Ambiguity of claim made to sophisticated buyers defeats software ad suit

TocMail Inc. v. Microsoft Corp., 2021 WL 6750789, No. 20-60416-CIV-CANNON/Hunt (S.D. Fla. Dec. 21, 2021)

Though TocMail made it past a motion to dismiss, it failed at the summary judgment stage in its claim that Microsoft falsely advertised its link scanning service’s capabilities, thus locking TocMail out of a big market. Safe Links is part of Microsoft’s anti-phishing and anti-malware Defender package. It began as a list of dangerous URLs, and later added a reputation/ “detonation” check that analyzes the content linked to by the URL. Hackers’ security evasion techniques include using a visitor’s IP address to determine whether that visitor is a human user or security software and then display different content accordingly, so that a visit from Microsoft’s IP range sees only anodyne content while the actual email recipient would get malware if they clicked; such IP evasion is “common” today. Internally, Microsoft recognized this as a problem as early as 2010 and the problem escalated around 2018, when it launched a new feature that was intended to help counteract IP evasion.

Challenged advertising: (1) "Sophisticated attackers will plan to ensure links pass through the first round of security filters. They do this by making the links benign, only to weaponize them after the message is delivered, altering the destination of the links to a malicious site.... 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." (2) "[A]ttackers sometimes try to hide malicious URLs within seemingly safe links that are redirected to unsafe sites by a forwarding service after the message has been received. The ATP Safe Links feature proactively protects your users if they click such a link. That protection remains every time they click the link, so malicious links are dynamically blocked while good links can be accessed." (3) “Ensure users are protected against URLs that redirect to malicious sites. Safe Links will proactively protect your users every time they click a link, ensuring malicious links are dynamically blocked even if they are changed after the message has been received.”

In context, the court determined, these claims weren’t literally false. “Statements that have an unambiguous meaning, either facially or considered in context, may be classified as literally false.” TocMail argued that the ads were literally false because they necessarily and falsely implied that Safe Links “provides effective protection” against URLs that use IP evasion. Meanwhile, Microsoft’s own internal communications identified “gaps” in protection based on IP evasion that could be “easily” bypassed.

Microsoft argued that it didn’t present Safe Links as a solution to IP evasion or guarantee that Safe Links would block every single type of attack every single time, and that (3)’s “[e]nsure document hyperlinks are harmless with ATP Safe Links” was puffery. Microsoft emphasized that the intended audience was technologically sophisticated and, it argued, would not interpret the ads as promising impervious protection. The court rejected the puffery argument: “Although Message #3 is vague and generalized, the Court does not find that the word ‘ensure’ is non-actionable puffery since it is neither a statement of superiority nor quite so exaggerated that no reasonable consumer would be justified in relying upon it. The record demonstrates that at least some Microsoft customers have the ‘common misapprehension’ that ‘no phishing emails ... should reach users.’”

The court then found the ads ambiguous. One possible interpretation was that they just “describe at a basic level what Safe Links does,” including checking when a user clicked on a link. This was a reasonable interpretation in context because other statements in the ads “undercut the impression that Microsoft is promoting 100% protection,” e.g., stating that Safe Links “mitigate[s] malicious content” and “helps prevent users from going to malicious websites when they click them in email” or “No solution is 100% effective, and that makes it important to have an ‘assume breach’ mindset.”

TocMail argued that the ads promised “effective protection,” especially (3), and that was definitely possible, but in context it was only one of the reasonable interpretations of the ads, especially given that Microsoft was advertising to “business enterprise customers, with the intended audience consisting of IT professionals well-versed in the cybersecurity industry,” which fundamentally understands “the reality that security threats are ‘constantly evolving.’” So a reasonable audience could interpret even “ensure” as not guaranteeing 100% threat avoidance. [Microsoft successfully framed this issue: one alternative would be whether “effective” here means “not ignoring known problems.”]

Thus, TocMail needed to present evidence of actual deception, and it didn’t. There wasn’t consumer survey evidence or other expert testimony about deception. Microsoft’s internal documents did reveal one customer question that raises IP evasion as a possible security concern: “[w]hy is an IP-address range used which is easily attributable to Microsoft?” In response, Microsoft touted its use of some IP anonymization and other monitoring activities “to ensure effectiveness,” as well as its “explor[ation of] new ideas.” But the question didn’t show that the customer was deceived into thinking that Microsoft’s product provides foolproof protection against IP evasion.

does disparaging a company cast its principal in a false light?

Chaverri v. Platinum LED Lights LLC, 2022 WL 204414, No. CV-21-01700-PHX-SPL (D. Ariz. Jan. 24, 2022)

Plaintiffs (Mito Red) sell red-light therapy products online, in competition with Platinum (which uses the Volkin defendants’ marketing services). Platinum allegedly hired the Volkin defendants to “engage in a strategic defamation campaign online designed to ruin Plaintiffs’ professional reputation and to divert Plaintiffs’ customers away from their products and to Platinum’s competitive products.”

Among other things, Mito Red alleged that blog posts/video such as “Mito Red Light Therapy Scam: What Are They Lying About?” misrepresented their status as neutral reviews or critiques when in fact they were not, and that Platinum told customers that Mito Red “fabricates statistics, uses different LEDs than claimed, and that the lights are cheap and/or low quality knockoffs of Platinum’s lights.”

The statement that “Leaders come first and then all the followers. Mito Red here is the follower” was puffery. Likewise, Mito Red didn’t sufficiently plead falsity as to a blog post that said that Mito Red claims to have up to a three-year warranty even though other parts of its website “say[ ] otherwise,” and that as a result, customers “might just get scammed” out of redeeming their warranties based on “loopholes” on Mito Red’s website. Though the complaint alleged that Mito Red’s warranty terms are clearly stated on its website, that didn’t address the arguably falsifiable part of the statement—that parts of the Mito Red website cut back on the three-year warranty—and the rest was puffery because uncertain terms like “might” and subjective terms like “scam” and “loophole” were generic and vague.

Statements that “Mito Red literally ripped off [Platinum’s] design” and that “[Mito Red] literally took the framing construction of the Platinum LED lights and just changed the logo on the side. Other than that, it’s the exact same as far as a construction standpoint” were, however, sufficiently alleged to be falsifiable given the use of the word “literally” and the reference to specific product characteristics. “Hopefully, from a legal perspective [Mito Red] will get caught,” required more analysis: it came after “a section of the video in which the narrator alleges that Mito Red’s products use three-watt bulbs, which are less powerful than the five-watt bulbs Mito Red says it uses.” Relying on an earlier case with similar “hope” language, the court found it plausible that the statement could be understood as a statement of fact that Mito Red was acting criminally, making it actionable.

But this was “imprecise, generic, and vague” and thus puffery: “The design of the Mito Red Lights devices is not unique either, they mostly take the designs of their competitors’ devices and then use that in their own devices. And they are not providing the customers with anything new with an act like that.”

