Tuesday, December 31, 2019

"diet" isn't misleading for soda even if surveys say it is

Becerra v. Dr Pepper/Seven Up, Inc., 2019 WL 7287554, No. 18-16721 (9th Cir. Dec. 30, 2019)
Becerra alleged that Dr Pepper violated the usual California consumer-fraud laws by branding Diet Dr Pepper using the word “diet.” She cited dictionary definitions to support her allegation that reasonable consumers understand the word “diet” to promise assistance in weight loss. She included references to print and television advertisements and online articles from the American Beverage Association as further support of the allegation that consumers understand “diet” soft drinks to offer certain health benefits. And she summarized the results of a survey of California and national consumers that allegedly supported her claim.

“The district court found that no reasonable consumer would believe that the word ‘diet’ in a soft drink’s brand name promises weight loss or healthy weight management and, even if a reasonable consumer would believe that, Becerra had not sufficiently alleged that any such promise was false because of insufficient allegations that aspartame consumption causes weight gain.” The court of appeals affirmed on the first ground and didn’t reach the second.

Dictionary definitions: focused on the meaning of “diet” as verb or noun, not as adjective/proper noun, and Dr Pepper’s use of the word as the latter “puts the word in a different light.” Adjective definitions work differently, e.g., Merriam Webster defines the adjective as “reduced in or free from calories[—]a diet soft drink.” In context, “no reasonable consumer would assume that Diet Dr Pepper’s use of the term ‘diet’ promises weight loss or management” but instead the term “is understood as a relative claim about the calorie content of that soft drink compared to the same brand’s ‘regular’ (full-caloric) option.” [The problem is really one of implication—like “low tar” for cigarettes.  The point of having fewer calories is to help with weight control; no one cares about calories in the abstract.  Interesting that courts in tobacco cases fully recognize this but courts in diet cases don’t.] So too with the proper noun version: “In common usage, consumers know that Diet Dr Pepper is a different product from Dr Pepper—different not only in name, but in packaging and, importantly, taste.”

Becerra argued that she alleged a plausible misunderstanding of the word, but any such misunderstanding was unreasonable. “Diet soft drinks are common in the marketplace and the prevalent understanding of the term in that context is that the ‘diet’ version of a soft drink has fewer calories than its ‘regular’ counterpart. Just because some consumers may unreasonably interpret the term differently does not render the use of ‘diet’ in a soda’s brand name false or deceptive.”

Nor did the ads, articles, or survey help. The ads didn’t directly promise weight loss or other health benefits. The use of attractive, fit models in the ads couldn’t reasonably be understood to convey any specific meaning. The ABA blog posts also emphasized “that other lifestyle changes beyond merely drinking diet soft drinks are necessary to see weight-loss results.”  And the survey wasn’t well-described by the complaint, but it appears to have asked four questions to gauge consumer expectations of diet soft drinks related to one’s weight. “Of the California consumers, only 12.5 percent expected diet soft drinks to help them lose weight (compared to 15 percent nationwide), while 63.3 percent expected diet soft drinks to help maintain/not affect their weight (compared to 62 percent nationwide).”  Even accepting these allegations as true, “a reasonable consumer would still understand ‘diet’ in this context to be a relative claim about the calorie or sugar content of the product. The survey does not address this understanding or the equally reasonable understanding that consuming low-calorie products will impact one’s weight only to the extent that weight loss relies on consuming fewer calories overall.”

This is just a refusal to go beyond the literal to the implied: of course consumers are likely to understand “fewer calories." But the question we usually ask with surveys is: what does the literal meaning of the challenged statement mean to them? Here, the court just ignores implication (and seems to declare more than 2/3 of consumers unreasonable). Without at least some other principle, like cost-benefit analysis (the term might convey useful information as well as deceptive information and it might be too hard to reduce deception) I think this is a mistake. If Congress could rely on studies about misunderstandings of low-tar representations to regulate tobacco, why is this survey result not relevant to the implications of “diet” for soda?

Anyway, this reasoning also doomed Becerra’s deceptive omission theory: “Because she has failed to sufficiently allege a weight-loss promise from Dr Pepper, there was nothing deceptive about Dr Pepper not disclosing to consumers the alleged possibility of weight gain.”

Competitor's Google review accusing P of "scam" was nondefamatory opinion

Creditors Relief LLC v. United Debt Settlement LLC, 2019 WL 7288978, No. 17-7474 (D.N.J. Dec. 30, 2019)

Plaintiff CR is a New Jersey-based debt settlement company that has allegedly “received significant publicity and an A+ rating from the Better Business Bureau.” Defendant Marcel Bluvstein, a New York resident, is a principal of New York-based Defendant United Settlement and New Jersey-based Defendant EIIS. He contacted CR, stating that he was looking for debt relief services, and received a standard client agreement. This call was allegedly a sham – intended only to learn about Plaintiff’s business and gain access to this Creditors Relief Agreement. Shortly thereafter, Bluvstein allegedly founded United Settlement as a competing debt relief services business and allegedly copied content from the CR website, including a “Recent Results” graphic showing results obtained by CR. It also allegedly misrepresented statistics regarding the total and average savings obtained by its clients.

After CR’s attorneys sent a letter to United Settlement and Bluvstein alleging copyright infringement and false advertising, defendants allegedly attacked CR online, e.g., with a Google review stating, “Beware of this company! I called them to get advice on my business debt, after speaking with my creditor I decided to deal with the matter myself. After the company learned 1 settled my own debt they sent me a cease and desist and threatened to sue.” Also: “This company is a scam! Read the reviews on the CEO Michael Lupolover. Beware collects ridiculous fees and does NOT get the job done!” A similar review on the BBB’s website allegedly caused Plaintiff’s BBB rating to slip below A+. Initially posted by a “Marcel B.,” the poster’s name allegedly later changed to “Ruth A.”

After finding that it couldn’t exercise personal jurisdiction over Bluvstein or United Settlement, the court dismissed the remaining claims against EIIS.

First, competitor plaintiffs who didn’t suffer injury as consumers don’t have standing under the New Jersey Consumer Fraud Act. There aren’t definitive state cases, but the DNJ has come to this conclusion; here the court rejects the specious argument that Citizens United bars such discrimination against the corporate form, which isn’t even relevant because corporations who are consumers of falsely advertised products/services have standing under the NJCFA.

Defamation: Nothing defamatory here, just opinion. [The court does not have to deal with the allegedly false pretense of being a consumer, rather than a competitor. It is not opinion to say that “I called them to get advice on my business debt”—it still might be a nondefamatory falsehood, but defamation is not required for Lanham Act liability.] The BBB review:

Beware of this company, they are un-American! I contacted Plaintiff in search for help with my business cash advance loan. After getting the contract emailed to me ... [I] did not sign the contract .... When Michael L[upolover, member of Plaintiff] learned I opened my own company and settled my own debt he sent me cease and desist letter and is now threatening to sue. This company is un-American and feels entitled. Just because I spoke to them they feel they own me and I have no rights, think again Michael L[upolover]! This company is greedy and unfair .... Beware of this company!!

In the first statement above, the only plausibly defamatory part was: “Beware of this company!” That’s opinion. In the second statement, “This company is a scam!”; “Beware collects ridiculous fees”; and “does NOT get the job done,” were possibilities. In the context of an online review, “scam” was opinion, and the words surrounding the “scam” epithet were non-factual: “Read the reviews on the CEO Michael Lupolover. Beware collects ridiculous fees and does NOT get the job done!” “This does not imply fraud, which is provably true or false, but instead suggests the speaker’s opinion as to the value of Plaintiff’s services.” A reasonable reader would not understand an accusation of crime or fraud, but would see name-calling and hyperbole. The third statement: “Beware of this company, they are un-American!”; “This company is un-American and feels entitled”; and “This company is greedy and unfair” were also non-actionable opinions.

Tortious interference: failed for want of identification of specific lost contracts/opportunities.

Lanham Act and copyright claims: failed because not alleged against the remaining defendant, EIIS. Only Bluvstein and United Settlement allegedly copied the Creditors Relief agreement and website.

