Nominative fair use in the Seventh Circuit: a practical tool

Data Mgmt. Ass’n Int’l v. Enterprise Warehousing Solutions, Inc., 2020 WL 7698368, No. 20 C 04711 (N.D. Ill Dec. 28, 2020)

Without resolving burden of proof issues, the court uses nominative fair use to quickly resolve a case where fair competition requires some use of the mark, but not as much as the defendant made.

DAMA-I, which runs a standardized data management certification program whose exam is called the Data Management Fundamentals Exam, sued EWS, which offers prep courses for the exam, for trademark infringement. It sought an injunction against EWS’s use of any of its marks, including suspension of EWS’s website, damacdmp.com. The court granted a limited injunction against the use of the domain name and the use of “stylized trademarks and graphics that resemble those marks.” But EWS “may continue to use DAMA-I’s marks on a limited basis to describe its exam preparation course, consistent with nominative fair use.”

DAMA-I has incontestable registrations for “CERTIFIED DATA MANAGEMENT PROFESSIONAL”; “CDMP”; “DAMA”; “DAMA INTERNATIONAL”; and a stylized DAMA mark.

EWS’s allegedly infringing use includes referring to its prep course as the “DAMA CDMP® Data Management Fundamentals exam preparation course” and using DAMA-I’s marks, including its stylized mark, throughout the www.damacdmp.com website.

Although the Seventh Circuit hasn’t formally adopted NFU, the district court thought it was the right approach here. As the court pointed out, the traditional multifactor test was ill-suited for this particular type of inquiry: “EWS must use DAMA-I’s marks to describe its product—a product that DAMA-I does not itself offer— making factors like the ‘similarity of the marks,’ the ‘strength of the plaintiff’s mark,’ the ‘relatedness of the products’ and the ‘defendant’s intent to “palm off” its product as the plaintiff’s’ meaningless.”

Is the product readily identifiable without the use of the mark? DAMA-I argued that EWS has “no need to use any of the Marks” because the official name of the test—the “Data Management Fundamentals Exam” —was not “trademarked.” But

DAMA-I does not contend that the official name of the exam is so widely known that use of the marks is redundant or gratuitous, just that such use is technically avoidable. That the name of the exam is not itself trademarked, however, suggests just the opposite—that the name of the exam itself is not widely recognized independent of a connection with DAMA-I’s registered marks. And if EWS were only allowed to use the exam’s official name, lack of consumer awareness about that name would significantly hinder EWS’s ability to reach its target audience. EWS’s prep course is exclusively tailored to DAMA-I’s test, which individuals take in the hopes of achieving DAMA-I’s CDMP certification, so using the marks at issue is the “most straightforward, obvious and truthful way” for EWS to describe its product.

However, “EWS’s admittedly ‘liberal’ use of the marks, and particularly its use of the domain name damacdmp.com, go well beyond what could reasonably be considered necessary to identify the exam to which its prep course relates.” As the Ninth Circuit’s Tabari case indicates, unadorned use of a mark (here, two marks together) in a domain name is often going to suggest sponsorship or endorsement.  

And EWS’s use of the marks throughout its website “similarly goes well beyond what is needed to make its advertisements intelligible to its target audience and falsely creates the impression that DAMA-I officially sponsors its prep course.” The marks “DAMA” and “CDMP” were used over twenty times on the website’s landing page alone, and EWS also used a graphic that combines the globe-like background of DAMA-I’s stylized trademark with the term “Certified Data Management Professional” superimposed.

[W]hile EWS repeatedly warns customers that they are purchasing only a prep course, and not the actual exam, through disclaimers at the point of sale and throughout the website, it does not go to similar lengths to dispel the potential (and understandable) impression that DAMA-I sponsors the prep course offered at the damacdmp.com URL. Weighed against the totality of the domain name and repeated references to DAMA-I, the DataManagementU.com logo at the top left and the confusingly worded disclaimer at the bottom left of the website are relatively easily overlooked and ineffective even if noticed.

The court applied a presumption of irreparable harm (now rebuttably presumed due to the recently signed COVID relief law, though not when the court was considering the issue). DAMA-I argued that, because it was not involved in the development of EWS’s prep course curriculum, it “cannot vouch for the quality or comprehensiveness of the course.” While “[i]t takes quite a leap to conclude that DAMA-I will inevitably be scapegoated for a hypothetical test taker’s disappointing performance,” the court was willing to make that leap because inability to control the nature and quality of defendant’s goods is inherently irreparable. [I have never seen why that is true if there is no evidence that the defendant’s goods are actually bad—a risk is not itself the materialization of that risk. But I guess that won’t matter much going forward.] The court was unimpressed by DAMA-I’s alleged delay in seeking relief, unwillingness to negotiate, or inability to approximate damages, which itself suggested irreparable harm. “To be sure, DAMA-I could approximate its monetary losses related to EWS’s unauthorized use of its marks using the licensing fees paid by the authorized users referenced at oral argument. But this type of calculation would only capture one facet of DAMA-I’s injury.” The value of lost control can’t be reduced to dollars.

Likewise, “the onus on avoiding trademark infringement falls on EWS, and DAMA-I has no obligation to negotiate with EWS about what constitutes an acceptable use of DAMA-I’s marks.” DAMA-I could well have avoided unnecessary litigation costs and months of alleged consumer confusion if it had been more receptive to EWS’s offers to modify its use of DAMA-I’s marks on its web site, but that isn’t the standard for irreparable harm, and EWS could have offered more to DAMA-I.

And the delay here didn’t lull EWS into a false sense of security. There were threat letters, and in light of the ongoing pandemic, “it is understandable that a lawsuit did not immediately follow; when DAMA-I did file its complaint, it also filed its motion for a preliminary injunction.”

But the scope of the resulting injunction was key, since a trademark injunction, “particularly one involving nominative fair use, can raise serious First Amendment concerns because it can interfere with truthful communication between buyers and sellers in the marketplace.” A blanket injunction like the one DAMA-I requested here “does not advance the Lanham Act’s purpose of protecting consumers and preventing unfair competition.”

The court instead ordered EWS to suspend operations “at” its current domain name [can it redirect? That seems like an important question]; prohibited its use of DAMA-I’s stylized marks or confusingly similar graphics; and ordered EWS to “reduce” its use of the other marks: it can’t use any of the text marks “more than five times on any web page or two times in any social media or print advertisement, such restrictions exclusive of the use of any of DAMA-I’s marks that may appear in quoted customer testimonials.” Though “the proper remedy for infringing use of a mark on a site generally falls short of entirely prohibiting use of the site’s domain name,” “EWS cannot legitimately claim nominative fair use of a URL that is comprised solely of two of DAMA-I’s incontestable marks, and it will not be disproportionately harmed by migrating its operations to a different URL.”

Of note: there's no real confusion analysis of the "five times/two times" rule; it seems to be what the court thinks is fair under the circumstances. 

product changes as false advertising: TM may serve as express warranty of formulation & quality

Starr v. VSL Pharmaceuticals, Inc., No. TDC-19-2173, 2020 WL 7694480 (D. Md. Dec. 28, 2020)

This putative class action is related to the longstanding trademark/false advertising litigation between the VSL parties and Claudio De Simone parties, and probably qualifies as a follow-on class action.

Plaintiffs alleged violation of RICO, breach of express warranty, unjust enrichment, and violations of various state consumer protection statutes. Many claims survive, including RICO claims—at least at the motion to dismiss stage.

The relevant proprietary probiotic formulation, aka the De Simone Formulation, was sold for many years under the name “VSL#3,” a trademark owned by VSL. Relevant VSL parties are now enjoined from (1) stating or suggesting in VSL#3 promotional materials directed at United States consumers that the present version of VSL#3 produced in Italy continues to contain the De Simone Formulation, including by stating that VSL#3 contains the “original proprietary blend” or the “same mix in the same proportions” as the earlier version of VSL#3; and (2) “citing to or referring to any clinical studies performed on the De Simone Formulation or earlier versions of VSL#3 as relevant or applicable to Italian VSL#3.” Plaintiffs allege that defendants made equivalence claims despite scientific evidence establishing that the new VSL#3 was neither the same, nor as clinically effective, as the De Simone Formulation.

In addition, plaintiffs alleged that “Defendants improperly continued to use the VSL#3 trademark to identify the new probiotic, even though that mark had become associated with the De Simone Formulation.” At some point, the packaging was changed to remove listing specific bacterial strains, but on the product information sheet inside the package, defendants allegedly continued to state that the new VSL#3 had been the subject of extensive clinical research and cited to clinical studies establishing the efficacy of the De Simone Formulation, not the new formulation. Defendant Leadiant also sent a letter to all health care providers who had previously recommended VSL#3 to their patients stating that production of VSL#3 would be moving to Italy but assuring customers that they would be receiving “the same quality product, containing the same genus and species of bacteria, in the same proportions you have come to expect.” “Other Leadiant marketing materials made similar representations,” such as that the new VSL#3 remained “the same multi-strain probiotic” and was “supported by more than 170 studies.” Defendant Alfasigma took over the distribution of VSL#3 and allegedly advertised the same message, including in an August 2016 press release asserting that the new VSL#3 “maintain[ed] the original proprietary mix of eight strains of live bacteria” and was “supported by more than 170 published studies over the past 15 years.”