For other statements about the wattage/irradiance of Mito Red’s products, it was not conclusory to allege that Platinum’s statements were false because the products were truthfully advertised as five watts: that alleged falsity even if there could be a factual dispute over measurement.

The same results followed for the defamation claims.

Interestingly—and it seems to me wrongly—the court likewise refused to dismiss false light invasion of privacy claims brought by Chaverri, even though he was never named, because “statements made about Mr. Chaverri’s business certainly concern him and are about business matters for which he was directly responsible—a fact reasonably discerned from his role at Mito Red. It is plausible, from the facts alleged in the SAC, that the statements created a false implication about Mr. Chaverri even though he was not expressly mentioned.” A false light claim requires “a major misrepresentation of the plaintiff’s character, history, activities, or beliefs, not merely minor or unimportant inaccuracies.” “[A]llegations of negative reviews by a competitor suffice to plausibly state a claim for false light in this case.”

 

pleading falsity when ads use peer-reviewed scientific study

Guardant Health, Inc. v. Natera, Inc., 2022 WL 162706, No. 21-cv-04062-EMC (N.D. Cal. Jan. 18, 2022)

Guardant sued its competitor Natera over an alleged “campaign of false and misleading advertising directed at” Guardant’s new product Reveal, a liquid biopsy cancer assay for early-stage colorectal cancer (CRC). Natera then filed amended counterclaims alleging a “campaign of false and misleading commercial statements regarding the performance of [Reveal].”

Apparently, a “detailed factual background” can be found in the court’s sealed order denying Natera’s motion for a preliminary injunction, but you and I can’t know it.

The parties offer competing diagnostic tools for CRC—Guardant’s “tumor-naïve” Reveal and Natera’s “tumor-dependent” Signatera assay. Guardant bases its contentions that Reveal works on “[p]eer reviewed data published by Parikh, et al., in the journal of Cancer Research.” Thirty-eight of the 43 authors who undertook the study are affiliated with Massachusetts General Hospital and the remaining five authors are Guardant personnel. 

The Parikh Study evaluated if tests such as Reveal, can detect circulating tumor DNA “with clinically meaningful specificity and sensitivity.” (Specificity: true/false negatives; sensitivity: true/false positives.) The Study allegedly “shows that Reveal offers 91% recurrence sensitivity (i.e., ability to identify which patients will recur based on ctDNA detection) and 100% positive predictive value for recurrence (i.e., all patients Reveal identified as having a ‘positive’ ctDNA test result later recurred).” Of 27 patients who recurred and were counted, Reveal detected ctDNA in 15 of them, resulting in calculated sensitivity of 55.6% and specificity of 100%. After “incorporating serial longitudinal samples” the sensitivity for recurrence prediction improved to 69% and after incorporating “surveillance” samples the sensitivity improved to 91%.

Natera challenged an email from Guardant’s sales team to physicians around the country that said:

“Reveal has higher specificity than CEA [carcinoembryonic antigen tests, which are the current standard of care] in the surveillance setting;

Reveal has a 91% sensitivity in the surveillance setting;

Reveal’s PPV [positive predictive value] is 100% and can have benefits in patients with stage 2 colorectal cancer, including identifying patients who may benefit most from adjuvant therapy;

and Reveal has a greater lead time for detecting MRD [minimal/molecular residual disease] than current methods.”

The court denied a TRO because it was not clear that Guardant’s statements were literally false.

Since these were “clinically proven” claims, they could be shown literally false either by “attacking the validity of the defendant’s tests directly or by showing that the defendant’s tests are contradicted or unsupported by other scientific tests.” If the plaintiff can show that the tests, even if reliable, do not establish the proposition asserted by the defendant, “the plaintiff has obviously met its burden” of demonstrating literal falsity.

However, 9^th Circuit precedent doesn’t directly address “whether the test for falsity is altered where the challenged statements relate to a scientific peer-reviewed study.” In ONY v. Cornerstone, the Second Circuit held that there was what this court described as “a safe harbor” for “conclusions from non-fraudulent data, based on accurate descriptions of the data and methodology underlying those conclusions, [and] on subjects about which there is legitimate ongoing scientific disagreement,” holding that these kinds of “statements are not grounds for a claim of false advertising under the Lanham Act,” where they were “presented in publications directed to the relevant scientific community, ideally in peer-reviewed academic journals that warrant that research approved for publication demonstrates at least some degree of basic scientific competence.” Scientists, not courts, should decide such disputes. But ONY didn’t extend the safe harbor to situations where the study at issue was “fabricated” or “fraudulently created” because if “the data were falsified, the fraud would not be easily detectable by even the most informed members of the relevant scientific community.”

The 5th Circuit further declined to apply ONY in situations “where the challenged statements are directed at customers instead of the scientific community.” As the court noted, “Advertisements do not become immune from Lanham Act scrutiny simply because their claims are open to scientific or public debate. Otherwise, the Lanham Act would hardly ever be enforceable ....”

The 9^th hasn’t embraced the “deferential” ONY approach or the 5^th Circuit’s gloss, but apparently the court here did rely on ONY in denying a preliminary injunction, though we don’t know its full reasoning. It apparently held that there were “compelling reasons to conclude that claims based on the validity of the Parikh Study—or any other peer-reviewed, non-fraudulent scientific study—are likely ‘non-actionable’ in the context of false advertising.” Still, the standard 9th Circuit approach was relevant at the pleading stage, where Natera didn’t have to show that the challenged statements were literally false, only that it was plausible that they were.

Natera alleged that the Parikh Study was based on fraudulent data and inaccurate descriptions of the data and methodology. The claims were plausible under either ONY or the the [governing?] 9^th Circuit Southland Sod approach.

First, Natera successfully alleged that several statements were literally false because they were unsupported by the Parikh Study. [Details omitted, but Natera successfully alleged, among other things, that Guardant was using differing definitions of various key terms and mixing and matching results in unacceptable ways.]

It was also plausible that Guardant’s marketing statements falsely and misleadingly touted benefits of Reveal for “early-stage” CRC patients because the Parikh Study included at least 19% late-stage patients and did not make any conclusions specific to “early-stage” cancer patients. Although these claims didn’t cite the Parikh Study, it was the necessarily implied source because it was the “only possible source of such comparisons.” Guardant argued that a claim about Reveal does not necessarily have to be based on the Parikh Study because “[d]rug, device, and testing companies often rely on in-house testing and data-on-file.” But the Parikh Study was the only published study on Reveal, making it plausible that Guardant necessarily implied reliance on it. And it didn’t support those claims. For example, its claims about early-stage patients plausibly wrongly conflated early detection of recurrence after treatment with early-stage cancer.

