Monday, May 16, 2022

dismissal of ASU's claim against ASU_covid.parties Instagram upheld

Arizona Bd. of Regents v. Doe, 2022 WL 1514649, No. 21-16525 (9th Cir. May 13, 2022)

I wrote an amicus brief in this case. A post on the decision below. The court of appeals affirmed in a memorandum. The Board appealed denial of its motion for default judgment and dismissal of its complaint. It was ok to convert the motion for default judgment to dismissal because amendment would have been futile “given the implausibility of the allegations and of a finding of likelihood of confusion.” Although the Instagram account at issue was called ASU_covid.parties, “only one post included the use of [ASU’s] mark and trade dress. That one post contained profanity and a reasonable consumer would not think that a university would use such language when addressing the public. Reviewing the posts in their totality does not change the result, but rather reaffirms it.”

In addition, “amendment would have also been futile given the non-commercial nature of Doe’s activities.” In the Ninth Circuit, “infringement claims are subject to a commercial use requirement.” Bosley Med. Inst., Inc. v. Kremer, 403 F.3d 672, 676 (9th Cir. 2005). The complaint did not support the conclusion that Doe used ASU’s marks “for the sale of goods or services,” but rather “to criticize and mock [ASU] and [ASU’s] policies and administration.” To be sure, some posts did refer to a future party, but none had any particulars. The mere statement that Doe was a “party planner” was not enough, in the overall context, to allege commercial use.

In a footnote, the court noted that, even assuming Doe’s posts were commercial, Rogers and the First Amendment would protect the conduct. “Doe’s Instagram posts appear to constitute expressive work under Rogers as the posts communicated messages that mocked [ASU’s] policies and administration. To the extent [the Board’s] appeal attempts to improperly use trademark laws to block the expression of negative views about the university and its administration, such efforts fail.”

The district court thus did not abuse its discretion, even though it didn’t evaluate all the Sleekcraft likely confusion factors. Nor did it err by refusing to apply initial interest confusion, which requires likely confusion. Nor did it err in its false advertising analysis, which requires likely deception of reasonable consumers. And it was ok to reject the state law unfair competition claim but merely decide not to exercise supplemental jurisdiction over the state law dilution claim. [I hope and expect ASU will come to its senses and not refile in state court.]

Thursday, May 12, 2022

"The usual California claims"

A constant reader asked for this and now I will try to link to it when I use the phrase.

California has three statutes that consumer plaintiffs often use (along with warranty claims, which I will not discuss here). They are: the Unfair Competition Law (UCL); the False Advertising Law (FAL); and the Consumer Legal Remedies Act (CLRA). While they often cover the same conduct in false advertising cases and are cumulative of each other, they have differences.

UCL: The UCL, California Business and Professions Code § 17200 et seq., forbids unfair competition, which is defined as “any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising and any act prohibited by” the False Advertising Law (FAL). § 17200. The UCL’s “ ‘purpose is to protect both consumers and competitors by promoting fair competition in commercial markets for goods and services.’ ” Abbott Laboratories v. Superior Court, 9 Cal.5th 642, 651 (2020). The UCL reaches beyond advertising to “anything that can properly be called a business practice and that at the same time is forbidden by law.” Id.

There are three key words defining the scope of the UCL, each with a different coverage.

Unlawful: The UCL “borrows” violations of other laws: if something is “unlawful,” and a person covered by the UCL suffers harm as a result, then there is a remedy under the UCL. Deception is not required, though deception is often the mechanism by which plaintiffs allege a causal relationship between the unlawfulness and their lost money or property; in such cases, “unlawful” and “fraudulent” conduct will be linked.

Unfair: This term makes clear that even if a practice is not specifically banned by some other law, it may be unfair. In order to put some limit on the concept, courts have developed two competing standards for what constitutes unfairness. Here too, deception is not required, with the same caveat about causation.

The proper test for whether an action violates the unfair prong of the UCL is “currently in flux among California courts,” Hodsdon v. Mars, Inc., 891 F.3d 857, 866 (9th Cir. 2018) (cleaned up), or at least the test changes depending on the situation. When consumers are plaintiffs, courts often say that an “unfair” practice is that which “offends an established public policy or when the practice is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers.” Id. (cleaned up). Under the other standard, which courts most often apply to competitor-plaintiffs, unfairness is “conduct that threatens an incipient violation of an antitrust law, or violates the policy or spirit of one of those laws because its effects are comparable to or the same as a violation of the law, or otherwise significantly threatens or harms competition.” Id. (cleaned up).