The named plaintiffs alleged that they purchased the new VSL#3 in reliance on the packaging and marketing materials and the recommendation of their doctors, believing that the new VSL#3 continued to contain the De Simone Formulation.

As mentioned, the RICO claims survived because the misrepresentations were sufficiently alleged.

Express warranty: Was there an express affirmation of fact or promise as to the quality or characteristics of VSL#3? Plaintiffs identified the product information sheet statement that “VSL#3 has been the subject of extensive clinical research in the dietary management of IBS, UC, and an ileal pouch” and that seemed to be an affirmation of fact or promise about the new VSL#3.

Plaintiffs also alleged that the continued use of the term “VSL#3” on the packaging of the new VSL#3 itself constituted an affirmation of fact that the product was the same as the prior version of VSL#3. This was a more interesting argument, because defendants rejoined that this was just a trademark use, rather than a warrant of particular ingredients and of particular quality. The court was not persuaded by cases finding no warranty in the use of “Gap” on clothing or “Apple” on electronics: “[T]hese cases focus on the meaning conveyed by the use of a brand name or trademark for multiple products at the same time and do not address the present issue of whether a brand name or trademark can, over time, become so identified with a particular product that its continued use constitutes an affirmation of fact of continuity.” McCarthy holds that “a sudden or substantial change in the nature or quality of the goods sold under a mark may so change the nature of the thing symbolized that the mark becomes fraudulent.” 3 McCarthy on Trademarks and Unfair Competition § 17:24 (5th ed. 2020). In Royal Baking Powder Company v. Federal Trade Commission, 281 F. 744 (2d Cir. 1922), Royal Baking had for 60 years produced a “superior” baking powder under the brand name “Dr. Price’s Cream Baking Powder” which contained cream of tartar, rather than phosphate or alum, and had in its advertising touted the benefits of cream of tartar while warning of the dangers of phosphate and alum. When it substituted phosphate in place of cream of tartar for cost reasons, but kept the same product name and used the reference “Makers for 60 years,” the court upheld an FTC cease and desist order unless the word “cream” was omitted and the word “phosphate” included, because it was a “deception of the public” to sell an “inferior powder” “under an impression induced by its advertisements that the product purchased was the same in kind and as superior as that which had been so long manufactured by it.” Likewise, the Eighth Circuit held that “[i]f the manufacturer makes a change in the article and that change be of a character which would, considering all of the attendant circumstances, naturally affect the attitude of the purchasers of that article, fair dealing and the law require that such purchasers be effectively informed of that change.” Royal Baking Powder Co. v. Emerson, 270 F. 429, 440 (8th Cir. 1920).

The case law supported the conclusion that “a brand name can come to function as a representation of a continuity of product contents and quality that could deceive those ‘familiar with the old brand and ignorant of any change.’” Thus, the trademark-as-warranty legal theory was at least plausible, especially when accompanied by a product information sheet containing more specific false affirmations.

Defendants argued that the product information sheet wasn’t visible pre-purchase and thus couldn’t become part of the agreement. But “[t]he focus is not on any particular language at a particular point in time but whether the seller’s actions or language when viewed in light of his relationship with the buyer were fairly regarded as part of the contract to purchase the good.” No dismissal at the pleading stage.

Defendants also argued that privity was required for express warranty claims under various state laws, but the court noted that many states relax that requirement where the manufacturer makes warranties directly to the consumer on product packaging, though Tennessee and Michigan did not and so those claims were dismissed. Of the claims under the surviving state laws, where reliance was required, plaintiffs adequately pled it, based on pleading past purchases under the VSL#3 brand name.

Consumer protection claims under Florida and Texas survived, but the court thought that the Michigan, and California law claims didn’t plead reliance sufficiently, which I find a bit puzzling given that the allegations are the same. The court treated the consumer protection claims as largely resting on failure to disclose, which can be harder to plead, but I would think the affirmative misrepresentation argument is the same here: VSL#3 allegedly had a meaning and defendants did not honor that meaning. If they’d sold margarine as butter based on an undisclosed definition of “butter” that included all dairy-like spreads, we’d easily see that as deceptive. Challenges to the plaintiffs’ claims under the consumer protection statutes of Washington, Wisconsin, Illinois, Tennessee, Massachusetts, and New Jersey under the heading of causation failed; causation is typically a factual question, and plaintiffs sufficiently alleged that, where the VSL#3 packaging identified no material change to the product, they bought VSL#3 believing it to continue to contain the De Simone Formulation, “resulting in the foreseeable loss of monies spent on a product that was no longer of the quality and content that it appeared to be.” To the extent required, plaintiffs also sufficiently alleged intentional deception.

Ascertainable loss: In general, there is “no pleading requirement of a specific quantity inherent in this term.” But for New Jersey, the state supreme court emphasized the importance of the ascertainable loss requirement “as an integral check upon the balance struck” under the New Jersey Consumer Fraud Act “between the consuming public and sellers of goods.” Thus, courts applying New Jersey law have required pleading an actual quantification of the loss, even if not entirely specific. Thus, the NJCFA claim was dismissed.

business can assert California consumer protection claims against platform

Gaby’s Bags, LLC v. Mercari, Inc., No. C 20-00734 WHA, 2020 WL 7664455 (N.D. Cal. Dec. 25, 2020)

After the court dismissed plaintiff’s Lanham Act false advertising claims against a platform because the plaintiff was a customer and not a competitor, the plaintiff sought to amend to assert California consumer protection law (and related) claims. The court agreed that leave to amend was justified.

Mercari allegedly promoted its web platform as a venue where “anyone can sell.” Plaintiff opened a Mercari account and began selling handbags, making nearly $400,000 over a two-year period until Mercari terminated plaintiff’s account for violating its TOS, which barred “business accounts.”

Mercari argued that the word “anyone” clearly indicated any individual, but the court wasn’t so sure. Plaintiff seemed to be a consumer who had been harmed by reliance on the alleged misrepresentation, which was enough to allow the amended complaint under the circumstances, which included the court’s own invitation to replead when it dismissed the Lanham Act claim.

Mercari also argued that California law didn’t apply, but the complaint sufficiently alleged that the misconduct originated in California, tethering the alleged harm to Mercari’s headquarters in California. Plus,

Mercari’s terms of service foisted a California choice-of-law provision onto plaintiff, which was the basis for dismissing plaintiff’s Florida consumer protections claims. Mercari argued that plaintiff cannot invoke Florida law because of the California choice-of-law provision. Now, when plaintiff does just that, Mercari flips flops and says plaintiff cannot invoke California law. Apparently, in Mercari’s universe, plaintiff is simply without any recourse. This absurd result will not be tolerated.

A negligent misrepresentation claim, however, would not be allowed, because plaintiff failed to plead anything other than an arms-length relationship between the parties, not the extra duty required.

no Lanham Act claims, including false advertising, allowed over cannabis

Shulman v. Kaplan, 2020 WL 7094063, No. 2:19-CV-05413-AB (FFMx) (C.D. Cal. Oct. 29, 2020)

The parties compete in the cannabis market, and some defendants formerly worked with Shulman, but that relationship broke down. Shulman sued, alleging four federal claims and 21 state law business and/or contract-related claims.

RICO claims failed because “[a] court order requiring monetary payment to Plaintiffs for the loss of profits or injury to a business that produces and markets cannabis would, in essence (1) provide a remedy for actions that are unequivocally illegal under federal law; and (2) necessitate that a federal court contravene a federal statute (the CSA) in order to provide relief under a federal statute (RICO).”

Likewise, Lanham Act claims failed because cannabis is federally illegal and thus the plaintiff couldn’t have trademark priority. This reasoning also applied to “derivative” false advertising claims. Note: I don’t think that conclusion necessarily follows—other courts have held, in other contexts, that lacking enforceable trademark rights doesn’t preclude either a §43(a)(1)(A) or (B) claim under appropriate circumstances. If generic terms and terms in which there are only foreign rights can found a claim when there is consumer deception, why not terms for cannabis? Note that this is also the issue obviated by Tam and Brunetti with respect to unregistrable-on-public-policy-grounds marks.

The court bolstered its conclusion by reasoning that plaintiffs lacked statutory standing because they weren’t engaged in “lawful” commerce and thus didn’t come within the zone of interests protected by the statute.

The court declined to exercise supplemental jurisdiction over the remaining claims.

Test yourself: would you have approved this "covid-free" claim?

 From the NYT this weekend (h/t Zachary Schrag):

"It's time to put COVID on hold ... and set out for the ultimate escape to the world's only 6-star hotel, Quintessence Hotel. The sixth star is for our (and Anguilla's) diligence in creating a COVID-free environment.... If you long for the tranquility of a COVID-free Caribbean island sanctuary ... be our guest."

What substantiation, if any, would you consider sufficient?

