Wednesday, September 30, 2020

inability to rely on claims provides standing to seek injunctive relief in 9th Circuit

Milan v. Clif Bar & Co., 2020 WL 5760450, No. 18-cv-02354-JD (N.D. Cal. Sept. 28, 2020)

Plaintiffs brought the usual California claims against the “health and wellness message[s]” on defendant Clif Bar & Company’s “Kid Zbars” and “ ‘Classic’ Clif Bars,” alleging that they were “deceptive because they are incompatible with the dangers of the excessive sugar consumption to which the Products contribute.” Clif moved to dismiss (after losing a previous motion to dismiss on failure to state a claim), arguing that (1) plaintiffs lacked Article III standing for injunctive relief, and (2) the governing choice-of-law analysis didn’t permit application of California law to a nationwide class. The court denied the motion.

Even assuming that Clif was ok to raise (1) now, after a previous motion to dismiss, which the court deemed “questionable litigation conduct,” the argument failed on the merits. Under Davidson v. Kimberly-Clark Corp., 889 F.3d 956 (9th Cir. 2018), plaintiffs had standing to seek injunctive relief. Clif relied on the following statement from Davidson:

In some cases, 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. In other cases, 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.

This quote, however, did not set out “a two-test method,” but rather “two illustrations of how a plaintiff who has learned the hard way that a company’s statements were deceptive can have standing under Article III to enjoin the deceptive practice.” The question was still whether plaintiffs adequately alleged future injury. The complaint alleged that plaintiffs “continue to desire to purchase healthy nutrition bars, and continue to see the Clif Products when they shop”; plaintiffs “would purchase the challenged Clif Products in the future if they were in fact healthy”; and they “would likely purchase the challenged Clif Products if they could trust that the health and wellness claims were not false or misleading.” This was “indistinguishable” in substance from the acceptable Davidson allegations.

Clif suggested that, knowing the truth, named plaintiffs can now just read the nutrition label. “The problem for Clif Bar is that plaintiffs have called into plausible question all of its health and nutrition representations, and have alleged that they ‘will be unable to trust the representations on the Clif Products’ absent an injunction. Consequently, the Court declines at this pleadings stage of the case to conclude that plaintiffs cannot, as a matter of law, ever be deceived again by Clif Bar.”

What about (2), the rule of Mazza v. American Honda Motor Co., Inc., 666 F.3d 581 (9th Cir. 2012), on nationwide classes? This challenge was premature. The court would wait for certification briefing, which was well underway.


it's difficult to show injury from false patent marking

John Bean Technologies Corporation v. Morris & Associates, Inc., 2020 WL 5666898, --- Fed.Appx. ----, 2020-1035, 2020-1081 (Fed. Cir. Sept. 24, 2020)

District court ruling that false patent marking doesn’t presumptively cause injury even in a two-player market discussed here. The court of appeals affirmed the grant of summary judgment.

The key allegation of the complaint is the asserted falsity of Morris’s representations, in product markings or advertisements, that certain Morris products for poultry processors are covered by three Morris patents.

False patent marking, Lanham Act false advertising, and coordinate state law claims all require competitive injury. “We need not and do not decide whether, for any of the causes of action at issue, a presumption applies in the circumstances of this case.” This is a puzzling statement, because it does seem like a presumption of injury in a two-player market would have led to the claims surviving summary judgment, unless you think that John Bean's production of some (inadmissible) evidence should be weighed against it because it didn't produce more. 

John Bean’s evidence of injury with respect to one product was “limited to a single incident—which involved John Bean’s sale of a chiller system to Perdue Farms.” But the only evidence of causation was “a declaration from a past John Bean employee stating that a Perdue employee mentioned Morris’s patent marking as a reason that Perdue initially declined to buy John Bean’s auger chiller with ‘water flow reliefs’ that might infringe the ’529 patent, only to later accept the feature as a no-charge modification—a process that John Bean says subjected it to some injury.” The district court didn’t abuse its discretion in ruling that this statement was inadmissible hearsay and also developed too late in the litigation.

With respect to other products, one relevant patent read on them, so Morris’s statements weren’t false. Even assuming that the other one was, there was no evidence that being marked with two patent numbers mattered given that one was truthful. When a product is “properly marked with other patents,” as here, the competitor “must show that the falsely marked patent[ ]” caused its injury and “that—for some reason—the properly marked patent[ ] did not.”  

mistaken exclusion of materiality survey leads to remand in false advertising case

Wing Enters., Inc. v. Tricam Indus., Inc., --- Fed.Appx. ----, 2020 WL 5739718, 2019-2279 (Fed. Cir. Sept. 25, 2020)

A remand because the district court wrongly excluded one survey in this false advertising case (though didn’t abuse its discretion in excluding another), then granted defendant’s motion for summary judgment.

Wing and Tricam compete in the market for multi-position ladders. Wing alleged that Tricam violated the Lanham Act and the coordinate Minnesota Deceptive Trade Practices Act by falsely advertising that its ladders complied with ANSI A14.2, an industry safety standard that applies to metal multi-position ladders. Wing alleged that Tricam’s ladders flunked the requirement that the rung on a multi-position ladder have a “step surface of not less than 1 inch.” Tricam’s allegedly false advertising appeared on: (1) the label on the side of Tricam’s ladders, which reads “manufacturer certifies conformance to OSHA ANSI A14.2 code for metal ladders,” (2) a statement on The Home Depot’s website, which reads “ANSI Certified, OSHA Compliant,” and (3) a statement on Tricam’s website, which reads “ANSI A14.2; OSHA.”

False advertising requires materiality, which frankly I would think a jury could infer from the fact that it’s an industry safety standard, but Wing had Hal Poret conduct two surveys.

The Importance Survey asked respondents to rank the factors they consider important when purchasing a ladder. The survey provided respondents with a list of factors, which included “strength/duty rating,” “compliance with industry safety standards,” “hinge lock size/style,” “feet material/style,” and “company name.” According to Mr. Poret, the survey results showed that “compliance with industry safety standards was ranked first as the most important factor by more respondents (19%) than any other factor except for strength/duty rating” and that a “total of 58% of respondents rated compliance with industry safety standards an important factor.” From these results, Mr. Poret concluded that “compliance with industry safety standards is the type of issue that is important to consumers and would tend to ... impact purchase decisions.”

The Labeling Survey showed a test group the side labeling of a Gorilla Ladder containing the allegedly false ANSI statement as well as a statement about OSHA compliance. A control group saw “an altered version” of the labeling in which “all references to compliance with OSHA/ANSI standards were removed.” While 69% of the test group members indicated that they were “extremely or very likely to purchase the ladder with the OSHA/ANSI content present,” only 55% of the control group did so, leading Poret to find “a significant impact on reported likelihood of purchase.”

Tricam’s surveyor, by contrast, concluded that “only 2% of the ... respondents [in her survey] could have potentially been influenced by the ANSI label,” though 67.5% of survey respondents “stated they had read the side label before buying the ladder,” 42.4% of the respondents had heard of ANSI, and 21.9% of the respondents clearly knew what ANSI was. Tricam’s surveyor Triese also criticized Poret’s work for failing to “isolate the effect, if any, of the ANSI” statement on consumers, focusing instead on the effect of an ANSI-OSHA statement or on industry safety standards in general.

In apparent response to this criticism, Wing sought to add OSHA compliance-related contentions, which the magistrate struck as untimely. Based on that, the district court excluded Poret’s testimony about the surveys, reasoning that they were “not relevant to the question of whether the ANSI-conformance statement that is at issue in this case is material to consumers’ purchasing decisions.” It reasoned that “[k]nowing that industry safety standards in general are important to consumers’ purchasing decisions does nothing to predict whether consumers might be dissuaded from buying a ladder that does not meet current ANSI standards” because Mr. Poret did not “ask about ANSI specifically.” Also, the surveys tested ANSI conformance in combination with OSHA conformance, so they weren’t relevant. [This is part of a trend of hyperspecificity in materiality requirements, which I think is generally a very bad idea as well as inconsistent with the historical treatment of materiality as “the kind of thing consumers care about.” Among other things, consumers aren’t great at telling you exactly why they do what they do, so demands for super-specificity can lead to lots of false negatives. If falsity/misleadingness is established, then in general we shouldn’t take the risk of allowing consumer harm unless there’s very good reason to think that the difference between the advertising and the truth wouldn’t matter to consumers.]

In addition, the court excluded the Labeling Survey because it would confuse the jury, being premised “on the conclusion that the OSHA-conformance statement is false,” and Tricam had lacked an opportunity to take meaningful discovery on the interplay between ANSI and OSHA.

Without the survey, the district court found there was insufficient evidence of materiality—testimony from a high-level Wing executive, Tricam’s president, and the chairman of the ANSI Labeling Committee was “too speculative.”

“Because Mr. Poret’s testimony concerning the Importance Survey would have at least some tendency to make a fact of consequence more probable than it would be without the evidence, and because such testimony is not so unsupported that it would offer no help to the jury, we determine that the district court abused its discretion in excluding Mr. Poret from testifying about the Importance Survey.” Even if it doesn’t mention ANSI, “ANSI is unquestionably an industry safety standard and is one of the two potential industry safety standards relating to ladders in the United States.” Asking about safety standards in general wasn’t irrelevant. Other courts have accepted materiality surveys as relevant even when the surveys didn’t ask about “the particular statement or product at issue.” Note: As well they should! Tricam also argued that the survey didn’t show that consumers know that ANSI is an industry safety standard. “This argument seems aimed more at the weight that the Importance Survey’s results should be accorded than whether the survey is relevant. Still, as the district court determined, ladder consumers could potentially ascertain that ANSI is an industry safety standard based on how Tricam displayed ANSI conformance.” Also, Tricam’s own survey results suggested that consumers know that ANSI is an industry safety standard, and it was ok to rely on the opposing party’s survey results for that proposition.