Amicus brief in 4th Circuit Lanham Act case on the meaning of literal falsity

Brian Wolfman filed this amicus, which I drafted, on behalf of a number of Lanham Act professors. It involves a false advertising case with a number of moving parts; the amicus addresses only the court's opportunity to correct the mistaken reasoning of In re GNC, a consumer protection case that the district court misunderstood as a Lanham Act case (in fairness, this was basically invited error, because the GNC panel cited only Lanham Act cases, and not state consumer protection law cases, in inventing its new standard that had never been applied in either kind of case: that literal falsity only occurs when all reasonable scientists would agree that a claim is false). Since defendant-appellants did not consent (they wanted more space in their brief from appellees in return for consent; appellees understandably did not agree), the court will decide whether to accept the amicus.

3d Circuit gets descriptiveness right: it's a matter of both the term and the goods/services

Engage Healthcare Communications, L.L.C. v. Intellisphere, L.L.C., --- Fed.Appx. ----, 2019 WL 6170825, No. 19-1017 (3d Cir. Nov. 20, 2019)

Panels in the Second and Ninth Circuits, which really ought to know better, have occasionally reasoned that a term is not descriptive unless you can figure out what the goods/services are just by looking at the term.  This is nonsense, and it’s nice to have an appellate opinion, even unpublished, saying so outright. The proper inquiry, as the PTO has long insisted, is whether, knowing the term and the goods/services, some leap is required to figure out their relation; when the relation is obvious, the term is at best descriptive.

Anyhow, this is a trademark case between “strikingly similar” companies owned by two brothers. The court of appeals affirmed a finding of noninfringement, though on slightly different grounds with respect to the most interesting term, PEER-SPECTIVES.

Here are the marks at issue

With the exception of PEER-SPECTIVES, they are all descriptive without any need for further discussion, both asserted as service marks (for advertising) and for the underlying publications etc. The court of appeals agreed that “advertising service marks must be sufficiently separate from the subject of the advertising, and must be used to identify advertising services, not merely to identify the subject of the advertising, and “an advertising service mark that merely describes the subject of its advertising is a descriptive mark not entitled to service mark protection.” Indeed, the assertion of the same marks as trademarks for the underlying industry could be regarded as an admission of descriptiveness.

There was not enough evidence to show that the alleged marks had achieved secondary meaning either for advertising or for the underlying goods, which were online/print publications in the fields of hematology and oncology. Plaintiffs argued that the district court erred in finding the marks had not achieved secondary meaning at the time of defendants’ alleged infringement, because there was no definitive date in the record when the alleged infringement began.  But here “the operative issue is not when defendants infringed its marks, but whether the alleged marks had achieved secondary meaning at all, whether it be on the date of infringement, the date of summary judgment, or even today.” There was not sufficient evidence that they had done so. Courts use multiple factors to establish secondary meaning. Here, plaintiffs could offer evidence only on six of the Third Circuit’s eleven factors: “(1) the extent of sale and advertising utilizing Engage’s trademarks; (2) length of use of Engage’s trademarks; (3) exclusivity of use of Engage’s trademarks; (4) copying of Engage’s trademarks by Intellisphere; (5) the number and amount of sale involving Engage’s trademarks; and (6) the number of consumers privy to Engage’s trademarks through the use of those marks in commerce.”

Vitally, there was no evidence of consumer perception. Given that void, the alleged extensive use and alleged copying by the defendants “do not alleviate their burden of showing how consumers identify these marks as being synonymous with the origin of their products, nor is the circumstantial evidence presented so overwhelming as to imply consumer association.” It has to matter that the plaintiffs were asserting such a smorgasbord of marks—if there’d been just one, maybe it would have been more plausible that lots of advertising had worked, but it’s just not convincing that all those descriptive terms served as marks for plaintiffs, and thus it’s not convincing that any given one out of the plethora stood out. But the degree of descriptiveness also played a big role: By way of comparison, the court believed that “at least some producer can readily make a strong showing on the six factors plaintiffs identified, through its sale of ‘Belgian chocolates,’ but surely that producer would not be entitled to trademark protection for that label no matter how long or pervasive its use of that label; consumers will never be in danger of associating that label with the producer.”

The court treated Peer-Spectives differently because the district court deemed it suggestive. The court of appeals disagreed, making several important and persuasive points: The district court had reasoned that “a ‘mental leap’ is required to tie PEER-SPECTIVES to online and in-person continuing medical education classes for physicians. Absent this explanation, any link between the words and the healthcare industry would not have been immediately apparent, a clear indication that the mark is [ ] suggestive.” 

It’s true that the line can be difficult to draw, but fortunately the Canfield Third Circuit case resolved the issue: “chocolate fudge” was descriptive for soda, and that’s the same kind of term that Peer-Spectives is. “It would be readily apparent to the average consumer that ‘Peer-Spectives’ stands for ‘Peer Perspectives.’ Indeed, defendants’ use of the phrase ‘Peers & Perspectives’ is the very phrase plaintiffs assert infringed on their alleged mark.” This is a vitally important point about validity’s interaction with scope! Deeming too many terms suggestive eases monopolization of terms that convey useful information to consumers, without proof that there is a corresponding benefit to consumers in the form of protecting them from confusion. As the court explained, “[p]eer perspective is a concept that most consumers immediately would recognize as a generally descriptive term that can be used to describe many products and applicable across a multitude of industries and markets, as is the term ‘chocolate fudge.’” “Chocolate fudge” standing alone doesn’t create an immediate association with diet soda, but that isn’t the test.  It takes no “mental leap” for consumers to recognize its relevance for diet sodas, once they see it applied thereto.

A descriptive term need not be “tied to any particular industry or market.” If we didn’t use that rule, “ ‘very creamy ice cream’ would be found to be clearly descriptive, but ‘very creamy,’ because its link to ice cream would not be immediately apparent, could nevertheless be trademarked by an ice cream maker. Of course, it is reasonable to believe that such ice cream maker would then attempt to enforce its trademark against every other ice cream maker who uses the term ‘very creamy ice cream’ on its products, the very term that was deemed clearly descriptive in the first place.”

Likewise, extensive use of a generally applicable term in other markets supported descriptiveness. “[I]ndeed, if the ‘mental leap’ required can be made in many markets, perhaps it is not much of a leap at all…. Unsurprisingly, a Google search of the term ‘peerspective’ returned over 12,000 results, with a slew of examples of its use across many industries.”

There was no better evidence of secondary meaning here than for any other term at issue. Thus, the district court was affirmed not because the defendants didn’t infringe, but because there was no enforceable mark.

Monday, December 30, 2019

e-cigarette sellers must substantiate greater population-level safety to make "safer" claims

Nicopure Labs, LLC v. Food & Drug Admin., No. 17-5196 (D.C. Cir. Dec. 10, 2019)

In the Tobacco Control Act, Congress gave the FDA additional authority to regulate tobacco because previous measures “failed adequately to curb tobacco use by adolescents.” Congress made a lot of findings about the addictiveness of tobacco and its dangers to children. Instead of banning tobacco and suffering the resulting black market, Congress took the then-current market as a baseline for improvement. The TCA grandfathered products that were on the market as of February 15, 2007. New products require premarket authorization, requiring the FDA to assess their health effects on the population as a whole in view of both the “likelihood that existing users of tobacco products will stop using such products,” and the “likelihood that those who do not use tobacco products will start.” Authorization shall be denied if, among other things, there’s no showing that permitting the new product would be appropriate for public health; the proposed labeling is false or misleading; or the new product deviates from an existing tobacco product standard without adequate information to justify the deviation.