Another pandemic education case: false advertising fails, contract claim survives

Bergeron v. Rochester Inst. of Technology, No. 20-CV-6283 (CJS), 2020 WL 7486682 (W.D.N.Y. Dec. 18, 2020)

Different district, same result as this case involving Rensselaer Polytechnic. Contract/unjust enrichment claims survive based on allegations that RIT promised in-person learning, but conversion and false advertising claims go. Also: Parents of adult students lack Article III standing; paying the fees isn’t enough to make them the injured parties.

Objectively,

[N]o reasonable prospective student could consider him- or herself “deceived” or “misled” where the school’s normal course of on-campus instruction was altered mid-semester by an unforeseen global pandemic that prompted the Governor of New York to issue an unprecedented executive order prohibiting on-campus, in-person instruction. Whatever the merit of Plaintiffs’ breach of contract or unjust enrichment claims, there is nothing in the complaint that plausibly alleges that RIT’s publications would lead a reasonable prospective student to believe that the institution would so risk student safety and defy the Governor’s orders.

The pandemic may give us a new line of cases holding that “reasonable consumers” understand something like the contract doctrine of impossibility. If that’s true, are there other exceptions that reasonable consumers understand must apply?

Of note: plaintiffs argued that RIT’s online degree program was relevant to the plausibility of the claims/ascertainability of damages, since the programs are marketed separately, and tuition for the online program is “significantly less.” Given this, they argued that no subjective evaluation of the quality of in-person versus online instruction would be required: Expert testimony could establish the price premium for an in-person education, based on the hundreds or thousands of universities that offer online and in-person programs.

 

reasonable consumer wouldn't expect advertised in-person classes in pandemic (but contract claims survive)

Ford v. Rensselaer Polytechnic Institute, No. 20-CV-470, 2020 WL 7389155 (N.D.N.Y. Dec. 16, 2020)

This is a putative class action against RPI for breach of contract, false advertising, and related claims based on the mid-semester pandemic shutdown of early 2020. The court dismisses false advertising and conversion claims but declines to dismiss the contract/unjust enrichment claims at this stage. One question of more general import: How many institutions had something like the following:

Plaintiffs allege that they were drawn to defendant in part because of “The Rensselaer Plan 2024” (the “Plan”), a framework of programs, some enacted, some yet hypothetical, designed to afford its students a unique educational experience. The language of the Plan has a flavor of commitment, and most of its substantive clauses begin with the phrase “we will.”  

Of particular relevance, RPI claims in the Plan that it “will ... [o]ffer a complete student experience, highlighted by[ ] Clustered Learning, Advocacy, and Support for Students” (“CLASS”). Defendant’s CLASS program, which it has actively incorporated into student life, is designed to improve counseling, academic skill development, community building, and other purported benefits that “originate within the residential setting.” Defendant’s catalog defines the CLASS program as “built around a time-based clustering and residential commons program.” To help facilitate CLASS, defendant mandates that all first- and second-year students, as well as transfer students, live on campus.  

However, after the pandemic began, RPI cancelled all university-sponsored events, required students to move out of on-campus housing, and moved classes online. RPI issued refunds for Spring 2020 room and board fees, but reduced these reimbursements by the net of a reimbursed student’s financial aid. 

Contract: For a student contract claim, “only specific promises ... in a school’s bulletins, circulars[,] and handbooks, which are material to the student’s relationship with the school,” are enforceable.” In other words, “[g]eneral policy statements and broad and unspecified procedures and guidelines will not suffice.” The court therefore refused to recognize “an implied promise for on-campus education based on the nature of defendant’s dealings with the school,” but did consider the CLASS program to qualify based on the allegations. RPI’s catalog claims that the CLASS program provides a “time-based clustering and residential commons program” touted as an “award-winning First-Year Experience” that “extends learning across the spectrum of student residential life,” which “fits the bill of a specific promise,” at least for Rule 12 purposes. Generic and vague terms such as “fair and equal treatment” “are of an entirely different character than the specific programs the Plan formulates.”

Although Paynter v. New York University, 319 N.Y.S.2d 893 (Sup. Ct. App. Div. 1st Dep’t 1971), dismissed a breach of contract claim after the defendant university completely shut classes down in response to civil unrest, “there is a world of difference between canceling some classes—in the absence of any affirmative guarantee on the number of classes to be held—and not affording students services and benefits for an extended period of time despite such a promise.” And in Chong v. Northeastern University, which dismissed a similar pandemic breach of contract claim against a university, “the plaintiffs in that case failed to provide any promise more concrete than a document that amounted to an agreement to pay tuition in exchange for classes,” though, notably, the court allowed plaintiffs’ claims alleging a breach of contract for not refunding those plaintiffs’ activity fees to proceed.

Nor was this a disguised and prohibited “educational malpractice” claim. Plaintiffs were arguing that, “regardless of fault, the value of the on-campus experience defendant plausibly promised them is greater than the value of the remote experience they received. That can be true even if defendant made every choice reasonably, or even perfectly…. [M]uch as defendant would make of the fact that it was forced to shut down, that does not answer whether it or its students should bear the cost of that outcome.” True, RPI also lost from shutting down, but maybe it should bear more of the loss.

As for the refunds-minus financial aid, plaintiffs sufficiently alleged that this was unfair because financial aid was paid in a flat amount based on family income regardless of whether they live on campus or purchase a meal plan:

Because plaintiffs have plausibly alleged a promise of room and board in exchange for their payment of the associated fees, RPI is saddled with an ongoing duty of good faith and fair dealing in carrying out that promise. Withholding repayment to plaintiffs for a service that they did not receive because of an entirely unrelated consideration could plausibly violate that duty, and thus plaintiffs’ claims must survive for now. In addition, the Court is concerned that defendant’s policy in fact seems to directly target the students most in need of a refund.

Unjust enrichment claims, pled in the alternative, and promissory estoppel claims likewise survived (despite uncertainty about the ultimate validity of promissory estoppel given the actual contract), but conversion failed because there was no way to identify plaintiffs’ specific money in the pool of RPI funding.

GBL §§ 349 and 350: It was not enough to allege that RPI advertised on-campus learning. Even without an intent requirement, “[n]o reasonable consumer would expect a university to remain open for in-class instruction in the face of a pandemic and a state-mandated shutdown, regardless of whether the school advertised on-campus learning as a strength.” In a footnote, the court pointed out that §350 doesn’t have a distinct reliance requirement, contrary to the Second Circuit’s “frequent imputation …, which the New York Court of Appeals has specifically identified as an error.”

 

fake "independent" review sites support claims against underlying advertiser & website operator

Beyond 79, LLC v. Express Gold Cash, Inc., 2020 WL 7352545, No. 19-cv-06181 EAW (W.D.N.Y. Dec. 15, 2020)

Previous discussion. Beyond 79, which buys precious metal etc. online under names including SellYourGold.com, sued a bunch of defendants for false advertising and related claims; some of the defendants allegedly ran “review” websites with undisclosed connections to competitors.

Defendant-competitors EGC and JSG allegedly “have a practice of setting up purportedly independent websites for the dual purposes of falsely establishing their own credibility and legitimacy and directing consumers who visit those websites to their own sites.” EGC allegedly retained the services of defendants Londes and Osidius to make these sites.

For example, one site allegedly held itself out as an independent review site, but “[r]ather than post actual consumer reviews,” it posted “highly suspect negative reviews about SellYourGold.com,” along with “false and misleading information about SellYourGold.com that cast it in a negative light and false and misleading information about EGC and JSG that cast them in a positive light,”  including specific claims about plaintiff’s length in business, BBB rating, and insurance coverage. It “displayed a ‘star rating’ for each company it listed,” which it allegedly falsely claimed was based on reviews by actual customers. It also allegedly removed positive customer reviews about SellYourGold.com. When Beyond 79 sent a C&D to Londes, it shortly thereafter “received a similar letter from counsel to EGC alleging Lanham Act violations.”  EGC allegedly purchased Google AdWords for terms similar to ‘sell your gold’ on Google which read ‘SellYourGold Reviews & Scams – Consumer Reviews: 1.2/5 Stars’ and used a URL of ‘www.toponlinegoldbuyers.com/SellYourGold/Scams.’ ”

Similarly, another site “purported to be a review site started by a disgruntled jewelry industry professional who was disappointed by his interaction with online gold buyers.” But this person allegedly doesn’t exist and “his” photo was a stock photo. The html allegedly contained hidden links to EGC but no other companies, and referred to “Google Code for ExpressCashGold.com Remarketing List” Top10CashForGold.com allegedly made “false claims and statements about EGC without revealing any connection to EGC,” such as claims that EGC’s “price is...always the best on the net” and ranking EGC as its top online gold buyer and JSG as second. 

Two other sites “purport to be...independent aggregators of local storefront precious metal buyers.” But they allegedly “display[ ] EGC banner advertisings, include[ ] reference to EGC in all search results for local stores, and even include[ ] EGC’s phone number as a resource to obtain more information on the price of gold....” All search results “include text recommending that customers sell online, and list[ ] EGC as the only online gold buyer,” claim that EGC “has been ranked as a top online gold buyer in several independently executed tests,” and “highly recommend [that consumers] talk to [EGC] before selling [their] gold jewelry elsewhere.”

 Since “at least September 2014,” EGC displayed graphics and text on its website claiming that it is “Independently Ranked # 1,” expressly identified as being based on reviews from two of these sites.

