Monday, July 06, 2020

calling pork "prime" doesn't misleadingly imply USDA grading

Davis v. Fresh Market, Inc., 2020 WL 3489369, No. 19-CV-24245-PCH (S.D. Fla. Jun. 26, 2020) 

Plaintiffs alleged that defendants violated Florida consumer protection law by misrepresenting, via the name, that their Chairman’s Reserve Prime Pork product had been graded prime by the USDA, even though the USDA does not grade pork (and approved the product name). Plaintiffs alleged additional statements, such as a newsletter stating, “Just like prime beef, the new Chairman’s Reserve Prime Pork is the upper-echelon of quality in terms of having superior marbling …. ‘We’re excited to provide our guests with fresh pork that’s the same caliber as our prime beef offerings....”; a quote from Tyson’s President of marketing and premium products reading, “People know of ‘prime.’ They get it right away”; a website displaying images of prime pork next to prime beef; and the like. But defendants never used the term “USDA.” The court found the theory implausible. 

First, USDA approval of the name/labeling wasn’t preemptive. While FDUTPA doesn’t apply to an “act or practice required or specifically permitted by federal or state law,” there was no approval of the promotional materials; the USDA has no authority to regulate ads in conjunction with labels. 

However, plaintiffs’ theory was still unpersuasive because there were no allegations that the defendants did anything to communicate that the USDA even grades pork; they didn’t claim that the product is graded. According to defendants, plaintiffs’ theory assumed that a reasonable consumer would be aware of USDA’s grading scheme for beef but not aware that there was no such scheme for pork. This was implausible: “A reasonable consumer sufficiently familiar with USDA grading would note the absence of the term ‘USDA.’”


flushable wipes injunctive relief class must go, damages class can stay

Kurtz v. Costco Wholesale Corp., --- Fed.Appx. ----, 2020 WL 3480830, Nos. 17-1856-cv, 17-1858-cv (2d Cir. Jun. 26, 2020) 

This is a flushable wipes case. The court of appeals decertifies an injunctive relief class under NY law, but allows a damages class to proceed on a price premium theory. There’s no likelihood of future injury here because the named plaintiff didn’t claim that he intended to purchase additional flushable wipes. [Side note: the doctrine that individual class representatives have to have separate Article III standing for each type of relief sought, even if they plainly have Article III standing to seek some other kind of relief, is a consequence of precedent protecting the police against private litigation seeking to make them stop killing people! Like qualified immunity, it doesn’t strike me as a very good rule.] 

Although defendants offered objections to plaintiffs’ expert’s regression model, that went to probative value and not admissibility; the district court didn’t abuse its discretion in allowing the case to proceed. (Here, the expert arguably failed to consider some significant variables, and the regression allegedly didn’t produce a price premium if the time frame is shifted or if additional products were included in the underlying dataset, but the expert testified that changing the timeframe of his model while making appropriate adjustments to other variables still yielded a price premium, and the district court found that Weir used a sufficiently wide range of sources to render the end-result “statistically reliable.”) 

Comcast Corp. v. Behrend, 569 U.S. 27 (2014), held that “a model purporting to serve as evidence of damages in [a] class action must measure only those damages attributable to that theory.” But plaintiff’s model did that: it purported to measure the price premium attributable to the allegedly false “flushable” label. The class action was a perfectly good way to resolve the common question of whether the model was any good.


NY high court reiterates that "consumer-oriented" is broad, covers statements to thousands of gov't employees

Plavin v. Group Health Inc., 35 N.Y.3d 1 (Mar. 24, 2020) 

The Third Circuit certified to NY’s highest court whether a plaintiff “sufficiently alleged consumer-oriented conduct to assert claims under General Business Law §§ 349 and 350 for damages incurred due to an insurance company’s alleged materially misleading representations made directly to the City of New York’s employees and retirees about the terms of its insurance plan to induce them to select its plan from among the 11 health insurance plans made available to over 600,000 current and former City employees.” Yes, it did. 

The plaintiff alleged that the summary materials he received about the health plan were misleading about various matters, including out-of-network reimbursement rates and coverage. The district court held that, because “the alleged deception [arose] out of a private contract negotiated between” GHI and the City—“two sophisticated institutions,” the conduct wasn’t consumer-oriented because the City had contracted with GHI on behalf of its employees and, therefore, “[t]he contract was aimed to benefit only a circumscribed class of individuals.” 

Previous cases used language such as “[i]n contrast to a private contract dispute as to policy coverage, the practices before us involved an extensive marketing scheme that had ‘a broader impact on consumers at large’ ” and“[d]efendants’ alleged multi-media dissemination of information to the public [was] precisely the sort of consumer-oriented conduct that is targeted by General Business Law §§ 349 and 350 ... even though the subject of the conduct was in vitro fertilization.” But claims are rejected when the plaintiff alleges only “a private contract dispute over policy coverage and the processing of a claim which is unique to the[ ] parties, not conduct which affects the consuming public at large.” 

Here, although the underlying insurance contract was negotiated by sophisticated entities, “neither plaintiff, nor any of the other hundreds of thousands of employees and retirees who participated …, were participants in its negotiation and, critically, that negotiation was followed by an open enrollment period, which exposed City employees and retirees to marketing resembling a traditional consumer sales environment.” That marketing was what was allegedly misleading, not the contract between the City and GHI. Competition between insurers for subscribers during the the open enrollment period “resembles the sort of sales marketplace—characterized by groups of similarly-situated consumers subjected to the competitive tactics of a relatively more powerful business—that GBL claims were intended to address.”

 


Tuesday, June 30, 2020

Booking.com: validity continues to be disconnected from scope of rights

U.S. Patent & Trademark Office v. Booking.com B.V., No. 19–46 (Jun. 30, 2020)

Kind of what I expected, though maybe a little worse in its disregard of scope issues.

Ginsburg writes the majority (Sotomayor concurred and Breyer dissented). 

“Generic.com” is only generic for a class of goods or services “if the term has that meaning to consumers,” and the evidence hree showed that consumers don’t perceive “booking.com” to signify online hotel-reservation services as a class. So, the Court clears the way to register a lot of these domain names, because this is not on its face a holding about how booking.com has secondary meaning, it is a holding about how the PTO didn’t meet the burden of showing that consumers perceive booking.com as the name of a service. 

Along the way, the Court cites the parties’ agreement that “for a compound term, the distinctiveness inquiry trains on the term’s meaning as a whole, not its parts in isolation.” And “the relevant meaning of a term is its meaning to consumers.” Although the Lanham Act provision that “[t]he primary significance of the registered mark to the relevant public . . . shall be the test for determining whether the registered mark has become the generic name of goods or services” speaks directly by its terms only to cancellation, 15 U.S.C. §1064(3), it sets the standard for genericity generally. However, today’s rule “does not depend on whether one meaning among several is ‘primary.’ Sufficient to resolve this case is the undisputed principle that consumer perception demarcates a term’s meaning.” 

Since consumers don’t perceive Travelocity as a “Booking.com,” it is not generic. Goodyear’s India Rubber Glove Mfg. Co. v. Goodyear Rubber Co., 128 U. S. 598 (1888), held that a generic corporate designation added to a generic term does not create a protectable term because it adds no additional meaning. But .com might “also convey to consumers a source-identifying characteristic: an association with a particular website,” because only one entity can have a particular domain name at a time. Since consumers know that, a consumer can infer entity-designating function. (Footnote: this doesn’t constitute utilitarian functionality, which isn’t at issue here.) 

Comment: this reasoning goes even further than the above and suggests what the district court held, which is that individual domain names are likely to be inherently distinctive because of this automatic (de facto) assumption. But the ability of a term to distinguish this entity from other entities or domain names doesn’t seem to come into this reasoning at all, even though it probably should. How easily will consumers remember: was it flower.com or flowers.com? 

Anyway, Goodyear’s rule is more modest than the PTO argued: “A compound of generic elements is generic if the combination yields no additional meaning to consumers capable of distinguishing the goods or services.” 

There is no automatic classification of generic.com as nongeneric, the Court says, but the test doesn’t give any weight to the genericity of what comes before the dot; it’s only whether the full term is perceived as the name of a class. “Evidence informing that inquiry can include not only consumer surveys, but also dictionaries, usage by consumers and competitors, and any other source of evidence bearing on how consumers perceive a term’s meaning.” As to surveys, they “can be helpful evidence of consumer perception but require care in their design and interpretation.” We get a cite to our amicus brief noting that “survey respondents may conflate the fact that domain names are exclusive with a conclusion that a given ‘generic.com’ term has achieved secondary meaning.” But difficult questions aren’t posed here because the PTO didn’t contest the lower courts’ assessment of consumer perception of booking.com specifically. 

