contributory liability possible for lawyers in timeshare exit cases

Diamond Resorts U.S. Collection Development, LLC v. Pandora Marketing, LLC, 2021 WL 1573073, CV 20-5486 DSF (ADSx) (C.D. Cal. Apr. 12, 2021)

Another timeshare company v. timeshare exit company case. Here, Diamond sued both the marketers who seek exit clients and also the lawyers who worked with them. The marketers allegedly referred Diamond owners to the lawyer defendants, who allegedly instructed owners to refrain from paying anything owed under their timeshare contracts, and to change their address on file with Diamond to the address of a lawyer, but had “no legal or viable method to assist the Diamond Owners in exiting the Timeshare Contracts.”

The lawyer defendants allegedly interfered with the timeshare contracts by (1) participating in the marketing defendants’ false and misleading advertising; (2) encouraging or directing the nonpayment of fees owed to Diamond; and (3) keeping the owners in the dark regarding the adverse financial consequences resulting from the nonpayment of fees. The lawyers allegedly added legitimacy and effectiveness to the scheme because the marketing defendants advertise that they work with a “team of professionals” and “attorney[s],” which helps “close the deal” with new customers. The lawyers were allegedly aware of the false and misleading nature of the advertisements before accepting referrals, and allegedly encouraged the ads by corroborating their involvement on their own websites. Diamond alleged that early discovery showed that owners wouldn’t have engaged the exit company but for the assurances made about the lawyer defendants’ involvement.

Contributory false advertising under the Lanham Act: The Ninth Circuit has held that for contributory liability, “a defendant must have (1) ‘intentionally induced’ the primary infringer to infringe, or (2) continued to supply an infringing product to an infringer with knowledge that the infringer is mislabeling the particular product supplied.” The Eleventh Circuit has a slightly different standard: “[f]irst, the plaintiff must show that a third party in fact directly engaged in false advertising that injured the plaintiff,” and “[s]econd, the plaintiff must allege that the defendant contributed to that conduct either by knowingly inducing or causing the conduct, or by materially participating in it.” This requires a culpable state of mind, either intent to participate or actual knowledge. A court may consider: (1) “the nature and extent of the communication between the third party and the defendant regarding the false advertising;” (2) “whether or not the defendant explicitly or implicitly encouraged the false advertising;” (3) “whether the false advertising is serious and widespread, making it more likely that the defendant knew about and condoned the acts;” and (4) “whether the defendant engaged in bad faith refusal to exercise a clear contractual power to halt the false advertising.”

Regardless of which standard applied, Diamond successfully alleged contributory false advertising. The lawyers allegedly knew about the false advertising and “at least implicitly induced it by including information about their timeshare services on their websites, knowing the alleged false advertising relied on promising lawyers, and continuing to accept referrals despite the allegedly false nature of the advertisements.”

Tortious interference with contractual relations/prospective economic relations: This didn’t work as well against the lawyers, who weren’t directly advertising to consumers. The main elements of the tort occurred after the lawyers had been engaged, and they were then the owners’ agents when they told the owners to stop paying; an agent cannot tortiously interfere with the contracts of the principal simply by acting on the principal’s behalf and being paid by the principal. It wasn’t enough to allege that they got an additional financial advantage in the form of a stream of referrals from the scheme. “Undoubtedly most lawyers hope their services for clients result in an increase in referrals.” But they still only obtained the fees that the clients paid.

However, Diamond did successfully allege that the lawyers aided and abetted tortious interference before they became agents of the owners. (This seems a relatively dangerous principle given the ways in which many lawyers find clients.) Given the allegations, it was plausible that the lawyers knew of the scheme and gave substantial assistance by agreeing to be the lawyers needed to carry out the scheme.

UCL claim: Diamond didn’t have to allege its own reliance if it lost money or property as a result of the conduct.

Survey flaws prevent it from saving vanilla false advertising claim

Clark v. Westbrae Natural, Inc., 2021 WL 1580827, No. 20-cv-03221-JSC (N.D. Cal. Apr. 22, 2021)

I find the vanilla class actions fascinating because they are starting to reject surveys, pushing this area of the law towards a normative vision of what’s misleading to a reasonable consumer. I don’t have a very strong position on whether misleadingness should be empirically or normatively assessed, but I do think courts should be clear on what they’re doing and not bounce unpredictably between the two concepts. We are definitely not there yet.

Anyway, Clark alleged that a label describing soy milk as “vanilla” soymilk misrepresented to reasonable consumers that the product’s vanilla flavor was derived exclusively from the vanilla bean plant. The court found that not plausibly misleading despite allegations that a survey showed 403 consumers a picture of the product and asked “What does the term ‘Vanilla’ on the above pictured product convey to you about the origin of the vanilla flavor?” Nearly half, 49.6%, of the consumers surveyed selected the response that they “believed that the term ‘Vanilla’ on the Product means that that the origin of the Product’s vanilla flavor ‘comes exclusively from ingredients derived from the vanilla plant, such as vanilla beans or vanilla extract.’ ”

But so what? The survey presumes that the label conveys something about the source of the flavor, and didn’t give participants the option of stating that they believed that the label conveyed nothing about the origin of the vanilla taste. “In any event, even without the survey’s flaws, the survey does not shift the prevailing reasonable understanding of what reasonable consumers understand the word vanilla to mean or make plausible the allegation that reasonable consumers are misled by the term vanilla”  (cleaned up). This is a remarkable statement: how does the court know what the “prevailing” understanding of reasonable consumers is, without consumer reaction evidence? Especially on a motion to dismiss? The suggestion is that the court’s common sense couldn’t be refuted even with an impeccable survey, because, presumably, the respondents wouldn’t be “reasonable” consumers.

It just wasn’t plausible that a reasonable consumer would interpret a product labeled as a “vanilla” product to mean that the vanilla flavor is derived exclusively from the vanilla bean plant. “Such an inference is just too far a reach.” This was true even though plaintiff alleged that there is a competing vanilla soymilk product on the market with a similar price point that obtains its vanilla flavor exclusively from the vanilla plant. Still, the complaint didn’t allege that consumers knew that or that, if they did, they’d make the same assumption about defendant’s product. (What counts as common sense is quite variable. The truffle/manuka honey cases contrast with this result in a “heads the marketer wins, tails the consumer loses” way: Here, products that actually have the characteristics at issue don’t show that it’s reasonable for consumers to think they would, while the absence of similar-but-truthfully-advertised products is used against consumers in the truffle/manuka cases.)

The plaintiff also didn’t plausibly allege violation of federal regulations on “characterizing flavors.”

 

No organizational standing where advocacy campaigns didn't change

Friends of the Earth v. Sanderson Farms, Inc., 992 F.3d 939 (9^th Cir. 2021)

Although the animal/farm advocacy organization plaintiffs won some early skirmishes, they faltered on lack of organizational standing against a poultry producer to bring consumer protection claims. The court of appeals affirmed their loss.

The groups’ activities included informing consumers about the downsides of routine antibiotic use and pressuring restaurants to stop sourcing meat from producers that routinely use antibiotics. Sanderson continues to use and defend the use of antibiotics, but advertised its chicken products as “100% Natural” and ran advertisements stating that there were “[n]o antibiotics to worry about here.” The groups sued under the UCL and FAL.”To establish organizational standing, the Advocacy Groups needed to show that the challenged conduct frustrated their organizational missions and that they diverted resources to combat that conduct.” Only the latter was at issue.  Diversion of resources has been found when organizations “expended additional resources that they would not otherwise have expended, and in ways that they would not have expended them.” By contrast, merely continuing ongoing activities does not satisfy this requirement.

The groups didn’t learn of Sanderson’s alleged misrepresentations until August 1, 2016, so resources expended before that date weren’t pertinent. Nor were activities after suit was filed in June 2017, such as expending resources on the litigation and litigation publicity. The district court correctly found that the groups’ activities were “business as usual” during the period, not a diversion of resources. They were already fighting routine antibiotic use in animal agriculture. During the relevant period, they didn’t “publish action alerts or other advice to their members targeting the advertising; did not address Sanderson’s advertising in any campaign, press release, blog post, or other communication; did not petition Sanderson; and did not protest Sanderson’s advertising.”  Internal discussions about whether something should be done didn’t suffice.

 

wrong images aren't false if differences from actual product aren't material

Strong Current Enters. Ltd. v. Affiliati Network, Inc. 2021 WL 1383368, No. 20-cv-23692-UU (S.D. Fla. Mar. 26, 2021)

The parties compete to sell novelty consumer goods; defendant allegedly copied plaintiff’s business model including its product launches, providing its affiliates with Strong Current’s “marketing methods and materials, which include, among other things, product depictions and graphics.” Affiliati’s product offerings are allegedly “similar, but different” than those marketed by Strong Current, and therefore the products sold to consumers “differ from those depicted in the marketing materials.”