The court refused to dismiss some of the claims against Londes and Osidius; the allegations against them were specific enough to identify their particular roles. The court analogized to cases allowing Lanham Act claims against advertising and PR agencies; those cases have uniformly “held that advertising agencies may be liable under the Lanham Act.” Londes and Osidius, like the advertising agencies at issue in those cases, allegedly “knowingly participated in the creation, development, and propagation of the false advertising campaign,” and could accordingly be held liable as joint tortfeasors.

Lanham Act: The alleged falsehoods weren’t puffery. The complaint sufficiently alleged that defendants falsely represented the websites at issue as independent review sites when they were in actuality associated with EGC. Said very simply: “In other words, it is not the statement that EGC is ‘the best online precious metal buyer’—which is the kind of the statement that has been found to be puffery—that is alleged to be false; it is the representation that this conclusion was reached in an independent manner. … [T]he alleged deception is not the high ratings given to EGC and JSG, but instead the false representation that those ratings were derived independently or from real customer reviews, when in actuality they were formulated and published by EGC itself, acting through Londes and Osidius.”

As for injury, at this stage, the allegation that the deceptive websites created and maintained by Londes and Osidius diverted customers who otherwise would have used the plaintiff’s services was sufficient.

GBL §§349-350 claims, however, failed because there were no plausible allegations of consumer harm; mere consumer deception wasn’t enough under these provisions. The plaintiff didn’t allege, for example, that consumers who chose defendants got less for their gold than they would have gotten selling to plaintiff. A FDUTPA claim failed for the same reason, though Florida doesn’t limit claims to “consumers.”

Unfair competition: Plaintiff clarified that it was seeking damages for product disparagement, which requires special damages; these were not sufficiently pled. Plaintiff claimed damage “in an amount to be determined at trial not less than $6 million.” But the New York Court of Appeals has long made it clear that “round figures, with no attempt at itemization,” are insufficient to allege special damages.

Unjust enrichment: Not plausible because plaintiff didn’t identify any benefit they received at its expense; the fact that they were compensated for their work wasn’t enough.

Statute of limitations arguments were premature because the Lanham Act has no statute of limitations, only a presumption of laches after the coordinate state statute has run. Here that’s 6 years; but, “[b]ecause laches is an affirmative defense, a defendant asserting laches bears the ultimate burden of persuasion, even where a presumption of laches may apply.” Since the defendants didn’t argue that the complaint on its face established laches, the court wasn’t going to dismiss it on that ground.

Other defendants got rid of the same claims as were kicked out above; the complaint also didn’t plausibly allege JSG’s participation in the deception. There were no details about its role. “Significantly, EGC alone is alleged to have retained Londes and Osidius, and the websites at issue are alleged only to have made minor references to JSG” (such as ranking it second and containing ads for JSG).

What Dastar took, does 1202 give back?

Another older case found in my year-end roundup.

Pilla v. Gilat, 2020 WL 1309086, No. 19-CV-2255 (KMK) (S.D.N.Y. Mar. 19, 2020)

Pilla provides “professional architectural services to various construction projects.” Defendants own a “luxury construction project” at 324–326 West 108th Street in New York City involving the renovations of two existing five-story buildings and a sixth-story addition to the buildings. Pilla provided architectural services to defendants for the project and registered two sets of architectural drawings therefor. Pilla alleged that defendants began unlawfully copying the designs, including by submitting unauthorized copies to the NYC Department of Buildings, representing that the submitted drawings were their own, and Gilat “intentionally removed [Plaintiff’s] name and [the] notice of copyright” from the original designs.

The court couldn’t resolve the substantial similarity issues on a motion to dismiss, even given that the existing building constrained the designs. Defendants’ arguments, such as that similarities were attributable to the codes of the Landmark Preservation Commission, had to await summary judgment. Even for architecture, dismissal on a motion to dismiss required an “utter lack of similarity,” not present here.

Of more interest: Dastar barred the false designation of origin claim. The “copying of creative content like [architectural drawings] is not protected by the origin of work provision of the Lanham Act ... precisely because this sort of claim falls within the purview of copyright law.” (Dismissed without prejudice in case plaintiff could allege the presentation of a “tangible good[ ] ... offered for sale.”  The court gets a bit confused: it suggests that allegations of copying “with no revisions or changes” could state a false designation of origin claim, but copying to create a derivative work couldn’t; this is just wrong because of the “tangible good” issue.)

DMCA §1202: The court refuses to dismiss the claim for CMI removal/alteration. Courts in general have not always taken 1202 seriously by its own terms, perhaps because it seems very limited if they were to do so. By its own terms, 1202 treats “removing” CMI differently from “distributing copies that have had the CMI removed.” But, as the court here does, courts often collapse those two together. On a motion to dismiss, Pilla sufficiently alleged the necessary double intent, “albeit barely.” It alleged that there was CMI on its designs: its logo, name, and seal, as well as a note stating, “[t]he entire contents of this document ... and all copyrights therein[ ] are and shall remain the sole and exclusive property of [Plaintiff]. The documents and their contents may not be used, photocopied[,] or reproduced digitally, electronically[,] or in any other manner without the express written consent of [Plaintiff].”

It wasn’t necessary to allege how, when, or where the CMI removal occurred, and Pilla sufficiently alleged that this was intentional. And Pilla alleged that defendants copied the designs and submitted derivative designs to NYC. [Note that the court doesn’t require explanation or allegation of how this removal induced, enabled, etc. infringement—would fewer copies have been created if they’d left this information on?] The court signalled that it would be open to the argument that infringing derivative works (that is, nonexact copies) can’t violate §1202, but reserved this issue for later development. And Pilla seemed to state a claim for provision of false CMI, for the same reasons.

copyright in model codes after Georgia v. PublicResource.Org

Older case, but worth working through!

International Code Council, Inc. v. UpCodes, Inc., 2020 WL 2750636 (S.D.N.Y. May 26, 2020)

ICC claimed that defendants infringed its copyrights in forty model building codes (I-Codes) by posting them and derivative works on their website, UpCodes. The court endorsed the basic proposition that there can be no liability for sharing the law with the public, whether as a matter of copyrightability or fair use, but found that some of UpCodes’ “redlines” might go too far and thus denied cross-motions for summary judgment. It’s a great survey of issues that remain after the Georgia v. Publicresource.org case and well worth reading—especially on merger.

State/local adoption of model codes benefits everyone involved, including the public, by aligning the law with industry best practices. ICC was founded in 1994 by three regional standards development organizations (SDOs) that developed similar codes, who donated their copyrights in model codes to ICC in 2003 “and envisioned that ICC would produce coordinated national building codes. Its codes have been adopted into law by jurisdictions across all fifty states.

One of the “foremost” reasons ICC develops model codes is to get them enacted into law. It has a dedicated government relations department that helps jurisdictions enact its codes. The development process “allows for public participation and comment at no cost,” “involves significant participation by government representatives,” and includes revisions every three years.  “ICC currently incurs the up-front costs of its code development process and recoups the relevant costs at least in part from the sale and licensing of its copyrighted codes.” ICC charges “modest” prices compared to those for other technical reference works and donates hundreds of copies of its model codes to libraries and other jurisdictions throughout the US. Members of the public can purchase model codes and guidelines online. ICC also sells a variety of supplemental materials and services, such as code commentary, study companions, handbooks, user’s guides, and training materials incorporating model code text. And:

ICC also makes its model codes, and some government codes that adopt the model codes, available for free on its website in a digital library called publicACCESS. The publicACCESS reading room makes printing, copying, and downloading of the codes difficult, though it does not necessarily completely prevent such functions. ICC publicizes that the free access it provides to its model codes and the enacted state and local codes is on a read-only basis. ICC relatedly offers a paid service called premiumACCESS, which provides users with access to additional features such as full access to commentaries, and tools to highlight, bookmark, and annotate the codes.

Meanwhile, UpCodes is a startup providing “easy and convenient access to materials of particular importance to members of the architecture, engineering, and construction (‘AEC’) industries, such as the state and local building codes that governed their projects.” Like publicACCESS, it has some free services and others that are available only to paid users. There are two versions of relevance to the suit: pre-suit UpCodes made the forty I-Codes at issue freely available to anyone to view, print, copy, and download, but redirected users to ICC’s website for at least one (the International Zoning Code 2015). The forty ICC model codes were posted in a section titled “General Building Codes” and identified by their model code names, but also identified jurisdictions that had adopted the model codes on the same page, at least as to some of the codes. Meanwhile, the paid access portion displayed governmentally enacted building codes that adopted ICC’s model codes with amendments. “[A]dditions by the enacting state or local jurisdiction were displayed in green, while all model code text that a jurisdiction did not adopt was struck-through in red, much like in a redline.”

Current UpCodes “purports to post only enacted state and local building codes, rather than any model codes as such,” and doesn’t charge for access to enacted laws. It also now shows only the titles or headings of the deleted model code provisions in struck-through red text, rather than all portions of the model codes that were not adopted. But it still uses the “trademarked” names of ICC’s model codes at various points, e.g. by noting on a state/local code page that the enacted code adopts a particular model code with or without amendment.

