Monday, March 30, 2020

"Maximum Strength" is plausibly misleading when cheaper Regular Strength has more active ingredient by volume

Al Haj v. Pfizer Inc., 2019 WL 3202807, No. 17 C 6730 (N.D. Ill. Jul. 16, 2019)

Al Haj alleged that Pfizer deceived consumers by charging more for “Maximum Strength” Robitussin cough syrup than for “Regular Strength” Robitussin even though the former had a lower concentration of active ingredients than the latter. The court denied Pfizer’s summary judgment motion and Al Haj’s motion for class certification, without prejudice.

Al Haj switched from Regular Strength to Maximum Strength; when she bought, Maximum Strength Robitussin cost some two dollars more than Regular Strength Robitussin. Both products contained  two active ingredients: dextromethorphan hydrobromide (“DXM Hbr”), a cough suppressant, and guaifenesin, an expectorant. Before June 2016, the recommended dosage of Maximum Strength Robitussin was 10 ml, and each 10 ml dose of Maximum Strength Robitussin contained the same amount of DXM Hbr (20 mg) but twice as much guaifenesin (400 mg) as the recommended 10 ml dose of Regular Strength Robitussin. Pfizer then reformulated Maximum Strength Robitussin to change the recommended dose from 10 ml to 20 ml while keeping Regular Strength Robitussin’s recommended dose at 10 ml. Pfizer placed a “See New Dosing” alert at the upper right corner of the product’s box.

The reformulation halved the product’s concentration of active ingredients. Until Pfizer in mid-2018 similarly doubled Regular Strength Robitussin’s recommended dosage size from 10 ml to 20 ml and thereby halved its concentration of active ingredients, Maximum Strength Robitussin had the same concentration of guaifenesin but only half the concentration of DXM Hbr as Regular Strength Robitussin. Because both products were sold in bottles of the same size, a bottle of Regular Strength Robitussin had twice as many doses as a bottle of Maximum Strength Robitussin, which cost more. Pfizer internally touted the reduced number of doses per bottle of Maximum Strength Robitussin as a positive result of the reformulation.

Al Haj switched after reading the “Maximum Strength” label and assuming that Maximum Strength Robitussin would be more effective than Regular Strength Robitussin. Pfizer’s own market research concluded that “quite a few” consumers would be willing to spend more on maximum strength medication because they perceive it to “work better and provide more value” than regular strength medication. Al Haj did not compare in detail the Regular Strength and Maximum Strength packaging when she decided to purchase Maximum Strength Robitussin. Even after learning that the recommended dose was 20 ml, she purchased Maximum Strength Robitussin at least two more times despite knowing that its 20 ml dose was twice the recommended dose of Regular Strength Robitussin.

The Illinois Consumer Fraud and Deceptive Business Practices Act bans “deceptive business practices” as well as “business practices that, while not deceptive, are unfair.”  Pfizer argued that the packaging Al Haj saw included a “See New Dosing” alert on the front of the box and an explanation of “Maximum Strength” on the back. Pfizer argued that this cured any possible ambiguity about the meaning of the ‘maximum strength’ claim” as a possible comparison to regular strength. But, even if the alert would have led a reasonable consumer to read the dosage information, the consumer wouldn’t have known that Maximum Strength had a lower concentration of active ingredients than Regular Strength unless she calculated and compared the products’ concentrations. “[I]t is not reasonable to expect a consumer to cross-check a product’s ingredient list against another product’s list and then perform arithmetic to make sure she is comparing equivalent dosage volumes, all to ensure that the product she intends to purchase has the qualities it purports to have.” Even though the label stated on the back “Maximum strength claim based on maximum levels of active ingredients per dose,” “using fine-print text to obliquely walk back a prominent claim on the front of the box—particularly absent other product features that contextualize that claim—generally does not preclude a jury finding that the frontside claim was deceptive.”

The court pointed out that “by placing a prominent ‘Maximum Strength’ designation on what otherwise was materially the same frontside packaging as Regular Strength Robitussin, Pfizer invited consumers viewing both products to assume that a more expensive bottle of Maximum Strength Robitussin had a greater concentration of active ingredients than the bottle of Regular Strength Robitussin.” Moreover, “a reasonable consumer would conclude that she was being charged more for a bottle of Maximum Strength Robitussin than she would have paid for a bottle of Regular Strength Robitussin because the former had more potency per volume than the latter.” Pfizer couldn’t take that implication back with disclaimers that were oblique at best.

Pfizer invoked the (bad) decision holding that 100% Grated Parmesan Cheese doesn’t mean 100% grated parmesan cheese where the label expressly disclosed the presence of cellulose. But “unlike the cheese product in Parmesan, which remained ‘shelf-stable at room temperature,’ there is no commonsense, ‘observable’ impediment to a consumer concluding that a bottle of Maximum Strength Robitussin has a higher concentration of active ingredients than Regular Strength Robitussin.” A jury could conclude that the relative concentrations of active ingredients in Regular Strength and Maximum Strength Robitussin were “non-obvious product qualities that consumers may reasonably rely on packages to clearly disclose.” Moreover, while “a quick skim of the ingredient label” on the backside of the packaging of the cheese product showed that the product contained “something other than cheese” and thereby cured any ambiguity, nothing on the backside of the Maximum Strength package cured the “Maximum Strength” claim’s ambiguity; cross-checking with another package and doing math would have been required.

Did Al Haj suffer actual pecuniary damage? Al Haj ultimately switched to a more expensive Delsym product, not the less expensive Regular Strength Robitussin. But a reasonable jury still could find that she suffered “actual pecuniary loss” when she switched from Regular Strength to Maximum Strength Robitussin and thereby paid more for a product that had a lower concentration of active ingredients than its packaging implied. Her injury was established at the time of purchase, regardless of whether [s]he later was dissatisfied with” Robitussin “and regardless of whether [s]he would have purchased a substitute product.”  Cases finding no actual damage involve prices lower than the alternatives, but Al Haj had a cheaper alternative: Regular Strength. Pfizer argued that the products weren’t comparable because they had different amounts per dose of the same active ingredients, but a less expensive alternative need only be “similar,” not identical, to serve as a comparator for purposes of establishing actual damage under the ICFA. 

Proximate case: Pfizer argued that Al Haj admitted that she did not purchase Maximum Strength Robitussin under the “belief that the medication had a higher concentration of active ingredients per volume” than Regular Strength Robitussin. But “the ICFA does not require a plaintiff to show actual reliance or diligence in ascertaining the accuracy of misstatements.”  Deception was enough, and Al Haj testified that she thought Maximum Strength would be more effective and thus a better value than Regular Strength.  Even if she knew the recommended doses (20 ml vs. 10ml) after her first Maximum Strength purchase, that wasn’t enough to cure the alleged deception, as she still would need to “perform arithmetic” and a “cross-check” based on each “product’s ingredient list” to learn the concentration of active ingredients in each bottle.

100% Pure Aloe can contain preservatives, stabilizers in the absence of evidence from consumers that they care

Beardsall v. CVS Pharmacy, Inc., --- F.3d ----, 2020 WL 1429214, No. 19-1850 (2d Cir. Mar. 24, 2020)

The court explains:

Plaintiffs brought state consumer deception claims [under 12 different states’ laws] against defendant Fruit of the Earth and its retailer clients. They alleged that defendants’ aloe vera products did not contain any aloe vera and lacked acemannan, a compound that plaintiffs say is responsible for the plant’s therapeutic qualities. But uncontested facts drawn from discovery showed these allegations to be false: the products were made from aloe vera and contained at least some acemannan.

To stave off summary judgment, plaintiffs changed their theory, claiming that the products were degraded and did not contain enough acemannan. Plaintiffs said that it was therefore misleading to call the products aloe vera gel, to represent them as “100% Pure Aloe Vera Gel,” and to market them as providing the therapeutic effects associated with aloe vera. Plaintiffs have not, however, presented evidence that some concentration of acemannan is necessary to call a product aloe or to produce a therapeutic effect. Nor have they offered evidence that consumers care at all about acemannan concentration. Whatever theoretical merit these claims might have had on a different record, this record simply does not contain evidence that would allow a reasonable jury to find in favor of plaintiffs. With this dearth of evidence, the district court granted summary judgment in favor of defendants. We affirm.

