Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co., 559 U.S. 393 (2010). “Complex Erie problems raising and intermingling substantive and procedural issues will need thorough consideration as this class action proceeds.” [Given the ruling on predominance, will they, though? Isn’t it now a question of what plaintiffs can prove? I read this more as exhortation to settle—in a way consistent with the non-NY settlement—than identification of specific troubling issues.]

Friday, October 25, 2019

company claiming rights in "overhead doors" makes little headway against challenger

OGD Equipment Co. v. Overhead Door Corp., No. 17-cv-00898-ALM-KPJ, 2019 WL 5390589 (E.D. Tex. Jul. 15, 2019)

This is the magistrate judge’s R&R, subsequently adopted by the court. OGD is a Texas “residential and commercial door repair and installation company” with offices throughout Texas; it does business nation-wide. Overhead “is the largest manufacturer, marketer, and distributor of residential and commercial overhead doors and operators in the North American market,” and defendant Overhead-Lubbock is an authorized distributor for Overhead.

Overhead has, appallingly, a registration for OVERHEAD DOOR for garage door openers (one reason a broad definition of genericity including generic adjectives is important--a narrow definition allows exactly the kind of foolery here, where the registration is used to claim extra rights), as well as a registration for a wordless banner.

How anyone is likely to perceive that as a mark is beyond me.  It also claims trademark rights in “OVERHEAD DOOR,” “OVERHEAD DOOR COMPANY,” and “OVERHEAD,” “as used without any other words.”

Meanwhile, OGD registered its logo, prominently featuring “Overhead” with a curved letter shape:

(Also not much there to register.)  OGD argued that the shape of the logo, and the logo’s prominent use of the word “Overhead,” were used frequently in the garage door industry.

OGD alleged that Overhead was unfairly using its registration to “expand its reach from electronic controls to overhead door products.” Among other things, Overhead uses the designation “TM” after each use of the term “Overhead Door” on the Overhead website, regardless of whether the term is used in its protected form, and used lawsuits, unfair business practices, and letters to competitors to threaten them. OGD alleged that “Overhead Door” was generic for products in the overhead door industry. Overhead disagreed and alleged that OGD was using a deceptive name and logo to pass itself off as an Overhead distributor. Further endearing them to me, Overhead argued that the use of its claimed names in “unfair search engine marketing and search optimization techniques” was deceptive, and alleged that multiple customers have expressed confusion.

OGD previously bought over $750,000 in products and services from Overhead and its affiliates. In April 2017, Overhead sent OGD a letter regarding use of the Trade Names in paid internet advertisements, but didn’t raise any concerns related to OGD’s name, trademark, or stylized logo. In July 2017, Overhead sent a C&D claiming “it held a protectable trade name and trademark over the words ‘Overhead Door,’ ” and claiming that OGD’s uses constituted “ ‘clear trademark infringement violations ... under Texas and Federal law,’ ... as well as violations of Texas unfair competition laws.” The letter stated that Overhead “has regularly taken legal action to prevent use by others of OVERHEAD DOOR or OVERHEAD, as company names.”  OGD found Overhead’s claims overbroad and sought a declaratory judgment as well as bringing affirmative claims.

The court found that there was an actual controversy between the parties. Not only had Overhead alleged that OGD infringed, but OGD alleged that Overhead’s actions violated the Lanham Act and the Sherman Act. The parties’ claims about the rights to use the claimed marks were incompatible.

Overhead argued that the court couldn’t determine whether OGD infringed Overhead’s registered marks because Overhead didn’t claim infringement based on its registrations. The court disagreed. There was an objective possibility of litigation, and the C&D didn’t claim rights only under §43(a); rather, it attached the federal registration for OVERHEAD DOOR. There was also a concrete dispute between Overhead and OGD about §43(a) and state claims, although there wasn’t a dispute about Overhead-Lubbock’s trademark or trade name rights, since that entity didn’t claim any such rights.

