Friday, April 29, 2022

National Ass'n of Realtors fails to show standing in false advertising counterclaim

REX – Real Estate Exchange, Inc. v. Zillow, Inc., 2022 WL 1203742, No. C21-312 TSZ (W.D. Wash. Apr. 22, 2022)

Part of a larger dispute; the National Association of Realtors (NAR) counterclaimed against REX for false advertising in violation of the Lanham Act. The court rejected the counterclaim on standing grounds but not on First Amendment/Noerr-Pennington grounds.

NAR challenged statements on REX’s website. NAR was counterclaiming on its own behalf, requiring it to demonstrate injury in fact for Article III standing. “An organization suing on its own behalf can establish an injury when it suffered ‘both a diversion of its resources and a frustration of its mission.’ ” TransUnion says that “various intangible harms,” such as reputational harm, can qualify as concrete injuries for standing purposes, but NAR didn’t sufficiently plead that. It failed to allege anything more than “generalized reputational harm,” not any concrete interference with its ability to carry out its purposes or diverted resources from regular activity.

NAR’s allegations were that REX harmed it through the following allegedly false claims: (i) REX offers low commissions and has superior technology, (ii) NAR has artificially inflated commissions and hindered the development of technology for home listings, and (iii) NAR has engaged in unlawful or unfair conduct. However, NAR didn’t allege that any consumers or brokers have withheld trade from NAR as a result of the advertisements. It only alleged, in a conclusory fashion, that its “goodwill and reputation, both with its own members and consumers, has been harmed.” But it didn’t allege facts explaining how REX’s purportedly false advertisements have frustrated its mission or caused it to divert its resources. “Nor has NAR alleged sufficient facts to explain how REX’s advertisements to consumers harm NAR’s reputation and goodwill among its own members, who NAR does not claim were misled.” This was insufficient to allege concrete and particularized harm.

Statutory standing: Also insufficient. Though NAR was within the Lanham Act’s zone of interests, it didn’t allege proximate cause. As a non-direct competitor, it not entitled to a presumption of commercial injury. Because NAR wasn’t counterclaiming on behalf of its members, it had to allege facts showing that its reputational injury flows directly from REX’s purportedly false advertisements and that REX’s “deception of consumers cause[d] them to withhold trade from [NAR].” Although NAR alleged harm to consumers, it didn’t allege that any consumers or brokers withheld trade from NAR itself.

However, the court declined to endorse REX’s argument that its statements were not statements of fact and weren’t made in commercial speech; “[t]hese are both factual inquiries that cannot be resolved on a 12(b)(6) motion.” Statements like “REX charges a low fee by totally eliminating the buyer side agent commission,” “[NAR’s rules and policies are responsible for] inflating consumer home prices by as much as $50 billion per year,” and claims to have innovative technology contained verifiable characteristics and were plausibly commercial advertising.

Under the Noerr-Pennington doctrine, “those who petition any department of the government for redress are generally immune from statutory liability for their petitioning conduct.” REX argued that its anti-NAR efforts before the courts, the Department of Justice, and Congress were protected speech, but the court wasn’t convinced that statements at issue in the counterclaim were incidental to/sufficiently related to REX’s petitioning activities to be covered.

truthful statement about role in developing product isn't falsified by later split

Hawrych v. Nutra-Luxe M.D., No. 2:21-cv-830-SPC-MRM, 2022 WL 1187136 (M.D. Fla. Apr. 21, 2022)

“Nearly twenty years ago, Plaintiff Dr. Andrew Hawrych, a plastic surgeon, and Defendant Peter Von Berg, a businessman operating a cosmetics and skin care company, formed an oral agreement to develop new cosmetic products.” Eventually, instead of monthly compensation, Von Berg offered Hawrych a 10% ownership interest in Nutra-Luxe, which worked for 16 years. “Because of Dr. Hawrych’s association, Von Berg incorporated the acronym ‘M.D.’ into the company name, added the phrase ‘physician developed/formulated’ to the product descriptions, and used Dr. Hawrych’s name, likeness, and trademark (‘Hawrych MD’) in various advertisements.”

However, Von Berg allegedly sold Nutra-Luxe to Lash HoldCo, LLC without notice or compensation to Hawrych without paying him, at which point Hawrych revoked permissions and licenses that he had granted Defendants for the use of his name, image, and trademark.

Addressing only the false advertising claim: Given that Hawrych explicitly alleged that he developed the products at issue, Lash-Global’s advertisements stating that Dr. Hawrych developed their products were not plausibly false or misleading. It was not enough to allege that the marketing materials were

“misleading as to his present involvement.” The allegations related to the use of “M.D.” in the company name; the phrase “physician developed/formulated”; the use of his name, likeness, and registered trademark “Hawrych MD”; and, post-license termination, statements that defendant’s “products were developed by Hawrych,” inclusion of Hawrych’s name on their products as listed on their websites; and marketing using terms identical or similar to “Dr. Hawrych” and “Dr. A. Hawrych.” This allegedly misled consumers into thinking he was still associated or connected with the new company, and that it continues to have his sponsorship, endorsement, consent, or approval.

But the alleged statements, e.g, “[t]his revolutionary technology was clinically researched, physician formulated and tested by A. Hawrych MD, A Board Certified Facial Plastic Surgeon” and “Dr. Hawrych’s most advanced skin serum is formulated with two neuro-peptide ingredients,” were admittedly true. “Statements conveying Dr. Hawrych’s role in the research, formulation, and testing of Nutra-Luxe’s products are not rendered misleading because his relationship with the company producing the products has changed.” Thus, the false advertising claim would be dismissed.

False advertising law has a much more structured way of accounting for implications than trademark law does. As a trademark claim, this is harder to kick out just because it’s true, because courts have fewer tools for explaining that the benefit of the true information about product development has to be traded off against the potential misleadingness about continuing involvement, as the current morass of first sale doctrine indicates. But given the benefit of the truth, and the lower-if-present materiality of the allegedly false implication, courts should favor allowing the truth. (Note that Dastar also produces this result!)

offer to make good can preclude restitution claim under CLRA

DeNike v. Mathew Enterprise, Inc., 76 Cal.App.5th 371, H046420 (Mar. 16, 2022)

DeNike bought a 2014 Jeep Wrangler with a hardtop from defendant. Soon after, DeNike discovered that the vehicle was originally manufactured as a soft top and that the hardtop had been installed at some point after it left the factory. Before buying, DeNike asked if everything on the vehicle was “factory installed” and the salesman assured him it was. After purchase, problems quickly developed with the wipers, and he soon found that the hardtop had been installed, improperly, after the vehicle left the factory.

DeNike ultimately filed a lawsuit and a jury found in favor of DeNike on his claims under the Consumers Legal Remedies Act and the Song-Beverly Consumer Warranty Act, and for intentional misrepresentation. The trial court issued a permanent injunction against SCJ and awarded DeNike attorney fees.

The court of appeals found the restitution claim under the CLRA was barred because of defendant’s offers of correction before suit, but sustained the rest of the verdict, including permanent injunctive relief. DeNike’s counsel wrote to defendant asking for rescission of the purchase agreement, payment of the vehicle loan, plus attorney fees and costs pursuant to the CLRA. Several weeks later, defendant offered to: (1) repair the vehicle if DeNike still wanted it, and provide a loaner vehicle while it was repaired; or (2) rescind the purchase agreement, refund all payments DeNike had made, pay off the remaining balance on the vehicle, reimburse DeNike for any repairs or out-of-pocket costs, and pay DeNike’s “reasonable attorney’s [sic] fees.” “The parties exchanged additional letters seeking to resolve the dispute, but negotiations ultimately failed when they could not reach an agreement on the amount of attorney fees.”

The jury awarded $36,192.79, consisting of $26,001.61 for restitution/rescission, plus incidental damages of $10,191.18. The trial court enjoined defendant from: “a. selling a new vehicle that has been modified, and/or had additions made to it, from its factory-delivered condition without an addendum sticker attached to the vehicle disclosing such modification and/or addition as required by law; and b. failing to disclose to a customer as required by law the fact or existence of a modification and/or addition having been made to a new vehicle from its factory-delivered condition before the customer enters into a written agreement to purchase the vehicle.” The trial court further ordered it to “implement policies, procedures, and training to apprise its employees of, and to ensure compliance with” the terms of the injunction.

The CLRA provides: “[N]o action for damages may be maintained … if an appropriate correction, repair, replacement, or other remedy is given, or agreed to be given within a reasonable time, to the consumer within 30 days after receipt of the notice.” This provision extends to restitution. Though it’s true that damages and restitution are different remedies, the specific language and structure of the law counseled in favor of reading “damages” capaciously, including the statute’s goal to “facilitate precomplaint settlements of consumer actions wherever possible.” “If an appropriate offer of correction under section 1782, subdivision (b) applies only to bar claims for monetary damages, that provision’s safe harbor is neutered.”

However, the evidence supporting the misrepresentation verdict was sufficient; the jury appropriately found that DeNike reasonably relied on the representation that the vehicle had a “factory installed” hardtop. [DeNike was apparently aided by his practice of taking notes on his entire buying journey, apparently including at different dealers, which certainly validates some of my spouse’s habits.]

Also, there was no need to instruct the jury that DeNike had to show “impaired safety” in order to prevail on his cause of action for violation of an implied warranty under the Song-Beverly Act. It was enough on this element that the vehicle did not have the quality that a buyer would reasonably expect. The implied warranty certainly covers safety, but that’s not all; it also has to “[c]onform to the promises or affirmations of fact made on the container or label.” Even if that makes Song-Beverly duplicative of other California statutes prohibiting false advertising, it expressly provides that its “remedies ... are cumulative and shall not be construed as restricting any remedy that is otherwise available.”

