Wednesday, April 29, 2020

Reasonable restaurant consumers wouldn't think "krab mix" had real crab in it

Kang v. P.F. Chang’s China Bistro, Inc., No. CV 19-02252 PA (SPx), 2020 WL 2027596 (C.D. Cal. Jan. 9, 2020)

Kang alleged that P.F. Chang’s “employed a classic bait and switch tactic whereby it falsely labeled and advertised food products containing crab on their menu, when in fact, no crab meat was present in the product” by selling “food items containing ‘krab mix’ on their menu, including but not limited to [Defendant’s] Kung Pao Dragon Roll, Shrimp Tempura Roll, and/or California Roll.” He brought the usual California claims and a couple of others. The court dismissed all the claims.

Without representative plaintiffs from other states, Kang had no Article III standing to bring claims based on alleged violations of consumer fraud and deceptive trade practices laws of states other than California.

As for the California claims, this one could be resolved on a motion to dismiss. Reasonable consumers would not interpret “krab mix” to contain actual crab meat; it didn’t need to be labeled “imitation crab” or otherwise explained. (Citing McKinnis v. Kellog USA, 07-cv-02611, 2007 WL 4766060, at *4 (C.D. Cal. Sept. 19, 2007) (granting motion to dismiss without leave to amend on plaintiff’s UCL, FAL, and CLRA claims, finding no reasonable consumer would be misled by the word “Froot” in “Froot Loops” into believing the product contained “Fruit”); Pelayo v. Nestle USA, Inc., 989 F. Supp. 2d 973, 979 (C.D. Cal. 2013) (granting motion to dismiss on plaintiffs’ CLRA and UCL claims finding no reasonable consumer would be misled by the use of the words “All Natural” on a pasta product’s package into believing the product contained only natural ingredients, where pasta contained two artificial ingredients).)  In addition, “a reasonable consumer understands that cheaper sushi rolls, such as a California Roll, contain imitation as opposed to real crab.”  (Citing Werbel v. Pepsico, Inc., 2010 WL 2673860, at * (N.D. Cal. July 2, 2010) (holding, as a matter of law, that no reasonable consumer would be led to believe that “Cap’n Crunch’s Crunch Berries” cereal contained real fruit berries despite the use of the word berries in the product).)

Additionally, other dishes on P.F. Chang’s menu are labeled “crab,” where they contain actual crab. A reasonable consumer would recognize the contrast.

Monday, April 20, 2020

Common sense can't show materiality for damages purposes in Fifth Circuit

Illinois Tool Works, Inc. v. Rust-Oleum Corporation, --- F.3d ----, No. 19-20210, 2020 WL 1808871 (5th Cir. Apr. 9, 2020)

The Fifth Circuit continues on its crusade to prevent false advertising disgorgement from being awarded. [I guess it has worse crusades.]

The parties compete in the market for windshield water-repellant. ITW alleged that RO’s ad made three false claims: (1) that RO’s RainBrella lasts over 100 car washes, (2) that RainBrella lasts twice as long as the leading competitor (who everyone admits is ITW’s Rain-X), and (3) the so-called And Remember claim: “And remember, RainBrella lasts twice as long as Rain-X. We ran it through 100 car washes to prove it.” A jury agreed, finding that the 100-car-washes claim was misleading and that the other two claims were false. It awarded ITW over $1.3 million—$392,406 of Rust-Oleum’s profits and $925,617 for corrective advertising—but the district court reduced the corrective-advertising award.

“Disgorgement of profits is appropriate only if it is equitable and the defendant’s profits are attributable to the Lanham Act violation.” This requires “evidence that the defendant benefitted from the alleged false advertising.” The court of appeals concluded that ITW failed to present sufficient evidence of attribution. There was no evidence that even a single consumer purchased RainBrella because of the false advertising.  It was not enough to have (1) testimony about how important the advertising claims were to Rust-Oleum, (2) evidence that tens of thousands of people saw the commercial, and (3) evidence of head to head competition in stores.

RO’s own opinion that the ads were important or would prove profitable was a mere “truism.”  [Why isn’t it a truism because we can expect their self-interest to induce them to be right? At least their expectations for the ad could be circumstantial evidence of its effectiveness.] But that opinion couldn’t substitute for evidence that the advertising actually worked.  The disgorgement award was vacated.

So was the corrective advertising award. “Lanham Act awards are compensatory, not punitive.” Though the court didn’t categorically reject prospective corrective advertising awards, ITW offered no evidence that it needed or deserved one. It didn’t argue that it had a plan for such advertising, what it would be, “offer a ballpark figure of what it might cost, or provide even a rough methodology for the jury to estimate the cost. Damages need not be proven with exacting precision, but they cannot be based on pure speculation.” The jury couldn’t reasonably have based such an award only on how much RO spent on its own advertising, but that was all it had to go on. Indeed, there wasn’t even evidence that Rain-X’s injured reputation needed help, given that it was the undisputed market leader, “and there was no evidence that Rust-Oleum was even remotely successful in its attempt to dethrone the king.” Here, a corrective advertising award would be a windfall. [I guess sometimes, if you go after the king, best to miss.]

With the damages award vacated, the only remaining issue was RO’s argument that the evidence was insufficient to find it liable for the 100-car-washes claim, and again RO prevailed. ITW didn’t present evidence that the deception was material.

Again, the court of appeals was unwilling to rely on common sense: (1) the claim misrepresented how long RainBrella lasts, which is an inherent quality or characteristic of RainBrella; and (2) the claim was important to Rust-Oleum’s marketing strategy. The Fifth Circuit doesn’t think there are inherent qualities or characteristics, as it already established in its Pizza Hut case. “If misleading claims about something as vital to pizza as its ingredients were not necessarily material, a misleading claim about how long a windshield water-repellant treatment lasts was not, either. Moreover, though Illinois Tool Works asserts that consumers want to know how long these products last, it does not substantiate this assertion with evidence.”

Nor did the prominence of the claim in RO’s marketing show materiality. Not in the Fifth Circuit! The court doesn’t explain why prominence isn’t at least circumstantial evidence of importance to consumers, just says that the cases about prominence aren’t Fifth Circuit cases. I guess in the Fifth Circuit you could get an executive up on the stand to testify that the central characteristic of your product matters to consumers … but maybe even that wouldn’t be relevant evidence in the Fifth Circuit, since it’s already said that executives’ beliefs in materiality aren’t evidence of materiality.

And the fact that a consumer was surprised that RainBrella was so ineffective didn’t show materiality, either—that was just one consumer, and there was no evidence that he bought the product because he expected it to last 100 washes.