Fraudulent: The courts have given this term the same meaning as “untrue or misleading” in the FAL, to be discussed in further detail below. Thus, both false and technically true but misleading claims are covered by the UCL. The UCL will be violated if consumers are likely to be deceived. The UCL, like the FAL, “is broad and sweeping to protect both consumers and competitors by promoting fair competition in commercial markets for goods and services.” Pulaski & Middleman, LLC v. Google, Inc., 802 F.3d 979, 985 (9th Cir. 2015) (cleaned up). Thus, it is readily used in the class action context.

UCL actions may be brought by the Attorney General, designated public prosecutors, or persons who have suffered injury in fact and lost money or property due to the unfair competition. § 17204. The primary form of relief available under the UCL is an injunction. UCL remedies are equitable in nature, and recovery of damages is not available, though restitution may be.

Because the UCL is equitable, federal courts have been cutting back on its scope in two key ways: First, they hold that the equitable remedy of restitution is only available in federal court if legal remedies are unavailable, and they are usually available. Sonner v. Premier Nutrition Corp., 971 F.3d 834, 841 (9th Cir. 2020). Second, they hold that named plaintiffs lack standing to seek injunctive relief in many circumstances, because by definition the named plaintiffs now know the truth about the allegedly false advertising. However, in some cases, a sufficiently concrete desire to buy the product again if it were truthfully labeled, and an inability to rely on the current advertising because of the alleged falsehood, can suffice to provide standing to seek injunctive relief. See, e.g., In re Coca-Cola Products Marketing & Sales Practices Litig. (No. II), 2021 WL 3878654, No. 20-15742 (9th Cir. Aug. 31, 2021). One perhaps quixotic result is that UCL standing may be unavailable if the defendant’s product is worthless—since a consumer would never want to buy a worthless product again—but available if the product is worth something, just not as much as the defendant charged for it.

The AG and other authorized public prosecutors may also seek civil penalties of up to $2,500.  Civil penalties “are mandatory once a violation of [the UCL] is established, and a penalty must be imposed for each violation.” People v. First Federal Credit Corp., 104 Cal.App.4th 721, 732 (2002).

FAL: The FAL, California Business and Professions Code § 17500 et seq., makes it unlawful “for any person or business to make or distribute any statement to induce the public to enter into a transaction ‘which is untrue or misleading, and which is known, or which by the exercise of reasonable care should be known, to be untrue or misleading.’ ” Nationwide Biweekly Administration, Inc. v. Superior Court, 9 Cal.5th 279, 306 (2020) (quoting § 17500). The standard for what is “untrue or misleading” is broad and focuses on the reasonable consumer; both false and misleading statements are covered—that is, ads that are technically true but cause consumers to reach mistaken conclusions. The challenged advertisement or practice is typically viewed through the eyes of the ordinary target consumer acting reasonably under the circumstances. Unlike Lanham Act doctrine, FAL doctrine does not distinguish between false and misleading claims in its proof requirements; consumer surveys are not required even if the challenged ad is technically true, and factfinders may rely on the ad itself as the primary evidence of its effect.

Many traditional limits on common-law fraud do not apply, such as reasonable reliance, which is replaced by causation (the consumer must have lost money or property as a result of the speaker’s conduct). While the fault requirement (the speaker knew or should have known of the falsity) might seem significant, it is rarely litigated at the motion to dismiss or summary judgment stage, given that the facts that could establish falsity or misleadingness also generally allow an inference of knowledge. Thus, as long as members of the public are likely to be deceived, there is a claim under the FAL.

FAL claims are often suited to class action treatment, because a FAL analysis “does not require ‘individualized proof of deception, reliance and injury.’ ” Pulaski & Middleman, LLC v. Google, Inc., 802 F.3d 979, 986 (9th Cir. 2015) (cleaned up). If the plaintiff shows that a false or misleading statement is material to consumers—likely to affect their purchasing decisions—then deception, reliance and injury may be presumed on a classwide basis. To show materiality, a plaintiff is not required to show that the challenged statement is the “sole or even the decisive cause” influencing decisions to buy, but only that reasonable consumers would attach importance to the statement in making decisions. Kwikset Corp. v. Superior Ct., 51 Cal.4th 310, 327 (2011).

The available remedies are injunctive relief and restitution (with the caveats discussed for the UCL); the courts are authorized to “restore to any person in interest any money or property, real or personal, which may have been acquired by means of any practice in this chapter declared to be unlawful.” § 17535.