And injunctive relief under the CLRA was appropriate. The trial court noted that “the viability of injunctive relief here comes down to the extent of the threat of continuing CLRA violations as established by the evidence.” It commented that defendant “offered no facts or theories at trial to explain just how the Jeep came to be sold to DeNike in its altered or modified condition or why there was no internal documentation reflecting replacement of the original soft top with the [hardtop] and no accurate addendum affixed reflecting this change and the costs associated with it.” Given “the void in the evidence about how or why this occurred; the inconsistent understanding on the part of defendant’s employees of internal documentary systems that arguably should have prevented the sale of the vehicle to DeNike in violation of the CLRA; and the seeming lack of recognition by defendant of the need to ensure its policies and procedures are sufficient to not just capture profit but to also satisfy full and accurate disclosure and compliance with the law,” injunctive relief was warranted.

Defendant argued that injunctive relief was improper because: (1) DeNike “received a benefit” due to its failure to charge him for the dealer-installed hardtop; (2) there was no evidence to support DeNike’s expressed desire not to have any dealer-installed features based on his fear of potential effects on the manufacturer’s warranty; and (3) there was no evidence the violation was likely to recur. But defendant’s own failure to explain what happened, along with the rest of the evidence, supported the injunction.

Sending infringement notice to Amazon isn't commercial advertising/promotion but could be tortious interference

Studio 010 Inc. v. Digital Cashflow LLC, No. C20-1018-DGE, 2022 WL 1215529 (W.D. Wash. Apr. 4, 2022) (R&R)

Equadose sued for declaratory and injunctive relief and damages based on defendants’ allegedly intentionally inaccurate representations to that accused Equadose of selling an earwax cleaning device that infringed a patent, which resulted in Equadose’s inability to sell the product on for a period of time. The judge recommended rejecting Lanham Act claims because statements made to Amazon only aren’t “commercial advertising or promotion” (the judge at one point wrongly shorthands this as “not commercial speech,” but finishes by correctly focusing on “not commercial advertising or promotion”), but rejecting the rest of the motion to dismiss.

Accepting the allegations of the complaint, it was plausible that defendants “patented a device without disclosing that Equadose’s product might invalidate that patent, improperly sought to block plaintiff from selling the product on by wielding an invalid patent, then attempted to evade legal liability for harm that had already been incurred by transferring the patent and promising not to sue.”

One point of possible further note: individual defendant Ackerman was in as an officer of a (defaulting) corporate defendant. He was personally involved in the relevant conduct, including patenting and reporting to Amazon, so he could be liable for “tortious misuse” of patent and trademark rights. And the Patent Act dosen’t preempt “fraud/misrepresentation-based state or federal unfair competition laws, nor state contract and tortious interference laws, as they address conduct beyond mere infringement or noninfringement.” Thus, though claims may not solely be based on obtaining a patent through fraud,  “Equadose may proceed with its claims that involve the wielding of an invalid patent to interfere with its contractual relations with and to unfairly compete by improperly blocking Equadose access to the sole marketplace for its products.” This also sustained Equadose’s claim for a violation of the Washington Consumer Protection Act, since Equadose properly alleged (1) an unfair or deceptive act or practice, (2) occurring in trade or commerce, (3) affecting the public interest, (4) injury to a person’s business or property, and (5) causation.

Thursday, April 28, 2022

Another case finds that delay still rebuts presumption of irreparable harm

Harley’s Hope Found. v. Harley’s Dream, 2022 WL 1154526, No. 22-cv-0136-WJM-STV (D. Colo. Apr. 19, 2022)

Harley’s Hope launched in 2010; it owns a 2021-issued registration for “HARLEY’S HOPE FOUNDATION,” for “Charitable foundation services, namely, providing financial support to pet parents for veterinary assistance and programs” and a 2012 Colorado state registration.

In 2016,  Defendant began using the names “HARLEY’S HOUSE OF HOPE” and “HARLEY’S DREAM,” in connection with its charitable organization providing financial services for pets and pet owners and educational services. This has produced confusion since the beginning.

Harley’s Hope contended that, although it first became aware of consumer confusion in 2017, it did not learn until March 2019 that it was Defendant’s use of Harley’s Mark that was the source of the confusion. It continued to respond to confused consumers from 2019 to 2022. It sent a C&D in mid-2021 and sued in January 2022.

Its delay (nearly three years counting from March 2019, eight months after sending a C&D) defeated the presumption of irreparable harm; the court specifically endorsed pre-TMA precedent that delay, including much shorter delays than this, rebuts the presumption. “It may well be true that Plaintiff spent much of the past three years investigating its trademark infringement claims and attempting to informally resolve the matter; however, such contentions do not alter the Court’s conclusion that Plaintiff is not entitled to a statutory presumption of irreparable harm based on Plaintiff’s delay.”

Allbirds' environmental and sheep treatment claims not plausibly misleading, court rules

Dwyer v. Allbirds, Inc., 2022 WL 1136799, No. 21-CV-5238 (CS) (S.D.N.Y. Apr. 18, 2022)

Allbirds makes shoes from wool. Dwyer, a customer, challenged Allbirds’ advertising, which focuses on the shoes’ environmental impact, e.g., “Sustainability Meets Style,” “Low Carbon Footprint,” “Environmentally Friendly,” “Made with Sustainable Wool,” “Reversing Climate Change ...” and “Our Sustainable Practices.” Allberts uses a life cycle assessment (LCA) tool to estimate its products’ carbon footprint, which it defines as “the kg CO2e emitted to create our products.” Defendant also “measure[s] other greenhouse gases, like methane, and convert[s] them to CO2.” Defendant states that the average carbon footprint of its products is 7.6 kg CO2e, and provides individual carbon footprint figures for particular products, with emissions from materials accounting for the most significant component. It says that “Allbirds transportation emissions are calculated separately and our entire footprint is offset to zero.”

Dwyer alleged that this was misleading and brought NY claims.

First, the advertising was allegedly misleading because its use of the Higg Material Sustainability Index, a standard developed by the Sustainable Apparel Coalition to measure the environmental impact of apparel materials, addresses only raw materials and lacks standards for comparing different materials. The SAC itself allegedly recognizes these limitations and “is revamping the Higg MSI to incorporate ‘product level environmental impacts.’ ” Dwyer also criticized Allbirds’ LCA tool for assessing only the carbon footprint of each product, not other impacts of wool production, including on water, eutrophication, or land occupation. If Allbirds calculated the carbon footprint from sheep farming overall – including items such as methane emitted by sheep and runoff of chemicals used in cleaning or pesticides – as opposed to the carbon footprint from its products, the carbon footprint figures would allegedly be significantly higher. The LCA tool also allegedly uses data from several sources, and there are unspecified “discrepancies in industry-sourced data,” allegedly “render[ing] it unreliable.”

But Dwyer failed to allege material misleadingness. Criticizing the tools’ methodologies didn’t identify a false, deceptive, or misleading statement about the shoes. Dwyer “does not allege that the calculations Defendant provides are wrong or that Defendant falsely describes the way it undertakes those calculations.” Disagreement about what measurement to use didn’t plausibly plead material misleadingness, and the allegations about unreliability were too vague besides.

Dwyer didn’t allege that a reasonable consumer would expect Allbirds to use a different calculation method or would be misled by the use of LCA/Higg MSI.  Allbirds describes the exact components of the calculation in its advertising, and Dwyer didn’t allege that it wasn’t doing the advertised calcuations. Allbirds never claimed that it includes methane emissions from land occupation or eutrophication, or that it accounts for the entire life-cycle of wool production. Nor did Dwyer allege that a reasonable consumer would expect a carbon footprint calculation for a shoe manufacturer to include non-atmospheric inputs, such as land occupation and eutrophication, or to include carbon generated from the production of raw materials before they come into the manufacturer’s hands.

Nor did Dwyer allege that Allbirds had special knowledge it needed to disclose. “Defendant clearly did not alone possess the allegedly omitted information, given that Plaintiff cites to environmental researchers, PETA, the 2017 Pulse of the Fashion Industry Report, ‘industry sources,’ and the United Kingdom’s House of Commons Environmental Audit Committee as discussing the environmental impact of the wool industry and sheep farming.” The allegation that “the onus is on Defendant” to not omit this information because “[r]easonable consumers are not likely to know of eutrophication and methane emissions from sheep,” was insufficient; “[t]here is no obligation under GBL § 349 or § 350 to provide whatever information a consumer might like to know,” and again, Allbirds disclosed how it calculated emissions, based on the production, extraction, processing, and packaging of raw materials. “Plaintiff provides no basis to find it plausible that a reasonable consumer would expect that calculation to include non-atmospheric effects or effects from the farming that precedes the production of the raw materials.”

Animal welfare-based claims also failed. Dwyer alleged that Allbirds’ depictions of “happy” sheep in “pastoral settings” rested on “empty welfare policies that do little to stop animal suffering.” But Plaintiff But Dwyer didn’t identify any misrepresentations. For example, Allbirds ran ads that show sheep in a field, one of which says, “What if every time you got a haircut they made shoes out of it? That would be pretty cool,” and the other of which says, “Behind every shoe is a sheep. And behind every sheep, is another sheep, probably.” But “[t]hese ads, which are obviously intended to be humorous, make no representations at all.”  Nor did Dwyer, by citing evidence that there was cruelty to sheep at over 100 large-scale operations, plead anything about the wool Allbirds used. Allbirds also touted its “use of discarded crab shells as ‘better for the planet,’” which was allegedly false, deceptive, and misleading,” because the crab industry is “inherently harmful,” given endangered whales being caught in crab fishing gear and the effects of climate change on crab populations. “These general, industry-wide criticisms of the crab business do not begin to suggest that Defendant recycling the shells is not better for the planet than leaving them as trash.”