11th Circuit protects (at least some) truthful references to product creation

Webster v. Dean Guitars, --- F.3d ----, 2020 WL 1887783, No. 19-10013 (11th Cir. Apr. 16, 2020)

Buddy Webster (pka Buddy Blaze), a successful guitar maker and technician, in the mid-1980s modified a Dean guitar and commissioned someone to paint a lightning storm graphic on it; he gave the guitar to Darrell Abbott, late guitarist of the heavy-metal band Pantera. Abbott called the guitar “The Dean from Hell” (DFH). In 2004, Abbott entered an endorsement-type contract with Dean, but he died shortly thereafter. Since 2004, Dean has produced and sold guitar models based on Abbott’s guitar and featuring the lightning storm graphic, without Webster’s consent and without paying him royalties for the use of the design. In 2017, Webster sued Dean and others for copyright infringement, unfair competition, and false endorsement. The court of appeals affirmed the district court’s grant of summary judgment to Dean et al.
Dean from Hell

Dean's DFH

Copyright infringement: this was fundamentally a claim over ownership, not general infringement, and thus it didn’t have general infringement’s rolling accrual. Webster first learned about the sales of the reissued guitar in December 2004, and learned of a cheaper, imported version called the Cowboy from Hell in 2006. In 2006, he emailed then CEO of Dean, Elliot Rubinson, and told him that Dean could not sell the reissues without his permission, but Dean did not stop selling the guitars. In 2007, Webster complained again, and Rubinson responded:

I have taken some time and spoken to several “people in the know” and the consensus concerning [the lightning storm graphic] is that [Abbott’s] estate is the legal owner of it. With that said, I still would like to work with you on [an Abbott] project because I am not about making enemies but keeping friends…. Rita and I have plans to do a relic [DFH] and would like you involved for a royalty. Is that of interest?

Webster testified that, in a subsequent phone call, Rubinson suggested that he sue Abbott’s estate if he was still upset.  Despite the lack of royalties for the DFH, Webster worked with Dean in 2009 to create and sell his own signature guitar model—the “Buddy Blaze ML.” He also willingly appeared in multiple interviews in 2008 and 2009 discussing his role in the history of the original DFH; Dean posted some of them to its YouTube channel. In one, he stands in front of the original DFH recounting its history. In another, he appears in an interview alongside Rubinson “promoting the Buddy Blaze ML, speaking about the history of the original DFH, and comparing his Buddy Blaze ML model with the DFH.” The third is similar; there’s no mention of the reissues.

From 2009 to 2015, Dean released several other versions of the DFH, the “Rust from Hell,” the “Black Bolt,” and the “Limited USA Dean from Hell.” In 2016, Webster retained counsel and obtained a copyright registration in the lightning storm graphic.

The court of appeals agreed with the district court that ownership was the gravamen of the claim here, and Webster had reason to know that his alleged ownership rights were being violated as early as 2004, when he first learned that Dean was producing DFH reissues. Even if that weren’t enough, Rubinson’s email in 2007 stating that “the consensus concerning [the lightning storm graphic] is that [Abbott’s] estate is the legal owner of it” “was certainly sufficient.” His claim therefore accrued in April 2007 at the latest, and the three-year limitation period expired long before he brought his copyright claim in 2017.

Lanham Act/unfair competition claims: the district court reasoned that there was no evidence that Dean used a false or misleading statement to sell the DFH reissues. Dean just posted Webster’s own statements in the video interviews (which he said he wasn’t harmed by), and there were no statements that Webster endorsed, sponsored, or derived income from the DFH reissues. One person stated in a declaration that he attended a NAMM show and “heard Dean representatives using Buddy’s name when selling guitars like the one that Buddy Blaze re-built for [Abbott],” but there was nothing untrue or misleading about that.  [Note: Dastar would be an easy way to get here.]

Webster argued that, in context, the interviews were likely to cause confusion “because, after viewing the videos on Dean’s website and reading Dean’s advertising copy for the DFH reissues, a reasonable person would assume that Webster was working with Dean on the reissues.” Webster relied on statements by Dean advertising the DFH reissues as similar to “the one that Buddy Blaze painted” and featuring the “iconic, [DFH] lightning bolt paint job.”  The court of determined that these statements were not false or misleading. The videos were Webster discussing his undisputed involvement in the creation of the DFH, and none stated that Webster was promoting or selling the DFH reissues. “The statements in these videos do not become misleading, nor do they imply that he endorses or benefits from the sale of the DFH reissues, simply because they appear near Dean’s advertisements of DFH reissues.”

False endorsement: Webster argued that his presence in Dean’s promotional materials and videos “was ‘inescapably interpreted’ by the audience of guitar-enthusiasts [as] an endorsement.” The court of appeals applied the multifactor LOC test, but found that since the claims were based on videos in which Webster “appeared to willingly promote his legacy as creator of the DFH,” only “(6) the intent of the alleged infringer to misappropriate the proprietor’s good will; and (7) the existence and extent of actual confusion in the consuming public” were relevant.  The court doesn’t explain why it discounts the other factors, but presumably it means that things like similarity of marks and similarity of goods point in the wrong direction from common sense where there is truthful, useful information that the seller should be able to convey—similar to the justification for nominative fair use. Still not clear to me why it’s these two factors that should bear the weight, but I guess that’s what you get if you don’t have nominative fair use.

The court of appeals rejected Webster’s implicit argument that, “given his notoriety in the guitar-enthusiast world, the mention of his name near or in relation to the DFH reissues must have caused consumers to mistakenly believe that he endorsed the sale of the reissues.”  Instead, confusion is not simply to be assumed “when a mark is used in the proximity of advertising for a product, especially when a legitimate use of that mark is clear from the context.”  There was “little or no evidence” of intent to misappropriate his goodwill: these were just his own interviews, “several years after he became aware of the DFH reissues, willingly discussing the history of the DFH to promote his legacy and sell his own guitars. He does not mention the DFH reissues in the interviews.” [Would it be intent to misappropriate if someone else truthfully discussed his history? This is a variant of the question of distinguishing use from misappropriation.] And there was no evidence of consumer confusion. Affirmed.

Friday, April 17, 2020

reasonable consumers wouldn't think Dunkin Donuts Angus Steak was intact piece of meat

Chen v. Dunkin’ Brands, Inc., No. 18-3087-cv, --- F.3d ----, 2020 WL 1522826 (2d Cir. Mar. 31, 2020)

Plaintiffs sued Dunkin for deceptively marketing the Angus Steak & Egg Breakfast Sandwich and the Angus Steak & Egg Wake-Up Wrap, alleging that Dunkin deceived consumers into believing that the Products contained an “intact” piece of meat when the products actually contained a ground beef patty with multiple additives. There wasn’t jurisdiction over the out of state plaintiffs’ claims, and no reasonable consumer would have been fooled under GBL §§ 349 and 350.

All three challenged ads “conclude with multiple zoomed-in images that clearly depict the ‘steak’ in the Products as a beef patty.” And “steak” doesn’t always mean a slice of meat;  it is also defined as “ground beef prepared for cooking or for serving in the manner of a steak” by the Merriam-Webster Online Dictionary, as in chopped steak, hamburger steak, and Salisbury steak.  In the context—the sandwiches cost less than $4 and less than $2 respectively, and they’re marketed as grab-and-go products that can be consumed in hand, without the need for a fork and knife—a reasonable consumer would not be misled into thinking she was purchasing an “unadulterated piece of meat.”

