Thursday, November 12, 2020

advertiser can amend complaint against Facebook for click fraud claims

DotStrategy Co. v. Facebook Inc., No. C 20-00170 WHA, 2020 WL 6591366 (N.D. Cal. Nov. 11, 2020)

The court grants plaintiff’s motion for leave to amend its complaint in this putative class action alleging that FB’s statements about advertising on FB violated the UCL. “The main issue presented here is whether or not a reasonable advertiser would understand Facebook’s representation that it would not charge advertisers for ‘clicks that are determined to be invalid’ to mean that Facebook would not charge — or refund — advertisers for clicks made by fake accounts, if at all, which Facebook identifies and removes from its platform for violating its authenticity policies.” Plaintiff pled sufficient facts to support this theory.

FB’s agreement said:

When serving your ad, we use best efforts to deliver the ads to the audience you specify or to achieve the outcome you select, though we cannot guarantee in every instance that your ad will reach its intended target or achieve the outcome you select[.]

We do not guarantee the reach or performance that your ads will receive, such as the number of people who will see your ads or the number of clicks your ads will get.

* * *

We cannot control how clicks are generated on your ads. We have systems that attempt to detect and filter certain click activity, but we are not responsible for click fraud, technological issues, or other potentially invalid click activity that may affect the cost of running ads.

However, from 2013 through the present, FB’s Business Help Center page represented that advertisers would “not be charged for clicks that are determined to be invalid”: “If we detect or are alerted to suspicious or potentially invalid click activity, a manual review is performed to determine the nature of the activity. You will not be charged for clicks that are determined to be invalid.” Facebook defines “invalid clicks” as “[c]licks from people that do not indicate a genuine interest in the ad or show signs of ad testing. This includes repetitive or accidental clicks or visits from the Facebook corporate network” and “[c]licks generated through prohibited means, such as fake accounts, bots, scrapers, browser add-ons or other methods that don’t follow Facebook’s Terms.” FB’s terms of service and authenticity policy requires users to use their “real identities,” so fake accounts violate Facebook’s policies.

The proposed complaint had a bunch of other FB statements that were allegedly false and misleading, such as:

• “On Facebook, you’ll only pay to reach the right people who’ll love your business.”

• “Facebook is a community where everyone uses the name they go by in everyday life. This makes it so that you always know who you’re connecting with.”

Nonetheless, FB allegedly charged for invalid clicks, which includes “[c]licks generated through prohibited means, such as fake accounts, bots, scrapers, browser add-ons or other methods that don’t follow Facebook Terms.” When Facebook determined those clicks were generated through prohibited means, it failed to provide a refund to plaintiff and the class members. Plaintiff alleged that it reasonably believed that, because Facebook requires “everyone to provide their real names,” it would not be charged for advertising that interacted with fake accounts.

Plaintiff alleged that between 2013 and 2018, Facebook charged it for clicks that were made by thirteen different fake accounts. Facebook allegedly has since deleted eight of these thirteen accounts from its platform “likely for violations of its ‘authenticity policy.’ ”

FB argued that no reasonable consumer could have been misled by its allegedly false and/or misleading statements, particularly, in light of the contractual disclaimers in the self-serve ad terms. The key issue was whether, given FB’s statements, a reasonable advertiser would have believed that once Facebook determines and removes an account for violating its authenticity policies (e.g., a fake account), FB would then perform an audit to refund advertisers for any invalid clicks that that account may have made, and for which FB had charged advertisers for.

That is a question of fact not suitable for resolution on a motion to dismiss. Plaintiff plausibly alleged deceptiveness to a reasonable consumer.

The allegedly contradictory TOS stating that Facebook is not “responsible for click fraud” was ambiguous; a reasonable advertiser could construe that to mean that FB itself is not perpetuating any click fraud [and, I’d add, couldn’t itself be held liable for damages—but that doesn’t mean it’s clearly promising to hang on to the money it collected from the advertiser for fraudulent clicks]. And the Ninth Circuit “has recognized that a UCL fraud claim can be based on misleading representations in a solicitation even when the plaintiff later signed a contract with provisions contradicting the earlier falsehoods.” “The question, then, is not whether [Facebook’s] contractual terms corrected the false statements in its advertising, but whether dotStrategy’s reliance on the false advertising was reasonable even in light of the contractual disclaimers.” That was properly alleged.

FB argued that none of its statements mentioned refunds, so they couldn’t be deceptive. “But a refund is implied” for interactions FB knew involved invalid clicks. FB tried to distinguish fake accounts from invalid clicks, arguing that it only promised to provide manual review for “suspicious or potentially invalid click activity,” and no charges for “clicks that are determined to be invalid,” not audits every time a fake account was removed.

But the proposed complaint specifically alleged that Facebook charged it and other advertisers for invalid clicks, such as clicks by fake accounts and/or bots. “Second, a reasonable advertiser might also reasonably believe that once Facebook determines an account is fake, Facebook would be ‘alerted to suspicious or potentially invalid click activity’ and thus would conduct a ‘manual review’ to determine the nature of the activity.” After all, falsity/misleadingness “is analyzed from the perspective of a reasonable consumer, not from the perspective of an attorney splitting hairs.”

This interpretation would not, as FB claimed, make it liable if its platform was 100% secure against fake accounts. Rather, the advertiser’s argument was that, once FB does stumble on fake accounts, it should then perform an audit to refund advertisers for any invalid clicks committed by such accounts, given what it said to advertisers.

FB then argued that, just because an account was fake in 2018 when plaintiff performed its survey, it doesn’t also follow that that account was also fake in 2017, for example, when it clicked or engaged with plaintiff’s ads. That was a factual issue, and the plausibility of the claims was bolstered by various news reports suggesting that fake accounts on FB “are rather ubiquitous.”

However, a number of the challenged statements hadn’t been sufficiently pled to be false or even non-puffery:

• “Connect with people. Ads help you reach the right people.”

• “Facebook can help you reach all the people who matter most to your business.”

• “Facebook ads are optimized to help you get more people to visit your website or increase conversion.”

• “Your business is for your customers. Built relationships with them, reach new people and drive sales using Facebook.”

• “Drive people to your website with one click from the most engaging place on Facebook.”

• “Find new customers. Boost sales. Facebook can help you meet your business goals.”

• “Meet the people who will love your business.”

A reasonable consumer “would understand that not all users on Facebook would adhere to Facebook’s authenticity policy or would be interested in its ads.” And even people who didn’t use “true and full names” might have provided accurate information concerning their age, gender, and location, among other things; “it cannot be said that such an account is categorically unable to be interested in plaintiff’s ads.”

But these statements were plausibly false/misleading:

• “On Facebook, you’ll only pay to reach the right people who’ll love your business.”

• “Facebook is a community where everyone uses the name they go by in everyday life. This makes it so that you always know who you’re connecting with.”

And the plaintiff plausibly pled economic injury: the cost of invalid clicks.

 

timeshare exit lawyer wins a round: no harm causation shown

Club Exploria, LLC v. Aaronson, Austin, P.A., No. 18-cv-576-Orl-28DCI, 2020 WL 6585802 (M.D. Fla. Nov. 10, 2020)

Another timeshare v. timeshare exit lawyer case that goes much better for the defendant than some others. Briefly, the plaintiff seems to have relied heavily on favorable precedents without developing enough evidence that this specific firm did the same bad things.

Defendant law firm specializes in timeshare owner grievances against developers; its websites contain colorful statements and media aimed at optimizing internet visibility, and clients are emailed a link to one of the sites when their retainer agreement is sent to them. Exploria alleged that Aaronson uses false and misleading website advertisements to convince timeshare owners that they can easily cancel their timeshare contracts if they hire Aaronson. Aaronson allegedly then advises owners to stop paying their loan and fee obligations.

An example of the website statements:

Timeshare ownership often feels like entrapment. At the Aaronson Law Firm, we know this because we hear our Clients’ stories.

....

But chances are good that your timeshare developer is exposed legally in ways that are relatively straightforward and provable. You owe it to yourself to hire experienced, competent counsel. At the Aaronson Firm, we have over 80 years of combined legal experience. And we are willing to sue, if necessary, in the interest of getting your timeshare cancelled….

YOUR LEGAL PROBLEMS ARE NOT INSURMOUNTABLE!

If you need to cancel your timeshare, the timeshare Attorneys of the Aaronson Law Firm stand ready and able to help you!

The sites also explained that they would use formal demand letters to “initiate” recission, with an attached proposed civil complaint in a carrot/stick arrangement.

Its blog stated that “[q]uite often, one’s signature on a timeshare contract is obtained by fraud.… But to address it properly, it is imperative that you retain a licensed attorney.” Experienced counsel, it stated, “will know how to exploit other points of vulnerability. For example, the developer may well be perpetrating an ongoing conflict of interest. Improper handling of trust funds are [sic] also a major issue.”

Its websites contained videos purporting to be testimonials of Aaronson’s clients, but actors and Aaronson employees played the roles of lawyers and owners. “In both instances, the role players read statements of actual unhappy timeshare owners.” [Generally ok, if disclosed.] However, “[o]ne of the websites also included two printed testimonials that were written by the web designer and an Aaronson employee but attributed to timeshare owners.” [Not ok.] The websites did mention some timeshare developers by name, but not Exploria, and the court indicated that the focus of the criticism was the timeshare industry in general.

Aaronson represented at least 22 Club Exploria owners attempting to cancel their timeshare contracts, but Exploria sought damages for six in particular. The court found, based on deposition testimony, that the owners who stopped making payments did so of their own accord, without instruction from the firm or before hiring the firm.