FAL actions may be brought by the Attorney General, designated public prosecutors, or “any person who has suffered injury in fact and has lost money or property” as a result of a violation of the FAL. Id. Under the FAL, the Attorney General and other public prosecutors may require advertisers to substantiate their factual claims, but “lack of substantiation” claims are not available to consumer-plaintiffs, who must show falsity or misleadingness affirmatively. The Attorney General and other public prosecutors may seek civil penalties not to exceed $2,500 for each violation of the FAL, as with the UCL. § 17536(a). These penalties are cumulative, which means that conduct violating both the UCL and FAL can result in two separate penalties per violation. People v. Toomey, 157 Cal.App.3d 1, 22 (1984) (the UCL and FAL “allow for cumulative remedies, indicating a legislative intent to allow ... double fines”).

CLRA: The CLRA prohibits “unfair methods of competition and unfair or deceptive acts or practices” in transactions for the sale or lease of goods to consumers. Cal. Civ. Code § 1770(a). It includes a specific list of unlawful practices, including the commonly pled practices of “[r]epresenting that goods or services have ... characteristics ... [and] benefits ... which they do not have,” § 1770(a)(5), and “[r]epresenting that goods ... are of a particular standard, quality, or grade ... if they are of another.” § 1770(a)(7).

The other provisions vary greatly in specificity, covering conduct including “[p]assing off goods or services as those of another” and related conduct; bait and switch advertising; advertising unassembled furniture without clearly indicating that it is unassembled; “[m]aking false or misleading statements of fact concerning reasons for, existence of, or amounts of, price reductions”; “[i]nserting an unconscionable provision in the contract”; and others.

In practice, CLRA analysis is generally quite similar to FAL and UCL analysis. To establish a CLRA claim, the plaintiff must show that: (1) the defendant’s conduct was deceptive; and (2) the deception caused plaintiff harm, again in the form of lost money or property. As with FAL and UCL claims, causation may be established by showing materiality.

CLRA remedies are broader than FAL and UCL remedies. The statute authorizes “[a]ny consumer who suffers any damage as a result of the use or employment by any person of a method, act, or practice declared to be unlawful” by the CLRA to sue for actual damages (or at least $1,000 in a class action); injunctive relief; restitution; punitive damages; and “”[a]ny other relief that the court deems proper.” Penalties are enhanced in certain circumstances if consumer-victims are senior citizens or disabled.

However, in order to be eligible for damages, consumers must notify the accused violator in writing thirty days or more prior to filing suit and demand repair, replacement, or other rectification of the violative goods or services. And limitations on seeking restitution, an equitable remedy, in federal court also apply under Sonner.

Overlap

Because these statutes have such significant overlap, courts generally treat them very similarly. “For purposes of class certification, the UCL, FAL, and CLRA are materially indistinguishable.” Townsend v. Monster Beverage Corp., 303 F.Supp.3d 1010, 1043 (C.D. Cal. 2018) (cleaned up).

Monday, May 02, 2022

Chanel reseller can't get summary judgment on whether it talked too much about Chanel

Chanel, Inc. v. WGACA, LLC, 2022 WL 902931, No. 18 Civ. 2253 (LLS) (S.D.N.Y. Mar. 28, 2022)

Chanel sued What Goes Around Comes Around (WGACA), alleging trademark infringement, false advertising, false association/endorsement, and related NY GBL claims for deceptive/unfair trade practices and false advertising. The court dismissed the GBL claims and held WGACA liable for infringing Chanel’s marks as to eleven non-Chanel handbags sold as having been authorized for sale by one Chanel factory, and one Chanel-branded handbag with a pirated serial number. The rest had to await a factfinder.

Chanel provides its factories with only enough supplies to make the specific number of Chanel products that have been ordered; it does not authorize factory overruns. 30,000 Chanel labels, stickers, and authenticity cards bearing unique serial numbers were stolen from its Renato Corti factory in 2012. Chanel has an internal inventory system and voids such stolen or missing serial numbers. It can use its system to determine whether the type, color, and characteristics of an alleged product correspond with those of the genuine product Chanel manufactured and sold under that serial number.