Anything marketed as safer than existing tobacco products (“modified risk” tobacco products) has to meet more stringent public-health standards. A modified risk tobacco product is a product whose “label, labeling, or advertising … represents explicitly or implicitly that … the tobacco product presents a lower risk of tobacco-related disease or is less harmful than one or more other commercially marketed tobacco products; … contains a reduced level of a substance or presents a reduced exposure to a substance; or … does not contain or is free of a substance”; or a product whose label, labeling, or advertising uses “light,” “mild,” or “low” or similar descriptors; or whose manufacturer “has taken any action directed to consumers through the media or otherwise, other than by means of the tobacco product’s label, labeling, or advertising . . . respecting the product that would be reasonably expected to result in consumers believing that the tobacco product or its smoke may present a lower risk of disease or is less harmful than one or more commercially marketed tobacco products, or presents a reduced exposure to, or does not contain or is free of, a substance or substances.” There’s a statutory exemption allowing the use of “smokeless tobacco,” “smoke-free,” and similar defined terms for chewing tobacco.

The marketing of a modified risk product must “enable the public to comprehend the information concerning modified risk and to understand the relative significance of such information in the context of total health and in relation to all of the diseases and health-related conditions associated with the use of tobacco products.” A product may be marketed as presenting a lower risk only if “the applicant has demonstrated that such product, as it is actually used by consumers,” will both significantly reduce harm/risk to individual tobacco users and benefit the health of the population as a whole, taking into account current users and current non-users. 

There’s a special rule with “a less demanding and more targeted standard” for the subset of modified risk products that purport to contain a reduced level or none of an identified substance (e.g., “no diacetyl”). Such products aren’t required to “significantly” reduce harm or risk to the individual user and must be only “expected” to benefit the health of the population as a whole. Also, the substance identified as reduced or absent must actually be harmful; the reduction must be substantial and accurate as labeled; the product must not expose the consumer to increased levels of other harmful substances; and consumer perception testing must show that consumers will not misinterpret a specific claim as an assurance of relative overall safety. A user of this rule must also “conduct postmarket surveillance and studies” and submit the results to the FDA annually to allow it to “determine the impact of the order on consumer perception, behavior, and health and to enable the Secretary to review the accuracy of the determinations on which the order was based.”

Smoking cessation products have to meet even more exacting standards for a new drug or device. No e-cigarette has yet sought and received clearance from the FDA under any of the three pathways. The industry didn’t challenge either the new tobacco product or new smoking cessation product approval pathways. It wanted to make health claims with fewer restraints than those afforded by the modified risk pathway.

Nicopure, an e-cigarette manufacturer and distributor, and an e-cigarette industry group, argued that the FDA violated the APA by not providing an easier premarket authorization pathway for e-cigarettes. It didn’t and I will say no more.  They also challenged two provisions of the Tobacco Control Act as violating the First Amendment: (1) the premarket review standards applicable to modified risk tobacco products allegedly impermissibly burdened truthful, nonmisleading statements about e-cigarettes and (2) the ban on distribution of free samples of tobacco products, including e-cigarettes allegedly suppressed expressive conduct. Both challenges failed.

Although the court mostly discusses the evidence in the context of the APA challenge, it’s clearly relevant that both the numbers of young users and adverse reactions to e-cigarettes are rising sharply. While the evidence is insufficient about whether e-cigarettes reduce conventional smoking—and some evidence suggests they’re a gateway for some users—the industry wasn’t seeking approval of e-cigarettes as smoking cessation products, nor was it instructing users on how to stop using nicotine.  “But e-cigarette manufacturers nonetheless have actively marketed their products as if they were a safer, healthier substitute for conventional cigarettes.” We just don’t yet know the long-term impact on the general population.

Note: the following discussion largely assumes some of the analytical moves, which makes it just like every other commercial speech case.  Key among them: Can the government decide that the meaning of “safer” is “safer for the population as a whole,” rather than “safer for you than smoking tobacco would be, holding constant your likelihood of doing that instead”?  That’s a far more significant move than the general substantiation requirement—which is in theory applicable to all commercial advertising subject to the FTC’s jurisdiction, and which is bolstered here by a well-known and appalling history of deadly industry lies. The court gets to finesse the “safer” definition question by focusing on the substantiation requirement.  And I have my doubts that the industry could substantiate that its “safer for you” claims, and most crucially their limitations, are understood by most reasonable consumers.  But in the theoretical situation that consumers did understand “this is safer for me than tobacco, but I could easily end up worse off by using it because I probably wouldn’t have smoked tobacco in the first place,” can the government ban that marketing? I think the answer is yes, especially given all the uncertainties, but that is the strongest case in conventional First Amendment terms.  (It thus matters a lot that this is not an as-applied challenge, since no one in the industry appears ready to substantiate that consumers receive that risk message.)

The court held: The FDA can constitutionally bar advertising of e-cigarettes as safer than existing products until that safety benefit has been shown. “That conclusion is amply supported by nicotine’s addictiveness, the complex health risks tobacco products pose, and a history of the public being misled by claims that certain tobacco products are safer, despite disclaimers and disclosures.” Congress found that “modified risk tobacco products may encourage new users to take up tobacco products, rather than simply reduce risk to those who already use them.” Congress cited an FTC study and found that advertisements that claim one tobacco product is less harmful than another mislead consumers, even when the putatively less risky products contain “disclosures and advisories intended to provide clarification.” It specifically found that disclaimers and other “[l]ess restrictive and less comprehensive approaches have not and will not be effective” in communicating risks associated with tobacco products sold as safer. It concluded that “the only way to effectively protect the public health from the dangers of unsubstantiated modified risk tobacco products is to empower the Food and Drug Administration to require that products that tobacco manufacturers s[ell] or distribute[] for risk reduction be reviewed in advance of marketing, and to require that the evidence relied on to support claims be fully verified.”

As an initial matter, the industry argued that the use of advertising to identify what counts as a modified risk product burdened speech in violation of the First Amendment.  Not so.  “First, our precedent explicitly approves the use of a product’s marketing and labeling to discern to which regulatory regime a product is subject, and to treat it as unlawful insofar as it is marketed under a different guise.”  As with drug claims versus structure/function claims, or even whether the FDA has any jurisdiction at all, how a product is marketed can tell you what it is and therefore what regime applies to it. “Just as the government may consider speech that markets a copper bracelet as an arthritis cure or a beach ball as a lifesaving flotation device in order to subject the item to appropriate regulation, so, too, the FDA may rely on e-cigarette labeling and other marketing claims in order to subject e-cigarettes to appropriate regulation.”

The industry wanted to pitch e-cigarettes as safer, arguing that this would help current smokers who “routinely seek information that would be helpful when attempting to move away from cigarettes and learn more about the features of particular vapor products.”  But it wanted to do so without scrutiny based on public health and without addressing the risk of greater uptake by current nonsmokers. It argued that the FDA’s modified risk pathway regulated the message itself, not the product.  But that was wordplay. “Deliberately selling an e-cigarette as less risky without going through the requisite regulatory review for reduced-risk tobacco products renders the sale-as-labeled unlawful, just as selling saw palmetto extract as a drug without FDA premarket approval was unlawful. It is well established that ‘commercial speech related to illegal activity’ is not subject to constitutional protection.”

Even viewing the modified risk pathway as burdening speech, it was a legitimate restriction on commercial speech. Manufacturers could make accurate “less risky” claims, but only if substantiated with evidence of overall public health effects and with evidence that consumers wouldn’t be misled. “If a manufacturer shows its product is in fact safer, and shows that consumer perception accurately grasps the nature and limits of any safety claim, the product will be marketable. Because the Act withholds from market only those tobacco product claims that, upon review, are found to be misleading, it bars only commercial speech that by definition is unprotected by the First Amendment.”

Under Central Hudson, the government had a substantial interest in “ensuring that any modified risk statements are accurate and non-misleading in order to protect consumers from buying a highly addictive product with a false sense of the risks it presents,” before any marketing began. This interest was especially powerful given the combination of health risks and vulnerable young consumers.

And the modified risk product pathway directly advanced the government’s substantial interest. Requiring a “significant[]” reduction of harms and risks to individual users and a “benefit” to the population as a whole directly advanced the government’s interests in accuracy and public health. “Given that no tobacco product has ever been shown to be safe, Congress ensured that the FDA will not lightly authorize the sale of tobacco products as carrying reduced health risk.” The special rules for claims about specific substances also directly advanced the government’s interest. “Each element of the inquiry is targeted towards ensuring that any specific-substance claim that consumers may understand as a relative safety claim is accurate and not misleading.”