Separately, Natera successfully pled that the study’s data and methodology themselves were fraudulent. It alleged that (1) the Parikh Study said it looked only at “patients with evaluable ‘surveillance’ draws, defined as a draw obtained within four months of clinical recurrence” but it included patients with draws outside of four months to improperly boost Reveal’s performance (its 4-month cutoff was applied only to false negatives, not to true positives, meaning that 7 of 9 false negatives were excluded and raising sensitivity from 69% to 91%); (2) it said that “ctDNA analysis was performed blinded to the clinical data” but Guardant’s internal documents allegedly showed that Guardant performed ctDNA analysis unblinded to the clinical data; and (3) it said that it was a “single-institution prospective study” but Guardant’s internal documents allegedly showed that Parikh provided samples for analysis by Guardant after the fact and that Guardant retrospectively conducted ctDNA analysis. This satisfied both ONY and Southland Sod. “Where false advertising claims allege that the study’s conclusions are based on inaccurate descriptions of the data and methodology, the claims can be grounds for a claim under the Lanham Act.” That would be less plausible if the study disclosed its potential shortcomings, per ONY.

Guardant argued that the study’s practices on (1) were ok, but the problem was that it didn’t disclose this methodology, creating a factual issue of deception. There were also problems with the study saying that it borrowed its “surveillance” methodology from a prior paper that in fact used a different definition. Guardant argued that even if the study misconstrued the prior study, mistake isn’t the same as fraud. “But the issue here is not whether Guardant made a mistake but whether the Parikh Study improperly failed to disclose its interpretation of the Reinert study’s methodology.”

And Natera sufficiently pled that the alleged falsehoods in the Parikh Study were attributable to Guardant. [It’s not clear to me why this would be required. If the study is garbage, then it doesn’t support the claims that Guardant made, which is all that’s required; knowledge of falsity is not an element of Lanham Act false advertising.]

The discussion of blinding is heavily redacted but, we are told, Natera sufficiently alleged that the Parikh Study fraudulently described its methodology as a blinded analysis when in fact Guardant used unblinded data and modified results to improve Reveal’s performance. So too with the description of the study as “prospective” even though Guardant allegedly manipulated methodology and data post hoc. Guardant’s dispute over what “prospective” means was a factual one.

Amicus in Green v. DOJ challenge to 1201

The EFF is litigating a First Amendment challenge to 1201's access control provisions. Pam Samuelson and I filed a brief in support of that challenge. My thanks to Catherine Crump, Erik Stallman, and Tait Anderson of Berkeley's  Samuelson Law, Technology & Public Policy Clinic, who did great work on the brief.

Amicus in ASU v. Doe

ASU sued Doe over a dumb Instagram account, "asu_covid_parties," and correctly lost its TM claims despite Doe's default. Undeterred, ASU appealed. Eugene Volokh and his students have filed an amicus supporting the result below and one of the students will argue the case--an excellent opportunity. Mark Lemley, Mark McKenna, James Weinstein, and I also filed an amicus brief pointing out that, even if there had been a party (there wasn't), it still wouldn't have infringed ASU's trademarks. Although doctrines like Rogers v. Grimaldi and nominative fair use support this result, the deeper core is that the Lanham Act shouldn't be read to cover noncommercial speech in the first place.

are fake reviews actionable if the review content is just puffing?

Marksman Security Corp. v. P.G. Security, Inc., 2021 WL 649821,  No. 19-62467-CIV-CANNON/HUNT (S.D. Fla. Oct. 12, 2021) (R&R)

The magistrate judge joins the split over fake reviews, adopting the position—which I think is wrong—that concededly fake reviews that only include puffery in their content are nonactionable, despite the non-puffing fact of whether the reviews reflect an actual experience with the reviewed product/service.

Marksman sued defendants, who compete with it to provide private security and concierge services in South Florida, for creating an Instagram account that bore Marksman’s name, as well as purchasing domain names similar to Marksman’s that when accessed sent consumers to defendants’ website instead (e.g., marksmensecurity.com and some other TLDs). The magistrate recommended finding an ACPA violation and awarding attorneys’ fees (there was some litigation misconduct).

The Instagram “Marksmansecurity” account, which used Marksman’s logo, said: “We claim to be the best security company but we are not! Our employees steal from clients, we lie to our clients and we sue them if need be.”

Also, defendants paid acquaintances and other people $10 to post five-star positive reviews online about Defendant PG’s services on Google.

Reviews paid for by the reviewed party were commercial speech.  And the reviews were false: “Defendants paid for positive reviews from at least three individuals who never lived in a building that Defendant PG serviced. … These reviews are false and misleading representations of Defendants’ services.” But the reviews were not material because they contained only puffery: the “best,” “great company,” “great company to work for,” and keep “buildings safe and comfortable.” I don’t see how this makes sense: puffery can influence consumers, which is why businesses use it, and a consumer who knew the truth—that these reviews were not posted by people who had actually used the services—would certainly discount them. But anyway—plaintiffs also couldn’t show injury in lost sales or otherwise.

The judge didn’t explicitly rule on the Instagram account, but denied injunctive relief because the account had been deleted and the domain names transferred. However, it did find that this case was exceptional, with reasoning that seems quite cursory: the domains were purchased in bad faith, and “Defendants deliberately engaged in actions using Plaintiff’s marks for their own profits. Regardless of whether Defendants were successful, such actions qualify this case as an exceptional one.”

False advertising-based antitrust claims against Facebook survive motion to dismiss

Klein v. Facebook, Inc., 2022 WL 141561, No. 20-CV-08570-LHK (N.D. Cal. Jan. 14, 2022)

Once in a blue moon, a false advertising-based antitrust claim survives a motion to dismiss in a circuit that imposes a list of excessive requirements on such claims.  That time has come for Facebook. Consumers and advertisers adequately alleged that Facebook has monopoly power in social network/social media (consumers) and social advertising markets. Though I’ll detail the advertising-based claims below, I will also note that the court did dismiss claims based on Facebook’s “Copy, Acquire, Kill” strategy as untimely. Advertiser claims based on Facebook’s Network and Bidding Agreement with Google also survived, while the court dismissed consumers’ unjust enrichment claims with leave to amend.

Plaintiffs successfully alleged that “Facebook acquired and maintained monopoly power by making false representations to users about Facebook’s data privacy practices.” The complaint pled a lot of specifics about how much consumers cared about privacy; how much Facebook advertised its privacy practices as better than they were; and how bad they actually were.

False advertising can violate the Sherman Act if a monopolist’s representations about its own products or its rivals’ products “were [1] clearly false, [2] clearly material, [3] clearly likely to induce reasonable reliance, [4] made to buyers without knowledge of the subject matter, [5] continued for prolonged periods, and [6] not readily susceptible of neutralization or other offset by rivals.”

Falsity: There’s a lot of detail I’m skipping, but in essence, Facebook knew that users wanted privacy and advertisers wanted users not to have privacy, so it concealed the extent of its data use, allowing it to “beat out companies that were truthful about their user data practices or did not collect and sell user data.” “Indeed, Facebook’s initial success in the Social Network and Social Media Markets arose directly from competitors’ failure to keep users’ data private,” particularly Myspace’s. Representative Zuckerberg quote (of which there are many): “I founded Facebook on the idea that people want to share and connect with people in their lives, but to do this everyone needs complete control over who they share with at all times.” Meanwhile, it was collecting and selling user data to third parties in ways that did not match its public representations. E.g., it used Beacon to track users who clicked “No, Thanks” to purportedly opt out; provided user data—and the data of users’ friends—to third party developers despite claiming in multiple fora that “Facebook does not give advertisers access to people’s personal information”; etc. etc. Even after the 2011 FTC settlement, it deceptively tracked users and gave data to third party developers.