Tortious interference: Aaronson knew of the contract between the parties, but Exploria didn’t show that defendants intentionally caused the contract to be breached. Whether Aaronson’s legal theories were good ones didn’t matter without causation. Exploria’s primary evidence was testimony given by a different person in an unrelated litigation who testified that Aaronson advised him to cease making payments as part of a legal strategy to terminate a timeshare with Diamond Resorts. The fact that two of the six owners stopped paying after hiring Aaronson wasn’t enough for a reasonable jury, especially given the testimony of the only owners deposed that no one from the law firm told them to stop paying, that they chose to stop paying for other reasons, and that letters Aaronson sent to Exploria on their behalf did not lead them to believe that they had been relieved of their payment obligations. Many Aaronson retainer agreements stated: “To avoid the possibility of a counterclaim, it is important that you remain current on your payments with the developer.”  Prior cases involved very different evidence, and indeed Aaronson fixed one mess made in the unrelated Westgate litigation.

FDUTPA prohibits “unfair or deceptive acts or practices in the conduct of any trade or commerce.” The court concluded that, though nonconsumers do have standing under FDUTPA, the practice of law was not “trade or commerce.” While lawyers are not per se exempt from FDUTPA, lawyers acting to exercise a legal remedy are typically not considered to be engaged in trade or commerce. That was the case here with Aaronson’s website ads and representation of clients. Aaronson actually went to litigation on a regular basis, unlike the lawyer in Westgate who, the court there found, “actively avoid[ed] judicial involvement through all of his work.”

Lanham Act: No showing of proximate causation: there wasn’t evidence that the website ads caused owners to withhold business from Exploria.

The court nonetheless addressed other elements of the Lanham Act claim. There were genuine issues of material fact on falsity/misleadingness. Rather than deeming the accusations against the timeshare industry as a whole to be puffery (“fraud,” “pack of lies,” “improper handling of trust funds,” sociopathic sales associates, “ongoing conflicts of interest,” and the owners “being taken for a ride”) the court found it couldn’t determine the truth of those statements at this stage. And there was record evidence that the sites’ claims that the timeshare developers are likely “exposed legally in ways that are relatively straightforward and provable” and that Aaronson’s strategies give timeshare owners “the best chance to have [their] timeshare successfully rescinded” were false. The evidence was that, of the 100–150 timeshare cases the lawyer has taken to litigation, the contracts were found unenforceable roughly six times. And there was no record evidence that any of the Affected Owners’ contracts were successfully rescinded. That didn’t show there were no legal grounds to dispute the agreements or that Aaronson was never successful, but a jury could find that Aaronson’s website “falsely or misleadingly stated timeshare developers’ legal vulnerability as well as the availability of remedies like rescission.” [There is a line of cases about when legal claims are falsifiable v. puffery, but the court does not cite them and might not have been directed by the parties to them.]

Likewise, a jury might find the claims literally false; if they found them misleading, the case would fail because Exploria had no evidence of consumer reaction.

However, Exploria’s failure to show materiality was fatal regardless. There was no expert testimony or other evidence that the website advertisements were likely to be material to consumer purchasing decisions. The record didn’t even show that every owner found Aaronson through its websites; only one of the 6 named did so, and she wasn’t deposed. The rest were referred by another lawyer. One had no recollection of visiting the site, and another’s spouse told her nothing about the site. “Clearly the website statements were not material to these owners even if they did indeed view them.”

Trade libel: also failed for want of materiality.

Peloton's music troubles give it consumer protection troubles over "ever-growing library" claim

Fishon v. Peloton Interactive, Inc., 2020 WL 6564755, No. 19-cv-11711 (LJL) (S.D.N.Y. Nov. 9, 2020)

Peloton streams live and on-demand fitness classes requiring a monthly subscription fee. Certain Peloton ads described the library of fitness classes as “ever-growing.” But in March of 2019, however, in response to a lawsuit from music publishers, Peloton removed approximately 5,739 classes, or nearly 57% of the total available classes, from its library. Plaintiffs alleged that the “ever-growing” claim was deceptive and misleading.

The court dismissed the NYGBL claim of the Michigan plaintiff, but not of the NY plaintiff.  

First, the terms of service, which authorized Peloton to remove content from its library at any time, did not protect Peloton. Statements buried in contracts can’t, in general, avoid false advertising claims. “A reasonable consumer, having viewed Peloton’s advertisements on its website and having decided to purchase a Peloton product based on the understanding that the library would grow ‘should not be expected to discover the truth’ and that such understanding was false from the Terms of Service.” Moreover, being able to remove content at any given time was not inconsistent with a promise of an “ever-growing” library, and so the TOS didn’t dispel the alleged falsity. “The Terms of Service do not disclose that Peloton might remove over half of its library without simultaneously replacing that half with even more classes.”

Puffery: “Ever-growing” was objective and testable. “The library either increased in size or it shrunk.”

Deceptive/misleading: This was a factual question not appropriately resolved on a motion to dismiss, despite Peloton’s argument that it was constantly adding new content, nearly 24 hours of live content per day. “Ever-growing” is not the same thing as “ever-changing.” “A consumer attracted to a grocery store by its advertisement of a growing selection of foodstuffs would be surprised to learn on each visit that the number of products on sale was decreasing, although the store was replacing the items it removed with a smaller number of new products…. A reasonable consumer thus would not understand as a matter of law when he or she purchased the Peloton product based on the representation that the library was ever-growing that the library was shrinking in size at the same time Peloton was adding new classes.”

Plaintiffs also properly pled causation even without alleging that they saw the misleading ads, since reliance isn’t required and Section 349/350 claims are not fraud claims that must be pled with particularity. “[A]n allegation that the defendant was injured because she relied on the misleading statement to her detriment is not a ‘[t]hreadbare recital[ ] of the elements of a cause of action,’ but rather “an allegation of fact as to how she came to be injured that—if proven—supports the establishment of that element…. The manner in which the plaintiff came to rely upon the deceptive act—and whether it can be proved—is a further issue of proof and not something that needs to be pleaded in detail for a complaint to proceed.”

So too with injury: The complaint alleged that “Plaintiffs attributed value to Peloton’s promises regarding the nature and characteristics of its on-demand digital library and would not have purchased the hardware and corresponding Peloton Membership, or would not have purchased it on the same terms, if they knew the truth.” That was enough for now.

 

misbehavior in Amazon reviews + false ingredient claims = $9.5 million award

Vitamins Online, Inc. v. HeartWise, Inc. 2020 WL 6581050, No. 13-cv-00982-DAK (D. Utah Nov. 10, 2020)

This is a long-running supplement false advertising case involving both ingredient and “review” claims; here the district court resolves a number of issues, finding a fair amount of falsity. The plaintiff sells NutriGold supplements and the defendant sells NatureWise supplements.

I’m skipping a lot of detail on the ingredient specifics but will say a bit more about the review claims.

I should also note that, due to HeartWise’s failure to preserve evidence, the court drew a number of adverse inferences about failure to meet label claims.

The court found that, on Amazon, the number of positive reviews and even slight differences in star ratings are important to consumers, and good reviews improve search results and sales; it relied in part on VO’s survey expert and on “very extensive and consistent literature that online reviews are an important part of almost all online purchasing decisions.”

NatureWise’s First Green Coffee product page began receiving product reviews before the product even launched, including reviews stating that customers had been taking it for weeks/months, and losing pounds per week. Several of the reviews had red flags—they were from unverified purchasers, appeared within 14 minutes of one another, and gave the product 5 stars. Fourteen five-star unverified reviews appeared within 25 minutes of one another and had “a similar pattern of including an exclamation point in the title of the review.” Other NatureWise products followed the same general pattern.

VO’s statistics and computer science expert authored a joint report with its statistics and review manipulation expert; they were both credible. Based on this testimony, the court found that NatureWise’s unverified reviews had higher ratings than its verified reviews; the products had higher ratings than a random sample of similar products; the unverified reviews were significantly higher; there were an unusually high number of new reviewers; NatureWise reviewers had written more prior reviews than the typical reviewers; new NatureWise reviewers gave significantly higher ratings than customers who had previously written reviews on Amazon; NatureWise reviewers had significantly higher similarities compared to other reviewers; and there were periods in which the NatureWise products had an unusually large ratio of unverified reviewers and an unusually large ratio of reviewers that were highly positive.

NatureWise also manipulated reviews by (1) block voting on the helpfulness of reviews and (2) offering free products in exchange for reviews. Employees, at its direction, upvoted good reviews and downvoted bad reviews. NatureWise’s principal testified that this was only defense to attacks by unknown third parties, but he directed employes to downvote bad reviews without mentioning purported attacks or distinguishing between “attacking” reviews and legitimate reviews. “NatureWise management knew that their block voting was interfering with Amazon reviews, and they were worried about customers finding out,” and also worried about Amazon finding out, since they knew that this violated Amazon’s policy.

As for products in exchange for reviews: “On several occasions, NatureWise denied having offered free product in exchange for a review, even though that was not true.” It also asked customers “to review other products so that their reviews of NatureWise products would have more credibility and so Amazon would not think NatureWise reviews were fake.” The products-for-review scheme was also a violation of Amazon policies, and the court found that it deceived consumers because review independence is material to them. The court further found that review manipulation benefited NatureWise financially.

Since the parties’ products competed directly, and since for at least some part of 2012-end of 2013 they were the two major players in the Amazon marketplace for garcinia cambogia and green coffee products, with only “minimal” alternatives, this all hurt VO. NutriGold took the “#1 Amazon top seller” slots for both. By 2014, however, “the markets for green coffee and garcinia cambogia on Amazon were inundated with competitors such that Vitamins Online and NatureWise were no longer the two major players in the relevant marketplace.”

Falsity/ingredients: Based on the adverse inference mentioned above, the court found that certain claims were literally false and VO was entitled to a presumption of deception, wich was unrebutted. As for the products in general, NatureWise “failed to keep the necessary documentation to keep track of the Green Coffees and the Garcinias that it was selling.” At least as to certain lots, a number of claims about ingredients, ingredient amounts, vegetarian status, lack of fillers/binders/artificial ingredients, and clinical proof were literally false. “For much of 2012 and 2013, NatureWise’s claims … that (1) each ingredient it used was verified for purity through in-house testing; (2) it had implemented a strict set of FDA compliant manufacturing procedures; and (3) its facilities were regularly inspected by FDA officials were literally false because NatureWise did not know who was making those products.”