The Lanham Act claim was properly pled: Overhead allegedly knowingly misrepresented to consumers that: (1) they, along with other Overhead distributors, are the only companies that can lawfully use the Trade Names; (2) OGD is using the Trade Names with the intent to trade on Defendants’ brand names and purposefully confuse consumers; (3) OGD is not a reputable company; (4) OGD is affiliated with a company called “GDS” or “Garage Door Services,” which has been the subject of negative articles and lawsuits; and (5) OGD is a deceptive company that intends to confuse consumers. OGD alleged specific communications by defendants in online advertising and marketing and a specific blog entry by Overhead-Lubbock, allegedly written by a person employed both by Overhead and Overhead-Lubbock.

Texas doesn’t have a separate false advertising common law tort, but it does have unfair competition. “Unfair competition includes a number of types of objectionable trade practices, including trademark infringement, dilution of good will, misappropriation of business value, palming off, passing off, and theft of trade secrets.” “To prevail on its unfair competition claim, OGD must show an illegal act by Overhead and Overhead-Lubbock which interferes with OGD’s ability to conduct its business.” The allegations here (as above, along with alleged misrepresentation that OGD doesn’t have a physical location in Lubbock) sufficed. Although defendants argued that this was just false advertising, the court found the allegations “akin to a claim for dilution of good will.”  [I would have thought trade disparagement.] And because the Lanham Act claim survived, the unfair competition claim was properly premised on independent substantive torts. [This seems weird. Is it an independent reason? If not, then can trademark infringement be actionable under state common law if you don’t bring, or for lack of interstate commerce don’t have, a §43(a) claim?]

Sherman Act claims failed (they are, after all, antitrust claims) for want of a sufficiently good market definition, though Overhead ought to look out for 1-800-Contacts given its attempt to control internet advertising.

TM/ad text question of the day

The shorthand rule in the US is that if you don't use the competitor's trademark in your ad text, you're fine. What if you do? The below ad (which you get by searching "broken Garmin mounts") isn't an explicit statement, but I'd argue that anyone whose ad title is "broken Garmin mounts" is probably not Garmin, which is likely to take a more circumspect approach to what appears to be a design vulnerability.

Thursday, October 24, 2019

TRO against insurer to provide information during open enrollment

PeaceHealth v. Health Net Health Plan, Inc., 2019 WL 5386474, No. 6:19-cv-01648-MK (D. Ore. Oct. 21, 2019)

Here, the court worries about granting a TRO as compelled speech even though the speech is quintessentially commercial and the need to protect consumers great. And then the court goes into great, and perhaps counterproductive, detail about the specifics of the disclosure, go figure.

PeaceHealth “operates hospitals and other healthcare services in the Northwest, including Oregon and Washington.” It’s “the largest health care provider in Lane County, Oregon and Clark County, Washington.” Defendants offer Medicare Advantage (MA) plans to eligible consumers and made statements that PeaceHealth would be an in-plan provider on defendants’ 2020 MA plans, which it will not be. On this record, and because it’s open enrollment now and the information is vital to consumers now but will soon be unhelpful for a year, the court granted a TRO. (Side note: the state law claim might be better than the Lanham Act claim here, given that it's not super clear how the conduct at issue affects PeaceHealth's commercial interest in sales/reputation, but maybe there is mileage in the idea that being wrongly labeled as being in-network is like disparagement in its effects on reputation.)

The parties did have agreements for PeaceHealth to be in-network for MA enrollees from 2004; in April 2019, Kimberly Hodgkinson, PeaceHealth’s Executive VP and CFO, informed defendants’ president that PeaceHealth would terminate the agreements effective January 1, 2020. Similar conversations in June and July 2019 confirmed this. On September 30, 2019 and again on October 1, 2019, Hodgkinson called defendants’ newly appointed President and “reiterated that PeaceHealth would not be an in-network provider under the 2020 MA Plans. I expressed concern that Health Net and Trillium appeared to be representing to brokers that PeaceHealth would be in-network under the 2020 MA Plans.” PeaceHealth also sent letters to defendants on Oct. 1 telling them to stop listing PeaceHealth as in-network on their websites and telling brokers that PeaceHealth was in-network. “With open enrollment beginning October 15, 2019, time is of the essence.” They met again on October 8, 2019, and Hodgkinson testifed that, after that, defendants “could not have reasonably believed that there was any possibility that PeaceHealth would contract with Health Net or Trillium for the 2020 MA Plans.” [The Lanham Act usually gives no solace to reasonable but wrong beliefs, but I understand why PeaceHealth is taking this tack, especially since predictions about the future have a liminal status.]