The aloe vera gels at issue are made by processing aloe vera plants, including the addition of stabilizers, thickeners, and preservatives to make the final gel product shelf-stable. “The parties agree that the products are 98% aloe gel (the reconstituted aloe vera solids) and 2% other ingredients (stabilizers and preservatives).” The Fruit of the Earth label calls the product “Aloe Vera 100% Gel” and “100% Pure Aloe Vera Gel.” An asterisk after “100% Gel” refers to information on the back of the label: “Plus stabilizers and preservatives to insure [sic] potency and efficacy.” Each label’s ingredient list shows that the product contains aloe juice and various other substances.

(1) Acemannan concentration. “No reasonable consumer, plaintiffs argue, would purchase an aloe vera product that contains low concentrations of what plaintiffs maintain is an important therapeutic component.” This is a theoretically viable claim, but there was no evidence of material misleadingness. Citing cases, including Lanham Act cases, that asked for survey evidence, the court noted no evidence that consumers made purchasing decisions based on ingredient content. Nor was there evidence that some concentration of acemannan was necessary to render the product effective.

The plaintiff’s expert testified that fresh aloe should contain at least 5% acemannan by dry weight, pointing to a trade organization’s standards, while that used by defendants contained 1.01% acemannan by dry weight, and testing on the final product indicated correspondingly lower concentrations of acemannan in the final product compared to what the expert expected in an aloe product containing undiluted aloe juice. In a footnote, the court noted that 45 mg/L and 65 mg/L, compared to the expected 200–500 mg/L, did not count as “trace,” “infinitesimally small,” “barely detectable,” and “nonexisten[t].” Anyway, there was no testimony that lower acemannan concentration meant that the product couldn’t fairly be described as aloe, and no expert opinion on the relationship between aloe concentration and efficacy.  The named plaintiffs’ testimony that they found the labeling misleading did not fill the gap; “they all felt misled because they were incorrectly informed by their lawyers that the products contain little or no aloe vera.”  Cases allowing claims to proceed have involved extrinsic evidence to show how consumers were likely to be materially misled, such as survey evidence that consumers did not expect “soluble and microground” coffee in Keurig-compatible pods to be instant coffee, or survey evidence going to materiality, or internal marketing documents about the value of consumer perceptions of strength. “Plaintiffs here, in contrast, have offered no evidence that the products fell short of consumers’ expectations in any material way.”

The court qualified its holding: “This is not to say that extrinsic evidence in the form of consumer surveys or market research is always needed for a plaintiff to survive summary judgment or judgment as a matter of law on a deceptive advertising claim. But such evidence is necessary where the advertising is not clearly misleading on its face and materiality is in doubt.” Without such evidence here, there was not enough to go to a jury.

(2) Therapeutic efficacy: again, failed for lack of evidence that the products were ineffective or that they didn’t contain enough acemannan to achieve a therapeutic effect.

(3) “100% Pure.” First, there wasn’t enough evidence that this was a misrepresentation that the product was “high quality” or “especially effective” aloe; there was no evidence indicating that consumers interpret these as statements of quality. Second, the preservatives and stabilizers didn’t make the claim misleading. The district court found the label ambiguous and clarified by the ingredients list. Plaintiffs conceded in briefing and depositions that “the presence of preservatives—in reasonably small amounts—was acceptable and something they expected,” and that “[n]o [p]laintiff took the label to mean that there was absolutely nothing other than aloe vera in the bottle.” So this theory didn’t work on these facts, though the court pointedly announced its skepticism of defendants’ position “that an asterisk pointing to an ingredient list in fine print could save virtually any deceptive slogan claiming purity.”

antitrust claim based in part on false advertising in concentrated market survives

Chase Manufacturing, Inc. v. Johns Manville Corp., 2020 WL 1433504, No. 19-cv-00872-MEH (D. Colo. Mar. 23, 2020) (magistrate)

Chase sued JM for violations of the Lanham Act and the Sherman Act for tying and monopolization. JM sells construction products, including mechanical insulation products. Chase is a mechanical insulation supplier; both parties sell calcium silicate thermal insulation, aka “calsil,” which is designed to encapsulate pipes, tanks, and other equipment in industrial facilities. JM has at least a 98% share of the domestic calsil market, which is approximately $50 million in sales per year, though this is only approximately 2% of JM’s $3 billion annual sales for all products.

Customers who buy calsil allegedly demand that the product meet or exceed the requirements set forth in ASTM C533 Type I. Only three factories in the world produce such calsil that fits North American sizing norms: two in the United States owned and operated by JM, and one in Shanghai, which previously produced calsil for JM but now sells its calsil in North America exclusively through Chase.

Chase’s head-to-head testing indicated that its calsil met or exceeded the requirements of ASTM C533 Type I, never contained asbestos, and outperformed JM’s calsil in several categories.

There are five major mechanical insulation distributors that dominate the country, accounting for approximately 85% of calsil sales; “approximately ten or fewer” smaller, independent distributors account for the remaining 15% of the calsil market. Customers require the distributors to carry other construction products made by JM, including, as relevant to this case, Defendant’s fiberglass pipe insulation and expanded perlite products. JM is one of only three fiberglass pipe insulation manufacturers in the United States, with allegedly at least a 60% share of that market. JM is also one of only two North American suppliers of expanded perlite pipe and block insulation, and with allegedly not less than a 50% share of that market.

JM allegedly threatened to cut off sales, extend lead times, or alter rebate programs for fiberglass pipe insulation and/or expanded perlite as punitive measures to both large and small distributors who buy calsil from Chase. It has also threatened to refuse to supply its own calsil to both large and small distributors who purchase calsil from Chase. JM’s sales managers allegedly told customers that Plaintiff’s calsil was “poor quality” and “cannot be trusted to meet ‘specifications,’ ” “ ‘may have asbestos,’ ” and was “Chinese,” referring to where it was produced. The “Frequently Asked Questions” page on Defendant’s website states, in part: “[Defendant] is the only insulation manufacturer in North America to produce water resistant calcium silicate. While we are aware of one other manufacturer in Asia that produces [calsil], it is an expensive, custom-order product that is not readily available.” This course of conduct allegedly choked off Chase’s growth. 

Chase’s per se tying Sherman Act claim was plausibly alleged.  So was the monopolization claim, based on tying, refusal to supply, exclusive dealing, and product disparagement.

As to product disparagement, antitrust treats it weirdly (watch this space for an article Mike Carrier and I have written on that). In the Tenth Circuit, as in a number of other circuits, there’s an unwarranted presumption that false advertising’s effect on competition is de minimis.  To rebut the de minimis presumption, a plaintiff must plausibly allege the disparagement was “(1) clearly false, (2) clearly material, (3) clearly likely to induce reasonable reliance, (4) made to buyers without knowledge of the subject matter, (5) continued for prolonged periods, and (6) not readily susceptible to neutralization or other offset by rivals.”  [For one thing, assume that the plaintiff shows at trial that the false advertising kept it and other potential rivals out of the market. Why should it have to show any of these subfactors? If it shouldn’t have to show those subfactors then, why should it have to plead them? Anyway.]

The disparagement claim was based on four statements attributed to JM sales reps. (1) Chase’s calsil “may have asbestos and may put your customers and employees at risk.” (2) Chase’s calsil was “poor quality and cannot be trusted to meet ‘specifications.’ ” (3) Chase’s calsil was “Chinese.” (4) The sales rep asked why a purchaser “would want to ‘risk buying an unproven product that may not meet the specifications.’ ” Two of the five large distributors, allegedly heard JM’s comments and “word gets around” a market with such concentrated buyers.

The allegations plausibly overcame the de minimis presumption. Likely to induce reasonable reliance: Chase alleged that JM “has a high degree of credibility in the industry,” and has particular experience with asbestos liability. It was reasonable that JM’s history with asbestos (it had to declare bankruptcy) would give it credibility when discussing asbestos, products that could put buyers “at risk,” or products fail to meet safety specifications. “Additionally, and importantly, given the scope of potential liability related to asbestos, buyers are very likely to rely on statements regarding its presence or related safety concerns rather than make a potentially business-ending purchase.”