However, the district court didn’t abuse its discretion in excluding the Labeling Survey, because compliance with OSHA wasn’t part of the case and that was too intertwined with this survey, such that the jury would be confused. Wing argued that the jury could be instructed that the survey was only submitted for the materiality of the ANSI label, but the survey was still premised on the conclusion that the OSHA-conformance statement was false; Poret concluded that the survey showed that the “OSHA/ANSI content did have a significant impact on reported likelihood of purchase” (emphasis added). Tricam never had reason to explore in discovery the relationship between OSHA and ANSI on which the survey was premised.

With the one survey in, there was enough to survive summary judgment. That survey “suggests that consumers consider compliance with industry safety standards an important consideration when making a purchasing decision.” Consumers could know that, as Tricam’s survey suggested.  Result: remand, which could consider some other unsettled legal arguments.


impersonating company to solicit intimate images for private use isn't TM infringement/false advertising

AdoreMe, Inc. v. Watson, 2020 WL 5769083, No. CV 19-8830 FMO (AGRx) (C.D. Cal. Jul. 14, 2020)

A fundamentally commercial cause of action can be a bad tool to address even bad noncommercial behavior. AdoreMe sued Watson for trademark infringement and false advertising under federal and state law, and an unfair business practices claim under state law. Watson, who failed to respond, allegedly operates a phishing scam through which he “preys on unsuspecting women by (a) posing as a talent scout for Adore Me; (b) impersonating Lindsey Hayes Kroeger (‘Ms. Kroeger’) – a well-respected talent scout – and/or pretending to be affiliated with her; and (c) using, unlawfully and without authorization, Adore Me’s name, trademark, and reputation to obtain nude and intimate photographs from women.”

AdoreMe sought default judgment, which the court denied. Even where well-pled allegations exist, “[t]he district court’s decision whether to enter a default judgment is a discretionary one,” considering factors including the merits of plaintiff’s substantive claim and the sufficiency of the complaint.

Trademark infringement requires use “‘in commerce’ and ‘in connection with the sale, offering for sale, distribution, or advertising of any goods or services.’ ” (Citing cases that “noncommercial” uses don’t trigger the Lanham Act.) The court found that AdoreMe’s allegations of commercial use were conclusory and insufficient to state a claim.

[Query whether false advertising precedents could have been any help: although offering goods/services without intent to sell them as advertised is false advertising, that’s essentially always coupled with actual sales of something else—bait and switch. Advertising something without the intent to provide any services at all may not be the requisite “advertising,” though courts have stretched the definition of use in commerce/commercial use so far already that this seems like an odd place to stop. Indeed, one could create a category of “fake commercial speech” and treat the defendant as engaged in “advertising” of services while still robustly protecting ordinary noncommercial speech.]

Likewise, the allegations that “Defendant has profited and will continue to profit from his unlawful actions because the intimate photographs of his victims are highly valuable and the private property of those women” didn’t allege facts showing actual profit/plans to profit (implicitly defined as profit monetarily). [Side note: under California right of publicity law, the benefit to the defendant doesn’t have to be commercial; Kroeger’s potential claims are easily the strongest here.]

So too with the Lanham Act false advertising claims. This wasn’t plausibly “commercial advertising or promotion.” [Again, I might have attempted to estop defendant from challenging commerciality, but that is innovation and I can easily see why the court didn’t want to do that on a default judgment, where it’s easy to make bad law.]

The state claims were the same. [I wonder whether you could get something useful out of UCL “unfairness.” This seems like the kind of conduct the FTC thinks is unfair.]

Finally, the court was skeptical of the sufficiency of the support for plaintiff’s damages claims. “To recover damages after securing a default judgment, a plaintiff must prove the relief it seeks through testimony or written affidavit.” AdoreMe submitted only the declaration of its General Counsel, which didn’t sufficiently establish her qualifications and competency to assess and calculate AdoreMe’s damages. She also relied on potentially inadmissible evidence, e.g., supporting the statement that “approximately 1% of people who visit a company’s social media will ultimately make a purchase on the company’s platform” with a citation to a link to a website “upon which the court has no basis to rely.”

The court told AdoreMe to file an amended complaint and move for default judgment quickly or have the case dismissed; to consider retaining an expert to substantiate its damages calculations; and to consider limiting its claims. Given these instructions, it’s not incredibly surprising that AdoreMe apparently instead abandoned the lawsuit. One hopes that social media companies will nonetheless cooperate with shutting down such schemes.  

Thursday, September 24, 2020

restitution unavailable in fed ct when damages are adequate, no matter what Cal state cts say

Sonner v. Premier Nutrition Corp., 971 F.3d 834 (9th Cir. 2020)

In this amended opinion (original summarized here), the court elaborates on its reasoning that Sonner couldn’t abandon her damages claim on the eve of trial in this false advertising case and seek only restitution, because equity requires that legal remedies be inadequate and she abandoned her legal damages claim:

At bottom, “[t]hat a State may authorize its courts to give equitable relief unhampered by” the “restriction[ ]” that an adequate remedy at law be unavailable “cannot remove th[at] fetter[ ] from the federal courts.” Guided by that instruction, we hold that the traditional principles governing equitable remedies in federal courts, including the requisite inadequacy of legal remedies, apply when a party requests restitution under the UCL and CLRA in a diversity action.

Side note: I wonder how federal courts treat the “traditional principles governing equitable remedies in federal courts” when it comes to disgorgement in trademark cases. Disgorgement supposedly just became much easier to get, and if courts continue to believe that trademark goodwill is a mysterious entity, distinct from all the other parts of a business, then perhaps they will routinely find damages inadequate. But that’s always been a slogan rather than a reasoned decision, and plaintiffs pressing disgorgement demands in marginal cases may lead courts to see that.

Anyway, “Sonner must establish that she lacks an adequate remedy at law before securing equitable restitution for past harm under the UCL and CLRA.” But she conceded that she sought the same sum in equitable restitution as “a full refund of the purchase price”—$32,000,000—as she requested in damages to compensate her for the same past harm. There was no reason damages couldn’t be adequate, even if California state courts wouldn’t impose the same rule.

Tuesday, September 22, 2020

"upcycling" isn't infringement/counterfeiting when full disclosure is present

Hamilton International Ltd. v. Vortic LLC, No. 17-CV-5575 (AJN)(OTW) (S.D.N.Y. Sept. 11, 2020)

Champion Spark Plug still matters sometimes! Hamilton, a Swiss watchmaker, sued Vortic for making watches incorporating vintage Hamilton parts, alleging that this constituted trademark infringement, counterfeiting, dilution, and unfair competition. After a bench trial, the court found Vortic’s conduct unlikely to cause confusion and entered judgment for defendants.

“Vortic is a watchmaker that specializes in restoring antique pocket watches and converting them into wristwatches.”  It sold a watch called “The Lancaster,” named after Lancaster, PA, where the Hamilton Watch Co. was originally located, that was made with a historic, restored movement (here, internal mechanism with hands and face attached) produced by the Hamilton Watch Company.

The “Hamilton” mark remains visible on the antique face of the watch. The Lancaster has a Gorilla Glass back which makes the internal workings visible, and “Hamilton” can also be seen on one part of the movement. Around the ring in the rear of the watch is engraved “Vortic,” along with “The Lancaster” and a serial number. In total, 58 watches were either sold or gifted.

From Vortic's website
Infringement: The Polaroid factors shouldn’t be applied mechanically. “In cases such as this one, involving modified genuine products, the Supreme Court has found whether the defendant adequately disclosed the origins of the product to be dispositive.” In Champion, as long as the repaired sparkplugs had “Repaired” or “Used” conspicuously stamped on them and their packaging indicated that the defendant had done the restoration, “[f]ull disclosure” of the products’ origins was “all the protection to which [the plaintiff] was entitled.”

Since the sparkplugs were second-hand goods and consumers would naturally expect a used or repaired good to be inferior, conspicuously labeling the goods as used or repaired constituted full disclosure. It was otherwise permissible for the goods to retain the Champion trademark even if it means that the defendant benefits from plaintiff’s goodwill or “gets some advantage from” plaintiff’s mark.  The Court cautioned that it would be possible to imagine a case “where the reconditioning or repair would be so extensive or so basic that it would be a misnomer to call the article by its original name, even though the words ‘used’ or ‘repair’ were added.” Outside those rare circumstances, however, a refurbished product may bear the original maker’s mark.

Thus, the court focused on “adequacy of disclosure,” treating the Champion rule “as a substitute or crucial supplemental factor to a traditional Polaroid likelihood of confusion analysis.” Subtle twist, though: “Full disclosure” matters if it prevents “numerous ordinary prudent purchasers” from being “misled or confused as to the source of the product.” That’s a twist because Champion didn’t suggest that evidence of confusion was relevant; it was a rule about what the defendant should do, not a rule about what consumers perceive. Is it now a presumption? Is it only rebuttable with evidence of substantial consumer confusion? Smuggling the rule into the definition of “ordinary prudent purchasers” is one way to resolve these tensions—but then it’s hard to see why any evidence could rebut the presumption, if reasonable consumer is a normative concept rather than an empirical one.

Anyhow, the court gave “strong weight” to the “full disclosure” factor while also running through the Polaroid factors, as guided by the Second Circuit’s awful treatment of nominative fair use, sigh.

First, there was “full disclosure” per Champion, in the ads and marketing materials, as well as the watch itself. All of the advertising and marketing in the record “would accurately convey to the ordinary prudent purchaser that the only connection of any kind between Hamilton and Vortic is that Vortic used antique Hamilton watch movements and parts for its Lancaster watch.” E.g, the website “clearly stated that the Lancaster was one of ‘Vortic’s flagship line of watches’ and that ‘[a]ll of the components (movement, dial, hands) between the two Gorilla Glass crystals ~100 years old and started their life in a Railroad-era pocket watch made by the Hamilton Watch Company.’” The website stated that Vortic “meticulously restores the inner workings in order to build a completely custom watch around” vintage elements. “While the Hamilton mark is visible in a picture, Vortic’s logos predominate.”  