However, the false advertising claims failed because they didn’t identify material differences in the products. For example, Strong Current alleged that when consumers purchase a portable air conditioner from defendants, “they do not receive the air conditioners depicted in the misappropriated marketing materials, rather, they receive an inferior portable air conditioner that is different from the one depicted.” The ads allegedly lead consumers to expect to receive units containing “(a) handles; (b) single-colored (gray) fronts; (c) fronts with two gray sections; (d) round edges; and (e) bases and tops that are the same size.” But “the delivered units do not have handles and have a different overall look and feel from the advertised units.” However, the complaint didn’t explain why consumers would care.

Similarly, Strong Current alleged that consumer confusion existed where “[o]n multiple occasions, consumers have purchased products from Profit Point, where the products had been marketed using the misappropriated Strong Current methods and materials ..., and then contacted Strong Current (or its Marketing Affiliates) about problems or issues with the orders, incorrectly believing that they (the consumers) had purchased the products from Strong Current (or its Marketing Affiliates).” It alleged that “when the consumers have issues or problems with their orders and need to contact the seller and cannot recall where they purchased the products, a generic internet search ... leads them to Strong Current’s (or its Marketing Affiliates’) websites.” But this was pure speculation; it didn’t allow the reasonable inference that defendants’ use of allegedly misappropriated marketing materials was likely to cause consumer confusion. There were no allegations that defendants’ marketing materials referred to Strong Current in any way. Indeed, the complaint explicitly alleged that defendants market and advertise their products under a different brand.

pandemic refund claim plausibly alleged

Rothman v. Equinox Holdings, Inc., 2021 WL 1627490, No. 2:20-cv-09760-CAS-MRWx (C.D. Cal. Apr. 27, 2021)

Another pandemic refund case. This one found a misrepresentation adequately pled with respect to the refund provision of plaintiff’s membership contract with the defendant, a gym company. The Membership Agreement allegedly said that: “Buyer should be aware that if the Club closes, although the Club will remain legally liable to Buyer for a refund, Buyer may risk losing his or her money if the Club is unable to meet its financial obligations to Members.” This could have misled a reasonable consumer to believe that the club would “provide a monetary refund for any period during which their clubs are closed.” Equinox argued that he hadn’t pled any representation that refunds would be automatic, and that the contract statement was “a non-actionable statement of legal opinion.”

But the statement was plausibly misleading and the agreement didn’t contain any language requiring members to affirmatively request a refund. It plausibly suggested that Equinox was required to issue a refund in the event of a club closure, and it wasn’t a “mere prediction or opinion regarding uncertain future events” but “a promise regarding the import of particular factual circumstances, namely that when a club closes—as plaintiff alleges his has—consumers will be entitled to receive a refund.”

Equinox urged that it was implausible that a reasonable consumer would have anticipated a global pandemic and public health orders closing the gym. But “[t]he relevant question is not whether plaintiff could have anticipated that the club would close due to a global pandemic. It is whether plaintiff reasonably attached importance to the existence of a promise to refund his money in the event that the club closed, for any reason.”

Equinox sought dismissal of the equitable claims under Sonner. The court found dismissal premature since there was no pending motion for injunctive relief that would require the Court to determine the adequacy of plaintiff’s legal remedies.  Anyway, the plaintiff couldn’t necessarily “quantify [his] actual damages for future harm” with any certainty; he cannot currently predict whether, when, or for how long Equinox may be required to close the Equinox clubs in the future due to the ongoing pandemic. But punitive damages claims were dismissed for want of an adequate basis.

"natural" claims still going strong; scientific testing not required in pleading

Barton v. Pret A Manger (USA) Ltd., --- F.Supp.3d ----, 2021 WL 1664319 1:20-cv-04815 GHW (S.D.N.Y. Apr. 27, 2021)

Plaintiff plausibly alleged that the references to “natural ingredients” and “natural food” on defendant’s products’ packaging were likely to lead a reasonable consumer to wrongly believe that these products contain exclusively natural (not synthetic) ingredients and that they are free of GMOs. Thus, consumer protection claims under Sections 349 and 350 of the New York General Business Law are adequately pleaded though other tort and warranty claims failed.

Of note: plaintiff wasn’t required to plead the existence of scientific testing that demonstrates that the products contained GMOs. “Defendant points to no case law that supports its extraordinary argument that the Court should not accept as true the pleaded facts unless they are supported by scientific studies.” Prior cases are distinguishable because they alleged that most of the X grown in the US was genetically modified, but didn’t allege that the defendants in those cases used the genetically modified ingredients, as the complaint did here.

Pret argued that no reasonable consumer could be deceived by Pret’s use of the word “natural,” as “federal regulations permit foods labeled as ‘organic’ to contain all but one of Plaintiff’s challenged substances.” But the court couldn’t find, as a matter of law, that a reasonable consumer couldn’t reasonably “expect that a product labeled ‘natural’ or ‘all natural’ contains only natural ingredients,”  even if “foods labeled ‘organic’ may lawfully contain some synthetic ingredients. There is no rigid hierarchy that makes ‘natural’ a more permissive label than ‘organic’ in all respects as a matter of law.”

 

MLM on MLM action: tortious interference, trade secret, but not false advertising

It Works Marketing, Inc. v. Melaleuca, Inc., 2021 WL 1650266, No. 8:20-cv-1743-T-KKM-TGW (M.D. Fla. Apr. 27, 2021)

It Works is a MLM company that sells health and beauty products that requires distributors to sign a noncompete agreement and provides for arbitration (which allows “any party” to sue in court for IP claims, practically meaning that It Works can choose to sue if it wants). Melaleuca is a MLM competitor; individual defendants were former It Works distributors, but Melaleuca was never a party to the agreement.

The claims are mostly the kind of trade secret/tortious interference claims you’d expect from this setup, and I won’t say much about them, but there is also a false advertising claim about alleged misrepresentations of distributors’ income with Melaleuca. “For example, Melaleuca endorses fake, high-amount checks, which the Distributor Defendants then post on social media and message to It Works distributors to entice them to leave It Works and join Melaleuca.”

In Florida, a non-signatory can use equitable estoppel to compel a signatory to arbitrate claims if (1) the non-signatory shows that the signatory is relying on the agreement to assert its claims against the non-signatory and (2) the scope of the arbitration provision covers the dispute. Here, It Works’ dispute with Melaleuca fell outside the scope of the arbitration clause.

Thus, the court proceeded to address the motion to dismiss, and found tortious interference and trade secret claims properly pleaded.

False advertising under the Lanham Act: Failed because It Works didn’t plead that distributors were “consumers” under the Lanham Act. Solicitations directed to a potential distributor or employee aren’t covered because they aren’t “consumers.” (That isn’t actually an element, but this may be complicated by the fact that MLM businesses have some special reasons to talk carefully about whether their “distributors” are ordinary “consumers.”) Second, It Works relied on allegedly false statements that Melaleuca distributors made, allegedly at Melaleuca’s direction or encouragement, not on Melaleuca advertising. That was a contributory false advertising claim, but It Works didn’t actually allege contributory false advertising by Melaleuca.

CA prohibition of insurance coverage for certain consumer protection cases is constitutional

Adir Int’l, LLC v. Starr Indemnity & Liability Co., 994 F.3d 1032 (9^th Cir. Apr. 15, 2021)

California’s AG sued Adir for violating state consumer protection laws based on conduct at its retail stores that allegedly exploited its mainly low-income, Spanish-speaking customer base. Adir asked its insurance carrier to pay its legal defense fees. Though the insurer agreed, the AG warned that the California Insurance Code forbade it from providing coverage in certain consumer protection cases brought by the state. The insurer reversed itself and Adir challenged the law’s constitutionality, arguing that the state unfairly stripped it of insurance defense coverage based on unproven allegations in the complaint. This, the court of appeals held, didn’t facially violate Adir’s due process right to retain counsel. “In civil cases, courts have recognized a denial of due process only if the government actively thwarts a party from obtaining a lawyer or prevents it from communicating with counsel. … While it cannot tap into its insurance coverage, Adir has managed to obtain and communicate with counsel.”

California’s law provides:

(a) No policy of insurance shall provide, or be construed to provide, any coverage or indemnity for the payment of any fine, penalty, or restitution in any criminal action or proceeding or in any action or proceeding brought pursuant to [the UCL or FAL] by the Attorney General ... notwithstanding whether the exclusion or exception regarding this type of coverage or indemnity is expressly stated in the policy.