Even if these claims had been only implicitly and not explicitly false, VO would be entitled to a presumption of deception because the court found that defendants acted with the intent to deceive consumers.

Review claims: the court found that the practice of block voting was “the use of a device in connection with the commercial advertising or promotion of its products.” And as a result, the number of “helpful” votes on certain reviews were “artificially inflated and literally false.” NatureWise’s representations that it did not offer free products in exchange for reviews were also literally false. Even if this was only implicit falsity, again, there’d still be a presumption of deception because of the intent to deceive.

NatureWise failed to rebut these presumptions of deception.

Materiality: The court quoted the Second Circuit’s statement that, “in many cases the evidence and the findings by [a] court that a plaintiff has been injured or is likely to suffer injury will satisfy the materiality standard—especially where the defendant and plaintiff are competitors in the same market and the falsity of the defendant’s advertising is likely to lead consumers to prefer the defendant’s product over the plaintiff’s.” The court concluded that both ingredient and review claims were material, and also the court presumed materiality from literal falsity. Plus, because Vitamins Online and NatureWise were direct competitors in a sparsely populated market, the court presumed injury to VO. (Previously the court had declined to rely on this rationale, but the evidence at trial showed that the market was in fact sparsely populated during a key period.)

Injury: A “heightened level of ... proof of causation and specific injury” is required when the plaintiff is seeking money damages. And the standard of proof required when a plaintiff is seeking disgorgement, as VO was, is “somewhere between the standards for money damages and injunctive relief.”

For the years 2012 and 2013, VO was entitled to a presumption of injury because of the sparsely populated market, but only of economic injury and not of reputational injury. As to the remaining years, VO failed to show economic or reputational injury proximately caused by NatureWise’s misrepresentations once the market was flooded with competitors. At that point, “a sale for NatureWise could have meant a lost sale for any of the other Amazon competitors.”

The Utah common law unfair competition claim went the same way.

Applying Romag Fasteners, Inc. v. Fossil, Inc., 140 S. Ct. 1492 (2020), the court noted that willfulness is still “a highly important consideration in determining whether an award of profits is appropriate.” Other equitable considerations may include, among other things, “(1) the degree of certainty that the defendant benefited from the unlawful conduct; (2) availability and adequacy of other remedies; (3) the role of a particular defendant in effectuating the infringement; (4) plaintiff’s laches; and (5) plaintiff’s unclean hands.”

Here, disgorgement of NatureWise’s profits from 2012 and 2013 was an appropriate remedy, given the clear benefit NatureWise received: it “quickly rose to the top of Amazon sales rankings and made millions of dollars in a matter of months despite having no previous experience in the industry.” And, even though VO wasn’t seeking actual damages, those are difficult to calculate accurately in a false advertising case. VO didn’t delay, and NatureWise’s actions were willful. Indeed, “as a result of testing, NatureWise had knowledge that certain lots of the Products did not match their label claims. Yet, even with that knowledge, NatureWise continued selling those products and never issued any recalls.” NatureWise’s discovery improprieties additionally favored disgorgement.

NatureWise’s sales from the period were over $9.5 million, and it didn’t provide reliable evidence of cost or other deductions, so the court awarded the entire amount plus prejudgment interest. The award was the same (not doubled) for the Utah common law claim.

The court declined to enhance the damages/profits awarded. The disgorgement was adequate compensation, and enhanced profits would constitute a penalty.

The court also declined to grant VO a permanent injunction, since the disgorgement was adequate compensation. And VO’s requested relief that NatureWise be compelled to remove all its product reviews on Amazon would be against the public interest because “legitimate reviews of actual consumers would also be removed.” [What about compelling NatureWise to remove/request removal of all paid-for reviews and employee helpfulness votes? Would Amazon do that?]

The court also awarded attorneys’ fees and costs “in light of NatureWise’s actions in willfully deceiving consumers, failing to produce pertinent evidence, and abusing the discovery process” and in order to deter NatureWise from further willful conduct.

Tuesday, November 10, 2020

Amicus brief in Stouffer v. Nat'l Geographic (a title v title infringement case)

With Mark Lemley, Mark McKenna, and a number of other IP professors, I submitted this amicus brief arguing that the 10th Circuit should adopt Rogers v. Grimaldi (without any exclusion for title v title claims) for assessing trademark claims against noncommercial speech such as TV shows.

Wednesday, November 04, 2020

230 defense fails where speaker's ownership/control of D is sufficiently alleged

Tang v. Guo, 2020 WL 6414371, No. 17 Civ. 9031 (JFK) (S.D.N.Y. Nov. 2, 2020)

Further on this case about a dispute between a political activist and a rival. Plaintiffs sued defendants including Guo a/k/a Kwok and four entities that Kwok allegedly founded and controls, collectively the media defendants and the ROL defendants (“Rule of Law” Society and Foundation). A media defendant and the ROL defendants moved to dismiss the claims against them under §230 and the court denied the motion because it was properly pled that they were owned/controlled by the speaker who posted the challenged content on their websites, and thus not third parties for §230 purposes.

Plaintiffs allege that Kwok owns, directs, and/or controls the media Defendants and ROL defendants, which he allegedly created to promote certain for-profit endeavors of his under the guise of advocating for greater human rights and democracy in China. Each entity operates out of Kwok’s residence; and Kwok is the sole agent and promoter of the corporations’ services, which are allegedly designed to compete with plaintiffs’ nonprofit organizations and media outlet, which also advocate for greater human rights and democracy in China.

Kwok, via the media defendants and other outlets such as YouTube and Twitter, allegedly made and continues to make available, false and defamatory statements about plaintiffs, as well as false or misleading statements about the purported use of funds donated to the ROL defendants, in order to garner attention for Kwok’s nonprofit and media organizations and ultimately drive donors away from plaintiffs’ competing organizations.

After an initial dismissal, the court allowed plaintiffs leave to file an amended complaint alleging Lanham Act, unfair competition, defamation, and harassment claims to move forward, and adding media defendant SMG and the ROL defendants to be added to this action. Relevant allegations: (1) that the ROL defendants, which are owned and controlled by Kwok, use the media defendants to publish Kwok’s false and misleading statements; (2) that the ROL defendants engaged in false advertising regarding the foundations’ non-tax exemption for certain charitable donations, and the foundations’ lobbying efforts and non-charitable expenditures; and (3) that the media defendants promote Kwok’s and the ROL defendants’ false statements and advertising by receiving funding from the ROL defendants and publishing Kwok’s misleading infomercials on their platforms.

Media defendant SMG argued that §230 shielded it from any liability, and the ROL defendants argued that the complaint didn’t plausibly allege a principal-agent relationship between Kwok and the ROL defendants, and even if it did, the complaint didn’t allege how the ROL defendants’ purportedly false advertising caused any harm to Plaintiffs.

Previously, the court found Lanham Act/unfair competition claims permissible because the complaint plausibly alleged (1) a sufficient economic motivation for Kwok’s speech based on the “DONATE” buttons he included in certain video infomercials as well as the plausible allegation that Kwok sought to increase viewership on the media defendants’ platforms in order to encourage donations to the ROL defendants; (2) that Kwok and the entities he controls have misled the public regarding the use of donated money; and (3) that Kwok’s false statements were made for the purpose of influencing donors to make contributions to his charitable organizations instead of to Plaintiffs’ competing organizations. [I suspect there’s a greater noncommercial speech problem here than litigated out here, given Riley & progeny.]

CDA:  “[I]mmunity pursuant to the CDA is generally only available where the complained of content is provided by a third-party.” The complaint plausibly alleged that defendant SMG itself published the false statements, because plaintiffs plausibly alleged that Kwok owns and controls SMG and used it to violate the Lanham Act and unfairly compete with plaintiffs’ fundraising efforts.

The ROL defendants: The complaint alleged that the two organizations are essentially the same except that one is a 501(c)(4) entity which is allowed to engage in lobbying, and the other is a 501(c)(3) entity which is not, and that the two organizations compete with plaintiffs for donations, gifts, and other contributions intended for promoting human rights and democracy in China. They allegedly engaged in false advertising by soliciting charitable contributions without distinguishing between the two or disclosing to potential donors that the ultimate use of the funds was for non-charitable purposes, such as lobbying efforts, funding Kwok’s personal asylum application, and funding his for-profit media organizations, the media defendants.

The ROL defendants could be held directly liable based on the plausible allegation that they failed to disclose that the use of certain donations was for purposes other than the organizations’ stated objectives. And proximate cause was plausibly pled because plaintiffs alleged that they derived income from the same types of donations and gifts that were redirected to the ROL defendants based, at least in part, on their false advertising.

Comment: Not every court would be so generous with this proximate cause allegation—why would money be diverted from plaintiffs in particular? Are there literally no other organizations doing similar work?

press release in supplement battle could be false advertising

ThermoLife Int’l LLC v. NeoGenis Labs Inc., 2020 WL 6395442, No. CV-18-02980-PHX-DWL (D. Ariz. Nov. 2, 2020)

Plaintiff/counterdefendant ThermoLife and defendant/counterplaintiff HumanN both hold patents related to the use of nitrate technology for supplements. ThermoLife alleged that HumanN engaged in false advertising and false marking by, among other things, marking three of its nitrate-related products with inapplicable patent numbers. HumanN’s counterclaims were based in part on a previous, unsuccessful lawsuit that ThermoLife filed against HumanN, in part on a press release that ThermoLife’s principal Kramer issued after this lawsuit was filed, and in part on ThermoLife’s alleged interference with HumanN’s business relationship with Amazon.com.

This decision deals with ThermoLife’s motion to dismiss the counterclaims.

The prior litigation was stayed when the PTO instituted proceedings to reexamine the ThermoLife patent asserted in the suit. During reexamination, Kramer allegedly sent a letter to HumanN to “open a dialogue for possible resolution” of the litigation. He “threatened to bring a false advertising suit” and another infringement suit based on two additional patents if “HumanN did not...negotiate a deal.” Kramer and ThermoLife allegedly “promise[d] to stifle competition for HumanN if HumanN agree[d] to a sub-license, and alternatively threatened to drive HumanN out of business entirely if it [did] not.” ThermoLife voluntarily dismissed the infringement suit, but allegedly continued to demand that HumanN pay licensing fees despite HumanN’s contention that it didn’t practice the patent.