The accused statements to brokers “generally acknowledged that the parties were in negotiations, but implied defendants would remain ‘in-plan’ on January 1, 2020. … At this stage, especially as the two sides continued to meet until October 8, 2019, it is difficult to find that defendants made false or misleading statements to the brokers.” [This is how being conciliatory can backfire—possibly declining the meeting would’ve been more persuasive to the court?]

The court was far more concerned with statements to the public. Portions of defendants’ webpages, up to oral argument, indicated that PeaceHealth hospitals and providers were “in plan” for defendants’ 2020 plans. When searching for “PeaceHealth” in the 2020 provider search portal, the results displayed “Inactive after 12/31/2019 in multiple networks” under each result. But a consumer searching for a specific PeaceHealth doctor wouldn’t see that notice. A consumer seeking to confirm whether a specific doctor was “in plan” for Health Net’s 2020 offering was likely to be misled.

Especially considering the plans at issue cover society’s most vulnerable (i.e., disabled and elderly individuals), the confusion noted above is quite concerning. Additionally, when open enrollment closes in another month or so, any deceived consumers will be stuck until the following year’s open enrollment. Consumers misled by Health Net’s 2020 provider search function would arrive at a PeaceHealth provider in 2020 only to then realize PeaceHealth is no longer “in plan.” This confusion will likely lead to increased administrative costs to PeaceHealth, in addition to reputational damage in the form of lost goodwill. Additionally, the Court presumes the misleading statements would cause some consumers who would have switched plans to instead remain with defendants’ plans. When those consumers are not covered—and likely unable to afford out-of-pocket costs to see an out-of-plan provider—PeaceHealth will experience the loss of providing care to those consumers.

The grave risks to individuals and the temporary nature of open enrollment made injunctive relief necessary. The court ordered that defendants had to post notices on their websites and send email notification to brokers. Example:


[My understanding of all caps notices is that they don’t necessarily work any better, and may be worse, than alternatives. At the least, I would’ve stopped the all caps after the first line.]

The court further directed: “On each URL, all text must be in banner format, CAPITALIZED and in 18-point Arial font. The banner must include a red background with the text of the message in white lettering. The headline must be in bold font. The notice must be inserted between one and two inches below the top of the screen.” [Ed. note: which screens? Mobile, desktop, both?  I also expect some accessibility fail.] The text was to go where the words “Sample Company Post Employee Homepage Notice” appear here:

Emailed notices were to be the same.

The court acknowledged “First Amendment issues,” but the compelled speech here was “purely factual and not in dispute. The public has a right to know that the largest provider in the regions at issue will no longer be ‘in plan,’ and the time to be so informed is during open enrollment.” But given the constrained time period, defendants could brief the issue further.

putative falsity about medical test not material to labs, but maybe to doctors

Quidel Corp. v. Siemens Medical Solutions USA, Inc., No. 16-cv-3059-BAS-AGS, 2019 WL 5320390 (S.D. Cal. Oct. 21, 2019)

A pair of opinions shows the importance of (1) defining the market and (2) being able to show materiality.

The parties compete in the market for assays (blood tests) used for measuring thyroid stimulating immunoglobins, which can aid in the detection of Graves’ disease. There are two relevant types of assays: (1) TSH receptor antibody (TRAb) assays, which detect both stimulating and blocking thyroid immunoglobins (TSI and TBI) and (2) TSI only assays.  Quidel entered the market first with Thyretain, advertised as a “TSI only” assay that produces a positive (qualitative) result if TSI is detected. Siemens entered with Immulite, using Thyretain as the predicate device for their 510(k) application to the FDA.
While Thyretain is a bioassay, Immulite is an immunoassay that Siemens says may be measured “in a ‘semi-quantitative’ manner, depicting the concentration of TSI in a sample, rather than just a binary ‘qualitative’ result.”