A magazine ad likewise stated that “[e]ach piece is custom fabricated using railroad era, American made pocket watch movements to create a timeless one of a kind wristwatches.” “Any viewer of this advertisement would come away with an accurate understanding of the relationship between Vortic and Hamilton.”

The watch itself, “in isolation,” also provided full disclosure. “[T]he watch obviously presents to a viewer as restored antique pocket watch movement, face, and hands that have been reincorporated into a new wristwatch. This would be true even if the watch was viewed only from the  front or only from the back, and even if the viewer did not have any prior knowledge about the watch.” [Shades of what happened after the initial reversal in the LV v. Dooney & Bourke case, which prompted Judge Scheindlin on remand to find no confusion even when “viewed ‘in public from a distance, in a store window, from across a room, from a passing car, [ ] while walking in the street,’ in an advertisement, or hanging off of a woman’s shoulder, by way of examples.”]

The court ponted out that “the watch is much larger than the typical wristwatch and that there is a large knob at the 12 o’clock position which is immediately recognizable as being from a pocket watch, rather than a wristwatch which usually has the movement at 3 o’clock.  Additionally, the hands, face, and movement have a patina, style, and look that convey that they are restored antiques.” Plus, the placement of the respective marks “would convey to any ordinary prudent purchaser that the watch was made by Vortic and that the Hamilton mark is only displayed because Hamilton created the original movement, face, and hands that have subsequently been restored.”  “Vortic,” “Lancaster,” and the serial number were all prominently engraved on the case while the Hamilton mark is only visible inside the glass case, “on a movement and face that appear obviously antique.”

Nicely, the court pointed out that complete disclosure about the production process on the product itself isn’t required by Champion. “ It was sufficient in that case that the sparkplugs clearly conveyed that they were ‘used’ or ‘repaired.’  While the watches in this case have been modified to a greater extent than the sparkplugs in Champion, the Court finds that the Lancaster itself provides more disclosure as to the extent of the modification and restoration.”

Since the Hamilton components had been restored, it was not a misnomer to call the components bearing the Hamilton trademark by their original name, and the disclosure “prevents undue interference with the ability of Plaintiff to control its reputation.” Stamping “used” or “repaired” on the watch wasn’t required as long as there was “full disclosure with sufficient clarity and conspicuousness,” which was done here by overall design and the engravings. (Citing Ford Motor Co. v. Ultra Coachbuilders, Inc., Case No. EDCV 00-00243-VAP, 2000 U.S. Dist. LEXIS 20173 (C.D. Cal. July 11, 2000) (stretch limousine version of Ford automobile did not infringe on Ford’s trademark because the modifications were “apparent”).)

Hamilton argued that the burden was on Vortic to show that the disclosure worked. First, Vortic’s principal’s testimony “to the effect that neither he nor his company encountered individuals who were confused about the relationship or lack thereof between Vortic and Hamilton would seem to meet this burden, particularly given Vortic’s small size.” But second, the case law Hamilton cited wasn’t about modified genuine products. (Citing Home Box Office, Inc. v. Showtime/The Movie Channel, Inc., 832 F.2d 1311, 1316 (2d Cir. 1987).) “Champion, which did involve a modified genuine product, did not place such a burden on the defendants and neither have courts in this circuit that have applied Champion.”

Second, Hamilton argued that the disclosure was insufficient “because it fails to disclose particular modifications to the movement or that Vortic sometimes uses parts from other antique Hamilton watch movements in its restorations.” The uncontroverted evidence was that the modifications were minor and didn’t alter the function of the movement; there was no reason to believe that this was “particularly significant to consumers” or “somehow material to a likelihood of confusion.” In terms of using parts from other watches, “this is a technique that virtually anyone would expect in the restoration of an antique watch movement.” (Citing Champion, 331 U.S. at 129 (“inferiority is expected in most second-hand articles.”).) Nor was it material to likely confusion: “the watch still contains an antique Hamilton watch movement with antique Hamilton watch parts.”

Third, Hamilton argued that post-sale confusion could occur. A member of the general public, seeing a Lancaster on someone’s wrist, “would not know that it was Vortic rather than Hamilton that had done the restoration and modification.”  But third-party confusion is “only relevant if their views are somehow related to the goodwill of the aggrieved manufacturer.” There was no reason to conclude that the appearance of the Hamilton mark “on the inner workings of the watch—visible only upon close inspection—would result in initial interest confusion among members of the public.” [Also, so what?]

With that out of the way, the Polaroid analysis didn’t favor a finding of likely confusion. A number of the Polaroid factors weren’t helpful: strength of mark and similarity doesn’t matter where there is a modified genuine product with full disclosure. “Likewise, proximity of the products, bridging the gap, and the quality of the product are all also unhelpful, because application of these factors would penalize defendants who have only lightly modified a genuine product. Yet, under Champion, these are the defendants who have the lowest burden to meet the full disclosure standard.”  Thus, only actual confusion, the defendant’s good faith, and the sophistication of the buyers were relevant Polaroid factors.

Even if the court considered all the Polaroid factors, the result would be the same. The mark is relatively conceptually strong (the court calls it “fanciful,” even though that’s clearly wrong), but there was limited evidence of market strength, especially of such a kind as to make the views of non-purchaser members of the public important to its goodwill. Similarity, likewise, isn’t assessed in a vacuum, and so the context pointed to dissimilarity. Proximity of the products was “a wash,” because of presumptive variation within the watch market; Hamilton didn’t show that it sold any watch similar to the Lancaster, “such as a wristwatch that looks like a pocket watch or any kind of restored watches,” and bridging the gap was irrelevant/Hamilton submitted no evidence. [Beautiful example of stampeding the factors.] Product quality: There was no evidence about the quality of either party’s actual watches.

Actual confusion: Hamilton relied on a single email sent to a Canadian brand manager in 2015: “my friend is looking for a vintage hamilton as per attached,” but Hamilton failed to establish that the attached was a Vortic ad (as claimed), and anyway the email wasn’t clear about whether the sender’s friend actually thought that Vortic’s product was made by/affiliated with Hamilton.

The court found that Vortic acted in good faith, seeking to “preserve American history” by salvaging and restoring the hearts of antique pocket watches rather than to cause confusion. Its principal

viewed himself as “upcycling,” restoring previously nonfunctional antique watch movements and parts, and making them into something of “much greater value.” To be sure, Mr. Custer did intend to gain some benefit from displaying the Hamilton mark, albeit more from Hamilton’s historical significance rather than its modern-day reputation. But the benefit Mr. Custer sought was no more than what he fairly believed he was entitled to by including restored, genuine antique Hamilton movements, hands, and faces. 

Finally, the customer base was highly sophisticated. The Lancaster was “very expensive” and expensive-watch consumers are typically discerning.

Counterfeiting: This requires that use of a counterfeit mark is “likely to cause confusion, or to cause mistake, or to deceive.” That wasn’t shown here. [Courts are of course super inconsistent about this. If there were no genuine goods involved, even full disclosure “these are counterfeit” wouldn’t work, but the ways that courts distinguish these situations are opaque at best. Overall, we might be better off talking more openly about “unfair competition” and what constitutes fairness.]

State dilution: Only blurring was claimed; the factors are similar to the confusion factors; so Vortic wins.

court refuses to dismiss TM claims against NRA's former PR agency

National Rifle Ass’n v. Ackerman McQueen, Inc., 2020 WL 5526548, No. 19-CV-2074-G (N.D. Tex. Sept. 14, 2020)

The NRA sued AMc, an advertising and PR agency, for various claims arising from the parties’ now-terminated relationship and Ackerman’s statements about the relationship; the court granted in part and denied in part a motion to dismiss. The temptation is to say "Go it, husband! Go it, bear!" but the NRA's expansive claims are pretty worrisome from a "people are allowed to truthfully describe their own activities" perspective, so.

The NRA used AMc’s services from “at least the 1980s” until 2019, when the last of their agreements ended. AMc’s services included “public relations and strategic marketing; planning and placement of media; management of digital media and websites; and the management of NRATV, a digital-media platform frequently perceived by the public as the ‘voice’ of the NRA.”

Despite the termination of the services agreement, AMc’s website allegedly continues to “prominently feature[ ] unauthorized and unlicensed NRA-owned photos and reference[ ]...the NRA with greater frequency than any other AMc client.” The NRA alleged: (1) false association under the Lanham Act (2) copyright infringement.; (3) conversion; (4) fraud; (5) breach of fiduciary duties; (6) conspiracy to commit fraud and extortion; (7) breach of the fiduciary duty of loyalty; and (8) breach of contract.

Defendants counterclaimed and moved to dismiss (though not on the claim for breach of contract).

Consistent with the lack of weight that many courts give to historical facts in trademark contexts, the court denied the motion as to the false association claim.  “The crux of the NRA’s false association claim is that AMc’s continued display of the name NRA and the NRA’s ‘intellectual property on AMc’s website provides a strong inference that wrongly suggests to the public—and creates consumer and customer confusion—that the NRA presently endorses the services that AMc provides and that the NRA is currently AMc[’s] client.’”

Rather than explicitly arguing Dastar and First Amendment/nominative fair use, defendants argued that the NRA hadn’t alleged Lexmark standing or identified any false or misleading content on AMc’s website. The NRA properly alleged that it was within the Lanham Act’s zone of interests: its alleged injuries fell within two of the Lanham Act’s enumerated purposes: the purpose to “mak[e] actionable the deceptive and misleading use of marks in” commerce within the control of Congress, and the purpose “to prevent fraud and the use of reproductions...or colorable imitations of registered marks.”

