Friday, November 19, 2021

Even in a small market, a few varied phone calls aren't commercial advertising or promotion

Meredith Lodging LLC v. Vacasa LLC, No. 6:21-cv-326-MC, 2021 WL 5316986 (D. Or. Nov. 15, 2021)

Previous motion to dismiss. Plaintiff attempted to plead that a small number of calls to people contracting with it constituted “commercial advertising or promotion,” but the court still didn’t buy it.

The parties compete to manage vacation rental properties located in Oregon, and plaintiff alleged a smear campaign against it. Plaintiff alleged that the potential purchasing public was homeowners under contract with it in Lincoln and Deschutes Counties, because that was where the calls with allegedly false claims went, but didn’t explain why that was the market and not also two other counties where plaintiff alleged similar homes were located. But even if that’s the market, about 520 homeowners, that didn’t make a handful of calls with varying contents “sufficiently disseminated” to constitute advertising or promotion.

“While a common theme of attempting to persuade homeowners to switch management companies existed throughout, none of the calls followed a predetermined script. Plaintiff identified only: (1) two phone calls that didn’t allege any false statements; (2) three phone calls alleging cleanliness complaints against it; (3) two phone calls alleging increased revenue for customers who switched; and (4) a phone call where a customer was allegedly misled into thinking the caller worked for plaintiff before he tried to persuade her to switch. Additionally, instead of targeting specific homeowners during specific times, these calls were placed sporadically throughout late 2020 and early 2021 and targeted homeowners who lived in different states and owned homes in different parts of Oregon.” In Grubbs v. Sheakley Grp., Inc., 807 F.3d 785 (6th Cir. 2015), by contrast, the defendant sent identical emails to each of the plaintiff’s 22 customers to inform them that defendant would be taking over plaintiff’s responsibilities. Ten out of 500 customers, at varying times with varying messages, just isn’t enough. Under these circumstances, the court wasn’t willing to infer that, “because a false or misleading statement was allegedly made to one homeowner it was also made to hundreds of others, therefore constituting sufficient dissemination.”


False advertising is distinct from violation of antidumping rules; FTC/AGs needed

Dalian Meisen Woodworking Co v. United States, 2021 WL 5371406, No. 20-00109 (Ct. Int’l Trade Nov. 18, 2021)

I can’t improve upon the court’s excellent summary and won’t try, instead joining in the call for FTC/AGs etc. to take note:

Commerce’s investigation revealed that a Chinese producer markets and sells its wooden cabinets in the United States as maple even though they are made of birch, a less costly grade of wood. To borrow a metaphor that could have been written for this case, the producer’s advertising in the United States is a “complete fraud from bark to core.”

Less than amused, the Department [imposed] the steepest possible antidumping duties because a producer has not been forthcoming in an investigation. Here, however, the producer did exactly what it was supposed to do: truthfully respond to Commerce’s questions and otherwise fully cooperate. That the producer defrauded consumers is of no moment for antidumping purposes, as the Department lacks jurisdiction to police false advertising violations.

The court accordingly remands so that Commerce can rethink this one. In the meantime, the Federal Trade Commission, state Attorneys General, and the plaintiffs’ class action bar may wish to take a close look at the producer’s swindling of its U.S. customers.

The Tariff Act of 1930, as amended, targets the sale of imported merchandise in the United States at “less than its fair value.” Where applicable, antidumping duties are “in an amount equal to the amount by which the normal value exceeds the export price (or the constructed export price) for the merchandise.” “Normal value” is generally “the price a producer charges in its home market.” Normal control prices are assigned based on physical characteristics of products.

The American Kitchen Cabinet Alliance petitioned Commerce, alleging that Chinese producers were dumping wooden cabinets and vanities in the U.S. market to the detriment of domestic industry. The three largest Chinese producers/exporters of wooden cabinets and vanities were mandatory respondents, including plaintiff Dalian Meisen, and had to provide its US sales database with prices. It did so, coding its sales as “birch.”  But most, if not all, of its promotional, advertising, and sales materials characterized its products as manufactured with maple, a higher-grade and more expensive wood than birch.

Commerce concluded that, through false advertising, the company created the “potential of masking dumped sales” by obscuring “the degree to which Meisen may be selling at [less-than-fair value].”

Commerce also found that Meisen’s failure to affirmatively flag its false advertising for the Department’s attention reflected a failure to cooperate, justifying an adverse inference under the antidumping rules.

Unfortunately for Commerce, that reasoning didn’t work, because Meisen lied to its customers but not to Commerce, with which it cooperated by disclosing both the truth and the existence of the false advertising. Meisen’s alleged concealment was its attempt to justify the false advertising as reflecting the “look” of the cabinets and not their material. “[T]he Department lacks any authority to investigate why antidumping respondents engage in false advertising, just as it lacks the authority to ask respondents why they violate environmental or antitrust laws, or why their executives are disreputable people.”