1201 claim to control device features survives

Philips North America, LLC v. v. Summit Imaging Inc., 2020 WL 1515624, No. C19-1745JLR (W.D. Wash. Mar. 30, 2020)

But I was told that after Lexmark and Chamberlain, manufacturers weren’t using §1201 claims to control devices!

The parties compete to sell ultrasound imaging devices for hospitals and medical centers; Philips sells related ultrasound hardwre devices. Philips’ Ultrasound Systems are driven by one of two software platforms that Philips developed and owns: (1) Philips Voyager Platform and (2) Philips Common Platform. Each PUS has features/tools that are only enabled by license, and Philips aleges it uses “multiple layers of technological controls to protect” their copyrighted works from unauthorized access, and that the software and access control systems are trade secrets and that those systems contain other trade secret information.

Summit allegedly hacks into Philips’ software and alters the Ultrasound Systems in order to enable features or options for which Philips’ customers have not paid Philips, and trains Summits customers on how to circumvent Philips’ access controls. Summit allegedly advertises that its Adepto tool is a “legal solution” or a “legal alternative” to working with Philips in order to enable additional features and options.

Defendants moved to dismiss DMCA §§1201 and 1202 claims, Defend Trade Secrets Act claims, Uniform Trade Secrets Act claims, false advertising claims, Consumer Protection Act claims, and contributory copyright infringement claims.

Philips adequately pled that its Ultrasound Systems are protected by “a technological measure that effectively controls access to a work” under §§ 1201(a)(1) and (a)(2): (1) user-specific codes; (2) user-specific hardware keys; (3) machine-specific codes and hardware keys; (4) software files with licensed features and optional add-on controls; (5) machine-specific configuration files that control compatibility between the systems and software and/or the systems and replacement parts; and (6) software disabling if a user attempts to make use of an unlicensed feature. And Philips sufficiently alleged circumvention of those access controls: defendants allegedly remove the hard drive from the Ultrasound Systems and run their Adepto program on the hard drive, which changes configuration files and software files in order to enable unlicensed options on the hard drive, and force compatibility with otherwise incompatible transducer parts.

§1202, modifying CMI: Not plausibly alleged. The only CMI identified with any specificity in the complaint is “the terms and conditions of the use of the software,” which allegedly resides on “machine readable configuration files.” But Philips didn’t plead facts explaining how defendants falsify, remove, or alter Philips’ terms and conditions. Motion to dismiss granted with leave to amend.

DTSA and UTSA causes of action also survived.

False advertising (including state Consumer Protection Act): To the extent that the claim was based on statements about the legality of defendants’ services, these were inactionable statements of opinion because the statements “purport to interpret the meaning of a statute or regulation.” And, though there is a “well-established exception” to the bar against false advertising claims based on opinion statements for an opinion statement “by a speaker who lacks a good faith belief in the truth of the statement,” Philips failed to adequately plead that defendants lacked a good faith belief in the truth of their statements.  Again: leave to amend.

Contributory copyright infringement: adequately alleged because the Adepto tool allegedly created copies of Philips’ software and log files [are the log files copyrightable? Are they copyrightable by Philips? Seems unlikely].

Humvees in Call of Duty are constitutionally protected realism, not confusing/diluting

AM General LLC v. Activision Blizzard, Inc., No. 17 Civ. 8644 (GBD) (S.D.N.Y. Mar. 31, 2020)

The district court allows Humvees to appear in realistic videogames by performing a full confusion analysis, despite purporting to follow Rogers v. Grimaldi.

The Humvee has become “an iconic and a ubiquitous symbol of the modern American military.” AMC has granted licenses to use the Humvee trademark “on or in connection with a wide variety of products,” including toys and at least four video games. Humvees have also appeared in “a wide variety of other media, including Hollywood blockbusters, … television series, … and Academy Award-winning dramas,” as well as in video games. 

Call of Duty is a popular, realistic military video game. Humvees are depicted in nine Call of Duty games, sometimes in the background or mentioned; players sometimes ride in a Humvee for several minutes during a scene or level and they can occasionally “assum[e] control of the (Humvee],” including by firing a turret-mounted machine gun. Humvees are also shown in several trailers for the games and in Call of Duty-brand d strategy guides. Activision also licensed a toy company to manufacture Call of Duty-branded construction sets, two of which include toy vehicles that allegedly bear the distinctive elements of the Humvee’s trade dress.          

An instruction manual for Call of Duty 4: Modern Warfare included the following language:

All title, ownership rights and intellectual property rights in and to this Program (including but not limited to any patches and updates) and any and all copies thereof (including but not limited to any titles, computer code, themes, objects, characters, character names, stories, dialog, catch phrases, locations, concepts, artwork, animation, sounds, musical compositions, audio-visual effects, methods of operation, moral rights, any related documentation, and “applets” incorporation into this Program) are owned by Activision, affiliates of Activision or Activision’s licensors.

Similar language occurs in other manuals for other iterations. Activision also received a letter in 1998 complaining about the use of Humvees in the video game Sin, which is unaffiliated with the Call of Duty franchise; Activision supposedly “agreed to remove [Humvee] vehicles from the video game Sin.”

Infringement: Rogers is the test for uses in artistic works generally, not just for titles. But then the court cites a title-v-title case for the proposition that a First Amendment-sensitive analysis must be done using the Polaroid factors, which is not the rule in the Second Circuit when the plaintiff doesn’t own rights in the title of an expressive work.  Rogers prong two is meaningless if it’s just likely confusion all over again, but the court cited Twin Peaks Prods., Inc. v. Publ’ns lnt’l, Ltd., 996 F.2d 1366, 1379 (2d Cir. 1993) (title v. title) and DeClemente v. Columbia Pictures Indus., Inc., 860 F. Supp. 30, 51 (E.D.N.Y. 1994) (which indeed also completely misread Rogers as just something to think about when you’re doing the multifactor confusion analysis, which is kind of amazing if you’ve read Rogers, which among other things rejects a consumer survey and evidence of confusion by sophisticated marketers).

By contrasting a non-title trademark case (the Hangover case with Louis Vuitton) with a title-v-title case (The Book of Virtues v. The Children’s Audiobook of Virtues), the court concludes that “an artistically relevant use will outweigh a moderate risk of confusion where the contested user offers a ‘persuasive explanation’ that the use was an ‘integral element’ of an artistic expression rather than a willful attempt to garnish the trademark owner’s goodwill for profit.”  At least the court is clear that the Humvees don’t need to be “metaphysically” required for the game; an integral element is one that “communicate[s] ideas—and even social messages,” either “through many familiar literary devices (such as characters, dialogue, plot, and music)” or “through features distinctive to the medium (such as the player’s interaction with the virtual world).”

Of course there was artistic relevance. “Featuring actual vehicles used by military operations around the world in video games about simulated modern warfare surely evokes a sense of realism and lifelikeness to the player who ‘assumes control of a military soldier and fights against a computer­ controlled or human-controlled opponent across a variety of computer-generated battlefields.’”