The complaint also alleged in detail how these deceptions helped FB obtain and maintain monopoly power. For example, it defeated Google+ in part because of privacy concerns, along with network effects. In fact, “Facebook realized that it could not allow users to find out about Facebook’s privacy practices while Google+ was a viable alternative,” e.g. an executive stating that “it would be unwise to remove privacy protections because ‘IF ever there was a time to AVOID controversy, it would be when the world is comparing our offerings to G+.’” The executive stated that FB could remove those protections after “the directive competitive comparisons begin to die down.”

This “clear[]” falsity was alleged with sufficient particularity. Analogizing to securities fraud, the court required clear falsity to be a material misrepresentation/omission that was capable of objective verification, as opposed to puffery. “Indeed, the Ninth Circuit’s statement that misrepresentations are anticompetitive only if they are ‘clearly false’ and ‘clearly material’ mirror the basic requirements of a securities fraud claim.” Likewise, Rule 9(b) pleading requirements provided a structure for identifying the requisite clarity. Although several of the representations identified were puffery (“[k]eeping the global community safe is an important part of our mission – and an important part of how we’ll measure our progress going forward”), many were not, specifically representations that FB wasn’t sharing private information with third parties; statements about the Beacon tool; and statements that FB didn’t use cookies to collect users’ data for commercial purposes.

Were the claims timely? Non-original observation: If techniques are used to obtain monopoly power, that seems inherently in tension with requiring claims to be brought very quickly. Anyway, the claims weren’t time-barred on the face of the complaint. The limitations period is four years, but the “period of limitations for antitrust litigation runs from the most recent injury caused by the defendants’ activities rather than from the violation’s inception.” To qualify as an “overt act,” the act that restarts the limitations period must satisfy “two criteria: 1) It must be a new and independent act that is not merely a reaffirmation of a previous act; and 2) it must inflict new and accumulating injury on the plaintiff.” (The argument that each misrepresentation about privacy is a mere reaffirmation seems inherently in tension with the big claim of big tech that competition is "only a click away," since continued belief in the representations is necessary to avoid that click.)

The relevant date here was December 3, 2016, and the consumer plaintiffs adequately alleged at least two false representations after then. First, on February 2, 2017, Facebook stated in an SEC filing that Facebook provides only “limited information to [third party application developers] based on the scope of services provided to us.” Second, in March 2018, Zuckerberg called the Cambridge Analytica incident a “mistake,” pledged to take action against “rogue apps,” and stated that “[w]e have a responsibility to protect your data, and if we can’t then we don’t deserve to serve you.” These were adequately alleged to be clearly false, since the 2017 statement “would have given reasonable users the impression that Facebook was not providing third party applications with private information,” whereas Facebook had in fact provided users’ private information to numerous third party applications, including applications for which users were not registered. “For example, although Cambridge Analytica had only 270,000 users, Cambridge Analytica ‘was able to access the personal data of up to 87 million Facebook users.’” Zuckerberg’s statement likewise would have given reasonable users the impression that Cambridge Analytica was a “rogue app” and that Facebook had not been systematically providing users’ private information to third party application developers, but at least 10,000 applications had been able to access similar data for the entire period since the FTC settlement.

FB argued that its false statements after 2016 were mere reaffirmations of a previous strategy, not new and independent acts.  But an act is not a reaffirmation “simply because the defendant has previously committed the same type of act as part of a unified anticompetitive strategy.” The Ninth Circuit has clearly held that “if a defendant commits the same anticompetitive act multiple times, each new act restarts the statute of limitations for all the acts.”

The complaint also sufifciently alleged that the new false representations allowed Facebook to maintain a “critical mass of users” “by convincing users that Facebook was protecting their data.” After all, “improperly prolonging a monopoly is as much an offense against the Sherman Act as is wrongfully acquiring market power in the first place.”

Further, the consumers adequately alleged that the false statements were “ ‘not readily susceptible of neutralization or other offset by rivals.’ ”  From the existing cases, the court derived a perfectly understandable principle that technical product aspects that are difficult for customers to confirm are “not readily susceptible of neutralization.” When “any customer who tried to obtain the defendant’s services could discover that this representation was false,” by contrast, the falsity was readily capable of neutralization. Plaintiffs successfully alleged that the deceptive privacy practices could not have been revealed “by anybody without significant technical expertise.” Indeed, plaintiffs pled that “even sophisticated third parties, such as developers and search engines, cannot access user data without Facebook’s permission, let alone determine what Facebook is doing with user data.”

While FB argued that other firms “could have improved their own policies, or called attention to Facebook’s supposed misstatements,” it didn’t explain how rival firms could have known that Facebook’s statements were false when Facebook made them. “[T]here was no publicly available information that Facebook’s rival could have consulted to determine whether Facebook’s representations about its data privacy practices were true.”

Clearly material: FB argued that the consumers didn’t explain how “Facebook’s alleged misrepresentations prevented other well-resourced firms—like Google or Snapchat—from competing effectively.” Plus, there were other “competing theories for Facebook’s success,” “including Facebook’s ‘realness,’ which is alleged to be Facebook’s ‘distinguishing feature.’ ” But the Ninth Circuit has set out a comprehensive test for whether false advertising can violate the Sherman Act, see above, and alternative explanations aren’t part of the test where materiality is present. Both securities fraud and Lanham Act cases extensively address materiality, and the court used them as guidance: materiality means likelihood of influencing consumer decisions, so “clearly material” requires plaintiffs to show that “customers would consider the representation important in deciding whether to use the defendant’s product or that the representation was likely to influence customers to use the defendant’s product.”

Plaintiffs did that. For example, consumer surveys showed the importance of privacy, and FB’s own statements repeatedly recognized that users would not use Facebook unless Facebook promised privacy protections. E.g., Zuckerberg explained that the reason “Facebook became the world’s biggest community online” was that Facebook “made it easy for people to feel comfortable sharing things about their real lives.” Under these circumstances, it was “more than plausible” that users would have considered these representations important in determining whether to use Facebook.  

There was no requirement that the falsity be the “but-for” or sole cause of consumer behavior, as FB argued. And indeed, FB’s argument ignored that privacy was the foundation of its purported alternative causes—the consumers alleged that FB’s representations about its data privacy practices were essential to creating Facebook’s “realness,” starting with its initial limitation to people who could verify that they were part of college communities.