Meanwhile, WGACA specializes in the sale of luxury secondhand clothing, bags, jewelry, and accessories. WGACA purchases goods from individuals and international whole-sellers, without asking for documentation of how they obtained title to the goods. It “guarantees the authenticity of all products sold” by employing a team of in-house experts who authenticate all goods before they are sold. But it does not dislcose that these in-house experts have never worked for or been trained by Chanel. It also, since 2017, stopped publicizing on its website the Chanel serial number of goods it has available for sale. In 2020, WGACA added the disclaimer: “WHAT GOES AROUND COMES AROUND IS NOT AN AUTHORIZED RESELLER NOR AFFILIATED WITH ANY [sic] THE BRANDS WE SELL.”

WGACA also advertises its products using a combination of its marks and the marks of all of the luxury fashion houses that it sells. It used Chanel marks and indicia, such as Chanel artwork and images of Chanel runway shows, in advertisements and displays featured in-store and on its webpages, social media, and direct-to-consumer emails. Until 2017, it also used the hashtag #WGACACHANEL in its social media posts.

Aside from the allegedly inauthentic/stolen goods, Chanel brought false association claims based on emphasizing Chanel too much: WGACA’s

retail displays’ prominent use of the Chanel Marks, like a giant CHANEL No.5 perfume bottle or CHANEL-branded cake; direct-to-consumer email advertisements that prominently displayed the Chanel Marks, frequently in WGACA’s stylized font; use of #WGACACHANEL in social media posts; and non-product specific advertising, like ads for general WGACA sales, with prominently featured CHANEL-branded items front and center Additionally, Chanel points to WGACA’s website which uses images of and quotations from Coco Chanel (at times stylized in Chanel’s font), and includes statements like “Buy WGACA CHANEL- 100% Authenticity Guaranteed.”

“Chanel points to at least one Chanel customer staying at the Plaza Hotel who saw a WGACA advertising display and went to the nearby Chanel boutique and requested the discount promised in WGACA’s advertisement. Chanel’s customer service call center records have also captured similar instances of confusion on the part of several callers.”

For false association, there was no burden on Chanel to prove injury because lost control over public perception of its goods or services counts as harm. I know this is baked into the law, but: Aside from the theoretical problems with that merger of risk and harm (a risk is not a materialized risk), there’s a separate flaw when the posited harm comes from false association. You first should have to establish that the false association makes it likely that Chanel lost control over public perception of its goods and services. And the evidence that this happens—that consumers blame brands for their partners’ misbehavior, if there is any—is just lacking.

Confusion theory for acts relating to genuine Chanel goods: Because of the nature of the claim, similarity of marks, bridging the gap, quality of products were inapplicable, and the marks were famous, which favors finding confusion. [This is just … dumb as applied to a first sale case, just as it is as applied to a parody case. Mark strength might, all else being equal, increase likely confusion when there are actually two different marks in the case, the plaintiff’s and the defendant’s similar mark. (Though for very strong marks this too is implausible.) But the fact that Ford is famous for cars doesn’t make it more likely that a used-car seller will cause false association with Ford. If anything, fame may make it easier for Ford to avoid any linkage to the used-car seller.]

Proximity of the products: A factfinder would have to decide the relevance of new v. second-hand.

Actual confusion: A customer viewed a WGACA ad featuring a CHANEL-branded handbag and, believing it to be a Chanel ad, asked for the discount to be applied at the Chanel boutique. And multiple customers contacted Chanel customer service representatives with inquiries about Chanel goods sold by WGACA. But WGACA argued this wasn’t confusion as to affiliation (they are clearly known to be a Chanel product sold second-hand) but simply over whether Chanel will honor the second-hand discount. This was for the jury, as was Chanel’s survey and criticism thereof.

Bad faith: WGACA was aware that use of the Chanel marks and indicia was “helpful” to driving its sales, in part because an association with Chanel was a “value add.” “But that fact is not dispositive because ‘[p]rior knowledge of a senior user’s trade mark does not necessarily give rise to an inference of bad faith.’”

Consumer sophistication: Favored WGACA. 

Nominative fair use factors: Also for a factfinder. The use of “Chanel” was probably necessary to describe WGACA’s product, but there was a dispute over whether it used more than necessary and whether it did “anything that would, in conjunction with the mark, suggest sponsorship or endorsement by the plaintiff.”