Knowledge of subject matter: JM allegedly targeted its disparagement to distributors that are its existing customers, all of whom but one have never purchased calsil from Chase. “Because the vast majority of the audience were and are not present customers of Plaintiff, they do not have firsthand knowledge of Plaintiff’s calsil. As alleged misrepresentations bear on the quality and safety of Plaintiff’s goods, firsthand knowledge is critical, particularly in a market where much of the sales and product information are conveyed through individualized relationships with distributors.” JM argued that Chase included test results as part of its initial marketing materials, showing that buyers had knowledge of the subject matter. But it wasn’t clear that the testing addressed asbestos or what specific information from the test results were included in the marketing materials, or how widely disseminated Plaintiff’s marketing launch was. It was reasonable that the distributors that heard the disparaging remarks had no knowledge of Chase’s safety or quality. [To a certain extent the court is stretching what the relevant “subject matter” is, but it’s doing so because this factor is not helpful. One can have knowledge of the subject matter and still decide to trust someone else’s specific factual claims. If the deception worked, the listeners’ expertise wasn’t enough to prevent it from working.

Duration: throughout 2018 was enough. Although there were only a few specific examples, it was reasonable to infer, as plaintiff specifically argued, that JM was making these disparaging remarks throughout the launch.

Susceptible to neutralization by rivals: Chase alleged that “[p]otential liability from possible asbestos exposure is so great that no reasonable customer would buy a product where there was any question about the presence of asbestos, no matter how much the seller assures them that the product does not contain asbestos.” JM’s own bankruptcy trust for asbestos victims and their families is currently valued at $2.5 billion. Chase alleged a specific example of a “failed attempt” to assuage a potential buyer’s asbestos concerns, that “[s]uch rumors, once started, are not easy to dispel,” and that “it could take many years to do so.” The court found it “more than plausible” that such statements are not readily susceptible to neutralization.

Antitrust injury/harm to competition: JM argued that the alleged injury was merely Chase’s failure to gain market share quickly. But JM alleged that Chase’s exclusionary and anticompetitive conduct caused limitation of customer choice of suppliers, increased prices, and reduction in calsil output. There was a plausible claim for monopolization.

Lanham Act false advertising: Originally, Chase didn’t provide enough allegations that the disparagement amounted to commercial advertising and promotion by being sufficiently disseminated in the relevant market. In its amended complaint, it alleged that five major distributors account for 85 percent of calsil sales, and estimates that “approximately ten or fewer” smaller, independent distributors account for the remaining 15 percent. It identified two of the smaller distributors as the recipients of the alleged misrepresentations, as well as two of the five larger distributors.  The allegations were those above, as well as (1) an allegedly false statement to a smaller distributor that JM had never sold calsil made in China, and (2) a website statement that “[w]hile we are aware of one other manufacturer in Asia that produces water resistant calcium silicate, it is an expensive, custom-order product that is not readily available.”

Chase sufficiently alleged advertising/promotion because it alleged that “informal” means of communication—like in-person meetings, social gatherings, social media, and email—as opposed to traditional media are the primary means of commercial promotion in the calsil market. Chase also alleged that “other Gulf Coast contractors” have corroborated the suspicion “that these statements were widely disseminated by Johns Manville salespeople.” This made it plausible that the statements were part of an organized campaign by JM, despite the statements’ informal or behind the scenes methods of communication.

As for the webpage, JM argued that it didn’t refer to Chase by name; that it wasn’t adequately pled to be false/material; and that it didn’t injure Chase. Although the no-identification point is silly—there’s only the one and it’s Chase—Chase didn’t adequately allege injury from the page; it didn’t even allege that customers or potential customers saw it or that it lost sales because of it.

230 protects anti-malware vendor against noncompetitors

Asurvio LP v. Malwarebytes Inc., No. 5:18-cv-05409-EJD, 2020 WL 1478345 (N.D. Cal. Mar. 26, 2020)

Despite unfavorable precedent, Malwarebytes secures dismissal of this Lanham Act false advertising (and common law disparagement/tortious interference/unfair competition/ violation of the Texas Theft Liability Act (TTLA)) case against its designation of software as malware or as a “potentially unwanted product” (PUP) on CDA §230 and other grounds.

According to the complaint, “Asurvio provides premium full-service technical support services to consumers.” Asurvio’s services include: “(i) software solutions that work in real time in the background of the operating system to optimize processing and locate and install all missing and outdated software drivers; and (ii) technical support services for the removal of Spyware and Malware and all other facets of personal computer use.” Asurvio’s software executes “fixes” including driver updates and provides the consumer access to telephone-based human assisted technical support.

In 2016, Malwarebytes categorized Asurvio’s DRIVER SUPPORT and DRIVER DETECTIVE software with a negative PUP rating and labeled it a security risk. “Asurvio’s customers who also used Malwarebytes received regular warnings from Malwarebytes that all folders of Asurvio’s software were ‘threats’ quarantined on their computers that should be uninstalled.” Asurvio tried to convince Malwarebytes that it complied with industry leading standards and requirements, including the Clean Software Alliance Guidelines, Microsoft and Google’s standards and other anti-malware vendor certifications by McAfee and Symantec, but Malwarebytes refused to delist the software as a PUP and referred Asurvio to AppEsteem for third party certification; when Asurvio secured that, Malwarebytes delisted its products.

In 2017, Asurvio began listing its technical support services in its boilerplate terms and conditions, including technical support for removing Spyware/Malware. Id. In 2018, Asurvio learned that Malwarebytes had relisted Asurvio’s products as PUPs and was barring customers from Asurvio’s websites.

Asurvio alleged that a Malwarebytes staff member identified as “Metallica” posted “Removal instructions for Driver Support” on Malwarebytes’ message board forum. The post stated that Asurvio’s DRIVER SUPPORT product uses “intentional false positives” and advised consumers that the best way to uninstall DRIVER SUPPORT is to use Malwarebytes’ software. Malwarebytes blog “moderators” identified as “Porthos” and “exile360” described DRIVER SUPPORT as “a bogus program” and “unnecessary snake oil with no real utility” that typically does more harm than good. A Malwarebytes blog “moderator” posted that “Driver Updates” (allegedly a generic term to describe Asurvio’s services) are a “pure scam,” a “useless product” and “can damage your system to the point where a reinstall of Windows will be needed.” Asurvio alleged similar statements on a different website by a person who allegedly received “monetary or in-kind benefits from Malwarebytes for each sales lead or software download generated from his post.”

And Malwarebytes allegedly wrongfully profited from the use of Asurvio’s products by redirecting clicks from Asurvio’s website to Malwarebytes’ website. “When a Malwarebytes free version software user opens a search engine in his own web browser and searches for DRIVER SUPPORT or ACTIVE OPTIMIZATION, Asurvio’s ads or website links will prominently appear in the search engine results. However, instead of going directly to Asurvio’s official website when clicking these links, it redirects consumers to the Malwarebytes website for the purpose of executing a Malwarebytes sale.”  This was the specific basis of the TTLA claim, which provides in pertinent part that an actor commits “theft of service” when, “having control over the disposition of services of another to which the actor is not entitled, the actor intentionally or knowingly diverts the other’s services to the actor’s own benefit or to the benefit of another not entitled to the services.”
§230(c)(2)(B) immunity applied to most of the conduct, including the redirection of consumers from Asurvio’s website.  (A previous order in the case explained that the redirect page notifies the user that Malwarebytes blocked “due to PUP.” It also informs the user: “Learn about PUP. If you don’t want to block this website, you can exclude it from website protection by accessing Exclusions.” This was a type of “action” that enables or makes available to others the “technical means” to restrict access to statutorily defined objectionable material. The court commented: “The statute does not contain qualifiers, conditions, or exceptions for ‘actions’ that have the secondary effect of depriving PC Drivers of the benefits of the page-click advertising it purchased from a third party.”)