The PTO’s real objection wasn’t to Booking’s exclusive use of “Booking.com” as a mark, but to the risk of “undue control” over similar language “that others should remain free to use.” However, the Court thought that trademark law’s existing protections for descriptive uses sufficed: first, only confusing uses are infringing, and weaker/more descriptive marks are less likely to be confused: 

When a mark incorporates generic or highly descriptive components, consumers are less likely to think that other uses of the common element emanate from the mark’s owner. Similarly, “[i]n a ‘crowded’ field of look-alike marks” (e.g., hotel names including the word “grand”), consumers “may have learned to carefully pick out” one mark from another. And even where some consumer confusion exists, the doctrine known as classic fair use, protects from liability anyone who uses a descriptive term, “fairly and in good faith” and “otherwise than as a mark,” merely to describe her own goods. 

[I note that putting a generic term in one’s domain name is likely to be pretty risky for descriptive fair use, given “otherwise than as a mark.”] 

Booking.com concedes that its mark would be “weak” and that “close variations are unlikely to infringe.” [And we will now rely on courts to ensure that it and other users of generic.coms stick to that concession—but since the US doesn’t have a cause of action for unjustified threats relating to IP, the C&D letters can be pretty aggressive regardless of the likely litigation outcome, and it’s really hard to get a fee shift as a successful defendant, especially if (as they often do) courts treat having a valid mark as making any assertion of infringement reasonable.] 

The competitive advantage conferred by seizing on a descriptive domain name doesn’t justify refusing registration. All descriptive terms “are intuitively linked to the product or service and thus might be easy for consumers to find using a search engine or telephone directory,” but they’re still registrable. And the exclusive connection between a domain name and its owner “makes trademark protection more appropriate, not less.” [And here is the issue that European systems will find much easier to resolve than ours: that statement makes perfect sense if we aren’t worried about scope at all. But we should be!] 

Unfair competition law isn’t a good enough substitute for registration because registration confers valuable benefits, such as under ACPA and the UDRP. 

Sotomayor, concurring. There’s no (nearly) per se rule against generic.com registrations. However, consumer-survey evidence “may be an unreliable indicator of genericness.” But the Court’s opinion doesn’t make surveys “the be-all and end-all.” Given the availability of other evidence and the weaknesses of surveys, the PTO might have been right about genericity here and the district court may have been wrong; that’s just not the question before the Court. [Although it is the way to bet about how errors will go, given the parties’ resources. In other cases like Wal-Mart, the false positive issue has led the Court to more restrictive rules—but because the Court generally does want to hold out the prospect of some protection in such cases, the overall result of Sotomayor’s concurrence at least is consistent with Wal-Mart and Qualitex: you should have to show secondary meaning for your specific claimed mark and only then can you get trademark rights.] 

Breyer, dissenting: What booking.com is, is obvious from the name. Genericity “preserves the linguistic commons by preventing one producer from appropriating to its own exclusive use a term needed by others to describe their goods or services.” Adding .com shouldn’t be enough to do so. 

Distinguishing descriptive from generic terms isn’t always easy, especially with a compound term. For a compound, courts have to determine “whether the combination of generic terms conveys some distinctive, source-identifying meaning that each term, individually, lacks. If the meaning of the whole is no greater than the sum of its parts, then the compound is itself generic.” 

Breyer would have held that appending “.com” to a generic term “ordinarily yields no meaning beyond that of its constituent parts.” The combination of “booking” and “.com” “does not serve to ‘identify a particular characteristic or quality of some thing; it connotes the basic nature of that thing’—the hallmark of a generic term.” Any “reasonably well-informed consumer” would understand that trademark.com is the website of the trademark owner, which is why courts generally ignore the TLD when analyzing likely confusion. 

And here we get to the heart of the disagreement: because .com will be ignored in an infringement inquiry, it should also be ignored for validity. (Absent some exception such as where the TLD interacts with the second-level domain in a meaning-changing way; also new gTLDs like “guru” might behave differently.) In other words, Breyer wants to think about scope when assessing validity. 

The uniqueness conferred by the domain name system doesn’t change the Goodyear rule. “Wine, Inc.” likewise “implies the existence of a specific legal entity incorporated under the laws of some State.” [This is an intuitive weakness of the majority’s reasoning: it isn’t explicitly willing to turn its empiricist, consumer-perception-is-all gaze on the Goodyear rule, but Breyer seems likely to be correct that Wine, Inc. is likely to produce different survey results than “Wine.” However, my sense is that Ginsburg would also allow Wine, Inc. to present its consumer survey, perhaps with an eye to the problem of de facto secondary meaning.] 

To Breyer, “functional exclusivity does not negate the principle animating Goodyear: Terms that merely convey the nature of the producer’s business should remain free for all to use.” The majority’s “fact-specific approach” rejects that principle. Although consumers might not call Travelocity a booking.com, “literal use is not dispositive.” [We might call that production versus recognition: consumers may understand a lot of stuff they wouldn’t say.] 

Breyer correctly notes that the facts that supposedly convert some generic.com domain names into descriptive marks are unlikely to vary from case to case: 

There will never be evidence that consumers literally refer to the relevant class of online merchants as “generic.coms.” Nor are “generic.com” terms likely to appear in dictionaries. And the key fact that, in the majority’s view, distinguishes this case from Goodyear—that only one entity can own the rights to a particular domain name at a time—is present in every “generic.com” case. 

So what would vary? Survey evidence. But survey evidence “has limited probative value in this context,” given the phenomenon of de facto secondary meaning. Thus, the TTAB and some courts have concluded that “survey evidence is generally of little value in separating generic from descriptive terms.” Here, while Booking’s survey showed that 74.8% of participants thought that “Booking.com” is a brand name, 33% believed that “Washingmachine.com” was a brand. What’s the difference? Booking.com isn’t inherently more descriptive than “Washingmachine.com” or any other generic.com. Respondents were likely reacting to having heard of Booking.com, suggesting that washingmachine.com could undergo the same transformation by investing heavily in advertising. Association of booking.com with a particular company is simply not inconsistent with genericity.

 

Thus, quoting McCarthy, the majority rule “[d]iscard[s] the predictable and clear line rule of the [PTO] and the Federal Circuit” in favor of “a nebulous and unpredictable zone of generic name and top level domain combinations that somehow become protectable marks when accompanied by favorable survey results.” 

Also, this rule threatens “serious anticompetitive consequences in the online marketplace” by adding to the non-registration advantages of doing business under a generic name: basically, easier access to consumers’ memories, searches, and trust. Booking says it won’t threaten similar uses, “[b]ut other firms may prove less restrained,” and of what use is trademark registration distinct from domain name registration other than to “extend its area of exclusivity beyond the domain name itself”? 

The majority says that infringement/descriptive fair use will police the scope of protection, but we’ve already seen boundary-pushing. (Citing Advertise.com v. AOL, LLC, 2010 WL 11507594 (CD Cal.) (owner of “Advertising.com” obtained preliminary injunction against competitor’s use of “Advertise.com”), vacated in part, 616 F. 3d 974 (CA9 2010).) “Even if ultimately unsuccessful, the threat of costly litigation will no doubt chill others from using variants on the registered mark and privilege established firms over new entrants to the market.” 

Breyer’s dissent is particularly notable for its repeated use of “anticompetitive” and variants, suggesting the potential for the revival of a mid-twentieth-century analysis of trademarks as having the capacity to confer unwarranted market power.


Monday, June 29, 2020

Expert causation/falsity evidence is admissible in fake review case

Vitamins Online, Inc. v. Heartwise, Inc., 2020 WL 3452872, No. 2:13-cv-00982-DAK (D. Utah Jun. 24, 2020) 

Some pre-bench trial motions here in this Lanham Act false advertising case based on alleged manipulation of Amazon’s customer review system and misrepresentation of the content and characteristics of green coffee and garcinia cambogia products. I want to focus on motions to limit testimony about the reviews. 