The complaint “provides a laundry list of instances in which AMc’s website references or lists the marks NRA and NRATV, including a total of fifteen references to the NRA and NRATV under headings entitled ‘Gallery’ and ‘Clients.’” This allegedly confused the the public about whether the NRA remains an AMc client and endorses the services provided by AMc.”

Likewise, the NRA properly alleged proximate cause. “This perceived association between the NRA and AMc, the NRA argues, is harmful to the NRA’s reputation, diminishes the value of the NRA’s trademarks, and causes the NRA to lose out on royalties.” That was enough on a motion to dismiss.

And the NRA sufficiently pleaded misleadingness. It alleged that “AMc continues to depict numerous photographs on AMc’s website that contain the words ‘National Rifle Association’ written across the bottom.” AMc, after suit was filed, altered the legends on these photographs such that they now read “National Rifle Association (Legacy).” That might ultimately suffice, but the NRA properly pled that the references to the NRA were misleading, since misleadingness is a fact-specific inquiry “best left for decision after discovery.”

Copyright infringement: The NRA failed to register the photos before suing, so the claim was dismissed without leave to amend.

Conversion: This claim was based on defendants’ continued use of and failure to remove various “creative works and intellectual property” from AMc’s website, apparently meaning the same photos. Texas conversion law covers only physical property, and even if Virginia law applied (as the NRA argued because its HQ is in Virginia) its claim was preempted by the Copyright Act.

Fraud/conspiracy: the allegations here aren’t IP-related; the claims were dismissed for failure to plead with particularity. Breach of fiduciary duty claims also weren’t sufficiently pled against the individual defendants.

Monday, September 21, 2020

Second Circuit affirms flushable wipes damages class certification, disallows injunctive class

Kurtz v. Costco Wholesale Corporation, 818 Fed.Appx. 57, Nos. 17-1856-cv, 17-1858-cv (2d Cir. Jun. 26, 2020)

This is a “flushable” wipes consumer protection class action. The district court previously certified damages and injunctive relief classes. On appeal, the Second Circuit required further clarification on the predominance argument and remanded.  The district court received additional evidence, including supplemental expert reports, and conducted a hearing. On that basis, it reaffirmed its prior certification decision, determining that Kurtz had demonstrated that he could prove injury and causation with common evidence, satisfying Rule 23(b)(3)’s predominance requirement. The court of appeals found no abuse of discretion, though not on an injunctive relief class.

Kurtz showed adequacy and typicality, despite Kimberly-Clark’s argument that he sacrificed potentially higher-value plumbing damages claims in order to advance lower-value, but more easily certifiable, claims based on a price premium theory. Given that the cost of litigating such plumbing damages claims likely would have outweighed any recovery, the district court held that the strategic decision to forgo plumbing damages and pursue statutory damages of $50 per purchase under NY’s GBL §349 wasn’t a fundamental conflict of interest. This was not an abuse of discretion. Nor was it a typicality problem that Kurtz continued to buy the wipes after he learned that they were not flushable; his theory of injury was predicated on the existence of a price premium, so the harm he suffered occurred at the time of purchase. “Accordingly, his purchasing history is largely irrelevant to typicality and does not warrant setting aside the court’s certification order.”

Standing to represent an injunctive relief class: no, because there was no likelihood of future injury. Kurtz made no assertion that he intended to purchase additional flushable wipes products—from Costco, Kimberly-Clark, or any other company.

Predominance: The court of appeals initial decision expressed “specific concern with the Plaintiffs’ proof that they can establish the injury and causation elements of their claims at trial with common evidence.” On remand, plaintiff’s expert “developed and performed hedonic regression analyses” indicating “that there is a marketwide price premium for wipes labeled as flushable,” rather than merely speculating that such a regression could be run. Though defendants’ experts critiqued this expert report, the district court deemed the testimony and analysis admissible, and found that his regression satisfied the obligation to demonstrate predominance.

The “litany” of purported failings in the methodology was unpersuasive. For example, defendants argued that the model “fails to account for major variables, including attributes that consumers value most.” Though some regressions may be “so incomplete as to be inadmissible as irrelevant,” this model accounted for “a wide range of variables, some of which are substantial drivers of consumer purchases.” The omitted variables were “arguably significant,” but that went to weight rather than admissibility. So too with defendants’ argument that there was no price premium “if the time frame is shifted or if additional products are included in the underlying dataset.” While cherry-picking data can render a model so unreliable that it is inadmissible, the expert here testified that changing the timeframe of his model while making appropriate adjustments to other variables still yielded a price premium, and the district court found that he used a sufficiently wide range of sources to render the end-result “statistically reliable.” There was no abuse of discretion in relying on his testimony.

Comcast Corp. v. Behrend, 569 U.S. 27 (2014), held that “a model purporting to serve as evidence of damages in [a] class action must measure only those damages attributable to that theory.” That’s exactly what this model purports to measure: the price premium attributable to the “flushable” label. Although plaintiffs’ claim might still fail, the model worked as “common evidence of plaintiffs’ theory of injury.”

Ultimately, none of Defendants’ critiques demonstrates that there exists “some fatal dissimilarity among class members that would make use of the class-action device inefficient or unfair. Instead, what [Defendants] allege[ ] is a fatal similarity—an alleged failure of proof as to an element of the plaintiffs’ cause of action.” A factfinder might ultimately agree with defendants’ critiques of the model, but that would make the class claims fail as a unit.

"Keratin Caring" doesn't convey keratin content to reasonable consumers

Devane v. L’Oréal USA, Inc., 2020 WL 5518484,  19 Civ. 4362 (GBD) (S.D.N.Y. Sept. 14, 2020)

Devane sued for breach of express warranty, breach of implied warranty, fraud, and violations of the Florida Deceptive and Unfair Trade Practices Act (FDUTPA), New York General Business Law (NYGBL), Florida False Advertising Statute (FFAS), and Alabama Deceptive Trade Practices Act (ADTPA) based on L’Oréal’s branding of its “EverSleek Keratin Caring” products that allegedly misrepresented that they contained keratin, a protein naturally present in human hair, skin, and nails. The court granted L’Oréal’s motion to dismiss. In essence, it agreed with L’Oréal that it was unreasonable to assume that the products themselves contained keratin, as they specifically stated that they “car[e] for the essential protein and keratin that is found in hair.” The backs of the bottles include ingredient lists—which do not include keratin; the front and back indicate that the products are “Vegan,” and further the back says “[n]o animal derived ingredients or by-products.” Under these circumstances, it wasn’t reasonable to assume that a product contains a certain ingredient when it is not listed in the ingredient list. The label said multiple times, including on the center of the front labels, that they were “Keratin Caring” products, and it was “reasonable to understand this to mean that it cares for the keratin already found in the hair.” [This is the wrong framing: we need to know whether it was unreasonable to read the label otherwise; there can be multiple reasonable interpretations.] In conjunction with the “extremely clear” ingredient list, that meant that plaintiff didn’t plausibly plead that a reasonable consumer could understand that the product contained keratin.

The court rejected Devane’s argument that L’Oréal’s argument wrongly “presupposes a higher level of knowledge on the part of the reasonable consumer than is appropriate.” “Even if the average reasonable consumer is unaware of what the word ‘vegan’ means, or did not previously know that keratin is found in one’s hair, this nonetheless does not counter the number of times that the label makes it clear that (1) keratin is not an ingredient, and (2) the Products are intended to care for the keratin in one’s hair…. Reasonableness cannot be based solely on what the consumer might have known prior to picking up the Products and examining the labels.”

Fla district court rejects argument that "completely unsubstantiated advertising" is literally false on sj

Diamond Resorts U.S. Collection Development, LLC v. US Consumer Attorneys, P.A., 2020 WL 5514158, No. 18-80311-CIV-REINHART (S.D. Fla. Jul. 31, 2020)

Another timeshare case. (Student note topic alert!)

Defendant Newton Group Transfers sent a mailer to Samuel Street in West Chester, Pennsylvania, believing him to be the owner of a timeshare. The mailer said (in relevant part): “We are attempting to contact you because our records suggest that you are an owner who may be affected by new Timeshare Laws allowing developers to raise maintenance fees with no restriction.” Diamond argued that this statement was literally false as to Mr. Street, whose timeshare is in Florida, which allegedly has no such laws. The court disagreed. (There’s an interesting, unexplored “targeted v. untargeted” issue here—to the extent that this was an individualized pitch, I think literal falsity should be an option, just as a salesperson who represents that a mortgage is the right choice for a particular individual should be held to a higher standard than a general ad touting “the right mortgage for you!” which, in an ad directed to the world at large, is puffery.)

Anyway, literal falsity requires assessment in context. “As the meaning of a statement becomes less clear ... and it becomes susceptible to multiple meanings, the statement is more likely to be merely misleading.”

Diamond moved for partial summary judgment on falsity, arguing that, under Florida law and Diamond’s timeshare contracts, (1) no timeshare managing entity can raise maintenance fees without restriction and (alternatively) (2) even if some managing entity can do it, a developer cannot.

Housekeeping: no partial summary judgment was available for the other defendants because the evidence didn’t establish their legal responsibility for the mailer.

Merits: “[T]he parties agreed that the threshold question of literal falsity depends only on the text of the Mailer.” The mailer didn’t say that Street actually owned a timeshare, where that was located, or reference Florida/Florida law. The mailer therefore—implicitly treating this as nontargeted advertising, which seems appropriate on this record—couldn’t be literally false unless “at least, in or about the fall of 2017 when the Mailer was sent, there were no new timeshare laws anywhere in the United States that allowed a timeshare developer to increase maintenance fees without restriction.” There was no such evidence in the record.

Diamond attempted to rely on the testimony of the corporate representative for Newton Group Exit, LLC, that the mailer’s mention of “new Timeshare Laws” was referring to amendments to Florida law, but Diamond didn’t show why that was binding on Newton Group Transfers, LLC, a separate entity, and regardless that’s not what the mailer said. Nor did Diamond cite evidence that Street’s timeshare fell under the terms of the contracts in the record, even assuming that those contracts could render the mailer literally false.