Quidel argued that, as an immunoassay, Immulite didn’t distinguish between stimulating or blocking antibodies, and thus detects TBI as well as TSI. After Quidel’s protest, Siemens dropped the “TSI only” claim, but Quidel argued it suffered damages: out of four US laboratories, two switched to Immulite.

The court found that “TSI only” was not ambiguous, especially in context and given the advertising targeted to sophisticated consumers. Siemens argued that it wasn’t false because its statements were always made in conjunction with a claim of 98% specificity (where the remaining 2% apparently might come from detecting TBI). Given conflicting expert testimony over whether Immulite actually detected TSI only, there was a question of fact.

However, there was no question of fact on materiality to laboratories. The evidence showed that the two labs that switched didn’t rely on Siemens’s advertising.  A representative for one lab testified that the decision about whether or not to adopt the new assay “involved months of discussion and deliberation,” including “a review of the relevant literature” and “a validation study” after FDA approval. Ultimately, the lab concluded that Immulite “was a superior assay for use in the laboratory.” The witness testified that he didn’t remember any press releases or statements on Siemens’s website; his lab “is not guided by manufactures’ sales and marketing collaterals on a website.”  The other lab rep testified similarly. He testified that he understands that when vendors give him papers regarding the product, “they’re likely to provide [him] only papers that are positive for their test.” He found this lawsuit to be “frivolous” and “personally offensive” because it assumes that his lab doesn’t “do a very, very rigorous job of vetting our assays and that we can be swayed by marketing.” Based on this testimony, the court found that it wasn’t enough to show that the labs reviewed the allegedly false statements; that didn’t show that the statements “had any material impact on their decision-making process.”

The fact that the labs now believed that Immulite detects TSI only (and advertised same on their own websites) didn’t mean that the false advertising drove that belief, which could have come from internal testing. Nor did the fact that TSI-only capability was an inherent/core chracteristic of the product make it material given the other evidence. “No matter what the false advertising pertains to, if the customer is not likely to be influenced by the statement, it is not material.”

Matters were different with respect to doctors. A jury could find that doctors were relevant purchasers; there was evidence on both sides. Siemens’s employee testified that it previously contracted a marketing agency to conduct a marketing campaign aimed at clinicians because “it’s really important to educate the physicians...[b]ecause if they don’t order the test, then there’ point of having it in the laboratory.” A lab director also testified that the clinicians are “substantially” in charge of deciding which type of assay to run. testified the clinicians “have the capability of and ask for [the assay] by name...and in some circumstances they will specify.” And a Siemens representative received an email from a doctor who asked if IMMULITE “is specific to TSI or if it potentially can detect TBI’s directed towards the N-terminal part of the thyroid receptor.” “This shows the physicians are aware of the details of the test, and therefore may be interested in how the product is marketed.”  However, a different Quidel expert stated that at her institution, “when a TSI is ordered [by a clinician], there is no indication on the report of which assay (Roche, Thyretain, Immulite, etc.) was utilized” and the physician only receives the results from the test, i.e. the measurement of TSI.

The court also partially rejected Siemens’s unclean hands defense.  That Quidel was allegedly billing the tests wrongly was unrelated to the misconduct here now that the labs were out of the case. However, that Quidel’s Thyretain also allegedly detected TBI and that the presence of TBI could “interfere with Thyretain’s measurement of TSI, and result in a false ‘negative’ reading” was related, and there was a genuine issue of material fact on the question. Even if the misconduct occurred and was related, it had to be balanced against the wrong at issue, which couldn’t be done at this stage of the case.

Quidel Corp. v. Siemens Medical Solutions USA, Inc., No. 16-cv-3059-BAS-AGS, 2019 WL 5328730 (S.D. Cal. Oct. 21, 2019)

Here, the court denies Siemens’s motion to exclude plaintiff’s survey expert’s report/testimony. Mr. Ezell surveyed “physicians that specialize in endocrinology and who, as part of their practice, order assay tests to assist in patient diagnosis.” He showed test and control materials:

They were asked screening questions and then about whether Immulite does or doesn’t detect TSI only, in both closed- and open-ended questions. They were then asked whether they were likely to order both a TSI only and TRAb assay, and why. The expert concluded that approximately 67.42% of the relevant universe was likely to be misled or deceived by the message that IMMULITE is a TSI assay, detects TSI only, or is not a TRAb assay (assuming, as he should given his role in the litigation, that these statements are false).