(b) No policy of insurance shall provide, or be construed to provide, any duty to defend … any claim in any criminal action or proceeding or in any action or proceeding brought pursuant to [the UCL or FAL] in which the recovery of a fine, penalty, or restitution is sought by the Attorney General ... notwithstanding whether the exclusion or exception regarding the duty to defend this type of claim is expressly stated in the policy.

True, “California has stacked the deck against defendants facing these lawsuits filed by the state: Although the Attorney General has yet to prove any of the allegations in his lawsuit, he has invoked the power of the state to deny insurance coverage that Adir paid for to defend itself.” But that wasn’t enough of an interference to deny due process, especially given that there was no allegation that Adir cannot afford competent counsel absent coverage under the policy.  For comparison, “the right to retain counsel does not require the release of frozen assets so that a civil defendant can hire an attorney or otherwise defend his claim.” There was no “indirect right to fund and retain the counsel through an insurance contract.”

falsely advertising "proprietary" and "exclusive" material isn't actionable under Dastar

Crocs, Inc. v. Effervescent, Inc., 2021 WL 4170997, No. 06-cv-00605-PAB-KMT, No. 16-cv-02004-PAB-KMT (D. Colo. Sept. 14, 2021)

Dawgs alleged that Crocs falsely marketed its shoes in violation of the Lanham Act by advertising Croslite, the foam material that Crocs shoes are made from, as “patented,” “proprietary,” and “exclusive.” Dawgs stated that it “received numerous inquiries from its customers and potential customers regarding Dawgs’[s] foam material in comparison with Croslite” and that these inquiries “have consistently revealed a concern that Croslite is superior because it is held out as patented, exclusive[,] or proprietary such that[,] in the mind of the customer, Crocs is perceived to have invented a superior [ethyl vinyl acetate (“EVA”)] material that no other manufacturer can match.” Crocs admits that its advertisements have “linked” such terms as “patented,” “proprietary,” and “exclusive” to features, characteristics, and qualities of the product material, and that Crocs’s goal in its Croslite messaging was to imply that its products have “superior characteristics, qualities, and features.” This allegedly misled “the public and consumers by claiming that Crocs footwear is made of an exclusive and proprietary closed-cell resin that they call ‘Croslite,’ when, in fact, ‘Croslite’ is merely the common ethyl vinyl acetate used by many footwear companies around the world.”

Nonetheless, the court found that Dastar barred the §43(a)(1)(B) claims as well as the §43(a)(1)(A) claims. I think this is wrong—the patented/proprietary/exclusive language here is not the same as claiming authorship; it’s claiming uniqueness as a reason for consumers to believe that Crocs possess superior product characteristics to those of competitors’ products. To the extent that the claims lead consumers to believe that Crocs are “made of a material ‘different than any other footwear,’” a difference made credible to consumers by references to patents and/or proprietary knowledge, that is a claim about the physical nature of specific product components, not about authorship. When the Supreme Court left §43(a)(1)(B) claims open in Dastar, this is the kind of thing that fits well.

But the court here disagreed, relying on the Federal Circuit’s Baden Sports decision.  “Baden, a basketball manufacturer, argued that Molten had engaged in false advertising when Molten claimed that its basketballs were ‘innovative,’ ‘exclusive,’ and ‘proprietary’ when its ‘innovative’ layer of padding beneath the cover was invented by Baden, not Molten.” The Federal Circuit held that §43(a)(1)(B) did not bar the statements because “[n]o physical or functional attributes of the basketballs [were] implied by Molten’s advertisements.” The terms “innovative,” “exclusive,” and “proprietary” involved a “false designation of authorship,” but “authorship, like licensing status, is not a nature, characteristic, or quality” under the Lanham Act.

Comment: Baden’s claim was different than Dawgs’ claim here: Baden claimed it was falsely losing credit, which really does sound like Dastar. Dawgs’ claim is that Crocs falsely claimed to have a unique material, which it does not in fact use. It’s not about credit or source of the idea at all. “Proprietary” may or may not imply inventorship, but even if that implication is non-actionable, if “proprietary” implies “made of different materials than other competitors,” none of the concerns behind Dastar are implicated and many of the concerns of false advertising law are.

I would have accepted Dawgs’ argument that Dastar doesn’t apply because “Crocs has falsely advertised Croslite as patented, proprietary, and exclusive in order to create a false impression regarding specific qualities and characteristics of its shoe material, including that its shoes are superior to competitors’, that they are soft, comfortable, lightweight, odor-resistant, and non-marking, which goes to the nature, characteristics, or qualities of the products.” However, the court didn’t find that argument made in the claim or counterclaim, which merely alleged “that Croslite is merely a variation of ethyl vinyl acetate used by many footwear companies around the world and that, by Crocs claiming to have invented Croslite, Crocs has implied that Dawgs’s footwear is inferior.” Dawgs only mentioned lightweightness, etc. later. In a footnote, the court also found that “unauthenticated screenshots from online reviews of Crocs shoes” provided to show actual confusion weren’t admissible for summary judgment purposes.

But the court here found Baden persuasive. “Falsely claiming to have ‘patented’ something is akin to claiming to have ‘invented’ it, and to plagiarizing or reverse passing off, which Dastar held not to be covered by the Lanham Act’s false advertising prohibition.” [I think this highlights the logic flaw: this isn’t reverse passing off! There’s nothing entailed here about Crocs falsely claiming credit for something someone else did, as there was in Baden where the allegations did at least resemble reverse passing off.]

The Sixth Circuit has likewise held that “a misrepresentation about the source of the ideas embodied in a tangible object ... is not a misrepresentation about the nature, characteristics, or qualities of the object.” The court here thus reasoned that, “even assuming that Crocs misrepresented the source of the ethyl vinyl acetate as a proprietary and exclusive foam, Croslite, … that is not enough for a Lanham Act false advertising claim under § 1125(a)(1)(B).”

Neither “exclusive” nor “proprietary” is a statement about the nature, characteristics, or qualities of the product. Moreover, the allegations that these statements claimed superiority didn’t help because “a claim of superiority is puffery, which is not actionable under the Lanham Act.” [Sleight of hand here: the nature of the claim is generalized to a superiority claim, and “superior” is puffery. But the claim itself was of uniqueness, which is a reason that the shoes might be superior, and is not vague or unmeasurable in the same way.]

both being on an app store and not being on an app store make confusion likely

Reflex Media, Inc. v. Luxy Ltd., 2021 WL 4134839, No. 2:20-cv-00423-RGK-KS (C.D. Cal. Jul. 13, 2021)

Eric Goldman has highlighted the toxic assumptions about sex workers and their clients that the court tosses off in its likely confusion analysis. Potential purchasers of sex are deemed “more sophisticated and less likely to be confused since they are successful individuals looking for relationships” (citation needed). But potential sellers of sex/people interested in the receiving payment side of an “arrangement” are deemed unsophisticated because, apparently, they are just looking to “hook up,” and the risks of sex work to their bodies, minds, freedom, and legal records would apparently not induce careful scrutiny of the forum. Paging Ann Bartow!

Plaintiffs run online dating websites, Seeking Arrangement.com and Seeking.com, along with a mobile application, Seeking, which is not on the Apple App Store. Luxy operates a competing online dating website, OnLuxy.com, and a mobile application, LuxyApp. Luxy allegedly used “Online Arrangement” and plaintiffs’ trademark “Seeking Millionaire” as metatags on its website, and other Seeking trademarks as search terms in the Apple Appstore and Google Play Store to yield LuxyApp as a search result. Luxy also allegedly infringed plaintiffs’ copyrights by copying their terms of use and privacy policy and by using plaintiffs’ trademark “SA” in the description of its privacy policies. [sigh]

In typical TM analysis fashion, the court concludes that heads, plaintiffs win, and tails, defendants lose: because Seeking isn’t on Apple’s app store, confusion is more likely when only Luxy’s app comes up in response to a search since consumers will expect Apple to have everything. [This seems like the rejected theory of liability in Amazon v. MTM, but clearly I am not in tune with current keyword jurisprudence.] On the other hand, because Seeking is on Google Play, confusion is also more likely there because of the similarity of marketing channels.

“This situation is different from the websites in Network Automation and Playboy, which were clearly distinguished with ad designations. The search results here do not have those same disclaimers.” [Again, no mention of MTM.] [The court also suggests that, because Seeking isn’t on Apple’s app store, consumers couldn’t compare the parties’ apps and thus it might not be possible for defendants to engage in truthful comparative advertising on the Apple app store, which seems like a pretty bad rule.]