It’s not that the Commerce couldn’t make sense of Meisen’s information because of the discrepancy between what the company told the Department and what it told its customers. To the contrary, after reviewing the company’s post-preliminary questionnaire responses, the Department fully understood the implications of the discrepancy, and was (understandably) appalled.

But when a respondent fully and truthfully complies with Commerce’s information requests on subjects that the Department is allowed to investigate under the Tariff Act—and here no party seriously disputes that Meisen truthfully complied and that its responses were not materially misleading—as a matter of law a respondent does not “significantly impede[ ] a proceeding under this subtitle.”

Although the false advertising might have allowed Meisen to charge a higher price, “a respondent’s otherwise illegal manipulation of the U.S. sales price of its products is statutorily irrelevant for antidumping purposes.”


Lawfare in the orphan drug space

Neurelis, Inc. v. Aquestive Therapeutics, Inc., --- Cal.Rptr.3d ----, 2021 WL 5355958, D077984, D078186 (Ct. App. Nov. 17, 2021)

The parties compete in developing means to administer diazepam, a drug used to treat acute repetitive seizures (ARS). “Neurelis was further along in the development process than Aquestive. Thus, according to Neurelis, Aquestive engaged in a ‘multi-year, anticompetitive campaign to derail the Food and Drug Administration’ (FDA) from approving Neurelis’s new drug.” Neurelis sued Aquestive for defamation, malicious prosecution, and violation of the UCL, triggering an anti-SLAPP motion. The superior court granted the anti-SLAPP motion as to the defamation claim but not the other two causes of action. The court of appeals splits the baby differently: at least some of the conduct giving rise to the defamation (and UCL) action was covered by the commercial speech exception to the anti-SLAPP statute. But Aquestive’s petitioning activity was protected conduct under the anti-SLAPP statute, and Neurelis didn’t show a likelihood of prevailing on the merits on that, including the malicious prosecution claim in its entirety.

Neurelis received orphan drug designation from the FDA for its Valtoco for management of ARS in 2015. “This designation did not indicate that Valtoco was safe or effective for public use but, instead, operated to qualify Neurelis for various development incentives, like tax credits and potential exclusivity for seven years if the FDA ultimately approved Valtoco.” It then received fast strack designation, which allowed it priority review, and filed an NDA for Valtoco in 2018; this was pending at the time of the operative complaint.

Meanwhile, Aquestive’s Libervant obtained orphan drug designation in 2016. The parties discussed potential partnership in 2017 and 2018, but the discussions didn’t go well. In 2018, Aquestive did an IPO, and its Form S-1 represented that it was “further along” than other companies who were developing “other routes of administration” of diazepam for the treatment of ARS (that is, further along than Neurelis, which was allegedly untrue). In 2019, Aquestive allegedly threatened to file three inter partes review petitions with the PTAB unless Neurelis signed a waiver of its orphan drug exclusivity, which Neurelis did not do. Aquestive filed the petitions; the PTAB denied two of them and the third remains pending.

Aquestive also filed a citizen petition with the FDA requesting that the FDA stay approval of Neurelis’s new drug application for Valtoco “ ‘until additional clinical studies have been conducted that would allow for adequate labeling as requested in this petition.’ ” Aquestive requested that the FDA determine that Valtoco was neither clinically superior to other diazepam products nor offered a “ ‘major contribution to patient care.’ ” Neurelis alleged that this would be equivalent to revoking its orphan drug exclusivity, and that none of Aquestive’s claims against Valtoco were accurate, but instead, they were “founded on misleading, inaccurate, and incomplete data.” After Neurelis responded, Aquestive then submitted a supplemental petition asking the FDA to require Neurelis to reformulate Valtoco because it contains Vitamin E. This too was allegedly based on “inaccurate data and misinformation.”

On a 2019 quarterly investors call, Aquestive’s CEO stated, “ ‘Based on patient survey data, Libervant is preferred by 80-plus percent of patients when compared to nasal sprays. Once approved by the FDA, Libervant will be the only treatment option usable by and delivering a consistent, predictable dose to virtually all patients to whom it’s prescribed.’ ”

Analysis: malicious prosecution inherently arises from an underlying lawsuit, thus implicating petitioning activity. The UCL claim was based on a mix of protected and unprotected conduct; Aquestive’s allegedly “extortionist behavior using litigation as leverage to force Neurelis into waiving [o]rphan [d]rug [e]xclusivity” was not subject to anti-SLAPP treatment. What about statements in the citizen petition/statements to investors? Statements to investors about the parties’ drugs were commercial speech, even if the statements didn’t mention plaintiff or its drug by name and even though they were investors and not ordinary consumers of the underlying product; indeed, the anti-SLAPP exception for commercial speech explicitly lists “securities” among the “goods or services” covered under the exception. The audience was in a position to “influence” a “potential buyer” of Libervant by investing in Aquestive to help ensure that company brought Libervant to market before other competing drugs, like Valtoco.