ThermoLife also told Amazon that HumanN’s products infringed another of ThermoLife’s patents, as a result of which Amazon took down some of HumanN’s product listings. This allegedly caused HumanN to expend “significant efforts to restore its product pages,” rendered HumanN “unable to sell three of its top selling products on Amazon” for one month, and diminished HumanN’s seller ranking.

ThermoLife ultimately sued again, and issued a press release entitled “ThermoLife Serves HumanN A Beet Down For Selling Falsely Advertised And Misbranded Products Including SuperBeets, BeetElite, And Neo40.”  

The Sherman Act attempted monopolization counterclaim was dismissed because of failure to sufficiently define the relevant market, albeit with leave to amend.

Lanham Act false advertising: This was based on the “Beet Down” press release, which disclosed that ThermoLife had filed this action and described ThermoLife’s basis for doing so.

ThermoLife argued that because the press release simply repeated the allegations contained in its complaint in this action, while prefacing each set of allegations with the phrase “has alleged,” the press release was truthful. Not so. The headline was not qualified and affirmatively stated that HumanN “sell[s] falsely advertised and misbranded products.” “Resolving all reasonable inferences in favor of the non-movant, this is a statement of fact.” Also, a quotation from Kramer included an assertion that “HumanN relies on false representation after false representation to deceive consumers into purchasing HumanN’s products.” This was also plausibly a statement of fact rather than a statement of opinion.

Arizona’s state-law litigation privilege also didn’t bar HumanN’s Lanham Act claim. And the press release wasn’t protected by Noerr-Pennington immunity. It accused HumanN of falsely marking HumanN’s products with patents the products do not practice; it didn’t mention ThermoLife’s patents except for in Kramer’s quote, “ThermoLife holds the patents for the technology in HumanN’s products, not HumanN.” But that seemed to be about ThermoLife’s earlier contention that “contrary to HumanN’s false advertising, none of [the] patents that HumanN licenses and falsely marks on its products protect ‘patented Nitric Oxide technology.’ ” ThermoLife couldn’t claim Noerr-Pennington immunity for asserting its patent rights “in a press release about a lawsuit that has nothing to do with enforcement of its patents.”

The substantive analysis was the same for Arizona unfair competition and trade libel claims, but the court had to analyze Arizona’s litigation privilege. At this stage, ThermoLife hadn’t shown that it was entitled to a qualified privilege. Although the general rule is that “[a]nyone may describe what transpired at a public proceeding so long as the publisher provides a fair and accurate rendition...[o]ne exception to this wide application is the speaker who by design uses the privilege to republish defamation he previously made during the public proceeding.” This was because “[t]he privilege does not sanction self-serving re-publication.” That was exactly the scenario alleged here. Arizona also holds that a speaker can forfeit its entitlement to the qualified privilege via “abuse of that privilege,” such as by “excessive publication...to an unprivileged recipient not reasonably necessary to protect the interest upon which the privilege is grounded.” Given the posture, it was vital that “whether the occasion for the privilege was abused is a question of fact for the jury.”

Tortious interference with relations with Amazon: Federal patent law preempts state tort law where the state tort is based on “conduct that is protected or governed by federal patent law.” Thus, “patentees do not violate the rules of fair competition by making accurate representations, and are allowed to make representations that turn out to be inaccurate provided they make them in good faith.” HumanN didn’t sufficiently allege that plaintiffs acted in bad faith when they told Amazon that HumanN’s products infringed. “HumanN has not identified any authority suggesting that a judicial determination of infringement is a prerequisite to notifying a potential infringer (or a third party) of infringement.” And, while HumanN alleged specific facts suggesting that ThermoLife was aware that HumanN’s product didn’t infringe the initially asserted patent yet chose to file suit anyway, it didn’t provide any comparable allegations concerning the report to Amazon, which involved different patents.

Arizona also has a Patent Troll Prevention Act (PTPA), which prohibits “an assertion of patent infringement in bad faith.” The statute expressly exempts civil actions “that include[ ] a demand or assertion of patent infringement.” But HumanN sufficiently alleged that ThermoLife “threaten[ed] HumanN with sham litigation, even after [ThermoLife] dismissed its sham infringement suit.” As for bad faith, ThermoLife argued that the challenged communications contained “a detailed infringement analysis” and that there is “no dispute” that it provided information set out in the PTPA as relevant to the bad faith analysis: the patent number, contact information of the patent owner or assignee, infringement facts, and an explanation of standing. But on a motion to dismiss HumanN plausibly alleged bad faith. HumanN alleged that ThermoLife’s infringement analysis was unsupported, contradictory, and without merit and that, after ThermoLife dismissed its infringement suit, ThermoLife still “insisted” that HumanN grant a $1 per unit licensing fee and pay $1 million in “back damages” within 10 days. Those could plausibly show bad faith, and providing the information listed in the statute isn’t automatically sufficient to defeat a PTPA claim. The statute made clear that the factors are “nonexclusive”—a court may consider “[a]ny other factor that the court determines to be relevant.”

The court found it unnecessary to resolve whether federal law preempted the PTPA because ThermoLife raised the issue only in passing in a footnote.

Tuesday, November 03, 2020

solar flareup: Panasonic and Tesla successor in interest in false advertising battle

I know you want to read about a false advertising dispute that, for once, tries to work around the restrictions of trademark law and not the other way around!

Kinect Solar, LLC v. Panasonic Corp., No. 1:20-CV-378-LY, 2020 WL 6385292 (W.D. Tex. Oct. 30, 2020) (magistrate R&R)

Panasonic entered into a partnership with Tesla to manufacture a line of solar panels known as “SolarCity” solar panels. Tesla began liquidating its SolarCity panels in 2019, and Kinect bought them. It began selling the SolarCity panels “through its normal channels” at a price that was “substantially discounted” compared to the solar panels that Panasonic sells directly through its own distribution network. Panasonic calls these “grey market” sales, even though they … aren’t? And one reason we know this is that there is no trademark counterclaim, despite trademark claims being much easier to win than false advertising claims.

Kinect allegedly contained Panasonic’s authorized installers “claiming that they were selling discounted SolarCity modules that were backed by and warranted by Panasonic.” Panasonic allegedly received messages from its authorized installers “inquiring whether the SolarCity solar panels were subject to the same warranties as Panasonic solar panels and whether these panels were part of Panasonic’s authorized installer program.”

A Panasonic rep told Kinect: “I just want to make sure that you guys understand that these panels do not have Panasonic Warranty and only Tesla is responsible for their warranty on those panels so the fact that we make them has not value to them [sic]. We’ll soon communicate to all our authorized installers about this to make sure they are aware of it.”

Kinect argued that this and related statements to installers were false, because Panasonic issued an “OEM Warranty” on the SolarCity panels. Panasonic acknowledged that Panasonic owed a 10-year workmanship warranty to Tesla for the SolarCity panels.

Panasonic then sent a letter to “certain of its business partners,” stating that the SolarCity panels “were not covered under any warranty by Panasonic Life Solutions of America,” and allegedly disseminated the letter to PV Tech, “an online news and trade company,” which published an article titled “US solar installers of Tesla designated panels [are] on the market with no warranties.” This allegedly harmed Kinect’s sales, and Kinect sued for business disparagement, defamation, tortious interference with prospective business relations, and unfair competition.

Panasonic counterclaimed for Lanham Act false advertising and tortious interference with business relations. Panasonic alleged that “there are significant differences in warranties and benefits associated with the two brands of solar panels including the entity issuing and administering the consumer warranty.” The Panasonic warranty only applies where the SolarCity panels are included in a photovoltaic systems sold by SolarCity/Tesla. And the SolarCity panels provide purchasers a 10-year limited warranty for workmanship by Tesla, while Panasonic-brand panels are provided a 25-year workmanship warranty. Kinect allegedly “knew that the limited warranty associated with the SolarCity panels was provided to end consumers by Tesla,” but nonetheless marketed the SolarCity panels under the Panasonic brand name and failed to disclose the differences between the brands of panels, including the warranties. Panasonic “is now inundated with installer and consumer questions and complaints directly associated with the misinformation being spread by Kinect.”

The magistrate largely recommended refusing to dismiss the claims/counterclaims, with the exception of an undeveloped common-law unfair competition claim.

Kinect’s business disparagement claim: Requires “(1) publication of disparaging and false words, (2) with malice, (3) which cause special damages, and (4) lack of privilege.”

Panasonic argued that it was literally true that the SolarCity panels were not covered by warranties issued by Panasonic Life Solutions Company of America, as it said, but Kinect sufficiently alleged implied falsity because the panels were backed by another Panasonic entity/division, and omitting that fact from the Panasonic letter created a false impression that Kinect was falsely advertising the presence of a Panasonic warranty. Kinect also sufficiently alleged the other elements, including special damages by alleging that sales representatives “have had prospective purchasers decline to purchase the [SolarCity panels], citing the reason that they were informed that the panels were not covered by a Panasonic warranty.”

Defamation: Requires that “(1) the defendant published a false statement; (2) that defamed the plaintiff; (3) with the requisite degree of fault regarding the truth of the statement (negligence if the plaintiff is a private individual); and (4) damages, unless the statement constitutes defamation per se.” Similarly, the challenged statements were capable of a defamatory meaning. A plaintiff can bring a claim for defamation “when discrete facts, literally or substantially true, are published in such a way that they create a substantially false and defamatory impression by omitting material facts or juxtaposing facts in a misleading way.”

Tortious interference with prospective business relations: Here, Kinect didn’t identify specific prospective or existing clients with which it would have done business but for Panasonic’s conduct, so the magistrate recommended dismissal.