Finally, the regulation was “not more extensive than necessary” to serve the government’s interest. In making a “fit” determination, “the least restrictive means is not the standard; instead, the case law requires a reasonable fit between the legislature’s ends and the means chosen to accomplish those ends[.]” That standard was satisfied. Congress found that “the only way to effectively protect the public health from the dangers of unsubstantiated modified risk tobacco products is to empower the Food and Drug Administration to require that products that tobacco manufacturers s[ell] or distribute[] for risk reduction be reviewed in advance of marketing, and to require that the evidence relied on to support claims be fully verified.”

And the rule for specific substances “reasonably tailors the requisite substantiation to the type of product.” For products marketed as generally less harmful, scientific studies must show that a “substantial reduction in morbidity or mortality among individual tobacco users occurs” with their use, whereas for those marketed only as less harmful because they contain a reduced level of a substance, the manufacturer must show only that reduced morbidity and mortality is “reasonably likely.”

The industry objected to premarket review because it believed that its claims for healthfulness were accurate. “But modified risk claims that might be technically accurate if viewed in isolation are in fact often misunderstood by consumers. In particular, Congress specifically found that consumers have been misled about the health consequences of claims that a tobacco product did not contain or contained reduced level of a harmful substance.” Just as with low tar and light cigarettes, “product labeling or advertising that touts an e-cigarette as free of a specified ingredient may mislead consumers to view the product as generally safer, even if other chemicals it contains, such as formaldehyde, are equally or more harmful than the disclaimed ingredient. The Industry’s claims of accuracy are unsubstantiated, and it has yet to submit an application with appropriate consumer-perception evidence.”

The court emphasized that misleadingness is based on the understanding of a significant number of reasonable consumers, and not only on what is explicitly said. Because the rationale supporting First Amendment protection of commercial speech is “the informational function of advertising,” “[t]he government may ban forms of communication more likely to deceive the public than to inform it.” And, when the speech addresses matters on which the “public lacks sophistication,” then “misstatements that might be overlooked or deemed unimportant in other advertising may be found quite inappropriate.” That was the case here: “Tobacco products are by definition harmful and addictive, and choosing among them based on comparative safety is inherently risky and complex, making the public especially susceptible to being misled and harmed.”

The court pointed to Congress’s knowledge of the sordid, deadly history of tobacco marketing as strong support for premarket approval of modified risk products. The FDA has already found similar problems with e-cigarette marketing, especially to young people. “Consumers have frequently and erroneously read narrow safety statements about an identified substance as materially complete claims that the product is safe overall.” Thus, the modified risk pathway could require the “testing of actual consumer perception” to show that “consumers will not be misled into believing that the product . . . is or has been demonstrated to be less harmful” more broadly.

The industry suggested a bunch of supposedly less restrictive alternatives. The court found none convincing.  First, required disclaimers: Congress considered and rejected them because they’d been ineffective to prevent deceptive tobacco marketing in the past. “The risk of misinterpretation regarding a highly addictive product supports the FDA’s choice of preclearance over a disclaimer requirement.” Second, post-market enforcement, putting the onus on the government. But that would require the FDA

to investigate the harms of an open-ended litany of substances that might appear in e-cigarettes, and to continually test products for their presence. Restricting the government’s regulatory options in that way is inappropriate for products containing harmful and addictive substances about which the public is known to be easily misled and about which the manufacturer has superior information. The FDA has already noted inaccuracies in claims made by various e-cigarettes about their nicotine content, and significant variability between labeled and actual content of various chemicals. Once inaccurate or misleading information influences people to start using a powerfully addictive substance, damage has been done.

The court also rejected the industry’s appeal to Sorrell v. IMS Health Inc., 564 U.S. 552 (2011), which unconstitutionally restricted “sophisticated and experienced consumers,” namely prescribing physicians, from accessing “truthful, nonmisleading advertisements.” The targets here were ordinary laypeople, including adolescents. And, unlike Sorrell, the modified risk pathway didn’t ban information going to one speaker while allowing its dissemination to others (like researchers). Not only was there no absolute ban here, as in Sorrell—only a substantiation requirement—but there was no non-e-cigarette group authorized to make the same claims in connection with a commercial transaction. [This mishmash of speaker/recipient isn’t the DC Circuit’s fault; it’s an effect of Sorrell’s own incoherence about what’s protected and why.]

Nor was the special treatment of chewing tobacco and “smokeless” or “smoke free” claims arbitrary, even though e-cigarettes couldn’t use the same terms without preclearance as a modified risk product. Congress relied on decades of use of the term “smokeless” to distinguish chewing tobaccco from loose smoking tobacco, a rationale inapplicable to e-cigarettes. Moreover, chewing tobacco isn’t inhaled. “To the extent that consumers may view ‘smokeless’ as a claim about relative pulmonary risk, decades of experience supports the FDA’s allowance of that claim for chewing tobacco whereas the FDA lacks any similar track record regarding e-cigarettes.”

Separately, the ban on free samples didn’t violate the First Amendment.  The industry argued that, since free samples are a marketing technique, they constituted expressive conduct, and that, since the reason Congress banned free samples was to decrease uptake, it was regulating based on the expressive effect of the conduct. 

The reason that Congress banned free samples was “to eliminate an easily accessible source for youth that are especially vulnerable to the risks of tobacco use and addiction.” The ban targeted conduct, not speech, and it wasn’t obviously expressive conduct either.  The industry failed to identify its “entirely unstated” message. The industry argued that free samples were “expressive” because they “convey[] important information to smokers who want to switch to vapor products, including key consumer information about different e-liquid flavors and device performance characteristics.”

“This extraordinary argument, if accepted, would extend First Amendment protection to every commercial transaction on the ground that it ‘communicates’ to the customer ‘information’ about a product or service.” The Supreme Court long ago rejected the idea that conduct carried out with the intent of expressing an idea is therefore speech. “[T]he seller’s intention that those experiences leave consumers with helpful information that encourages future purchases does not convert all regulation that affects access to products or services into speech restrictions subject to First Amendment scrutiny.”

Even if there were an incidental burden on speech, the restriction on conduct was imposed “for reasons unrelated to the communication of ideas,” and thus unproblematic. The free sample ban wasn’t about communication of information, it was about the products themselves and the well-documented danger that children would obtain and use them via free samples, given the greater price sensitivity of young consumers. Expressions Hair Design v. Schneiderman, 137 S. Ct. 1144 (2017), “recently reaffirmed that ordinary price regulation does not implicate constitutionally protected speech,” and the ban here was an ordinary price regulation: e-cigarette sellers can’t charge zero dollars.  

Since this is rational basis review, it doesn’t matter that the TCA allows distribution of free samples of chewing tobacco at “qualified, adult-only” facilities:

Anyone with even basic awareness of e-cigarettes and chewing tobacco, and their differential health consequences for and uptake by youth, will readily discern rational reasons to treat free samples of chewing tobacco differently from free samples of e-cigarettes. E-cigarettes are discreet and trendy in a way that chewing tobacco is not. Additionally, Congress’ limited exemption for free samples of chewing tobacco in specified, controlled circumstances reflects Congress’ knowledge of youth access and usage derived from years of experience. As the Industry concedes, no comparable information exists for e-cigarettes. Additionally, users of e-cigarettes inhale into their lungs myriad potentially hazardous substances not limited to those derived from tobacco. Congress’ decision to exempt chewing tobacco but not e-cigarettes from the free sample ban readily survives rational basis review.