Causal antitrust injury: The consumers alleged that Facebook’s monopolization of the Social Network and Social Media Markets harmed users because, without competition, Facebook can extract additional “personal information and attention” from users. A cognizable antitrust injury includes harm to a plaintiff’s “business or property.” Consumers adequately alleged that their “information and attention” had sufficient material value to constitute harm to “property,” given that those things have material value to advertisers. “In other words, users provide significant value to Facebook by giving Facebook their information—which allows Facebook to create targeted advertisements—and by spending time on Facebook—which allows Facebook to show users those targeted advertisements.” Indeed, FB’s revenue per user in the US in 2019 was over $41, making the material value of consumers’ information and attention undeniable. Even without FB’s own estimates, the consumers identified other companies willing to pay users for information and attention.

And consumers adequately alleged causation: Had FB not eliminated competition in the social markets, they would have been able to “select a social network or social media application which offers consumers services that more closely align the consumers’ preferences, such as with respect to the content displayed, quantity and quality of advertising, and options regarding data collection and usage practices.” In more competitive markets, some companies pay users for their data. For example, “[w]hen consumers agree to use Microsoft’s ‘Bing’ search engine and allow Microsoft to collect their data, Microsoft ... compensates consumers with items of monetary value.” Plus, with more competition, FB itself would plausibly have collected less data as part of the bargain: The fact that FB acted more hesitantly when G+ was around was indicative of that.

Relatedly, consumers’ request for injunctive relief was not barred by laches, given the timeliness of the claim. FB argued laches because its 2011 FTC settlement was public. But when claims are timely, “the strong presumption is that laches is inapplicable.” Moreover, FB failed to explain why consumers would know, because of the 2011 settlement, that FB continued to deceive them thereafter.

 

"false association with EPA" claim can be brought by competitor

ISK Biocides, Inc. v. Pallet Machinery Group Inc., No. 3:21-cv-386, 2022 WL 122923 (E.D. Va. Jan. 12, 2022)

The parties compete in the market for wood protection products. ISK alleged that defendants misrepresented the safety, environmental impact, and regulatory status of their products. The court denied the motion to dismiss the Lanham Act claims but kicked out the coordinate Virginia state law claims.

Wood pallets, widely used in the supply chain, are at risk for mold, mildew, and fungus, which is bad for cargo and workers. Fungicides like those sold by the parties are one answer. FDA and EPA share regulatory authority—because pallets are used for food—but EPA does the lion’s share of the work. The delightfully named Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) requires fungicides—which are pesticides under the law—to be registered by the EPA to be sold.

According to the complaint, one of defendants’ products has a hazardous ingredient, IPBC, that “has been found to have certain adverse effects” on humans, “including irritation, sensitivity, and toxicity to various systems,” even at a concentration of 0.5. EPA advises that those who handle products containing IPBC wear personal protective equipment such as “long-sleeve shirt[s] and long pants, chemical-resistant gloves, [and] shoes plus socks.” Others have a different ingredient, OIT, which allegedly “is harmful if swallowed, toxic in contact with skin, causes severe skin burns and eye damage, may cause allergic skin reactions, and is toxic if inhaled.” Thus, people handling products containing OIT should wear gloves, safety goggles, a face shield, and body protection. OIT is on the EPA’s Safer Chemical Ingredients List, but the EPA notes that OIT “is not associated with a low level of hazard concern for all human health and environmental endpoints.” Moreover, ISK alleged that none of the products are registered as pesticides with the EPA.

ISK challenged various ad claims; the court focused on a few.

For example, it was plausibly false/misleading to advertise that users handling one of the products “need not wear protective equipment.” Since defendants’ data sheet said that it contained a maximum of under 10% of IPBC, it was reasonable to infer that it was at least 0.5% of the product, which was allegedly enough to have adverse effects on humans. Given the EPA’s advice about using protective equipment, the complaint plausibly alleged falsity.

Moreover, an ad on a public Facebook page that referred customers to the data sheet was a commercial advertisement within the meaning of the Lanham Act; it was intended to bolster sales and was “sufficiently disseminated” to fall within §43(a)(1)(A). Proximately caused injury was also plausible because the lack of need for personal protective equipment could plausibly drive sales that would otherwise have gone to ISK.

Likewise, against the other defendant, an ad that it plausibly placed in Pallet Central Magazine which said that “WoodLock Bio-Shield Mold Inhibitor is safe for employees and machinery” was also plausibly false advertising. [Side note: I am endlessly pleased by the existence of these niche industry publications. There’s a magazine for pallets! I can only assume that there actually is a magazine for storage jars out there.] Defendants argued that their products were safe for employees “because the products do not exhibit the same characteristics as the hazardous ingredients they contain.” Although this might be borne out by discovery, ISK sufficiently alleged falsity at this stage.

Contributory false advertising: The court predicted that the Fourth Circuit would recognize contributory false advertising, because it recognizes contributory trademark infringement and both causes of action stem from the Lanham Act.

ISK adequately alleged contributory false advertising claim against defendant J&G by alleging that defendant PMG “directly engaged in false advertising that injured” ISK, by placing an advertisement in Pallet Central Magazine. And it alleged that J&G “contributed” to PMG’s conduct “by knowingly inducing or causing the conduct.” Specifically, “by misrepresenting the necessity of personal protective equipment,” J&G allegedly caused PMG to represent the product was safe for employees. “Put differently, PMG endorsed the safety of WoodLock Bio-Shield products in its advertisement based, in part, on J&G’s assurance that those handling WoodLock Bio-Shield I need not wear personal protective equipment.”

Likewise, ISK adequately alleged contributory false advertising claims against PMG.  As noted above, ISK successfully alleged that J&G falsely advertised, and it alleged that PMG “materially participat[ed]” in this conduct by distributing the sales data sheet that J&G created “during advertising and sales.”

False association: PMG allegedly advertised that WoodLock Bio-Shield “is a proven EPA registered product,” but it is allegedly not. This could cause false association with the EPA, to ISK’s detriment.

Virginia Consumer Protection Act: “[C]ompetitors lack standing under the VCPA because the legislature intended the statute to protect consumers.” Although remedial statutes must be construed “ ‘liberally, so as to suppress the mischief and advance the remedy’ in accordance with the legislature’s intended purpose,” “allowing a competitor to sue under the VCPA does not promote fair and ethical standards of dealing between suppliers and the consuming public.” [I don’t see why—it certainly has the potential to enhance deterrence, and in the Lanham Act context the Supreme Court has reasoned that competitors are often in the best position to identify and challenge false advertising.]  Likewise, Virginia’s common law does not protect against false advertising.

glyphosate traces can render honey not "pure" for consumer protection claim

Scholder v. Sioux Honey Ass’n Coop., CV 16-5369 (GRB), 2022 WL 125742 (E.D.N.Y. Jan. 13, 2022)

Despite the failure of most “vanilla” claims, a metaphorically consumer vanilla false advertising claim can survive the motion to dismiss stage, as this case shows (though claims for breach of warranty and for injunctive relief get tossed, the latter for lack of standing).