VO’s expert Belch was assigned to study how consumers used online reviews for weight loss supplements on Amazon.com and whether such reviews were credible to them; and to provide an opinion about the power of “influencers” to create demand for products, whether Dr. Oz acted as an influencer concerning the products at issue in this case, and whether that affected demand. NatureWise argued that the study couldn’t show injury/causation; Belch didn’t test whether any consumers switched from VO’s products to NatureWise’s in reliance on any particular review at issue here.

The court declined to preclude Belch from offering an opinion on the cause of lost sales at trial. Belch concluded that, “[a]ssuming [Vitamins Online’s] claims are true, and based on [his] business and academic experience, [he] would opine that [NatureWise’s] practices are deceptive and injurious to Vitamins Online.” This could be evidence of causation; NatureWise’s arguments went to weight, not relevance or admissibility. 

NatureWise also sought to preclude Vitamins Online’s experts Noonan and McAuley from offering testimony at trial that reviews were literally false, arguing that their report stated no opinions as to the alleged falsity or truthfulness of any of NatureWise’s reviews. The report said:

It’s impossible for us to determine if a review is “fake” or not by using [our] method. In my opinion, it’s impossible for anyone to prove a review is “fake” just by looking at the review itself. [Our] algorithm is specifically looking for patterns in the data, which might indicate that the reviews are biased.

However, the report concludes that “the only logical explanation of the patterns we are seeing in the data is blatant review manipulation.” At trial, the experts would thus be precluded from opining on whether any single NatureWise review is literally false, but they would be permitted to discuss how they reached their conclusion— “a discussion which could very well implicate the doctrine of literal falsity.”


9th Circuit shows some hostility to functionality for product design, gets federal fame right

Blumenthal Distributing, Inc. v. Herman Miller, Inc., Nos. 18-56471 & 18-56493 (9th Cir. Jun. 25, 2020) 

HM and Blumenthal/OSP engaged in litigation over “knockoffs” of HM’s Eames chairs and Aeron chairs. A jury found that HM’s registered and unregistered claimed EAMES trade dresses were protectable, and that OSP willfully infringed and diluted them, resulting in an award of $3,378,966 in infringement damages and $3,000,000 in dilution damages, and OSP was enjoined. The jury also found that HM’s registered and unregistered claimed AERON trade dresses were unprotectable because they were “functional.” 

The court of appeals affirmed the infringement judgment on the Eames chairs, reversed on dilution for want of federal fame, and reversed and remanded on the Aeron trade dress because the jury wasn’t properly instructed on functionality. The basic problem is an insight that the Ninth Circuit has had before, but has often put badly: if consumers want the product because of the way it looks, but they want the way it looks because of the reputation of the source, then the appearance is not aesthetically functional simply because consumers want it for the way it looks. The problem is causation, because if consumers want the product for the way it looks, that is often aesthetic functionality. In addition, being known for introducing a design to the market shouldn’t itself count as the relevant reputation—that’s the rule of Dastar—as opposed to being known for making quality physical instantiations of the design. But making that distinction can prove difficult.

 

Eames chairs

“HM introduced the first Thin Pad Eames chair in 1958, and has sold hundreds of thousands of them in the United States, along with a related line of Soft Pad Eames chairs. The Aeron chairs were introduced in 1994 and were even more successful; by the time of trial, HM had sold 6.5 million of them in the United States.” Versions have been “exhibited in American art museums and made repeated appearances in American pop culture.” The claimed unregistered Eames trade dress was “the overall appearances of its Thin Pad and Soft Pad Eames chairs, excluding the chairs’ colors and all components beneath the chairs’ seats.” The registered trade dress was the same, except that it excludes the chairs’ upholstery.

 

Aeron chair

The claimed unregistered Aeron trade dress was the overall appearance of the Aeron chair with an oval-shaped lumbar support, excluding the portion of the chair beneath the seat and the chair’s color. The registered Aeron trade dress was the same, except that it also included the control box under the seat. The difference between the registered and unregistered trade dresses were not material to the appeal.

The court framed the aesthetic functionality test as “whether, if one seller were given exclusive rights to use the claimed trade dress, other sellers would be forced to use alternative designs that make their products more costly to sell, or for which consumers’ willingness to pay would be lower for reasons having nothing to do with the reputation of any source (e.g., the alternative designs would not have as much intrinsic aesthetic appeal). If such competitive disadvantages would be significant, then this second requirement for aesthetic functionality is satisfied.” 

The court of appeals rejected utilitarian functionality arguments for the Eames chairs, because the fact that they had some utilitarian functionality didn’t make the overall appearance functional, nor did the functionality of various features make the overall appearance functional. “For example, the jury could have reasonably concluded that the metal trapezoidal design of the Eames chairs’ armrests was motivated by design considerations, at the expense of the comfort that a softer surface could have provided.” OSP argued that this shape enabled the “armrests to be attached to the [rest of the chair] at three points” rather than two points, but cited no evidence that the extra point of attachment has any utilitarian benefit. 

The Aeron verdict was reversed because this instruction (taken from the Ninth Circuit Model Civil Jury Instructions) was bad: 

A product feature . . . is non-functional if its shape or form makes no contribution to the product’s function or operation. If the feature is part of the actual benefit that consumers wish to purchase when they buy the product, the feature is functional. However, if the feature serves no purpose other than as an assurance that a particular entity made, sponsored or endorsed the product, it is non-functional. 

The middle sentence misstated the law, because it’s not true that being “part of the actual benefit that consumers wish to purchase when they buy the product” is sufficient proof that a feature is functional under Au-Tomotive Gold. The instruction didn’t capture the utilitarian functionality factors, such that “a feature that provides a utilitarian benefit is not functional unless the Disc Golf factors weigh in favor of finding it so,” and it didn’t capture the rule that “a feature that provides an aesthetic benefit is not functional unless that benefit is wholly independent of any source-identifying function and the feature’s protection would put competitors at a significant non-reputation-related disadvantage.” This error was presumptively harmful, requiring reversal and remand. 

Comment: As far as I can recall, no court has ever opined on how to determine “significance” for these purposes. Is it qualitative? Quantitative? What increment of non-reputation-related market share is a trademark claimant entitled to by virtue of having some reputation-related market share, especially since functionality ordinarily trumps secondary meaning? With respect to phrases conveying a particularized message such as "Lettuce Turnip the Beet," our recent amicus brief indicates that the First Amendment interests in conveying such a message are inherently significant. Again, I think there's a real insight here but the word "significant" isn't super helpful in implementing it: the mere fact that a design is, aesthetically speaking, decent doesn't mean that it is aesthetically functional. I have occasionally suggested framing the question as whether, in a counterfactual world in which the plaintiff has no source-related reputation, the design would still have particular attractions beyond "eh, it's a fine design"; Justin Hughes has suggested looking for a larger tradition or principles, which would often accomplish much the same thing as my test, to protect things that have preexisting associations or meanings, e.g., a champagne container in the shape of a slipper or a heart-shaped chocolate box or a black (slimming) engine for a boat. The Betty Boop case is a good one here because it clarifies the normative nature of the inquiry: given that the copyright in Betty Boop expired, is the ability to compete in the Betty Boop market significant? I think Dastar means that it is, even if other mugs and T-shirts exist at the same price point.

Dilution: requires federal fame, which means “household name” status. This HM did not prove. The Ninth Circuit’s earlier Trek case held that Trek failed to show such fame even though the company spent “between $3 million and $5 million per year” on advertising, including in mainstream publications; had around 4.5 million visitors to its website per year; made products sold by over 1,600 independent dealers in 2,000 locations across the nation; and sponsored superstar Lance Armstrong, who prominently used Trek bicycles. The court reasoned that “incidental media coverage,” such as that connected to Lance Armstrong, did not “by itself constitute evidence” that the mark was famous, because “[m]any products receive broad incidental media coverage.” Also, “[a]dvertising to a mass audience is not the same as achieving fame with a mass audience and, by themselves, such advertisements prove only that Trek desires widespread fame, not that it has achieved it.” By contrast, “surveys showing that a large percentage of the general public recognizes the brand, press accounts about the popularity of the brand, or pop-culture references involving the brand would provide evidence of fame.” Though Trek was a FTDA case, the TDRA didn’t lower the standard for fame among the general consuming public. 