Finally, Diamond tried to get the court to adopt the rule of Novartis Consumer Health, Inc. v. Johnson & Johnson-Merck Consumer Pharm. Co., 290 F.3d 578 (3d Cir. 2002), that “completely unsubstantiated advertising”  is literally false, but the court declined. Among other things, Novartis was an appeal from a grant of a preliminary injunction; even though the movant had the burden of persuasion, a factfinder can draw an adverse inference from the respondent’s failure to provide affirmative evidence to refute the movant’s claim; that wouldn’t be appropriate here. I'm not sure I see the civil procedure distinction here--if anything accepting this inference for a PI seems like a bigger deal, but ok.

FDA preemption/preclusion after Pom Wonderful: still powerful for drugs

Exela Pharma Sciences, LLC v. Sandoz, Inc., 2020 WL 5535026, No. 19-cv-00318-MR (W.D.N.C. Sept. 15, 2020)

Exela sued Sandoz for unfair and deceptive trade practices in violation of North Carolina law; tortious interference with prospective business advantage; and Lanham Act false advertising and unfair competition. It sought a TRO etc. forcing Sandoz to recall its L-Cysteine product.

Exela makes an FDA-approved L-Cysteine injection product, used for high-risk patients, such as preterm or low-weight newborns and patients with severe liver disease, as part of a nutritional supplement regimen (aka “total parenteral nutrition” or TPN). “Aluminum is a known contaminant of TPN solutions, and aluminum toxicity can cause serious health problems including dementia and impaired neurologic development among others. High-risk infants who receive TPN are particularly susceptible to harm from excessive, toxic amounts of aluminum, as they have immature kidneys, which impairs the removal of aluminum from the body.”

Sandoz makes an L-Cysteine product in Canada with a label stating that it contains as much as 5,000 mcg/L of aluminum; it’s not FDA-approved. But starting in 2014, there was an L-Cysteine shortage in the US, so the FDA asked Sandoz to import its product under the FDA’s “shortage program,” without requiring FDA approval. On April 12, 2016, the FDA stated that it would not bring an enforcement action for importing the product for 6 months if Sandoz followed certain conditions, including distributing a “Dear Healthcare Provider” letter alongside its L-Cysteine product that explained the product, the drug shortage, and the lack of other similar FDA-approved products. The letters had to be reviewed by the FDA before distribution.

Sandoz sought several extensions, each of which was granted. The last Dear Healthcare Provider letter was approved on June 21, 2019, instructing Sandoz to ensure that the “previously reviewed Dear Healthcare Provider letter continues to accompany [its] L-Cysteine in distribution.” Every version of the letter stated that “there are currently no FDA-approved L-Cysteine Hydrochloride Injection products in the United States.”

However, Exela developed an L-Cysteine product with low aluminum levels. The FDA wanted no more than 145 mcg/L of aluminum for permanent approval. In April 2019, the FDA approved Exela's NDA. By late May 2019, Exela had manufactured sufficient inventory to meet the entire market demand for L-Cysteine.

Exela made “numerous efforts” to get Sandoz’s product off the market, including repeatedly asking the FDA to act. The FDA declared an end to the shortage in September 2019, and asked Sandoz to stop importing its product; Sandoz complied but continued distributing its existing inventory. Exela’s marketing team “claims to have observed customers buying or committing to buy up to a year’s supply” even after its product received FDA approval. In October 2019, the FDA told Sandoz to stop distribution, which it did. However, even with Exela’s sole-approved-product status, it has less than 20% of the L-Cysteine market while Sandoz “maintain[s] over” 80%.

The FDCA gives the FDA “complete discretion” to “decide how and when [its power] should be exercised.” This can’t be evaded by putting a state law label on what is really a complaint about FDCA violation. [Note that this discussion applies only to drugs/devices; the situation for food/supplements has more leeway for states, consistent with the lesser federal regulation to which they are subject.]  “The test for determining whether a state law claim is impliedly preempted is whether or not the claim would exist in the absence of the FDCA.”

NC unfair/deceptive practices: the allegedly violative action was selling the unapproved product and “stuff[ing]” the distribution channels, including failing to update its 2018 Dear Healthcare Provider letter after the FDA approved the Exela product, failing to warn its customers about its product’s aluminum content, and misusing “its incumbent status in the market and its huge market power and reach to block hospitals and distributors from switching.”

The complaint fundamentally challenged “the FDA’s decision not to bring enforcement proceedings against the Defendant under the FDCA for importing and selling an unapproved and unsafe drug.” That was preempted under conflict preemption, including claims about the safety of Sandoz’s product. Even after Exela received FDA approval, the FDA still had to account for the risk that it might not be able to meet the entire market demand for L-Cysteine, the risk of supply chain issues during the transition, other associated risks, and the parties’ interests (including Sandoz’s interests in selling “inventory it created in response to the FDA’s requests to help with the drug shortage.” Unlike failure-to-warn cases that escape preemption, the only way to comply with state law would have been for Sandoz to leave the market.

Similar analysis applied to the associated claims. The FDA regularly “weans unapproved products off the market once a competing product has been approved.” In fact, it gave Sandoz only six months, not the year it has suggested in the past; and Exela did not even allege that it had sufficient production to satisfy the market for a significant portion of that period.

Failing to update the “Dear Healthcare Provider” letter to disclose the approved Exela product was also ok, even though it said “there are currently no FDA-approved L-Cysteine Injection products in the United States.” The letters were “mandated, overseen, and preapproved by the FDA,” and the last renewal was approved by the FDA after it approved Exela’s product; the 2019 renewal “mandated (under threat of enforcement action)” the use of the previously approved letter. Preemption was appropriate given that, “when a party cannot satisfy its state duties without the Federal Government’s special permission and assistance, which is dependent on the exercise of judgment by a federal agency, that party cannot independently satisfy those state duties for pre-emption purposes.” And state law likewise couldn’t require Sandoz to send other letters “contradicting” the FDA-approved letters.

Failure to warn about aluminum content, even though the aluminum content “far exceed[s]” the standard the FDA required Exela to meet: The FDA didn’t set upper limits on the aluminum content of these products, and the FDA later responded to Exela that Sandoz’s product had aluminum levels that were “well within the standards agreed upon with FDA” and that “[i]t is thus inappropriate to suggest that the Sandoz product is somehow unsafe.” And anyway, “a merchant’s failure to inform its customers as to how its product compares unfavorably to a competitor’s product” isn’t itself deceptive.

Ultimately, Sandoz “imported, marketed, and sold a product that it was permitted by the FDA to import, market, and sell, and in quantities that did not exceed that permission.”

Tortious interference claims fared similarly.

Lanham Act: The false/misleading representations were similar to those discussed above. Unless an omission makes an affirmative statement misleading, the Lanham Act doesn’t require disclosures. Although the Dear Healthcare Provider letters were plausibly “commercial advertising or promotion,” this was still a case where bringing a Lanham Act claim would interfere too much with the FDCA, even after Pom Wonderful, which held out the possibility of precluding a Lanham Act claim if “it turns on the content” of something that has been “previously preapproved by the FDA” or conflicts “with an affirmative policy judgment by the FDA.” Both scenarios applied here.

Wednesday, September 16, 2020

expert testimony isn't always required for literal falsity or even misleadingness

Ecore Int’l, Inc. v. Downey, No. 11-6843, 2020 WL 5501206 (E.D. Pa. Sept. 11, 2020)

The court denies Ecore’s motion in limine seeking to exclude any evidence related to the falsity or misleading nature of its advertising for purposes of defendant Pliteq’s Lanham Act/common law unfair competition counterclaims. (There are about 20 claims and counterclaims “related to a hotly contested commercial dispute between the parties.”) Ecore allegedly made false and misleading statements about Pliteq’s “GenieMat” products and its own “QT” products, which are competing sound dampening products: (1) claims of equivalence as to quality, performance, and testing; (2) wrongly implying that Pliteq’s products use a rubber cleaning and processing method involving sulfur, and that the products accordingly have an unpleasant odor; and (3) claims that Ecore “originated the new method of using two layers of floor underlayment, when this is not the case.” That last sounds Dastar-problematic, but the court doesn’t address that aspect of the claim.

Ecore argued that expert testimony was required on falsity and likely confusion. The court agreed that lay witnesses might be able to do so, including with the testimony of defendant Downey, “who has extensive experience in the sound insulation field and can testify as to these issues based on his personal knowledge and observations,” although he hadn’t been identified as an expert on these issues.

The court noted that “[t]he type of proof needed to prove literal falsity varies with the type of advertising claim being made,” and further that whether expert testimony is necessary to a literal falsity claim is also case specific, which seems all but self-evident.  Pliteq might be able to show literal falsity of these particular claims without evidence that “requires scientific or technical knowledge not appropriate for a lay witness.” The allegedly false statements “do not refer to any scientific tests and do not otherwise contain such technical implications that expert testimony would be needed to establish their falsity. To the contrary, information regarding a product’s odor and who came up with an idea is perfectly amenable to lay testimony.”

Second, even without literal falsity, an expert or consumer survey isn’t absolutely required to prove deception. Courts have mentioned “consumer surveys, market research, expert testimony, or other evidence,” even if surveys are the “usual[]” method. [Imagine a very small market where all the customers testify they were deceived—clearly no survey would be required.] Without a full evidentiary record, the court wasn’t going to reject Pliteq’s theories or prohibit Pliteq from attempting to prove its claims via lay witnesses.

5th Circuit reiterates stringent standard for injury in Lanham Act false advertising cases

Boltex Mfg. Co. v. Galperti, Inc., --- Fed.Appx. ----, 2020 WL 5506404, No. 19-20440 (5th Cir. Sept. 11, 2020)

Boltex and Weldbend sued Galperti and its Italian affiliate for Lanham Act false advertising and state unfair competition. Galperti counterclaimed for false advertising, false designation of origin, and unfair competition. The court of appeals affirmed the grant of summary judgment on all claims.