Although Enigma Software Group USA, LLC v. Malwarebytes, Inc., 946 F.3d 1040 (9th Cir. 2019), held that (c)(2)(B) didn’t apply to “blocking a competitor’s program for anticompetitive reasons,” the parties here aren’t direct competitors. Each software security provider “generates its own criteria to determine what software might threaten users.” Asurvio, by contrast, didn’t sell malware detection software designed to scan a computer and report PUPs. Rather, Asurvio sells driver update software that doesn’t provide provide any anti-spyware or anti-malware functionality as Malwarebytes does. Its “technical support services for the removal of Spyware and Malware,” disclosed only in fine print, was “a secondary value added service … limited to removal of Spyware and Malware,” which was “significantly dissimilar from computer security software like Malwarebytes’ that once installed, automatically identifies and blocks Spyware and Malware.”  It was not direct competition merely because both parties offer software services “to assist in the overall performance of individual computers” and both sell to “self-help” computer users. Such a broad reading of competition would “render the statutory immunity meaningless.” Thus, all claims based on filtering were dismissed without leave to amend.

Comment: one of the original issues with the 9th Circuit's opinion in Enigma is that the source of the "anticompetitive" exclusion is not evidently grounded in any principle of law. Neither antitrust nor false advertising--the two best candidates for such a principle I can see--limit their protections to direct competitors. This case highlights the fact that Enigma invented a new exclusion and now we have to figure out what that means.

As for the other challenged statements, §230(c)(1) applied to the postings on its online forum. Asurvio failed to plead facts showing that “Porthos” and “exile360” were forum “moderators,” much less any facts showing they had any express or implied authority to speak on Malwarebytes’ behalf. The fact that the forum identifies “Porthos” as a “Trusted Advisor” and “exile360” as an “Expert” weren’t enough; the mere possibility that Malwarebytes made these designations didn’t support a plausible inference that Malwarebytes was responsible for the “Trusted Advisor” and “Expert” designations, and further that Malwarebytes is responsible for the content of the posts made by “Porthos” and “exile360.”

Even without immunity, the complaint failed to state a claim. The allegedly false and disparaging statements (e.g. that Asurvio’s products are PUPS, use “false positives,” are “bogus,” a “scam,” and “snake oil”) weren’t pled to be objectively verifiable as opposed to non-actionable opinion.  Tortious interference claims failed to allege facts showing that Malwarebytes willfully and intentionally interfered with a specific contractual obligation. Instead, the complaint alleged that Malwarebytes instructs computer users to choose whether to continue using Asurvio’s products.

Monday, March 23, 2020

"no soy protein" claim for dog food plausibly indicates no soy

Rice-Sherman v. Big Heart Pet Brands, Inc., No. 19-cv-03613-WHO, 2020 WL 1245130 (N.D. Cal. Mar. 16, 2020)

Plaintiffs alleged that Big Heart falsely markets its Grain Free Easy to Digest Salmon Sweet Potato & Pumpkin Recipe Dog Food as “Grain Free,” and as containing “No Corn” and “No Soy Protein.” Most of the claim survived, though claims for injunctive/equitable relief and punitive damages survived. Of note: “no soy protein” is plausibly understood as meaning “no soy.”

Purchasers of such products allegedly “pay a premium in order to alleviate their pets’ allergies and provide various health benefits associated with a grain-free diet.” Plaintiffs allegedly would not have purchased the Product if the actual ingredient list had been fully disclosed. According to plaintiffs, “independent testing of Nature’s Recipe Food confirms that these representations are false because “[it] does, in fact, contain significant amounts of both corn and soy protein.” This testing was allegedly consistent with numerous academic studies that have found companies in the pet-food industry have inaccurate product labels, non-conforming ingredients, and cross-contamination. Some of the named plaintiffs also alleged that their dogs began displaying allergy symptoms after eating the product, incurring hundreds of dollars in veterinarian costs.

Big Heart argued that plaintiffs lack Article III standing because they didn’t specifically allege how, where, and why the “independent testing” was performed, and whether each specific Nature’s Recipe product purchased by each named plaintiff was tested. Those weren’t necessary for Article III standing, which was satisfied by allegations that they “spent money that, absent defendants’ actions, they would not have spent.” While Big Heart cited Wallace v. ConAgra Foods, Inc., 747 F.3d 1025 (8th Cir. 2014), for the proposition that plaintiffs are required to specifically allege that the particular product they bought contained the undisclosed ingredients, that’s not the law in the Ninth Circuit. As another court said, “if a customer has paid a premium for an assurance that a product meets certain standards, and the assurance turns out to be meaningless, the premium that the customer has paid is an actual, personal, particularized injury that is cognizable under Article III.”

Nor were plaintiffs required to allege that independent testing was done on their bags. In other cases finding insufficient allegations, the alleged contamination was sporadic and plaintiffs failed to allege that “all or even most” of the accused products were falsely advertised; therefore they were required to allege that the particular products they purchased were part of a subset of accused products that were falsely advertised. In the absence of such allegations, their claims were too speculative.  Here, however, plaintiffs focused on a particular product and argued that it was falsely advertised because it did, in fact, contain “significant amounts of both corn and soy protein.” Plaintiffs didn’t have to use the magic word “all,” given a fair reading of the complaint. In assessing standing on a motion to dismiss, the court must “presume that [ ] general allegations,” like the ones alleged here, “embrace those specific facts that are necessary to support the claim.”

Failure to state a claim: The complaint satisfied Rule 9(b). It alleged when and where each plaintiff bought the products; described the “Grain Free,” “No Corn,” and “No Soy Protein” representations on the Product packages which they relied on; described and included photographs of the false or misleading information on the packages and on Big Heart’s website; and alleged that the claims are false because independent testing revealed that the Products in fact contain corn and soy. They were not required to “provide definitions of grain, corn, soy, and soy protein or explain the parameters of the alleged independent testing.”  As for definitions, “[t]he relevant question is not what those terms mean, but rather what they mean to reasonable consumers, which cannot be resolved on a motion to dismiss.” Plaintiffs plausibly alleged that reasonable consumers would consider the representations “No Corn” and “No Soy Protein” to mean that the Product is free of corn and soy.  Big Heart alleged that there was a gap between “soy” and “soy protein,” but the court found that “hardly a logical gap.” Big Heart also argued over whether corn is a grain, but even if it isn’t, plaintiffs also alleged an explicit “No Corn” claim.

Independent testing: “Big Heart does not need more background information about the independent testing at the pleading stage in order to defend against plaintiffs’ claims.” Its results are accepted as true at the pleading stage.

As for the specific California claims, the arguments were largely repetitive of those rejected on 9(b). “These labels are not as ambiguous as such labels as ‘all natural’ or ‘healthy’; even if they were, the question of whether a reasonable consumer would likely be deceived is a factual dispute that cannot be resolved at the motion to dismiss stage.” Plaintiffs weren’t required to allege “that the corn or soy at the level detected would cause a health issue or nutritional deficiency.” They specifically alleged materiality, and also that Big Heart knew or had reason to know that consumers are likely to regard the matter as important given that they allege that Big Heart touts the “Benefits of Grain Free” on its website.

Warranty claims also survived. For implied warranty, plaintiffs used two theories: (1) there is a general warranty in all sales contracts that the product is fit for the ordinary purpose for which such good is used; and (2) the product does not conform to the promises or affirmations of fact made on the container or label.  Plaintiffs plausibly alleged (1) by alleging that Nature’s Recipe Food was specifically marketed for dogs with grain allergies, and that because it contains corn and soy it causes dogs to suffer allergic reactions and therefore is not fit for its ordinary purpose. And the court didn’t require privity for either theory.

Injunctive relief: In the Ninth Circuit, “a previously deceived consumer may have standing to seek an injunction against false advertising or labeling, even though the consumer now knows or suspects that the advertising was false at the time of the original purchase, because the consumer may suffer an ‘actual and imminent, not conjectural or hypothetical’ threat of future harm.” This includes cases where “the threat of future harm may be the consumer’s plausible allegations that she will be unable to rely on the product’s advertising or labeling in the future, and so will not purchase the product although she would like to,” and where “the threat of future harm may be the consumer’s plausible allegations that she might purchase the product in the future, despite the fact it was once marred by false advertising or labeling, as she may reasonably, but incorrectly, assume the product was improved.” But plaintiffs didn’t make those allegations here.