Courts have to consider “whether the alleged infringer ‘step[ped] over the line into a likelihood of confusion by using the senior user’s mark too prominently or too often, in terms of size, emphasis, or repetition.’ ” WGACA argued that it shows the Chanel branded products featured in the same way as other luxury goods, like Louis Vuitton. But, in a similar case against The RealReal, the court relied upon the fact that “Chanel has identified no facts suggesting that The RealReal displays CHANEL-branded goods ‘more prominently than other luxury-brand goods,’ ... or that The RealReal uses Chanel marks in any other capacity than to identify Chanel products as Chanel.” By contrast, Chanel provided evidence of prominence/extra use. “For example, WGACA’s welcome email to customers and Facebook cover photo features the Chanel marks. Its social media uses #WGACACHANEL and also features Chanel marks and indicia. As do its retail displays, and its direct-to-consumer advertisements, one of which featured the Chanel mark more prominently than WGACA’s and in the WGACA stylized font, WGACA also used Chanel marks and indicia in general advertisements for WGACA and to advertise upcoming sales, despite not advertising any specific Chanel product.” WGACA disputed this, but that was an issue for the factfinder.

Likewise, a factfinder could conclude that WGACA did something that “in conjunction with the mark, suggest[s] sponsorship or endorsement” by Chanel and has obscured the “true or accurate relationship between” the parties, because of (1) Chanel’s consumer survey, which found consumers perceived WGACA to be affiliated with Chanel based on how WGACA listed Chanel products on its website; (2) WGACA’s claim on its website and in advertisements of “WGACA CHANEL- 100% Authenticity Guaranteed” and its inclusion of a letter or card of authenticity with its products; (3) its yearly “Coco Chanel birthday Sale”; and (4) its use of pictures or purported quotes of Coco Chanel on social media and on its website.

Though WGACA claimed that it used the same type of ads for other luxury brands, it didn’t offer evidence of such ads. TheRealReal weighed a website disclosure in that site’s favor, but WGACA’s website had no similar disclosure until April 2020, after this lawsuit was brought. “This factor thus favors a finding of consumer confusion.”

Neither party could prevail on summary judgment.

As to the allegedly non-genuine/never subject to authorized sale items, things were simpler: “[T]he sale of non-genuine goods creates consumer confusion and is sufficient use to establish liability under § 1114(1) (a) and § 1125(a)(1)(A) without resorting to application of the Polaroid factors” (cleaned up). Goods aren’t genuine “if they do not conform to the trademark holder’s quality control standards, even if they were manufactured by the mark holder.” And lack of conformity “can be established by a lack of evidence, or a showing that plaintiff never generated a record of conformity as it usually does in the course of business.” Likewise, goods aren’t genuine “If the trademark owner did not approve the original sale” “... or if they differ materially from the product authorized by the trademark holder for sale.”

There were four categories of items in this group:

First, 50 bags sold with serial numbers that were not verified by Chanel’s internal record system, ORLI, which chronicles every phase in the production cycle. “Chanel argues that these serial numbers went missing before being assigned to a bag and, as a result, the ORLI system has no notation that bags with those serial numbers ever passed through the quality control procedure and were authorized for sale.” But “the evidence tells competing stories of how Chanel conducts its quality control procedures and thus the question of whether the bags were actually subjected to them is best left for the jury.” There was some evidence that Chanel’s internal quality control systems didn’t record everything that actually happened. Likewise, whether Chanel authorized the initial sales was also disputed. Chanel pointed to its lack of internal records that the bags were authorized for sale, but “Chanel itself offers contradicting explanations of how its internal system would record the authorization for sale of a bag that went directly from the factory quality control processes and into the market rather than first passing through a distribution center. WGACA also calls into question the reliability of Chanel’s record system.”

But the claim here wasn’t moot for lack of an appropriate remedy, since Chanel was seeking disgorgement of profits and an injunction. Disgorgement was possible even without egregious conduct; “there are issues of fact as to WGACA’s mens rea and whether it acted in reckless disregard, in willful blindness, or was simply unaware its sale was an infringement. … It may have been reasonable for it to assume the bags’ marketability.” Although injunctive relief might be complicated, it would be possible to require WGACA to publicize the serial numbers on the products it sells.

Second, point of sale items bearing the Chanel logo: Chanel claimed that the point-of-sale items were never authorized for sale but were instead loaned to retailers as counter decor. WGACA offered no evidence that Chanel authorized the initial sale. They were infringing as a matter of law. “[D]isgorgement of profits and injunction are available remedies, the applicability of which is premature to resolve at this stage.”

Third, eleven bags with serial numbers that were stolen from Chanel’s Renato Corti factory. [The court drops a weird footnote saying that items made in an owner’s factory and meeting its specifications, sold without authorization, would be infringing but not counterfeit, which is important because of the more severe penalties for counterfeiting. That has some equitable appeal but is not the law, and seems to contradict what the court then holds.]