Panasonic’s false advertising counterclaim: Also facially plausible. The court couldn’t resolve whether Panasonic was right on a motion to dismiss. Panasonic alleged that Kinect marketed the solar panels with “a doctored spec sheet … which completely removes the Tesla name and refers to the SC-Series as “Panasonic SC Modules.” In fact, the only company identified on the spec sheet is Panasonic with the words ‘manufactured by Panasonic’ at the top of the sheet.” Although this was literally true, Panasonic plausibly alleged misleadingness because “the panels were manufactured by Panasonic for Tesla in accordance with Tesla’s specifications” and the original spec sheet “clearly identified Tesla as the seller issuing the end consumer warranties.” The revised specification sheet could plausibly lead a reasonable consumer to believe Panasonic would be their contact for the warranties covering the SolarCity panels. [Given what I said above, I should say that this does strike me as a perfectly coherent false advertising claim, and grey goods cases would benefit from being framed as false advertising cases so that courts would take materiality seriously, as they do in false advertising cases.]

The court’s own examination of the marketing spec sheet—integral to the complaint and thus properly considered on a motion to dismiss—showed that the words “Manufactured by Panasonic” had been added, while this was deleted:

Modules are manufactured by Panasonic to the specification of SolarCity. Modules are only warranted by Panasonic if the modules are included in a PV system sold by SolarCity or Tesla. SolarCity and Tesla make no warranties related to the modules, which are sold as-is. SolarCity will handle any warranty claims on behalf of any purchaser.

Also, a reference to the module technology replaced “Manufactured by Panasonic for SolarCity” with “Panasonic SC Series Modules.” This was enough for a motion to dismiss.

Panasonic’s tortious interference claim was also sufficient, which seems a little contradictory since Panasonic didn’t identify specific customers, but it did allege that, “[w]hen the end-consumers and installers discovered that Kinect misrepresented the product affiliation, warranties, and benefits associated with the SolarCity panels, the end-consumers looked to Panasonic to remedy the mistake. In order to protect the goodwill of the Panasonic brand and maintain the loyalty of its customers, [Panasonic] assisted with the replacement of the SolarCity panels with Panasonic branded panels for these end-consumers,” which sufficed.

 


Friday, October 30, 2020

Trade dress question of the day, butterbeer--I mean butterscotch beer--edition

 Found this product, Flying Cauldron butterscotch cream soda:


Harry Potter fans (or former fans), what say you?






trademark law continues as 500 pound gorilla in glue case

J-B Weld Company, LLC v. Gorilla Glue Co., --- F.3d ----, 2020 WL 6144561, No. 18-14975 (11th Cir. Oct. 20, 2020)

This case illustrates how much leeway trademark claims often get and how little false advertising claims do.

My daughter provided the best summary of my take on the trademark part of this dispute: if you can’t tell these two apart, you have no business working with powerful adhesives. But the court found the evidence of copying was so strong as to allow a jury to infer an intent to confuse. This triggered a concurrence emphasizing that intentional copying isn’t necessarily evidence of intent to confuse. But if intentional copying can always or usually reasonably allow an inference of intent to confuse, which itself can be assumed to succeed, then ordinary competitors will find it difficult to avoid a full jury trial, which is an anti-competitive result. (Side note: the court also remanded the state law dilution claim because dilution doesn’t require confusion and the court of appeals couldn’t tell if the district court fully understood that, given that it focused on how different the parties’ products looked, even though that’s also an excellent reason there’d be no blurring either.)

The parties compete in the adhesive market. J-B Weld makes a two-part epoxy adhesive. “J-B Weld Original’s epoxy resin paste also contains iron dust as a filler, purportedly to strengthen and support the adhesive when cured, which J-B Weld recognizes by referring to the product as a ‘steel reinforced epoxy.’” It describes its trade dress as:

(1) two squeezable tubes in a blister package, with the tubes angled inwardly to create a “V-shape;” (2) a black-bannered tube on the left side of the package and a red-bannered tube on the right side of the package; (3) black and white caps on each respective tube; (4) a clear “blister” style protective package that angles inward in the same manner as the tubes; (5) a background card with a width of five inches; (6) a “technical information box,” located in between the two tubes on the background card, including four lines of information separated by white lines; (7) colored banners stretching across the top and bottom portions of the background card; (8) the capitalized/emphasized word “WELD” inside the upper banner on the background card; (9) a list of potential uses for the product in the bottom-right corner of the background card

In 2017, Gorilla Glue introduced a two-tube adhesive under the brand name “GorillaWeld.” GorillaWeld’s adhesive differs from J-B Weld’s in that GorillaWeld uses methyl methacrylate chemistry (MMA), which, chemically, is not an epoxy-group polymer. GorillaWeld’s resin also does not contain any iron or steel. It’s still marketed as an “epoxy” adhesive and, on its packaging, as a “steel bond epoxy.”

Gorilla Glue recognized that it was entering the epoxy market to go head to head against J-B Weld. Its graphic designer stated: “The objective of this project was to go straight up against the top competitor (J-B Weld) and create packaging that mimics the competitor’s architecture. I was able to pull subtle elements into our package, but still keep the package looking tough and geared towards the Gorilla brand.”


The district court found confusion unlikely,  because the packages look so different, but the court of appeals thought it had resolved disputed questions of fact against J-B Weld on similarity, intent, and actual confusion.

Similarity:

Here, reasonable minds could disagree as to which of these features contributes most to the overall impression conveyed by the two marks. Where one consumer may think that the color scheme and Gorilla Glue logo are central to the trade dress’s impression, another consumer may believe that the particular placement and angling of the black-and-red labeled tubes, the identical location of product specifications such as hold strength and set and cure time, and the presence of “WELD” in large, bolded text comprised the primary impression of the two products’ packaging. With this amount of conflicting evidence as to the similarity of the two designs, it was error for the District Court to conclude that, as a matter of law, J-B Weld had not shown that the two products’ trade dress designs were similar.

Intent: Again, the district court erred by failing to make J-B Weld’s “best case.” Intent to confuse can be found based on circumstantial evidence, so a factfinder “may” infer “intent to derive a benefit from a competitor’s goodwill—and, accordingly, an intent to cause confusion—from evidence of intent to copy.” This is especially true if there are substantial similarities.

J-B Weld’s evidence included “communications from Gorilla Glue’s packaging design team that repeatedly referenced J-B Weld Original’s packaging and expressed a desire to use similar elements for GorillaWeld’s packaging.”  The team described certain GorillaWeld packaging options as “[c]lose to JB Weld brand” and aspiring to “go[ ] directly after [J-B Weld Original],” and the team stated their target market was consumers that had used the J-B Weld Original product in the last six months. One Gorilla Glue employee later called the GorillaWeld design a “knock off” of J-B Weld. [Note that GG apparently didn’t choose the closest options, but its consideration and rejection of them gets to weigh against it!]

The district court wrongly relied on the graphic designer’s statement, “I was able to pull subtle elements [of J-B Weld’s Dress] into our package, but still keep our package looking tough and geared towards the Gorilla brand.” This was error because there was evidence that Gorilla Glue intended to “mirror,” “copy,” and “knock off” J-B Weld Original’s trade dress, not simply “construct a worthy competitor.”

And “GorillaWeld was designed with the knowledge that it would be sold on shelves near its competitor in retail stores,” which is apparently evidence favoring likely confusion instead of easily allowing consumers to recognize big differences between them. “This evidence of Gorilla Glue’s intent to copy creates an inference that Gorilla Glue intended to capitalize on J-B Weld’s goodwill, and that evidence is probative of the likelihood of confusion issue.”

It was also improper to impute innocuous motives from the testimony of Gorilla Glue’s employees that the “V-shape” design of GorillaWeld’s packaging served purposes other than mirroring J-B Weld’s trade dress. It’s true that “intentional copying does not necessarily indicate a desire to capitalize on another’s goodwill,” but it can, so it had to weigh in J-B Weld’s favor for summary judgment purposes.

Actual confusion: “J-B Weld’s evidence indicated that other industry professionals, including a buyer at a retailer that carries J-B Weld Original, asked J-B Weld representatives whether J-B Weld ‘had anything to do with’ GorillaWeld, or if J-B Weld was making or supplying Gorilla Glue with ‘private Label Epoxy Twin Tubes’ pursuant to some sort of agreement.” The district court went with case law saying that questions about affiliation show lack of confusion, not confusion—they understand that the signals they’re receiving are at least ambiguous.

But this wasn’t the only reasonable inference from this evidence. It would also be reasonable to infer that “even if the industry professionals knew the two products were different, they were confused as to whether GorillaWeld was the product of a collaboration or other liaison between the two companies.” [Except they asked, rather than assuming—they knew they didn’t know the answer to that question based on what they’d seen. It’s not just that they differentiated the products, which I can do with Diet Coke versus Coke, it’s that they didn’t presume that they were joint productions based on the similarities.] Because affiliation confusion is actionable, this confusion could be legally significant. The question about whether there was a private label deal “leads to a reasonable inference that the person was confused because he or she believed that the similarities in packaging signified a business relationship or other agreement between the companies. Asking if one company ‘had anything to do with’ another company’s product would — or, at least, could — generate a similar inference.”

Plus, the district court failed to consider “any of the circumstantial factors that we have held are integral to determining how much weight should be assigned to any individual instance of actual confusion,” such as “the extent of the parties’ advertising, the length of time for which the allegedly infringing product has been advertised, or any other factor that might influence the likelihood that actual confusion would be reported.” Since the GorillaWeld product was introduced in 2017, and J-B Weld sued quickly thereafter, “in all likelihood the number of reported instances of actual confusion would be on the lower side, making each instance of reported confusion more probative.”