The court doesn’t even dismiss the counterfeiting claim, despite finding the legal argument that keywords aren’t applied to the defendant’s goods persuasive; it wanted more briefing at the summary judgment stage.

Perhaps unsurprisingly, the court doesn’t even discuss the differences between false advertising and trademark, grouping it all into §1125(a).

 

TM claimant may add false advertising claims as direct competitor

Entrepreneur Media, Inc. v. Roach, 2021 WL 4134836, No. 8:20-cv-01690-JVS-AD (C.D. Cal. Jul. 1, 2021)

Entrepreneur, a frequent trademark claimant, sought to amend its complaint and add new parties to the TM claims here. Entrepreneur has 15 federal registrations that include the word “entrepreneur.” Roach, meanwhile, makes frequent use of the phrase “The Unstoppable Entrepreneur” and applied to register the phrase for “Business consultancy; Business marketing consulting services.” Entrepreneur’s opposition remains pending.

Of note: In the discussion of adding another defendant, the court noted defendants’ argument that this was being done to harass: Defendants alleged that “Entrepreneur’s counsel stated that Entrepreneur’s allegations were likely to be highly publicized, and that he intended to refer Defendants’ dissatisfied customers to plaintiffs’ lawyers,” which they interpreted as a threat. This “inference of intention to harass” was reasonable, but not inevitable. “Entrepreneur’s desire to bring forth a claim for false advertising against a competitor in a similar market is not unusual behavior.”

Along with adding a defendant, Entrepreneur might eventually be allowed to add a false advertising claim, based on facts that were allegedly discovered only during Roach’s deposition. Roach’s webinar slide deck allegedly contained false statements to potential customers that Roach’s program is the “only” program guaranteed to double someone’s revenue in twelve months. The deck allegedly also referred to “9 Free Bonuses,” that a reasonable consumer would allegedly conclude are sold separately. And, in deposition, Entrepreneur allegedly learned for the first time that some of the customers in defendants’ advertised “Unstoppable Entrepreneur Success Stories” never enrolled in the Unstoppable Entrepreneur Program. (Defendants rejoined that they came from defendants’ pre-rebranding coaching program, but that factual dispute doesn’t matter at this stage.)

However, there was not good cause to challenge the words “flexible” and “risk free” on defendants’ website when a consumer attempts to purchase the Unstoppable Entrepreneur Program. Entrepreneur allegeed that it learned only after deposition that “this information is potentially misleading to consumers because the purchase of the plan is locked in, and a consumer must pay full price for the program.” But the website displaying two payment plans along with specific information regarding the payment methods was publicly available prior to the deposition, and the contract contained the specific payment terms, which Entrepreneur acknowledged. “What Entrepreneur learned in the Roach deposition was the same information that could be uncovered by reading Defendants’ standard contract: that Defendants expected signing consumers to continue contractual payment regardless of whether the consumer wanted to leave the program midway through.”

Nor would amendment for the other statements necessarily be futile, though further allegations would be required. Entrepreneur fell within the statute’s zone of interests—alleged lost sales and reputational injury. And Entrepreneur alleged that “but for” defendants’ false advertising, consumers would not have been misled and diverted away from Entrepreneur. Although some courts might well agree that this was merely conclusory, this court found that sufficient. The parties could be considered “fellow commercial actor[s]” “because both offer the same goods and services including coaching services consulting, books, and podcasts,” and thus diversion from falsity was plausible.

In addition, Entrepreneur successfully alleged falsity under Rule 9(b) by identifying the alleged falsehoods in the webinar slide deck. Entrepreneur alleged that the Unstoppable Entrepreneur Program was not guaranteed to double someone’s revenue in twelve months because many consumers enrolled in the Unstoppable Entrepreneur Program did not achieve that result, and that other programs could do so. And it was plausible that a consumer viewing the “free bonuses” might reasonably conclude that they are able to be purchased separately.

However, there were missing details that were required: Entrepreneur didn’t state with particularity “when” the slide deck was presented (even a date range), how often it was presented, how it was presented, or by which defendant.

As to the allegedly false testimonials, likewise Entrepreneur alleged the “what” (false testimonials) and the “how” (testimonies provided by people who were not allegedly enrolled in the Unstoppable Entrepreneur Program), but not the where and when. “Although Entrepreneur’s Reply contends that the success stories are currently available on Defendants’ website, the proposed FAC fails to mention where the testimonials appear or have appeared.” So the motion to add a false advertising claim was denied without prejudice.

TM complainant fails to sink its teeth into unrelated false advertising claims

Vampire Family Brands, LLC v. MPL Brands, Inc., No. CV 20-9482-DMG (ASx), 2021 WL 4134841 (C.D. Cal. Aug. 6, 2021)

VFB sued MPL for Lanham Act, UCL, and FAL violations based on MPL’s “vampiro” cocktail. Unsurprisingly, the trademark claims survive a motion to dismiss, but associated false advertising claims don’t.

VFB owns several trademark registrations including “Vampire,” specifically for wine and pre-mixed alcoholic beverages other than beer, and “Vampyre,” specifically for spirits. “VFB’s marks are visible to the public in many places, including on VFB’s website, in the public records of the USPTO, and in various national media due to VFB’s continuous marketing of its products.” [Seriously? It seems more like a concession of lack of market penetration if you have to rely on your own website and the PTO’s records to show public recognition!] In 2017, VFB began selling a pre-mixed canned Bloody Mary cocktail as “Vampire Gourmet Bloody Mary Cocktail,” allegedly made with actual tomatoes and vodka. But it isn’t actually being made/distributed right now, though VFB argued that it was coming back.

MPL sells a pre-mixed alcoholic cocktail labeled “Vampiro.” The label asserts that it is “a fizzy grapefruit cocktail” made with “100% Blue Agave,” although the ingredients list does not contain grapefruit. It is made of agave wine, not from distilled spirits. Likewise, MPL also sells a ready-to-drink “margarita wine cocktail” that doesn’t contain tequila or any distilled spirit and is also made with agave wine.

VFB alleged trademark infringement, and that the Vampiro Cocktail label’s claims that it is made from 100% agave and with grapefruit were false advertising that would tarnish and dilute VFB’s marks. Similarly, VFB alleged that a real “margarita” is made with tequila and, therefore, the absence of tequila from MPL’s Margarita Cocktail constituted false advertising. “Because the alcohol tax is approximately ten times that of the tax on wine, VFB argues that Defendants gain an unfair competitive advantage against it and other makers of alcoholic cocktails that use distilled spirits, rather than wine, in their cocktail recipes.”

As I noted above, claims that “vampiro” was the generic name of a Mexican cocktail or constituted descriptive fair use didn’t suffice to grant a motion to dismiss. As to use as a mark, the court reasoned that the use of “Vampiro” on MPL’s product as pictured in the images submitted by both parties “shows that the word is in stylized, large font across the center of the beverage can, in white font against a red background.” The description “FIZZY GRAPEFRUIT COCKTAILWITH CITRUS & SPICE” was in smaller font beneath “Vampiro,” “giving the impression that the smaller text is a descriptor and Vampiro is a mark for the product.”

False advertising: Article III standing existed, but not Lanham Act standing. VFB could establish injury in fact through “a chain of inferences showing how defendant’s false advertising could harm plaintiff’s business.” MPL argued that there was no concrete injury because VFB does not currently sell any pre-mixed cocktail products. However, VFB’s CEO and counsel [um] attested that “VFB has arrangements with another manufacturer to produce more of the Vampire Bloody Mary and with experienced industry salespeople to sell the product, and that VFB will resume sales after the current pandemic subsides. VFB also submitted a new Certificate of Label Approval to the TTB for the Vampire Bloody Mary in January 2020. “This evidence that VFB is prepared to sell the Vampire Bloody Mary indicates that VFB could suffer non-speculative, imminent harm from Defendants’ actions.” The relative cheapness of defendants’ “cocktails” could give them a competitive advantage. This was enough for Article III standing.

Statutory standing, however, was more demanding:

Because VFB does not currently sell the Vampire Bloody Mary and its previous sales were limited distributions at beer festivals or a handful of liquor stores, VFB does not identify any economic injury flowing from Defendants’ current advertising of the Margarita Cocktail and Vampiro Cocktail. VFB does not allege prior economic injury, and any future economic injury VFB may suffer when it restarts distribution of the Vampire Bloody Mary is too attenuated to be considered proximately caused by Defendants’ advertising.