Proceeding to the Polaroid factors, the court found that the use wasn’t explicitly misleading because it wasn’t confusing. [sigh] It even quoted Rogers: “no amount of evidence showing only consumer confusion can satisfy the ‘explicitly misleading’ prong of the Rogers test because such evidence goes only to the ‘impact of the use’ on a consumer.” And then it did the multifactor confusion test anyway.

Unsurprisingly, some distortions appeared in the multifactor test: the court said that the marks weren’t very similar because the purpose of the uses were different. “Plaintiff s purpose in using its mark is to sell vehicles to militaries, while Defendants’ purpose is to create realistically simulating modern warfare video games for purchase by consumers.” AMC’s licensing practices were “sporadic and marginal” and thus didn’t show market overlap. And anyway, First Amendment considerations required the court to give minimal weight to bridging the gap.

AMC’s survey allegedly “found that 16% of consumers shown actual video game play from Activision’s games were confused as to AM General’s association with Call of Duty.” That wasn’t enough, given Rogers.

Bad faith: the 1998 letter couldn’t show bad faith, because Activision didn’t respond to it; silence wasn’t probative of Activision’s agreement about rights in the Humvee.  Nor were a handful of statements by Activision employees, the use of Humvees decorated with Call of Duty logos at several in-person promotional events, or the statements in user guides evidence of an intent to confuse:

For instance, the user guide statements do not affirmatively tell consumers that Activision either owns or licenses the Humvee IP. All that reasonably may be said is that a paragraph in miniscule type buried in a user guide—a paragraph which does not allude to, let alone mention, Humvees at all—does not “tell consumers” much of anything. Indeed, such back-end boilerplate provides no basis for “confusion between the two companies’ products.”

Sophistication: The Hangover court noted that “moviegoers are sophisticated enough to know that the mere presence of a brand name in a film, especially one that is briefly and intermittently shown, does not indicate that the brand sponsored the movie.” Here, “[t]here is no reason to believe that video game players are any less astute.”

Trade dress claims: Same thing, “[g]iven the improbability of confusion between a vehicle and a video game—or, in the case of the contested toys, between a plastic figurine and a full-blown military machine.”

Unfair competition/false designation of origin. Same thing. “The only thing remotely close to a ‘false designation’ is the legalese buried inside several games’ user guides,” which wasn’t enough.

Lanham Act false advertising: There were no literally or impliedly false statements.  NY false advertising: same. Also, AMC didn’t show injury.

Federal and NY dilution: NY dilution is “essentially the same” as federal dilution, and without evidence of the quality of Activision’s games, AMC failed to show tarnishing or blurring. If any dilution did occur, it would be “tolerated in the interest of maintaining broad opportunities for expression.” [Also in the interest of obeying the federal statute’s requirements and exemptions, but here I won’t quibble.]

Rogers continues to collapse into transformativeness in the Ninth Circuit: dog toy edition

VIP Products LLC v. Jack Daniel’s Properties, Inc., No. 18-16012 (9th Cir. Mar. 21, 2020)

VIP Products sells the “Bad Spaniels Silly Squeaker” dog toy, which resembles a bottle of Jack Daniel’s Old No. 7 Black Label Tennessee Whiskey, but has light-hearted, dog-related alterations. For example, the name “Jack Daniel’s” is replaced with “Bad Spaniels,” “Old No. 7” with “Old No. 2,” and alcohol content descriptions with “43% POO BY VOL.” and “100% SMELLY.”

Jack Daniel’s sued for trademark infringement and dilution, and the district court enjoined the toy. The court of appeals found that the trade dress was nonfunctional and distinctive, but the dog toy was an expressive work entitled to First Amendment protection, so the district court decision was reversed and remanded for Rogers treatment.

VIP’s purported goal in creating Silly Squeakers was to “reflect” “on the humanization of the dog in our lives,” and to comment on “corporations [that] take themselves very seriously.” While the Jack Daniel’s label says, “Old No. 7 Brand Tennessee Sour Mash Whiskey;” the label on the Bad Spaniels toy instead has the phrase “the Old No. 2, on your Tennessee Carpet.” A tag states that the “product is not affiliated with Jack Daniel Distillery.”

The nominative fair use defense failed because VIP didn’t use the mark itself, but rather a changed version with “significant differences.” E.S.S. Entm’t 2000, Inc. v. Rock Star Videos, Inc., 547 F.3d 1095, 1099 (9th Cir. 2008).

However, Rogers v. Grimaldi applied. Like greeting cards, “the Bad Spaniels dog toy, although surely not the equivalent of the Mona Lisa, is an expressive work.” It used “word play to alter the serious phrase that appears on a Jack Daniel’s bottle— ‘Old No. 7 Brand’— with a silly message— ‘The Old No. 2.’” In an attempt to distinguish the old Dr. Seuss case, the court says that book made “no effort to create a transformative work with ‘new expression, meaning, or message,’” while Bad Spaniels “comments humorously on precisely those elements that Jack Daniels seeks to enforce here.” [Note how Rogers is slowly collapsing into transformativeness in the Ninth Circuit—continuing Gordon v. Drape Creative.]

Vacated and remanded for Rogers analysis; although the district court is supposed to consider both prongs, it’s hard to see how it could find a lack of artistic relevance, and even after Gordon, the finding of transformativeness (and the fact that Jack Daniel’s doesn’t make parody dog toys) seems to dictate the result on explicit misleadingness.

Dilution: this is “noncommercial” speech—it does more than propose a commercial transaction—so there can be no dilution by tarnishment. The court phrases it in a weird way: “Although VIP used JDPI’s trade dress and bottle design to sell Bad Spaniels, they were also used to convey a humorous message.” Of course plenty of ads convey a humorous message; the issue here is that the dog toy is the product being sold, as opposed to being an ad for a separate product. Thats what makes it noncommercial speech, not the fact that it was humorous.

I guess it’s a better opinion than that in the Hummer/Activision case, which also reaches the right result with grimace-worthy reasoning?

Thursday, April 16, 2020

lawsuit against supplement for implying arthritis claims not preempted

Yamagata v. Reckitt Benckiser LLC, 2020 WL 1505724, No. 17-cv-03529-VC (N.D. Cal. Mar. 30, 2020)

A very clear opinion. Yamagata challenged RB’s advertising for joint supplements under California and NY law. As the court explained: “If the boxes are best understood as making assertions about the ability of the supplements to alleviate the symptoms of arthritis, those assertions violate federal law, and the state law claims attacking them are not preempted. If the boxes are best understood as not making assertions relating to arthritis, those assertions are authorized by federal law, and the state law claims are preempted.” The court found that the former was the case.

The court had certified two classes—one of California buyers and one of New York buyers. RB moved for summary judgment, arguing (1) preemption, (2) its products work as advertised, and (3) the plaintiffs’ full refund theory had to fail because the supplements were not worthless.