But the citizen petition wasn’t excepted commercial speech. Neurelis argued that the exemption to the anti-SLAPP law was specifically focused on overturning DuPont Merck Pharmaceutical Co. v. Superior Court (2000) 78 Cal.App.4th 562, which involved a pharmaceutical company’s “ ‘false statements and conduct before a regulatory agency.’ ” But a citizen petition in particular “is a means by which the FDA explicitly allows private entities to express safety, scientific, or legal concerns regarding a product,” and thus a means of petitioning the government for redress, and that wasn’t at issue in DuPont.

With respect to the non-excepted speech, Neurelis didn’t show a probability of prevailing on the merits.

Acquisitive didn’t show that the litigation privilege applied, since it didn’t argue that the citizen petition was part of a judicial or quasi-judicial proceeding. But Noerr-Pennington did apply and Neurelis didn’t show that the petition was a sham. Even though the FDA apparently agreed to some extent that Aquestive’s “ ‘subjective motivation’ ” was to use the petition process “ ‘as an anticompetitive weapon,’ ” commenting that it “appear[ed] to be the case here” that the petition “was submitted for the primary purpose of delaying approval of” a new drug application. But that didn’t amount to a showing that the petition was “objectively baseless.” The FDA noted that “ ‘publicly available information on the general characteristics of nasal spray product[ ]’ showed that ‘it [was] unlikely’ ” that one of Aquestive’s major complaints about Valtoco had any merit. But that didn’t go to the whole petition; the FDA determined that it could not summarily deny the citizen petition as requested by Neurelis because it was “unable to conclude that the petition does not, on its face, raise valid scientific or regulatory issues.” Neurelis didn’t explain how a petition that wasn’t summarily denied could be objectiely unreasonable for Noerr-Pennington purposes.

As for the malicious prosecution claims, two of the PTAB petitions seem to have been time-wasters, but one triggered an actual review. During the pendency of the appeal in this case, the PTAB declared the relevant patent invalid, a decision affirmed by the Federal Circuit. Neurelis didn’t show that Aquestive brought the petitions without probable cause. The denial of two petitions didn’t itself show that they were brought without probable cause, even the one for which the Board said Aquestive did “not show that there is a reasonable likelihood that [it] would prevail with respect to at least one of the claims.” That’s a higher standard than probable cause. As for the other, the Board explained it was a waste “of the Board’s time and resources to revisit the same prior art disclosures that were examined in detail by the Examiner over eight years of patent prosecution.” But that didn’t mean there was no probable cause; the Board just used its discretion to deny the petition, but it had statutory authority to grant a petition “even though it raises claims based on the same prior art or arguments previously made to the PTO.”


Tuesday, November 09, 2021

erroneously collecting sales tax isn't an unfair act or practice in trade or commerce

Ranalli v., 2021 WL 5166568, No. 21-88 (W.D. Pa. Nov. 5, 2021)

Ranalli brought this putative class action for violations of the Pennsylvania Unfair Trade Practices and Consumer Protection Law (UTPCPL) and the Pennsylvania Fair Credit Extension Uniformity Act (PFCEU), and unjust enrichment, fraud, and misappropriation/conversion based on Etsy’s collection of amounts equal to and purporting to be Pennsylvania sales tax on the sale of protective face masks, when they were not subject to Pennsylvania sales tax due to a governor’s order early in the pandemic.

But the UTPCPL applies to “unfair or deceptive acts or practices in the conduct of any trade or commerce,” and collecting sales tax isn’t conducting trade or commerce because tax collection is “divorced from private profit” and “[r]etailers...collect sales tax on behalf of the Commonwealth’s Department of Revenue” only “because state law requires them to do so.” Similar cases in Massachusetts and Connecticut based on similar statutory language have concluded the same thing. The court also endorsed previous holdings that “the conduct of defendants could not be considered fraudulent, unfair, or deceptive because they disclosed all relevant information relating to the mask purchase in an effort to comply with their understanding of the law at the time of the purchase,” and that there was no justifiable reliance on any misrepresentation, nor was there injury because a refund was available from the state.

The same analysis applied to the Pennsylvania Fair Credit Extension Uniformity Act

(PFCEUA), which prohibits “unfair methods of competition and unfair or deceptive acts or practices with regard to the collection of debts.”

