Thursday, December 23, 2021

Competitor has standing to bring false association claims for false association w/3d party

FireBlok IP Holdings, LLC v. Hilti, Inc., 2021 WL 6049964, No. 3:19-cv-50122 (N.D. Ill. Dec. 12, 2021)

After Lexmark, can a competitor bring a false association claim when the false association is with an unrelated third party? This court answers yes, though limits the effect of that by applying what looks like ordinary false advertising analysis.

FireBlok owns a patent on a system and method for suppressing fire in electrical boxes using intumescent material. Through a licensing agreement, Hilti also markets and sells the Firestop Box Insert based in part on that same patent.

The labels of both products include the Underwriter Laboratories (UL) certification mark. Hilti claimed that it didn’t design the label, but that defendant RectorSeal did the final design.

RectorSeal also sells a product known as the Metacaulk Box Guard. Hilti was authorized to use the UL mark on its label through UL’s Multiple Listing service, which basically allows one product to piggyback off another identical product that is sold under another brand name. Through this process, the Firestop Box Insert was Multiple Listed with RectorSeal’s Metacaulk Box Guard, and thus—for a time—authorized to use the UL certification mark.

However, in 2008, “RectorSeal sent UL a letter withdrawing the Multiple Listing because it would no longer be manufacturing the Firestop Box Insert for Hilti, which was a requirement of the Multiple Listing program.” UL then allegedly withdrew the Multiple Listing, and therefore Hilti’s authority to use the UL mark on its labels. In 2019, RectorSeal requested that Hilti’s Firestop Box Insert be added back. Despite this, Hilti allegedly used the UL mark continuously during the period of noncertification.  FireBlok alleged that customers were likely confused into thinking that UL certified the Firestop Box Insert when it did not.

Illinois Uniform Deceptive Trade Practices Act: Plaintiff sought injunctive relief, which means that a “nonspeculative likelihood of future harm” is required under the statute (and, in federal courts, under Article III). It wasn’t enough to argue that RectorSeal withdrew the certification in the past and might do so again. Currently, the suggestion that the parties might mislabel the product was speculative.

Illinois Consumer Fraud Act: This requires that the relevant acts occur primarily and substantially in Illinois, but here they were nationwide, so that claim failed too.

Lanham Act claims did better. §43(a)(1)(A) false association with UL: FireBlok isn’t required to own the UL mark to bring a false association claim under Lexmark, since it established the relevant commercial interest and alleged proximate cause:

Nothing in the plain text of section 1125(a)(1)(A) requires trademark ownership. On the contrary, the text of the statute merely contemplates unfair competition that causes a likelihood that consumers will mistakenly believe the defendant’s product is sponsored by, affiliated with, or otherwise endorsed by another entity.

After all, Lexmark held that “the classic plaintiff in a Lanham Act case is one who is directly injured by a competitor’s false statements about its own goods or the goods of the plaintiff, and thereby induces customers to choose its goods over the plaintiff’s goods. That is precisely what FireBlok claims here.”

It was plausible that consumers would interpret the label to mean that the product was UL-certified and that this would cause them to purchase it instead of FireBlok’s product. This was literally false because the product was not UL-certified during the relevant period. “And literally false statements presumptively cause competitors harm.” [This is the ‘false advertising instead of likely confusion’ analysis I mentioned.]

§43(a)(1)(B): Same, without need to analyze materiality: “[B]ecause plaintiffs need not present evidence of actual consumer confusion in literal falsity cases, the only further requirement is that FireBlok has alleged that the literal falsity occurred in a commercial advertisement.” Materiality might have to be shown to avoid summary judgment, though.

RectorSeal argued that it couldn’t be liable for any false advertising on Hilti’s website, but the product label itself, which RectorSeal allegedly designed, also counts as a commercial advertisement. “Hilti and RectorSeal no doubt designed the label to entice customers into purchasing the product. Indeed, what other reason could they have for including the UL certification mark on the label?”


Tuesday, December 21, 2021

Proximate cause and puffery in real estate agent's claim against real estate ranking site

McLaughlin v. HomeLight, Inc., No. 2:21-cv-05379-MCS-KES, 2021 WL 5986913 (C.D. Cal. Sept. 17, 2021)

Lexmark’s “commercial interest” standing requirement gives, and its proximate cause requirement takes away.