The Sixth Circuit previously characterized a free sample ban as “an attempt to regulate the ‘communicative impact’ of the activity, not the activity itself.” But that case “addressed a regulation covering a range of clearly communicative promotional activities—including the distribution of tobacco- branded merchandise (t-shirts, baseball caps, bobblehead dolls) and event sponsorships—together with a prohibition on free product samples, and its First Amendment analysis grouped them together as ‘marketing bans.’” That was wrong, but even so, the Sixth Circuit concluded that any burden on the expressive element of free samples was easily justified by the FDA’s “overwhelming evidence” of the danger that free samples could fall into the hands of young people.  The industry argued that e-cigarettes were different because “consumers are searching for truthful information regarding a novel and potentially life-saving product category.” “Given the relatively unknown and potentially grave risks of e-cigarettes to all users, and their extraordinary allure to middle and high school students, we cannot agree.” [Also, trying an e-cigarette provides exactly zero information to the user about whether they are better, healthwise, than cigarettes.]

lack of safety/higher failure rates plausibly meant products weren't "compatible"

Straumann USA, LLC v. TruAbutment Inc., No. 8:19-cv-00878-JLS-DFM, 2019 WL 6887173 (C.D. Cal. Oct. 1, 2019)

The parties compete in the market for dental implants, which are medical devices surgically implanted into the patient’s jaw bone to replace natural teeth and function as artificial tooth roots. A connector, called an abutment, is placed on the inside; it holds and supports dental restorations, such as crowns or bridges. TruAbutment markets abutments as “compatible” with implants produced by various manufacturers, including Straumann’s. I’ll ignore the patent claims.

Abutments for use in dental implants are classified as Class II medical devices, “medium to moderate risk.” 510(k) preclearance is required, but Straumann alleged that TruAbutment hadn’t obtained 510(k) clearance for many of its abutments, including for dozens of devices marketed as Straumann-compatible. Straumann further alleged that TruAbutment products fail at an unusually high rate and that non-adherence to the exact specifications of the original product or use of different materials increase the chance that some combination of the implant, abutment, or connecting screw will break. Device failure “typically requires emergency surgery.” The failure of a non-Straumann abutment would allegedly unfairly cast doubt on the reliability and safety of the implant with which it was coupled.

The court found the Lanham Act claim sufficiently pled. Although the FDCA provides no private right of action, the Lanham Act claim was not dependent on lack of preclearance. Straumann alleged false statements about compatibility, which could succeed without litigating any alleged underlying FDCA violation. The complaint also satisfied Rule 9(b) by alleging that TruAbutment’s products weren’t actually Straumann-compatible because they are unsafe and fail at an unacceptably high rate, along with other allegations about the other elements, including, for harm, that dental labs are likely to select and supply cheaper third-party abutments to dentists if they are falsely advertised as equivalent to Straumann’s. The California UCL claim therefore also survived.

Friday, December 27, 2019

calling business duration into question could actionably disparage its honesty

Giannone v. Giannone, 2019 WL 6910151, No. 16-cv-911 (E.D. Pa. Dec. 18, 2019)

“A lamentable father-son conflict over a family plumbing business provides the backdrop for this Lanham Act case.” Joseph Giannone, Senior, failed to get summary judgment on his Lanham Act trademark infringement and unfair competition claims against his son, Joseph Giannone, Junior. Although Senior registered the descriptive terms at issue (JOSEPH GIANNONE, JOSEPH GIANNONE PLUMBING & HEATING, and a stylized JOSEPH GIANNONE PLUMBING & HEATING mark with a pipe and wrench logo), Junior timely contested their validity and Senior failed to show secondary meaning sufficiently to win summary judgment.
Senior's word + design marks
Junior once worked as Senior’s employee. In 2008, Junior founded his own business—Joseph Giannone Heating & Air Conditioning—operated out of Senior’s Philadelphia business office. Initially, Junior’s business was confined to HVAC work and didn’t compete with Senior’s plumbing business. They shared telephone lines, shop space, repair trucks, and even employees. Both businesses used Senior’s marks. In 2013, after some conflicts with Senior, Junior moved out, expanded into plumbing services that competed with Senior’s business, and advertised using this logo:
Junior's mark
Junior advertised heavily within the same Philadelphia zip codes served by Senior’s plumbing business using that logo, and even put it on the side of a building half a mile from Senior’s business. This lawsuit followed.

Of possible interest: Senior argued that his JOSEPH GIANNONE PLUMBING & HEATING and stylized marks were inherently distinctive because of their additional elements. The court found these additions insufficient to confer inherent distinctiveness. As to the standard character mark, “plumbing and heating” were merely descriptive (and, though the court doesn’t mention it, disclaimed in both this and the design plus word mark). (The court also didn’t mention that the PTO apparently didn’t require any evidence of secondary meaning for any of these registrations, which seems weird.) As to the design + word mark, the pipe and wrench logo was also descriptive, especially since “other plumbers in the industry have used the same exact pipe and wrench logo in their marketing.”

Junior’s false advertising counterclaim survived summary judgment based on one statement. Senior sent a letter stating that Junior’s business had only been established for 5 years (2010) when it in fact had been established in 2008, which cast doubt on Junior’s honesty. Senior argued that this was de minimis, but “[a] reasonable jury could find that Senior’s false statement in the letter not only strips Junior’s business of two years of experience, but more importantly implies that Junior’s business misrepresents itself. This false statement could reasonably cause a household consumer of plumbing services to choose a different service provider, thereby causing Junior to lose sales.” Also possible evidence of false advertising: Senior’s website incorrectly states that (1) Joseph Giannone Plumbing & Heating was founded in 1929; (2) Senior took over his father’s business in 1978; (3) and the business has served the Philadelphia region for more than 85 years. Senior admitted that he founded his business in 1983 (not 1929) and so all these statements regarding Senior’s plumbing business were facially false. “A reasonable jury could find that these statements were intended to deceive the consumer public into believing that Senior’s business was more established than it was. A reasonable jury could also find that such a belief could likely influence purchasing decisions, including away from Junior’s more recently established business.”

false claims about duration of business could be actionable

SPS Technologies, LLC v. Briles Aerospace, Inc., 2019 WL 6841992, No. CV 18-9536-MWF (ASx) (C.D. Cal. Oct. 30, 2019)

The parties compete in the market for high-strength aerospace fasteners. SPS, using information that is allegedly confidential/proprietary to it, makes the SLEEVbolt, which uses a tapered bolt and sleeve system that allegedly offers significant benefits over competing aerospace fasteners. Boeing is the primary SLEEVbolt customer—for more than forty years. In 2011, SPS bought the assets of Paul R. Briles, Inc. (PB Fasteners), which included the proprietary information and trade secrets necessary to make the SLEEVbolt. Before then, Robert Briles was the President of PB Fasteners, and Michael Briles worked as its Director of Sales and Marketing. Robert and Michael Briles also allegedly entered into agreements with SPS about keeping confidential information confidential, but, you will not be surprised to read at this point, allegedly disclosed PB Fasteners’ proprietary information to Briles Aerospace, which was founded shortly after the SPS acquisition. Briles Aerospace allegedly agreed to sell more than 10% of Boeing’s SLEEVbolt requirements for Boeing’s 787 aircraft, contrary to Boeing’s contractual obligations to SPS, of which Briles Aerospace knew. Boeing qualified Briles Aerospace and Lisi Aerospace as additional manufacturers of the SLEEVbolt; allegedly, neither could have obtained the necessary qualifications without misappropriating PB Fasteners’ proprietary information.

SPS also alleged that Briles falsely advertised on its website and elsewhere by claiming: “Briles companies have been valued Manufacturers of High Strength Aerospace Fasteners for over half a century” when Briles Aerospace was founded in May 2012, allegedly misappropriating the reputation and goodwill of PB Fasteners. These ads are allegedly likely to influence the purchasing decision of customers in the aerospace fastener market because they will believe that Briles Aerospace has extensive engineering expertise and industry know-how, and Boeing and other customers allegedly relied on such statements in choosing to do business with Briles Aerospace rather than PB Fasteners.

Standing under California UCL: A business plaintiff claiming injury by a competitor doesn’t have to allege that it relied on the false advertising, so SPS had standing. Unlike the plaintiffs whose abuses spurred the passage of Proposition 64 tightening UCL standing requirements, competitor-plaintiffs actually do suffer an injury from false advertising that diverts consumers’ business, thus satisfying the injury requirement. Imposing a direct reliance requirement would be inconsistent with the point of competitor false advertising claims.