Nor was fraud plausibly alleged, nor misappropriation/conversion, which requires appropriation of property by the offending party for his own use; it was for Pennsylvania, which designates Etsy to collect tax as an agent of the Department of Revenue, and it was “highly implausible” that Etsy kept the mask money for its own use when it was required to remit that money to the state. [Hmm…. If I were the Department of Revenue, I’d just check with Etsy on that one.

So too with unjust enrichment. “It is clear that collection of the sales taxes was not for profit or revenue but rather for basic compliance with the law.”

Monday, November 08, 2021

I can’t believe it’s not butter—because the label said it was all butter

Boswell v. Bimbo Bakeries USA, Inc., 2021 WL 5144552, No. 20-CV-8923 (JMF) (S.D.N.Y. Nov. 4, 2021)

Boswell sued on the theory that the packaging on Entenmann’s “All Butter Loaf Cake” was misleading because the cake contains not only butter, but also soybean oil and artificial flavors. However, “All Butter” was ambiguous in context—it was obvious that the product was not a stick of butter, but a cake—and it wasn’t enough to allege that reasonable consumers would expect from the label that there wouldn’t be non-butter shortening. Judge Furman relied on In re 100% Grated Parmesan Cheese Mktng. & Sales Pracs. Litig., 275 F. Supp. 3d 910 (N.D. Ill. 2017), without noting that it had been rejected by the Seventh Circuit in Bell v. Publix Super Mkts., 982 F.3d 468 (7th Cir. 2020) (albeit with some Seventh Circuit procedural niceties that may be why the earlier decision is not red-flagged in Westlaw, which is probably Westlaw’s mistake; Bell resolves the same issue—whether “100% Grated Parmesan” is plausibly misleading if the product contains additional additives; it is an appeal from a subsequent 2019 decision in the same MDL).

Judge Furman used 100% Grated Parmesan to state and illustrate the rule that labels are not misleading if the prominent term is ambiguous and the ambiguity is resolved by reference to the list of ingredients or a Nutrition Facts panel, whereas “packaging with a prominent label that is unambiguous and misleading” is actionable even if the ingredients list contradicts the unambiguous label. When you’re deciding that a term is ambiguous, it might be better to rely on a case where there wasn’t judicial disagreement over that very question.

You might have thought that Mantikas, an actual Second Circuit case, resolved a label on all fours when it found that the labeling on “whole grain” Cheez-It crackers could be false or misleading because, while the boxes “contained the words ‘WHOLE GRAIN’ [or ‘MADE WITH WHOLE GRAIN’] in large print in the center of the front panel,” the ingredients list and Nutrition Facts panel revealed that the “grain content” of the crackers “was not predominantly whole grain, but rather enriched white flour.” This stated a valid claim under New York law because “the statements ‘WHOLE GRAIN’ and ‘MADE WITH WHOLE GRAIN’ ... falsely imply that the grain content is entirely or at least predominantly whole grain.” Those statements were unambiguous, so the label couldn’t correct them. Seems kind of analogous to All Butter/shortening content to me.

But no, this case “falls on the 100% Grated Parmesan Cheese side of the line” [again, awkward given the reversal!]. Taken literally, it suggests that the product is entirely butter, but no one would take it literally because it modifies “Loaf Cake” (which by the way means that it does not literally suggest that the product is butter, because that’s not how modifiers work). “[A]ny reasonable consumer would be aware that the product is, notwithstanding the label ‘All Butter,’ likely to contain other ingredients commonly found in cake, such as flour, sugar, milk, and eggs.” It was ambiguous because Boswell herself provided competing definitions—first that consumers would expect all the shortening would be butter, and then that “no butter alternatives or substitutes will be used in the Product where butter is capable of being used.” (I need a baker to tell me whether those actually are different things.) Anyway, “All Butter” could merely be “description of flavor, denoting that the product tastes only of butter and does not include a second flavor, such as almond, chocolate, or cinnamon.” Because of the ambiguity, reasonable consumers here would not be “lulled into a false sense of security” by the bold lettering on the product’s package

Another pandemic university fees claim fails

Yodice v. Touro College, 2021 WL 5140058, No. 21cv2026 (DLC) (S.D.N.Y. Nov. 4, 2021)

It’s now been long enough that there are a couple of cases finding potentially valid claims based on Covid closures, but this is not one of them. Touro allegedly promoted its campus facilities and campus experience as part of the benefits of its non-online-only degree programs, including “New York Medical College research facilities, an anatomy lab, a simulation training center, classrooms and auditoriums, as well many amenities including a cafeteria and cafĂ©, a bookstore, a Health Sciences Library, sports facilities, and many common spaces”; it promoted “Suburban Living with Easy Access to New York City”; etc. The mandatory fees that Yodice paid included, among others, a “Campus Fee,” “Tech Fee,” and “Materials Fee.” Touro’s online program was allegedly marketed and priced as a “separate and distinct product[ ]” and bore no fees for in-person services.