The parties make flanges used to connect equipment in the oil and gas, petrochemical, and construction industries. ASTM standards may require a heat treatment process to increase the carbon steel’s toughness and ductility; normalization is one such process and it makes flanges costlier than non-normalized flanges.

Boltex and Weldbend alleged that defendants adertise their flanges as normalized, even though they are not. Galperti counterclaimed that Boltex and Weldbend falsely advertised their products as American-made and misrepresent their quality, characteristics, and technical standards. The district court found that neither side had enough evidence of injury to survive summary judgment.

Principles: “A claimant seeking actual damages must prove that he has been injured in some way,” though actual losses need not necessarily be shown. “A plaintiff must nevertheless put forth ‘competent summary judgment evidence that indicates that consumers would have bought [plaintiff’s] products instead of the [defendant’s products] in the absence of the defendant[’]s[ ] allegedly false ... statements.” Plaintiffs argued that they also sought injunctive relief and disgorgement, and should have been required only to prove likely injury. Their evidence: (1) they were direct competitors; (2) deposition testimony from plaintiffs’ executives that defendants’ statements caused plaintiffs to lose sales; (3) customer statements the district court deemed inadmissible hearsay; and (4) plaintiffs’ damages expert report and testimony.

Initially, the court excluded consideration of two emails to customers because they weren’t “advertising or promotion.” The “relevant purchasing public” here consisted of as many as 81 customers, and there was no evidence that the targeted two “wield outsized purchasing power.” This wasn’t sufficient dissemination.

First, there was no precedent supporting the claim that, because both sides were “among the market leaders … within a limited pool of competitors, there should be a presumption that they were injured.” Second, the deposition testimony from executives was speculative/inadmissible hearsay. One witness speculated about losing a few customers before concluding, “I have no idea the number of people.” Another named four customers that had allegedly purchased defendants’ flange instead of plaintiffs’; when counsel asked how he knew that, he responded, “I’m pretty sure we’ve been told that they placed orders with Galperti or ULMA, because their—their customers are now requesting it.” Statements made by customers to a Weldbend salesperson and then at some point relayed to the executive by an unidentified source was “classic hearsay.” Boltex’s sales manager testified that two customers told Boltex that it had lost sales to defendants, which was also “plainly” hearsay, and the testimony didn’t specify the reason for the lost sales/relate them to normalization. “[T]he business records exception does not apply here because the evidence in question is deposition testimony about supposed customer reports, not the actual customer reports themselves.”

Testimony from a distributor who switched from Galperti to Boltex didn’t indicate that it would have bought Boltex/Weldbend flanges instead of Galperti’s in the absence of the allegedly false statements. An executive at another distributor testified that they relied on Galperti’s representations that it normalizes its flanges, and further that, hypothetically, if they couldn’t get a flange from Galperti, they’d get it from another core supplier. Puzzlingly, the court dismissed this as insufficiently decisive about whether they would actually use it, and anyway there’s a fourth “core”, nonparty supplier and some other suppliers to which any potential diverted sales could have gone. This wasn’t enough for a “real and immediate threat of future or continuing injury apart from any past injury.”

And plaintiffs didn’t rely on their expert report to show causation in the district court, so they couldn’t do it now.

Counterclaims: “Because of the type of relief it sought, Galperti was not required to prove actual injury, but had to at least prove the likelihood of injury.” However, even that failed because Galperti didn’t offer any evidence that would allow a factfinder to infer that the parties are competitors in the market for U.S.-sourced flanges. Galperti doesn’t produce flanges made in the USA; the court couldn’t see how it was likely to be injured by not falsely advertising “made in the USA” while plaintiffs did. “[A]ny profits Plaintiffs gain from their allegedly false advertising would not be at Galperti’s expense unless Galperti too competes in the market for U.S.-sourced flanges.” [Of course Galperti could be injured without participating in that market! If some consumers trade off price/other characteristics with “made in the USA,” then Galperti could offer an otherwise superior package and lose out in the competition. Only if no amount of price/other feature superiority can overwhelm “made in the USA” are the markets independent of each other. Maybe that’s true—but that’s a different thing than what the court of appeals says.] It also wasn’t enough to argue that some of the steel Galperti uses is of US origin.   

There similarly wasn’t sufficient evidence on the other alleged types of unfair competition.

 Comment: now do injury in trademark cases.

consumer disillusionment with D isn't evidence that deception injured P

3B Medical, Inc. v. SoClean, Inc., No. 19 Civ. 3545 (KPF), 2020 WL 5440440 (S.D.N.Y. Sept. 8, 2020)

3B makes devices that automatically sanitize continuous positive airway pressure (“CPAP”) machines using UV-C light. It sued SoClean, which makes similar devices but use ozone as a sanitizing agent, for violating the Lanahm Act, but failed to sufficiently plead injury. SoClean has 90% of the market for CPAP machine cleaners, while 3B holds only 5%; the other 3 competitors also use ozone. The devices are sold as an alternative to handwashing CPAP equipment.

The complaint alleges that ozone is a toxic gas that can have a variety of serious health consequences to humans when inhaled, and that defendant’s devices produce ozone at concentrations well above the limits allowed by the FDA. Defendant’s marketing materials allegedly obscure SoClean’s use of ozone as a sanitizing agent and mislead consumers about the health risks:

• statements that its devices use “activated oxygen,” instead of ozone;

• statements that its devices do not use “chemicals” or “harsh chemicals”;

• the terms “safe” and “healthy”;

• statements that its devices use the same sanitizing process as that used in hospitals;

• statements that the charcoal filter cartridges that accompany its devices are able to convert “activated oxygen” into “regular oxygen”; and

• statements that its devices are closed-loop systems, out of which no “activated oxygen” escapes.

Consumers have allegedly reported adverse experiences with SoClean’s devices due to the devices’ use of ozone, and chose 3B’s product specifically because it does not use ozone. 3B alleged that more consumers would learn of, and purchase, its products if not for SoClean’s false advertising.

Under Lexmark, “a plaintiff in a false-advertising case must demonstrate injury by way of lost sales or damage to business reputation.” Injury can be presumed from false comparative statements. But where the allegedly misleading advertisement “tout[s] the benefits of the products advertised but ma[kes] no direct reference to any competitor’s products[,] ... some indication of actual injury and causation” is necessary “to ensure that a plaintiff’s injury [is] not speculative.” This is because “injury in such cases accrues equally to all competitors; none is more likely to suffer from the offending broadcasts than any other.”

Although a plaintiff doesn’t need to name specific lost customers, “some indication of actual injury” is needed to survive a motion to dismiss. The allegations of injury here were merely conclusory and speculative. The only specific statements from customers recommended the 3B product because it doesn’t use ozone, which doesn’t show injury to 3B. E.g., “I owned a So Clean cleaner and because of the ozone I developed a rash around my nose and chin that would itch. I contacted So Clean and they told me to use wipes and I did but the problem persisted. I also read that the ozone itself was very bad for respiratory conditions such as COPD of which I have. Do the research. I would no[t] recommend the So Clean device for these reasons. I decided to try [3B’s] Lumin. No Ozone.”  [Compare the hypothetical: “I bought the SoClean product because they promised me it was safe and sealed so that no ozone would reach me. I’m so bummed!”]  “At most, the statements could be said to support § 1125(a)’s causation requirement, but that requirement is distinct from the need to show actual injury.”

What about a presumption of injury from the fact that 3B was the only non-ozone product in the market? That wasn’t enough without implicit reference to 3B’s products, and the market wasn’t a two-player market, including other ozone users and handwashers. The Second Circuit has suggested, without deciding, that the presumption might be applicable where the parties “are direct competitors in a sparsely populated market,” but the court wasn’t going to extend that here, where SoClean was the original market creator, and thus wasn’t inherently diverting consumers from the plaintiff’s preestablished market, and where there were alternatives. Given the other market players, there was no reason to presume that the alleged misrepresentations were “targeted at diverting consumers away from the Lumin or its associated devices. Indeed, to allow the presumption in this context would incentivize any upstart competitor in a market to claim, without proof, that a dominant player’s long-time marketing statements are causing injury.”

NY state claims failed for the same reason.

Tuesday, September 15, 2020

a rare freestanding UCL unfairness claim re: service termination that rendered cameras nonfunctional

Soo v. Lorex Corp., 2020 WL 5408117, No. 20-cv-01437-JSC (N.D Cal. Sept. 9, 2020)

Plaintiffs brought California and New York consumer protection claims based on what happened to their home security Flir cameras; defendants moved to compel arbitration, which was denied because defendants failed to prove by a preponderance of the evidence that plaintiffs agreed to arbitrate. Defendants’ motion to dismiss was partly granted and partly denied.

Lorex made Flir cameras, which had the ability to upload security footage into cloud storage and a “Rapid Recap” feature, with which users could see a condensed, time-stamped video of activity observed by the camera. Cloud storage and Rapid Recap were made possible by applications managed by Lorex. After selling Flir cameras since 2015, in mid-2019 Lorex announced it was changing technology providers for the apps, rendering the cameras unable to connect to the apps and thus nonfunctional. Lorex then offered consumers a “Lorex Active Deterrence Wi-Fi replacement camera” or a store discount of US $120.00, which plaintiffs alleged were inadequate substitutes.

Defendants contended that the Warranty inside the box that plaintiffs’ cameras came in contained a binding arbitration provision. For purposes of this motion, it was undisputed that Lorex provides a hard copy of the Warranty in the box of every Flir camera it sells. The Warranty in the box advised plaintiffs that if they kept the cameras they were agreeing to the Warranty as well as to binding arbitration.