And finally, the district court “failed to appropriately discuss four of the seven applicable factors — the similarity of the products, the similarity of retail outlets and purchasers, the similarity of advertising media used, and the strength of the J-B Weld mark,” which was error. [Query: Pepsi and Coke are at least as similar in appearance—they even use only the same colors. Would it be error to dismiss a confusion claim by Coke against Pepsi based merely on dissimilarity because these factors (product similarity, marketing channels, and mark strength) favor Coke?] A court has to evaluate the weight given to the factors; though that weight varies case by case, it was insufficient to discuss the facts supporting, and weight due, only the three factors discussed above. It was particularly error to rely on the court’s own determination that the trade dress was only moderately strong because the jury could find otherwise given “J-B Weld’s presentation of evidence that J-B Weld Original’s dress is recognizable and has retained consistent features for decades.” [Even though neither of those things are actually evidence of a strong mark as opposed to a mark that works fine but is not particularly strong.]

False advertising: The district court did correctly grant summary judgment on the claim that GorillaWeld is falsely advertised as a “steel bond epoxy.” J-B Weld failed to show materiality of either “steel bond” or “epoxy.”

J-B Weld argued that “epoxy” was material because it refers to the chemical composition of an adhesive, which constitutes an “inherent quality or characteristic” of the product. “But the ‘inherent quality or characteristic’ formulation adopted by this Circuit does not replace the consumer-oriented nature of the materiality inquiry with a scientific one.” The mere fact that components or ingredients are often found to be “inherent qualities or characteristics” that are important to consumer purchasing decisions didn’t mean that they always are. [I sense a bit of tension with the “it’s a jury question” treatment of infringement above.]

While J-B Weld argued that “consumer[s] know[ ] that ‘epoxy’ is a specific and desirable category of adhesives,” it didn’t show that consumers would deem GorillaWeld’s MMA-based adhesive not to be an “epoxy.” It didn’t present “any evidence that consumers are so scrupulous about the chemicals in their adhesives.” Instead, the evidence that there was indicated that consumers probably deemed all two-part adhesives to be “epoxies” regardless of chemical composition. J-B Weld’s survey didn’t ask consumers whether or not they understood epoxy adhesive to have “a specific type of chemistry to it,” and its expert opined that consumers likely only care about whether the product sticks two surfaces together effectively. Gorilla Glue also pointed to evidence that MMA-chemistry based adhesives, such as GorillaWeld, “are frequently marketed, and categorized by retailers, as epoxies.”

Although J-B Weld was correct that retail purchasers or middlemen could be considered in assessing materiality, it didn’t manage to show a factual question as to them either.  The speculation that retailer demand for GorillaWeld increased in 2017 merely because GorillaWeld began including “epoxy” on its labeling couldn’t succceed without proof that it was the inclusion of “epoxy,” and not some other factor, that increased demand for the product.

J-B Weld argued that chemical epoxies and MMA chemistries have “different physical properties,” including “safety and odor differences.” “Maybe so. But J-B Weld has not made any showing that these differences would matter to a consumer.”

“Steel bond”: First, the court was skeptical that Gorilla Glue was really using “steel bond” to describe “a strong bond that works well on metal,” rather than “an adhesive that physically contains iron or steel as a reinforcing agent.” But even so, J-B Weld needed to show that the presence or absence of steel in GorillaWeld resin would be material to a consumer’s purchasing decision, and it didn’t. Its survey asked respondents to identify which of the products they believed contained steel, but didn’t ask about materiality. Internal Gorilla Glue documents showing that it very much wanted to make some reference to “steel” on the package (e.g., “play up on steel”) also didn’t matter. [Now this is definitely in tension with the treatment of intent in the trademark part of the case. Why isn’t it the most reasonable inference that Gorilla Glue, which presumably knows its customers better than the court does, knew what would likely influence them?]

Judge Carnes concurred, but wrote separately “to emphasize the distinction between ‘intentional copying’ and ‘intentional copying with intent to cause confusion.’” Unfortunately, despite celebrating fair competition involving copying, the concurrence doesn’t actually explain when summary judgment for a partial trade dress copier could be proper, making procompetitive copying a risky endeavor. Perhaps if your internal documents don’t say that you seek to “mirror” or be “close to” the competition, or call it a “knock off,” you can still be ok. The concurrence said that the majority doesn’t “alter the well-established rule that intentional copying does not — without more — permit an inference of copying with intent to confuse,” but instead found evidence of that “more” here. I wonder how many instances of copying will not involve people saying that they copied (sorry, “mirrored”), and how people are supposed to talk about their legitimate copying without generating the “more.” I also suspect that, despite all that, product design trade dress copying will continue to get more leeway than product packaging copying.

 

website traffic quality assessment isn't advertising, or defamatory as to site

Young Hollywood LLC v. White Ops, Inc., No. CV 20-03334 PA (RAOx), 2020 WL 6162795 (C.D. Cal. Aug. 6, 2020)

Plaintiff is a “publisher and distributor of exclusive, premium celebrity and lifestyle content.” Its revenue comes exclusively from advertising and licensing content. It worked with Telaria to sell ads and Prodege to advertise/drive traffic. Prodege is an online marketing company that uses “incentivized” or “rewarded” traffic in exchange for viewing ads in order to drive traffic to a client’s website.

Defendant White Ops is a “cybersecurity company that claims to provide fraud detection services.” It offers “MediaGuard pre-bid prevention,” which is a “ ‘pre-bid filter’ intended to prevent fraud before [a] publisher’s [like Plaintiff’s] advertising inventory is offered to advertisers for bidding.” The pre-bid filter “evaluates every request for a bid and blocks fraudulent website traffic - known as invalid traffic or IVT - from being seen or offered to advertisers.” White Ops then publishes a “ ‘taxonomy’ list that categorizes [what Defendant] considers to be IVT.” It allegedly maintains a domain blacklist, and distributes that to clients.

Telaria became a White Ops client, and then Prodege did. After that, White Ops allegedly “began classifying a significant portion of [Plaintiff’s] traffic as [invalid] and [began] blocking [Plaintiff’s] inventory from Telaria’s exchange.” Young Hollywood “learned Telaria was rejecting [65-70%] of [Plaintiff’s] advertising due to [Defendant’s] pre-bid filter,” meaning that [65-70%] of the advertising opportunities [Plaintiff] sought to sell were not being shown to advertisers.” Young Hollywood’s sites were also allegedly placed on the White Ops blacklist, and White Ops allegedly blocked 99% of its traffic, even though its algorithms couldn’t distinguish between “invalid traffic” and “incentivized” or “rewarded” traffic such as the traffic Prodege brought. Young Hollywood allegedly lost its main source of income as a result, and suffered harm to its reputation as a digital media provider.”

When Young Hollywood tried to fix the problem, White Ops allegedly “made it clear that becoming a client of [Defendant] is what it would take to resolve [Plaintiff’s] problem.” In 2020, the president/cofounder of White Ops allegedly acknowledged that its updated algorithm could not differentiate between incentivized traffic and IVT, which was likely the reason White Ops was flagging Young Hollywood’s inventory.” Although he allegedly promised a technical solution, none materialized.

White Ops allegedly falsely labeled Young Hollywood’s advertising space offerings as invalid in reports disseminated to all of its clients,” including divisions of AT&T and Verizon. Telaria allegedly “ended its over a decade long relationship with [Plaintiff] after it was unsuccessful in helping remove [Defendant’s] blocks,” causing a “direct loss of millions of dollars in advertising revenue.”

Young Hollywood sued for (1) defamation, (2) trade libel, (3) product disparagement, (4) unfair competition, (5) intentional interference with prospective economic advantage, (6) negligent interference with prospective economic advantage, and (7) negligence. The court granted a partial motion to dismiss.

Defamation: the statements at issue didn’t call into question Young Hollywood’s “honesty, integrity or competence,” as required for defamation.  The statements were about the quality of the traffic to its site, not about its site itself or even whether Young Hollywood knew about the supposed problems.

Lanham Act false advertising: The court wrongly applied a competition requirement as an element of whether the statements at issue were commercial advertising or promotion. But it’s harmless error because the court also pointed out that the alleged statements “were made to existing customers of Defendant, not to induce new customers to purchase Defendant’s goods or services.” Such “private communications to already existing customers of Defendant” weren’t advertising [though I note it could be if it served customer retention purposes; still, just listing Young Hollywood’s sites in itself isn’t obviously done to keep customers buying.

Thursday, October 29, 2020

descriptive fair use defeats counterfeiting claim (on PI motion)

Freelancer Int’l Pty Ltd. v. Upwork Global, Inc., 2020 WL 6271030, No. 20-cv-06132-SI (N.D. Cal. Oct. 23, 2020)

The parties compete in offering “software platforms matching freelancers with freelancing jobs.” Plaintiff Freelancer Tech has standard character mark registrations for FREELANCER for, inter alia, computer software for personal information management; computer software for accessing, browsing and searching online databases; computer software for identifying, locating, grouping, distributing, and managing data and links between computer servers and users connected to electronic communications networks; online retail store services featuring computer software; and online social networking services. (I have omitted some of the claimed goods/services.) The registrations are incontestable.

But Tech was also refused registration on descriptiveness grounds for “online business directories in the field of employment; providing a website allowing users to post messages offering or seeking job opportunities; providing online project management services for others for business purposes in the field of scheduling, accounting, business project management and business development, providing an on-line searchable database featuring classified ad listings and employment opportunities”, “Providing on-line electronic bulletin boards for transmission of messages among computer users concerning job opportunities”, and another list that was more clearly employment-related than the successful registrations.

Meanwhile, defendants have a registration for UPWORK and provide two Upwork-branded mobile apps, as shown in Apple and Google’s app stores:

 


One app is meant for use by clients, titled “Upwork for Clients,” while the other app with a reversed color scheme is meant for use by freelancers, titled “Upwork for Freelancers.” The latter app has been downloaded nearly three million times since 2019. Plaintiffs didn’t object to use of the term “Upwork for Freelancers.” But, on devices, the display name listed beneath the app’s “Up” logo icon is “Freelancer” on iOS devices and “Freelancer-Upwork” on Android devices. Plaintiffs also objected to app notifications allegedly using the “Freelancer” mark. Comparison of the parties’ apps as they display on devices (iOS on left, Android on right):

 

The court denied a preliminary injunction on infringement and counterfeiting claims. And here we have an important application of the Ninth Circuit’s recent counterfeiting ruling: plaintiffs can’t bootstrap the counterfeiting allegations (same mark/same services aka double identity) into a finding of infringement without showing likely confusion. Arcona, Inc. v. Farmacy Beauty, Ltd. Liab. Co., No. 19-55586 (9th Cir. Oct. 1, 2020). [Note that doesn't completely answer the question of the descriptive fair use/counterfeiting issue because, as the court noted, descriptive fair use can be available even where there is confusion, but it also seems implausible that a descriptive fair use should be deemed counterfeit, which is why "use as a mark" is such a useful concept.]