Preemption: “The key constraint, for the purposes of this litigation, is a [federal] ban on statements implying that the supplement mitigates, treats, prevents, or cures a specific disease or class of diseases. Some of the assertions on the Move Free Advanced labels do just that, and so they are not protected by the preemption provision.” Generally, federal law allows supplements to make structure/function statements [the court helpfully notes that these are called “claims” by the regs but that’s confusing in this context], but not statements implying that the supplement can “diagnose, mitigate, treat, cure, or prevent a specific disease or class of diseases.”

First, is this a jury issue? It’s partly a factual question insofar as it depends on what the label statements mean, but the court determined that preemption is nonetheless a question of law and so it would be decided by the court, even if that required resolving factual disputes.  See Merck Sharp & Dohme Corp. v. Albrecht, 139 S. Ct. 1668 (2019) (“a judge, not the jury, must decide the preemption question,” and  “courts may have to resolve subsidiary factual disputes that are part and parcel of the broader [preemption] question”).

The FDA says that the key factor distinguishing a structure/function statement from an implied disease statement is “whether the labeling suggests that the product will produce a change in the characteristic signs or symptoms of a specific disease or class of diseases.” The regs then list a series of ten criteria (one with five subparts) relevant to that determination, and then provides examples of statements that would fall on either side of the line: A statement that a supplement “reduces joint pain,” for example, is off limits; a statement that it “helps support cartilage and joint function” is not. The reason is that joint pain is a characteristic symptom of arthritis, so statements about relieving joint pain impliedly claim to mitigate the disease of arthritis. As the court noted, “That may seem like a stretch, and it may even seem that the specific reference to cartilage and joint function draws a closer link to arthritis than does the broader ‘joint pain.’ But the idea that the FDA’s dictates may conflict with intuitions only confirms that this preemption determination, while fact-based, depends ultimately on application of the law.”

front and back


Applying this framework, the accused labels implied that the supplement can mitigate, treat, or prevent arthritis. First, “supports joint comfort” was dangerously close to a statement that a supplement “reduces joint pain;” it’s hard to articulate a meaningful difference between the two. And a statement that is a structure/function statement in isolation “can improperly imply an effect on a disease if other parts of the label associate the supplement with a disease.” Relevant context includes the product name, any pictures or symbols, citations to journal articles, and statements about the formulation of the product, if printed on the label.  Here, the ads contained “elements closely associated with arthritis,” most prominently the Arthritis Foundation logo, accompanied by the following statement: “Move Free™ is a Proud Sponsor of the Arthritis Foundation®: Move Free™ is proud to support the Arthritis Foundation’s efforts to help people take control of arthritis.” Even though the “support” was clearly financial, “the logo and statement nonetheless draw an explicit link between the supplement and arthritis,” which was relevant to the meaning of the other statements on the label.

The court also pointed to the citation to a journal article in the “Journal of Aging and Research,” along with the choice to highlight glucosamine and chondroitin on the front of the box. Osteoarthritis is “nearly age 80,” so a citation to an aging journal on a joint supplement label was suggestive of arthritis, and industry marketing research finds that about half of arthritis sufferers view “glucosamine &/or chondroitin” as “the most effective arthritis treatment.” For the same reason as “supports joint comfort” was an implied disease statement, the statement that the product “supports 5 signs of joint health: mobility, flexibility, strength, lubrication, and comfort” was also an implied disease statement.

The court highlighted that it was not determining falsity; it was determining whether the claims were technically structure/function statements or implied disease statements solely for purposes of preemption.  RB was not constrained in its ability to argue about whether the labels implied, under state law, that the supplement would mitigate arthritis.

Falsity/misleadingness: RB relied on the purported benefits of calcium fructoborate alone, and not on the effects of glucosamine or chondroitin, but there was a triable issue of fact: RB had some evidence based on randomized control trials that calcium fructoborate can benefit joints, while the plaintiff’s expert called the methodology and reliability of those studies into question and another cultured pig cartilage in various concentrations of calcium fructoborate and found no positive effect. A jury could go either way.

Full refund theory: RB argued that even if the supplements do not help joints, they are not worthless because some of the ingredients can provide benefits unrelated to joint health. “But people purchase joint supplements for the advertised joint health benefits. … If the plaintiffs received none of the advertised joint health benefits, they are entitled to a full refund.”

T-Mobile is plausibly liable for acts of explicitly authorized dealers

City of New York v. T-Mobile USA, Inc., 2020 WL 1498522, No. 451540/2019 (Sup. Ct. N.Y. Mar. 23, 2020)

The City of New York and the New York City Department of Consumer Affairs (DCA) sued T-Mobile, its subsidiary MetroPCS New York, and 42 dealers, alleging violations of the Consumer Protection Law and regulations. The court refused to dismiss the action against T-Mobile and MetroPCS.

T-Mobile allegedly deceptively targeted lower income consumers under its “lower-priced prepaid (no contract) wireless brand” Metro by T-Mobile, formerly known as MetroPCS. The allegedly deceptive practices included “selling used phones as though they were new”; “deceiving consumers about financing”; “overcharging consumers”; “providing defective receipts”; “failing to provide a receipt”; and “making deceptive representations about the Metro by T-Mobile refund policy.” (NYC rules provide that receipts must be offered for any consumer purchase over $20, and must be provided on request for $5-20 purchases.)

T-Mobile argued that it couldn’t be held liable for the alleged unlawful conduct by independent dealers because T-Mobile has no contract with those dealers giving them actual authority to act on behalf of T-Mobile, and the facts didn’t support a theory of apparent authority. DCA sought to hold T-Mobile liable for two types of deception: (1) its “30-Day Guarantee” was, in fact, only a limited 7-day return policy with several conditions; and (2) the “Virtual Chat Assistant” on the T-Mobile website (which was obviously T-Mobile’s responsibility) failed to fully and correctly disclose the return policy. First, DCA sufficiently alleged that T-Mobile was liable for deceptive acts by the Corporate Stores run directly by T-Mobile’s subsidiary MetroPCS because those stores create the impression of agency based on the relationship between the parties. And at a minimum, the pleadings created a factual question whether T-Mobile is liable under the apparent authority doctrine for the conduct of the dealers who were labeled “authorized” not only in their signs but on the website and via conduct in the stores.

DCA also alleged deception by MetroPCS in its stores: selling used phones as if new; financing terms that double the cost of the phone; overcharges via improper taxes and activation payments; failure to provide receipts; and defective receipts. MetroPCS apparently accepted responsibility for Corporate Stores, and it acknowledged that it executed Indirect Dealer Agreements giving dealers actual authority to act on behalf of MetroPCS, but it argued that their limited actual authority didn’t extend to wrongful conduct. But that couldn’t be resolved at the pleading stage: MetroPCD didn’t show as a matter of law that the dealers were at all times “acting antagonistically” to the interests of MetroPCS.