Because of the NY governor’s orders closing schools, Yodice was “forced from campus” and did not have access to “facilities such as libraries, laboratories, computer labs, and student rooms,” “the myriad of activities offered by campus life,” and “networking for future careers.”

Breach of contract: The complaint failed to allege specific promises sufficient to form an implied contract to provide on-campus services. It didn’t identify any specific promise to provide live, in-person instruction.  Past practice of providing in-person instruction wasn’t a promise to continue to do so, nor was listing classes with meeting times and locations. Likewise, “[t]hat an online program had been offered by Touro with its own format and with a lower tuition before the pandemic does not constitute an implicit promise that TCDM would provide exclusively in-person instruction in a separate program it offered prospective students.”

So too with claims based on fees; the complaint didn’t explain which services were connected to specific fees or whether related academic or extracurricular services were subsequently unavailable to Yodice.

Unjust enrichment: Unlike some treatments of this type of claim, the opinion here dismissed unjust enrichment as duplicative of the breach of contract claim. “Yodice cannot fill this gap [in pleading relevant contractual provisions] through pleading an unjust enrichment claim as an alternative route of recovery.” With an actual contract to interpret, quasi-contract theories were inappropriate.

N.Y. General Business Law §§ 349, 350: No materially misleading act or omission was pled. “No reasonable consumer would be misled into believing that, in the event of a global pandemic and under government shutdown orders, TCDM would remain open to deliver in-person instruction to students.”


Dastar bars some claims about "patented" statements but related superiority statements are still at issue

BPI Sports, LLC v. ThermoLife Int’l, LLC, 2021 WL 4972975, No. 19-60505-CIV-SMITH (S.D. Fla. Jul. 27, 2021)

BPI sued ThermoLife for violations of the Lanham Act, 15 U.S.C. § 1125(a), common law unfair competition, and false patent marking. ThermoLife’s Muscle Beach Nutrition CRTN-3 says, on the label and on its website, (1) that CRTN-3 is a “first-time fusion of Creatine Nitrate, Creatine HCl, and Creatine Monohydrate”; (2) that CRTN-3 has a “Hyper Infused Creatine Matrix”; (3) that CRTN-3 has a “Hydro-GO electrolyte matrix”; (4) that CRTN-3 has “THREE OF THE MOST EFFECTIVE FORMS OF CREATINE IN ONE CUTTING-EDGE FORMULA”; and (5) that CRTN-3 will “INCREASE VASODILATION.” ThermoLife’s website also advertises its “Patented Nitrate Technology.” (DE 178-3.) ThermoLife claims to hold “19 Nitrate Related Patents,” “More Than 450 Valid Claims,” and “Patent Coverage in 26 Countries.” It states:

If you are interested in making a dietary supplement with nitrates in it there is a very good chance your intended use or composition is covered by one or more of the 450 valid claims in our patent portfolio, so make sure to speak with us about a license. We are the only legitimate source for patented and licensed amino acid nitrates.

It requires licensees to use its NO3-T logo on products containing ingredients or technology purportedly protected by any one or more of ThermoLife’s patents. Between 2015-2019, its website identified 14 patents as “protect[ed]” by the logo, though in 2019 it modified the site to include a table purporting to demonstrate which of ThermoLife’s patents were practiced by ThermoLife’s licensees. One of the patents was reexamined in a way that did not favor ThermoLife.

ThermoLife argued that BPI didn’t show materiality. But a factfinder could conclude that “the challenged advertising statements are material in that the statements involve inherent qualities or characteristics of the CRTN-3 product that could influence a consumer’s decision to purchase the product.” Each of the five targeted statements “plainly relate to the quality or describe a characteristic of the CRTN-3 product as a dietary supplement,” whether to ingredient quality/characteristics or to purported performance benefits:

The quality of ingredients that compose a dietary supplement directly correlates to the nutritional and/or performance benefits that derive from consuming the product. While most consumers could care less about the chemical composition of glue, it is possible that a consumer who purchases a dietary or nutritional supplement with a desire to “push harder, get stronger, recover quicker, and reach [his or her goals] faster” could be so scrupulous as to care about the quality of ingredients contained within and the performance results advertised to derive from the product that he or she ingests.

Injury: likewise a factual issue. BPI’s CEO’s declaration stated that it suffered a decline in sales of its creatine products because of the introduction of products containing creatine nitrate, which compromised its ability to fairly compete in the market with its traditional creatine-based product. This evidence of lost market share was sufficient to get to a factfinder.