There is an extensive and nuanced review of the case law, but the bottom line is simple: “the I-Codes as Adopted are in the public domain, because they are in fact enacted state and local laws binding on the enacting jurisdictions’ constituents.” (The court declined to rely on collateral estoppel against ICC’s predecessors in interest.)  However, it is possible that defendants infringed by posting the codes “as model codes or the I-Code Redlines … [T]he record is ambiguous as to whether what the Defendants actually post constitutes ‘the law’ alone.”

The court rejected ICC’s arguments that, if adoption of model codes prevents enforcement of copyright in those codes, that’s an unconstitutional taking, and its related argument that 17 U.S.C. § 201(e) prohibits government expropriation of copyrights.

Takings: “Private parties do not have reasonable investment-backed expectations in property or information voluntarily provided to government, beyond what is explicitly provided by the government itself.” Given that ICC urged government adoption of its codes, it could not complain when that happened, even if it wanted to have its copyright and enact it too:

Even if ICC did not expect that its encouragement of government adoption would prevent it from enforcing its copyrights as to the I-Codes as Adopted, that legal consequence flows from the federal law of the public domain rather than from unjust action by the state or local jurisdictions. Far from coercing ICC to give up its copyrights, the jurisdictions are following ICC’s advice that the I-Codes would protect their citizens better than would the jurisdictions’ trying to draft complex technical codes from scratch.

Nor did it matter that “many jurisdictions sign licensing agreements respecting ICC’s copyrights.” ICC retained copyrights in its model codes as model codes, but that didn’t answer the question of whether the model codes became “laws” governing the public. Regardless, those agreements could not override the public’s right to “freely share the laws that govern them.”

As for §201(e), that applies only to individual authors, and also more fundamentally “addresses government actions avowedly intended to coerce a copyright holder to part with his copyright, so that the government itself may exercise ownership of the rights.”

How broad is this holding?

A privately-authored work may “become the law” upon substantial government adoption in limited circumstances, based on considerations including (1) whether the private author intended or encouraged the work’s adoption into law; (2) whether the work comprehensively governs public conduct, such that it resembles a “law of general applicability”; (3) whether the work expressly regulates a broad area of private endeavor; (4) whether the work provides penalties or sanctions for violation of its contents; and (5) whether the alleged infringer has published and identified the work as part of the law, rather than the copyrighted material underlying the law. These considerations may not all be strictly necessary or exhaustive, but are guideposts to assess whether notice of the purported copyrighted work is needed for a person to have notice of “the law,” such that due process concerns would effectively categorically outweigh the private author’s need for economic incentives.

However, “SDOs may still sue for infringement if a defendant copies their model codes as model codes or indiscriminately mingles the enacted portions of the model codes with portions not so enacted.”

Though there were some factual issues remaining, the framework was clearly highly defense-favorable. Even the trademark-y, “others are free to copy the law, they are not free to copy the copy” bit favored defendants: “While it would likely be inappropriate for a user to post the model codes without any indication that they have been adopted into law, the Court is not persuaded that it would be improper to identify in such posting both an enacted law and where that law derived from. Whether a state or local jurisdiction has referenced a private work is a matter of fact, and is not equivalent to posting the private work itself.”

A jury could find that posting model codes as model codes or “indiscriminately” mingling enacted text with nonadopted text constituted willful infringement, “particularly considering that Historic UpCodes also hid state and local amendments to the I-Codes behind a paywall.” (A footnote also commented that redlining isn’t really indiscriminate because of its well-understood signalling function.) But a member of the public can post enacted laws “and state the simple fact that those laws are derived from the I-Codes.” 

One interesting argument: UpCodes’ posting of the law was underinclusive, “because they do not post other statutory provisions that might affect the enacted model code text,” including definitional statutes. The court disagreed; for example, South Holland’s enacting ordinance states that “the International Building Code (2012) be and is hereby adopted as the building code of the Village of South Holland in the State of Illinois.” “While South Holland undoubtedly has other laws that pertain to building safety, the Court cannot conclude that Defendants’ description of the IBC 2012 as the building code of South Holland was inaccurate when South Holland’s ordinance states the same.” It was true that defendants needed to post amendments to the I-Codes themselves “to accurately portray the enacted law,” it wasn’t practical to require them to post any “additional legal material that may bear on the enacted model text’s full meaning,” since such interactions could go on infinitely.

The court denied the defendants’ motion for summary judgment because there were genuine factual disputes suggesting that at least some codes posted on Current UpCodes “indiscriminately mingled” enacted text with unadopted model text, e.g. posting a code as part of Wyoming’s building code with all the appendices, when Wyoming didn’t adopt any appendices (including one focusing on tsunami-generated flood hazards). 

As to the redlines, they were not in the public domain just because they “reflect[ ] the work of lawmakers just as much as the enacted text of the law.” That had to be assessed as fair use.

Merger: Historic UpCodes displayed the I-Codes as model codes in full, including even their copyright pages. The parties disputed at what time merger should be assessed: at the creation stage (in which case the ideas are separable from the text) or the putative infringement stage (in which case they aren’t separable from the law as enacted). While the Federal Circuit has said that merger should be assessed at the time of copying (Google v. Oracle), the court here disagreed, elegantly pointing out that this contradicted the Federal Circuit’s own framing of the Second Circuit approach, which is to assess merger as a matter of infringement, not copyrightability:

[I]f that defense can turn only on considerations that relate to the time of initial copyrightability, rather than the time of the activity that may expose a defendant to liability, it is hard to see how courts are meaningfully considering merger “in the context of alleged infringement” and under the rubric of substantial similarity.  Far from providing courts with “a more detailed and realistic basis for evaluating” defendants’ merger claims, such reasoning requires courts to ignore potentially relevant evidence from defendants while shifting a burden of proof to them.

Thus, merger requires assessing “whether previously copyrighted language has become essential to the expression of, or integrated with, a legal conception.” The enacted law is a fact. “Even though the model codes themselves have not become the law, one would need to use those model codes’ precise language to express laws that had adopted the codes by reference in their entirety.”

What about the copyright pages? “[D]e minimis under the circumstances.” So too with the current UpCodes approach of showing model code headings struck-through in red when displaying enacted codes that amend the model codes, “bearing in mind the headings’ minimal contribution to the overall model codes.”

Again, there were factual issues about what exactly defendants posted that prevented summary judgment for them:

There are some pages on Historic UpCodes where Defendants appear to have posted model building codes without mentioning adopting jurisdictions. On still other pages, the model code is accompanied by a section listing states that adopted the model code, but it is unclear whether those states adopted the code without amendment (such that the model code was the only way to express their laws, even if not explicitly identified as such) or whether those states amended the model codes (such that the model code text was not the only way to express those laws). That Defendants made government amendments to the I-codes available only to paying users may also cut against the notion that they meant only to express the law.

Fair use: The court would have reached the same result on the I-Codes as adopted if it had relied on fair use, and the redlines might be fair use. Purpose: “Posting enacted laws for the purpose of educating members of the public as to their legal obligations may be transformative, even if the enacted laws are identical to other copyrighted works.” And commerciality isn’t very important when the use is educational/informative/transformative.

Whether the redlines were transformative was a closer call. “In a sense, the I-Code Redlines are like legislative history showing what the state and local jurisdictions explicitly decided to add or delete when adopting the model codes.” The PRO case expressed concern that a state might try to “monetize its entire suite of legislative history.” But those were works authored by judges and legislatures, and the redlines might be “less probative” than legislative history or annotations. “As ICC points out, knowing that Wyoming did not adopt an appendix on tsunami-generated flood hazards probably does not help Wyoming residents comprehend their legal duties.” And that the redlines were only available to paying customers could partially offset transformativeness.

Nature of the work: highly factual, even as to the redlines; favored defendants.

Amount copied: As in the DC Circuit’s ASTM case, where a defendant “limits its copying to only what is required to fairly describe the standard’s legal import, this factor would weigh strongly in favor of finding fair use here, especially given that precision is ten-tenths of the law.” However, that likely weighed against fair use for the redlines.

Market effect: Again relying on ASTM, the court considered (1) the marginal harm caused, given that SDOs make their standards available for free in controlled reading rooms without hurting sales of their standards; (2) the harm caused by making available only the portions of the standards that “became law” versus the markets for the complete standards; (3) the market for derivative works, “particularly considering that the standards are regularly updated and that the private parties most interested in the standards would presumably remain interested in having the most up-to-date ones.” ASTM also noted that ICC remains profitable, despite its predecessors in interest having lost similar cases, through sales of copies of the I-Codes and other services such as consulting, certification, and training.

This factor, unlike the others, could potentially weigh against copying the I-Codes as adopted, because if they were adopted without amendment they were effective substitutes for the model codes. There was also a genuine dispute on the effect on the market for derivative works, though the court doubted that any dispute was material given the combined weight of the other three factors. The effect of the redlines was also unclear; they could have competed with ICC’s own redlines, but “the record tends to focus on a variety of derivative works that are not redlines, such as training and certification documents, user’s guides, handbooks, and code commentary.” (In a footnote, the court noted that UpCodes could substitute for the controlled reading rooms/online libraries—but, I note, if those are free to users, then it’s not clear what “market” ICC loses from that.)