Scholder alleged that defendant violated NY law because it puts “Pure” or “100% Pure” on the SueBee product labels, but the honey contains glyphosate, a synthetic chemical and herbicide that is potentially carcinogenic. Scholder alleged that “[c]onsumers reasonably believe that a product labeled ‘[P]ure’ or ‘100% [P]ure’ does not contain synthetic substances, such as artificial biocides,” and that had he known at the time that SueBee honey contained glyphosate, he would not have considered the honey to be pure and would not have paid a premium for the product.

Defendant argued that label couldn’t be materially misleading to a reasonable consumer because “any trace amounts of glyphosate in the honey was the result of the natural process of bees interacting with agriculture and not its production process, and thus its honey was in fact ‘Pure.’” At the pleading stage, though, it wasn’t clear whether a reasonable consumer would understand the terms “Pure” or “100% Pure” to mean that trace amounts of glyphosate could end up in honey from the bees foraging process.

As the Second Circuit previously held: “[u]nlike ‘natural,’ the words ‘pure’ and ‘100% natural’ indicate the absolute absence of contaminants.” Unlike the case where a term (“natural”) occurs only in the brand name and not elsewhere on the package, the product label here described the honey as “100% Pure Unfiltered Honey” on a stand-alone basis.

Further, the complaint alleged that the targeted consumers would care, because they “value pure foods,” and alleged the existence of specific statements/research about the potential dangers of glyphosate even at low levels. This made the allegations that reasonable consumers would care plausible.

Warranty claims failed for want of pre-suit notice, as required in NY, but unjust enrichment survived.

Disney+ catches up with the FTC

Okay, obviously I am the only person in the world who will care about this, but I noticed that Disney’s “Streamer” campaign for its streaming service is a lot like the ads for the product that the FTC made up for its Disclosure Exposure workshop 20 years ago. I guess the tech finally caught up (take a look at those FTC prices!). Side note: that means this is my 20th year teaching, wow.

court declines to drop hammer on competing game despite registrations

WRB, Inc. v. DAMM, LLC, 2022 WL 136914, No. 21-CV-1899 (NEB/TNL) (D. Minn. Jan. 14, 2022)

The court denies a preliminary injunction in this dispute between makers of stump-hammering games, finding issues of fact as to whether the claimed word mark is actually generic and as to likely confusion, but finds that the trade dress of plaintiff’s stump-hammering game isn’t functional (at this stage) because you can hammer nails into things other than stumps. This seems wrong to me—like holding a skateboard nonfunctional because you can also use roller skates if you want personal wheels, or the Dippin’ Dots ice cream configuration nonfunctional because one can eat regular ice cream instead—but does provide a nice illustration of the importance of market definition to functionality determinations.

There is a German drinking game involving striking nails with a hammer into a stump of wood. WRB has an incontestable registration for “Hammer-Schlagen” and a registration for the trade dress of its stump, cross-peen hammer, and nails: specifically, “a three-dimensional configuration ... comprising of a cylindrical cross-section of a tree with nails positioned around the outer circumference of its upward facing flat circular surface, and a cross-peen hammer,” issued in 2018. WRB offers a version of this game at various festivals such as local Octoberfests.  DAMM sells a different version of the game, called “Minneschlagen,” in an at-home kit.

“The Minneschlagen stump is smaller than the Hammer-Schlagen stump. It comes in a crate with a small finishing hammer and a bag of nails. The stump features the Minneschlagen logo—an outline of the state of Minnesota with ‘MINNESCHLAGEN’ written in capital letters.” DAMM has a registration for “Minneschlagen.”

“Hammer” and “schlagen” are German words, but the parties dispute whether the term “hammerschlagen” is a German word. WRB’s word mark registration states that “the English translation of ‘hammer-schlagen’ ... is ‘hammer beating.’ ”

However, “English-speaking Facebook users use “Hammer-Schlagen” to refer to a game; it is not clear whether the users are referring to the Hammer-Schlagen branded game or a more generic version.” E.g.,

“It’s called hammerschlagen where I have played it. Very entertaining to play!” At least some stumps shown in social media posts tagged “hammerschlagen” are not WRB stumps.

“Although DAMM does not describe Minneschlagen as hammerschlagen, Tyler Winkey, a relative of a DAMM founder, allegedly described Minneschlagen as a ‘portable hammerschlagen set.’ And some users have commented that Minneschlagen is a “knock off” of hammerschlagen or described it as hammerschlagen.”

DAMM also submitted evidence that a Google or Amazon search for “hammerschlagen” yields hammers, nails, and round pieces of wood—not just links to the WRB’s product or site, though the court wasn’t sure how to weigh Google/Amazon search results because they were “algorithmically” produced. (How does the court think other results are produced? I think the court means “ranked in some nontransparent way,” which is true and kind of interesting—both G and A have incentives to try to give people the most useful results, but how should we think about that in TM terms, and would we need a search expert to understand how we should think about that?)

There were alternatives to the stump: “Apparently, people also pound nails into other objects for fun. WRB submits several examples of people hitting nails into pieces of lumber as a game. These lumber-based games are likely cheaper to assemble than stump-based nail-pounding games (citing a source titled “The Hardest Thing About Hammerschlagen Is Scoring a Tree Stump”).

WRB had a presumption of ownership for both “Hammer-Schlagen” and trade dress because of its registrations. However, genericity can defeat incontestability, and there was a fact issue at this stage about whether the word was generic. As noted, the court wasn’t so sure about Google and Amazon results, but “the Facebook posts suggest generic use, at least by some consumers.” Thus, WRB wasn’t likely to succeed on ownership.

Registration of the trade dress also gave it a presumption of nonfunctionality. The court considered the trade dress as a whole, not the stump, cross-peen hammer, and nails separately (but see Groeneveld v. Lubecore, holding that where every feature is functional the combination does not become more than its parts). “[G]iven the many other nail-pounding games that use other shapes of wood, WRB will likely be able to show that the stump shape itself is aesthetic” and thus nonfunctional.

“WRB is entitled to a strong presumption of secondary meaning (and thus acquired distinctiveness) because the U.S. PTO already determined the mark has secondary meaning.” However, “DAMM presents sufficient evidence that consumers use ‘hammerschlagen’ and ‘the stump’ to name and identify a game not associated with WRB,” suggesting that it could meet its burden of showing nondistinctiveness. WRB pointed to “promotions and features in magazines,” but at least one of those featured an image of the stump, hammer and nails with no reference to WRB or “Hammer-Schlagen,” “so it is as likely the flyer is evidence of generic use as of acquired distinctiveness.” Likewise the court discounted declarations from coordinators of the Twin Cities and Northwest Oktoberfests that most attendees would associate “the round stump with nails around the perimeter and a cross-peen hammer” with WRB’s game design, because those were people in the trade, not ordinary consumers.