Dwyer did specifically criticize Allbirds’ certified wool supplier, but none of her criticisms plausibly suggested that the sheep from which it gets its wool are treated cruelly. She alleged that sheep at certified farms didn’t receive individual care, “but no reasonable consumer would expect farm animals to receive such care, and in any event the lack of individual care hardly shows inhumane treatment.” Criticism of the certifier for not auditing as frequently as PETA would like, not posting its standards online, working in countries “where animal welfare standards are routinely ignored,” and certifying only farms themselves, not those involved in the transportation or slaughtering of sheep, did not show deceptiveness. “At most these allegations suggest that a … certification is no guarantee that animals at the farms it certifies could never be treated cruelly, which is not enough to render plausible the allegation that Defendant made a materially misleading statement when it allegedly described its wool harvesting practices as humane.”

Allbird’s statement “Our Sheep Live The Good Life” was classic puffery.

Despite likely confusion and presumption of irreparable harm, delay dooms old USFL's PI bid

Real USFL, LLC v. Fox Sports, Inc., 2022 WL 1134487, No. CV 22-1350 JFW(MARx) (C.D. Cal. Apr. 14, 2022)

How it started:

In 1982, a group of investors launched a springtime professional football league called the United States Football League (“USFL” or “Old League”). The USFL had three successful seasons, featuring well known players such as Herschel Walker, Steve Young, Jim Kelly, Doug Flutie and Reggie White. The USFL ceased to exist in 1986 after an ill-fated attempt to move its season to the fall to directly compete with the National Football League (“NFL”), and ultimately force a merger.

Steve Ehrhart then collected and distributed the USFL’s damages and attorneys’ fee awards from the case against the NFL and, decades later, entered into purported licensing arrangements for apparel, books and films, including a 2011 licensing agreement to produce throwback t-shirts with USFL and USFL team logos along with licensing of referential uses (not required and shouldn’t count) in a book and a planned documentary about a player. He also hosted a reunion and golf tournament in 2007 and engaged in other referential activities; he managed royalties from the licensed USFL apparel from 2011-2021. That is, even assuming that authorizing referential uses counted, he didn’t do anything after distributing the 1986 award until 2006, nearly twenty years.

Defendants accounced the launch of a new professional spring football league, also called the United States Football League, in June 2021.  The press release stated: “Today, the United States Football League (USFL) announced that the league will officially return in the spring of 2022. Initially launched in 1983, the USFL originally was an upstart spring football league.... When relaunched next year, the USFL Enterprises retains rights to key original team names.” The press release concludes, “[t]he relaunch of the USFL is a landmark day for football fans and Fox Sports, said Eric Shanks, CEO and Executive Producer, Fox Sports.” Fox was named in the release as the USFL Enterprises’ “Official Broadcast Partner.”

After Ehrhart protested, Fox revised the press release to omit the language suggesting that the New League was a relaunch of the original USFL. However, Ehrhart and several of the former USFL team owners still received numerous calls and inquiries raising questions about a “relaunch” of the USFL, and specifically asking whether any of the original USFL owners were involved in the New League. “The media coverage of the New League is replete with examples of reporters who assume that there is a connection between the Old League and the New League. Defendants intentionally decided to use the same league name and team names. They have also used former USFL players to promote the New League in order to establish a connection between the Old League and the New League.”

The New League announced its team names and logos in a press release dated November 22, 2021, and has also announced a multi-year media rights agreement with NBC, stadium deals in Birmingham and Canton, and head coaches; it launched a line of apparel through internet based sales, it commenced ticket sales; and it held its inaugural draft in February 2022. It now has over 300 players on eight teams attending training camps. Games are scheduled to begin on April 16, 2022. “In preparation for the league’s debut, Defendants have invested tens of millions of dollars in acquiring intellectual property rights, advertising, broadcasting, stadium and apparel deals, and in hiring players, coaches, trainers, and other staff, and in branded uniforms and equipment. They have also entered into numerous business partnerships and relationships for ticketing, advertising and apparel sales.” Third parties have also invested “considerable resources in the New League.” NBC, for example, announced a multiyear deal and has sold around $5 million of advertising and sponsorship commitments to third parties in connection with the planned New League programming. Birmingham, Alabama has also invested substantial resources as the host to the majority of the scheduled games.

Plaintiff’s 1980s USFL registrations lapsed. Defendants own a registration for USFL for apparel (filed March 2011); USFL for entertainment (filed March 2011); and pending use-based and ITU applications for various team names. The 2011 registrations were acquired from an unrelated entity.

Pre-litigation, defendants “consistently maintained their rights to use these Marks in the launch of the New League, and asked Plaintiff for evidence of its ownership in the Marks. Plaintiffs never supplied the requested information.” There were repeated contacts in the months after the announcement but defendants were never receptive, including contacts in August 2021 and December 2021, after which Fox’s counsel sent a C&D to American Classics, the Old League’s sole licensee for USFL apparel. American Classics responded by sending a copy of the License Agreement between American Classics and Ehrhart, and other records relating to the royalty payments. “In order to avoid threatened litigation, American Classics ceased selling the USFL merchandise in December 2021.” Plaintiffs sued in February 2022 and filed for a preliminary injunction in mid-March, 2022.

The court found that plaintiffs were likely to prevail on their infringement claims. They based their priority on use beginning in 2006. Defendants’ priority dated from 2011; at this point, plaintiffs failed to show fraud.

So was plaintiffs’ use sufficient to give them priority? “The sole evidence of use of the League Marks prior to the launch of the New League in June 2021 is the sale of apparel by the Old League’s licensee American Classics from October 2011 through December 2021.” Defendants argued that Ehrhart had nothing to license at that time, because the marks were dead. “This may be true, but it is irrelevant. Once abandoned, Mr. Ehrhart could establish ownership through use of the Marks.” By the way, this license produced less than $20,000 in royalties over the past twenty years—is under $1000/year real use? Does your answer change if the licensed apparel was produced on demand, that is, there was nothing in stock?

Defendants claimed that their 2011 priority date beat Ehrhart’s licensing date, but they failed to show that their predecessor entity made any commercial use of the marks—owning a registration isn’t enough to establish ownership.  [Hmm. If it’s presumptively valid, doesn’t that shift the burden to plaintiffs to show that there wasn’t use? Can this challenge even be made at this point?]

Defendants, somewhat against their larger interests, argued that use of the USFL and Old Teams names on apparel were merely “ornamental” and are not “source identifying.”

This argument directly contradicts Defendants’ other arguments that rely on the public’s desire for and memory of the USFL. Indeed, it was Defendants’ intentional decision to capitalize on the public’s interest by calling its New League “USFL,” and using Old Team names instead of choosing new names for the New League and Teams. In addition, Defendants chose to ask former USFL players and coaches to promote the New League. There is an obvious reason for these decisions that negates Defendants’ attempt to argue that there is no Old League name or team logo recognition–there is a “nostalgia among older football fans” for the USFL and its team “names, jerseys and helmets.”

[I mean, it’s not directly contradictory, since the USFL could be like Woolworth’s, or Mike Dukakis’s election campaign—something that one might want a memento of without using as a source identifier; one could easily have “nostalgia” for something one recognizes as no longer existing. The court is conflating meaning with source identification, and when the promise of the t-shirts is “vintage” it seems quite plausible that there would be meaning without source identification.]

The court also credited Ehrhart’s other activities—the 2007 reunion, an interview for an ESPN documentary, “consultation and releases for use in various book and film projects from 2006 to 2016,” and managing the American Classics royalties—as part of the totality of the evidence. None of that alone would establish commercial use, but “taken as a whole and in combination with the apparel sales, it shows an intent to use the Marks in commerce and to maintain the association of the USFL Mark with the Old League.” So too with the team name marks, where defendants had no registrations or use until after the launch of the New League in June 2021, while plaintiffs had apparel sales by the Old League’s licensee, American Classic and the other non-sales activities.

Thus, plaintiff owned the USFL marks and team name marks. With that, likely confusion followed as the night the day. Although “the marks at issue, the goods, the channels of trade (regarding sales of branded apparel), and potential customers are nearly identical,” the court found intent to be the most important factor, validating Barton Beebe’s conclusion that courts often run the factors based on their intent findings:

The likelihood of confusion is enhanced because Defendants have created and are using the confusion between the Old and New Leagues to their own benefit or advantage. The evidence shows that Defendants deliberately decided to launch their new league using the same names and teams as the Old League in an apparent attempt to capitalize on the nostalgia for the Old League. The Marks for the League and team logos are nearly identical. Defendants’ press releases, public statements and news coverage of the New League’s launch have specifically referenced a “relaunch,” a “return” and other verbiage conflating the two leagues. Defendants also used former USFL players and coaches to advertise the New League.

Despite finding defendants’ arguments “incredibly disingenuous,” the court nonetheless denied a preliminary injunction. The presumption of irreparable harm applied, but was rebutted by delay. On the one hand, “Plaintiff’s minimal use of the Marks to preserve the USFL’s legacy and reputation significantly reduces the possibility that Plaintiff would suffer irreparable injury in the absence of an injunction.” Plaintiff claimed that interference with “its ability to preserve what remains of the USFL’s legacy” constituted irreparable harm, but, for four decades, use of the marks and efforts on their behalf were “virtually nonexistent.” Although “[e]vidence of loss of control over business reputation and damage to goodwill [can] constitute irreparable harm, so long as there is concrete evidence in the record of those things,” there was no such evidence here.

Any damage could be redressed with money. “Because there is absolutely no evidence that Plaintiff intends to establish a competing football league, any damages incurred by Plaintiff will directly result from its loss of potential licensing income which can be easily compensated by monetary damages.”