And it was even more attenuated to argue that defendants’ allegedly false advertising of the Margarita Cocktail and Vampiro Cocktail harmed VFB’s sales of other types of alcohol, specifically Vampire wine and Vampyre vodka. The alleged falsity of the grapefruit/cocktail/margarita claims couldn’t plausibly “directly cause consumers to purchase less of VFB’s red wine or vodka, considering the differences between the types of beverages.” Even if consumers were misled into thinking that the products contained distilled spirits or natural ingredients, “it is not clear why those consumers seeking to purchase a pre-mixed cocktail would instead reach for wine or vodka. Characterizing VFB and Defendants as direct competitors because both make alcoholic beverages would dramatically expand the ‘zone of interest’ in which a plaintiff may sue for false advertising under the Lanham Act.”

UCL/FAL claims: Only survived to the extent they were congruent with the trademark claims.

 

"first urgent care" practice claim isn't material or literally false

American Family Care, Inc. v. Medhelp, P.C., 2021 WL 4149782, No. 2:19-CV-01325-LSC (N.D. Ala. Sept. 13, 2021)

Not having a materiality or harm requirement really makes a difference in trademark cases compared to false advertising cases—look at the reasons this false advertising claim fails.

AFC sued MedHelp for Lanham Act false advertising. AFC supplies urgent care, family/primary care, and occupational health services nationwide; its first clinic opened in Hoover, Alabama (Birmingham’s largest suburb), in 1982; no other urgent care clinics were operating in Birmingham.  But, for several years, MedHelp advertised on its website that “MedHelp was founded in 1982 as the first Urgent Care/Family Practice in Birmingham.” (In the 1980s, “urgent care” wasn’t in use, and such clinics were typically called “freestanding emergency rooms,” “minor emergency rooms,” “immediate care clinics,” or “walk-in clinics.”)

First, the court found that “founded in 1982 as the first Urgent Care/Family Practice in Birmingham” was ambiguous because there is no consistent definition of the term “urgent care.” And it was also ambiguous whether “Birmingham” meant with or without its suburbs. [Comment: There is a missing step here not revealed in the court’s decision: is MedHelp’s claim truthful under any plausible definition? Maybe, but the court should have clarified; if there are multiple possible meanings but the defendant’s claim isn’t truthful using any of them, then other courts have found literal falsity, which makes sense given the justifications for the literal/implicit division.]

Since the ad was “merely misleading,” AFC needed evidence of consumer deception, which it did not have.

In addition, AFC failed to show materiality, despite its argument that the claim conveys “broader qualities including, but not limited to, ‘experience,’ ‘trust,’ and ‘competence’ that are important in choosing a health care provider.” AFC’s expert cited two studies: a conjoint analysis of patient decisions in two German hospitals and research involving health-seeking preferences of elderly Filipinos. But the expert failed to link German and Filipino preferences to US urgent care preferences.

Finally, AFC also failed to show injury. Its expert relied on evidence that first movers should have a 24-30% market share advantage, but there wasn’t any evidence that AFC was the first mover in the US urgent care market and indeed a witness testified that there were “less than a hundred” urgent care clinics when AFC opened its clinic in Hoover. Nor did the expert discuss other potential causes like customer service, negative publicity (AFC was sued for insurance fraud), or technology. Further, there wasn’t evidence that the misleading first-mover claim “caused AFC to lose any profits, goodwill, or business opportunities”; there wasn’t even any evidence on how many people saw the claim.

With all this, the TMA’s presumption of irreparable harm was no help.

Second Circuit requires confusion for counterfeiting

Hamilton International Ltd. v. Vortic LLC, No. 20-3369-cv (2d Cir. Sept. 14, 2021)

A small note about this case affirming a finding that vintage Hamilton pocketwatch movements converted to wristwatches were not likely to cause confusion under Champion and Polaroid: While it’s not really a great leap forward for refurbished goods—at most, the Second Circuit refused to take further bites out of the doctrine, and its emphasis on consumer sophistication may even make things harder for Etsy jewelry makers—it may be less noticeable that the court appears to have joined the Ninth Circuit in requiring likely confusion before counterfeiting can be found.

The court of appeals found that the district court’s “analysis of Hamilton’s trademark infringement claim under the Lanham Act necessarily compelled judgment in favor of Vortic and Custer on Hamilton’s remaining claims. This is because each of those claims required some showing of a likelihood of consumer confusion. See 15 U.S.C. § 1114(1)(a) (federal counterfeiting claim requiring the plaintiff to show that the use of the counterfeit mark is “likely to cause confusion, or to cause mistake, or to deceive”) ….” [Side note: A little weird to say that state law blurring claims fail for want of confusion, but I’ll take it—the court says that state dilution factors “resembl[e] the Polaroid factors and similarly focus[] on confusion.” Dilution: what is it good for? Absolutely nothing!]

scientific studies don't have to be of D's product exactly for plausibility

Rosenfeld v. AC2T, Inc., 2021 WL 4197176, No. 1:20-cv-04662-FB-PK (E.D.N.Y. Sept. 15, 2021)

Rosenfeld alleged that defendants fraudulently marketed a mosquito control product called “Spartan Mosquito Eradicator.” Spartan’s advertising allegedly touted that the product will “significantly decrease[ ] [mosquito] population within 15 days,” and “[p]rovid[e] up to 95% mosquito control for up to 90 days.” It purported to work through three crucial ingredients: sugar, salt, and yeast. Spartan advertised that when the product is mixed with water and ingested by a mosquito, the “crystalline structure” of salt cuts the mosquito’s stomach, “causing it to rupture.” Meanwhile, the fermentation process of the yeast produces carbon dioxide inside the mosquito, also causing its stomach to rupture.

Rosenfeld alleged that none of this was true, as a matter of biology. He cited a number of studies to bolster his allegations.  

Although the allegation that “[S]partan is ineffective for mosquito control because it does not kill mosquitoes or decrease mosquito populations” was not in itself sufficient for plausibility, he cited scientific studies to support it. AC2T argued that, because those studies did not test Spartan’s particular chemical formulation, but rather tested only its constituent ingredients, they cannot support conclusions regarding Spartan’s effectiveness or establish the plausibility of the complaint.

Not so. Plausibility is the standard; a “claim that a product physically cannot work is a valid legal theory.” The theory was factually substantiated with “studies indicating that Spartan’s individual active ingredients cannot work in the manner that Spartan’s detailed advertising represents.” Their weight or interpretation was a question of fact that couldn’t be resolved on a motion to dismiss.

 

 

Video game skates away from liability to pro skateboarder

Miller v. Easy Day Studios Pty Ltd, 2021 WL 4209205, No. 20cv02187-LAB-DEB (S.D. Cal. Sept. 16, 2021)

Gordon v. Drape did mess things up in the Ninth Circuit, but core Rogers cases are still simple. Defendants paid Zachary Miller, a professional skateboarder, to assist in developing a video game, called Skater XL. “Miller believed that the extent of his agreement with Defendants was to model various clothing outfits, which would then be captured by a technique called photogrammetry and applied to a generic character in the video game. Miller alleges that he didn’t consent to the use of his image or likeness in the game, yet one of the characters in it appears to be his exact replica.” He sued for violations of the Lanham Act and state-law claims.

Miller alleged that defendants told him that the motion capture was for a “generic” character in the video game that wouldn’t resemble Miller or have any identifiable characteristics, and assured him that the video game “won’t have your name anywhere or anything if you’re worried about that.” He was paid $250.

Skater XL allows users to “simulate skateboarding tricks and techniques in a realistic skateboarding environment.” Users can select from five different skater characters, including four professional skateboarders and a nameless “generic” skater avatar. “The first four characters are explicitly identified by name and image in the game, while the latter generic character has no name or identifying characteristics. This generic character can be customized according to user preference, including customizing its gender, race, hair color, clothing, and accessories.” However, Miller alleged that the generic avatar was an “exact copy” of him, and easily identifiable as him.

False endorsement: Rogers applies; realism is artistically relevant. “[T]here can be no doubt that including the likeness of a real-life skateboarder in a video game seeking to simulate real-world skateboarders and skateboarding environments obviously has at least some artistic relevance to the work.”

The depiction was not explicitly misleading as to endorsement, which is what is required by the second prong of the test. The court here states it nicely:

Miller argues that Defendants’ actions were explicitly misleading because at least two individuals contacted him after recognizing his character in the video game. But this misses the point. The issue here isn’t whether other consumers could simply recognize Miller’s likeness in the game, but rather whether they would be misled into believing his association with the game means he is somehow endorsing it. Although the issue of customer confusion is factual in nature, it’s simply not plausible that the inclusion of the only anonymous skateboarder in the game, among four other explicitly identified skateboarders, would convince consumers that Miller endorsed their video game.