Falsity: Some (“expert” or other) evidence of misleadingness would be required, but the plaintiff could still argue that the ads were misleading even though it didn’t produce market research or a consumer survey; it did produce declarations stating that the ads created a false impression in the marketplace that creatine nitrate was a new, superior form of creatine. And BPI’s expert offered opinions that the five challenged statements were literally false (and misleading and unsubstantiated).

What about statements about the scope of patents? ThermoLife relied on Baden Sports, Inc. v. Molten USA, Inc., 556 F.3d 1300 (Fed. Cir. 2009) and Robert Bosch LLC v. Pylon Mfg. Corp., 632 F. Supp. 2d 362 (D. Del. 2009), to argue that they weren’t covered by the Lanham Act. Baden relied on Dastar to hold that “authorship, like licensing status, is not a nature, characteristic, or quality, as those terms are used in [the Lanham Act].” BPI didn’t successfully distinguish the cases, though the statements about proprietary rights to and licensing requirements for creatine nitrate could be used in support of the remaining claims, where applicable.

False marking: The court previously concluded that ThermoLife didn’t have patent rights in the composition of matter “creatine nitrate” under one of the cited patents. As for intent to deceive, it could be inferred from circumstantial evidence: Notwithstanding the fact that the USPTO rejected ThermoLife’s claim for creatine nitrate, a decision that was affirmed by the PTAB and the Federal Circuit Court of Appeals, it continued to assert propriety rights to creatine nitrate on its websites, and issued a press release entitled “ThermoLife To Be Announced Additional Patent Claims on Creatine Nitrate By The USPTO, Effectively Monopolizing The Use of Creatine Nitrate in Dietary Supplements.” For damages, BPI argued that the false marking prevented it from entering the creatine nitrate market itself and caused decreased sales of its own creatine-based products. This was enough to create a genuine issue of material fact.

Friday, November 05, 2021

policy of paying only 85% purchase price for claims under service policy isn't inherently deceptive/abusive

Shuman v. SquareTrade Inc., 2021 WL 5113176, No. 20-cv-02725-JCS (N.D. Cal. Nov. 3, 2021)

SquareTrade sells service contracts for the protection of consumer goods. Shuman alleged that it consistently fails to provide consumers with the full terms and conditions of the contract at the time of purchase and systematically pays reimbursement in an amount that is less than the purchase price of the covered item when claims are filed. After UCL claims were dismissed, Shuman sought to add new plaintiffs.

Standing to seek injunctive relief: new plaintiff Gonzales alleged that he “felt misled and is not currently inclined to purchase additional SquareTrade protection plans, but he continues to purchase consumer products that could be covered by a SquareTrade protection plan, and would purchase additional SquareTrade protection plans in the future in the event that SquareTrade’s reimbursement practices were to be reformed to eliminate the unlawful practices discussed in this complaint.” This was sufficient to establish standing to seek injunctive relief.

However, he still didn’t allege a violation under either the “unfair” or the “fraudulent” prongs of the UCL or that he lacked an adequate remedy at law.

Unfairness is analyzed two different ways: “First, the ‘tethering test’ requires ‘that the public policy which is a predicate to a consumer unfair competition action under the “unfair” prong of the UCL must be tethered to specific constitutional, statutory, or regulatory provisions.’ ” “Second, the ‘balancing test’ 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.’ ”

Plaintiffs alleged that the harm arising from SquareTrade’s conduct is the systematic underpayment of customer claims by 14.2%. That is, SquareTrade’s 2018 “Fast Cash” program began systematically reimbursing consumers only approximately 85% of the covered product’s purchase price, “regardless of the actual value of the product, when it was purchased, or its cost of replacement.” Plaintiffs argued that SquareTrade’s allegedly secret policy of underpaying its customers violated the principles undergirding both the Consumers Legal Remedies Act, and the Song-Beverly Consumer Warranty Act.

But those arguments were premised on the assumption that Gonzales was entitled to receive the purchase price of the covered item when he filed a claim, but they didn’t allege any facts showing that this was ever promised to him or that he was entitled to recover the full purchase price on any other ground. “Without any such allegations, the ‘harm’ Plaintiffs cite (underpayment of claims by 14.2%) is not a cognizable harm; nor do any of the consumer protection laws Plaintiffs cite embody a policy that a product protection policy must cover the full purchase price of a product.” Likewise, the allegations didn’t state a claim under the UCL’s fraudulent prong. Gonzales’s allegations as to what was promised to him with respect to replacement cost were “so minimal that they do not give rise to a plausible inference that a reasonable consumer would have been misled.”