And delay showed lack of irreparable harm. The announcement was in June 2021, but plaintiff waited until the last day of February 2022 to sue. “Defendants were clear from the outset–they were adamant in their belief that they had the absolute and unfettered rights to use the Marks, and they were not interested in any further meetings or conversations with Plaintiff, or interested in a resolution of the matter that might have benefitted both parties.” This delay allowed a lot of investment, which tilted the balance of equities in defendants’ favor and also meant the public interest disfavored an injunction. “Although there is an identifiable and important public interest in minimizing consumer confusion as a result of the misuse of a trademark, the risk here is limited to a very small number of potential licensed apparel sales.” But the disruption from an injunction would shut all defendants’ and third parties’ investments down. “Had the Plaintiff filed suit before all of these contractual obligations and investments, before the player draft in February 2022 and training camp in March 2022, before all the uniforms and equipment had been ordered, and before Defendants’ broadcast partners had made all the necessary preparations to televise games, the analysis of public interest factors may have favored Plaintiff.”

Amicus against dilution in Vans v. MSCHF

Here, as filed (the court granted the motion so it is no longer "proposed"). Dilution is content-based, viewpoint-based, and so vague and pervaded with exceptions as to be unconstitutional. An interest in fixing meaning on behalf of famous trademarks is not a legitimate government interest!

Wednesday, April 27, 2022

allegedly useless supplement supports certification (if not weight control)

Capaci v. Sports Research Corp., 2022 WL 1133818, No. CV 19-3440 FMO (FFMx) (C.D. Cal. Apr. 14, 2022)

Plaintiff sued SR for violating the UCL/FAL/CLRA, breach of express and implied warranties, and negligent misrepresentation based on SR’s marketing of “ ‘Sports Research Cambogia’ (‘Garcinia Cambogia’ or the ‘Product’), a dietary supplement that Defendant falsely claims is an effective aid in ‘weight management’ and ‘appetite control,’ despite the fact that the Product’s only purportedly active ingredients, Hydroxycitric Acid (‘HCA’) and extra virgin organic coconut oil, are scientifically proven to be incapable of providing such weight loss benefits.”

Defendant argued that consumers were not uniformly exposed to the claims at issue because the product labels varied during the class period, and thus, an individualized inquiry would be required to determine which labels consumers were exposed to, but the evidence showed that the product labels contained one or both of the claims during the class period, and, under the circumstances, a consumer wouldn’t have needed to be exposed to both at once to be misled. Although defendant argued that it didn’t control how retailers sold the product, it provided no evidence that they made any changes to the label, and plaintiff offers evidence that they sold the product with the claims. Thus, commonality was established.

Defendant argued that materiality required individualized inquiries. Its expert’s survey found that most consumers of the subject product were influenced by third-party recommendations, not the claims. However, “[h]ow consumers first learned about [defendant’s product] ... does not matter if they nonetheless decided to purchase the product only for its purported health benefits.” Here, questions of materiality were “amenable to common proof: reviewing the advertisements, labels, and then asking the jury how they understand the message.”

Defendant argued that studies couldn’t provide common answers to the question of whether the product could actually work, because the studies “all focus on specific population subsets consisting of overweight or obese individuals” rather than “people looking to maintain their current healthy weight.” But, “while the scientific evidence cited by plaintiff’s expert may not have tested persons in every conceivable consumer population, the studies, according to plaintiff’s expert, uniformly show that ‘the claim that Garcinia Cambogia and HCA produce weight loss in humans ... [is] false and misleading.’” Thus, this criticism went at most to weight, not admissibility, of the efficacy evidence. Nor were plaintiff’s studies required to specifically test defendant’s product to be probative of its efficacy. And plaintiff’s “claims do not rise or fall on whether individual consumers experienced health benefits, due to the placebo effect or otherwise.”

Similar considerations established predominance. Defendant argued that plaintiff “provides no evidence to support [ ] a presumption [of reliance], such as consumer surveys or other market research showing classwide reliance based upon the materiality of the [claims].” And defendant argued that its expert’s survey established a “lack of homogeneity as to what was material to SR purchasers.” No dice.

California courts have “expressly rejected the ‘view that a plaintiff must produce a consumer survey or similar extrinsic evidence to prevail on a claim that the public is likely to be misled by a representation.’ ” Plaintiff’s claims went to the core of the product: whether it was, as advertised, “an effective aid in ‘weight management’ and ‘appetite control’, despite the fact that the Product’s only purportedly active ingredients ... are scientifically proven to be incapable of providing such weight-loss benefits.” Even if consumers were influenced by factors other than the claims on the label, “[d]efendant cannot reasonably argue that a putative class member would purchase a product that does not work, regardless of who recommended it [or other influencing factors].” Also, the court was persuaded that a consumer’s understanding of the phrases “weight management” and “appetite control” is susceptible to common proof.

The court also certified negligent misrepresentation claims and breach of express warranty claims, but for implied warranty there was no privity if a third party sold the product to the consumer, so common questions didn’t predominate.

Damages: An uncertain damages calculation should not defeat certification. A plaintiff may seek restitution for UCL, FAL, and CLRA violations based on a full refund model “when a product is shown to be worthless,” in which case “damages may be calculated by multiplying the average retail price by the number of units sold.” Plaintiff’s expert opined, based on defendant’s sales data, that damages could be calculated based on an estimated average retail price. The full refund damages theory was consistent with plaintiff’s theory of liability and could proceed.

Defendant responded that its product had value outside of the benefits touted on its label, such as the value of coconut oil in defendant’s product, which, according to defendant’s damages expert, “is demonstrated by stand-alone supplements that are sold separately without any of the contested labeling claims of this case.” But defendant pointed to no evidence that coconut oil was capable of achieving the weight management claims on the product; the only evidence was that it “decided to use coconut oil ... because it is fat soluble and thus makes [garciania cambogia] easier to absorb once ingested.” It wasn’t necessary for plaintiff’s damages model to account for an ingredient unrelated to the label’s claims, “especially where, as here, defendant added the coconut oil simply to improve absorption of the main ingredient that plaintiff contends is worthless.” The types of cases rejecting a full refund model “involve products that could provide some value to their purchasers even if they did not perform as advertised and for which it strains credulity to argue that no consumers would have purchased them if not for the allegedly false statement. This is the case with many food products, because if nothing else, they provide calories, hydration or good taste to the consumer.”

Defendant argued that plaintiff’s method of calculating damages was impermissible “nonrestitutionary disgorgement” because it is based on “revenues Retailers received from consumers, not what SR received from Retailers[.]” Defendant argued that these amounts are “unknown as Retailers short-pay invoices for product return, often times without identifying which specific product is being short-paid.” But that’s not consumers’ problem. “Class wide damages calculations under the UCL, FAL, and CLRA are particularly forgiving. California law requires only that some reasonable basis of computation of damages be used, and the damages may be computed even if the result reached is an approximation.”

Ascertainability: The Ninth Circuit has declined to “impose a freestanding administrative feasibility prerequisite to class certification.” “There is no requirement that the identity of class members ... be known at the time of certification.” Any concern about including consumers “who received a benefit from the Product” was similarly unavailing because “consumer satisfaction is irrelevant” where a plaintiff’s theory is that defendant’s product provided no benefit to any consumer despite its advertised messages. And the court would modify the proposed class to exclude any consumer who may have received a refund or returned the product.

Unjust enrichment/misappropriation is Article III harm, court rules in ROP suit against Spokeo

Kellman v. Spokeo, Inc., 2022 WL 1157500, No. 3:21-cv-08976-WHO (N.D. Cal. Apr. 19, 2022)

Spokeo’s website “provides information about particular individuals aggregated from various sources. To advertise paid subscriptions, Spokeo uses “teasers”—profiles of real people with some information redacted. The plaintiffs in this putative class action alleged that this violated their rights of publicity and appropriated their names and likenesses in violation of California, Ohio, and Indiana law. The court denied Spokeo’s motion to dismiss, finding Article III standing and that a right of publicity violation was sufficiently pled; nor was Spokeo immune under §230; nor was there a dormant Commerce Clause problem or a First Amendment violation in holding Spokeo liable on plaintiffs’ theory.

Spokeo advertises by displaying “teaser profiles” of individuals that can include “names; ages; current and past cities of residence; partially redacted addresses, emails, and phone numbers; and other personal information” and sometimes photographs. The “teaser” then states that Spokeo “possesses additional information” including “ ‘Criminal Records’; ‘Sex Offenses’; ‘DUIs’; ‘details about birth, marriage, and divorce’; ‘Relationship Status’; ‘Location History’; ‘Estimated Salary’; ‘Family Members’; and redacted ‘Full Address[es]’; ‘Email Address[es],’ and ‘Phone Number[s].’ ” Plaintiffs claim never to have consented to this use of their data, however Spokeo got it.If a user wishes to sign up for a paid membership, the webpages that they use to do so likewise include [the teaser’s] name and information.”

Here’s how an ad looks, with blurring as in the original:


Article III standing: Spokeo argued that plaintiffs’ alleged injuries didn’t qualify. The injuries: (1) misappropriation of their intellectual property (in the form of likenesses, names, and other information); (2) that Spokeo unjustly profited from their likenesses; (3) denial of the right to control commercial use of their identifies; and (4) mental and emotional injury.

In determining whether an injury under causes of action like these is sufficiently “concrete” to confer Article III standing, the Supreme Court has instructed that “courts should assess whether the alleged injury to the plaintiff has a ‘close relationship’ to a harm ‘traditionally’ recognized as providing a basis for a lawsuit in American courts.” Harms traditionally recognized as cognizable include “reputational harms, disclosure of private information, and intrusion upon seclusion.” And courts can respect a legislature’s declaration that an injury is legally redressable, though a legislature cannot “us[e] its lawmaking power to transform something that is not remotely harmful into something that is.”