As noted above, doctors could be relevant purchasers. “This is not a situation where all physicians blindly use whatever assay the laboratory happens to carry, with no input into what assay they use on patients. Given the conflicting testimony, it is possible the physicians’ opinions regarding the products are relevant and their opinions could be influenced by marketing or website information.”

Criticisms of the questions as ambiguous also failed—it was for the jury to decide whether it was troubling that Ezell used the terms “TSI only” and “TRAb assay” in the survey without defining the terms. So too for whether the questions led and biased the respondents, which goes weight rather than admissibility. “Surveys can be admitted even if they contain ‘highly suggestive’ questions, as long as the survey is ‘conducted according to accepted principles and [is] relevant.’”  Nor was the control group excerpt biased because it used “gratuitous language.” The differences between test and control stimulus were “not so great that they predetermined the result of the survey,” and this argument was for the jury.  (To me, very much a nonexpert, the control statement seems self-contradictory: a test that does not differentiate, but nonetheless detects TSI only at 98.5% specificity?)  Nor did it matter that counsel drafted the control statement; Ezell reviewed it and agreed it was appropriate. That differs from surveys “entirely designed and conducted by counsel ‘who is not qualified to design or interpret surveys.’” (Citing McCarthy: “Attorney cooperation with the survey professional in designing the survey is essential to produce relevant and usable data.”).  Disputes over whether control group answers were properly coded as not confused, allegedly resulting in nearly 25% confusion in the control group, were also for the jury.

Monday, October 14, 2019

Amicus in Dr. Seuss v. ComicMix

Here. With Mark Lemley, Jessica Litman, Lydia Loren, Pam Samuelson, and Erik Stallman. 

incentivized reviews/targeted upvoting can be false advertising, court reiterates

Vitamins Online, Inc. v. HeartWise, Inc., No. 13-CV-982 (D. Utah Sept. 24, 2019)

Supplement industry behavior is wild.  

Vitamins Online sells dietary supplements online, including on Amazon, using the name NutriGold. HeartWise, aka NatureWise, competes with NutriGold, including on Amazon, with products that contain an extract of garcinia cambogia and green coffee. NatureWise had its employees upvote positive reviews on its product pages and downvote negative reviews, increasing the likelihood that potential customers would see positive reviews of its products first and negative reviews last. “NatureWise also encouraged customers to post or repost their positive reviews on Amazon by offering them free products or gifts cards.  NatureWise would review and, in some cases, make minor edits to the reviews before asking the customers to post them on Amazon.” Such reviews could affect NatureWise’s placement in results. Vitamins Online sued NatureWise for false advertising based on: (1) manipulating Amazon’s customer review system and (2) falsely advertising and misrepresenting the content and characteristics of its green coffee and garcinia cambogia products.

NatureWise counterclaimed, alleging among other things that VO’s principal bought over one thousand bottles of one of its garcinia cambogia products and then resold those bottles with an insert that was entitled “AS IS”:

The insert cautioned purchasers to read it before opening the bottle or else the purchaser would unable to return it for a refund. The insert then explained that the product did “not contain inside the bottle what is claimed on the outside label,” that a third-party laboratory had tested and concluded that the label did not entirely match the content of the bottle, and that NatureWise’s online product reviews were not genuine. The insert also claimed that the manufacturer was being sued for its scams and purported fraudulent practices.

Review claims: Rather than taking the relatively more simple path of saying that manipulating reviews can imply false facts and thus constitute a false or misleading representation of fact, the court instead (and ahistorically) seized on the word “device” in §43(a) to say that review manipulation could be a misleading “device.”  (As Graeme Dinwoodie has extensively documented, “device” to the Lanham Act’s drafters meant essentially “badge/logo.” I think the court’s holding is right but its statutory construction is both unnecessary and overelaborate.)