Chanel was entitled to summary judgment on the grounds that the bags were not put through Chanel’s quality control processes and not authorized for initial sale by Chanel, even though there were factual issues about whether the bags were actually made by Chanel factories.

Chanel argued that this also constituted counterfeiting under § 1114(1)(a). “Where counterfeit marks are involved, it is not necessary to perform the step-by-step examination of each Polaroid factor because counterfeit marks are inherently confusing.” Moreover, “[e]vidence that there are discrepancies between a company’s internal product-identification information and the actual characteristics of the contested goods is sufficient to establish a prima facie case that the goods were not manufactured by the trademark holder and thus are counterfeit.” There was evidence of this, but WGACA proffered evidence in support of its argument that the bags could have stolen serial numbers and still have been made in Chanel factories; Chanel employees could not specifically identify issues with the authenticity of two examined bags, including their hardware, which was significant because, in the words of Chanel’s outside counsel, “in the vast majority” of counterfeiting cases, “we can tell that they are counterfeits because the metal bits are not original.” A reasonable jury could find either way, so the counterfeiting claim was not amenable to summary judgment.

Finally, Chanel argued that two handbags sold by WGACA were non-genuine and counterfeit because, according to Chanel’s records, the characteristics of bags with those serial numbers were different from the characteristics of the bags WGACA sold. There was a genuine dispute about one bag’s status, while another was sold under a serial number for a different type of bag and thus Chanel won summary judgment as to that bag.

There was no basis for holding WGACA liable for engaging in counterfeiting itself, as opposed to selling counterfeits; “because Chanel’s cause of action cites 15 U.S.C. § 1114(1) generally, the Court dismisses these claims of counterfeiting but allows them to proceed on claims of infringement under section 1114(1)(a).”

False advertising: WGACA argued that Chanel failed to adequately create a fact issue on injury. Injury can be presumed for comparative false advertising, or deliberate deception in a two-player market, but there’s no presumption when “a misleading advertisement does not make comparative claims about a direct competitor.” Chanel argued that WGACA’s explicit use of the Chanel marks and the parties’ overlapping consumer base justified presuming injury, but this was not a two-player market; other resellers were also potential victims of false advertising.

Still, Chanel created a genuine issue of material fact “as to whether it suffered reputational injury due to WGACA’s false advertisement of counterfeit, infringing, and repaired CHANEL-branded products as genuine and unaltered and its false advertisement of CHANEL-branded point of sale items as genuine products originally made and sold by Chanel.” Chanel’s General Manager of Fashion stated that WGACA’s false advertisements cause reputational harm to Chanel due to the risk that a consumer buys a CHANEL-branded item from WGACA and “has an experience ... with a quality of product that is not up to the standard of Chanel,” “which damages what that customer (who could be a current or potential future Chanel customer) thinks of Chanel and its products.” [Seems highly inconsistent with first sale, at least for the non-counterfeits.] A jury could decide who to believe.

The NY GBL claims were dismissed for want of injury to the public interest “over and above ordinary trademark infringement.”

 

statutory consumer protection damages available on per-unit basis in NY, not just per-person

Montera v. Premier Nutrition Corp., 2022 WL 1225031, No. 16-cv-06980-RS (N.D. Cal. Apr. 26, 2022)

This opinion resolves challenges to expert testimony in a false advertising class action under NY’s GBL challenging the advertising of Joint Juice as touting benefits of a useless product; both parties win and lose some. The court also declined a motion to decertify the class on Article III standing grounds, signalling a coming wave of Article III argments.

Premier argued that Montera’s survey expert deviated from accepted principles of survey design because it “relies on improper closed-ended and leading questions, lacks a control, and manipulates the sample to an incorrect universe of respondents.” The general rule is that “as long as [the survey] is conducted according to accepted principles and is relevant,” the “technical inadequacies in a survey, including the format of the questions or the manner in which it was taken, bear on the weight of the evidence, not its admissibility.”

First, relying on closed-ended questions was a matter for cross-examination, not exclusion. Closed-ended questions can be appropriate “for assessing choices between well-identified options or obtaining ratings on a clear set of alternatives.” Unlike in cases excluding surveys, the questions here didn’t appear to “ultimately test[ ] reading comprehension and common sense rather than the likelihood of consumer [beliefs].” The questions were “written in clear language and give the reader the opportunity to respond affirmatively or negatively.”