Under California law, the right of privacy protects against injury to the feelings/peace of mind, and Indiana and Ohio courts have indicated that their statutory rights also stem from the common-law right of privacy. This “disclosure of private information” is a traditionally recognized type of intangible harm, and “encompasses the individual’s control of information concerning his or her person.” These harms are sufficiently concrete for judicial redress. Misappropriation of name/likeness and unjust enrichment are also “harm recognized at common law.” [Well, they don’t require harm to the plaintiff; they’re about benefit to the defendant—but before TransUnion, courts were happy to conflate the two; I’m not convinced they can do so now if—and it’s a big if—TransUnion means what it says about harm.] Infringement on their right to control commercial use of their names and identities is also a harm recognized at common law, as is the emotional and mental harm allegedly caused by Spokeo’s actions. The court noted that “the claim here is that individuals’ names and information appear alongside implications that they committed crimes and other negative information, so the allegations of mental anguish are plausible.” Even if the plaintiffs’ identities had no commercial value, “the injury for Article III purposes [with respect to the commercial value ROP theory] is simply loss of commercial use.” [Again, that’s benefit to defendant, not harm to plaintiff in the Court’s new baseline.]

Ohio ROP: Exempts “use of an aspect of an individual’s persona in connection with any news, public affairs, sports broadcast, or account.” “Persona” is defined as “an individual’s name, voice, signature, photograph, image, likeness, or distinctive appearance, if any of these aspects have commercial value.”

Did the Ohio plaintiff’s persona have commercial value? Yes. Under Ohio law, “[c]ommercial value may be established by proof of (1) the distinctiveness of the identity and by (2) the degree of recognition of the person among those receiving the publicity.” The plaintiff pled commercial value, first, by pleading that individuals can use Spokeo’s service to find specific names; if they type his name, his “teaser” is one result. Thus, he pled that the pertinent audience would sufficiently recognize his distinct identity. “Second, because Spokeo uses Newell’s persona for commercial gain—that is, to incentivize people to subscribe—it reasonably implies that his persona does have at least some commercial value.”

The news/public affars exception didn’t apply, because Spokeo’s use of his persona was not connected to news or public affairs and had no “newsworthy value.” Use of his name in teasers was solely for “promotion, advertising, or marketing a product,” not for informing the public about a matter of genuine public interest. Likewise, Spokeo had a commercial purpose: to sell its services.

Indiana: Different language, same results.

California: Yep; whether there could be a nationwide California class could be addressed later.

Spokeo argued that its use was “incidental” because there was nothing special about these users; they were just randomly plucked when someone searched for a name. Courts have assessed “(1) whether the use has a unique quality or value that would result in commercial profit to the defendant; (2) whether the use contributes something of significance; (3) the relationship between the reference to the plaintiff and the purpose and subject of the work; and (4) the duration, prominence or repetition of the name or likeness relative to the rest of the publication.” It was at least plausible that the use wasn’t incidental at this stage, especially since “an implication of endorsement is not the only alleged violation that is actionable under the relevant statutes; appropriation for commercial use more broadly can be too.”

Plaintiffs also had statutory standing under the UCL because they alleged that they lost money or property by alleging that Spokeo was unjustly enriched and that they weren’t compensated for use of their likenesses.

And they sufficiently alleged “unfairness” under the UCL, because Spokeo takes names, likenesses, and information that consumers never consented to give to Spokeo and publicly displays it next to potentially inaccurate statements about “felonies,” “arrests,” and other behavior. The plaintiffs’ claims, consequently, are “tethered to [the] legislatively declared policy” of allowing people to control uses their names and likenesses for commercial gain, “especially if it casts them in an unjustifiably bad light.”

The CCPA didn’t immunize Spokeo just because it exempted the use of publicly available data from its own coverage.

Bucking a trend, the court also rejected Spokeo’s argument that plaintiffs couldn’t seek UCL equitable remedies and legal remedies at the same time.

§230 didn’t protect Spokeo because “this grant of immunity applies only if the interactive computer service provider is not also an ‘information content provider,’ which is defined as someone who is ‘responsible, in whole or in part, for the creation or development of’ the offending content.”  “Spokeo is not alleged to merely host user-generated content, it is alleged to actively take content from other sources, curate it, and upload it to its site in a novel configuration for repurposed uses. That makes it at least ‘in part’ responsible for the ‘creation and development’ of this material. Indeed, the allegations are that there are no users of Spokeo who generate content at all.”

Dormant Commerce Clause: There was no argument that the relevant laws privilege in-state commerce or discriminate against out-of-state commerce. Thus, they’d “be upheld unless the burden imposed on [interstate] commerce is clearly excessive in relation to the putative local benefits.” Spokeo didn’t show that. Having to follow different states’ laws about what it can and cannot show to users was an incidental burden “similar to countless similar burdens on any company operating in multiple states.”

First Amendment: The speech at issue was commercial. The teasers were ads referencing a specific product, and Spokeo had an economic motivation for publishing them; they were also not matters of public interest or newsworthy.

Thus, Central Hudson applied. Initially, plaintiffs “make a strong case that the teasers are likely to deceive” by putting individuals’ names next to large lettering indicating that they “may” have felonies, arrests, and similar records even when that is not true. This was clearly done for commercial benefit. “And it seems likely that reasonable people may be deceived into believing that individuals have committed bad or criminal acts when they have not.” [Would a court in an ordinary false advertising case be so willing to find potential deception? One benefit of the traditional common law torts for plaintiffs is that they lack the empiricist framework of the modern Lanham Act and its search for likely deception through surveys.]

Even if the teasers weren’t misleading, the First Amendment didn’t bar the claims because the protection of privacy interests was important, and the laws at issue directly advanced this interest through reasonably well-tailored means. Those laws have “broad exemptions for matters that are newsworthy, of public interest, or matters of public affairs—that is, the core First Amendment purposes. And, indeed, the Supreme Court has expressly held that imposing liability for violating the traditional publicity right does not necessarily offend the First Amendment. Zacchini v. Scripps-Howard Broad. Co., 433 U.S. 562, 575–77 (1977).” [Pause to note that Zacchini, involving the appropriation of a performer’s entire act in a way that mimicked common-law copyright, is not the same as a modern ROP claim like this one, but ok.]

Fake demos/altered tests v. customer's testimony they didn't matter: a jury will decide

Eco Electrical Sys., LLC v. Reliaguard, Inc., 2022 WL 1157481, No. C 20-00444 WHA (N.D. Cal. Apr. 19, 2022)

The parties compete to supply Pacific Gas & Electric Company with specialized guards that protect birds and other animals from electrocution. PG&E asked Eco to design a “cutout cover” to prevent animals from coming into contact with “cutouts,” a type of electrical device that rests atop utility poles. The resulting ECC-3, which is designed for cutouts made out of porcelain, is Eco’s most successful product and is also sold to other utility companies. PG&E also purchases, in much smaller quantities, the ECC-10 cutout cover, which is made from the same material but is designed for particularly large porcelain cutouts. And Eco sells— but not to PG&E — the ECC-2 cutout cover, which is designed for smaller cutouts made from polymer.

PG&E developed concerns about the fire risk associated with the -3 and -10 covers, fearing that if electrical equipment caught fire, the covers could cause a wildfire by melting and dripping on the ground below. (Fun fact: Judge Alsup, who wrote this opinion, is overseeing PG&E’s probation for its role in wildfires! That might make for some awkward moments in this case.) Eco thus developed what it contends is flame-resistant material and told PG&E it had the ability to sell cutout covers composed of this new material. But PG&E never followed up and continued to buy the ECC-3 product without modifications.

Meanwhile, PG&E was discussing the fire issue with other potential vendors, including what eventually became defendant Reliaguard. Eco alleged a campaign of disruption: (1) wining and dining key decisionmakers at PG&E via a consulting firm, one of whose managers had a longstanding personal relationship with the PG&E employee spearheading PG&E’s effort to replace the ECC-3 with a fire-resistant cutout cover. That PG&E employee asserted his Fifth Amendment rights in this litigation and refused to be deposed, which does raise some eyebrows. He wasn’t the only PG&E employee cultivated by this campaign; another one provided Reliaguard with photographs and measurements of Eco’s cutout covers, and another relevant person obtained samples of Eco’s products and Eco pricing information, which he then supplied to Reliaguard.

(2) Reliaguard created and shared with PG&E allegedly defamatory videos that allegedly misrepresented Eco’s products, claiming that they failed a test assessing whether they present a risk of electrocution. Eco alleged that the videos misleadingly depicted an ECC-10 cover, which is designed for large porcelain cutouts, placed on a smaller polymer cutout and not installed properly, resulting in an inaccurate depiction of how loosely Eco’s cutout covers fit over PG&E’s cutouts. “Because the purpose of the covers is to prevent animals from coming into contact with energized cutouts, Eco asserts that portraying Eco’s cutout covers as having a loose fit falsely suggested to PG&E that Eco’s products were not effective.”

(3) Reliaguard allegedly provided PG&E a doctored test report falsely suggesting that Eco’s ECC-2 cutout cover was not flame resistant. PG&E required that any new cutout cover it approved must receive a “V-0 rating” under the UL 94 standard, which essentially meant the cover must withstand high heat for a certain length of time without catching on fire, melting, or dripping. The test report that Reliaguard gave to PG&E stated that the tested sample, supposedly Eco’s “ECC-2 Cutout Cover,” failed to achieve a V-0 rating. Eco alleged that a Reliaguard employee sent a piece of Eco’s ECC-2 cutout cover to a third-party laboratory to test the flame resiliency of the piece under the UL 94 standard. The lab then sent the results of the test to Reliaguard on a document that included the lab’s letterhead. Reliaguard allegedly modified the document to change the letterhead and omit language clarifying that the tested sample had been previously burned and that the tested sample was merely a piece (a pin) as opposed to the entire cover. The Fifth Amendment-invoking PG&E employee passed this on to the team at PG&E conducting the approval process for the new cutout cover. PG&E later announced it had placed Eco’s ECC-3 cutout cover on its “Do Not Purchase” list and had approved Reliaguard’s cutout cover for purchase. “The ECC-3 has been Eco’s best seller but has gone unsold to PG&E since 2019.”