In addition, Gonzales didn’t lack an adequate remedy at law because the restitution he sought was the same as the damages he sought on his breach of contract claim, namely, reimbursement for the difference between the purchase price and the amount that was actually paid on the claim. “This is not an election of remedies issue. The question is not whether or when Plaintiffs are required to choose between two available inconsistent remedies, it is whether equitable remedies are available to Plaintiffs at all.”

The unjust enrichment claim also failed for similar reasons. NY GBL claims by new plaintiff Abbott also failed. Abbott alleged that she was misled because she saw references to “protection” on a brochure that she didn’t read and a sales clerk used the word “warranty” in describing the plan. She was then “surprised and displeased” when SquareTrade paid only 85.8% of the purchase price of her covered products when she filed claims for coverage. But “a party does not violate General Business Law § 349 by simply publishing truthful information and allowing consumers to make their own assumptions about the nature of the information.” However, the original plaintiff’s unjust enrichment claim proceeded.


Small company successfully pleads materiality/damage against Microsoft

TocMail Inc. v. Microsoft Corp., 2021 WL 5084182, No. 20-60416-CIV-CANNON/Hunt (S.D. Fla. Jul. 16, 2021)

Previous ruling; new judge still finds the false advertising claims sufficiently pled. TocMail sued Microsoft for false advertising of its cloud-based cybersecurity software, Safe Links, which competes with TocMail’s cloud-based link scanner, as part of a greater Advanced Threat Protection program that accompanies Office 365.

Most malicious websites allegedly send users to malicious sites but send security software to benign sites to avoid detection. TocMail alleged that other cloud-based scanners have a key weakness allowing bad guys to discriminate based on the IP address of the user that clicked the link, since cloud-based link scanners (including Safe Links) cannot mimic a user’s IP address. TocMail alleged that only its patented product can successfully protect cloud-based servers from IP cloaking attacks by sending users directly to the benign site to which the link scanner had been redirected. Thus, Microsoft allegedly falsely advertises its scanner as possessing a security capability that it does not actually possess; TocMail identified statements such as “a higher standard of security at lower cost than ... [is available] with on-premises productivity servers [which are not vulnerable to IP cloaking],” “with Safe Links, we are able to protect users right at the point of click by checking the link for reputation and triggering detonation if necessary,” Safe Links “ensure[s] hyperlinks in documents are harmless,” and Office provides “the benefits of cloud computing with ... enterprise-grade security.”

A previous version of the complaint alleged false advertising and contributory false advertising, and the latter claim was dismissed; TocMail refiled with a single count of false advertising. Microsoft moved to dismiss again for want of materiality/injury.

“Although the Eleventh Circuit appears not to have characterized the materiality standard specifically in Lanham Act cases, it has noted in related contexts that materiality is a mixed question of law and fact that requires delicate assessments of the inferences that a reasonable person would draw from a given set of facts, and therefore, that such assessments are peculiarly ones for the trier of fact.” Microsoft argued that Safe Links represented only one of the many services included in Office 365 and is not, by itself, an “inherent quality or characteristic of the product.” TocMail rejoined that security is one of Office 365’s major selling points, and that it had alleged an effect on consumer behavior. The court sided with TocMail. Microsoft had allegedly admitted that “organizations must consider security” when deciding on whether to accept cloud-based services; and that “[b]usinesses and users are going to embrace technology only if they can trust it,” and its 2020 Form 10-K stated that “[t]he security of our product and services is important in our customers’ decisions to purchase or use our products or services.” That was sufficient at the pleading stage.

Injury: Microsoft argued that TocMail could not have suffered injury because TocMail did not have its product readily available until 2019, and because it markets only one service and has little brand recognition, so it is too small to plausibly allege it has been reputationally harmed by Microsoft’s marketing campaign. TocMail responded that it has in fact entered the market by actively marketing and selling a competing product through their website. TocMail was also seeking disgorgement, so it argued that it didn’t need to show actual harm. At the motion to dismiss stage, the court wouldn’t seek to calculate damages. TocMail sufficiently pled injury by alleging that TocMail and Microsoft currently compete for the same customers, and that it “is hindered from selling its patented solution because Microsoft has convinced companies that is has already solved this issue.”

Tuesday, November 02, 2021, the right of publicity, and copyright preemption

Callahan v. PeopleConnect, Inc., 2021 WL 5050079, No. 20-cv-09203-EMC (N.D. Cal. Nov. 1, 2021)

Plaintiffs in this putative class action alleged that PeopleConnect misappropriated their names, photographs, and likenesses and used the same in advertising its products and services, “including reprinted yearbooks and subscription memberships to the website” They sued for ROP violations, intrusion on seclusion, and unjust enrichment.