Somewhat more surprisingly, the failure to include a control was not fatal. “It is unclear how a control group could be structured for this survey, which showed respondents the entire Joint Juice label, including the product name, ingredients, and images. Defendant argues the survey should have controlled for preexisting beliefs. But as Plaintiff rebuts, ‘[i]f advertising reinforces an incorrect belief, it is still false advertising.’”

And less surprisingly, excluding respondents under 35 was fine, because the evidence showed “that the typical joint juice consumer—and the type of consumer targeted by Premier—was in their forties, fifties, and sixties.” Any resulting flaws could be addressed on cross-examination. [And note the lower-case “joint juice,” yikes.]

Plaintiff also had an expert who was a professor of marketing retained to opine about the marketing and advertising of Joint Juice, and how the “message” from Joint Juice advertising influences consumers. His testimony concerning general marketing principles, the marketing strategies at play for Joint Juice, and Premier’s intended message and target audience were admissible. “[C]ourts regularly admit marketing testimony that explains what a company intended to convey through their marketing.” But his testimony about how consumers interpreted the intended message was not admissible, because it had little support other than the survey.

Plaintiff’s statutory damages expert calculated damages based on GBL §§ 349(h) and 350-e. Section 349(h) provides that “any person who has been injured by reason of any violation of this section may bring an action ... to recover his actual damages or fifty dollars, whichever is greater[.]” NSection 350-e(3) similarly states “[a]ny person who has been injured by reason of any violation of section [350] ... may bring an action ... to recover his or her actual damages or five hundred dollars, whichever is greater[.]” The expert calculated based on a per unit basis, not per person; courts have reached different answers on which is appropriate. Given the policy of the law and the fact that a person is injured each time she buys a worthless product, the court accepted per unit calculations as “consistent with the text and intent of the statute.”

Among other things, the court excluded one of defendant’s expert’s opinions about the safety of standard osteoarthritis treatments. The expert would have opined that the adverse effects of some standard treatments, such as NSAIDs or opioids, create a need for alternative treatments for osteoarthritis. “This opinion is irrelevant to the crux of this case: whether the advertising of Joint Juice is false or misleading. Glucosamine is only a viable alternative to other osteoarthritis treatments if it has positive effects for osteoarthritis patients.” This is interesting in light of my general position that a lot of advertising regulation depends on cost-benefit balancing, albeit usually subterranean. If there is some reasonable chance that glucosamine works (a fact on which I have not the slightest ability to opine), then the benefits of that chance probably should be weighed in light of the alternatives—but that doesn’t obviously mean this testimony relevant to whether a specific advertising claim is misleading. Only if people are taking away an accurate message about the chance the product works can they do that balancing for themselves.

The court also allowed in a rebuttal damages expert who would testify that actual damages were not the entire value of the product but a price premium. This was relevant, even though plaintiffs were seeking statutory damages, because to know which was greater (actual or statutory) you had to know the actual damages.

Defendants’ survey expert ran a survey which addressed why consumers purchase Joint Juice as compared to other glucosamine products. Plaintiff argued that Poret’s survey is irrelevant because it addresses why people who choose to purchase a glucosamine supplement choose Joint Juice over other supplements, and thus does not address the question at issue in this litigation. The survey “appears to have limited probative value in this case, but is nonetheless relevant.” Problems could be addressed on cross-examination.

Premier moved to decertify the class because plaintiff lacked common evidence of causation necessary for both the causation element of her substantive claims and Article III standing, and thus individualized issues will defeat predominance.

But the plaintiff alleged the requisite causal nexus between Premier’s conduct and the class’s injury, which was the money “spent on the product that did not do what it was sold to do.” And there was common evidence of causation, including common evidence about Premier’s advertising and marketing, and Joint Juice users’ use of Joint Juice to obtain joint health benefits. The survey about how consumers interpret Joint Juice’s label bolstered this evidence and predominated over individual issues as to proof of causation. Defendant’s survey didn’t change anything. That survey “looked to the reasons beyond joint health a consumer would purchase Joint Juice, and [the expert] testified in his deposition that people buy glucosamine supplements for joint health.”

Relying on TransUnion LLC v. Ramirez, 141 S.Ct. 2190 (2021), Premier argued that plaintiff didn’t show that each class member has Article III standing. Article III standing requires a “causal connection between the injury and the conduct complained of[.]” But the common causation evidence did this.