Equitable relief under the UCL, FAL, and CLRA: only available where there were no damages; the complaint didn’t make clear whether the claims for equitable relief and damages are based on the same theory (false advertising) or on separate distinct theories. Motion to dismiss granted (with leave to amend, as above).

Punitive damages: Not recoverable under the UCL or FAL, or for breach of express warranty under the California Commercial Code. A consumer seeking damages under the CLRA may recover punitive damages, but plaintiffs failed to allege the necessary elements: “both ‘oppression, fraud, or malice’ and that the conduct at issue was performed or ratified by an ‘officer, director, or managing agent.”

Statements in book promoting addiction treatment protected by Cal anti-SLAPP law

Selkirk v. Grasshopper House, LLC, 2020 WL 1241565, No. B294568 (Cal. Ct. App. Mar. 16, 2020)

Defendants Grasshopper House and Passages Silver Strand “are luxury facilities that purport to treat drug and alcohol addiction.” Former patients sued them for allegedly making false statements about the efficacy of their treatment programs. Under the anti-SLAPP law, Passages showed that some of its statements were protected speech and plaintiffs didn’t show enough merit to proceed; remanded with directions issue a new order striking certain allegations, although the denial of the motion to strike some other allegations wasn’t appealable.

The Passages facilities allegedly “are among the most expensive” rehabilitation centers “on the planet,” charging between $40,000 and $100,000 for a 30-day stay. Neither founder (including Pax Prentiss) has any education or training in the treatment of substance abuse. Passages allegedly advertises it discovered a novel treatment approach that “cured” Pax of his addictions and that can cure others. E.g., the Passages Malibu website stated: “The program we created for Pax, the one that is now the Passages program, was primarily based on finding out the ‘why’ behind his addiction. It worked. Pax finally discovered his ‘why’ and we knew that he was cured, that he would never again use drugs or alcohol.” The website also stated that the “treatment method ... has cured thousands of people at Passages.” Passages also claims in its advertising the program can cure addiction within 30 days.

Passages allegedly made similar statements in Internet, television, and print advertisements, in “television and other media interviews,” during lectures and personal appearances by the Prentisses, and in a book: The Alcoholism and Addiction Cure: A Holistic Approach to Total Recovery.

Passages filed a special motion to strike. Plaintiffs argued that their claims were based on Passages’ specific misrepresentations about the efficacy of the Passages treatment program and that promotional statements by a business about its services were commercial speech to which California’s anti-SLAPP did not apply. Plaintiffs submitted evidence that Pax continued to use drugs after the Prentisses opened Passages Malibu and that since 2004 Passages has not documented whether its clients remained sober after leaving its facilities. But they didn’t submit evidence that they were aware of Passages’ alleged misrepresentations before enrolling at the facilities.

The trial court ruled that all statements “arising out of television ads, internet advertising, and Defendants’ website constitute commercial speech which comes within the exception” to the anti-SLAPP law, but that the statements in the Prentisses’ book weren’t commercial speech under the law, which “specifically exempts from [the commercial speech rule] claims based upon the dissemination of a literary work.” Then, the trial court ruled as to the book statements that the plaintiffs demonstrated a probability of prevailing on each of their causes of action except their cause of action for negligence.

On appeal, Passages conceded that the statements about Pax’s personal history of addiction and abuse (whether those statements were book statements or non-book statements) weren’t eligible to be struck. They appealed as to the statements about addiction, treatment, and the Passages facilities, and plaintiffs cross-appealed.

The appeals court ruled that the trial court correctly held that the book statements were protected speech. In the book, Chris Prentiss states that he and Pax “use[d] what [they] learned curing [Pax] to help others discover the roots of their addiction or alcoholism and break free” and that, “having healed thousands of people,” Chris “can write with complete certainty that alcoholism and addiction are not diseases.” The book also tells readers that, if patients “set up ... intense therapy” at Passages, they “should be able to cure [their] addiction in thirty days or less.” These were statements relating to the public interest and contributed to public debate about addiction treatment; the purpose of the book wasn’t solely to advertise Passages but to discuss conventional treatment methods, why the authors believe addiction is not “incurable,” and why they believe their “holistic” treatment method is better than other treatment methods. “To be sure, the statements about the efficacy of the Passages treatment program and the number of patients the program has successfully treated may help Passages solicit new clients. But those statements also provide context and explain the Prentisses’ views on addiction and treatment. The statements about their views contribute to the public discussion of the issue.” The book also made claims that it could help readers treat their addictions on their own, without paying Passages for treatment: “Within the covers of this book, I will show you how you can cure your alcoholism or addiction” and “how to put together your own personalized program to achieve total recovery and optimum health by enlisting the help of several key health practitioners.”  Their views might be against the medical consensus, and might even “harm some persons who would receive better treatment from medical professionals.” But the question is whether the Prentisses “participated in, or furthered, the discourse,” not “the social utility of the speech at issue, or the degree to which it propelled the conversation in any particular direction.”  The book as a whole, and not just the challenged statements, had to be considered. And even if the challenged statements were false (or even Central Hudson commercial speech), that didn’t make them unrelated to an issue of public interest, an issue determined by the anti-SLAPP law and not by the Constitution.

With that out of the way, plaintiffs failed to show that their book-based claims had merit. The standard is like summary judgment: the court “accepts the plaintiff’s evidence as true, and evaluates the defendant’s showing only to determine if it defeats the plaintiff’s claim as a matter of law.” Plaintiffs didn’t submit evidence that they attended Passages because of the alleged misrepresentations, or that they heard or read the misrepresentations, or that they relied on these statements, or that they suffered any economic injury as a result of these alleged statements.

However, the order denying the special motion to strike the non-book statements wasn’t reviewable in this appeal, because where a trial court denies the motion on the grounds that the commercial speech exemption applies, that’s not immediately appealable, per the anti-SLAPP law itself, even if other parts of the order are appealable and even if the district court erred in keeping opinion statements in the case when the exemption only applies to statements of fact in commercial speech.

Mislabeled image of competitor's LED screen as LG's gets LG in trouble

Sansi North America, LLC v. LG Electronics USA, Inc., 2019 WL 8168069, No. CV 18-3541 PSG (SKx) (C.D. Cal. Nov. 14, 2019)

LG used a picture of Sansi’s LED displays in an article for a trade publication and accidentally labeled it as LG displays. This lawsuit followed.

LG is currently the only manufacturerer of OLED displays, “a specific, advanced, version of LEDs that allow for flexibility and superior viewing angles to standard LED technology.” In 2017, LG hired Robin Dugan to create an eBook about developments in the digital signage industry, with a focus on LG OLED displays. “The eBook included pictures of non-LG displays, including a featured photograph of a display at Salesforce’s San Francisco headquarters, which was produced by Plaintiff Sansi; the caption did not mention Defendant LG or OLED.” LG did ask if it had permission to use all of the images. Roughly a year later, LG hired NewBay Media to prepare a similar article for a magazine, Digital Signage Magazine, with about 11,000 subscribers. NewBay based some of its work on the eBook, and believed that the Salesforce display was OLED. It mistakenly captioned the picture of the display as an OLED screen, and mistakenly updated the caption to read “LG OLED.”  

The text then said: “The Salesforce San Francisco office has a custom-built LG OLED screen in their lobby that is 12K resolution, with over 7 million pixels, and measures close to 107 feet long. The content ranges from amazing waterfall visuals to California’s Redwood National Park and is synced with the local weather to play content that matches the weather.”

Initial book, which just said Salesforce had a custom-built screen:

Second version with wrong attribution:

Downloadable eBook version with wrong attribution:

A few months later, Sansi informed LG and NewBay of the problem; NewBay took down the online version of the article, and LG agreed to take steps to correct the mistake, including asking NewBay to remove the publications, working with NewBay to draft a correction, and advising marketing staff of the error and to correct any misidentifications of the project. Sansi nonetheless sued for false designation of origin, false advertising, trade dress infringement, trade libel, and unfair competition.