So, confusion: The court focused on descriptive fair use, and only analyzed the "use as a mark" element. Plaintiffs argued that they were only challenging instances in which Upwork used “Freelancer” as a mark, but didn’t show that the challenged uses were uses as a mark. “To determine whether a term is being used as a mark, we look for indications that the term is being used to ‘associate it with a manufacturer.’ ” At least two factors are relevant: (1) “whether the term is used as a symbol to attract public attention, which can be demonstrated by the lettering, type style, size and visual placement and prominence of the challenged words”; and (2) “whether the allegedly infringing user undertook precautionary measures such as labeling or other devices designed to minimize the risk that the term will be understood in its trademark sense.”

The key arguments around use as a mark involved (1) defendants’ app display names: “Freelancer” on iOS devices and “Freelancer-Upwork” on Android devices; (2) when defendants’ app states “This is a Freelancer account” instead of for example “This is an Upwork account for freelancers”; and (3) when defendants’ software prompts the user that “ ‘Freelancer’ Would Like to Send You Notifications”; and (4) a document that encouraged freelancers on the Upwork app to migrate to Upwork’s new app meant for freelancers. Plaintiffs also argued that capitalization of Freelancer showed use as a mark.

The court disagreed. These were all “proper and descriptive uses of a common word distinguishing Upwork’s freelancer app from its client app.” Bold font and a capital letter were insufficient, “especially when Upwork’s distinctive lime green logo or coloring is placed directly alongside the various notifications.” Defendants never claimed Freelancer as a mark, used a stylized font for it, or used a TM symbol for it.

Separately, plaintiffs didn’t show irreparable harm. They estimated that “up to as many as 1,800 users per day or 56,000 users per month” were diverted, but didn’t convince the court that any diversion was based on app display names shown post-download, especially given the “distinctively different logos.” The court noted that “the disputed titles only become apparent after a user makes a conscious decision to download the apps,” and plaintiffs didn’t object to the app store displays. Nor would post-download notifications cause irreparable harm, since they occurred only after that same conscious decision.


Disparagement doesn't cause TM confusion (and a covid-related claim)

Dupart v. Roussell, 2020 WL 6308339, No. 20-1406 (E.D. La. Oct. 28, 2020)

Plaintiffs (Dupart and Harris) alleged that Roussell’s YouTube videos and Instagram posts discuss their personal lives and Dupart’s cosmetics brand, Kaleidoscope, which competes with Roussell’s Sip Cosmetics. Dupart alleged that she had rights in the Kaleidoscope logo and word marks, and Harris alleged rights in Da Brat/her social-media handle, @sosobrat.

Roussell allegedly posted a YouTube video claiming that plaintiffs are in a same-sex relationship, and later added negative comments that Kaleidoscope products are made with “canola oil,” are “laced with cayenne pepper,” are “Chinese concoctions,” and “brought Corona over [to the United States].”

Plaintiffs sued for trademark infringement and false advertising under the Lanham Act, as well as defamation and coordinate state law claims.

The court ruled that they failed to state a claim for trademark infringement. There were no plausible allegations that Roussell’s use of the marks caused likely confusion. “To the contrary, plaintiffs’ factual allegations suggest just the opposite—defendant uses plaintiffs’ marks in a manner that differentiates his products from plaintiffs’ marks, mostly by making negative comments about Kaleidoscope or Dupart and Harris personally.”

Harris didn’t state a false advertising/false designation of geographic origin claim, but Dupart did. The complaint didn’t allege that Harris provided any goods or services at all, or engaged in commercial activity (despite owning trademarks). [Assume she offers entertainment services and properly alleges this. Should the result differ?]

But Dupart had Lexmark standing because of the disparagement of Kaleidoscope products. Indeed, Dupart alleged that Roussell said: “So [Dupart is] basically saying that I used her to sell products...my response to that is, she’s one-hundred percent right. Let’s just get that off the table. I used her to sell products. I used her to sell products.”

Was Roussell engaged in commercial advertising or promotion? The court joins the overwhelming weight of authority that Lexmark modified the classic Gordon & Breach test, which has been adopted by the Fifth Circuit but not yet readdressed by that circuit post-Lexmark. Lexmark reasoned that “nothing in the statute’s text required a competitive relationship between plaintiffs and defendants,” and the statute doesn’t even use the word “competition” in 15 U.S.C. § 1125(a)(1)(B). And “it would be inconsistent with Lexmark’s holding to say that a class of plaintiffs—those who are not in competition with defendants—may bring suit for false advertising, yet those same plaintiffs could never prevail on their claims.”

The only circuit to hold otherwise merely pointed to the fact that Lexmark said it wasn’t expressing a view on the meaning of “commercial advertising or promotion.” Strauss v. Angie’s List, Inc., 951 F.3d 1263 (10th Cir. 2020). But [setting aside that the question of whether the threat letters in that case constituted advertising/promotion is very different than that addressed here], the reasoning of the case logically bears on the meaning of “commercial advertising or promotion.” McCarthy agrees that “[t]he Tenth Circuit misreads the Lexmark precedent....[T]he Supreme Court’s conclusion [in Lexmark was] that the Lanham Act provides a remedy to anyone, competitor or noncompetitor, with a commercial injury due to false advertising or false disparagement” J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition § 27:94 (5th ed. 2020).

Thus, the test asks whether Roussell’s conduct amounts to (1) commercial speech, (2) made for the purpose of influencing consumers to buy his goods or services, (3) disseminated sufficiently to the relevant purchasing public to constitute “advertising” or “promotion” within that industry. Each part was sufficiently alleged.

Commercial speech: Roussell allegedly admitted that the purpose of his negative comments was to sell his own Sip Cosmetic products. In an Instagram post attached to the complaint, Roussell states: “All in all today was successful! While there is a definite method to my madness and purpose to my petty it is paying off. Sip Cosmetics got 854 orders for $10,000 in sales since launch,” which allegedly related to his content about Dupart. Thus, his speech was plausibly economically motivated and plausibly part of “advertisement[s]”— “widespread communication through print or broadcast media,” here involving 81,500 followers on Instagram and 40,700 subscribers on YouTube, with over 716,089 views for the videos in which he mentions Dupart or the Kaleidoscope brand. Roussell allegedly encourages his viewers to purchase his own Sip Cosmetic products in the same videos. And he referred to specific products or services.

For the same reasons, the other elements of the test were met.

As for falsity: the complaint plausibly alleged literal falsity as to both “characteristics” and “geographic origin.” And in the Fifth Circuit, literally false statements are presumed both deceptive and material.

Monday, October 19, 2020

robust TX anti-SLAPP law protects critic despite arguments that she was partly competing

ADB Interest, LLC v. Wallace, 606 S.W.3d 413 (Tex. Ct. App. 2020)

This is an anti-SLAPP case about statements by a disgruntled customer/alleged competitor.

Black, the managing member of ADB, invented the FasciaBlaster, which is marketed by ADB. The user is supposed to roll the product vigorously over his or her body. ADB claimed benefits for pain reduction, flexibility, joint function, circulation, muscle definition and performance, nerve activity, posture, and enhanced beauty, “including the virtual elimination of cellulite.” The product allegedly works by “opening the fascia,” which is a layer of tissue that encloses muscles and organs.

Blac published a book that is “an instructional guide to ‘FasciaBlasting’ ” that identifies numerous risks associated with using the FasciaBlaster, including to people with any history of deep vein thrombosis or a blood clot (“the consequences could be deadly”), or people with a “severe connective tissue problem such as fibromyalgia, Ehlers-Danlos Syndrome, or any issues that makes skin sensitive.” The book lists other symptoms including "changes in menstrual cycles, spotting, swelling, strange-colored bruises, hot skin, flu-like symptoms, and in some extreme cases, vomiting.... This is not an all-inclusive list, and to be honest, the product is fairly new and every day someone experiences something new.... Please check with your doctor for any issues that set off alarm bells." The FasciaBlaster website also had similar (and some additional) warnings.

The FasciaBlaster has fans and detractors, including in private FB groups; defendant Wallace “is only one of many people claiming on social media that the FasciaBlaster causes serious, adverse side effects.”

Wallace “owns a spa in Corpus Christi, Texas that provides a variety of skin care services to its clients, including massages.” She bought several FasciaBlasters for personal use also used the FasciaBlaster on one or more of her clients as part of her rendition of skin care services. She initially recommended the FasciaBlaster to her friends, family, and clients, but changed her mind, as announced on FB:

After my own experience and after seeing results from doctors and specialist[s] [and] [c]ompleting tests and extensive blood work, the tests are showing that extended use of these products can cause a chain reaction in the body that starts with inflammation. That inflammation leads to raised cortisol levels in the body. That raised cortisol causes eventual thyroid dysfunction, hormone imbalance, increased estrogen, extreme detox, and cellular shutdown in your body. [etc.]

… So any endorsements I gave this product in the past I sincerely apologize for without knowing the long term or adverse effects it may be causing people. As it has caused these adverse effects in myself by using it long term[,] I HAVE to warn anyone who is using it [o]r anyone who might be thinking of using it for esthetic reasons to use EXTREME caution.

She became a frequent critical poster on FasciaBlaster-related websites and Facebook groups. She attributed her fibromyalgia diagnosis, other problems, and two miscarriages on her use of the FasciaBlaster (the last because of high cortisol levels).