HomeLight allegedly analyzes home sales data to generate a list of the best-performing real estate agents in a given area. “The website presents certain representations about its ‘custom, unbiased, data-driven recommendations.’” But its lists of the top real estate agents in Agoura Hills, California do not include McLaughlin, who alleged that he is the agent with the highest number of transactions and gross sales in Agoura Hills over the past 20 years. McLaughlin alleges that HomeLight’s website falsely implies that it has no “pay-for-play” relationship with top agents on its lists, but the real estate agents share part of their commission with HomeLight if HomeLight refers them.

McLaughlin’s alleged injury by “the diversion of real estate customers to Defendants and their commercial partners and/or loss of Plaintiff’s goodwill” fell within the Lanham Act’s “zone of interests.” However, McLaughlin failed to plead that his injury “flow[s] directly from the deception wrought by the defendant’s advertising”—that is, that the “deception of consumers causes them to withhold trade from the plaintiff.” It was not enough to generally allege diversion of potential consumers, tarnishment of his goodwill, or that “he would have even more transactions but for the false and misleading statements of Defendants.”

Indeed, McLaughlin pled that he conducted 12 real estate transactions in Agoura Hills in 2021, and that only two of the agents appearing on HomeLight’s lists conducted real estate transactions in Agoura Hills this year. He didn’t plead facts suggesting that HomeLight “caused the buyers and sellers in those transactions to retain those agents over him, or that he lost any other transactions to other agents because HomeLight did not feature him on its website.” E.g., he didn’t plead facts demonstrating that any clients or prospective clients viewed HomeLight’s advertising, “let alone that the advertising influenced their decisions to retain him or another agent.” He also didn’t explain how HomeLight’s purported failure to disclose its “pay-for-play” relationships with featured agents injured him in any way.

This also meant that he didn’t plausibly plead damages.

Also, he didn’t plausibly plead falsity because “top,” “best performing,” and “top performing” “do not signify any quantifiable, objective measure of agent performance” and constituted nonactionable puffery. The website itself signaled that the terms were nonexhaustive: it claimed to identify “20 of the top REALTORS® and real estate agents in Agoura Hills,” didn’t rank the listed individuals, and didn’t order them by transaction count or gross sales. It presented “objective measures of agent performance, such as transactions completed, as well as subjective information, such as client reviews.” Nor did McLaughlin plead facts showing that his omission from the list disproved HomeLight’s representations that its lists are “data-driven,” “unbiased,” and the result of an analysis of “millions of home sales.”

Also, the website clearly stated that real estate agents HomeLight refers through its website provide a referral fee to HomeLight, so nondisclosure couldn’t support his claim.

Monday, December 20, 2021

MLM's essential oils claims were puffery

Macnaughten v. Young Living Essential Oils, LC, 2021 WL 5965195, No. 5:21-cv-00071 (BKS/ML) (N.D.N.Y. Dec. 16, 2021)

Some cases are a reminder that puffery is a doctrine that allows sellers to trick buyers, as long as the way they trick buyers is with statements that sound like they mean something, but aren’t really tangible if you stop and think about them. Some theorists think there should be no such doctrine, because sellers make it sound like the claims are meaningful and consumers respond to the claims as if they were meaningful. This case, where the legal holding is that the central advertising claims are just puffery, is a good illustration of the problem.

Young Living sells “essential oils and blends” through an MLM model. Challenged claims include:

Defendant’s frankincense oil “promotes feelings of relaxation & tranquility”;

Defendant’s lavender oil “promote[s] feeling of calm and fight[s] occasional nervous tension’ and has ‘balancing properties that calm the mind and body”;

Defendant’s peppermint oil “helps to maintain energy levels when applied topically.”


Young Living instructs its salespeople that when “describing therapeutic-grade oils,” they should relay that “every essential oil ... has the highest naturally-occurring blend of constituents to maximize the desired effect.” One now-partially-removed statement said that “you can share our products with confidence, knowing that Young Living truly has the experience to produce essential oils that work.” Its blog said: “Pure, therapeutic-grade essential oils can have therapeutic effects on their users. The purer the oils, the stronger the benefits ... Peppermint essential oil should contain between 38 and 47 percent menthol to be therapeutic ... Look for a guarantee of therapeutic grade, which Young Living provides…. [Young Living’s] guarantee of therapeutic-grade oils is superior to all other ‘therapeutic-grade’ promises because Mr. Young ‘developed Young Living’s very high standards for therapeutic-grade essential oils,’ … that separate its products from its competitors.’”