This was a “shrinkwrap” license [I can hear Eric Goldman sighing from 3000 miles away]. But Lorex’s warranty, unlike that in previous cases, didn’t give consumers any amount of time to examine the product and return it instead of accepting the arbitration agreement, and the included written materials did give the consumer the right to return the camera. “At a minimum, without evidence that Mr. Lauinger had the right to return the camera and thus reject the arbitration provision there can be no agreement to arbitrate formed by ‘keeping the [camera.]’”

Another plaintiff, Soo, “activated” his warranty online. Was that enough? Under California law, “silence or inaction cannot constitute acceptance of an offer,” unless an exception applies, such as “when the offeree has a duty to respond to an offer and fails to act in the face of this duty.” However, even then, a contract offeree’s silence cannot constitute consent to a contract “when the offeree reasonably did not know that an offer had been made.” California courts have held that “even if a customer may be bound by an in-the-box contract under certain circumstances, such a contract is ineffective where the customer does not receive adequate notice of its existence.” Previous case shad held that titles like “Product Safety & Warranty Information” aren’t enough to provide notice of “a freestanding obligation outside the scope of the warranty.” So too here. His online activation doesn’t support a finding that had to or should have been aware of the arbitration agreement. He “could have registered for warranty protection without ever seeing the in-the-box Warranty that contained the arbitration provision in the section entitled ‘State/Provincial Law.’”

Unfairness under the UCL: Courts are divided on how to assess unfairness, but plaintiffs invoked the balancing test: it asks whether the alleged business practice “is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers and requires the court to weigh the utility of the defendant’s conduct against the gravity of the harm to the alleged victim.”

Defendants argued that it wasn’t right to impute an underlying P2P service provider’s cessation of service to them. But plaintiffs alleged that “Defendants changed technology providers knowing that such a decision would cause the Flir Cameras to cease functioning.” And, after changing providers, defendants “have not created their own P2P software to replace OzVision that would continue to provide support for Flir Cameras, or otherwise partnered with another third-party vendor.” The harm could plausibly outweigh the utility of the conduct to defendants.  The cost-benefit analysis of unfairness was “not properly suited for resolution at the pleading stage.”

Fraudulent omission under the UCL: This was predicated on defendants’ failure to disclose that app support for the Flir cameras was contingent on Defendants’ contract with OzVision, and that there was no guarantee OzVision would continue to provide service. Plaintiffs alleged that had defendants disclosed such a fact, they would not have purchased their Flir cameras at all or on the same terms. However, the complaint didn’t plausibly support an inference that, at the time they sold the cameras, defendants knew that the functionality issue existed. This also disposed of the NY consumer protection claims.

California unjust enrichment: It was plausible that the failure of defendants’ replacement program to properly compensate Plaintiffs for the lost value of their cameras with adequate replacement cameras or a comparable store credit may sustain a claim for unjust enrichment at the motion to dismiss stage.

Trespass to chattels: perhaps surprisingly, also survives.  Defendants argued that OzVision, not they, rendered the cameras nonfunctional. But plaintiffs sufficiently pled that it was defendants’ acts that “substantially harmed the functioning” of their devices, which “significantly impaired the devices’ condition, quality, and value.”

Expedia's unavailability claims sometimes literally false, maybe misleading; materiality is contested for trial

Buckeye Tree Lodge v. Expedia, Inc., 2020 WL 5372246, No. 16-cv-04721-VC (N.D. Cal. Sept. 9, 2020)

The court denies cross motions for summary judgment on whether Expedia violated the Lanham Act by suggesting that plaintiffs’ hotels could in theory be booked on Expedia’s site but lacked available rooms (except as to allegedly misleading phone numbers) and whether the plaintiffs are entitled to a permanent injunction. Expedia also failed to decertify the plaintiff class, but did get a clarification in the class definition.

There were genuine disputes of fact over whether (1) Expedia’s unavailability messages and Google ads were misleading; and (2) any deception was material to consumers’ purchasing decisions. “[A] small number of Expedia’s unavailability messages—most noticeably, ‘We are sold out’—are literally false when used to describe availability at hotels for which Expedia never had any beds to sell.” Also literally false: “Sorry, the [Hotel name] is not available for your travel dates. You may choose alternatives dates OR select from the properties below.”; and “Fully booked! We’re sold out for your travel dates on our site.”

Most of the other unavailability messages weren’t literally false but nonetheless could be misleading, e.g., “Your dates are popular! Rooms are unavailable for your trip dates on Expedia. Try new dates to check availability.” “This message seems intuitively to imply that rooms are unavailable because of the particular dates selected, rather than because Expedia is entirely incapable of booking rooms at that hotel.” “Many of the other messages are similar, e.g.: ‘This property has no availability for your travel dates on [Expedia, Travelocity, or Orbitz]’; ‘[Hotel name] has no availability for your travel dates on’” Indeed, I think it would have been reasonable to at least the first false by necessary implication; similarly, the attribution of “no availability” to the hotel, instead of to the website, in some of these other statements is pretty significant. The court thought other messages might be less likely to mislead, such as  “Wait a minute. There is no availability for this hotel on Please amend your search.” The court found some “quite unlikely to have been misleading, e.g. ‘Sorry, we aren’t taking reservations for this property on our site.’” [Once again, there’s a huge gap between what courts find plausible in trademark cases and what they find plausible in false advertising cases.] Overall, Expedia “raises fair concerns about the reliability and probative value of the plaintiffs’ survey evidence, and the question of whether these phrases were misleading cannot be answered at summary judgment.” [Seems like plaintiffs would be entitled to an instruction about falsity for the literally false statements, but it looks like this will be a bench trial.]

There was also a genuine dispute over materiality: Expedia presented evidence “suggesting that the messages were not material in the actual context of how consumers make travel decisions,” conflicting with plaintiffs’ evidence.

Expedia did win summary judgment for claims related to “Expedia’s allegedly misleading display of telephone numbers,” because plaintiffs offered “no actual evidence that the phone number displays were false, misleading, or material to consumers’ purchasing decisions.” That seems like a shame, because it sounds like evidence could have been developed: proximate to the hotel name, Expedia apparently put up a phone number that went instead to Expedia and offered reservations to other hotels. An internal Expedia document “acknowledging that the placement of phone numbers on the sites often confuses consumers” was in the class certification record, but plaintiffs didn’t introduce it on summary judgment or even cite it, and anyway that showed misleadingness rather than materiality. [If properly used, the bait and switch character would itself be the materiality: if consumers dialed the number because they thought they’d reach the hotel in the listing, that belief affected their decision to act; having been diverted to the Expedia line, many consumers might not search further. That’s the classic reason bait and switch is actionable.]

Mootness: “The named plaintiffs have standing to seek injunctive relief because the alleged Lanham Act violations were ongoing at the time the complaint was filed (or at the time the additional plaintiffs intervened).” And “voluntary cessation of allegedly unlawful conduct ordinarily does not suffice to moot a case” and Expedia “bears the formidable burden of showing that it is absolutely clear the allegedly wrongful behavior could not reasonably be expected to recur.”

This it did not do, despite arguing that it had “resolved any errors” causing class member hotels to appear on its websites and has implemented “proactive measures” to prevent these “errors” from reoccurring. References to “investigations” conducted by its “Health and Safety team” and to contractual obligations it imposes on the bed banks it works with were “too vague and conclusory to meet the high burden of showing mootness.” It portrayed other measures, such as preventing Expedia from bidding on Google ads for hotels that do not have availability for a certain period of time, as business decisions, “while failing to show that there is anything to keep it from reversing these decisions if business considerations change. Indeed, Expedia’s repeated assertions about the dynamic and complicated nature of the online travel industry suggest that business considerations in fact frequently do change, and undercut its arguments that the changes are permanent or will prevent any future misrepresentations from occurring.”

There was a genuine question whether class members were likely to be harmed in the future absent an injunction “that either bars Expedia from making misleading statements about hotels it is incapable of booking or requires Expedia to institute reforms designed to minimize the chances of such statements inadvertently appearing,” and whether these harms were irreparable.

Clarification: The class consisting of “hotels that do not have booking agreements with Expedia and are not capable of being booked through Expedia, but appear on Expedia’s websites” includes “hotels that appeared on Expedia’s websites when they were not capable of being booked through Expedia at some point during the class period, regardless of whether they previously had booking agreements with Expedia or later entered into agreements with Expedia that gave Expedia booking capabilities.” Also, it includes “hotels about whom Expedia will make similar statements in the future despite being incapable of booking rooms at those hotels.”

escalated materiality requirement precludes class certification

Oddo v. Arocaire Air Conditioning & Heating, 2020 WL 5267917, Nos. 15-cv-01985-CAS Ex, 18-cv-07030-CAS(Ex) (C.D. Cal. May 18, 2020)

These are consolidated putative class actions alleging that defendants’ HVAC systems have faulty thermal expansion valves (TXVs). A TXV is “a precision valve that controls the expansion of refrigerant central to the cooling process[.]” Because it’s a bottleneck in the system, “[a]ny contaminants or impurities that may be flowing through the system are likely to collect around the TXV pin,” which can harm its function. “Ryconox,” a chemical rust inhibitor, allegedly “reacts with the refrigerant and/or oil and causes a tar or sludge to form when the systems are put into service.” As such, “within just weeks or months of installation of a brand-new HVAC system, the tar can cause the TXV to become stuck, rendering the system inoperable.” Also, “even a partial clog can impact system performance and efficiency, … such that the defective HVAC systems are not capable of performing to the efficiency standards advertised ….”

Defendant Carrier allegedly took various unsuccessful steps to remediate the problem.