HM’s evidence, viewed in the most favorable light, showed: 

HM spent, on average, $550,000 per year on advertising the Eames chairs from 2004 through 2015 (and under $400,000 per year from 2004 through 2009); the Eames chairs appeared in obscure publications such as Contract, Metropolis, and an “industry publication” called Monday Morning Quarterback; at the time of trial in 2016, HM had, at the very most, around 875,000 unique followers on Facebook, Twitter, and Instagram combined; most of the Eames chairs are sold through a distribution channel consisting of only around 45 independently owned dealers with 130 locations across the country; and the Eames chairs were “very heavily” featured in the TV show Mad Men, have appeared in other TV shows and movies, and have been exhibited at several American museums, including the Museum of Modern Art and the Henry Ford Museum.

This was plainly weaker than the Trek evidence, which was legally insufficient. Even if the jury instructions accurately stated the law, HM didn’t offer evidence sufficient to allow a reasonable jury to conclude that the Eames trade dress met the standard for fame. The dissent wanted more leeway for trade dresses than trade names, but it’s still required that the mark be famous among the general consuming public as a mark, not just recognizable (e.g., the Statue of Liberty is famous, but it’s not famous as a mark). “Even assuming that the shape of the Eames chair is more recognizable than the name ‘Trek,’ there nonetheless was no basis from which the jury could reasonably infer that the general consuming public would link all Eames-shaped chairs to a single source of goods.” 

Judge Friedland, as mentioned, dissented, relying on the idea that a mark can be a mark even if the consuming public doesn’t know the identity of the (singular) producer; that HM was not well known did not mean that the Eames chair was not well known. The dissent would have held that the jury could “deem HM’s experts credible and … infer from their testimony that the general consuming public had become familiar with the Eames chairs through encounters in business environments, pop culture, and museums.” Because the design was distinctive, the jury could find that it served as “a signature of chairs made by a leading furniture manufacturer, even if they could not specifically name HM as that manufacturer.” 

I think the majority clearly has the better of this because of the difference between being well known and well known as a mark. 

The dissent rejected the side-by-side comparison of the facts here with the facts in the Trek case because it thought there was more evidence here of “actual consumer recognition” because the Eames chairs are “ubiquitous” in office environments and depicted in “countless” TV shows and movies. [One could do a very interesting class analysis of the imagined “general consuming public” here: although Mad Men was surely culturally significant for us New Yorker types, what portion of the public was actually exposed to these TV shows and office environments, or went to the museums that focused on the chair design?] Also, the design here is “iconic” and museum-worthy while Trek is a “non-distinctive four-letter term with multiple meanings.” The media coverage wasn’t “incidental” as it was in the Trek case because the chair was a distinctive product design “that the jury could have inferred was memorable to many consumers who saw the chairs.” 

Excellent example of casual empiricism here: “While members of the public can consume products or encounter advertisements for products without focusing on the marks they feature, it would be difficult for consumers to interact with a product without forming an impression of its overall appearance (its dress)—particularly when that appearance is distinctive.” [I think this is just made up: at least, I don’t recall any literature suggesting that overall appearance does any better than any other kind of feature at sticking in a consumer’s mind; like most things we encounter, most design probably doesn’t go into long-term memory at all, certainly not as source-identifying. And as a legal matter it’s inconsistent with the Wal-Mart rule that all product design requires secondary meaning for protection.]


Thursday, June 25, 2020

UL's interpretation of its own standards is opinion (but not all standards application would be)

Warren Technology, Inc. v. UL LLC, --- F.3d ----, 2020 WL 3406585, No. 18-14976 (11th Cir. Jun. 22, 2020)

This decision comes out the right way—a manufacturer’s disagreement with UL’s interpretation of its own standards doesn’t make UL’s interpretation false—but it also highlights that the fact/opinion divide is very fraught. 

Warren, which makes UE heaters (don’t worry about it) for HVAC systems, sued its competitor Tutco and UL, which is a Nationally Recognized Testing Laboratory accredited by OSHA to certify products’ compliance with safety standards, including the UL 1995 standard for UE heaters. Warren sued for Lanham Act false advertising and contributory false advertising, damages under the common law of unfair competition, and violation of the Florida Deceptive and Unfair Trade Practices Act. 

“All of Warren’s claims are based upon its allegation that, despite UL’s having certified Tutco’s UE heaters as compliant, Tutco’s heaters do not, in fact, comply with the UL 1995 standard,” because (Warren argued) UL misapplied the standard.

UL must, to do its OSHA-accredited job, interpret its standards. UL’s resulting authorization to Tutco to use UL’s mark was not an actionable misrepresentation. Even a misinterpretation of the UL standard wouldn’t necessarily be a falsehood as opposed to a matter of opinion, “provided it was made in good faith and in accordance with OSHA’s criteria for independence, procedural regularity, etc.” However, in order to limit what counts as opinion, the court indicated that it would be possible to plead an actionable misrepresentation based on a miscertification by UL. That could happen if UL failed to meet its own standards for testing, or interpreted the UL 1995 standard inconsistently over time, or applied it inconsistently to Warren and Tutco, or lacked independence relative to Tutco. Interestingly, all but the first of these examples appear to be the court reasoning from conduct that would invalidate a certification mark. But why those things (aside from the first) would remove an interpretation from the category of “opinion” is an interesting question.


Friday, June 19, 2020

reconsidering, court rules that FDUTPA covers more than Lanham Act "advertising," reinstates only state claims

Westgate Resorts, Ltd. v. Reed Hein & Assoc., LLC, 2020 WL 3265972, No. 6:18-cv-1088-Orl-31DCI (M.D. Fla. Apr. 27, 2020) 

Previously, the court dismissed Lanham Act false advertising and coordinate state law claims against timeshare exit purveyors. Here, the court reverses part of its earlier holding, with respect to non-advertising-based state law claims. Although courts often say that federal Lanham Act and state law claims are subject to the same analysis, that is an overstatement; in some circumstances, state laws are broader.

FDUTPA covers deceptive acts and practices that go beyond advertising. Westgate alleged that, once in contact with Westgate timeshare owners, defendants committed “unfair and deceptive acts and practices” by “instruct[ing] owners of Westgate timeshare interests to stop making payments of validly assessed maintenance and taxes, and of legitimately owed note and mortgage payments, to Westgate in Florida, which damages Westgate.” Owners who started out current on their payments were allegedly deceived into thinking they could safely exit without foreclosure and stopped payments at defendant TET’s instruction, when in fact they defaulted and entered into foreclosure. These allegations were supported by testimony from customers of TET. This plausibly proximately caused Westgate’s damages and might entitle Westgate to injunctive relief, even if the conduct was no longer ongoing. “[A] jury could find that TET engaged in deceptive practices by guaranteeing owners that it could legitimately exit them from their timeshare interests and instructing those same owners to stop making payments to Westgate, knowing that it would not actually negotiate with Westgate, that Westgate would likely foreclose, and that TET would simply claim that it had successfully ‘terminated’ the owners’ timeshare interests without disclosing the foreclosure.”

 


restitution unavailable in fed ct if damages are adequate, even for Cal. state law claims

Sonner v. Premier Nutrition Corporation, --- F.3d ----, 2020 WL 3263043, No. 18-15890 (9th Cir. Jun. 17, 2020) 

The court explains: 

On the brink of trial after more than four years of litigation [over allegedly false advertising of “Joint Juice”], Plaintiff-Appellant Kathleen Sonner voluntarily dismissed her sole state law damages claim and chose to proceed with only state law equitable claims for restitution and injunctive relief. A singular and strategic purpose drove this maneuver: to try the class action as a bench trial rather than to a jury. Indeed, Sonner continued to seek $32,000,000 on behalf of the consumers she represented, but as equitable restitution rather than as damages. But, to Sonner’s dismay, the plan backfired when, relying on its interpretation of California law, the district court dismissed her claims for restitution because an adequate remedy at law, i.e., damages, was available.

Affirmed, because federal courts have to apply equitable principles derived from federal common law, even to state law UCL/CLRA claims for equitable restitution. It doesn’t matter that state courts might do otherwise and that this creates state/federal divergence in results.  In modern times, the Supreme Court “has never held or suggested that state law can expand a federal court’s equitable powers, even if allowing such expansion would ensure a similar outcome between state and federal tribunals.”


Amicus in Lettuce Turnip the Beet

With the much-valued assistance of Venkat Balasubramani, Mark McKenna & I have put together a law professors' brief in the LTTB case, which raises important issues about the scope of a trademark registration and aesthetic functionality.  Read it here.