A blueberry bagel that is mostly imitation blueberry is plausibly misleading

Izquierdo v. Panera Bread Co., No. 18-CV-12127 (VSB), 2020 WL 1503557 (S.D.N.Y. Mar. 30, 2020)

Panera sold a “blueberry bagel” that allegedly wasn’t.  [My father thinks that bagels with fruit etc. in them already aren’t bagels, but the allegation here is about the blueberry.] The court dismisses plaintiff’s claim for injunctive relief because he isn’t likely to be injured again, but otherwise denies the motion to dismiss his consumer protection claims.

The ingredient list for the Bagel “is not displayed in-store,” but allegedly “contains only trace amounts of real blueberries” and a “far greater proportion of imitation blueberry ingredients.” Even inspecting the product, a reasonable consumer allegedly couldn’t identify this fact. For context, Panera also sells a Blueberry Muffin, which contains “fresh blueberries” as the second-to-last ingredient and no imitation blueberries, and allegedly “[e]ven low-cost, supermarket-shelf blueberry bagels contain only real blueberry ingredients,” so that “[a] reasonable consumer would expect a blueberry bagel sold at a bakery-café that stresses its healthfulness and authenticity to contain more real blueberries than its low-cost, supermarket-shelf counterparts.”

The Second Circuit isn’t as easy on future purchases as the Ninth, so plaintiff didn’t successfully plead likely future injury and lacked standing for injunctive relief.

However, he plausibly alleged misleadingness to a reasonable consumer. The bagel is advertised in stores with a placard reading “Blueberry” and online as a “Blueberry Bagel,” and it allegedly appears to contain discrete pieces of fruit scattered throughout the bagel. “It is plausible that a reasonable consumer would believe that these visible pieces are real blueberries, in light of the placard on the basket and their normal expectations of blueberry baked goods,” especially given that it appears under a sign advertising Defendant’s commitment to “clean food” and “menu transparency,” and is sold alongside a Blueberry Muffin that contains only real blueberries.

It was not enough that the bagel did contain some blueberries and that the ingredient list was “readily available.” It can be “materially misleading to suggest a product contains a greater proportion of a preferred ingredient than it actually does, even where there is a visible ingredients list that states the correct composition of the food.” (Citing Mantikas v. Kellogg Co., 910 F.3d 633, 639 (2d Cir. 2018) (involving “whole grain” and “made with whole grain” claims where crackers were primarily enriched white flour), and some earlier cases.)  Although this was a close case, the court noted that there were no allegations that a customer purchasing the bagel in-store would have ready access to an ingredients list prior to making a purchase, and anyway Mantikas made clear that “a reasonable consumer should not be expected to consult the Nutrition Facts panel on the side of the box to correct misleading information set forth” elsewhere on the packaging.

Similarly, plaintiff adequately, though barely, pled injury by alleging that the bagel had “significantly less value than it warranted.” A price premium theory was plausible, even though every Panera bagel sells for the same price; the appropriate comparator could be other blueberry bagels, which plaintiff alleged are “low-cost” yet contain “only real blueberry ingredients.”

Fraud was also, though just barely, alleged. The facts alleged with particularity suggested “conscious misbehavior or recklessness,” including: (1) Panera knew the bagel’s true composition, as evidenced by its publication of the ingredient list; (2) Panera produced the bagel in such a way that the imitation blueberries are indistinguishable from the real blueberries; (3) Panera purposely advertises “menu transparency” and its “clean” food; (3) Panera is aware of consumer beliefs about the healthful qualities of blueberries; and (4) Panera sought to capitalize on those beliefs and its branding to sell more bagels by calling it a Blueberry Bagel.

TheRealReal is ok except where it is FakeFake

Chanel, Inc. v. The RealReal, Inc., 2020 WL 1503422, No. 18-CV-10626 (VSB) (S.D.N.Y. Mar. 30, 2020)

Very interesting case: Chanel sued TRR for trademark infringement etc. for allegedly overclaiming its association with Chanel by prominently advertising how much Chanel there was on its fashion resale platform. The court rejects Chanel’s claims except to the extent they’re predicated on the sale of alleged counterfeits, in what is a real victory for resale platforms under present circumstances.

TRR offers purportedly genuine secondhand Chanel products as part of its luxury resale offerings, and in 2018 acknowledged that Chanel was one of the most popular brands bought and sold through consignment.

As you read these claims, consider how many of them might be puffery at least in isolation: TRR advertises itself as “the world’s largest online marketplace for authenticated, consigned luxury goods” and says “[a]uthenticity is the cornerstone of The RealReal.” It claims that it has “developed the most rigorous authentication process in the marketplace,” that it is “the only resale company in the world that authenticates every single item sold,” that “[t]here is no other resale company doing more to remove fakes from the market every day and put counterfeiters out of business,” that its “dedicated Quality Control team provides an additional layer of control to help prevent fakes from being sold on [its] site,” and that its “team works diligently and is constantly innovating to ensure [it] ... keep[s] fraudulent products off the market.” Its FAQ says: “[u]nlike most resale companies, The RealReal takes possession of all items and physically evaluates every item to authenticate it.” Also: “We employ over 100 brand authenticators, gemologists, horologists and art curators. … Our authentication process and all of our internal processes are changing constantly, driven by new technologies like machine learning and AI.”
TRR claimed to use “a rigorous, brand-specific authentication process” in which “high risk” items were “sent to authenticators with significant authentication experience, who are highly specialized in specific categories. Many of these authenticators join The RealReal from the luxury brands themselves—like Tiffany, Hermès and Rolex—or auction houses like Sotheby’s and Christie’s and have a deep knowledge of the markers, materials and craftsmanship behind genuine products. They assess each item based on these and other characteristics.” Low risk items, “such as contemporary brands with clear authenticity markers, are sent to be authenticated by our copywriters, who have a minimum of 30 hours of authentication training.” TRR claims that its Quality Control team adds an additional layer of protection and that it leverages data to use algorithms to ensure that “high risk” products get the most scrutiny.

The TOS state: “You acknowledge and agree that The RealReal’s authentication process is in-house and independent. Brands identified on the Site are not involved in the authentication of the products being sold, and none of the brands sold assumes any responsibility for any products purchased from or through the website. Brands sold on the Site are not partnered or affiliated with The RealReal in any manner. However, The RealReal fully cooperates with brands seeking to track down the source of counterfeit items, which includes revealing the contact information of consignors submitting counterfeit goods.”

TRR takes possession of all goods sold, and “[u]pon receipt, ... evaluate[s] each item ... to determine, in its sole discretion, its authenticity, quality, and value.” TRR could refuse to accept an item; if it determined that an item was counterfeit, it would notify the consignor and give them an opportunity to prove authenticity; any item finally determined to be counterfeit would be destroyed, not returned.