Previously, the court dismissed warranty-based claims and claims based on affirmative misrepresentations. Not previously dismissed: California unjust enrichment, negligent misrepresentation, fraudulent concealment, UCL, CLRA, and FAL claims; Missouri fraudulent concealment, negligent misrepresentation, and Missouri Merchandising Practices Act (MMPA) claims to proceed; and Massachusetts unjust enrichment and Massachusetts Consumer Protection Act (MCPA) claims. The court also previously denied a motion for class certification without prejudice. Because the gravamen of the fraudulent omission claims is failure to disclose, those plaintiffs failed to show that people who bought a home with a Carrier HVAC suffered the same injury as people who just bought a Carrier HVAC. Homebuyers “may have never been exposed to any Carrier materials during the homebuying process, much less attached the same level of importance, if any, to a disclosure of the alleged defect as would a purchaser of an HVAC unit.” The court rejected plaintiffs’ contention “that virtually any class can be certified in an omissions-based case as long as the defendant could have, in theory, ensured that a disclosure would reach its consumers.”

Carrier moved to exclude the opinions of plaintiffs’ survey expert, Dr. Maronick. Previously, the court had reasoned that “[p]laintiffs do not explain how homebuyers could have suffered an injury in the form of paying a premium price for their HVAC units when they purchased a home that already had the Carrier HVAC system installed” and “it appears that homebuyers, if they suffered any injury at all, suffered an injury of a different nature than purchasers of new HVAC units.” Based on his consumer survey, Dr. Maronick opines that: (1) “most consumers who purchased a new air conditioner saw the air conditioner itself prior to payment ... regardless of whether the air conditioner was acquired in connection with [buying a home or just a unit]”; (2) “the vast majority of consumers who purchased a new air conditioner obtained information about the air condition from the seller prior to purchase ... regardless [etc.]”; (3) “aside from the brand name, the efficiency rating of their air condition was the most common piece of information purchasers learned from their seller or homebuilder prior to purchase”; (4) “most consumers would have considered a disclosure about the alleged defect in this case to be an important, if not decisive, factor in their purchasing decision, regardless of whether they were purchasing an air conditioner alone or a new home”; and (5) “if the alleged defect had been disclosed prior to sale, the vast majority of consumers would have demanded a unit that did not contain the rust inhibitor, or a price discount equal to the cost of removing the rust inhibitor.”

This was relevant to the issues of classwide exposure, materiality, and injury, and addressed deficiencies that the court previously identified. Carrier challenged the survey because it: (1) failed to survey “the relevant target universe”; (2) asked the wrong questions “because the survey did not ask whether purchasers reviewed any labels on the product itself prior to deciding the unit”; (3) failed to approximate market conditions and asked ambiguous, leading questions; and (4) “failed to provide a control to isolate the effect of the disclosure of the alleged defect.” These criticisms didn’t require exclusion; they all went to weight rather than admissibility. Maronick used a nationwide universe of sample individuals who had purchased a central air conditioning system for their residence in the previous three years (including respondents who bought a new construction home with a new AC). Questions about “the relevant target universe” generally go to weight, not admissibility, as do attacks on the framing of questions and the absence of a control.  Even though the court had its doubts, it denied the motion to exclude. (So too with plaintiffs’ damages expert.)

Carrier offered its own expert testimony, based on a consumer survey, which Carrier believes “confirms that individual inquiry would be necessary to determine both whether consumers would have reviewed information from Carrier prior to purchase and the materiality of that information.” Dr. Dhar’s contrary opinions that “exposure to and consideration of product information from an HVAC manufacturer is highly variable across consumers,” were relevant, proper rebuttal and plaintiffs’ criticism of his survey went to weight, not admissibility.  (So too with the other experts.)

On to certification: “Resolution of plaintiffs’ fraudulent concealment claims and plaintiffs’ related consumer protection claims … turn, in part, on factual questions such as, inter alia: (1) whether the presence of Ryconox in Carrier’s HVAC systems caused a defect; (2) whether Carrier knew of the defect; (3) and whether Carrier concealed the defect.” Thus, commonality was satisfied.

Typicality: the California and Missouri named plaintiffs had bought new HVAC units, not new houses with HVACs installed, and their claims were thus only typical of the former subset. The Massachusetts named plaintiff bought a new house, but testified during deposition that he “was not exposed to any of Carrier’s materials until after he had already negotiated and agreed to the purchase price of his new home” and that “he would have not tried to renegotiate the price of his home based on anything he learned during the course of this inspection.” Even if that was just a snippet of his testimony—and he also testified that if there’d been a defect disclosed, everything would have changed—his vulnerability to a unique defense made him nontypical.

Predominance: all the theories require that Carrier had a duty to disclose the alleged defect. Plaintiffs had three arguments for such a duty: (1) Carrier had exclusive knowledge of material facts not known or reasonably accessible to them; (2) Carrier actively concealed material facts; and (3) Carrier made partial representations (i.e., the energy efficiency labels) that were misleading because other material facts had not been disclosed.

California: “Even assuming arguendo that California law recognizes a duty to disclose where an alleged defect does not present a safety hazard but instead relates to a product’s central function, plaintiffs fail to establish the existence of such a duty to disclose in this case is capable of class-wide proof.” [That seems weird. The central function of an HVAC unit seems invariant across purchasers; why wouldn’t its centrality be capable of classwide proof? The court cites Ahern v. Apple Inc., 411 F. Supp. 3d 541 (N.D. Cal. 2019), in which Apple’s failure to install “fans and vents” in its computers allegedly allowed the fans to “suck in dirt and debris” which resulted in the dirt and debris “getting stuck behind the screen, causing permanent dark smudging to appear in the comers of the screens.” But smudging at the corners (and another case about security flaws in microprocessors) is pretty different from “the HVAC system may choke and die.”] Since plaintiffs’ expert did not opine that all, or virtually all, of the affected HVAC units would suffer acute failure as a result of the problem, or be rendered incapable of use, the alleged defect didn’t go to their central function. The expert also opined that “the evidence shows that consumers have experienced performance loss and do not know it.” If many victims didn’t know that they were suffering, then the units hadn’t been rendered “incapable of use” such as to trigger a duty to disclose under California law.

And again with redactions on facts that determine the outcome! Carrier’s internal documents disclosed a redacted failure rate on certain smaller units. Assuming that was a rate sufficient to impose a duty to disclose [sure would be nice to know what that was!], plaintiffs’ expert also argued that the evidence showed problems with larger units, though he acknowledged that [redacted]. Given that the failure rate may differ among the range of units making up the proposed classes, there might be a duty to disclose as to some, but not all, of the proposed class members’ HVAC systems. Plaintiffs offered no method to determine which class members’ HVAC systems will suffer acute failure. Thus, individualized inquiries would be necessary.

The court then doesn’t discuss plaintiffs’ theory (3), which I think is a misreading of the governing law. If you make an affirmative representation that is misleading because of failure to disclose important related information, the statement as a whole is misleading and there’s no “central function” requirement for that basis for a duty to disclose, predicated as it is on the specific affirmative statements that were made and thus on the message that affirmatively reached consumers.

In Missouri, a “duty to disclose arises from a classical fiduciary relationship, from a partial disclosure of information, or from particular circumstances such as where one party to a contract has superior knowledge and is relied upon to disclose this knowledge.” “Unlike California law, then, Missouri law does not appear to necessarily limit a manufacturer’s duty to disclose to circumstances where a defect presents a safety hazard or where the defect fatally compromises a product’s central functionality.” [Again, this appears to be an overly constrained reading of California law, which has never been known for its plaintiff-unfriendliness.] The court assumed without deciding that whether a duty to disclose existed, given evidence that Carrier was aware of the problem, was susceptible to common proof.

Reliance/materiality: In California, “[a]n essential element for a fraudulent omission claim is actual reliance.” “A plaintiff need not prove that the omission was the only cause or even the predominant cause, only that it was a substantial factor in his decision,” and this can be inferred if the omission is material. “Missouri law follows a similar approach with respect to MMPA claims,” since it too uses the reasonable consumer standard. “If a statute uses a reasonable person standard, it is more likely to be subject to common proof because the inquiry into materiality is objective.”

Thus, the relevant claims allowed for class-wide inferences of reliance and causation. What about the specific omissions here? The court previously rejected as insufficient (1) Carrier’s surveys showing that, generally, ‘reliability’ and ‘quality’ are the two most important factors considered by purchasers” and (2) Carrier’s own purported belief that the defect was material. Plaintiffs added the Maronick survey, which asked, inter alia, how consumers would have reacted to learning about a defect that would  “cause the air condition to fail in some cases within either a few weeks or a few years, and, even if the unit doesn’t fail, the chemical can cause loss of performance and efficiency of the system” and which cost $1000 to fix at the time of installation. Results: “It would have been a decisive factor in my decision to purchase or not purchase that central air conditioner”: 72.2%. “It would have been important information to know but not a decisive factor …”: 13.9%.  “It would not have been an important factor …”: 8.3%. “Don’t know/Not sure …”: 5.6%.

Similarly, in response to a question regarding what, if any, respondents likely would have done had they learned about the defect prior to completing a purchase, “41.0% of the respondents would have ‘demanded a replacement that didn’t have the chemical in it,” and 22.2% would have ‘demanded the chemical be removed before accepting the unit.’ Another 12.5% would have demanded a price reduction of $1,000, which is described as ‘the cost of removing the chemical.’ ”

Carrier argued that the survey didn’t actually test materiality or causation, criticizing the questions and format, especially how it focused on and described the alleged defect. The court agreed: the survey didn’t “question respondents about which, if any, of these attributes [about which respondents received or sought information] respondents found important when making a purchasing decision.” To the extent that the questions above don't address that (which they seem to do), I think the court conflates materiality and deceptiveness—materiality is about the kinds of claims or omissions that matter. The court found the survey insufficient to establish, on a class-wide basis, “how the challenged statements, together or alone, were a factor in any consumer’s purchasing decisions.”

Because the survey didn’t indicate how consumers “valued” Carrier’s alleged omissions “compared to other attributes of the product and the relevant market generally,” “the Court is not convinced that the question of materiality”—whether reasonable consumers would view Carrier’s failure to disclose the alleged defect in this case as material to the consumers’ purchasing decision—“is susceptible of classwide proof.”

Thus, no certification.