Thursday, June 18, 2020

Copyright Society panel on fair use (Warhol, Seuss, Oracle)

CSUSA Fair Use panel

Jennifer Pariser, MPA

Joseph Salvo, Sesame Workshop

Rebecca Tushnet

II.  Discussion of Three Notable Fair Use Cases Currently on Appeal

A.    Dr. Seuss Enterprises v. ComicMix, 372 F. Supp. 3d 1101 (S.D. Cal. 2019)Q&A:            The MPA and Sesame Workshop filed amicus briefs in support of Dr. Seuss Enterprises, and Professor Tushnet filed an amicus brief in support of Comic Mix.

Salvo: Sesame has done parodies in the past, but came in on DSE’s side here. Fair use is unpredictable, but there are a number of factors. This case in our view departed substantially from preexisting law. Court seemed to give a brand new rule for mashups. Obviated discussion of amount/substantiality of taking and market harm. Other thing was court looked past blatantly commercial nature of D’s work.  Also there was a lot of slavish copying: illustrator tried to go as close as possible, as did rhyming scheme. Finally, harm: fair use is an affirmative defense. District court also conflated derivative work transformativeness with fair use transformativeness, negating the derivative work right.

RT: 9th Circuit has already held that fair use is a defense, but not an affirmative defense. It negates infringement rather than excusing it according to the statute’s own terms. And since we are all textualists now we have to expect that the words of the statute will have a different effect than in the past when it gets to the Supreme Court.

Transformativeness is and should be a broad concept. Sesame is the best example of this. My own memory includes a Sesame book that just tosses off “isn’t it good, Norwegian wood” as monsters are eating furniture. That was just funny; it didn’t constitute criticism of the Beatles. Sesame Street’s own mashups also usually do a separate thing, like teach counting, rather than expressly comment on an adult show. That’s not different from Boldly Go, which contrasts Star Trek’s communality to The Places You’ll Go’s individualism (something that was recognized in the literature long before Boldly Go; David Brooks even has a column about it, believe it or not).

Commerciality: © plaintiffs are hoist on their own petard here. Having convinced courts that everything that gets litigated is commercial use, they have generated the doctrine that says that commerciality isn’t super important to most fair use cases.

Copying of each illustration v. copying a substantial amount of a work. This also comes up in Google v. Oracle: if © owner can slice its works into a large number of microworks, it can manipulate and distort the analysis, not just for fair use but for substantial similarity.

Why factor three rarely matters in transformative purpose cases: it doesn’t matter to meaning and it doesn’t matter to markets. If there’s transformation, you can take what is artistically important to you: pride in your own work as an artist is a good enough reason to do a good job, if you are creating something with new meaning and purpose. And that’s why the court’s comparison to the Liebovitz case was such a good one: in that case there was artistically exact copying of Annie Liebovitz’s photo in order to make the Naked Gun 33 1/3 poster a better poster. But because of the transformation of meaning and lack of impact on the market, the exactness of the copying didn’t change the outcome.

DSE had not licensed mashups; that’s a misdescription of the record, which showed only that the Grinch had appeared as a playable character in a game called Panda Pop; he didn’t interact with or have distinct powers in that game; he was basically a “skin” for the player character.

B.    Andy Warhol Foundation for Visual Arts v. Goldsmith (S.D.N.Y 2019)

Q: Professor Tushnet, can you speak to this idea as it relates to the Warhol v. Goldsmith case and your amicus brief specifically, and also as it relates to any other recent cases in which the focus may or may not have been, incorrectly, on fair use? 

The core argument of our brief: No matter what its purpose or effect on the market, a work that is not substantially similar in its use of copyrightable elements from the original simply does not infringe. Holding such instances to be fair use may mitigate the damage, but it makes the fair use doctrine more complicated and implicitly suggests that the defendants in such cases did take enough to infringe, which encourages future plaintiffs to try their luck with aggressive copyright claims.

Here, the overlapping visual elements between the two works stemmed from the appearance of Prince’s face and the nature of a close up image of a face; those are unprotectable, so similarity in only those things isn’t substantial similarity.

Fair use is intellectually more fun and it’s easier to have a discussion about bigger principles, but it’s not great to have it as the only tool in the basket. Similar cases include a case about a William Faulkner quote, when the Faulkner estate sued over a Woody Allen movie that used part of the quote, as well as the Seventh Circuit case of Kienitz v. Sconnie Nation. If we paid more attention to substantial similarity, we wouldn’t have as many hard fair use cases.

Pariser: agree that where that’s true, it’s bad to assess the issue on fair use grounds, but disagrees that’s the case in Warhol. Substantial similarity is usually discussed when there hasn’t been straight duplication of the senior work: instead, reproduced elements of the senior user, not made a straight copy on the photocopy machine. Tremendous burden to overcome the idea you didn’t take very much when you made a literal copy. Decision relies too much on Warhol’s popularity/fame as transforming the meaning of the picture.

On whom is the burden of showing market harm (also comes up in Seuss): a challenge in all fair use cases. The facts were too weak for Goldsmith on the fourth factor here.

Salvo: Fair use is fact sensitive. The fact that it was Warhol seems to have been magic/talismanic protection. © owners have the right to say no to licensing. As a brand owner, when you choose to associate w/another brand is important.

[RT: Things I didn’t have time to say: The switch to brand language is super important as a signal of an underlying issue that needs resolution: how much will ©/TM be separated, and will TM considerations count in © cases? Dastar is an important case here. Completely agree that relying on Warhol’s fame is problematic. As to literal copying, the doctrine is very clear that copying in fact is ok if you don’t create a substantially similar work. Even if Warhol did make a photocopy, which is unclear from the record, the things w/in the statute of limitations are not substantially similar. A full face shot is not itself creative and the way his face looks is a fact; the record unsurprisingly contains a number of photos of Prince staring at the camera in a hard to distinguish way.]

C.    Google v. Oracle, (N.D. Cal. and Fed. Cir. 2012-present)

Q&A:  For this discussion, we will leave aside the important question of the protectability of the APIs and focus on the question of fair use, but specifically, whether it was correct for the Federal Circuit to overturn the jury’s fair use finding.  

Role of appellate court in assessing jury verdict in © case: Feltner: right to jury for all issues relevant to making an award of statutory damages. But that proves too much. Everything goes to the jury in making an award of statutory damages. Harper & Row: courts of appeal can review district court findings of fair use as a matter of law. A lot of courts have decided they can review all fair use findings de novo, but this has only rarely happened b/c many fair use cases are decided on sj. Rarity of overturning jury verdict doesn’t mean doing so is incorrect. If courts can assess fair use as a matter of law, they can review it de novo. Critics of the outcome point to the issue that the jury didn’t make any specific findings of fact; how can we review that de novo? But the obverse doesn’t work either: if there are no findings of fact by the jury, that doesn’t mean the jury gets more deference. Lack of findings should worry us more. Weird system in which juries make broad rulings entitled to some amount of deference. Legal/practical perspective: review the legal aspects de novo. Can disagree about Fed Cir’s legal analysis, but if we’re just zeroing in on de novo review, thinks their ability to do so did exist.

RT: We have a a lot of jurisprudence about this; could a reasonable jury applying the correct law have reached this verdict? Prediction, which I rarely make: Supreme Court is going to decide this on non-© principles; it will try to figure out whether fair use was equitable in the 18th century and make up a presentist answer, given that fair use is not like the 18th century analogues/ancestors. My unsatisfying answer: it’s a mixed Q of law & fact. Market harm: pretty factual, and the Fed Cir intervened in an unjustified way there. Transformativeness: pretty legal. Commerciality as it is presently understood: pretty legal.

Q: if fair use is highly fact dependent, then that seems relevant.

Salvo: Not a tech person. Fed Cir seemed bothered by commerciality and market harm. Of note: what passes as permissible in visuals might not for music; for documentaries v. print publishing. In music it may be 3-4 notes. Different standards for different industries make comparisons difficult.

Q: contrast Cat Not in the Hat: Commentary on something other than Seuss lost. Is it a different fact pattern or have litigants learned to argue differently?

Pariser: ComicMix doesn’t even cite Not in the Hat; shows weakness of analysis.

RT: Different fact pattern and litigants have learned to argue differently. Subsequent Green Day case is more relevant; earlier Cat in the Hat case argued only parody.