Chanel investigated TRR’s Chanel offerings in 2018, and found at least seven counterfeit handbags that allegedly differed in quality from real Chanel, “and some contained cartes d’authenticité with serial numbers that did not correspond to the genuine serial numbers designated by Chanel for those particular styles of handbag.” When Chanel notified TRR, TRR asked for additional substantiating information. After that, TRR removed the identifying serial numbers from all of its Chanel-branded leather goods product listings, and may have removed physical serial number tags from Chanel handbags. The complaint quoted two customer reviews in which customers state that they were sold counterfeit Chanel handbags. Chanel alleged that TRR’s authentication experts do not have the necessary qualifications to authenticate Chanel products, and have failed to identify counterfeit Chanel bags. It argued that TRR didn’t disclose sufficient information for consumers to understand that Chanel is not involved in The RealReal’s authentication process, or affiliated with The RealReal’s business.

Opening principles: At the motion to dismiss stage, Chanel argued, the court couldn’t consider nominative fair use, because it was an inherently factual inquiry. But it’s Chanel’s burden to plead sufficient factual content to plausibly allege why Defendant’s use of its trademarks is not permissible under the nominative fair use doctrine. However, “where counterfeit marks are involved, it is not necessary to perform the step-by-step examination of each Polaroid factor because counterfeit marks are inherently confusing.”

Application: the complaint didn’t plausibly allege infringement, false endorsement, or unfair competition based on TRR’s use of genuine Chanel marks, but did plausibly allege infringement based on advertisement and sale of counterfeits.

The Lanham Act “does not prevent one who trades a branded product from accurately describing it by its brand name, so long as the trader does not create confusion by implying an affiliation with the owner of the product.” Though Chanel’s marks had great strength, and though there might be direct competition with new products, “the complaint also includes evidence suggesting that secondary fashion markets bolster primary markets,” and Chanel’s lack of its own secondhand market meant that there was no direct competition. There was no evidence of customer confusion over affiliation or of TRR’s bad faith. And the luxury market was relatively sophisticated and high-priced. “Balancing these factors, it is highly unlikely that a customer buying a secondhand Chanel product from The RealReal—which unambiguously holds itself out as consignment retailer in a luxury market—would confuse the nature of The RealReal’s business, the source of its products, or its affiliation—or lack thereof—with Chanel.”  Many of the other Polaroid factors weren’t apposite for a secondhand goods case: “the similarity of the marks, the evidence of bridging the gap, and the respective quality of the products in question are not as relevant where, as here, the marks used and goods sold by Defendant are indeed the same as the Plaintiff’s marks and goods. Such is the nature of resale markets.”

This fact also made the use of Chanel’s mark necessary to identify TRR’s goods, for nominative fair use.  Furthermore, Chanel didn’t plausibly allege facts suggesting that The RealReal “stepped over the line into a likelihood of confusion by using [Chanel’s] mark[s] too prominently or too often, in terms of size, emphasis, or repetition.” TRR has a Chanel page briefly describing Chanel and advertising products with the Chanel marks, it also has brand-specific pages for nine other luxury fashion brands. There were no facts suggesting that TRR displays Chanel-branded goods “more prominently than other luxury-brand goods,” or that it used Chanel marks “in any other capacity than to identify Chanel products as Chanel.”

There were also no non-conclusory allegations to suggest that The RealReal inaccurately depicts its relationship with Chanel or Chanel’s products and services. Statements that “[m]any of [its] authenticators join The RealReal from the luxury brands themselves—like Tiffany, Hermès and Rolex,” were insufficient to allege a probability of customer confusion. This was especially true given The RealReal’s disclosure that “[b]rands identified on [its website] are not involved in the authentication of the products being sold, and none of the brands sold assumes any responsibility for any products purchased from or through the website,” and that “[b]rands sold on the [website] are not partnered or affiliated with The RealReal in any manner.”

Although another court has held that “guarantees of authentication [ ] themselves may be taken as suggesting sponsorship or endorsement by Chanel,” this court found that “such guarantees, without more, are sufficient to demonstrate a likelihood of customer confusion, especially since the law requires ‘a probability of confusion, not a mere possibility.’” In the contrasting case, WGACA, the defendant allegedly overemphasized Chanel; sold “more Chanel-branded products ... than those of any other brand”; and had “social media pages include[d] quotations of Coco Chanel” and photographs of Chanel products accompanied by the hashtags “#WGACACHANEL” and “our #WGACACHANEL.” And its letters of authenticity stated, for example, “[t]his letter confirms that item Q6HCHK00KB000 Chanel Black Long Tissue Box is an authentic Chanel decoration.” “Such an authenticity guarantee is materially different from the authenticity statements on The RealReal’s website.”

However, allegations about counterfeits were different. TRR wasn’t like eBay because it was plausibly directly liable as the actual seller, not the mere facilitator of sales. TRR had “sole discretion” to “approve for sale, price, display, market, and make available for sale the goods sold through its website and retail locations.” [What do you want to bet that eBay’s TOS also let it control these things, albeit that it does not generally use its power to set price terms? Cf. recent discussions about price gouging for PPE on eBay.  Increasing the price of items to a level that is much higher than is considered fair or reasonable is not allowed on eBay,” the platform itself says. [PS eBay: does what’s going on with Liberty wooden jigsaw puzzles count? Because that’s a wild ride.]]  Still, TRR, unlike eBay, was “more than a platform for the sale of goods by vendors.” Even though it didn’t formally take title to the merchandise, it “maintain[s] [the] inventory of merchandise,” and upon receipt of products from consignors “b[ears] the risk of loss” for the products. Thus it was the seller.

The court pointed out that TRR benefited by “curating the products offered through [its] market and defining the terms on which customers can purchase those products,” and thus “must bear the corresponding burden of the potential liability stemming from its ‘sale, offering for sale, distribution, [and] advertising of’ the goods in the market it has created.”

False advertising: For the counterfeits but only for the counterfeits, under the facts alleged, TRR’s authenticity claims were literally false, and even if not, they were misleading.  However, to the extent that Chanel was pleading that the use of its marks for authentic goods misled consumers into thinking there was an affiliation, the court rejected that as a false advertising theory for the same reasons given above, and it rejected Chanel’s claim of false advertising based on The RealReal’s use of the term “vintage.”

TRR made a lot of authenticity claims. Its statement “we ensure that every item on The RealReal is 100% the real thing” was “an unambiguous representation of fact that all of the products advertised and sold by The RealReal are 100% authentic.” This interpretation was bolstered by TRR’s statements distinguishing itself from other luxury consignment retailers, including its representations that “[t]here is no other resale company doing more to remove fakes from the market every day and put counterfeiters out of business,” that it is “the only resale company in the world that authenticates every single item sold,” and that “[u]nlike most resale companies, The RealReal takes possession of all items and physically evaluates every item to authenticate it.” It identifies its authenticators as “experts,” and among the experts listed on its website are four authenticators with particular expertise in authenticating Chanel handbags. The court noted that “[t]o authenticate does not mean, as The RealReal suggests, to merely ‘guarantee that each item offered for sale’ has gone through The RealReal’s ‘authentication process.’” [This seems like it could be fixed, but at time of writing it seems the same. Disclosure: I have bought from TRR and have been satisfied with my purchases; I have no reason to question the authenticity of the items I bought.]