Could review manipulation be falsifiable instead of puffery?  The court pointed to a “well-established exception [to the rule that only factual claims are actionable:] that an opinion by a speaker who lacks a good faith belief in the truth of the statement is actionable.” And an intent to deceive can be presumed to have succeeded even for implied claims.  There was a genuine factual issue about whether NatureWise acted with the intent to deceive consumers. The evidence showed that NatureWise discussed contracting with individuals in the Philippines “to use a rotating IP service and multiple accounts to reduce the effect” of their competitor’s attempts to lower their market share, which could be effective because the conduct was “not connected to NatureWise.” A NatureWise employee expressed that he was “wary of tipping our hand to our customers that we have anything to do with interfering with reviews.” In response, NatureWise’s principal stated that his “only concern” was that Amazon would investigate the positive changes in NatureWise’s product reviews and realize that the accounts voting up NatureWise’s products may not belong to real people. He also expressed the importance of having more third-party sellers so that it would be impossible for Amazon to know which company was behind the up and down voting of reviews.

Second, even without a presumption of deception, Vitamins Online produced a survey that supported its claims. It showed that that a majority of consumers: read reviews when shopping for weight loss products; rely upon those reviews; and believe that product reviews are genuine and done by real customers. A review’s number of stars and its helpfulness rating play influential roles in a consumer’s purchasing decision.

NatureWise argued that these were all just opinions. But there was extrinsic evidence that the reviews mattered, and also some of the reviews might not have been from “real people,” making them literally false.

Injury: this wasn’t a comparative advertising case where injury could be presumed even though there was some evidence of NatureWise targeting VO and even though the parties’ products could appear against each other on Amazon. “[I]t would be unjust and improper for the court to apply a presumption of injury based on a third party’s conduct instead of the defendant’s. The comparison captions found on Vitamins Online’s and NatureWise’s Amazon product pages are a function of Amazon’s website—not a result of NatureWise’s conduct.” VO argued that a presumption of injury was appropriate because the parties dominated the market: one of its witnesses found 17 market participants on Amazon for the products at issue, but approximately 92% of the reviews appear on Vitamins Online’s and NatureWise’s product pages. That wasn’t enough to show market domination.

Although this issue is presently before the Supreme Court, the Tenth Circuit presently holds that either actual damages or willfulness must be shown for disgorgement; VO thus argued that it didn’t need to show actual damages to establish injury. But that conflates injury with entitlement to disgorgement, which only matters once liability has already been established.  That leaves the puzzling question: what is the burden for showing injury when the plaintiff seeks disgorgement? “Bearing in mind that there is a higher burden for seeking money damages and a lower burden for seeking injunctive relief, the court concludes that the standard for disgorgement is somewhere between the two.”

VO introduced evidence that sales plummeted after NatureWise entered the Amazon market, and argued that its survey showed injury.  There were genuine issues of material fact, but VO wasn’t entitled to summary judgment on injury. Outside a two-player market and in the absence of comparative advertising, the parties weren’t necessarily taking each other’s sales; this was better left for the finder of fact (though how the finder of fact is supposed to sort that out is a bit of a mystery).

Inredient claims: VO argued that NatureWise made various false statements about its ingredients/efficacy/etc. Some of the products no longer had existing samples to test; the court concluded that NatureWise had destroyed those products; that VO was prejudiced by that destruction; and that NatureWise acted in bad faith. VO was thus entitled to an adverse inference instruction that this product subset bore all of the allegedly false ingredient claims and that they were false.

NatureWise sought summary judgment on certain challenged statements.

“100% Pure” and “Sourced, Formulated, . . . and Guaranteed to be the Highest Quality Available”: “Particularly in the context of health supplements, a claim that something is ‘100% Pure’ is a measurable statement of fact…. It seems likely that a reasonable consumer viewing such a phrase would expect exactly what the phrase suggests—an unadulterated product consisting purely of the listed ingredients.”  The “sourced etc.” claim was a closer call. In context, however, it immediately followed NatureWise’s label claim that its garcinia cambogia consisted of “Vegetarian Capsules and Absolutely Nothing Else! ZERO Fillers, ZERO Binders, and ZERO Artificial Ingredients.” And there were genuine issues of material fact about whether NatureWise’s products had fillers, binders, and artificial ingredients.