Q: how does the Warhol case reflect back on the earlier Shepherd Fairey/Hope case?

RT: same issues!

Salvo: Koons also lost some cases until he/his lawyers convinced the courts that his view of art was correct.

Q: Mashups of music?

Pariser: same issues; which is why mashups shouldn’t get special deference. If there’s no lyrics in a sound track, it’s harder to show transformativeness. Marrying two disparate things together isn’t necessarily fair.

Salvo: first sampling cases; courts very strict in finding use of preexisting musical works/recordings were infringement. Robust licensing regime evolved. For brands, licensing is the solution here.

[RT: (1) racial bias in music case outcome v. visual work outcome, not understanding the language in which Black musicians were speaking (Bleistein). (2) TM concepts/Dastar issues.]

Q: why should DSE’s failure to license mashups matter if other entities do license mashups?

Salvo: they shouldn’t. Right to control subsequent use in derivative markets is important. We curate our brands.

Q: does the codification of fair use preclude equitable fair use that requires witholding injunction/profits but requiring payment of reasonable royalty?

Salvo: Congress said what to do.

RT: Twice: Tasini & the Rear Window case—has been suggested; interesting Q why more lower courts haven’t taken the Court up on the invitation.

Q: how do you reverse jury findings w/o examination of jury instructions?

Pariser: you do need to do both. Fed Cir started w/the Q of whether the district court’s understanding of the law of fair use was correct; didn’t say it explicitly but that must mean whether the court gave the jury the right factors to consider. Could remand to do it again if they weren’t right to take another whack. [As the Q suggests, of course, the Fed Cir didn’t actually do that.]  Fed Cir must have at least implicitly considered whether a remand would be a cleaner way of skinning this particular cat.

Q: has transformative use gone too far?

Pariser: of course!

RT: of course not!

Salvo: depends, leans towards Pariser. Courts have seized on transformativeness as alpha and omega, and that’s not right.

Pariser: that was our amicus in Oracle: whatever else you do, Court, don’t reverse on transformativeness. Google’s articulation of transformativeness was that they had a new product that was great. Our brief argues that you have to look at whether the © work was used in a transformative way.


Friday, June 12, 2020

TGI Fridays Potato Skins Snacks may deceive as to potato skin presence, but TGIF isn't liable

Troncoso v. TGI Friday’s Inc., 2020 WL 3051020 (S.D.N.Y. Jun. 8, 2020) 

Troncoso purchased a bag of snack chips labeled “TGI Fridays Potato Skins Snacks,” mistakenly believing the chips to contain real potato skins given that the restaurant chain TGI Fridays sells a Potato Skins appetizer that includes the flesh and peel of the potato.

 

After holding that Troncoso lacked standing to pursue injunctive relief, the court accepted as plausible one theory of falsity under  GBL §§ 349 and 350: that the product falsely represented that it included actual potato skins. 

Troncoso did not plausibly plead that a reasonable consumer could believe that the snack chips would taste identical to or would actually be identical to the TGIF Potato Skins appetizer. “No reasonable consumer would believe that the snack chips, shelf-stable and sold at room temperature in gas stations, would be identical in taste or substance to an appetizer, prepared with perishable dairy products and served hot in a restaurant.” Nor did she plausibly allege that the taste didn’t “resemble” that of the appetizer, or that only a product containing potato peels could in any way replicate the taste of the appetizer.  

Nor did she plausibly plead that a reasonable consumer could believe that the snack chips would contain thick slices of potato skins, given the picture on the front of the snack chips’ packaging. 

However, it was plausible that a reasonable consumer could be deceived about whether the products included potato peels. Troncoso also alleged falsity, in that she alleged that the only potato-based ingredients in the snack chips are potato starch and potato flakes, and that those ingredients are made from peeled potatoes (citing outside sources, including a video with an interview with the plant manager about how the chips were made that didn’t mention potato peels; while there was no explicit statement of “no potato peels,” it helped make falsity plausible and not just possible). 

Defendants argued that Troncoso couldn’t plausibly plead that she was misled into believing that the snack chips were nutritious because they contained potato peels. But that wasn’t her argument; she did allege that potato peels have extra nutrients, but that was her argument for materiality/the existence of a price premium, which defendants didn’t dispute on this motion. And the nutritional panel didn’t dispel any confusion because she alleged that potato peels have certain minerals not present in potato flesh, such as niacin, and niacin levels are not reported on the nutritional panel. 

More generally, the ingredients list wouldn’t dispel any misimpression based on the label. “A reasonable consumer would not understand that potato starch and potato flakes could not contain potato peels, and thus would not believe that the list of ingredients reversed the label’s representation that the product contains potato peels.” This is an implementation of the general principle that consumers aren’t required to be experts on the components or characteristics of every product they buy. 

However, defendants Utz and TGIF left the case. Utz got out because it was just the corporate parent and Troncoso didn’t sufficiently justify piercing the corporate veil. 

TGIF got out because of the solicitude the law has for trademark licensors. “TGIF may be liable for that misleading labeling under GBL §§ 349 and 350 and principles of common-law fraud only if it engaged in making the misleading labeling.” Troncoso alleged that TGIF had “control over the marketing of the” snack chips. But the allegation of licensing “does not suggest that TGIF was involved in any aspects of the labeling beyond its own trademark, which Plaintiff does not allege is misleading,” and Troncoso’s allegations of control were conclusory. 

Question for the audience: Suppose the plaintiff alleges the following: (1) Sophisticated trademark licensors are aware of the risks of naked licensing, and thus they both provide for control over the quality of the goods and their marketing and actually exercise that control so as not to risk losing control of the trademark, following standard industry practices. (2) Defendant is a sophisticated licensor (perhaps with statements from corporate reports or something like “ ‘Our approach to licensing is as important and strategic as any other aspect of our marketing efforts,’ said Trey Hall, senior vice president and chief marketing officer for T.G.I. Friday’s.”). Should this suffice to make sufficient control plausible?

 


Monday, June 08, 2020

misrepresentation of origin was not material and thus not false advertising

Boshnack v. Widow Jane Distilleries LLC, 2020 WL 3000358, No. 19cv8812 (DLC) (S.D.N.Y. Jun. 4, 2020) 

In trademark cases, courts don’t require any materiality showing. That matters. Materiality here defeats the only plausibly pled falsities about Widow Jane’s whiskey, which were about its origin. Before the Widow Jane label updated during 2018, it said: (1) “Kentucky Bourbon Whiskey Aged 7 Years In American Oak” and (2) “Pure Limestone Mineral Water From the Widow Jane Mine - Rosendale, NY.”

 


The Widow Jane using this label was distilled in Kentucky, using water from Kentucky. The limestone mineral water was added to Widow Jane after the Kentucky bourbon arrived in New York for bottling. Boshnack alleged that limestone water has “unique properties which makes it ideal for distillation” but that adding limestone water to bourbon after distillation is “meaningless and inconsequential.” Also, the limestone water used in Widow Jane does not actually come from the Widow Jane Mine, just from a source nearby.

After the 2018 update, the Widow Jane labels contained the following relevant phrases: (1) “Pure Limestone Mineral Water From the Legendary Rosendale Mines of NY,” (2) “Hand assembled in Brooklyn using the richest and rarest straight bourbons ... non-chill filtered & proofed with our own mineral water from the legendary Rosendale Mines of NY,” and (3) “KY, TN, IN Bourbon Bottled by Widow Jane Distillery Brooklyn, NY.” 


Boshnack allegedly bought a pre-update bottle of Widow Jane in January 2018 for approximately $85.

The court concluded that he didn’t plausibly allege deceptiveness to a reasonable consumer. The labels didn’t misleadingly suggest NY distillation: The pre-update label described Widow Jane as “Kentucky Bourbon Whiskey,” so a reasonable consumer wouldn’t conclude that it had been distilled in New York. 

As for misleadingness about the manner in which limestone water was used, the label didn’t assert that it was used in distillation, and the whiskey did contain limestone water. (That doesn’t really get to the misleadingness alleged about the utility of distilling v. proofing with limestone water, though.) 

As for the pre-update reference to “Water From the Widow Jane Mine” was misleading, it wasn’t material. The complaint didn’t explain why anyone would care, especially since the complaint alleged that adding post-distillation limestone water was “meaningless and inconsequential.” Plus, the whiskey allegedly continued to be sold at a significant price premium even under the post-update labels, and those labels used the unchallenged phrase “from the legendary Rosendale mines of NY.” “This suggests that removal of the indication that the water came from the Widow Jane Mine was not material to the bourbon-consuming public.”