As Tiffany v. eBay made clear, “the law prohibits an advertisement that implies that all of the goods offered on a defendant’s website are genuine when in fact ... a sizeable proportion of them are not.” A sufficient disclaimer might suffice to avoid falsity, but TRR didn’t show “where on its website or advertising it acknowledges the existence, or even the possibility, of counterfeit products in its marketplace.” Its FAQ, for example, doesn’t answer the question:

Q: Are there many fake products on The RealReal?
A: We have developed the most rigorous authentication process in the resale marketplace.

The court pointed out that Tiffany didn’t define “sizeable proportion,” and seven might not be that, but the complaint survived a motion to dismiss.

The court also found “noteworthy,” though unnecessary, the contrast between TRR’s customer-facing ads and its shareholder disclosures. In its IPO, TRR explained:

From time to time we receive counterfeit goods for consignment. While we have invested heavily in our authentication processes and we reject any goods we believe to be counterfeit, we cannot be certain that we will identify every counterfeit item that is consigned to us. As the sophistication of counterfeiters increases, it may be increasingly difficult to identify counterfeit products. We refund the cost of a product to a buyer if the buyer questions its authenticity and returns the item. The sale of any counterfeit goods may damage our reputation as a trusted online marketplace for authenticated, pre-owned luxury goods which may impact our ability to attract and maintain repeat consignors and buyers. Additionally, we may be subject to allegations that a pre-owned luxury item we sold is not authentic despite our confirmed authentication of such item. Such controversy could negatively impact our reputation and brand and harm our business and operating results.

“The attempt at transparency evident in the above disclosure paints a much different picture from that conveyed to consumers shopping at The RealReal’s stores or on its website. This lack of customer-facing transparency undermines the Lanham Act’s goal of ‘protecting persons engaged in commerce [ ] against unfair competition.’”

State law claims: same results. Where state law requires bad faith, Chanel adequately alleged that as to counterfeits: TRR’s initial response was to remove identifying serial numbers from its Chanel product listings, and possibly to remove physical serial number tags from Chanel handbags sold to customers. “A reasonable inference based on The RealReal’s conduct is that it removed product serial numbers from its site and physical products to deprive Chanel and consumers of a legitimate tool for identifying counterfeit goods. Recognizing that discovery might demonstrate that The RealReal had honest motives for removing these serial numbers from its product listings and products, Chanel’s allegations are sufficient to allege bad faith at this stage, and its New York state common law claim can proceed” as to the counterfeits.

However, as to §§349-350 claims, Chanel didn’t show injury to the public interest over and above ordinary trademark infringement, especially since these were luxury goods not generally accessible to the public at large and not implicating public health or safety.

grey goods: materiality is key

Dentsply Sirona, Inc. v. Dental Brands For Less LLC, No. 15 Civ. 8775 (LGS), 2020 WL 1643891 (S.D.N.Y. Apr. 2, 2020)

Trademark confusion is sometimes a normative conclusion, not an empirical one, even though the language surrounding it is empirical. Here, the court states a rule: “In a gray-market-goods case, if the goods are not ‘genuine’ then a likelihood of confusion exists.” One could frame this as a presumption that it’s not cost-effective to allow defendants to rebut: it is so likely that non-“genuine” goods confuse consumers about their qualities that we don’t allow a defense. But the way that courts define “genuine” often stretches to a bunch of things that consumers are unlikely to care about, and include contexts where the divergences between the foreign and domestic products are fully disclosed, so I can’t ultimately buy this as an empirical claim.  

Grey goods cases are much more plausible not as trademark cases but as unfair competition cases—though we really should focus on materiality.  Here, I suspect the court pays more careful attention to materiality because it has been cued by the false advertising claims; possibly the plaintiff could've gotten a better result if it had only argued trademark infringement.

The court explains that goods aren’t genuine if “they do not conform to the trademark holder’s quality control standards or if they differ materially from the product authorized by the trademark holder for sale.” And materiality has “a low threshold …, requiring no more than a slight difference which consumers would likely deem relevant when considering a purchase of the product.” The court found a factual question on materiality here; Dentsply identified various differences between the foreign and domestic products, “including that Dental Brands’ warranty provides less protection and is harder to access; that Dental Brands customer service is inferior to Dentsply’s; and that Dental Brands’ packaging contains irrelevant information that can confuse or mislead customers.”  Dental Brands argued that the product inside the packaging was identical, and that its dentist customers “care only that they can get the same product from Defendant at a more economical price than what Plaintiff offers.”  Evidence from Dentsply’s sales database reflected “conversations between Plaintiff’s distributors and dentists suggesting that the dentists do not care about the differences and care only about the price.” 

It’s reasonable to let circumstantial evidence (differences in warranty/customer service) count as evidence of materiality, but it’s disturbing to me how many other courts are willing to treat warranty differences as dispositive evidence, especially when the differences are disclosed to consumers; not every defendant has a database of customer conversations to point to.  Here, the court is explicit that survey evidence is not required for materiality. Also, the database statements probably weren’t inadmissible double hearsay. The distributor statements were likely admissible as business records and the dentist statements were likely a statement of the declarant’s then-existing state of mind.

Unsurprisingly, the same facts could also support a false advertising claim (under the Lanham Act and NY GBL §349) for a reasonable jury.

Dilution: No, Dentsply is no Beyoncé. “The record provides that members of the dental industry are aware of the Dentsply trademarks, but offers no evidence that the mark is recognized by the general public.” This also prevented a finding of sufficient distinctiveness under state law.

Tortious interference claims also failed.

2d Circuit: no irreparable injury where website tracks clicks to buy

Carson Optical, Inc. v. Alista Corp., No. 19-2509, --- Fed.Appx. ----, 2020 WL 1683460 (Mem) (2d Cir. Apr. 7, 2020)

Interesting—the Second Circuit approves the district court’s reasoning that online sales can be tracked perfectly, and thus financial harm from false advertising is not irreparable. Carson sued to enjoin defendants from advertising magnifying mirrors on Carson Optical’s product pages on The district court relied on a declaration that “Amazon’s tracking of clicks on Defendants-Appellees’ advertisements on Carson Optical’s Amazon webpage would provide a basis to estimate Carson Optical’s losses from the purportedly false advertisements.”  This was enough to show that the general proposition that “[i]t is virtually impossible to prove that so much of one’s sales will be lost or that one’s goodwill will be damaged as a direct result of a competitor’s advertisement.” Coca-Cola Co. v. Tropicana Prods., Inc., 690 F.2d 312, 316 (2d Cir. 1982), was in applicable. Carson “failed to show why the data referred to by the declaration would not provide a reasonable starting point for a suitable damages analysis.”  [Query whether under the proposed reversal of eBay to restore a presumption of irreparable injury in trademark cases, this declaration could have rebutted such a presumption.]

The court of appeals further noted that the challenged ads didn’t explicitly refer to Carson’s mirrors, or compare defendants’ mirrors to Carson’s; they were just allegedly false. The district court thus didn’t clearly err in finding no irreparable injury.