In response, ADB/Black’s social media/cybersecurity firm publicly named Wallace as one of the “professional trollers” who had written “bad reviews” on Black’s page and were making “false claims and [using] fake profiles.” Its employee also urged these Facebook pages to block the named individuals. Black also left a voicemail for a critic stating, inter alia, “I will prosecute you if this continues.” Two months before Wallace posted her allegedly defamatory and disparaging statements on FB, their attorney contacted another critic, stating that “while the company recognizes that consumers have First Amendment rights and other consumer rights provided by the Federal Trade Commission (FTC), those rights are limited by the company’s rights to not be defamed through slander or libelous actions that include actual malice or negligence regarding the truth of the statement.” The company also posted on its FB group that “While we welcome the opportunity to hear from people who feel they have experienced negative effects from using the FasciaBlaster device, we also need our audience to be aware that knowingly making false or fraudulent injury or defect claims is illegal and may subject you to criminal and civil liability.”

Black and ADB then sued Wallace for business disparagement, defamation and defamation per se, invasion of privacy, intentional infliction of emotional distress, and violations of the Lanham Act. Within days of filing suit, the company sent messages to other participants in the FB groups pointing to the lawsuit.

Side note: the FDA investigated ADB and the FasciaBlaster after it became aware of “over 70 [Medical Device Reporting (MDR) ] reportable complaints and 04 consumer complaints, filed in the last 12 months (June 2016-June 2017), alleging injury due to your Class I medical device, FasciaBlaster.” The FDA’s report revealed failures to create procedures for reviewing and evaluating complaints, despite several specific complaints of serious bodily injury allegedly caused by the device. Although ADB’s attorney initially told the FDA inspector that it had evidence of internal investigations—supposedly represented by pdf attachments to a spreadsheet ADB provided to the FDA—when the inspector asked for a sample of the attachments, “[i]t was later determined that these files (investigation results) did not exist.” The court doesn't explicitly connect this to the legal analysis, but it seems relevant.

Wallace moved to dismiss the claims based on the Texas anti-SLAPP law (the Texas Citizens Participation Act); the trial court granted the motion and awarded Wallace attorney’s fees and imposed sanctions against ADB and Black. Under the TCPA, if the trial court grants a motion to dismiss, it must award costs, reasonable attorney’s fees, and other expenses of defending against the action “as justice and equity may require.” The trial court must sanction the plaintiff in an amount “sufficient to deter the party who brought the legal action from bringing similar actions.”

First, ADB/Black argued that the commercial speech exemption applied to their claims. Not so. The TCPA does not apply:

to a legal action brought against a person primarily engaged in the business of selling or leasing goods or services, if the statement or conduct arises out of the sale or lease of goods, services, or an insurance product, insurance services, or a commercial transaction in which the intended audience is an actual or potential buyer or customer.

The Texas Supreme Court explained that “[c]onstruing the TCPA liberally means construing its exemptions narrowly,” in part because of “the legislature’s clear instruction to construe the TCPA liberally to protect citizens’ rights to participate in government.” It was plaintiffs’ burden to show that the exemption applied. It does when:

(1) the defendant was primarily engaged in the business of selling or leasing goods [or services], (2) the defendant made the statement or engaged in the conduct on which the claim is based in the defendant’s capacity as a seller or lessor of those goods or services, (3) the statement or conduct at issue arose out of a commercial transaction involving the kind of goods or services the defendant provides, and (4) the intended audience of the statement or conduct were actual or potential customers of the defendant for the kind of goods or services the defendant provides.

The exemption does not apply when a defendant “speaks of other goods or services in the marketplace,” i.e., goods or services that the speaker does not sell or lease.

The record showed that Wallace’s statements were primarily aimed at two overlapping but nonidentical audiences: ADB’s and Wallace’s actual or potential customers—Wallace didn’t provide services outside of a limited geographic area, but posted to reach everyone. To the extent that her statements were directed at her clients, they could be subject to exemption from the TCPA if the other requirements were met. But they weren’t. Under the circumstances, her statements about ADB’s product “cannot reasonably be considered statements about the services that Wallace provides.” Even though she directed readers to her business FB page to read her statements about the FasciaBlaster and mentioned that she provides skincare services in some of her posts, “it is not reasonable to infer from the record that Wallace was intending to promote her services or enhance her business by making the allegedly defamatory and disparaging statements about FasciaBlaster.”  There was “no evidence of a commercial purpose or motive behind Wallace’s posts.”

Given this, ADB/Black had to show, by “clear and specific evidence,” a prima facie case on their causes of action. The TCPA doesn’t “require direct evidence of each essential element of the underlying claim to avoid dismissal.” For example, pleadings and evidence that establish “the facts of when, where, and what was said, the defamatory nature of the statements, and how they damaged the plaintiff should be sufficient to resist a TCPA motion to dismiss.”

Defamation: Note that in Texas, corporations can bring defamation claims, since “corporations, like people, have reputations and may recover for harm inflicted on them.” Plaintiffs conceded that they were limited-purpose public figures here.

Actual malice requires knowledge of falsity or reckless disregard for truth. The Texas Supreme Court has held: “A failure to investigate fully is not evidence of actual malice; a purposeful avoidance of the truth is.” Also: “[A]ctual malice in defamation is a term of art that does not include ill will, evil motive, or spite”; none of that is enough because “the constitutional focus is on the defendant’s attitude toward the truth, not his attitude toward the plaintiff.”

ADB/Black argued that they submitted the only medical evidence in the record, allegedly establishing that there is no biological mechanism by which the FasciaBlaster could have caused Wallace’s medical issues, and thus the only rational inference from this evidence is that no medical professional would have told Wallace that the FasciaBlaster caused her to have two miscarriages and led to the onset of lupus and fibromyalgia. Therefore, they continued, one could rationally infer that Wallace knew that her statements were false. This wasn’t enough to infer that Wallace knew of the falsity or acted with reckless disregard for the truth. There was no “established body of scientific or medical evidence” about the FasciaBlaster for Wallace to ignore or proceed in reckless disregard of. ADB’s proof was an affidavit not available until after the litigation began; it, and the research it recorded, had not yet occurred when Wallace spoke.

ADB/Black argued that it was reckless disregard for the truth for Wallace to make statements about the source of her symptoms “based on self-administered tests she is not qualified to perform,” and that it was obviously dubious to blame “a simple massage tool.” Again, this wasn’t a case involving “a wealth of scientific literature that is widely available to the medical community, much less the general public.” Indeed, when Wallace made her allegedly defamatory statements, “there were no scientific studies addressing whether there was a link between FasciaBlasting and any of Wallace’s illnesses or symptoms.” It hadn’t been reviewed or tested by any physician [and one thus has to wonder about whether those disease claims are ok with the FDA], and based on the statements in ADB’s terms and conditions, they “had no intention at that time to subject their product to meaningful scientific or medical review.” An understandable misinterpretation of ambiguous facts does not show actual malice, even if Wallace was mad at Black.

Nor are Wallace’s claims  “inherently improbable” “considering the fact that ADB acknowledges that the FasciaBlaster’s effects are more than skin deep.” ADB’s own warnings reinforced that impression; indeed, “Wallace did what Black advised her book readers to do if they experienced any alarming symptoms while using the FasciaBlaster—consult a physician.” No actual malice, no defamation.

Business disparagement: Although the Restatement isn’t sure this is constitutional, malice in Texas business disparagement differs from defamation malice because it can be proved by demonstrating “ill will, evil motive, gross indifference, or reckless disregard, of the rights of others.” Here the key problem was special damages. ADB argued that in at least two instances in the record, women stated that they were going to return their products in response to Wallace’s posts (e.g., “I watched your videos and heard your story and it convinced me to send mine back and not let this thing ever touch my body because of what you are going through.”), along with other instances in which women promised to quit using the products they’d already purchased. Black also averred that this all the coincided with a decline in ADB’s sales.

However, neither the video that attracted these comments nor a transcript was in the record, so we don’t know what specific statements Wallace made, much less if any of these statements were defamatory or disparaging. Nor was there any other record showing of economic damage from returned or lost sales. Likewise, there was no specicfic evidence that the avowed no-longer-users would otherwise have purchased related specialty massage creams and ointments from ADB. As for the general sales decline, it was clear that Wallace’s statements “were not made in a vacuum,” and no specific evidence supported the inference that her posts were solely, or even principally, responsible for decreased sales.

Lanham Act: Not commercial advertising or promotion, given the mismatch between ADB’s business and Wallace’s.

The court also upheld the award of attorneys’ fees and $125,000 in sanctions under the TCPA. “Although the award of sanctions is mandatory, the trial court has broad discretion with respect to the amount of sanctions awarded.” Relevant factors include: (1) the plaintiff’s annual net profits; (2) the amount of attorney’s fees incurred; (3) the plaintiff’s history of filing similar suits; and (4) any aggravating misconduct, among other factors.

Wallace argued for a large sanctions award “because both parties were self-described millionaires who have taken aggressive responses to quiet their online critics,” including advertising the lawsuit against Wallace.  Along with the measures described above, ADB subsequently sued at least two other critics who posted negative comments about the FasciaBlaster on the same Facebook group that Wallace used. ADB sought between $2,000,000 and $5,000,000, plus injunctive relief requiring both women to “remove disparaging and defamatory comments,” though it ultimately dismissed those suits.

ADB/Black argued that no deterrence was necessary because Black was not party to either of these suits, Wallace didn’t prove that ADB’s other lawsuits were unsound; and it non-suited its claims anyway, making sanctions unnecessary. It also argued that, unlike Wallace, the other two “voluntarily participated in ADB-sponsored studies, signed contracts that included non-disclosure agreements, and then breached those agreements by publicly complaining about ADB’s products.” [Query: were these contract provisions federally illegal under the Consumer Review Fairness Act?]

But even disregarding those lawsuits, the other evidence of “a deliberate plan to discredit and quiet their detractors, prevent or remove negative reviews of ADB’s products, and threaten those who made negative comments” sufficed to avoid any abuse of discretion.