As in the previous Brown video game case, “[t]he anonymous character’s mere presence in Skater XL doesn’t equate to “an explicit attempt to convince consumers that [Plaintiff] endorsed the game[ ].”

False advertising: Miller failed to plead statutory standing. He didn’t compete with defendants. He didn’t allege that he lost endorsement agreements or suffered any reputational injury, other than in conclusory fashion. Thus, he failed to plead proximate causation. [Compare trademark claims!]

The court declined to exercise supplemental jurisdiction over the state claims.

Another reason for statehood: DC law can't confer organizational standing beyond Article III

Clean Label Project Found. v. Garden Of Life, LLC, 2021 WL 4318099, No. 20-3229 (RC) (D.D.C. Sept. 23, 2021)

CLP, a non-profit, sued Garden of Life, a seller of prenatal supplements, for unlawful trade practices in violation of the District of Columbia Consumer Protection Procedures Act. The court found no standing for want of an injury in fact.

To further its mission, CLP had an accredited third-party chemistry laboratory perform quantitative testing on Garden’s products, and the results found that they “contained quantifiable levels of heavy metals as well as detectable amounts of WHO Class II Pesticides and BPA,” substances that CLP asserts “are extremely dangerous to a fetus.” The CPPA permits nonprofit organizations to bring actions “on behalf of itself or any of its members, or on any such behalf and on behalf of the general public,” and also allows “public interest organization[s]” to bring actions “on behalf of the interests of a consumer or a class of consumers.”  (Note that because DC has been denied statehood, there are no state courts to turn to instead, only Article I federal courts. No decision I have found fully addresses what standing limits there are on Article I courts; the Court of Federal Claims applies Art. III standing requirements despite being an Article I court, e.g., Weeks Marine, Inc. v. United States, 575 F.3d 1352, 1359 (Fed. Cir. 2009). Apparently there is a dispute over whether Art. III applies in bankruptcy court.)

For organizational standing, the organization must “show[ ] that a defendant’s actions have ‘perceptibly impaired’ the organization’s ability to provide services, such that there has been a ‘concrete and demonstrable injury to the organization’s activities—with [a] consequent drain on resources.’ ” A “mere setback” to an organization’s “abstract social interests is not sufficient.”

Neither of CLP’s arguments—that Garden’s false and misleading statements interfered with its overall educational mission and that the statutory violation was itself sufficient for injury in fact—worked.

CLP didn’t properly allege a “drain on the organization’s resources” resulting from the conflict between Garden’s acts and its mission. Even if Garden’s falsehoods interfered with “educat[ing] customers with regard to food labeling truth and transparency,” there was no evidence of any concrete harm that accrued to CLP as a result. There was no claim that CLP was required to increase the resources it devoted to programs independent of the lawsuit.

As for the statutory standing argument, “Article III standing requires a concrete injury even in the context of a statutory violation.” As another court wrote, “D.C. law is clear that the CPPA is meant to extend as far as Article III’s requirements will permit—but it can go no further than that” [because DC has been denied statehood].

FB's "Russian state-controlled media" label wasn't commercial advertising or promotion

Maffick LLC v. Facebook, Inc., 2021 WL 1893074, No. 20-cv-05222-JD (N.D. Cal. May 11, 2021)

Facebook’s application of “Russia state-controlled media” label to a news page on Facebook was not commercial advertising or promotion. Mentioned here mostly to highlight the differences in pleading standards applied to trademark and false advertising claims. Who here thinks that the following language wouldn’t suffice in a run-of-the-mill trademark complaint?

Facebook’s false and misleading labeling of Maffick has actually deceived and has the tendency to deceive a substantial segment of the public and is material in that it is likely to influence economic decisions by Maffick’s existing and potential customers and business relations. Facebook has thus caused and threatened to cause Maffick significant reputational harm and damage to its business interests, including lost sales.

For a false advertising claim, “[t]his is ipse dixit and not the pleading of facts.” Maffick provided no clues about how the alleged deception of the public by the “Russia state-controlled media” label might have affected the “economic decisions by Maffick’s existing and potential customers,” whoever they might be, and how those “decisions” caused a commercial injury to Maffick’s sales or business reputation.

Regulatory safe harbor bars claim over meaning of "gigabyte"

Dinan v. SanDisk LLC, 844 Fed.Appx. 978, No. 20-15287 (9th Cir. 2021)

SanDisk allegedly violated the usual California consumer protection statutes by using gigabyte (“GB”) to mean 1,000,000,000 bytes (“the decimal definition”), when plaintiffs assumed gigabyte as used by SanDisk meant 1,073,741,824 bytes (“the binary definition”). The court of appeals affirmed the dismissal of the complaint. California’s safe harbor doctrine protected SanDisk’s labeling, because relevant statutes clearly permitted the use of the metric system as published by the National Institute of Standards and Technology (NIST), and NIST publications instruct that the metric prefix “giga” and the symbol “G” mean 1,000,000,000, which corresponds to the decimal definition of gigabyte.

 Both California and federal law expressly authorize use of the metric system in commerce. 15 U.S.C. § 204 (“It shall be lawful throughout the United States of America to employ the weights and measures of the metric system....”); Cal. Bus. & Prof. Code § 12301. California law expressly provides that the definitions and tables for weight and measure “as published by the National Institute of Standards and Technology ... shall govern weighing and measuring equipment and transactions in this state.” And NIST has made clear that “giga” is a metric prefix that means 1,000,000,000.

 

Mars and Quaker dodge chocolate/child slavery claims, but Starbucks doesn't

Myers v. Starbucks Corp., 2021 WL 1921120, No. 5:20-cv-00335-JWH-SHKx (C.D. Cal. May 5, 2021)

Myers sued Mars, Quaker Oats, and Starbucks under the CLRA and UCL, alleging claims related to use of child slaves to produce cocoa. Child slavery, which allegedly produces most of the cocoa Americans consume, is horrific both for the enslaved children and for the environment, promoting deforestation in the Ivory Coast. Consumers would prefer “chocolate that destroys neither the rainforest nor the lives of millions of children,” but the supply chain makes detecting malfeasance difficult: “small farms sell to intermediaries, who mix together beans from many farmers to sell to grinders or traders and then to manufacturers.” Although chocolate is often untraceable, some companies have traced their cocoa from bean to chocolate bar and have eliminated child slavery from their supply chains. “However, the World Cocoa Foundation has conceded that it cannot eradicate child labor in cocoa production by 2025.”

All defendants advertise their cocoa as humanely produced. The back of Mars Dove Dark Chocolate products say: “[w]e buy cocoa from Rainforest Alliance Certified™ farms, traceable from the farms into our factory,” and Mars used the seal of Rainforest Alliance Certification, “a third-party certifier which holds itself out as the benchmark for the sustainable production of cocoa,” on packaging. However, “Mars can, at best, trace only 24% of its cocoa back to farms,” because the ethically sourced beans were allegedly intermingled with slave-produced beans at its factories.

Quaker Oats advertised that its Chocolate Chip Chewy Bars “support sustainably sourced cocoa through [the non-profit entity] Cocoa Horizons.” But the bars were allegedly not sustainably sourced, and only 26% of the farms from which Cocoa Horizons sources its cocoa had programs to prevent child labor.

Starbucks labels its Hot Cocoa Mix as “made with ethically sourced cocoa” and administers an internal certification program known as “COCOA.” Starbucks was allegedly “fully aware that the farms it sources its cocoa from use child and slave labor.”

The court granted the motion to dismiss as to Mars and Quaker, but not Starbucks.

Mars: The use of the Rainforest Alliance seal didn’t amount to a specific affirmative misrepresentation. Myers alleged that only 24% of the chocolate was traceable, and alleged that Mars intermingles its beans for Dove Dark Chocolate specifically and can’t trace its sources. But the court parsed the Mars statement like it was looking for perjury: Mars said that it buys traceable beans, not that it only buys traceable beans. That was true, and so it wasn’t an affirmative misrepresentation. Likewise, Mars only claimed that it bought traceable beans, not that the product on which it advertised its purchases of traceable beans contained those beans. This reasoning seems indifferent to the idea of “misleadingness” rather than falsity. But the court thought that Myers didn’t allege “facts sufficient to show that a reasonable consumer would read Mars’ packaging to mean the opposite of what it says.” [The opposite?]

Quaker: Likewise, because Quaker Oats advertised “support” for sustainably sourced cocoa, not any specific result, the label was not misleading.

Starbucks: Previously, the court dismissed an earlier version of the complaint because Myers had not pleaded facts sufficient to allege that the COCOA program was “a sham.” Also, alleged environmental misconduct didn’t matter, because “ ‘ethically sourced’ is generally understood to refer to labor practices.” (This court is not very interested in finding out what reasonable consumers actually might think.)