The court treated false designation, trade dress infringement, and unfair competition as the same claim with different names.  “[C]laiming another’s accomplishments and history as one’s own” can be false designation of origin (or false advertising). LG argued that no claim for reverse passing off could succeed because no product was sold.  Sansi argued that no physical removal of a name from a physical product was required, particularly where the plaintiff sells a service. The court agreed that Sansi’s claim was tenable because LG published an article containing an image of Sansi’s service [???] and labeled it as its own. “Other courts have upheld claims under § 1125(a) where the defendant has taken credit for and represented as its own the service or accomplishments of the plaintiff.” [The court does not discuss Dastar, though I think this does constitute an explicit misrepresentation of the origin of the item depicted in the picture, as opposed to anything about the picture itself.]

Was confusion likely? Sansi identified four clients and four industry contacts who indicated confusion about the caption. Anyway, actual confusion isn’t required [for (a)(1)(A)].

False advertising: The caption was a false statement of fact, and the evidence of some consumers’ confusion plus literal falsity allowed a presumption of actual deception and materiality. There was a genuine dispute of fact on materiality and deception.

Trade dress: LG argued that all aspects of the Salesforce display were utilitarian in that was a video screen; according to LG the only way to tell who designed the display would be to pull off the panel, or ask someone, and that the emitting of light was the display’s only function. In addition, Sanci didn’t own the shape of the display and content displayed.

Sansi argued that its display had elements that, combined, could be “distinctive and aesthetic” [sigh, very much not the same things; consider how many of the adjectives in the description mean “works better”]:

Sansi’s Salesforce display consists of a unique arrangement of numerous elements intended to make it more spectacular, attention-grabbing, striking, and unusual, all of which are hallmarks of Sansi’s unique designs and high quality products. For example, it is 107 feet long, when it could have just as easily been shorter. It has a 4 millimeter pixel pitch, when it could have used a different pixel pitch. It has approximately 8 million pixels, when it could have had less (or more). It has a hundred layers of processing to give it a three-dimensional effect, which is unique and not essential to the function of a digital wall display. Its shape follows the architecture of the building in which it is installed and surrounds the elevator bank entrances, when it could have simply been a rectangular shape above the elevator banks. Numerous other elements of the design were subjective choices by Sansi in order to make this a standout design, such as the selection of PCB board widths, product supply widths, the pitch distinction between product, the streamlined assimilation of the display design with the building architecture, and countless other design elements.

So many problems. None of this indicates distinctiveness in the trademark sense, and it definitely doesn’t mean distinctiveness for Sansi instead of for Salesforce, any more than an ad agency has trademark rights in the successful campaigns it does for others. Nonetheless, the court decided that “the Salesforce display including its size, pixel pitch, number of pixels, layers of processing, unique shape, and other elements of its design, taken together,” could be found by a jury to be “aesthetic and not entirely functional.” 

LG did at least get monetary remedies kicked out of the case (at least pending Romag). In the Ninth Circuit, disgorgement requires willful infringement. LG provided evidence that the caption was a mistake, and that LG took action as soon as it was discovered. Sansi didn’t provide any evidence to the contrary.  And Sansi couldn’t show actual damages in the form of lost profits or otherwise. “[C]ompensatory damages are appropriate only where a plaintiff has shown that in fact it has been injured; it still must present non-speculative evidence that goodwill and reputation—that is, the value of its mark—was damaged in some way.” Sansi was unable to show lost customers, sales, or other injury. Sansi doesn’t sell OLED products, so it can’t claim to have missed out on any OLED sales. And none of the companies whose people downloaded the NewBay feature placed an order for an LG LED display; only one bought an OLED, and that company had been an LG customer for years. Sansi asked its dealers why they weren’t giving more business to Sansi, and none mentioned LG as the reason.

Sansi argued that it had shown instances of confusion, and a sales decrease concurrent with the article’s publication, which an expert calculated as $6.88 million in losses, which it argued should be enough to get to a jury. However, Sansi didn’t disclose any damages calculations to LG during discovery or before the dispositive motion deadline.  Thus, the court declined to rely on the expert report now.   Given how generous it was to Sansi’s theory of the case, one wonders if the court would have looked favorably even on a fairly implausible damages calculation if it had been properly disclosed.

Trade libel: requires actual malice; none shown.

Thursday, March 12, 2020

Selling scammy books is protected by the First Amendment when selling scammy products isn't

Federal Trade Comm’n v. Agora Financial, LLC, 2020 WL 998734, No. 1:19-cv-3100-SAG (D. Md. Mar. 2, 2020)

The defendants do relatively well here by selling scammy and deceptive books. To the extent that the deception is contained in the books, they get to advertise the contents of those books, but when they make claims beyond those contained in the books, the FTC can stop the marketing. The incentives for the defendants’ book-writing—which is pretty clearly parasitical on their marketing—are not good. That said, I'm not sure I see a safer rule.

Defendants Agora and NewMarket are publishing entities under the umbrella of M&C, which owns more than eighty separate entities.

NewMarket’s ads for its book The Doctor’s Secret to REVERSING Diabetes in 28 Days had a Dr. Gerhauser promoting it for treatment of Type 2 Diabetes without pharmaceuticals. His representations included: “[A]fter 37 years in practice, I recently discovered a simple, at-home treatment for Type 2 diabetes. And no, it has nothing to do with diet or exercise. It doesn’t involve a single drug either. Yet this new treatment is scientifically proven to reverse every symptom of your diabetes in 28 days.” Other parts of the ad: “World famous doctor and diabetes expert, Dr. Richard Gerhauser, just made a shocking announcement. He said ‘Type II Diabetes is not caused by what you eat.’ ” “Shocking study shows 100% cure rate.” “It has nothing to do with changing your diet or exercising more.” “Can this new treatment really reverse Type II Diabetes in 28 days? Without diet, exercise, or a single drug? Sure, it sounds impossible...But according to a new study from the University of Kansas, it’s true...” “How to Reverse Diabetes Without Dieting.”

The actual guide has eleven modules, one of which  ontains dietary recommendations, including that protocol followers “[e]at a seasonal, low-carb, organic diet with plenty of seafood,” and engage in intermittent fasting. The book initially sold for $150, then $250.

As for Agora, it developed the idea of using “Congressional Checks” as a metaphor for the anticipated tax-advantaged treatment of certain pass-through dividend income that would result from the 2017 Tax Cuts and Jobs Act (“TCJA”) passed by the Republican Congress in 2017. At least one news article had suggested that the real estate tax breaks in the TCJA would personally benefit some Republican lawmakers. The resulting book, Congress’ Secret $1.17 Trillion Giveaway, “identifies 13 companies with high yield potential.”  It was given to those who signed up for a free trial of Agora’s financial newsletter, which cost $99/year if they didn’t cancel.

It was promoted with ads including the claims:  “In case you haven’t heard yet, a small group of in-the-know Americans are now collecting ‘Congressional Checks’ of up to $6,235 each. In fact, there is $ 1.17 Trillion at stake thanks to section 199A of Trump’s new tax law. And if you follow the instructions on the next page, you could add your name to the list, too. But if you do not act by the October 18th deadline, you will miss out on the next check, and...your money will be sent to somebody else...To prevent your check from being sent to someone else, you must get on the list for the next ‘Congressional Check’ by Thursday, October 18.” “[T]he law dictates that this pile of cash MUST be distributed! That’s not a question of if...It’s the law! These cash distributions are contractually required by the U.S. government...So if you don’t collect someone else will.” “You just need to add your name to the list of check payees before October 18th.” “As a taxpayer, nobody deserves this money more than you. Remember, this is wide open to the public. There’s no income requirement. No age limit.” “Again, you could potentially collect a 6k check for doing nothing except applying what was perfectly within your rights anyways!” “The average Social Security monthly stipend of about $1,400 simply isn’t enough to pay for housing, groceries, and medical bills. Fortunately, there’s hope...If you’re looking for retirement income, I strongly encourage you to check out what’s inside this book.”

The ads include imaged of consumers holding checks with their names and the amounts received, and the words “Congressional Check” or “Republican Check” across the top in large writing, with the seal of the United States Congress. Those photos were actually edited stock photos, as was an alleged version of then-Congressman Darrell Issa’s Financial Disclosure Report, indicating that he had received either a “Congressional Check” of $410,000 or a “Republican Check” of $410,000, which was not true.