Reliaguard argued that PG&E’s decision was driven by concerns that had nothing to do with the videos or test report, in particular Eco’s failure, after an initial meeting, to provide third-party test reports showing that Eco’s product was flame resilient. “Multiple PG&E employees testified that, when they were assessing Eco’s products in 2018, they felt the 2014 test reports were ‘outdated,’” and PG&E had also received reports suggesting that Eco’s products “electrically tracked,” which presented a fire risk. PG&E employees attributed this to the “loose fit” of ECC-3 covers over PG&E’s cutouts, which, among other problems, allowed squirrels to store acorns inside the cutout cover, which PG&E believed facilitated “tracking” and thus was a fire risk. In addition, PG&E employees testified that they chose Reliaguard’s product because Eco failed to follow PG&E’s formal requirements for product approval and Reliaguard was generally more responsive to PG&E’s feedback. Several PG&E decisionmakers stating that they did not rely on the videos and even found them unprofessional/absurd.

Eco sued for trade libel, intentional interference with prospective economic advantage, false advertising/unfair business practices under California law, and Lanham Act false advertising.

A note on interstate commerce: It does not matter whether any actionable meetings or statements took place outside of California, or whether Eco’s products are made or shipped outside California. Relevant communications were published online and shared in emails. “Communications made online generally implicate interstate commerce.”

A jury could reasonably find that Reliaguard’s alterations of the test report were false or misleading.   Reliaguard modified the original test report to omit a segment explaining that the tested sample “was received with some burning on the ends.” “This omission was critical because the flammability test could not have produced reliable results if the tested sample had been previously burned and tampered with, or so a reasonable jury could find.” And Reliaguard employees changed language in the original report from “Objective: Evaluate part for FR performance” to “Objective: Evaluate Eco Cutout Cover (ECC-2) for FR performance.” Reliaguard’s own expert offered testimony suggesting this change could also be misleading. A reasonable jury could also find that this caused Eco injury, given that Fifth Amendment guy emailed the report to other PG&E employees, saying “We have been looking at this for the past three years.... We need to move forward with the products that we believe work well.... Please make this a high priority for your team.” Etc. “Two weeks later, PG&E began the process of approving Reliaguard’s cutout cover for purchase. This evidence supports a reasonable inference that the modified test report influenced PG&E’s decision to purchase the Reliaguard’s cover instead of the ECC-2 cover.”

There was also a triable issue on whether the videos constituted false advertising. It was undisputed that the videos depicted an ECC-10 cutout cover placed on a polymer cutout and that ECC-10 covers are designed for larger porcelain cutouts. “Those facts alone would allow a reasonable jury to infer, taking all inferences in Eco’s favor, that the videos were literally false or misleading,” and there was also evidence that the ECC-10 was not installed properly. What about the PG&E testimony that the videos didn’t influence their decision? “We will see if the jury believes this self-serving testimony in light of all the circumstances to the contrary.” The Ninth Circuit “has repeatedly suggested that Section 43(a)’s injury requirement is lenient and ‘express[ed] a distinct preference for those opinions permitting relief based on the totality of the circumstances,’” and, for false comparative advertising claims, “has held that publication of deliberately false comparative claims gives rise to a presumption of actual deception and reliance.” It has explained:

The expenditure by a competitor of substantial funds in an effort to deceive consumers and influence their purchasing decisions justifies the existence of a presumption that consumers are, in fact, being deceived. He who has attempted to deceive should not complain when required to bear the burden of rebutting a presumption that he succeeded.

That fit the facts:

Here, Reliaguard decided to procure samples of Eco’s products, construct an elaborate set piece incorporating two energized cutouts, craft a fake crow, film multiple videos, and upload those videos to the company YouTube channel. A jury could reasonably conclude that Reliaguard’s comparative advertising efforts were deliberately false within the meaning of the Lanham Act and caused actual consumer deception and reliance.

A jury could find injury: the record showed that

Reliaguard employees broadcast the videos to PG&E decisionmakers at a meeting and then repeatedly emailed PG&E decisionmakers — including PG&E’s Senior Vice President — links to the videos. Shortly after the videos were shared, PG&E chose to substantially end its fifteen-year business relationship with Eco in part because of concerns with the loose fit of Eco’s cutout covers. … This evidence is sufficient to establish a genuine dispute over whether the videos that Reliaguard thought were worth the significant effort of producing had some impact on PG&E’s decision or at least caused a “lessening of the goodwill associated with” Eco’s products.

Nor need Eco show that the videos were the sole cause of its injury. Circuit precedent establishes that “an inability to show actual damages does not alone preclude a recovery” under the Lanham Act.

However, the consulting firm excaped liability for failure to show that it was involved in the falsity.

Trade libel: Essentially the same results. As to knowledge,

the record shows that Reliaguard was familiar with Eco’s products, spent years and significant resources developing a competing cutout cover, and engaged in a deliberate effort to create comparative videos. Reliaguard acknowledges, for example, that its own “early prototypes were focused on the porcelain cutouts that PG&E was using at the time” and it had to engage in “numerous redesigns” to adapt to PG&E’s new polymer cutouts. A reasonable jury could infer that Reliaguard knew that an ECC-10 cutout cover was not designed to fit over PG&E’s polymer cutouts. Alternatively, a reasonable jury could infer that Reliaguard made its videos with reckless disregard as to whether Eco’s product was installed properly.

Similarly with the videos.

Intentional interference with prospective economic advantage: although Eco argued that the consulting firm’s “wining and dining” of PG&E employees was “improper,” Eco has not identified any “constitutional, statutory, regulatory, common law, or other determinable legal standard” that this conduct would violate, though that didn’t mean that evidence of “wining and dining” will be excluded at trial. There was a triable issue on the other parts of the claim.

California false advertising/unfair competition: The UCL is equitable and generally limits remedies to injunctive relief and restitution. “Lost profits are damages, not restitution, and are unavailable in a private action under the UCL.” Eco had no damages theory providing for restitutionary relief, and the asserted communications took place several years ago, making injunctive relief inappropriate, so the UCL claims were kicked out.

Survey and consumers are wrong, court says: "white chips" doesn't mean "white chocolate"

Prescott v. Nestlé USA, Inc., 2022 WL 1062050, -- F. Supp. 3d – , No. 19-cv-07471-BLF (N.D. Cal. Apr. 8, 2022)

The court dismissed claims that “Nestlé Toll House Premier White Morsels” misleads consumers to believe that it contains white chocolate. [When I teach that the reasonable consumer is a normative construct, the white chocolate cases are front and center. The survey evidence is clear—and for what it’s worth, the students generally strongly agree—that average consumers would expect “white chips” in a form familiar to chocolate lovers from a company known for chocolate to be made with white chocolate. But courts don’t like that; they prioritize Nestlé’s freedom to enter related business lines over actual consumer deception and just expect consumers to smarten up, or else too bad for them. Indeed, the court deems irrelevant the facts alleged in the complaint about Nestlé’s long history with actual white chocolate.]

Grouping the allegations: (1) “White” has been historically used to describe a distinct and real type of chocolate, and plaintiffs so understood; (2) the product label has pictures of what look to reasonable consumers like white chocolate chips and white chocolate chip cookies, and plaintiffs relied on that; (3) the product was placed among other chocolate products, which reinforced plaintiffs’ belief; plaintiffs further alleged that Nestlé maintains control over the placement of these products in retail stores. Plaintiffs also alleged that the use of “Premier White” contributed to the false impression. They alleged a consumer study showing that approximately 95% of respondents believed the product contains white chocolate. Numerous consumer complaints that were sent to plaintiffs’ counsel and/or posted on Nestlé’s website repeat common complaints that the consumers thought the product contains white chocolate and the product does not melt like chocolate during baking.

But it’s the consumers who are wrong. The reasonable consumer would not be fooled. If “Diet” on soda can’t mislead reasonable consumers about whether the soda would assist with weight loss, then “white” on baking chips can’t mislead reasonable consumers about whether it means white chocolate. You know, because context matters.

“White” and “premier” simply do not “denote” “chocolate,” and “premier” was just non-actionable puffery. White is just a color. [While we're talking context, I strongly suggest the judge order a flat white at Starbucks and see whether the counterperson concludes that the order is meaningless.] Still, the court says, “[n]othing about the ordinary and common meanings of the adjectives ‘white’ and ‘premier’ would suggest to a reasonable consumer that the Product is white chocolate. Similarly, images of a cookie and white morsels do not provide any information as to the substance of the morsels.” As plaintiffs pointed out, the relevant context includes the Nestlé brand name and the placement of the product next to chocolate chips in grocery store baking aisles. But no, it doesn’t, and anyway alleging on information and belief that Nestlé controlled placement in grocery stores didn’t make it so, and I guess if Nestlé didn’t control the placement then that’s not relevant context? Argh. Anyway, “baking aisles contain a wide variety of non-chocolate baking chips. Similarly, Nestlé makes a wide variety of non-chocolate products.”

While the name “Prescription Diet” could plausibly mislead about whether a prescription was required, the dictionary definitions of the words used in the Product name “Nestlé Toll House Premier White Morsels” didn’t support a reasonable belief that the Product contains chocolate. In any other context Nestlé would hate to hear that its name wasn’t synonymous with chocolate, but here it’s pleased. It was just common sense that the product wasn’t misleading, despite the survey evidence and consumer complaints.