Myers revised her argument: because “no company, including Starbucks,” can claim slave-free chocolate, a reasonable consumer would be misled by chocolate advertised as “ethically sourced.”

This, the court accepted for purposes of the motion, though it was still skeptical. Myers successfully alleged that “child slavery is endemic to the chocolate trade; that it is difficult or impossible to produce chocolate without labor from child slaves; that a reasonable consumer is sensitive to these concerns and would consider ethically made chocolate and reliance on child slavery mutually exclusive; and that Starbucks claims that its hot chocolate is made from ethically sourced cocoa.”

Her desire to buy chocolate again also gave her standing for injunctive relief.

Made-in-USA claims over tea survive; "America's Classic" could be falsifiable in context

Banks v. R.C. Bigelow, Inc., --- F.Supp.3d ----, 2021 WL 1734779, No. 20-cv-6208 DDP (RAOx) (C.D. Cal. May 3, 2021)

Plaintiffs sued over tea labeled “MANUFACTURED IN THE USA 100% AMERICAN FAMILY OWNED” and “AMERICA’S CLASSIC.” However, the tea leaves which comprise over 90% of the products were allegedly “grown by tea plantations, and processed by tea processing plants, located in places such as Sri Lanka and India.” Many of the “additional flavors or spices added to some of the Products, are also not from the United States.”  They brought the usual California claims; the court allowed some to continue.

Defendants first argued that no reasonable consumer would be deceived by the statements “America’s Classic” and “Manufactured in the USA 100% Family Owned.” The placement of “America’s Classic” at the top of the package, with a large bold “Bigelow” between the two words could plausibly have the effect of drawing a reasonable consumer’s attention to the statement. Further, on the back of the packaging, styled as a stamp, are the statements “Manufactured in the USA,” “American Family Owned” and “100%” in larger font between those two statements, which could plausibly mean 100% manufactured in the USA and 100% family owned. Given the allegations about the actual source of the tea and other ingredients, plaintiffs plausibly alleged that the representations were likely to deceive reasonable consumers.

Likewise, at the motion to dismiss stage the court wasn’t going to review the statements in isolation to determine whether the single statement “America’s Classic” is nonactionable puffery. “[E]ven statements that ‘might be innocuous “puffery” or mere statement of opinion standing alone may be actionable as an integral part of a representation of material fact when used to emphasize and induce reliance upon such a representation.’ ” Nor was the court going to assess whether the claims were in fact true at this stage. UCL, FAL, and CLRA claims survived.

What about California’s Made in the USA statute?

It is unlawful for any person, firm, corporation, or association to sell or offer for sale in this state any merchandise on which merchandise or on its container there appears the words “Made in U.S.A.,” “Made in America,” “U.S.A.,” or similar words if the merchandise or any article, unit, or part thereof, has been entirely or substantially made, manufactured, or produced outside of the United States.

“Made” means artificially produced by a manufacturing process. “[O]ne would not violate the statute by making, manufacturing, or producing merchandise solely in the United States even though using raw materials acquired from a foreign source.” However, plaintiffs alleged that the raw materials were manufactured, that is, processed, outside the US, creating a fact question. And the law plainly covered both “made” and “manufactured” claims.

The package had a side panel statement in small font: “Blended and Packaged in the U.S.A.” That wasn’t sufficient to grant a motion to dismiss.

However, following Sonner, equitable claims under the UCL, FAL, and unjust enrichment were dismissed without leave to amend because plaintiffs didn’t allege that they lacked legal remedies.

 

Disparate impact isn't "unfair" for consumer protection purposes, court indicates

Schulte v. Conopco, Inc., No. 20-2696 (8^h Cir. May 18, 2021)

This would make a great student note topic: Is disparate impact “unfair” under state consumer protection laws? The court here implicitly says no, without ever confronting the question directly. Seems wrong to me.

Schulte sued numerous companies for violating the Missouri Merchandising Practices Act (MMPA) through their marketing of men’s and women’s antiperspirants—the men’s is cheaper. The court of appeals affirmed the dismissal of the complaint.

The MMPA bans “the act, use or employment by any person of any deception, fraud, false pretense, false promise, misrepresentation, unfair practice or the concealment, suppression, or omission of any material fact in connection with the sale or advertisement of any merchandise in trade or commerce.”

A Missouri regulation interprets “unfair practice” as any practice that either “[o]ffends any public policy as it has been established by the Constitution, statutes or common law of this state, or by the Federal Trade Commission, or its interpretive decisions” or “[i]s unethical, oppressive or unscrupulous.”

But, the court reasoned, “Schulte mistakes gender-based marketing for gender discrimination. She ignores that the different scents, packaging, and labels make the products potentially attractive to different customers with different preferences.” In order to prevail, she’d have to plausibly allege that the only difference between the products is the gender of the purchaser,” but targeted marketing was not the same thing as “enforced point-of-sale pricing by gender.” (By that logic, advertising only to hire men would not be a problem if they’d hire women who showed up regardless.)

Because men and women can purchase any of the products, they both have equal opportunity to buy. “Ironically, her claim assumes all men and all women must purchase products marketed to their gender.” She’s free to purchase the men’s products if all she cares about is price. “Her choice not to illustrates a difference in demand based on product preferences, not the purchaser’s gender.” She doesn’t want the men’s products “because she does not want to ‘smell like a man.’ She just does not want to pay extra for her preference.” But “preference-based pricing is not necessarily an unfair practice."

over dissent, 5th Circuit applies Lanham Act to political speech

Alliance for Good Government v. Coalition for Better Government, No. 20-30233 (5th Cir. May 19, 2021)

I sometimes hold out the hope that courts will develop a general treatment of the First Amendment/Lanham Act interaction. This case suggests that that day, if possible, is still far off.

The district court found that the defendant, a nonprofit that endorsed political candidates, was liable to its counterpart AGG for infringement; joined CBG’s principal Darleen Jacobs post-judgment; and awarded attorneys’ fees to AGG. The court of appeals affirms over a dissent that would have held that the First Amendment precluded application of the Lanham Act to political speech.

Previously, the district court granted AGG summary judgment and enjoined CBG from using the latter’s word and composite marks. The court of appeals affirmed but modified the injunction to restrain only CBG’s use of its composite mark (both parties apparently used bird logos). Then the district court awarded attorneys’ fees, which CBG also appealed; the court of appeals found no abuse of discretion in finding the case exceptional but remanded to adjust the fee award to account for work related to claims on which AGG didn’t prevail/voluntarily dismissed.

On remand, Alliance moved to join Darleen Jacobs, a principal of CBG, because it had learned during post-judgment discovery that CBG lacked resources to pay the fee award. Jacobs opposed Alliance’s motion for fees, but the district court ultimately found it appropriate to hold her directly liable. This was consistent with due process because “[i]t was only after considering Jacobs’s arguments in opposition that the district court found her liable for the fee award.” It was also ok to hold her liable for fees under the principle that “[a]n officer is individually liable for any tortious conduct that he committed in connection with his corporate duties.” The case was exceptional because CBG “litigated in an unreasonable manner, including presenting meritless defenses at the summary judgment stage, filing an unsupported laches defense, meritless counterclaim, and a meritless motion to dismiss, and behaving unreasonably during discovery by insisting on proceeding with depositions even after the district court granted summary judgment.” Jacobs was a principal of CBG and personally signed the motion for summary judgment, the counterclaim, the motion to dismiss, and Coalition’s memorandum insisting on proceeding with depositions after the district court’s summary judgment ruling. So holding her directly liable was not an abuse of discretion.

CBG and Jacobs also raised a First Amendment argument “similar to one raised in the prior two appeals, arguing that the imposition of an attorney fee award would violate their free speech.” But the First Amendment argument in the first appeal had not been preserved or ruled on below, and so the court declined to consider it on appeal. The majority concluded that this discretionary decision was not clearly erroneous, so the law of the case applied. 

And here’s the wow moment: “Moreover, even if Coalition’s speech is rightly considered noncommercial speech, this Court has not previously held that § 32(1) of the Lanham Act, the section at issue here, applies only to commercial speech.” Footnote: Yes, this court has held that §43(a) applies only to commercial use, but it has not extended that holding to §32. (Comment: There is no language in §32 that in any way could be considered broader than §43(a) in this respect.) Also, the Second Circuit has found that §32 applies to “[a] political organization that adopts a platform and endorses candidates under a trade name.” United We Stand Am., Inc. v. United We Stand Am. N.Y., Inc., 128 F.3d 86 (2d Cir. 1997).