Customers allegedly pay premium prices for these essential oils.

In 2014, FDA issued a warning letter to Young Living as a result of promoting its essential oils for the treatment of “viral infections (including Ebola), Parkinson’s disease, autism, diabetes, hypertension, cancer, insomnia, heart disease, post-traumatic stress disorder (PTSD), dementia, and multiple sclerosis,” conditions that are not “amenable to self-diagnosis and treatment by individuals who are not medical practitioners.” The NAD also directed Young Living to permanently discontinue its claim that the oils are “therapeutic.” Specifically, the NAD found:

in the absence of specific product testing (or evidence that Young Living’s essential oils have not only the same ingredient, but that such ingredients appear in the products in the same dosage and formulation and that the route of administration is the same as the underlying tests reasonably permitting extrapolation of results from the studies to the claims made) ... claims its essential oils are “therapeutic grade” and confer promised physical and mental benefits are unsubstantiated.

NARB affirmed the ruling in 2020. Young Living agreed to discontinue use of its “therapeutic-grade” claim and several other health-related claims, including that its oils “promote feelings of calm,” “help consumers sleep,” “reduce your anxiety,” and “provide clarity, focus and/or alertness.” Nevertheless, promotion of “therapeutic-grade” continues.

The court held that the challenged claims were puffery: vague and subjective claims on which no consumer was entitled to rely, and if they did so, too bad for them.

The term “100% Pure, Therapeutic-Grade” was puffery because it was on all of Young Living’s product labels, ranging from peppermint and eucalyptus to orange and frankincense, “all of which have different purported health benefits according to claims on Defendant’s website.” The term lacked “concrete discernable meaning,” didn’t communicate “any specific details about the product,” nor was it accompanied by any specific details on the label—other than the type of oil—that would, when viewed together, signal to a consumer that “the product would operate in an objective measurable way.” Considering the overall advertising, the claims were too vague, nonspecific, and aspirational: “promote[ ] feelings of relaxation,” “help[ ] to maintain energy levels,” “can ease ... tension,” or “may help relieve tension.” The advertising describes “intangible, non-measurable benefit[s] akin to puffery.” A reasonable consumer could not rely on the “vague advertising language” that the oils “can help promote feelings,” “may help relieve tension,” or “promote” assorted feelings. “In fact, from the cited language a reasonable consumer could expect that the oils may not help promote feelings or may not relieve tension.”

What about all those statements of superiority to other oils? When defendants’ blog answered the question “If an oil is labeled ‘pure, therapeutic-grade,’ can I be sure that it is?” with “NO! Look for a guarantee of therapeutic-grade which Young Living provides,” that merely reflected an intent to communicate that the products “ ‘work’ and are pure, natural, and of the highest quality, but these representations are couched in boastful, non-specific language … that ultimately neither promises nor even identifies any specific ‘therapeutic effects,’ ‘benefits’ or characteristics.” The claimed health benefits were “vague” and “non-committal,” like “[m]ay help relieve tension,” “create[ ] the feeling of normal clear breathing,” “promote a sense of clarity and focus,” or “help[ ] to maintain energy levels.”

Friday, December 10, 2021

Disgorgement in a noncomparative false advertising case: doctrinal drift?

Watkins Inc. v. McCormick & Co., 2021 WL 5810487, NO. 15-2688(DSD/BRT) (D. Minn. Dec. 7, 2021)

It’s very interesting to me that, even as the TMA made injunctive relief much easier to get in Lanham Act cases, courts also seem to be presuming that disgorgement of profits is a standard remedy. Is there some “IP Institute” for judges that is replicating the successes of the Law & Econ institutes for judges in convincing them of what the law is?