Even if WRB showed ownership, it didn’t show likely confusion at this stage. The fact question about whether there was even distinctiveness also weighed against finding likely confusion. Nor were the parties’ marks highly similar:

Minneschlagen is sold in a wood crate with rope handles, and the crate disassembles to reveal a small (10–14 inch) stump, a small finishing hammer, and a bag of nails. The Minneschlagen logo—“Minneschlagen” written over an outline of the state of Minnesota—features prominently on the stump and the bag of nails. In contrast, at the hearing on this motion, Counsel for Hammer-Schlagen explained that Hammer-Schlagen sets up large stumps, with large cross-peen hammers, and nails, under tents at events. At these events, WRB passes out stickers with innuendo such as, “I Got Nailed” and “Got Wood?” Its advertising is in orange with block letters and a drawing of a hammer. Each leaves a consumer with a different first impression—DAMM’s suggests a homey, Minnesota game for any occasion, and WRBs is a rugged, spirited, outdoor party game.

Although the products’ names both included “schlagen,” “[t]he use of identical, even dominant, words in common does not automatically mean that two marks are similar.” “The Court will not find names to be confusingly similar where the only similarity is a word in a foreign language [that means something relevant to the product].”

Overlap in markets: “WRB sells its service (and not a take-home game) at the Twin Cities Oktoberfest, while Minneschlagen targets Minnesota consumers with its name and the outline of the state of Minnesota on the packaging. But even in Minnesota markets, consumers will not likely be confused by the similarities given the differences in overall impression and because WRB sells a service and DAMM sells a product.” The good/service distinction also increased the competitive separation between the parties, making confusion less likely.

Intent: “DAMM’s knowledge of WRB’s product does not show DAMM intended to confuse consumers.” Their shared use of “schlagen” had a non-goodwill-based explaination, and “Minneschlagen features its own logo prominently, which suggests DAMM’s intent to represent its own brand to consumers and not to copy,” as did its additional packaging and portable size.

Consumers’ degree of care: hard to say; didn’t favor either party.

Actual confusion: The Facebook posts’ meaning was ambiguous; they could show confusion or genericity. Declarations from two Oktoberfest coordinators who attest that they “would have assumed Minneschlagen’s product is affiliated with WRB” also didn’t show actual confusion “because the coordinators themselves were not confused nor do they report knowing of attendees who were confused.”

No injunction would issue.

 

Arbitration agreement doesn't cover sweepstakes that has its own rules

Suski v. Marden-Kane, Inc., 2022 WL 103541, No. 21-cv-04539-SK (N.D. Cal. Jan. 11, 2022)

Plaintiffs filed a putative class action “on behalf of themselves and persons who opted into Coinbase’s $1.2 million Dogecoin (DOGE) sweepstakes in June 2021, and who purchased or sold Dogecoins on a Coinbase exchange for a total of $100 or more between June 3, 2021 and June 10, 2021.” The plaintiffs created Coinbase accounts before the sweepstakes began; the user agreement “indisputably” contains an arbitration provision covering “any dispute arising under this Agreement” or “any dispute arising out of or relating to this Agreement or the Coinbase Services,” depending on the plaintiff.

The sweepstakes ad stated:

Trade DOGE. Win DOGE. Starting today, you can trade, send, and receive Dogecoin on Coinbase.com and with the Coinbase Android and iOS apps. To celebrate, we’re giving away $1.2 million in Dogecoin. Opt in and then buy or sell $100 in DOGE on Coinbase by 6/10/2021 for your chance to win. Terms and conditions apply.

Along with some other fine, light-colored print, the ad continued: “NO PURCHASE NECESSARY TO ENTER OR WIN. PURCHASES WILL NOT INCREASE YOUR CHANCES OF WINNING.” There were other steps that encouraged consumers to trade. The complaint alleged that, “Coinbase, based on in-depth, empirical data from a previous sweepstakes, knew that the wording, design, and presentation of their Dogecoin sweepstakes advertisements would cause most users never to see the information about the alternative ways to enter on the separate ‘rules and details’ webpage.”

The ”Official Rules” stated, in relevant part (uncapitalized because I actually would like you to be able to read this): “The California courts (state and federal) shall have sole jurisdiction of any controversies regarding the promotion and the laws of the state of California shall govern the promotion. Each entrant waives any and all objections to jurisdiction and venue in those courts for any reason and hereby submits to the jurisdiction of those courts.”

Plaintiffs alleged that this was an unlawful lottery and that the promotion violated the usual California statutes.

Coinbase moved to compel arbitration.  “A party seeking to compel arbitration must prove by a preponderance of the evidence the existence of an arbitration agreement.” The terms conflicted; which governed and who decides? Whether the court or the arbitrator would determine which contract applied was an issue “for judicial determination unless the parties clearly and unmistakably provide otherwise.” Three of four plaintiffs agreed to language that said “enforceability, revocability, scope, or validity of the Arbitration Agreement … shall be decided by an arbitrator and not by a court or judge.” But the dispute here wasn’t about the scope of the agreement; it was whether the agreement had been superseded by another, separate contract. The plaintiffs agreed that the arbitration agreement would apply if it were not for their subsequent agreement to the official rules. Because of this subsequent agreement, the interaction between the two contracts was not “clearly and unmistakably delegated in the arbitration provision to the arbitrator.”

So, which contract governed? “Both provisions are all-inclusive, both are mandatory, and neither admits the possibility of the other.” Coinbase’s argument that the sweepstakes Official Rules only applied to non-Coinbase users was contradicted by the terms applying the rules to all “entrants.” Given this conflict, the subsequent contract superseded the first.

Turning to the motion to dismiss: Coinbase argued that the Dogecoin sweepstakes was not an illegal lottery under California law because it provided free alternative methods of entry. This was a close case, but the current allegations did not support a claim that the sweepstakes was an illegal lottery. “Although Plaintiffs may not have been aware of it when they made a trade of Dogecoins, they were not actually required to trade Dogecoins in order to enter the sweepstakes and have a chance to win. Because California penal statutes are construed strictly and because no California court has held that being unaware of the free method of entry is sufficient to demonstrate the required consideration, the Court finds that Plaintiffs have not and cannot allege a violation of California Penal Code § 320.”

However, “[t]hat many people may not have been aware that there was a free method of entry is significant for Plaintiffs’ claims for disclosure and misrepresentation under the UCL, FAL, and CLRA.”

Plaintiffs stated a claim that the materials were likely to deceive a reasonable consumer that they needed to make a trade to participate in the sweepstakes. Despite the disclosures, “its advertising methods heavily directed people to make a trade in order to participate in this sweepstakes,” and “no purchase necessary” was ambiguous in light of the other statements regarding the need to “buy or sell” Dogecoin. “Persons could have reasonably believed they were required to buy or sell Dogecoin to participate, which would have been consistent with not making a purchase but still requiring them to make a trade.”

California law also requires a “clear and conspicuous statement of the no-purchase-or-payment-necessary message” in solicitation materials. Plaintiffs alleged sufficient facts to show that Coinbase’s advertisements were not “clear and conspicuous” as to whether all persons could enter for free.

Amicus in support of cert in Andy Warhol Foundation v. Goldsmith

 On behalf of a number of IP professors, here.