SPS also had a sufficient commercial interest under the Lanham Act. (Somewhat oddly, SPS asserted that it only wanted a false advertising claim; false association would have eased its burdens in terms of commercial advertising/promotion and materiality, both of which might present some issues here, and false association is not obviously a terrible claim on these facts.)

Defendants argued that “Briles companies have been valued Manufacturers of High Strength Aerospace Fasteners for over half a century” was truthful, but didn’t explain why and also that didn’t deal with the allegation that the statement misleadingly suggested that defendants had more than 50 years of experience manufacturing high-strength aerospace fasteners and that Briles Aerospace had significant engineering expertise in the aerospace fasteners industry. Nor could the court conclude that this was puffery as a matter of law. While “valued” was opinion or puffery, the assertion that the companies have been manufacturing the aerospace fasteners for “over half a century” was “quantifiable” and “verifiably true or false.” [Interesting trade secret interaction: what if the advertising claim is true, but only because they took information that, according to the other allegations in the complaint, they had no right to take?]

Defendants argued that the allegations of reliance or consumer deception were conclusory and unsupported by any actual facts. Not every court would agree, especially in the context of a sophisticated customer base as here, but the court concluded that no further evidence was required on a motion to dismiss. Likewise, on materiality, defendants argued “that it is simply not plausible that a highly sophisticated company like Boeing would rely on one statement … in choosing to source critical parts for commercial airplanes.” Discovery might reveal this to be true, and other allegations in the complaint suggested that Boeing relied on other information and statements, but the allegedly misleading statement need not be the only reason to work with defendants as long as it contributed to the decision. [I mean, presumably Boeing knew it was contracting with a new company other than the one that had been its exclusive supplier for 40 years, so ...]

Other claims also survived.

you can't plead false advertising to get around Dastar

Focal Point Films, LLC v. Sandhu, 2019 WL 7020209, No. 19-cv-02898-JCS (N.D. Cal. Dec. 20, 2019) (magistrate, by consent)

Focal Point/Gibel sought a declaratory judgment that Gibel was the sole author of a documentary film called Sign My Name to Freedom about “a 94-year old African American woman who entered the public spotlight when she became the oldest National Park Ranger serving in the United States.” Defendant Arjot Sandhu, who met Gibel at a documentary filmmaker workshop and asked to assist with the project, also worked on the film. Sandhu counterclaimed for a declaratory judgment that she was a co-author and related counterclaims.

Gibel alleged that Sandhu worked “as an extra camera operator during a handful of shoots, always under Gibel’s supervision and with the understanding that Sandhu would be compensated on partially deferred basis.” She also helped with fundraising. Gibel allegedly offered Sandhu an “Associate Producer” credit for this work, but the parties were unable to reach agreement on a written contract setting forth their arrangement. Sandhu allegedly snuck unauthorized co-director and co-editor credits for herself into a “pitch deck” for the film, and even after Gibel told Sandhu he was terminating her services she allegedly continued to hold herself out as an authorized representative of the film.

Sandhu disputed Gibel’s account and alleged that her authorship included, among other things, “conception, creative direction, content selection, directing scenes, overseeing the Film’s production, supervising the work of editors, filming scenes, editing footage, pitching the Film at film festivals, and collaborating on all other aspects of the Film’s creation and promotion, including the overall arc and direction of the Film.” Gibel allegedly publicly represented that she was a coequal partner in correspondence with third parties and promotional materials until the fall of 2018, when Gibel blocked her access to the film’s social media, to key documents, and to grant funds jointly raised and awarded to the project. Sandhu counterclaimed for declaratory judgment of authorship, unjust enrichment, intentional interference with prospective economic advantage, and false advertising and unfair competition under the Lanham Act and the UCL.

Under Dastar and Sybersound Records, Inc. v. UAV Corp., 517 F.3d 1137 (9th Cir. 2008), the Lanham Act claims failed. Dastar barred a reverse passing off claim, and Sybersound said that misrepresentations about authorship aren’t actionable under §43(a)(1)(B). Sandhu argued that §43(a)(1)(B) claims are still available when they’re based on something more than failure to provide credit, and that her ownership of the film by virtue of “sweat equity” was an actionable “characteristic” of the relevant good, the film. She argued that Sybersound held merely that the licensing status of a work wasn’t a “characteristic” for these purposes, and that statements Gibel made to potential funders of the film about Sandhu damaged her reputation in the Bay Area documentary filmmaking community. None of that helped: this was a claim based on an alleged failure to give her appropriate credit. Authorship, like licensing status, is not a “characteristic” of a good.

Nor could Sandhu state a claim based on alleged injury to her reputation under Lexmark. The specific facts she alleged made clear that the alleged harm was the result of [both explicit and implicit] representations by Gibel about her role as a coauthor of the film. “While it may be possible to amend this claim to allege injury to a commercial interest in reputation that is not a result of representations about Sandhu’s authorship of the Film, she has not done so.” 

Note that this holding, while stemming rather naturally from existing cases, also hits on a pressure point in Dastar, which was about reverse passing off rather than passing off. When the defendant does mention the plaintiff—what in trademark would be passing off, and in false advertising would be a falsely negative statement about the plaintiff as opposed to a falsely positive statement about the defendant—matters are arguably different enough to demand different treatment. On the other hand, and as the court recognized here, often enough there is no coherent way to distinguish explicit from implicit statements about the plaintiff, especially when the defendant is describing its own product (here, the film). The situation for trademark can be the same, where the defendant has the right to, e.g., reproduce a work in the public domain but the plaintiff claims trademark rights in aspects of the public domain work such as the characters. To be effective, Dastar sometimes has to be indifferent to whether the alleged falsehood is explicit or implicit.

The UCL claim also failed. The “unlawful” claim failed to the extent it was based on alleged Lanham Act violations; state law unfair competition is “substantially congruent” to the Lanham Act. And as for “unfair,” Sandhu didn’t allege any “incipient violation of an antitrust law, or [conduct that] violates the spirit or policy of those laws because its effects are comparable to or the same as a violation of the law, or otherwise significantly threatens or harms competition.’ ” It was not enough to allege that Gibel’s conduct has “misled...potential investors in the Film and members of the documentary filmmaking community.”

Sandhu also failed to state a claim as to the counterclaim for intentional interference with prospective economic relations because she couldn’t identify an independent wrong other than the above.

statutory Lanham Act standing exists when advertiser is advertising but not yet selling

CareDx, Inc. v. Natera, Inc., 2019 WL 7037799, No. 19-662-CFC-CJB (D. Del. Dec. 20, 2019) (magistrate)

A nicely reasoned opinion about impending competition as sufficient to find likely harm from false advertising.

CareDx makes AlloSure, a patented kidney transplant surveillance diagnostic test that allegedly detects active kidney rejection in kidney transplant patients using cell-free DNA detection.  CareDx’s clinical trial allegedly demonstrated that AlloSure “markedly outperformed” the current standard of care for detecting kidney transplant rejection (serum creatinine testing). Natera allegedly developed a competing cell-free DNA kidney transplant rejection test, Prospera. It had allegedly “begun significant marketing efforts,” such as by making the test available for use in clinical trials and marketing it to major clinical centers and sponsoring a clinical study. The study allegedly involved “retrospectively select[ing] samples that had been collected for unrelated purposes by a single clinical center and archived.” The results were published in the December 23, 2018 issue of the Journal of Clinical Medicine.

Natera made statements comparing the parties’ studies’ results, e.g. “compares favorably against competition,” particularly in sensitivity, citing the CareDX study. CareDx alleged that because the two studies did not involve “head-to-head clinical trials comparing the two [companies’] products[,]” and because the Natera Study suffers from “substantial material flaws[,]” Natera’s statements comparing Prospera’s performance to AlloSure’s performance were “literally false and entirely misleading.”

Natera argued that since its product hadn’t yet launched, it couldn’t proximately cause harm. First, proximate harm is a 12(b)(6) issue and not a subject matter jurisdiction issue, per Lexmark. Natera argued that since it had never sold a competing product, it was impossible for consumers to have been deceived and to have withheld business from CareDx.