Anyway, Watkins alleged that McCormick deceived consumers about the price of its black pepper and diverted sales from Watkins’s competing products. When Walmart tested Watkins’ products, they competed primarliy against McCormick’s pepper, sold beside it. Walmart was concerned about Watkins’ higher price, but Watkins believed it was responding to commodity price spikes and that everyone else would also increase prices. McCormick, however, allegedly responded by reducing the volume of black pepper in its tins but keeping the tins the same size—shrinking the contents of its small tin from two ounces to 1.5 ounces, its medium tin from four ounces to three ounces, and its large tin from eight ounces to six ounces. This allowed McCormick to advertise what seemed like an attractive lower price and charge more. E.g., McCormick’s small tin sold for an average retail price of $2.10 while Watkins’s small tin had an average retail price of $3.17. McCormick’s per-ounce price, however, was $1.40 while Watkins’s was $1.58 per ounce, a smaller gap. The McCormick medium tin was priced at $3.22 while Watkins’s was $4.11, but McCormick’s per-ounce cost was $1.07 while Watkins’s was $1.03.

Walmart dropped Watkins’s black pepper due to poor sales numbers. Watkins sued McCormick under the Lanham Act and coordinate state law.

McCormick argued that Watkins’s expert testimony on damages should be excluded and thus that Watkins hadn’t established injury or causation for any of the forms of relief it seeks. The court disagreed.

The Watkins expert calculated Watkins’s lost profits during the Walmart test; the profits Watkins would have realized between 2015 and 2020 if the test had been successful and Walmart had expanded the distribution of Watkins’s black pepper to 3,000 stores; and McCormick’s profits from its reduced-volume tins. As to the first, Watkins’s and Walmart’s sales projections provided a reasonable basis for determining lost profits, and as for the second, it was fine to use Watkins’s vanilla extract, a similar product from the consumer’s perspective, to project lost profits (subject of course to cross examination).

Disgorgement: McCormick argued that Watkins failed to submit any evidence on whether its profits were attributable to its allegedly deceptive packaging. But the court accepted Watkins’s argument that “once it established that it suffered injury in fact, it need not prove attribution or diversion of sales in order to bring a disgorgement claim.” As soon as Watkins shows statutory standing, “the burden shifts to McCormick to prove that any of those sales were not due to the allegedly unfair competitive practices.” Thus, for disgorgement of profits, a plaintiff need only show the defendant’s “sales of the allegedly falsely advertised products,” after which the burden shifts to the defendant to prove “any costs or deductions.” This contrasts to damages, which require proof of a causal link between plaintiff’s injury and defendant’s conduct.

Here's the language that caught my eye: “Disgorgement imposes a lower burden than money damages and injunctive relief because it serves a different purpose. Disgorgement, an equitable remedy, targets the wrongdoer and seeks to deter improper conduct and prevent unjust enrichment. To achieve these purposes, any plaintiff with standing may seek to eliminate defendant’s ill-gotten gains by pursuing disgorgement of its profits” (emphasis added). In some sense, this is just a matter of emphasis: the principles of equity are still present, albeit in a footnote later, and to “seek” profits is not definitely to get them. But framing matters, and I have a distinct sense that the framing is turning, with none of the caveats about deliberateness of the false advertising or requiring false comparative advertising before considering a profits award that I have come to expect.

With that out of the way, Watkins showed enough evidence of injury to survive summary judgment.

For money damages, a plaintiff “must prove both actual damages and a causal link between defendant’s violation and those damages.” However, a plaintiff need only prove “the fact of damage with certainty, it need not prove the amount of damage with certainty.” The causation requirement ensures that “[a]ny award of damages ... serve[s] as compensation, not a penalty.”

Watkins argued that its consumer survey (presented by an expert) established injury by showing 1: that McCormick’s reduced-volume tins likely deceived consumers; and 2) that the deception was material to consumer buying decisions. The findings of deception and materiality in the consumer survey “create a triable issue as to whether Watkins suffered injury.” Its evidence showed that McCormick was its primary competitor in Walmart. And its damages expert provided support for the claim that it was damaged during the Walmart test. But what about causation?  Again, a factual dispute: even the alternate explanation, that the black pepper was priced too high, was likely “exacerbated” by McCormick’s conduct.

Disgorgement: The court rejected McCormick’s argument that “a plaintiff seeking disgorgement under the Lanham Act must establish that the profits were diverted from the plaintiff’s own sales” and that “the profits are attributable to the false advertising.”