The court didn’t like that plaintiffs seemed to be arguing that “Nestlé cannot sell white baking morsels without affirmatively clarifying that they are not chocolate.” I don’t know why: if something is misleading without a disclosure, but the disclosure can correct the problem, that’s a classic case for finding the former actionable and the latter a good preventative going forward.

And the survey? If a survey showing that consumers think that “diet” means “help you lose or not gain weight” isn’t enough to make “Diet Coke” plausibly deceptive, then a survey won’t work here either.

Look, there's a case to be made for a normative concept of the reasonable consumer. But what there isn't, is a good reason for switching back and forth between normative and empirical the way courts do in these cases without explaining when to do which type of analysis. If actual deception and reliance matters, then the empirical consumer matters. Right now the treatment is so flexible as to be both unpredictable and demeaning to large numbers of consumers deemed unreasonable as a matter of law.

Tuesday, April 26, 2022

Cal. retains over $300 million in civil penalties against J&J on appeal

People v. Johnson & Johnson, 2022 WL 1075421, D077945 (Cal. Ct. App. Apr. 11, 2022)

Long opinion, as you might expect for a big verdict.

Defendants (Ethicon) appealed their loss at a bench trial, which resulted in nearly $344 million in civil penalties against Ethicon for willfully circulating misleading medical device instructions and marketing communications that misstated, minimized, and/or omitted the health risks of Ethicon’s surgically-implantable transvaginal pelvic mesh products. The trial court found Ethicon committed 153,351 violations of the Unfair Competition Law (UCL) and 121,844 violations of the False Advertising Law (FAL) and imposed a $1,250 civil penalty for each violation. The court of appeals kicked out nearly $42 million in penalties because there was no evidence of what Ethicon’s employees and agents actually said in oral marketing communications, which is a good incentive not to leave a record I guess, but affirmed the rest.

Ethicon sold pelvic mesh products intended to treat two conditions that can affect women—stress urinary incontinence (SUI) and pelvic organ prolapse (POP), for which there are alternative treatments. In 2008, FDA issued a public health notification alerting health care providers about complications from pelvic mesh implants used to treat SUI and POP, most frequently “erosion through vaginal epithelium, infection, pain, urinary problems, and recurrence of prolapse and/or incontinence,” as well as “bowel, bladder, and blood vessel perforation during insertion.” It advised that complications were “rare,” but could have “serious consequences.” A 2011 update found that “surgical mesh for transvaginal repair of POP [was] an area of continuing serious concern,” and that serious complications in that context were not rare, including “mesh erosion through the vagina (also called exposure, extrusion or protrusion), pain, infection, bleeding, pain during sexual intercourse (dyspareunia), organ perforation, and urinary problems.” “[M]any of the complications required intervention, some of them required repair surgeries, and some of them were incapable of being resolved.”

During the relevant period, Ethicon disseminated: (1) Instructions for Use (IFUs) (information packets accompanying medical devices); (2) marketing communications directed to California doctors; and (3) marketing communications directed to California patients. Alleged falsehoods/misleading omissions: (1) they falsely stated the pelvic mesh products were approved by the FDA when in fact they were cleared by the FDA under section 510(k); (2) they omitted known risks and complications associated with the products; (3) they misrepresented the relative risks associated with the products compared to non-mesh surgical treatment options; (4) they misrepresented the severity and frequency of the risks that were disclosed, including the irreversibility of the effects; and (5) they overstated the benefits and effectiveness of the products. In short, there was lots of evidence of this, and the result was a lot of suffering. (If they did this in writing, what are the chances they didn’t do it orally in “informal” contacts with doctors?)

The court found all of the IFUs were deceptive for specific reasons and because they misleadingly stated the polypropylene mesh composing the products was not subject to degradation or weakening by the action of tissue enzymes, when mesh can degrade, resulting in cracking or fragmentation on the mesh surface. So too with its marketing communications to doctors and patients.  The court also found Ethicon’s sales representatives were trained to convey deceptive and misleading information to healthcare professionals. Ethicon actively concealed risks from the public, declining to update risk information in response to internal suggestions. It instructed its sales representatives to avoid initiating conversations with doctors about the public health notification and paid consultants to author an article refuting the FDA’s update.

The court also found deception: doctors read and rely on IFUs and marketing materials when counseling and treating patients; they weren’t generally familiar with the risks specific to pelvic mesh products, and their recent development meant many doctors did not learn about them during medical school or their residency programs. Ethicon’s efforts to undercut the FDA’s public health notification and update also nullified whatever information doctors may otherwise have acquired regarding the risks associated with pelvic mesh products.

The trial court reasoned that the violation count should include all “quantifiable instances of [Ethicon’s] circulation or dissemination of deceptive messages”–i.e., it counted each IFU or marketing communication as a separate violation, at $1,250 per violation—half the amount the Attorney General requested. A big award was warranted because Ethicon’s misconduct was “grave” and “egregious,” as Ethicon withheld crucial information about products that were permanently implanted into patients, caused some patients “debilitating, chronic pain,” and “destroy[ed] patients’ sexual, urinary and defecatory functions – consequences that go to the very core of personal identity, dignity, and quality of daily life.” The court also pointed out that there were likely “far more violations” that were excluded from the already-large violation count; Ethicon’s misconduct was persistent and spanned 17 years; Ethicon knowingly misrepresented and concealed the information at issue; and $344 million civil penalty award was less than one percent of defendant-parent company Johnson & Johnson’s $70.4 billion net worth. [Though I can only presume that once Ethicon finishes the Texas Two-Step its obligations will substantially outstrip its assets, since J&J knows how to make that work.]

The court did decline to award injunctive relief because (1) Ethicon amended the IFUs for its SUI products in 2015 and, in the process, remedied many misleading statements contained therein; (2) it was already in the process of amending its product labeling to comply with a 42-state consent order entered as part of a separate legal proceeding; (3) the current information in the public domain was sufficient to inform health care providers of the risks; and (4) an injunction requiring Ethicon to update its labeling without FDA approval could subject Ethicon to liability under federal law.

Ethicon argued that the trial court erred by failing to consider whether the IFUs and doctor-focused marketing communications were misleading from the perspective of doctors—the target audience—as opposed to members of the public. The court of appeals disagreed; “even the most cursory review” of the facts found by the trial court showed that it applied the correct target audience standard. Along with its discussion of the general level of medical education on pelvic mesh, the court pointed to several defense witnesses, including surgical specialists and urogynecologists, who were unaware of complications unique to pelvic mesh products apart from vaginal erosion and exposure—even though these complications were “well-known to the company from launch.” It also cited extensive evidence that doctors rely on IFUs and manufacturer marketing in making treatment decisions. Nor was there any conflict with the injunctive relief ruling: there were many rational reasons to find that Ethicon’s marketing was likely to deceive doctors during the statutory liability period that ended in 2018, but that there was sufficient current information in the public domain to warrant the denial of injunctive relief in June 2020.

Ethicon argued that the court failed to apply the correct standard for omissions, but didn’t develop what it thought that standard should have been. Regardless, the trial court did right: A fraudulent or deceptive omission is actionable if it is “contrary to a representation actually made by the defendant, or an omission of a fact the defendant was obliged to disclose.”

Courts typically find omissions actionable: “(1) when the defendant is in a fiduciary relationship with the plaintiff; (2) when the defendant had exclusive knowledge of material facts not known to the plaintiff; (3) when the defendant actively conceals a material fact from the plaintiff; and (4) when the defendant makes partial representations but also suppresses some material facts.” The court made extensive findings on (3) and found that Ethicon took “active, willful measures for nearly twenty years to suppress information and conceal serious risk and complication information from physicians and patients,” including “marketing efforts focused on downplaying and rebutting the FDA’s notices” regarding pelvic mesh products, including paying consultants to author an article to refute the notices. It also made a number of findings on (4), such as that “[d]efendants’ marketing to both patients and doctors consistently and repeatedly touted mesh’s benefits while misrepresenting, downplaying, and concealing its potential for serious, long-term complications.”

Ethicon argued that the trial court ignored materiality, but materiality doesn’t play the same role in an action by the People. Materiality can be relevant to a named plaintiff’s standing in a private class action case, because the class representative must prove they actually relied on the deceptive advertising to have standing under the UCL, and  “ ‘a presumption, or at least an inference, of reliance arises wherever there is a showing that a misrepresentation was material.” Materiality can also be relevant to whether class treatment is justified in a private FAL/UCL restitution action.

But materiality is not, as far as precedent discloses, part of the burden in a government enforcement action filed by the Attorney General or another public prosecutor to obtain civil penalties on behalf of the People. However, even assuming that materiality is an implicit requirement, the trial court clearly found materiality. The trial court found Ethicon misrepresented and concealed “serious risk and complication information,” including “medically significant” information that affected medical decision-making. It found that Ethicon’s misconduct “had real consequences for real people.” It found that, as a result of Ethicon’s deception, doctors were unable to “factor [the risks] into their patient counseling and treatment decisions,” or to “provide the information necessary to inform and counsel their patients,” depriving doctors of the ability to properly counsel patients and depriving patients of the ability to make informed choices.

In addition, substantial evidence supported the findings of likely deception as to written materials, including professional education and training for doctors as well as field marketing PR kits and similar materials. However, “there was insufficient evidence concerning the content of thousands of oral marketing communications that were penalized by the trial court,” so the finding that those were likely to deceive was reversed—this covered sales representative detailing; Ethicon-sponsored meals between sales representatives and doctors; and health fairs. The record didn’t establish the content of any of them, and “[t]he People’s forensic accountant—who developed the methodologies underpinning the trial court’s violations calculation—conceded he did not know whether any particular sales representative detailing activity was mesh-related; whether mesh was discussed during Ethicon’s meals with health care providers; or what Ethicon’s employees and agents even said during health fairs.”