Under these circumstances, CareDx pled proximate cause. Past harm due to lost sales is not required; the language of the law protects any person “who believes that he or she is or is likely to be damaged” by the defendant’s false advertising. In a footnote, the court elaborated: the statutory language “aligns with how ‘unfair competition’ claims were historically viewed, as being concerned ‘with injuries to business reputation and present and future sales’” (citing Lexmark).  It is not required to allege that “the defendant’s statements have already caused consumers to buy defendant’s product instead of the plaintiff’s product,” even if that is the ordinary path.  Thus, “if a plaintiff pleads facts plausibly indicating that a defendant’s statements about the plaintiff’s product will likely cause the plaintiff economic harm in the future (or that it has or will otherwise cause the plaintiff reputational harm), that could well satisfy the proximate cause requirement, even if there has been no sales yet lost to the defendant’s product.”

Par Sterile Prods., LLC v. Fresenius Kabi USA LLC, No. 14 C 3349, 2015 WL 1263041 (N.D. Ill. Mar. 17, 2015), reached the same conclusion where it was the plaintiff’s product that was FDA-approved and ready for market but not yet being sold and the defendant’s that was already marketed, allegedly misrepresenting that it was FDA-approved. In Par, the plaintiff’s product was a “concrete competing product to compare with” the defendant’s product, and the same was true here. Although proximate causation is usually thought of in past tense, it can be—and, according to the language of the Lanham Act, must be—considered in the future as well. What are required are allegations showing that the likelihood of harm is concrete and imminent. It sufficed to allege that Prospera was mid-launch, that Natera was actively advertising and seeking Medicare coverage for Prospera, and that Natera had begun significant marketing efforts for Prospera, including by making it available for use in clinical trials and marketing it to major clinical centers for such use.”  According to the complaint, “Prospera is not some speculative, who-knows-if-it-will-ever-be-developed product,” contrasted to other cases in which alleged harm was “remote, speculative and ill-defined.”

Natera also challenged the sufficiency of the falsity allegations. CareDx didn’t allege that the study data were falsely reported, and Natera argued that scientific disagreement wasn’t enough for a false advertising claim. CareDx argued that the challenged statements were establishment claims, and that it successfully alleged that “the tests referred to in the advertisement were not sufficiently reliable to permit one to conclude with reasonable certainty that they established the proposition for which they were cited.”  “Critically, the Complaint also includes detailed allegations as to why CareDx believes the Natera Study to be flawed and unreliable,” including use of unrepresentative samples, inclusion of “suspicious” results, improperly mixed population sets and violations of well-known criteria for the diagnosis of kidney rejections. The complaint also alleged how its own study was robust and reliable. Taken together, this was sufficient to plausibly allege falsity.

Natera implausibly argued that there was no express comparison of “Prospera” and “AlloSure,” but only of study results not naming “AlloSure.”  [Someone in this process had a misconception about whether you can avoid a problem by not naming the product you’re very clearly talking about: you can’t.]  The challenged statements expressly compared the assays directly tied to each product.  It was thus likely that the audience would link them to the parties’ respective tests [indeed, on these alleged facts, no reasonable person could fail to make the link].

Natera relied on ONY, Inc. v. Cornerstone Therapeutics, Inc., 720 F.3d 490 (2d Cir. 2013) and Johnson & Johnson Vision Care, Inc. v. 1-800 Contacts, Inc., 299 F.3d 1242 (11th Cir. 2002), to argue that a false advertising claim cannot be premised on matters about which there is legitimate ongoing “scientific disagreement.”  But whatever the merits of ONY, CareDx wasn’t challenging the Natera’s study publication itself, as ONY did, but rather challenging statements made in Natera’s press releases and other advertising materials that compared the results of the studies (which, among other things, meant that full disclosure of the data and its limitations wasn’t present). “Advertisements are not immune from Lanham Act protection just because their claims may have some relation to areas of scientific debate” (citing Eastman Chem. Co. v. Plastipure, Inc., 775 F.3d 230 (5th Cir. 2014)). Likewise, in the J&J case, the plaintiff didn’t contest the reliability of the surveys cited in the challenged ad, whereas unreliability was CareDx’s entire claim.

Deception and materiality: also sufficiently alleged.  The complaint alleged that “Natera’s false and misleading statements likely have (and, unless stopped, will continue to) deceive healthcare providers, insurance companies, patients, and the general public about the capabilities and accuracy of AlloSure…. Natera’s false and misleading statements are material and will affect the purchasing and investment decisions of healthcare providers, patients, and insurance companies.”  CareDx also argued that, since it alleged literal falsity, it was entitled to a presumption of deception.

Natera responded that literal falsity was a misnomer since CareDx didn’t allege that Natera “misstated the published findings” of its study. While “the line between literal falsity and misleading statements can seem a fine one,” courts in establishment claim cases have repeatedly held that “when a defendant makes comparative statements based on testing that is flawed and unreliable, those statements … are appropriately viewed as literally false statements.” At this stage, the court would not reject a literal falsity claim.

Materiality: Natera again tried to argue that, with no sales, there could be no materiality, but that doesn’t make sense. “Indeed, courts generally do not require that a plaintiff demonstrate an actual effect on purchasing decisions; rather, a ‘likely’ effect on consumer choice is sufficient.” It was plausible that the allegedly false claims would affect future purchasing decisions, since correctly detecting kidney rejection is the reason consumers would use one of the tests.

Delaware common law unfair competition claims require “a reasonable expectancy of entering a valid business relationship, with which the defendant wrongly interferes, and thereby defeats the plaintiff’s legitimate expectancy and causes him harm.” This was also sufficiently pled.

Delaware Unfair or Deceptive Trade Practices Act: This was insufficiently pled, not only because CareDx didn’t specifically identify the relevant statutory subsections, but also because the allegations of that count were too bare-bones. E.g., it alleged that Natera made “false and misleading statements [that] represent that Prospera has uses or benefits that it does not have.” But it wasn’t clear what those “uses or benefits” were or what “statements” CareDx meant.  [Sounds like the count tracked the language of some statutory subsections but didn’t hook them back up to the allegations above, which probably would fit.] Dismissed with leave to amend.

Monday, December 16, 2019

don't bring a chef to a food class action

Marotto v. Kellogg Co., No. 18 Civ. 3545 (AKH), 2019 WL 6798290, --- F.Supp.3d ---- (S.D.N.Y. Dec. 5, 2019)

Here, the plaintiff’s status as a highly trained chef makes his class claims against Pringles dubious, but the class certification ultimately falters on predominance because Kellogg changed the labels a bunch and it’s hard to say that everyone saw the same allegedly deceptive “no artificial flabors” promise.

Marotto is a chef with training in molecular gastronomy who loved Pringles Salt and Vinegar crisps.  He testified “at some length … about the importance to him of purchasing only natural, high-quality ingredients,” and that “[p]rice isn’t really a concern” to him. He testified that he never buys packaged food of any kind, and “even make[s] [his] own pasta.” Between April 2012 and the present, Pringles were sold under twenty different labels, four of which included “No Artificial Flavors.” Every version of the label listed all ingredients.

In early March 2018, Marotto learned from his wife—an attorney at one of the law firms seeking to represent the putative class—that Pringles contain artificial flavors despite the label saying “No Artificial Flavors.” These are “sodium diacetate” and “malic acid,” which make up “2% or less” of Pringles. Marotto sued for violation of NY state consumer protection law.
The court found Marotto’s arguments for typicality and adequacy “at best, dubious,” based on his special expertise and price indifference. Adequacy was also questionable, as Marotto was “uniquely susceptible to questions as to whether this suit is brought for his own benefit, or for that of his wife’s firm.”

But it was lack of predominance that was key here. While common issues may predominate if a product and its labeling “remain[ ] constant and [are] uniform between customers,” this is not so when “it is not demonstrated that all members of the class saw the same advertisements ... and not all the advertisements contained the alleged misrepresentations.” Only four of the twenty different versions of Pringles labels contained the accused language during the class period. Finding the subset that in fact saw the “No Artificial Flavors” label would likely be impossible, and the court wasn’t willing to accept self-certification. Even if they bought the can, the court thought that it would be required to confirm that class members “in fact looked at the miniscule back-of-the-can lettering,” which is not generally the law and which is a far more restrictive standard than “the advertising directed at consumers was consistent.”