In contrast to other cases (compare, e.g.,, Inc. v. Edriver Inc., 653 F.3d 820 (9th Cir. 2011) (noncomparative advertising doesn’t justify disgorgement without some evidence of monetary harm causation), the court here found that “the Lanham Act requires neither proof of diversion nor attribution for disgorgement of profits.… The Lanham Act then permits a defendant to deduct profits that it can prove were not earned due to its violative conduct.” Plus, plaintiff windfalls would be avoided by the bar on double recovery and by the principles of equity.

Tuesday, December 07, 2021

targeting residents of one building can be advertising or promotion

De Cortes v. Brickell Investment Realty, LLC, --- F.Supp.3d ----, 2021 WL 5768173, NO. 21-21109-CIV-ALTONAGA/Torres (S.D. Fla. Jul. 1, 2021)

De Cortes, an 84-year old woman, worked for defendants/predecessors from 2003-2020 in their real estate business. “Defendants represent clients in and out of Florida in the negotiations for the purchase or sale of real property.” Defendant BIR’s office is in the Four Ambassadors building, where De Cortes has lived and continues to live. Defendants represent 170 owners of units in the Four Ambassadors.

In 2020, De Cortes obtained a Florida real estate sales associate license and asked if she could serve as a real estate agent for BIR. Instead, BIR terminated her and posted a notice on its office door stating that she’d retired, and it also emailed and texted clients with the same statement.

One of BIR’s employees told De Cortes that she’d signed a non-compete agreement; she alleged that he “slipped the Agreement into a stack of papers” for her to sign because she had no incentive to sign a non-compete agreement. The Agreement restricts her from doing business with BIR’s clients and from working for any of BIR’s competitors for a five-year period after her employment ends. BIR then sent C&D letters to De Cortes and her new real estate firm, alleging she breached restrictive covenants and theatening to sue the firm for injunctive relief and damages. Defendants allegedly informed clients and prospective clients; residents, owners, and renters at the Four Ambassador building; and Four Ambassadors’ agents, employees, and vendors that De Cortes was stealing their clients and violating restrictive covenants.

De Cortes alleged that the restrictive covenants were unenforceable because they didn’t protect any confidential information, long-term relationships, specialized training, or other legitimate interests.

Although De Cortes’s FLSA claim (relating to wages/hours) did not provide a basis for supplemental jurisdiction over state law tortious interference/defamation/etc. claims, the Lanham Act claim did.

Even assuming Rule 9(b) applied, De Cortes sufficiently pled that claim. The “what” was two false statements: (1) “[Plaintiff] was retired from the real estate industry” and (2) “Plaintiff is stealing BIR’s clients and violating lawful restrictive covenants.”

Defendants only argued about (2). Though they contended that she didn’t allege that they believed the noncompete was unenforceable when they made the relevant statements, she did allege that her signature was fraudulently obtained, which was enough on the pleadings.

Commercial advertising or promotion: Defendants argued that the C&D and statements to clients and prospective clients weren’t commercial speech because the statements “pertain to BIR’s legal rights under the Agreement.” But “[c]ommercial speech encompasses not merely direct invitations to trade, but also communications designed to advance business interests.” That was pled here.

Likewise, defendants argued that the purpose of the statements was not to influence consumers to hire BIR, but instead merely to protect BIR’s legal rights. But De Cortes sufficiently alleged an alternative purpose — “to further BIR’s stranglehold on the Four Ambassadors building[.]”

Sufficient dissemination to the relevant public: The requirement is that “the representations must be disseminated sufficiently to the relevant public to constitute advertising or promotion within that industry.” Here, De Cortes plausibly alleged that the members of the relevant purchasing public were the owners and renters, and prospective owners and renters, of the units in the Four Ambassadors, and that the statements were widely disseminated to them.

What about “in commerce”?  De Cortes pled that defendants (1) “represent[ed] clients in and out of Florida in the negotiation of the purchase or sale of property” and (2) made “false and misleading representations to individuals and entities involved in interstate commerce and these false and misleading representations affect interstate commerce.” This was enough.

Under Florida law, “[a]ny restrictive covenant not supported by a legitimate business interest is unlawful and is void and unenforceable.” Because there was an actual controversy, despite defendants’ “near-frivolous” argument to the contrary, the court could evaluate De Cortes’s claim for declaratory relief.

Tortious interference: Defendants’ defense of the privilege of competition was premature.