For the same reasons, the court declined to rule on whether defendants’ infringement (if it existed) was willful. A reasonable jury could so find:

Defendants undisputedly copied the I-Codes without ICC’s authorization, and ICC cites multiple statements suggesting Defendants knew doing so would displease ICC and possibly harm ICC’s business. ICC also argues that Defendants were at least reckless insofar as they posted the I-Codes without seeking the advice of counsel.

But they might nevertheless have believed their actions were entirely legal “based on their understanding of the law,” as their public statements indicated, and the jury might believe that they couldn’t afford to hire a lawyer; they might not have recklessly disregarded the possibility of infringement. (If the district judge can’t figure out whether there was infringement even after extensive briefing and analysis, could it really be reckless to think there wasn’t?)

100% good news: 7th Cir. reverses "100% grated parmesan cheese" dismissal

Bell v. Publix Super Markets, Inc., 2020 WL 7137786, -- F.3d --, Nos. 19-2581, 19-2741 (7th Cir. Dec. 7, 2020)

Note: Then-Circuit Judge Barrett was a member of the panel when this case was submitted but did not participate in the decision and judgment. The appeal was resolved by a quorum of the panel pursuant to 28 U.S.C. § 46(d).

In a victory for common sense, the court of appeals reversed the dismissal of this consumer protection claim (except for certain parts of the case; because of the way the district court handled this multidistrict litigation, it found that the appeal for some was untimely). Defendants advertise “100% Grated Parmesan Cheese.” Plaintiffs alleged that the products actually and deceptively contain between four and nine percent added cellulose powder and potassium sorbate, though the ingredients list discloses these as ingredients (they fight caking and mold, respectively).

The district court found that “100%” was ambiguous (maybe it was just 100% grated, not 100% parmesan/cheese) and any deception was dispelled by the ingredient list, and also that “common sense would tell a reasonable consumer that, despite the 100% claims, these cheese products must contain added ingredients because they are sold unrefrigerated in the main grocery aisles, alongside dried pastas and canned sauces.”

The core holding, consistent with cases from other circuits: “[A]n accurate fine-print list of ingredients does not foreclose as a matter of law a claim that an ambiguous front label deceives reasonable consumers. Many reasonable consumers do not instinctively parse every front label or read every back label before placing groceries in their carts.” This rule recognizes that ordinary shoppers aren’t judges parsing statutes, and that ambiguities can be carefully designed to deceive. It was at least plausible that, in “100% Grated Parmesan Cheese,” the 100% applied to the cheese. [Cheese is sold grated or not grated. Why would anyone ever expect to get a half grated block of cheese or think the 100% referred to the degree of gratedness?]

Context does matter. And “unreasonable or fanciful interpretations of labels or other advertising” can merit dismissal on the pleadings. Moreover, defendants can offer evidence for their [dumb, linguistically implausible] interpretation showing that consumers aren’t misled. (The court pointed out that plaintiffs said they were prepared to submit surveys showing 85-95% misleadingness, and affidavits from linguists that the most natural and plausible reading was “100% parmesan cheese that is grated.”) Misleadingness is generally a factual matter, as is appropriate in consumer protection cases (and in trademark and Lanham Act false advertising cases), and there was no reason to disregard plaintiffs’ allegations:

What matters here is how consumers actually behave—how they perceive advertising and how they make decisions. These are matters of fact, subject to proof that can be tested at trial, even if as judges we might be tempted to debate and speculate further about them. We doubt it would surprise retailers and marketers if evidence showed that many grocery shoppers make quick decisions that do not involve careful consideration of all information available to them. See, e.g., U.S. Food & Drug Admin., Guidance for Industry: Letter Regarding Point of Purchase Food Labeling (Oct. 2009) (“FDA’s research has found that with [Front of Package] labeling, people are less likely to check the Nutrition Facts label on the information panel of foods (usually, the back or side of the package).”); Karen Bradshaw Schulz, Information Flooding, 48 Ind. L. Rev. 755, 782 (2015) (when terms “like ‘low-fat’ and ‘multi-grain’ were written in big, bright letters on foods,” consumers would “focus on the bright claim rather than turning the box around to read the dull, black-and-white nutrition label on the back”) ....

Next, defendants argued that the FDA’s definition of “grated cheese” allows them to call their products “grated cheese” because that designation allows addition of cellulose and potassium sorbate. As the court pointed out, “[t]he problem lies in the ‘100%,’ especially since the pleadings provide reason to think that consumers understand ‘100% grated cheese’ to mean that the cheese does not have the additives.” Interestingly, the court also pointed to competitive reasons: a manufacturer of grated cheese without additives needs a way to differentiate its product, which couldn’t be done if these sellers also get to claim “100% cheese.”

Regardless, “average consumers are not likely to be aware of the nuances of the FDA’s regulations defining ‘grated cheese.’ … Rather, both plain meaning and the plaintiffs’ surveys and linguists plausibly indicate that a significant portion of consumers read the labels as promising pure cheese without added ingredients.”

Relying on “common sense” about lack of refrigeration did not justify dismissing the claim. As the plaintiffs pointed out, “pure grated Parmesan cheese can be shelf-stable for a long time without refrigeration.” And “today’s grocery shoppers can often spot unrefrigerated cartons of pure grated Parmesan sold beside the cheese wheels that source them.” True, defendants’ products are shelved in the main grocery aisles instead. “But since pure grated Parmesan can be and sometimes is sold unrefrigerated, common sense is not a substitute here for evidence, and certainly not as a matter of law.”

The court also rejected defendants’ alternative preemption argument.

The FDCA expressly bars states from “directly or indirectly establish[ing] under any authority ... any requirement for a food which is the subject of a standard of identity ... that is not identical to such standard of identity or that is not identical to the requirement of section 343(g)” of the Act. The FDA’s standard of identity for “grated cheeses” allows the defendants to add anticaking agents (cellulose powder) and antimycotics (potassium sorbate) and to call the product “grated cheese.” In fact, the standard of identity requires defendants to call their products “Grated Parmesan Cheese.” “If only one variety of cheese is used, the name of the food is ‘grated ____ cheese’, the name of the cheese filling the blank.”

That provision is silent about the addition of “100%.” Given the FDCA, a remedy requiring further disclosures would be preempted. But plaintiffs “seek only to stop defendants from voluntarily adding deceptive language to the federally permitted labels.” Preventing deception wouldn’t establish a new requirement different from the standard of identity, especially given that the FDCA already provides generally that “a food shall be deemed to be misbranded” if its labeling is “false or misleading in any particular.”  “[S]tate-law claims challenging defendants’ voluntary addition of ‘100%’ to their labels are not preempted…. After all, there are all sorts of potentially misleading additions that standards of identity do not explicitly ban.” For example, a false claim that the cheese was from Italy wouldn’t violate the standard of identity, but that wouldn’t require preemption. “The FDCA’s preemption provision means that, while states may not require sellers to add further labeling that is not required by federal law, they may prevent sellers from voluntarily adding deceptive content that is not required by federal law.”

Nor was there conflict preemption/a safe harbor. Though defendants argued that the FDA actually approved Kraft’s use of the “100% Grated Parmesan Cheese” label in 1999 and 2000, that wasn’t what happened. In 1999, the FDA issued Kraft a temporary permit “to market test a product designated as ‘100% Grated Parmesan Cheese’ that deviates from the U.S. standards of identity for Parmesan cheese and grated cheeses” in that it used “a different enzyme technology that fully cures the cheese in 6 months rather than 10 months.” In 2000, the FDA extended the permit. The technology was the focus of the permit, and there was no indication that the FDA assessed the potential deceptiveness of “100% Grated Parmesan Cheese” or approved that label.

Judge Kanne concurred to emphasize that, “while lawyers and judges can find ambiguity in just about anything, that’s not what we expect of the reasonable consumer.” On a motion to dismiss, it’s not enough for defendants to “proffer some alternative, nondeceptive reading of the front label—or fashion the label precisely so that it can bear one plausibly non-deceptive reading—regardless of whether the reasonable consumer (or some significant portion of reasonable consumers) would read it that way,” even when the ingredient list resolves the ambiguity. The district court’s alternative rule would allow a court to announce “as a matter of law that a statement is not deceptive even where it could deceive reasonable consumers as a matter of fact. It assumes reasonable consumers not only notice ambiguities but then investigate to resolve them, either by scouring the fine print or, even less likely, reading up on the shelf life of Parmesan cheese. It assumes too much.”

“[I]f a plaintiff’s interpretation of a challenged statement is not facially illogical, implausible, or fanciful, then a court may not conclude that it is nondeceptive as a matter of law.”  In concluding that the challenged statement was ambiguous, the district court necessarily found that reasonable consumers may interpret the statement in multiple, plausible ways. That meant that likelihood of deception was a factual question that couldn’t be resolved on the pleadings. The deception didn’t have to be “clear”: “Determining that a statement is not ‘clearly misleading’ on the pleadings robs the jury of the opportunity to determine, as a matter of fact, whether the statement is ‘clearly misleading,’ just ‘misleading,’ or ‘not misleading at all.’” Also, a consumer’s interpretation isn’t implausible as a matter of law “just because fine print elsewhere on the label could clarify an ambiguity that a reasonable consumer might not have even noticed in the first place.”