So too with other challenged claims: “For each remaining statement, NatureWise employs an exercise of identifying specific words within each statement that it claims can be interpreted or defined, by dictionary or otherwise, in multiple ways thus rendering the entire statement ambiguous.” The court found that this ignored the requirement of considering the ad context. Combined with the other label statements, “the alleged ambiguities dissipate.”

Moreover, “NatureWise’s exercise of suggesting that several of its own statements are ambiguous seemingly cuts against what a corporation would want when promoting and advertising its health supplement products. That a company deliberately markets its products in an ambiguous and difficult-to-understand manner is anomalous to say the least ….”

The court also found that NatureWise wasn’t entitled to summary judgment on VO’s request for disgorgement.  NatureWise argued that VO didn’t show what sales were attributable to false advertising. But “[t]he language of the Lanham Act is clear: ‘In assessing profits the plaintiff shall be required to prove defendant’s sales only; defendant must prove all elements of cost or deduction claimed.’” “To require Vitamins Online to not only distinguish all sales based on false advertising from all sales based on legitimate conduct, but also require it to apportion its sales among all the various categories and subsets of its claims, would be to violate the plain terms of the statute.”  VO had provided evidence of NatureWise’s sales, as well as some evidence of willfulness, as discussed above, and evidence that NatureWise “discussed stealing the design of Vitamins Online’s labels.”

NatureWise relied on Retractable Techs., Inc. v. Becton Dickinson & Co., 842 F.3d 883, 901 (5th Cir. 2016), but even that case accepted the district court’s finding that some of the defendant’s profits were attributable to its false advertising. The appropriate rule: “a plaintiff need only demonstrate that the defendant has benefitted from the alleged false advertising (which Vitamins Online has done), then the defendant has the burden to reduce its profits by the elements of cost and deduction, which will result in the plaintiff recovering only those profits attributable to the false advertising.”  That’s a pretty generous reading of Becton Dickinson, but ok.  NatureWise argued that disgorgement would result in a penalty instead of compensation, but the defendant “has the power to ensure that the plaintiff does not recover any profits that are not attributable to the false advertising” by meeting its burden; the alternative gives a windfall to the wrongdoer. And the court in its equitable discretion can further protect against bad outcomes.  False advertising cases should be treated no differently than trademark infringement cases for purposes of disgorgement.

By contrast, NatureWise wasn’t entitled to disgorgement on the counterclaims because it neglected to produce evidence of VO’s sales. It also failed to show that it could get injunctive relief. On irreparable injury, although its sales of garcinia cambogia fell after VO sent out the “AS IS” flyer, “NatureWise returned to the top sales ranking on Amazon for garcinia cambogia within only a few months.”  Money damages might well have been sufficient, but for NatureWise’s choice to withdraw its claim for actual damages. Without evidence relating to the only remaining remedies it sought, the counterclaims were dismissed.

The court also struck VO’s jury demand because the only remedies left in the case, disgorgement and injunctive relief, were equitable in nature. VO argued that disgorgement was a surrogate for damages and thereby a legal remedy, but that’s not what the cases say. But even if damages and profits are related, they have distinct purposes and natures; disgorgement focuses on unjust enrichment/deterrence, while damages redress an injury.

Some courts have held that “an accounting of profits can act as a proxy for a legal claim in some circumstances.” The idea is that, “because proving actual damages is difficult, trademark law creates an alternative form of relief—profits as a proxy for damages— which is governed by a less challenging evidentiary regime.”  Under this theory, a plaintiff may be entitled to a jury trial if “1) the case involves similar products, 2) there is no adequate remedy at law and 3) the products compete directly.” The court was unpersuaded.  Anyway, even under this theory, the market would have to be such that a loss for one party was almost automatically a gain for the other, and the market here wasn’t a two-player market.