Judge Dennis dissents: “The majority strains at gnats but swallows a camel.” Had the judge been part of the first appeal, he “would have worked to persuade the court that applying the Lanham Act to the non- commercial political speech of Coalition for Better Government is contrary to the Act and violates the First Amendment.” The law of the case was not an inexorable command. The previous cases “were predicated on a patent error, i.e., that the Lanham Act can be constitutionally applied to the noncommercial political speech of a political organization, such as the political endorsements made by Coalition in this case.” Further, “misapplying the Lanham Act to noncommercial political speech creates an anomalous precedent that will beget grave injustice—the imposition of liability for, and consequent chilling of, the exercise of constitutionally-protected free speech.”

The parties principally vet and endorse political candidates vying for local and state offices. “Neither organization offers or advertises commercial goods or services. And the speech in which they engage—purely political speech—is at the core of the First Amendment’s protections.” Meanwhile, the Lanham Act “exclusively regulates commercial activity and commercial speech.”

The first appeal determined that First Amendment/commercial speech issues were waived. This was error: (1) “[I]t is axiomatic that a party can only be liable for violating a statute if the statute actually applies to the party and its acts (or omissions)…. [T]here was simply no way for the panel to hold Coalition liable without it concluding that the Lanham Act may, in its view, validly constrain noncommercial political speech.” (2) Applying the Lanham Act to noncommercial political speech infringes on First Amendment free speech rights, violating the judicial duty to avoid constitutional infirmity of statutes. (3) It was plain error to hold otherwise, even if CBG didn’t preserve the issue. “[E]ven if no Fifth Circuit decision squarely holds that the particular provision of the Lanham Act invoked here is limited to commercial speech, the ‘absence of circuit precedent does not prevent the clearly erroneous application of statutory law from being plain error.’” Text, legislative history, and constitutional avoidance all indicated the right result, as did “the near uniform holdings of our sister circuits that the Act does not reach noncommercial speech.” (Extensive discussion of all these things omitted.)

What about United We Stand? Not only was that a sole outlier in an otherwise uniform line of cases, it was also incorrect to hold that purely political speech is a “service” under the Lanham Act. “[S]uch a service is not being rendered in commerce[;] it is being rendered as part of the political process.” Tax Cap Comm. v. Save Our Everglades, Inc., 933 F. Supp. 1077, 1081 (S.D. Fla. 1996). In politics, confusing marks have to be addressed by more speech.

The dissent also didn’t like allowing the district court to add more fees based on the costs of the appeal, considering that a violation of the mandate in the second appeal. And, in holding Jacobs personally liable, the court became the first to allow such liability for a party’s counsel under the Lanham Act. Sanctions for attorney misconduct should have been applied, if appropriate, instead.

The majority reasoned that Jacobs could be personally liable because “[a]n officer is individually liable for any tortious conduct that he committed in connection with his corporate duties.” The dissent rejoined that this principle “has no application to an attorney representing her client; attorneys initiate and prosecute cases at the behest of their clients, but it is the client who ultimately must decide whether to bring a case. Thus, when the fee-shifting provision is applied to individuals who were not party to the underlying litigation, it should be reserved for those who, in their capacity as a high-level officer or owner of an organization, make a case exceptional.” What about Jacobs’s leadership role within CBG? The district court expressly cited her conduct as counsel, not her position within the CBG structure, as rendering the case “exceptional” and thus justifying imposing liability for the award on her personally; it never mentioned any actions that she took as an officer or principal. That wasn’t ok.

Alliance never attempted to pierce CBG’s corporate veil, and Jacobs was joined only after the court held that CBG waived its noncommercial speech and First Amendment defenses. Holding her to that was “highly inequitable, particularly in light of the clear merit of her constitutional and statutory defenses, which she has never personally waived…. [T]he majority offers no analysis as to why Coalition’s litigation choices somehow bind Jacobs personally, and … there was no finding by the district court that Jacobs controlled Coalition such that its litigation conduct could be attributed to her.”

competitor plausibly alleged injury by alleging consumers changed behavior upon discovering the truth

3B Medical, Inc. v. SoClean, Inc., --- Fed.Appx. ----, 2021 WL 2025153, No. 20-3477-cv (2d Cir. May 21, 2021)

The parties compete in the market for medical devices that sanitize continuous positive airway pressure machines (CPAPs), which treat sleep apnea and respiratory conditions. “SoClean controls approximately ninety percent of the market while 3B controls about five percent. Three competitors control the remaining five percent of the market.” 3B alleged that SoClean falsely advertised by failing to disclose that its sanitizing devices emit ozone, a toxic gas that can cause side effects including skin irritation, difficulty breathing, and damage to the respiratory system, but marketing the devices as “safe,” “healthy,” and free of “harsh chemicals.” SoClean markets uses “activated oxygen” for “ozone” and represents that its devices use the same sanitizing process as hospitals. But “hospitals do not use ozone sanitizers in spaces occupied by patients.” 3B’s competing devices, uniquely in the market, don’t use ozone, but the majority of CPAP users handwash their machines. Without SoClean’s false advertisements, 3B alleged, “more consumers would investigate alternatives to ozone-sanitizers and discover” and “purchase” 3B’s devices.

The district court reversibly erred when it found that the complaint failed to plausibly allege injury. “3B specifically alleged, based on customer reviews, that when customers discovered the harmful effects of ozone and the use of ozone by SoClean and all other competitors, they decided to purchase a 3B device.” This amounted to an allegation that SoClean’s advertising caused consumers to buy its products when they would otherwise buy 3B’s, that is, to withhold trade from 3B.

Neither the existence of the competitors nor the possibility of handwashing rendered 3B’s lost sales injury speculative. 3B was the non-ozone competitor, and the fact that some consumers were willing to buy devices that cost hundreds of dollars showed that handwashing was “not a close substitute.” 3B didn’t allege a sales decline, but that’s because it entered the market only after SoClean’s ads, so no such comparison was possible. In “these circumstances,” 3B’s citation to specific customer reviews was sufficient to plausibly allege injury. However, it would eventually need to prove its injury with evidence. (Can it get disgorgement instead?)

retail/outlet claims for Vineyard Vines scrape past motion to dismiss

Casio v. Vineyard Vines, LLC, 2021 WL 466039, 19-CV-5135 (JMA) (AYS) (E.D.N.Y. Feb. 9, 2021)

Plaintiff alleged falsity in pricing/tags in defendant’s outlet stores. The products allegedly “purport to be identical” to those sold in the “retail” stores, “shar[ing] similar product line names” and “similar style numbers” to their “retail” store counterparts. The price tags list a “suggested retail” price followed by “our price.” But, “[d]espite their similarity in appearance and classification, the Outlet Products are of distinctly lower quality, evinced through the care tags.” Thus, there was a misrepresentation about quality. Plaintiffs sought to represent New York and New Hampshire classes.

The court declined to hold that the tags weren’t misleading as a matter of law, but expressed doubt that plaintiffs could ultimately prevail.

Defendant argued that a reasonable consumer would “understand that outlet retail stores typically are stocked with merchandise produced specifically for outlets that, while not necessarily of lower quality, may be produced at lower cost to the manufacturer for various reasons.” But the court couldn’t evaluate the truth of this argument at this stage. While prior cases have held that “the retail history of clothing (e.g., whether it was offered for sale in a traditional store before being sold in an outlet store) is generally not” material, the falsity here was alleged to be the quality of the goods, which indeed is material.

Defendant argued that the word “retail,” as used on the contested price tags, is clear and unambiguous and describes the sale of goods at a general level, not an indication that products of the same quality were sold at its “retail” stores. This too couldn’t be resolved on a motion to dismiss. “Defendant itself recognizes the level of imprecision with which it uses the term ‘retail’ by conceding at least one instance on its own website where it makes a distinction between gift card use in its ‘retail’ versus ‘outlet’ stores.” Nor was plaintiffs’ alleged understanding “esoteric.” Other district courts have described similar divisions by describing stores as “outlet stores” and “retail stores.”

Defendant then argued that plaintiffs failed to allege quality differences. The court was not about to resolve factual questions about whether the “Chappy” product line in outlet stores could be compared to the “Chappy” product line offered in defendant’s “boutique” stores.

Likewise, plaintiffs sufficiently pled a cognizable injury based on the purportedly lower quality of the products they purchased, though the court warned that discovery might very well disprove that theory.   

Magnuson-Moss Warranty Act claims were, however, dismissed: the retail price label wasn’t an express warranty of quality. And plaintiffs lacked standing to seek injunctive relief.