Advertising injury coverage may exist even when gravamen of underlying complaint is TM

Vitamin Energy, LLC v. Evanston Ins. Co., -- F.4^th ---, 2022 WL 39839, No. 20-3461 (3d Cir. Jan. 5, 2022)

The court finds that, contrary to the district court’s holding, at least some of the underlying lawsuit’s allegations claimed that Vitamin Energy made disparaging statements about 5-hour Energy, thus triggering the insurer’s duty to defend under its “advertising injury” policy.

“Pennsylvania law imposes on insurers a broad duty to defend lawsuits brought against those they insure.” 5-hour Energy [a frequent litigant in this space] sued mainly over trademark infringement, but also alleged false advertising (and trademark dilution). “Read liberally in favor of coverage, as is required, the 5-hour Energy complaint and the insurance policy impose on Evanston a duty to defend Vitamin Energy in the underlying suit, at least until there is no possibility that 5-hour Energy could prevail against Vitamin Energy on a claim covered by the policy.”

5-hour Energy alleged “false and misleading comparative advertising” about the benefits of Vitamin Energy’s products relative to competing products, including 5-hour Energy’s, as shown in the following chart from the underlying complaint:

This is allegedly false/misleading in representing that 5-hour Energy’s products don’t have 100% of the recommended daily value of Vitamin B. There were other alleged falsehoods about Vitamin Energy’s own products.

Under Pennsylvania law, “[a]n insurer’s duty to defend is broader than its duty to indemnify,” and potential coverage is determined “by comparing the four corners of the insurance contract to the four corners of the [underlying] complaint.” The Policy here defines Advertising Injury as an injury “arising out of oral or written publication of material that libels or slanders ... a person’s or organization’s products, goods or operations or other defamatory or disparaging material, occurring in the course of the Named Insured’s Advertisement.” This includes, at a minimum, an injurious false statement about another’s goods.

Even if all the other allegations in 5-hour Energy’s complaint pertain only to Vitamin Energy’s own products, the relevant allegations about the ad at issue “are best read as saying not only that Vitamin Energy’s own products contain 100% of the daily recommended value of vitamin B, but also that 5-hour Energy’s products do not. That latter representation is clearly about 5-hour Energy’s products, not Vitamin Energy’s, and 5-hour Energy asserts that it is false.” The underlying complaint need only contain “at least one allegation that falls within the scope of the policy’s coverage [for] the duty to defend [to be] triggered[.]” This is true even if the “gravamen” of the complaint is that the slogan promoting “up to 7 HOURS of Energy” is trademark infringement. The relevant question is “whether a claim against an insured is potentially covered[,]” “not whether the most salient claim is potentially covered.”

image illustrating the TM claim

The duty to defend “is not limited to meritorious actions; it even extends to actions that are groundless, false, or fraudulent as long as there exists the possibility that the allegations implicate coverage.”

Likewise, the exclusions were construed in favor of coverage. The IP exclusion for “Personal Injury or Advertising Injury arising out of piracy, unfair competition, the infringement of copyright, title, trade dress, slogan, service mark, service name or trademark, trade name, patent, trade secret or other intellectual property right,” was likewise inapplicable to the Vitamin B comparative advertising allegation. Although the exclusion listed “unfair competition,” that term “does not have a singular, unambiguous meaning.” In context, the other terms “refer narrowly and consistently to intellectual property rights, and so should ‘unfair competition.’” The court pointed out: “[I]f the exclusion did bar coverage because of allegations supporting a potential disparagement claim, it would arguably render the Policy’s coverage of injury from ‘disparaging material’ a nullity, which we doubt the parties intended.”

So too with the exclusions for the insured’s incorrect description/failure to conform with its own representations about its products’ own characteristics. And the exclusions for “knowing” personal/advertising injury didn’t apply because the complaint alleged knowing trademark infringement, not knowing disparagement.

In a footnote, the court said something that puzzled me: “Of course, had Vitamin Energy cabined its comparative advertising efforts to simple puffery, claims of relative superiority over other competitors, or claims about competitors that its competitors did not allege were false or misleading, then no duty to defend would arise because it is well established that such claims are not actionable.” It seems to me that until a court in the underlying action agrees that the comparative advertising is puffery, there’s still a duty to defend, because otherwise one court could say it’s not puffery and thus there is Lanham Act/disparagement exposure and another could say nonetheless there’s no duty to defend or indemnify, which seems wrong.

TripAdvisor might not get 230 protection when its own ad touted pandemic precautions

Chang v. TripAdvisor, LLC, 2021 WL 6237376, Civ. No. 2021-00347 (Mass. Super. Ct. Nov. 19, 2021)

Chang sought transportation services for an upcoming trip he had planned to San Jose Del Cabo in Mexico and found an ad on TripAdvisor’s website for a shuttle service from the Los Cabos Airport to his hotel. “Relying in part on the advertisement’s representations regarding safety measures taken to prevent the spread of COVID-19, Mr. Chang booked a one-way ticket for July 15, 2020 on the shuttle service.” He alleged that the shuttle didn’t comply with those safety measures, and sued TripAdvisor and Viator, “a company that advertises its services in cooperation with TripAdvisor,” under California law. The court rejected TripAdvisor’s §230 argument at the pleading stage, but nonetheless granted the motion to dismiss.

§230 supports a motion to dismiss only if the CDA’s “barrier to suit is evident from the face of the ... complaint.” The complaint did not admit that TripAdvisor wasn’t an information content provider, that is, “any person or entity that is responsible, in whole or in part, for the creation or development of information provided through the Internet or any other interactive service.” The complaint alleged that defendants “publish[ ] and advertise[ ] [their] services in cooperation” with others on their website. After his reservation, Chang received an email from TripAdvisor containing a section titled “Keeping you safe during COVID-19” which reiterated the same safety measures touted in the initial ad. “While Mr. Chang does not allege the extent of Defendants’ contributions to the description of the safety measures in the advertisement, it is certainly plausible that the text describing such safety measures was created at least in part by Defendants.”

However, Chang didn’t allege facts suggesting that either defendant had the requisite knowledge or intent required under each claim. The FAL bars making or disseminating to the public any statement concerning a product or service that “is untrue or misleading, and which is known, or which by the exercise of reasonable care should be known, to be untrue or misleading.” The complaint lacked allegations suggesting defendants either intentionally or negligently disseminated the untrue advertisement. The court noted that there was no allegation that either defendant operated the shuttle service itself or oversaw its operation. The CLRA likewise bars advertising goods or services “with intent not to sell them as advertised,” Cal. Civ. Code §1770(a)(9), so that claim had the same flaw. Chang also argued that he stated a claim under Cal. Civ. Code §1770(a)(7), which makes it unlawful to “[r]epresent[ ] that goods or services are of a particular standard, quality, or grade, or that goods are of a particular style or model, if they are of another” and has no intent requirement, but the complaint didn’t mention (a)(7), only (a)(9) (adding “et seq.” to the reference wasn’t sufficient, since 27 different bad practices were listed). He could amend his complaint.