Defamation per se: The statements about breach of agreements alleged fell within recognized categories of defamation per se in that they would tend to injure De Cortes in her profession. Claims that De Cortes was stealing clients and confidential information and violating enforceable restrictive covenants “naturally imply Plaintiff is untrustworthy.” And they threatened the company with which she affiliated with legal liability should it continue to employ her. Likewise, statements that De Cortes was retired indicated that she was not taking on work or clients. “In each case, a client or potential client, or employer or potential employer, would likely take these statements to mean Plaintiff was either not taking on work or, if she was, she could not be trusted with it — thus injuring her in her trade or profession.”

A talk on jigsaw puzzles and intellectual property

My presentation on jigsaw puzzles and intellectual property at the 2021 virtual Puzzle Parley is now up on YouTube.

Monday, December 06, 2021

The class action continues to die by a thousand cuts: herein of splitting injunctive relief claims

Stout v. Grubhub Inc., 2021 WL 5758889, No. 21-cv-04745-EMC (N.D. Cal. Dec. 3, 2021)

Stout sued Grubhub over an allegedly false promise to provide “Unlimited Free Delivery” to Grubhub+ subscribers. Grubhub sought to enforce its arbitration agreement. Concluding that the complaint sought private injunctive relief in part and public injunctive relief in part, the court found the claim severable under the arbitration agreement, which had a severability clause. These contortions occur because of California’s rule that a right to public injunctive relief can’t be waived, whether by arbitration agreements or otherwise. So the private relief (the request not to charge Grubhub+ subscribers extra for delivery under any circumstance) has to be arbitrated, but not the pure claim “don’t advertise ‘Unlimited Free Delivery’ while actually sometimes charging for delivery.”

This split result occurred because the Ninth Circuit has narrowed the concept of “public injunctive relief” to only things that could in theory benefit anyone, not things that benefit a specific existing class of people (e.g., current Grubhub+ subscribers). I’m not entirely sure why that means a split result in this case, though—the court reasoned that anyone could become a Grubhub+ subscriber, and thus an injunction against falsely advertising the program benefits the public. But by the same logic, wouldn’t a ban on actually charging extra delivery fees to Grubhub+ subscribers in the future benefit the public, any one of whom could join Grubhub+?

This all stems from Hodges v. Comcast Cable Communications, LLC, 12 F.4th 1108 (9th Cir. 2021), which interpreted the California rule (from a case called McGill) as holding that public injunctive relief: (1) is usually future-directed, (2) does not require the class action mechanism, and (3) is distinguished from private injunctive relief, which provides benefits “to an individual plaintiff – or to a group of individuals similarly situated to the plaintiff,” by involving diffuse benefits to the “general public” as a whole. The paradigmatic example of public injunctive relief is an injunction against false advertising aimed at the general public.

Thus, injunctive relief that only benefits people who become customers is private injunctive relief (although injunctive relief that only benefits another subset of the public, such as those eligible for free tax filing services, is not). An order enjoining Grubhub “from continuing to engage, use, or employ [its] practice of misrepresenting [its] delivery fees.”

The court rejected plaintiff’s argument that there were two ways to address the false advertising—either to change the advertising or to make it true--so it was all public injunctive relief. “[T]he fact that the alleged underlying misconduct concerns false advertising does not mean that any requested injunctive relief affecting the accuracy of that advertising is automatically deemed public in nature,” since a court should consider “who primarily benefits from the injunctive relief requested and who is only incidentally benefited.”

I think the “primarily” consideration here is more understandable as being about forward-looking versus backwards-looking; otherwise the logic that false advertising, while targeted at the world at large, actually has a chance of harming only a subset of people should mean that both types of relief are “private.” Either form of relief would benefit the public, who are generally invited to join Grubhub+.

Still, even though Grubhub+ is only available to Grubhub account holders, “there is no indication that Grubhub+ is only advertised to existing Grubhub customers, as opposed to the broader public. Nor is there any showing that one must first be a Grubhub customer before buying a Grubhub+ subscription.” Thus, half of the case stays in federal court as seeking public injunctive relief.

However, the court noted, Stout might lack standing to pursue the “don’t charge the delivery fee” remedy, since he is no longer a Grubhub+ subscriber.  The arbitrator could decide on plaintiff’s standing to seek an end to the putative delivery charges.