 

 


Friday, June 05, 2020

NOCI to eBay protected against tortious interference claim by Noerr-Pennington, but defamation survives

Verbena Products LLC v. Pierre Fabre Dermo-Cosmetique USA, Inc., 2020 WL 2988587, No. 19-23616-Civ-Scola (S.D. Fla. Feb. 28, 2020) 

Verbena (aka Beautyvice) sells cosmetic and beauty care products on eBay. Defendant Yellow Brand “is a leading global provider of online anti-counterfeiting services,” while defendant PFDC “sells high quality pharmaceutical and dermocosmetics products around the world, including hair care products under the trademarks RENE FURTERER and PIERRE FABRE.” PFDA sent a notice to eBay accusing Beautyvice of selling counterfeit products, and, as a result, eBay removed Beautyvice’s accused listings. These were, however, allegedly legitimate Rene Furterer products that Beautyvice lawfully purchased and re-sold. Beautyvice submitted a counter notice, but eBay told Beautyvice to resolve this matter directly with the rights owner. 

Beautyvice contacted PFDC and received first a form email and then no other reply; eBay had not restored the listings at the time of suit. 

Lanham Act false advertising: a “single, private communication with eBay” wasn’t commercial advertising or promotion, even though the effect was to limit the dissemination of Beautyvice’s own advertising. Unfair competition under Florida common law and FDUTPA claims failed for the same reason. 

Noerr-Pennington: this doctrine protects First Amendment “petitioning of the government from claims brought under federal and state laws including ... common-law tortious interference with contractual relations.” But it doesn’t preclude defamation liability. Noerr-Pennington extends to acts reasonably attendant to litigation, such as demand letters, but not to sham lawsuits. A sham lawsuit is, first, objectively baseless, and second, brought in the subjective belief “that the process of the suit itself would further an illegal objective. Baselessness is a difficult showing, and Beautyvice didn’t show that the demand letter was “objectively baseless.”  (It seems to me the court has skipped a separate, important step: is a notice of claimed infringement (NOCI) to eBay under eBay’s procedures equivalent to a “demand letter”? It doesn’t actually threaten litigation against anyone, if I understand the NOCI process. That doesn’t mean that the relatively novel NOCI should not be treated like a demand letter for Noerr-Pennington purposes, but it does seem to me to require a distinct analysis, especially since the related §512(f) isn’t subject to Noerr-Pennington as far as I am aware.) 

Anyway, tortious interference claims were kicked out, but not defamation claims.


Rule 9(b) applies to false advertising Lanham Act claims against SmileDirect

Ciccio v. SmileDirectClub, LLC, 2020 WL 2850146, No. 19-cv-00845 (M.D. Tenn. Jun. 2, 2020)

SmileDirect sells plastic aligners for orthodontic use. Its SmileDirect program uses teledentistry as an alternative to conventional orthodontic care. The American Dental Association filed a complaint with the FTC alleging that SmileDirect has made “numerous false and misleading claims...to fraudulently entice customers to purchase its products and services”; it and its state affiliates also filed complaints with the FDA and with state licensing authorities. SmileDirect argued that this is an anticompetitive campaign. 

The initial complaint was filed by a SmileDirect customer, Nigohosian, and three orthodontists, pleading eight counts under various common law and statutory theories of false advertising, consumer protection, and fraud. Nighosian accepted an online contract requiring arbitration by the AAA for everything except “claims within the jurisdiction of Small Claims Court.” The court initially ruled that the threshold issue of arbitrability for her should be decided, in the first instance, through the arbitration process; the consumers (including later-added ones who the court indicated but did not rule would also be bound by this holding) voluntarily dismissed their claims. 

While various defense motions were pending, one of the consumers filed a Demand for Arbitration with the AAA, and AAA sent the attorneys involved a letter informing them that the AAA’s “Healthcare Due Process Protocol” dictates that the AAA “may only proceed forward on arbitration matters arising out of healthcare treatment agreements if the parties agree to binding forms of dispute resolution after a dispute arises.” In light of this determination of nonarbitrability, two of the consumers sought to rejoin the case here, even though this decision was made “administratively, not by an arbitrator,” and involved only one plaintiff. 

Defendants argued that, though the arbitration clauses require the parties to abide by AAA rules, they do not require them to rely on the AAA itself to arbitrate, so the plaintiffs must seek out an alternative venue. The AAA, by policy, “will no longer accept the administration of cases involving individual patients without a post-dispute agreement to arbitrate.” However it will “administer disputes between patients and healthcare providers to the extent a court order directs such a dispute to arbitration where the parties’ agreement provided for the AAA’s rules or administration.” Courts have split on the effects of this policy. As to the possibility of another abitrator, the plaintiffs pointed out that the AAA’s own Consumer Arbitration Rules provide that, “[w]hen parties have provided for the AAA’s rules or AAA administration as part of their consumer agreement, they shall be deemed to have agreed that the application of the AAA’s rules and AAA administration of the consumer arbitration shall be an essential term of their consumer agreement.” The Rules also say that, if the AAA declines to administer an arbitration, “either party may choose to submit its dispute to the appropriate court for resolution.” Courts that nonetheless required arbitration in similar situations did not appear to have relied on the content of the AAA rules as a whole, but merely on the relevant arbitration provisions and the Healthcare Policy in isolation. Thus, the consumer who received the letter showed that he was free to go to court. 

However, it was “colorable” that the AAA would accept Nigohosian’s claim pursuant to the court’s earlier order, based on an exception in the Healthcare Policy Statement for directly court-ordered arbitration, so she had to try, even though an earlier arbitration request involving another potential plaintiff had been rejected by AAA. But she could rejoin the case, subject to a stay, while arbitration proceeds/the AAA decides if it’s arbitrable—the court explicitly said that its prior references to “the arbitrator” did not preclude arbitrability review by the AAA’s non-arbitrator personnel; reading the order as a requirement to have the AAA arbitrate would rewrite the AAA’s rules, to which the parties agreed. 

Lanham Act claims by orthodontists: First, the court decided that Rule 9(b) applied to Lanham Act false advertising claims. Somehow courts never do this with Lanham Act §43(a)(1)(A) claims. Plaintiffs argued that “a strict application of Rule 9(b) [would be] unnecessary, unworkable, or unfair” in that, e.g., “advertisements are frequently disseminated over and over, sometimes through multiple channels,” and “ ‘[w]here the allegedly misleading advertising has occurred over a long period of time, it would be unreasonable and contrary to the Sixth Circuit’s liberal construction of Rule 9(b) to require Plaintiff to identify the exact day, hour or place of every advertisement which made the allegedly misleading statements.’” And in a Lanham Act claim, “the plaintiff, typically a competitor, is unlikely to have been the actual intended recipient of the relevant communications. It makes less sense, therefore, to impose on the plaintiff a heightened responsibility in describing what was said—a fact about which he, unlike a defrauded person, would have no special knowledge.” 

But “at least some of the purposes of Rule 9(b) are clearly implicated in the false advertising context,” such as protecting a defendant from unwarranted damage to its reputation (even though intent isn’t required, as it is not for trademark infringement). And Rule 9(b) is supposed to “discourage[ ] ‘fishing expeditions and strike suits’ [that] appear more likely to consume a defendant’s resources than to reveal evidence[ ] of wrongdoing.” Allegedly false advertising about quality “could open up discovery into every aspect of the product. If the plaintiff is required to specifically identify the difference between the advertised features and the product itself, discovery can be narrowed.” 

However, the court cautioned that adequately pleading false advertising didn’t require pleading fraud with particularity; the elements of the claim controlled. And even under Rule 9(b), what constitutes particularity depends on what’s necessary to provide sufficient notice. 

Commercial advertising or promotion: Plaintiffs alleged a lot of it: SmileDirect allegedly engaged in an “omni-channel approach to marketing, using billboards (including in Times Square and the NYC Subway), Google, Facebook, Instagram, and other social media platforms,” as well as having “purchased advertising time during televised national sporting events, such as college football games.” The complaint quoted some verbatim, and also identified as another example a blog post from SmileDirect’s “Grin Life” blog. The court didn’t require “specific dates and times” for the “omni-channel” marketing given the “sustained, repeated communications.” In cases involving numerous false statements, a plaintiff can satisfy Rule 9(b) by describing the allegedly false scheme and providing “representative” examples, rather than listing every wrongful act.