The trial court relied on evidence that the sales reps “were trained and coached to deliver the same consistent messages that pervade[d] the company’s print materials and IFUs ....”  And there was evidence that Ethicon trained its sales representatives to convey uniform marketing messages. But that uniformity did not itself “give rise to a reasonable inference that every single one of Ethicon’s thousands of oral communications with doctors included false or misleading statements. The mere fact a sales representative may have been trained in a particular way—even in a manner that promoted the disclosure of misleading information—reveals little, if anything, about the content of any particular conversation that may have occurred many months or years later.” This strikes me as deeply silly and inconsistent with what we accept about causation in most contexts—especially, as here, where the deception went to the heart of the product, overclaiming its benefits and downplaying its risks. Is it more likely than not that any given interaction with an Ethicon rep did the same, given Ethicon’s deceptive training and emphasis on uniformity? I would say yes. But there was no evidence of a specific “script” to be recited, so I guess it’s all good.

So the People only got $302,037,500.

Nonetheless, substantial evidence also supported the finding of patient deception, for similar reasons. E.g., a patient brochure assured “[t]here should be very little discomfort after the procedure.” At the end, the answer to “What are the risks?” was: “All medical procedures present risks. As with all procedures of its type, there’s a risk of injury to the bladder and surrounding organs. For a complete description of risks, see the attached product information.” But the attached information was far from complete, omitting “virtually all of the most severe risks associated with the TVT device—including mesh exposure through the vagina, mesh erosion, tissue contracture leading to chronic pain, debilitating and life-changing chronic pain, chronic groin pain, chronic dyspareunia, and pain to partner.”

Ethicon’s argument that doctors had a legal duty to disclose all serious risks and to obtain informed consent, so its materials couldn’t be likely to deceive patients, failed. “Because doctors themselves were likely to be deceived by Ethicon’s IFUs and marketing communications, the trial court reasonably found Ethicon’s marketing communications were likely to deceive patients notwithstanding the legal duties doctors owe to their patients.”

There was also no safe harbor defense. Under the UCL, “[if]f the Legislature has permitted certain conduct or considered a situation and concluded no action should lie, courts may not override that determination. When specific legislation provides a ‘safe harbor,’ plaintiffs may not use the general unfair competition law to assault that harbor.” Assuming without deciding that (1) executive action can also create a safe harbor and (2) the safe harbor applies to the FAL, Ethicon still lost, because the FDA didn’t create a safe harbor for these communications. The medical devices here were Class II, for which general controls such as labeling requirements “are insufficient to provide reasonable assurance of ... safety and effectiveness” and thus get “‘special controls’ such as “performance standards, postmarket surveillance, ... recommendations, and other appropriate actions as the [FDA] deems necessary’ to ensure safety and effectiveness.” During the 501(k) clearance process for two devices, the FDA informed Ethicon it was unable to determine whether the devices were substantially equivalent to an existing legally marketed predicate device due to certain “deficiencies” in Ethicon’s submissions to the FDA, and their draft IFUs did “not adequately address issues of usability and potential adverse events.” Ethicon then rewrote the IFUs to add most of what FDA wanted. Ethicon thus argued that “the FDA effectively wrote and approved the IFUs” for those devices.

But the FDA’s “limited review” as part of the section 510(k) clearance process did not create a safe harbor. “To forestall an action under the unfair competition law, another provision [or executive action, per our stated assumptions] must actually ‘bar’ the action or clearly permit the conduct.” But “the 510(k) process is focused on equivalence, not safety.” Former FDA Commissioner Dr. Kessler testified the FDA’s “clearance [of Ethicon’s] pelvic mesh devices [was] not a finding that the labeling [was] complete, accurate and not misleading.”  So too with the other devices. “At most, the FDA failed to declare Ethicon’s conduct unlawful.” That’s not the same as blessing it.

Ethicon argued that its free speech rights were violated, but false and misleading commercial speech isn’t entitled to First Amendment protection. Ethicon argued that some of its statements the court found deceptive “were supported by credible scientific evidence and subject to legitimate scientific debate; therefore, the speech was merely potentially misleading—not actually or inherently misleading.”  But the court found literal falsity, including “false statements about mesh’s properties” and treating incomplete product information as a complete description of risks. This is unprotected speech. (Finding that doctors and patients were actually misled also counts as finding that the speech is more than just potentially misleading—the trial court found that the risks of misleading speech materialized. To the extent that Ethicon might be arguing that each marketing communication could only be penalized if it specifically could be linked to a patient’s harm, that just demonstrates why First Amendment Lochnerism is not a good idea for commercial deception. And it’s inconsistent with Zauderer and its progeny. The Court never suggested that you could only regulate an ad if that particular copy of the ad had deceived someone; the Court was talking about the message, not the medium.)

And even if the First Amendment covered this commercial speech, Ethicon didn’t try to explain why Central Hudson would preclude its regulation and thus waived any argument about that.

Calculation of the civil penalty award: The UCL and FAL both say:

The court shall impose a civil penalty for each violation of this chapter. In assessing the amount of the civil penalty, the court shall consider any one or more of the relevant circumstances presented by any of the parties to the case, including, but not limited to, the following: the nature and seriousness of the misconduct, the number of violations, the persistence of the misconduct, the length of time over which the misconduct occurred, the willfulness of the defendant’s misconduct, and the defendant’s assets, liabilities, and net worth.

But they don’t specify what constitutes a “violation,” which is decided on a case-by-case basis. In counting each deceptive IFU and marketing communication as a separate violation of the UCL and FAL, the court reasoned that each one was “designed to drive future sales of the product, and thus relate[d] to [Ethicon’s] opportunity for gain.” The court also noted its calculation was likely an undercount of the deceptive communications Ethicon circulated during the liability period.

Ethicon would much have preferred a per-day violation count, or, better, a figure tied to the rate of reoperation for women who received pelvic mesh implants. But it was not an abuse of discretion to do what the trial court did. In previous cases, the court of appeal held that counting every copy of a newspaper with a violative ad as a “violation” was not appropriate. In that case, “a reasonable interpretation of the statute in the context of a newspaper advertisement would be that a single publication constitutes a minimum of one violation with as many additional violations as there are persons who read the advertisement or who responded to the advertisement by purchasing the advertised product or service or by making inquiries concerning such product or service. Violations so calculated would be reasonably related to the gain or the opportunity for gain achieved by the dissemination of the untruthful or deceptive advertisement.” But in appropriate circumstances, such as when ads are targeted to consumers who the advertiser deems likely to respond, total circulation can be a reasonable method to determine the number of statutory violations. It is important that the People’s burden of proof should not “ ‘be so onerous as to undermine the effectiveness of the civil monetary penalty as an enforcement tool.’ ”

Here, “Ethicon’s deceptive IFUs and marketing communications were substantively targeted to well-defined groups of people. The IFUs were specifically directed to doctors who were considering whether to implant Ethicon’s device or were preparing to do so—often, though not always, to urogynecologists and surgical specialists. And Ethicon’s marketing communications were explicitly written to appeal to those same doctors, or to prospective patients who were suffering from SUI or POP.” Ethicon’s targeting even extended to targeted online ads based on patient searches. Thus, it was reasonable to find that “each IFU and marketing communication represented a gain or opportunity to gain for Ethicon.”

Ethicon complained that the People’s forensic accountant wrongly extrapolated from one salesperson’s history and failed to account for brochures that were ordered but not distributed, but Ethicon itself admitted it had no “way to determine how many such items were actually distributed,” and it had not been able to determine the “exact number of copies of printed materials that had been sent to California.” There was no factual finding that Ethicon’s printed materials went undistributed.

Ethicon argued that $1,250 per violation was inappropriate becuase each IFU and marketing communication “was different–in what was said, in what context, to whom, etc.–and each had a different capacity for harm.” Though they may have differed in particulars, they all (except for the oral communications, the court says) “shared the same defining features: each contained misstatements, half-truths, and/or omissions regarding the risks of Ethicon’s pelvic mesh products, and each was likely to deceive California doctors and/or patients.” Ethicon argued that $1,250 was too large because Ethicon’s communications—not its pelvic mesh products—were the focus of the lawsuit, and Ethicon’s communications themselves did not harm patients. That was “mere semantics,” since the communications misrepresented the safety and risks associated with Ethicon’s products, which in many cases caused “medical, physical, and emotional turmoil that lasted years or for the rest of patients’ lives.” Ethicon’s appeal to its internal vetting practices “tends to support the trial court’s finding that Ethicon’s deceptive misstatements and omissions were knowing and intentional, not the product of mere negligence,” rather than weighing against a big award.

Nor did the award violate due process just because it was big. Ethicon was not without notice of the UCL and FAL’s requirements. Even if these civil penalties are the largest UCL/FAL penalties reported to date, that didn’t deprive Ethicon of notice that big lies risked big penalties. “Certainly, none of the other appellate decisions upholding civil penalty awards under the UCL and FAL ‘suggest that the amounts awarded [in those cases] were somehow in the outer limit of penalties that may properly be imposed.’” The penalties here are big because Ethicon made “thousands of deceptive statements for years on end.” And the UCL/FAL expressly define the maximum per violation at $2500, which provides clear notice, as did the AG’s investigation long before the statutory liability period ended; they entered into a tolling agreement effective October 17, 2012. “At that time, Ethicon could have altered its communications and practices to avoid this outcome or, at least, to minimize the amount of the potential civil penalty award. It did not do so.”

For similar reasons, the penalties did not violate the 8th Amendment/state law prohibitions against excessive fines. Although a federal law limits the civil penalties available for violations of federal statutes and regulations governing medical devices to $1 million, the UCL and FAL authorize more (and the AG requested twice as much).