The “Congressional Checks” promotion was changed to “Republican Checks,” apparently to better target its audience. Also, consumers were immediately charged $49 rather than being given a free trial. Some of the later “Republican Checks” ads specified that the checks would be paid by “private sector institutions known as ‘fiscally transparent entities.’ ” In later 2018, a new ad included as part of a Q&A the statement “don’t take the term ‘Congressional check’ too literally. It’s a nickname for the payments politicians receive from REITs, master limited partnerships and other pass-through securities...Cutting taxes on pass-through earnings was almost like giving law makers a special bonus for voting in favor of the bill. So I decided to call the payouts from pass-through entities Congressional checks. But really, they’re just the regular payouts that these kinds of companies always make.”

The House of Representatives contacted agencies including the FTC about this promotion, noting that “[t]he Clerk has already received seven letters from individuals attempting to apply to the Clerk to collect their ‘Congressional Checks.’ ” Defendants ultimately stopped promoting the book.

As to the diabetes book, the FTC argued that five health claims were unsubstantiated by reliable clinical trials and therefore false and misleading: that the protocol in the book would “cure, treat, or mitigate type 2 diabetes or its symptoms,” that it didn’t require restricted or changed diet; that “Supplements, including Himalayan Silk, Epsom Blue, and Chromanite, will, either alone or in combination, cure, treat, or mitigate type 2 diabetes or its symptoms,” that “Type 2 diabetes is caused by [non-ionizing radiation] exposure,” and that “[c]onsumers can prevent Type 2 diabetes through the use of Non-Ionizing Radiation ‘blockers,’ or by otherwise avoiding NIR.” The FTC also alleged that the claim that the protocol “is scientifically proven to cure, treat, or mitigate type 2 diabetes or its symptoms in 28 days” was a false establishment claim.

However, the court declined to impose the standard requiring “competent and reliable scientific evidence” to substantiate health claims, because defendants were selling books, not medical supplements, devices, or services. “In the cases cited by the FTC, the respective defendants marketed products that would be sold for the buyer to consume, and purportedly reap the alleged benefits. The FTC has not identified any case in which a court has applied the health-related efficacy standard in the circumstances presented here.”  The FTC conceded that the book was free to exist, and the book wasn’t itself commercial speech. As the court pointed out, unlike with a drug or device, the consumer could read the book and decide not to use the advice, and the book would still have succeeded in its intended function: being read.

Thus, when the ads for the book just describe the contents of the book, they’re protected to the same level as the book itself.  However, defendants’ marketing material didn’t stick to the book.  The ads claimed that consumers didn’t need to change their diets, while the book recommended specific dietary changes. “[T]he divergent statements made in the promotion can be isolated and differentiated from the protected statements made in the book.” 

Nonetheless, in determining whether defendants made false or misleading claims in advertising, the court did not require competent and reliable scientific evidence for the claims from the book; it asked only whether defendants misrepresented the contents. [Of course, that begs the question: are the contents “a way to cure diabetes” or are they “a set of claims about the way to cure diabetes”?  Only if the latter is the proper description of the contents did defendants properly represent them.] The proper question is: “do the advertisements accurately represent the content of The Doctors’ Guide, such that consumers can make an informed decision about whether they want to purchase the book?” This standard allows people to publish and advertise noncommercial speech that makes dumb claims without chilling speech by requiring them to disclose how limited their evidence is. (The court rejected the FTC’s suggestion that Dr. Gerhauser could advertise a book suggesting that NIR causes diabetes if the advertisement said, “one study shows that consumers whose diet we don’t know, who lived near a cell phone tower, may have had increased diabetes rates,” as “utterly implausible.”) 

The court rejected the FTC’s analogy to Cher v. Forum Int’l Ltd, 692 F.2d 634 (9th Cir. 1982), which found an ad not entitled to constitutional protection because the ad indicated that Cher “told” Forum certain things when, in fact, she hadn’t told it anything. That was “patently false,” and the FTC didn’t demonstrate that the content of the book was “patently false.” “Neither this Court nor the FTC is well-equipped to determine the validity of a human clinical trial in India, and whether it indicates what Dr. Gerhauser believes it indicates, in his medical opinion. Similarly, neither this Court nor the FTC can state with certainty whether non-iodizing radiation has any causal relationship to a patient’s development of Type II Diabetes. Those types of untested theories are best assessed by qualified medical professionals exchanging opinions in the marketplace of ideas.”  [And here’s where the really shaky stuff begins. If the relevant claims been used to advertise a drug or anti-radiation device, I hope and believe the court would have found that it and the FTC were plenty competent to evaluate the facts. There’s an epistemology of evaluating claims for drugs & devices, and if we withhold that epistemology for books it’s not because our methods of knowing don’t work but because books are special even when we are sure the books are wrong.] In a footnote, the court commented that it might ultimately broaden the injunction, if for example the claims about mulberry extract, magnesium, and chromium were patently false, and thus entitled to no First Amendment protection.

The court proceeded to ask whether the ads matched the content of the book, keeping in mind that it’s possible to mislead with a series of true-in-isolation statements. As the Supreme Court said, “Laws are made to protect the trusting as well as the suspicious.” There were two actionable misrepresentations: the no-need-to-change-diet claims, and the claim that the protocol has been “scientifically proven” to “reverse your diabetes in just 28 days.” In fact, there was no evidence that the protocol had been subject to any testing. And the book relied on studies that indicate a longer timeline for any potential success, e.g., “after just 24 weeks, the patients taking magnesium had normal blood sugar.” [Note how helpful it was for the court to shorthand the book as The Doctor’s Guide: since the title is actually The Doctor’s Secret to REVERSING Diabetes in 28 Days, the title does claim 28-day efficacy. But apparently the title is an explicitly false misrepresentation of the content of the book, which is not surprising.] “Those two misrepresentations are material in that they would induce a reasonable consumer, who does not want to abide by a medically restricted diet, to purchase the publication.” 

The court reasoned similarly with respect to Congress’ Secret.  The ads claimed, expressly or by implication, that “consumers are entitled, by law or otherwise, to money from Congressional Checks or Republican Checks,” that consumers could get money “just by adding their name to ‘the list of check payees,’ ” that the checks were “affiliated or furnished by Congress or another government agency program,” and that “anyone can collect hundreds to thousands of dollars in Congressional or Republican Checks.”  These misrepresentations were likely to mislead consumers: they didn’t accurately portray the content of the book. The ads “do not even hint to the consumer that the book is an investment guide recommending the purchase of shares in thirteen private companies. The handful of isolated references to ‘investment’ or ‘investors,’ in the lengthy video presentation about ‘Congressional Checks,’ do not salvage the overall misleading impression conveyed to consumers about the book’s content.”  Though the book used the term “Congressional Checks,” that didn’t make its ideas the same as those of the ads. “The book makes clear what the advertisement does not – that ‘Congressional Checks’ are actually dividend payments consumers obtain by investing in a variety of private companies, because the returns will be tax-advantaged as a result of a law passed by Congress. The overall impression in the advertising is entirely different, exacerbated by the stock photos appearing to depict happy customers holding faux checks emblazoned, ‘Congressional Checks,’ or ‘Republican Checks.’” Even the later version of the video ad, while slightly better, still left the same overall impression. “Essentially, consumers were led to think that Congress’ Secret would instruct them as to how they could put their name on a list to receive checks, without needing to have significant resources to invest.”

That was both misleading and material; the court pointed out that the ads were expressly geared to people without significant investment capital, e.g., “I know that without these income secrets...You’ll likely retire on Social Security. And I think we can both agree that’s just not enough income, right? I mean, the average retiree’s monthly budget is currently $1,305. That’s barely above the federal poverty line.” As the court noted, “[t]he target customer described in that advertisement is unlikely to have the resources to invest in enough shares of a company to receive substantial dividend payments.”