Falsity/misleadingness: Claims that SmileDirect’s customers were highly satisfied “may ultimately turn out to be the type of vague puffery that cannot support statutory liability,” but there were other more concrete and specific claims, e.g., the claim that “[a]n individual who is requesting treatment by using SmileDirectClub’s aligners is receiving the same level of care from a treating dentist-orthodontist as an individual visiting a traditional orthodontist or dentist for treatment.” Plaintiffs pled specific ways in which SmileDirect’s internet-based teledentistry system allegedly “falls far below the level of care involved in a traditional dental setting, particularly with regard to the limited diagnostic tools available in the SmileDirect setting and the comparatively lesser role played by dentists rather than non-dentist support personnel.” Whether “level of care” was sufficiently definite to be factual could not be decided on a motion to dismiss. 

In addition, SmileDirect allegedly advertised that SmileDirect’s plastic aligners work “three times faster than braces.” This suggested that aligners perform a comparable service to traditional braces, which plaintiffs alleged was false. SmileDirect also allegedly misrepresented its return policy through its “Smile Guarantee” policy, leading customers to believe that joining the SmileDirect Program entailed less financial risk than it did. These too were fact questions, and adequately alleged to be material. “When choosing between competitive services, the degree to which one service actually offers an adequate substitute for the other is an obviously important consideration. Overall cost is also an important consideration, and whether one will be able to get a refund is a component of determining the range of potential costs.” 

Finally, each individual orthodontist plaintiffs specifically alleged that his volume of business was reduced by the diversion of patients to SmileDirect. “Although the defendants fault the plaintiffs for failing to allege more facts that would support the conclusion that specific patients chose SmileDirect over them, it is difficult to imagine how an orthodontist could reasonably be expected to know the identities of the patients who merely considered him before going elsewhere. If anyone other than the patients would have that information, it seems more likely that it would be SmileDirect.” 

Tennessee Consumer Protection Act: The Tennessee Supreme Court has held that non-consumers can sue under the law if they suffer relevant harm from the violation of the law, and the orthodontists alleged lost money or property in the form of lost business, so the orthodontists’ TCPA claims could proceed. The TCPA also doesn’t allow private class actions for damages, but the statute indicated that injunctive and declaratory relief for a class was possible. 

Florida Deceptive and Unfair Trade Practices Act: FDUTPA doesn’t allow consequential damages. So are lost profits consequential or actual damages under the statute? The Florida state courts haven’t resolved the question, and Florida federal district courts have disagreed. The court’s Erie guess here was that Florida would consider a competitor’s lost profits to be actual damages under FDUTPA, which provides that it shall be “construed liberally to promote” its purposes, and whose private cause of action, like the TCPA’s, “does appear to contemplate a broad range of potential plaintiffs. Indeed, the FDUTPA was explicitly amended to make clear that it allowed claims by parties other than individual consumers, which supports the inference that it must permit the kinds of damages that non-consumer plaintiffs are likely to suffer.” 

New York General Business Law §§ 349 and 350-A: Could also proceed because the NY orthodontist plaintiff’s injuries weren’t derivative of the injuries suffered by SmileDirect customers. “The injuries suffered by consumers may have been caused by the same allegedly illegal marketing that caused the orthodontists to lose business, but one injury was not created by the other.”


overstatement of claims in patent case/potential customer liability could be false advertising

Shure Inc. v. ClearOne, Inc., 2020 WL 2839294, No. 19-1343-RGA-CJB (D. Del. Jun. 1, 2020) (magistrate R&R) 

Skipping substantive design patent stuff (sorry, Sarah Burstein). The parties compete in the installed audio-conferencing market and have a history of litigation, including accusations that Shure infringed ClearOne patents. The court in that case denied a preliminary injunction on one patent and granted it on another. ClearOne also filed a separate suit against Shure. 

Shure then sued here for infringement of another patent, as well as federal false advertising, Delaware Deceptive Trade Practices Act, unfair competition, tortious interference claims based on ClearOne’s alleged marketplace misconduct; Shure then added claims based on a newly granted design patent. 

Shure alleged that ClearOne made various false or misleading statements (including statements made by its Regional Sales Manager Schnibbe and its Senior Vice President of Finance Narayanan to customers, installers and integrators regarding the status or impact of litigation between the parties, including the impact of the preliminary injunction. 

First, were these compulsory counterclaims of the other (Illinois-based) litigation? No. Shure’s non-patent claims allege that ClearOne falsely advertised regarding the “availability, legitimacy, and viability of Shure’s MXA910 product based on the ongoing litigation between the parties.” But those statements related to rulings in the earlier Illinois case and a separate IPR proceeding, not to the more recent Illinois case. Even if Shure is ultimately found to have infringed the patent at issue in the more recent Illinois case, that wouldn’t affect whether Shure’s statements about earlier litigations were misleading and/or harmed Shure at the time that they were made. And as to Shure’s patent infringemetn claim, it did involve similar conferencing and array microphone technologies as the previous patent case and implicated the same products, in the sense that ClearOne’s accused product here practices the patent ClearOne asserted and that Shure is asserting damages tied to sales of its own accused-in-Illinois product. But that wasn’t enough given the different patents in suit. 

False advertising: The claim was sufficiently pled under Rule 8. Shure alleged that “[s]ince at least March 2019” Schnibbe made false and misleading statements about the availability, legitimacy and viability of Shure’s MXA910 product in connection with the ongoing litigation between the parties to “more than a dozen installers and integrators” of Shure’s conferencing equipment. They include “that Shure’s MXA910 has been found to infringe ClearOne’s patents, that two separate court rulings found that the MXA910 infringed ClearOne’s patents, that such rulings were ‘unanimous,’ that ClearOne had ‘won’ its lawsuit against Shure, that the MXA910 will soon be unavailable, that Shure will soon have to stop selling the MXA910, that Shure was then unable to sell MXA910 products, and that integrators, installers, and/or end users will need to tear or rip out existing installations of the MXA910.” Alleging this, and that these statements were “intentionally misleading and were made in bad faith, and with the intent to induce customers to refrain from purchasing MXA910 products,” was sufficient to provide proper notice, even if Shure didn’t name a specific customer to whom the statements were made. And Shure explained why such statements were allegedly false: because they wrongly suggest that, in light of the state of the legal proceedings at issue, there is no permissible non-infringing use of the MXA910 product or that the MXA910 will no longer be available in any form.

Commercial advertising or promotion: under the alleged circumstances, statements by one person to more than a dozen customers were plausibly “part of an organized campaign to penetrate the relevant market.” 

Bad faith: because of the interaction with patent law, false statements about patent rights have to be in bad faith to be actionable under the Lanham Act. Shure alleged why the statements were false, which was sufficient to allege bad faith at this stage.

ClearOne argued that its statements were non-actionable opinion, but they could be “verifiably false statements of fact.” It wasn’t opinion to say that (1) Shure’s product had been “found to infringe” ClearOne’s patents; (2) that two court rulings came to that conclusion and were “unanimous”; (3) that ClearOne had “won” its lawsuit against Shure; and (4) that the the product would soon be “unavailable” or that Shure could not sell them or that Shure’s customers would need to rip out existing installations. These were plausibly clearly untrue, in light of the then-current state of the 2017 Illinois case and the IPR proceeding involving one patent (in which there was then no final determination of infringement, nor any order affecting sale or use).

Because Shure pled literal falsity, it was entitled to a presumption of actual deception. 

As for the state law claim, the DTPA actually has a “lower burden of proof than the Lanham Act” because “a complainant need not prove competition between the parties or actual confusion or misunderstanding” to prevail in an action under the DTPA. Because at least the allegations about Narayanan’s letter satisfied the pleading requirements, the claim should survive. (The statements were very similar to the statements discussed above; for example, the letter said that third party installers and integrators were likely infringing ClearOne’s patent by installing Shure’s product “in a drop-ceiling mounting configuration,” but this was allegedly false because some such configurations were noninfringing; it also allegedly misleadingly suggested that Shure customers could be held personally liable via the 2017 case, when that could not happen; etc.)

 The magistrate also recommended that tortious interference and unfair competition claims should survive.