Penn. dilution is broader than federal dilution; former licensee might not own marks despite its registrations

I.M. Wilson, Inc. v. Otvetstvennostyou “Grichko,” No. 18-5194, 2020 WL 6731109 (E.D. Pa. Nov. 13, 2020)

The OG parties are Russian and Czech entities that manufacture and sell ballet and pointe shoes under the name GRISHKO.

In the early 1990s, Grishko and I.M. Wilson partnered to distribute Grishko-branded products in the United States via an exclusive licensing agreement. Around that time, Mr. Grishko wrote two letters that allowed I.M. Wilson to register the GRISHKO house mark, the ownership of which, among other things, is currently contested here. The partnership lasted until the music stopped in 2016, when Grishko terminated the exclusive licensing agreement. The exclusivity arrangement officially ended in March 2018 and Grishko began directly selling to U.S. customers.

IMW then sued; a preliminary injunction in its favor was subsequently vacated after the court found that “[e]njoining the defendants from selling GRISHKO-branded products in the U.S. in no way rectifies the irreparable harm the Court found to be caused by Mr. Grishko’s communications,” which had interfered with IMW’s relationships with its distributors by claiming that IMW didn’t have the rights it claimed.

This opinion deals with the OG parties’ counterclaims: (1) Lanham Act and common law claims arising from I.M. Wilson’s use of disputed marks and trade dress, (2) claims arising from the parties’ since-terminated licensing agreement, and (3) claims arising from I.M. Wilson’s actions while this litigation was pending.

Grishko produces several lines of pointe shoes, each bearing unique model names, and it’s applied to register certain of them at the PTO.

Mr. Grishko purportedly gave IMW permission to register the Grishko mark in the US based on the understanding that I.M. Wilson would own the registration so long as that I.M. Wilson remained in an exclusive relationship with Grishko. He signed the following statement, which reads in full: “I agree that I.M. Wilson, Inc. is the owner of the Trademark, GRISHKO and its goodwill in the United States of America. I further consent to the use of my name in that trademark.” The PTO wanted more, and so he signed another document: “In addition to the consent to I.M. Wilson, Inc. that I previously granted on August 5, 1992, I hereby grant I. [sic] Wilson, Inc. the right to register the trademark GRISHKO in the U.S. patent and trademark office.”

Some years later, the USPTO declined to register Mr. Grishko’s applications for the marks GRISHKO and NICOLAY GRISHKO due to the existence of IMW’s registration. As a result, the parties allegedly reached an agreement that IMW wouldn’t renew that registration upon its expiration, so it expired in 2004. In 2007, IMW applied to register GRISHKO in connection with “ballet slippers; dance shoes; dance tights; dance leotards; and dance dresses.” It eventually submitted the August 1992 and March 1993 documents to support its application, which then succeeded in 2009; IMW now owns seven federal registrations consisting of or incorporating the GRISHKO name, four of which are now incontestable.

Mr. Grishko’s cancellation proceeding is suspended pending the outcome of this litigation.

Grishko alleged that, after their agreement terminated, IMW subsequently began using a third-party Chinese manufacturer to produce its shoes, which has allegedly caused widespread consumer confusion as to the source of IMW’s products, constituting trademark and trade dress infringement, trademark dilution, and unfair competition.

In addition, Grishko alleged that IMW falsely advertised itself as the “Exclusive Distributor for North America,” not just the US, while there was an exclusive distributor in Canada and a nonexclusive arrangement in Mexico. IMW allegedly continues to advertise online that it is the exclusive U.S. distributor of Grishko-branded pointe shoes even though the exclusive licensing arrangement has been terminated. IMW also allegedly made false statements to U.S. dance retailers. Specifically: “[Grishko] began a major campaign to undercut us and you, our valued retailers, through their trademark-infringing sales via grishkoshop.com .... You may have received a letter from Nikolay Grishko on I.M. Wilson’s GRISHKO letterhead containing unfortunate and misleading claims.” When the court granted the preliminary injunction, IMW notified retailers that Grishko was enjoined from selling GRISHKO-branded products in the United States before the injunction formally took effect.

Trademark/trade dress counterclaims: The court couldn’t resolve ownership of the house mark or model marks at this stage. The first writing was ambiguous as to whether it was irrevocable. “The Court would not ordinarily expect an agreement irrevocably transferring the ownership of a valuable mark—particularly one’s own surname—to be concluded in two lines of text.” The agreement was so short that it was silent on the issue of consideration, which IMW argued was “in exchange for its ongoing efforts to invest in and develop the U.S. market for Grishko products.” But that wasn’t evident, just as it wasn’t evident that it was a temporary assignment for registration purposes only as Grishko argued. Ambiguity also inhered in the fact that IMW “drafted the document and presented it to Mr. Grishko in English—not his native language.” This couldn’t be resolved on a motion to dismiss.

So too with the model marks, “sole mark,” and trade dress, though IMW argued that they were necessarily transferred in order to ensure that the assignment of the main mark wasn’t naked/without associated goodwill. In particular, the court wasn’t persuaded that acquiring the main mark’s goodwill necessarily included the model marks:

I.M. Wilson cites exclusively to case law from the 1980s for the general proposition that trademarks must be owned by a single source. Defendants rely on the USPTO Manual that suggests that trademarks can have multiple owners and a case holding that evidence is capable of “decoupl[ing] the product marks from the famous house mark” where product marks have independent significance. Suffice it to say, neither effort wins the day yet.

One case did conclude that the goodwill symbolized by certain trademarks did not include the transfer of unregistered product marks and trade dress. Hetronic Int’l, Inc. v. Hetronic Germany GmbH, No. CIV-14-650-F, 2019 WL 3003679, at *31 (W.D. Okla. Mar. 22, 2019). And Callman’s treatise distinguishes goodwill that follows the house mark and that which is associated with the model marks. The treatise explains that “an exclusive transfer of a trademark apart from the business organization can only be done with respect to product marks. House marks are inseparable from the organization.” The court characterized this as “quite the opposite of I.M. Wilson’s argument,” but the question is: what is transferred? The quoted Callman language addresses a transfer of a single product mark out of a business organization versus an attempted transfer of the house mark without the business; it doesn’t directly address what happened here.

Anyway, ownership of the model marks, sole mark, and trade dress is contested! The court pointed out that a schedule listing all the marks to be transferred would have been a lot more probative of intent.

Also, Grishko could plead ownership/first use in the US by relying on IMW’s licensed use. “Because Grishko introduced all but one of the model marks while I.M. Wilson was acting as its licensee, I.M. Wilson’s use of the marks were on behalf of, and so for the benefit of, Grishko.” IMW argued that the second writing was a pure transfer, not a license, but that was contested.

And the incontestable registrations could be challenged because of Grishko’s possible prior rights and the allegations of fraud on the PTO in using the allegedly outdated/revoked consents in 2007, which were sufficient to survive a motion to dismiss. However, the court cautioned that it would be hard to prove fraud on the PTO. The party against whom fraud is alleged enjoys “considerable room for honest mistake, inadvertence, erroneous conception of rights, and negligent omission.” And, “even were Grishko to prevail on the fraud theory, at most, the marks would revert to an unregistered status but still be the property of I.M. Wilson” unless Grishko further proved that it was the owner.

Also, “[s]witching to an arguably inferior manufacturer without more does not rise to misrepresentation sufficient to warrant cancelling the registration.”

Grishko also sufficiently pled the existence of a protectable trade dress. It provided specifics and photos, and while some of the elements were not unique (“use of pink satin for the exterior of the pointe shoes made of an unremarkable shade of pink”), it did plead that Grishko was the only manufacturer that places a “unique identification number that can be used to identify the specific individual who inspected” the shoe, and spelled out other components and their locations. While certain aspects of the alleged trade dress could be seen as inherently functional—including the unique inspector identifier number and the placement and orientation of the size and width markings—other aspects were plausibly “inherently aesthetic (i.e., the pink satin trim, white inner sole, stitch patterns, and diamond sole mark)”—and thus nonfunctional. The trade dress as a whole was plausibly nonfunctional.

And Grishko adequately alleged secondary meaning. While IMW argued that its allegations about sales and advertising didn’t show that the trade dress had independent secondary meaning, Grishko did enough for a motion to dismiss.

Since likely confusion was also pled, trademark infringement counterclaims survived. So too with false designation of origin. “Should a dancer wearing an allegedly harmful shoe—but believing it to be a Grishko—suffer an injury, so too would Grishko’s business and reputation. Section 43(a) of the Lanham Act is designed to reach this type of conduct.”

Pennsylvania trademark dilution: The state law requires state fame, but did not specify whether “niche” fame sufficed. Because a pre-2006 federal court had reasoned that federal fame allows niche fame, and reasoned that the state would do the same thing, the court here concluded that state law—which wasn’t amended after the TDRA was enacted—still allows for niche fame. Thus, dilution was properly alleged. I don’t think this is a great idea. There’s still no reason to think that Pennsylvania wanted niche fame; it just got dragged along with the Third Circuit’s interpretation of the federal law, which Congress deemed wrong. Pennsylvania’s legislature shouldn’t be forced to correct that mistake too. (Insert your own comment about the Pennsylvania legislature.)