The court rejected the CDA §230 defense because PeopleConnect would only count as providing “information provided by another information content provider” if the other info content provider had given it the yearbooks contemplating that they could be published online. And there was at least a question of fact whether the yearbook authors/publishers had done so; rather the yearbooks seemed to have been provided by users/purchasers. A service provider can be “held accountable if, e.g., it is obvious that the person or entity providing information to the service provider is not the creator or developer of the information.” [I’m guessing the court means to cabin its holding to situations in which the service actively decides to put specific content online instead of just serving as a user conduit for, e.g., revenge porn.] Here, it was obvious that yearbook users/purchasers weren’t creators/developers of the yearbooks.

Copyright preemption: PeopleConnect did a little better. Plaintiffs argued that, because PeopleConnect didn’t own copyright in the yearbooks, it had no standing to assert copyright preemption. The court rejects this argument, for good reason. (The court doesn’t mention it, but one reason clearly implicated by this situation is first sale: if someone has a lawfully made copy of a yearbook to sell, their lack of copyright ownership shouldn’t affect the fact that ROP claims against the sale are preempted.) The Ninth Circuit has clearly held:

Whether a claim is preempted...does not turn on what rights the alleged infringer possesses, but on whether the rights asserted by the plaintiff are equivalent to any of the exclusive rights within the general scope of the copyright. The question is whether the rights are works of authorship fixed in a tangible medium of expression and come within the subject matter of the Copyright Act. If a plaintiff asserts a claim that is the equivalent of a claim for infringement of a copyrightable work, that claim is preempted, regardless of what legal rights the defendant might have acquired.

Jules Jordan Video, Inc. v. 144942 Canada Inc., 617 F.3d 1146 (9th Cir. 2010). Allowing such a claim would provide “a de facto veto over the [copyright holder’s] rights under the Copyright Act,” [including its rights to tolerate use/also would provide a veto over fair uses].

But were the claims preempted? Yes, as applied to ads for copies of yearbooks, but no, as applied to ads for the subscription service. “[U]sing a portion of the copyrighted work to promote the copyrighted work does not take a publicity-right claim outside of copyright preemption.” This distinction between the reprints and the service doesn’t make a ton of sense to me, but perhaps I misunderstand the subscription service—if it gives you access to the materials in the yearbooks, then I don’t understand why the ruling on the yearbooks doesn’t also cover the service. This seems to me like saying that ROP claims are preempted for advertising a movie, but not for advertising that you can see that movie on HBO. But the court cited another case with favor that declined to find copyright preemption because defendant did not simply “display[ ] or publish[ ] photographs depicting Plaintiffs”; “[w]here, as here, the platform containing a plaintiff’s photograph sells information about the plaintiff and not limited rights to his image alone, the Copyright Act will not preempt a claim concerning the use of the image.” So the ROP and unjust enrichment claims were preempted only to the extent they were based on advertising for reprinted yearbooks.

In addition, the complaint stated a claim for ROP violations: The statute requires injury, and plaintiffs asserted an economic injury because “[i]f a defendant uses a plaintiff’s name and/or likeness to advertise, then it can reasonably be inferred that the name and/or likeness has some economic value, even if small.” California courts have clearly held that “the statutory right of publicity exists for celebrity and non-celebrity plaintiffs alike.” And statutory damages were also available, even if the only injury was economic and not mental anguish.

Nor was endorsement required to violate the statutory ROP, only use of name or likeness. And the public affairs exception in the statute didn’t apply. The exception is “based on First Amendment concerns” but is “not coextensive with [the First Amendment].” It covers “something less important than news, … related to real-life occurrences.” But only reprinted yearbooks had a potential connection to public affairs; the subscription membership “clearly does not.”

Plaintiffs also brought a derivative UCL unlawfulness claim, which additionally requires that a plaintiff must have “suffered an injury in fact and...lost money or property as a result of the unfair competition.” The alleged loss of IP rights qualified as economic injury/lost money or property.

Intrusion upon seclusion: “PeopleConnect understandably argues that Plaintiffs could not have a reasonable expectation of privacy because their names and likenesses were used in yearbooks which (1) were clearly intended for public distribution and (2) ultimately had no restrictions on their dissemination.” But an expectation of privacy need not be of “absolute or complete privacy.” This was a fact question, but fortunately for PeopleConnect, plaintiffs failed to plead that intrusion took place in a manner highly offensive to a reasonable person. Plaintiffs alleged that dissemination to millions was offensive and that at least some of the information was “highly sensitive, including photographs of Plaintiffs as minors and information about where they grew up and attended school.” But “it is entirely speculative that Plaintiffs’ information was actually disclosed to millions,” and the characterization of the information as highly sensitive was “hyperbolic.”  Dismissed with leave to amend.