Second, and also broadly helpful to defendants, the court thought an individualized inquiry into consumers’ motivation to buy Pringles and/or to pay a price premium would be required, defeating predominance. “Common sense dictates that a purchaser who does not care whether Pringles contain artificial flavors and instead is only interested in, e.g., taste, cannot make out a claim for fraud, misrepresentation, or breach of express warranty.” And there was no evidence that a price premium actually existed.

court enjoins bar on "fake meat" labels; implications for FDA standards of identity?

Turtle Island Foods SPC v. Soman, No. 4:19-cv-00514-KGB (E.D. Ark. Dec. 11, 2019)

Unsurprisingly, the court here enjoins provisions of Arkansas law that tried to restrict the use of “meat” terms for meatless alternatives. The worrying part is that the breadth of the decision throws into doubt FDA’s general ability to set standards of identity for food products, though there are also ways to distinguish at least some of the reasoning. The big looming issue, as with the skim milk case relied on by the court here, is what should happen when consumers don’t actually understand the characteristics of the food at issue: (how) can the government protect them from mistaken beliefs that could harm them in those circumstances?  Where we think there’s a relatively robust consumer understanding, e.g. that almond milk is not dairy milk, then perhaps we can be less worried—though I will note that I haven’t seen good evidence about what consumers think about the comparability between almond and dairy milk on measures of nutrition as opposed to taste/function in a beverage.

Anyhow, plaintiff Tofurkey uses traditional meat-based terms like “chorizo,” “ham roast,” and “hot dogs,” alongside qualifiers like “all vegan,” “plant based,” “vegetarian,” and “veggie.” Tofurky alleged and the court accepted that Tofurkey’s products “comply with federal food labeling regulations as well as numerous state and federal laws that prohibit false and deceptive labeling and marketing for food products and consumer products more generally,” though see below for a possible qualification.

Arkansas law relevantly provides:

A person shall not misbrand or misrepresent an agricultural product that is edible by humans, including without limitation, by:. . .
(2)       Selling the agricultural product under the name of another food;. . .
(5)       Representing the agricultural product as a food for which a definition and standard of identity has been provided by regulations under § 20-56-219 or by the Federal Food, Drug, and Cosmetic Act, 21 U.S.C. § 301 et seq., as it existed on January 1, 2019, unless:
(A)       The agricultural product conforms to the definition and standard; and
(B)       The label of the agricultural product bears the name of the food specified in the definition and standard and includes the common names of optional ingredients other than spices, flavoring, and coloring present in the food as regulations require;
(6)       Representing the agricultural product as meat or a meat product when the agricultural product is not derived from harvested livestock, poultry, or cervids [a mammal of the deer family];. . .
(8)       Representing the agricultural product as beef or a beef product when the agricultural product is not derived from a domesticated bovine;
(9)       Representing the agricultural product as pork or a pork product when the agricultural product is not derived from a domesticated swine;
(10)     Utilizing a term that is the same as or similar to a term that has been used or defined historically in reference to a specific agricultural product. . . .

[As you can see, the successful as-applied challenge to (5) does directly implicate FDA’s power, although there is no indication in this record that FDA considers Tofurkey to be in violation.]

The stated legislative purpose of the law was to protect consumers from being misled or confused by false or misleading labeling of agricultural products that are edible by humans.  As applied, it barred Tofurky from using words like “meat,” “beef,” “chorizo,” “sausage,” and “roast” to describe its plant-based meat products, since there was no exception for plant-based meat producers that clearly identify their products as being vegetarian, vegan, or made from plants.  Each violation was punishable by a civil penalty of up to $1,000. Although the relevant agency didn’t intend to begin enforcement of the subsections challenged by Tofurky until this dispute was resolved, the parties have not entered into a non-prosecution agreement, and the State didn’t contend that Tofurky would not face retroactive liability. Unsurprisingly, the court found that Tofurkey had standing and that it should not abstain.

Tofurkey brought both facial and as-applied challenges; facial challenges are hard to win, especially since the overbreadth doctrine doesn’t apply to commercial speech. Thus, the court confined its analysis to Tofurkey’s as-applied challenge.

On to Central Hudson: Arkansas argued that Tofurkey’s labels were inherently misleading because they use the names and descriptors of traditional meat items but do not actually include the product they invoke, including terms like “chorizo,” “hot dogs,” “sausage,” and “ham roast.” Moreover, Tofurky designs its food products to approximate the texture, flavor, and appearance of meat derived from slaughtered animals, which would further the misleadingness. 

Tofurkey responded that words such as “meat,” “burger,” and “steak” have been used for decades—and in some cases centuries—to describe foods that are not made from slaughtered animals, and that its labels clearly identified its products “all vegan,” “plant based,” “vegetarian,” “veggie,” and “made with pasture raised plants” on the front of the packages.  On this record, Tofurkey’s speech wasn’t inherently misleading. “[T]he simple use of a word frequently used in relation to animal-based meats does not make use of that word in a different context inherently misleading,” especially given the label disclosures. For example, the “Veggie Burger” label used “veggie” to motify “burger” and included the words “all vegan” in the middle of the and “white quinoa” next to a picture of the burger. Tofurky was likely to prevail on its argument that the labels’ repeated indications that its packages contain no animal-based meat dispelled consumer confusion and rendered the speech not inherently misleading. “[T]his is not a case of key information in minuscule type buried deep among many ingredients.”  Reasonable consumers would not disregard all those other words, any more than they’d think that “flourless chocolate cake contains flour, or that e-books are made out of paper.”  Nor was there evidence that consumers or potential consumers had been misled by the packaging, labeling, or marketing.

The court analogized to Ocheesee Creamery LLC v. Putnam, 851 F.3d 1228 (11th Cir. 2017), which helt that plaintiffs’ use of the term skim milk wasn’t inherently misleading just because it conflicted with the State’s definition of “skim milk,” according to which skim milk had to include replenished vitamin A. While “[i]t is undoubtedly true that a state can propose a definition for a given term …, it does not follow that once a state has done so, any use of the term inconsistent with the state’s preferred definition is inherently misleading.”

Because the speech wasn’t false or inherently misleading, the court moved to the rest of Central Hudson’s test.  The court assumed without deciding [!] that the state had a substantial interest in “protect[ing] consumers from being misled or confused by false or misleading labeling of agricultural products that are edible by humans.”  But the law didn’t, as required, “directly and materially” advance that interest, because Tofurkey’s speech was neither false nor misleading. And the challenged provisions were likely “more extensive than necessary to serve the State’s interest.” Although the state isn’t required to show that its restriction is the least restrictive means possible, the “blanket” restriction in the Arkansas law was “far more extensive than necessary, and Arkansas “disregard[ed] far less restrictive and precise means” for achieving its stated purpose, such as laws directed at prohibiting deceptive labeling and marketing of food products, and consumer products more generally. “There also is no convincing argument as to why each of these laws is ineffective at policing the alleged deceptive or confusing practices the State purports to target.” In addition, if it was still worried about “fake meat” in general, the state “could require more prominent disclosures of the vegan nature of plant-based products, create a symbol to go on the labeling and packaging of plant-based products indicating their vegan composition, or require a disclaimer that the products do not contain meat.”

Because of this analysis, the court declined to consider whether the real purpose of the law was to benefit the meat industry against a competitor.

So, the court held that requiring producers to comply with FDA standards of identity is unconstitutional without evidence of producer deceptiveness (provision (5) of the challenged law).  Suppose I want to put random red dye into my food products and list it as FD&C Red Dye No. 3: it is beyond dispute that the average consumer has no idea what’s in No. 3.  Can there be any deception given that incomprehension? Will courts accept the idea that the government can legitimately bootstrap an understanding into existence? (E.g., I don’t know what’s in Red Dye No. 3, but I believe that when Producer A uses the term it will be identical to Producer B’s use, making variant uses deceptive.)