 Compare Componentone, L.L.C. v. Componentart, Inc., No. 02: 05CV1122, 2007 WL 4302108, at *1 (W.D. Pa. Dec. 6, 2007) (reaching the opposite result; noting that “niche market fame” was a “creature of judicial construction of federal law” and does not appear in the Pennsylvania anti-dilution statute). Rejecting that case, the court here reasoned that it was still bound by the Third Circuit’s old interpretation of Pennsylvania law, since state courts haven’t spoken. (The court acknowledged that “this issue is unlikely to reach a Pennsylvania state court given removal jurisdiction, and the fact that parties often plead both federal and state law trademark claims.” To me this is extra reason not to stick with the mistake!) “In the 14 years since the TDRA, Pennsylvania has chosen not to reform its state anti-dilution law to conform with the federal standards. …. Principles of federalism restrain this Court from reading in a stricter standard than the law currently provides.”

Anyway, Grishko sufficiently alleged fame in the performing arts community and among dancers. It alleged that its marks and trade dress were recognized by Pennsylvania’s premier professional ballet company—the Pennsylvania Ballet—in addition to the “American Ballet Theatre, West Ballet, and other organizations throughout the United States.”

False advertising: Grishko alleges that IMW’s “exclusive North American distributor” claims harmed its relationship with distributors in Canada and Mexico and impacted its ability to enter into new exclusive distribution and licensing agreements worldwide, and that it continues to advertise online as the exclusive wholesale distributor for Grishko-branded products.

IMW argued that Grishko only pled injury to its reputations with retailers, not that consumers withheld trade from it, and that it wasn’t plausible that advertisements in the U.S. directed to U.S. consumers harmed Grishko’s worldwide reputation. No:

I.M. Wilson incorrectly attempts to cabin the scope of “consumers” within the meaning of the Lanham Act. “[N]othing in the language of § 43(a) specifically requires a false representation be intended to influence the ultimate consumer, whoever that might be.” The relevant “purchasing public” varies according to the specifics of the industry.… Grishko sells goods through retail relationships as well as through wholesaling.

Grishko alleged that IMW’s marketing necessarily diverted sales away from Grishko because “[c]onsumers and retailers viewed I.M. Wilson as the sole purveyor of Grishko-branded products.” This was enough to allege statutory standing.

And a false statement made in the US is cognizable under §43(a) even if the economic harm occurs outside the US.

So too with the allegedly false claim of being the exclusive distributor after the parties’ relationship ended.

Litigation-related allegations: Grishko alleged defamation because IMW told retailers that Grishko was (1) undercutting and undermining retailers; (2) no longer supplying high-quality products; and (3) not abiding by court orders. Shortly after the preliminary injunction issued, IMW sent a cease and desist letter to one of the largest U.S. dance retailers and a letter to various retailers supposedly apprising them of the recent order. Though IMW argued that it was substantially true, the court wasn’t going to resolve that at this stage.

In Pennsylvania, out-of-court statements made by parties to a proceeding enjoy a qualified privilege provided those “statements are a fair and accurate report of statements made or pleadings filed” in the proceeding and the individual does not “make his report with the sole purpose of causing harm to the person defamed.” The C&D “sufficiently remains within the bounds of protected statements. The letter recounts I.M. Wilson’s litigation position that it is the exclusive owner of the GRISHKO house mark and notifies the recipient of the pending litigation.” So too with the letter to retailers. Though it says those retailers “have been undercut” by Grishko’s recent sales efforts, “read in context, these statements provide the basis for I.M. Wilson to seek an injunction,” and IMW made the very same claims in court (unlike certain political campaigns one could mention).

Even though the letter was sent before IMW posted the bond and so the PI wasn’t in effect, the court order had been entered, and the letter “expressly notes that it was ‘perfect[ing] the injunction,’ and attached a copy of the order granting the preliminary injunction. The Court rejects Grishko’s attempt to fashion a defamation claim on a technicality.”

The remaining possible basis was IMW’s July 2019 letter to its customers, which “rehashed” the present trademark claims and discusses the “unsatisfactory” quality of Grishko’s recent shipments. While IMW argued that this was mere opinion, the court thought that statements about the quality of goods should have been, and weren’t, pled as commercial disparagement. “Opining on the quality of the ballet shoes does not go to the honesty and fairness of Grishko’s dealings” and thus the letter wasn’t capable of defamatory meaning. Nor could it be defamation per se, since it was just a negative opinion. (In a footnote, the court noted that it’s not clear why corporate entities should be eligible for defamation per se, because corporations can’t be embarrassed or humiliated, but “Pennsylvania law continues to recognize it as a viable claim for corporations to assert.”)

Tortious interference with business relations: Under Pennsylvania law, interference is “privileged when the actor believes in good faith that his legally protected interest may otherwise be impaired by the performance of the contract.” Where the parties are competitors, there must be a showing that the defendant engaged in “independently actionable conduct” for plaintiff to succeed on a tortious interference claim. The court was persuaded by IMW’s argument that it had a duty to send notice to the retailers to apprise them that the court had entered an order enjoining Grishko, in order to bind them, since the Federal Rules of Civil Procedure say that PIs bind only people who receive “actual notice.” Plus, the defamation claims failed and so there was nothing independently actionable, even though Grishko sufficiently alleged actual damages.

intentional misleadingness obviates need for deception evidence

Aoki v. Gilbert, 2020 WL 6741693, No. 11-cv-02797-TLN-CKD (E.D. Cal. Nov. 17, 2020)

The court explains: “Put most succinctly, at trial Plaintiffs contended Defendants infringed Dr. Aoki’s patents for his pulsed insulin diabetes treatment method; infringed Dr. Aoki’s copyrighted slides; and made false or misleading statements amounting to false advertising and unfair business practices.” There were also breach of confidentiality claims (the parties used to be in a business relationship).

There were some literal falsities, such as claiming that their treatment was FDA-cleared and that certain patient outcomes were the result of defendant’s treatment when they depicted plaintiff’s results. (If they were the exact same medically, but administered by different entities, I would think that’s not false, but that doesn’t appear to have been the case.)

Defendants argued that their statement that their treatment was the “only” treatment meant merely that it was a licensed use of plaintiff’s technology and the treatments were the same; the court found this to be misleading and, because the statements were intentionally deceptive, no proof of consumer reaction was required. Certain defendants intended to deceive prospective patients and investors. “That deception was material in that FDA clearance, patient outcomes, and exclusivity, for example, are likely to influence both investors’ and patients’ decisions.” This also harmed plaintiffs by “intentionally muddying the waters concerning who is the inventor and rightful owner of the patented technology” and “tarnishing Dr. Aoki’s reputation concerning his research and protocol.”

However, plaintiffs failed to establish liability under California’s FAL/UCL because they didn’t show economic injury. They showed no evidence of lost profits, inability to open clinics, or otherwise lost money or property as a result of the deceptive statements. “Although goodwill is a protected property interest and harm to goodwill is a cognizable injury, Plaintiffs presented no evidence of the value of their goodwill or an economic harm stemming from the loss of goodwill.” And to the extent that the UCL claim was premised on underlying patent/copyright infringement, it was preempted.

The court also found copyright infringement for copying and using Aoki’s slides for the same purpose as Aoki used them, and awarded the maximum statutory damages:

Even after this lawsuit was filed in 2011, Defendants continued to use Dr. Aoki’s copyrighted slides in promoting APT. Most glaringly, they used the foot wound photos of Dr. Aoki’s patient whom he treated with MAT and which photos he copyrighted, to claim that the patient was treated with APT rather than MAT. These facts demonstrate Defendants knew their conduct was unlawful or at minimum engaged in reckless conduct sufficient to support a finding of willfulness.

The court found that this was an exceptional case meriting a fee award because of the clear patent infringement and defendants’ refusal to produce any financial documents.

Moral rights in patent claims: The irreparable injury finding for purposes of permanent injunctive relief based on the patent claims was predicated mainly on the harm to Aoki’s good name and the uniqueness of his invention. “A lack of proper oversight led to clinics modifying the treatment in some instances, creating a ‘wild west of medicine’ and resulting in adverse consequences to patients.” Driving the defendants out of business would be ok, if that happened, because the treatment was “Dr. Aoki’s life’s work.” But what about the fact that the parties agree that the treatment is good for patients? “[T]he evidence reflects that a lack of oversight at the clinics licensed by Trina Health resulted in negative patient outcomes in some cases, indicating the public would be better served by the grant of an injunction to halt operations of illegitimately licensed clinics.”

The copyright infringement also merited a permanent injunction and a fee award.

For Lanham Act damages, though plaintiffs didn’t show any actual damages, they were entitled to disgorgement. Defendants profited by nearly $8 million (they earned that amount, and failed to show any deductions) from the false advertising. (The court doesn’t require tracing here, perhaps because the claims are at the core of any advertising they might have engaged in.) And unsurprisingly they get a fee award too.