Defendants invoked FTC v. Shire Viropharma, Inc., 917 F.3d 147 (3d Cir. 2019), and claimed that the FTC couldn’t get any relief because it had voluntarily stopped both promotions and thus they were not “violating, or … about to violate” the FTC Act. But in Shire, the violations were definitely not going to resume in the foreseeable future, while here, the FTC had “reason to believe” that defendants will continue to violate the FTC Act. The defendant in Shire had divested itself entirely of the product, while defendants could re-start their promotions at any time, and the harm from Congress’ Secret was ongoing because customers had ongoing subscriptions to defendants’ newsletter. “[N]othing short of injunctive relief would prevent Defendants from resuming the sales, including the misleading representations in their advertising. Thus, Defendants’ voluntary cessation of their marketing practices does not moot the FTC’s claim.”

But the FTC’s requested relief was too broad; defendants were publishing companies. Thus, the court would not require defendants to cite randomized clinical trials for any health-related claims. And defendants “offer a large and varied number of promotions and publications. It would be simply too broad to speculate that Defendants are engaged in deceptive marketing as to each of their publications, without specific information to support that claim.” [Do many of them use the “Secret” format?] Instead, the court would enjoin the “disconnect” between the ads and publication content.

The FTC also wanted defendants to provide a copy of the order to each “client” and give the FTC a list of the names, addresses, phone numbers, and email addresses of each person who received a copy of the Order. The court did require defendants to send a copy of its order to each customer who purchased the books, but not to provide the list to the FTC.  Instead, they were required to provide the FTC with a sworn statement that they had complied with the court-ordered distribution provisions. [Query: why would you believe the defendants at this point? Why not let the FTC do the mailing and be sure?]

negative inference about other juices from "no sugar added" on D's juice is implausible

Shaeffer v. Califia Farms, LLC, 44 Cal.App.5th 1125, No. B291085 (Feb. 6, 2020)

Califia sells a “100% Tangerine Juice.” The front label includes “100% Tangerine Juice,” “No Sugar Added,” and “Never From Concentrate.” Shaeffer brought the usual California claims, alleging that she chose Califia’s Cuties juice over “other, similar tangerine juices” because its label “stated ‘No Sugar Added’ ” and because “she is diabetic.” She alleged that the label falsely implied that other, similar tangerine juices had added sugar. The court thought that wasn’t a reasonable inference from the truthful statements on the label as a matter of law.  A reasonable consumer was unlikely to make those inferential leaps, which would make almost any truthful claim about product attributes “fodder for litigation”: “Assume that a new airline runs an ad with a tagline, ‘No Hijackers Allowed.’ Is a reasonable consumer likely to infer that other airlines do allow hijackers and that the new airline is consequently the safer choice? We think the answer to this question is ‘no.’”  Deceptiveness is usually a factual question, but not here.
Shaeffer also alleged that the label was “unlawful” under the UCL because it does not comply with two of the five prerequisites that must be satisfied before a label may state “no sugar added” under a federal labeling regulation: (1) “the [product] that [Cuties Juice] resembles and for which it substitutes”—that is, “100% tangerine juice”—does not “normally contain added sugars,” and (2) the label does not also “bear[ ] a statement that it is not ‘low calorie’ or ‘calorie reduced’ ” and does not “direct[ ] consumers’ attention to the [product’s] nutrition panel.”  The court rejected the first argument—although there is a judicial split on this, the court found that a product cannot substitute for itself. Some courts reason that the “substitute” food for “juices with no added sugar” are “juices with added sugar, fruit-flavored soft drinks sweetened with sugar, or other sugar-sweetened beverages,” but the court didn’t resolve the question of whether the universe was tangerine juice or some larger class of juices because there was no allegation that either of these broader universes of foods does not “normally contain added sugars.”

As for the second, failure to use a statement disclaiming low/reduced caloric content, Shaeffer didn’t allege that she relied on the omission of the calorie statment. Shaeffer argued that “ ‘a presumption, or at least, an inference of reliance arises whenever there is a showing that a misrepresentation [or omission] is material’ ” and that the omission of the “not ‘low calorie’ or ‘calorie reduced’ ” statement from the label was material as a matter of law because its inclusion is (sometimes) mandated by the federal regulation. Even if this presumption were relevant to a claim based on unlawfulness and even assuming that it applies to a named plaintiff as well as to class members, the presumption was rebutted by her affirmative allegations that she actually relied on other reasons in deciding whether to buy the juice. Shaeffer also argued that reliance could come from an omission being “a substantial factor[ ] in influencing [her] decision” to buy a product, but she didn’t allege that low calorie content was one of many reasons for her purchase. And her diabetes made sugar material to her, but did not justify the inference that calorie content mattered.

Tuesday, March 10, 2020

commercial advertising & promotion post-Lexmark: 10th Circuit preserves old test

Strauss v. Angie’s List, Inc., --- F.3d ----, 2020 WL 1126523, No. 19-3025 (10th Cir. Mar. 9, 2020)

Lexmark, most courts have recognized, changed prong 2 of the standard Gordon & Breach test for “commercial advertising or promotion.” Unfortunately, the Tenth Circuit casts unwarranted doubt on that change, potentially rendering meaningless Lexmark’s rejection of a direct competition requirement, despite the fact that the textualist arguments behind Lexmark apply equally to the meaning of “commercial advertising or promotion” as to the specific requirement of direct competition. And it wasn’t even necessary to affirm the dismissal of these claims!

Strauss sued Angie’s list for Lanham Act violations (all that’s at issue on appeal). During the relevant period, Strauss owned a tree trimming/removal business, Classic Tree Care. Angie’s List is a consumer ratings forum “on which fee-paying members can view and share reviews of local businesses.” Strauss alleged that “the membership agreement between Angie’s List and its members leads members to believe that businesses are ranked by Angie’s List according to unedited consumer commentaries and endorsements when, in reality, the order in which businesses are ranked is actually based on the amount of advertising the business buys from Angie’s List.” Over about ten years, Strauss paid $200,000 to Angie’s List “in an effort to appear higher” in search results. But Strauss alleged he failed to appear in search results for a three-month period and then was “buried” in search-result listings even though he had numerous favorable reviews and a high rating from consumers.

The only non time-barred claims were based on three statements Angie’s List made in 2016. Straus alleged that Angie’s List stated that his business (1) had no consumer ratings or reviews; (2) had not met the criteria set by Angie’s List for inclusion on its website; and (3) had no local offers to extend to consumers.  

The Tenth Circuit adopted Gordon & Breach’s four-part test for commercial advertising or promotion in its own P&G case: “(1) commercial speech; (2) by a defendant who is in commercial competition with plaintiff; (3) for the purpose of influencing consumers to buy defendant’s goods or services ... [and] (4) must be disseminated sufficiently to the relevant purchasing public to constitute ‘advertising’ or ‘promotion’ within that industry.” The district court concluded Strauss’s complaint failed to plausibly allege that the 2016 statements were made for the purpose of influencing consumers to buy Angie’s List’s goods or services.

Strauss argued that Lexmark abrogated P&G. I think he’s right that it altered prong (2), but not prong (3), which the district court found was part of his problem. The Tenth Circuit noted that Lexmark has a footnote expressing no opinion on the commercial advertising or promotion issue and found that P&G remains the law of the circuit. Of course, the reason the statements in Lexmark might still not have been commercial advertising or promotion was that they were made to Lexmark’s competitors, which is still a problem under prong (3)—it’s not super plausible that they were designed to directly generate sales of Lexmark’s products, though they could have decreased the supply of competing products indirectly. Given the rationale of Lexmark, the Gordon & Breach test should really be: “(1) commercial speech; (2) by a defendant whose relationship to the plaintiff puts the plaintiff within the statute’s zone of interests [or, to use Scalia’s disfavored but useful summary term, ‘as to which the plaintiff has standing’]; (3) for the purpose of influencing consumers to buy defendant’s goods or services ... [and] (4) must be disseminated sufficiently to the relevant purchasing public to constitute ‘advertising’ or ‘promotion’ within that industry.”

Anyway, P&G remains the law of the circuit—the court doesn’t clarify whether it thinks prong (2)’s commercial competition requirement remains unaltered.  I strongly believe that it doesn’t, and this case doesn’t really hold otherwise, but it sure can and will be cited that way, especially given the footnote that two other circuits post-Lexmark have adopted only prongs (1), (3), and (4) but that P&G still binds 10th Circuit panels.