Premier argued that predominance was no longer satisfied because plaintiffs couldn’t pursue a full refund theory of liability, and individual issues will predominate as to damages because some purchasers bought Joint Juice for its other attributes, like the vitamins included in the drink. Even if all class members bought Joint Juice for its joint health benefits, Premier argued that Joint Juice nevertheless has other attributes of value and thus a price premium theory of damages would be the appropriate measure of damages.

The court disagreed. NY does not require a price premium theory. “A full refund theory of liability may be viable when a plaintiff alleges that a product is valueless.” Sometimes only a price premium theory is allowed, such as when labels indicate a consumer would get more of a product than they actually received, or that they will get more of a benefit. But if a product provides no benefit, the plaintiff may be entitled to the entire purchase price. This was a question of fact for the jury. Separately, “the availability of statutory damages on a per unit basis … establishes that predominance is satisfied as to damages, because it appears statutory damages will likely exceed any actual damages. ‘Once an injury is established, statutory damages can be precisely calculated for each class member.’”

is there a difference between "clinically tested" and "clinically proven" to reasonable consumers?

Williams v. Reckitt Benckiser LLC, No. 20-23564-CIV-COOKE/GOODMAN, 2021 WL 8129371 (S.D. Fla. Dec. 15, 2021) (R&R)

This long and citation-heavy opinion would be a good cheat sheet for looking at class action settlement approvals generally, especially in the 11th Circuit.

Courts often are skeptical about small differences in wording when plaintiffs challenge them as causing deception. But when it comes to surveys or, here, approving settlements, matters can differ.

The court begins with an extended discussion of how small words can mean big things; “[a]t times, the mere addition or modification of only one or two words can cause a dramatically different result.” This is important because the proposed settlement of this class action against manufacturers/distributors of Neuriva brain-health-promotion products requires only small changes in marketing claims. This is despite the fact that the underlying complaint alleges that the products do not provide any actual tangible benefits. “They say consumers are being defrauded because the products do not improve memory, focus, concentration, and other components.” The settlement lets defendants “continue selling the same supposedly useless and expensive products (but without certain marketing and sales representations about the products’ efficacy).” Defendants, on their part, “argue that the products do in fact work and that their ingredients have been successfully demonstrated to provide benefits for promoting brain health.”

The injunctive relief does what this xkcd cartoon mocks:

 

Alt text: Blatantly banking on customers not understanding that it's like a Hollywood studio advertising that their new movie was 'watched by Roger Ebert'.

Instead of marketing and labeling Neuriva products as providing results which are scientifically and clinically “proven” or which “show” benefits after being “tested,” defendants have to revise all label/marketing references for two years from “clinically proven” to “clinically tested.” For two years, they must refrain from making any reference relating to brain health function using “clinically shown” or similar language, such as “clinical studies have shown” or “clinically tested and shown” or, the magistrate emphasized, “confirmed,” “demonstrated,” “established,” or other words or phrases synonymous to “shown.” In addition, they would have to limit the use of authorized language about the studies or testing to refer to only Neuriva’s ingredients, not to Neuriva as a whole. “The parties have convinced me that these language limits and changes are significant.”

Given the risks of litigation—including the nontrivial risk of losing at trial, as similar claims had done elsewhere (with the competing product Prevagen, for example, the jury was hung and the court decertified the class)—the magistrate recommended finding that settlement was fair, despite some objections, including from Truth in Advertising, Inc. (TINA). The settlement included a fund of up to $8 million; unclaimed money would be returned to defendants. The magistrate also recommended approving the requested amount of attorney’s fees, costs, and expenses of $2.9 million. (Whether named plaintiff incentive awards were allowed in the 11th Circuit remained nonfinal pending a potential rehearing in another case, so the magistrate recommended retaining jurisdiction to entertain a motion for same if the law changed.)

The proposed injunctive relief would permit defendants to revise or modify their representations if they possess “competent and reliable scientific evidence substantiating that a representation is true” by providing plaintiffs’ counsel with 180 days’ written notice of the proposed representations and the underlying scientific evidence. The court would have continuing jurisdiction to rule on any challenge.

The magistrate initially ordered plaintiffs to explain why their proposed settlement was ok if their allegations were that the product was useless; in partial response, they emphasized that they weren’t alleging that the Neuriva products are in fact harmful if ingested or are being unlawfully sold, and noted that it was unlikely they could even seek a prohibition on their sale. They also pointed out that winning—if they did—could take many years. (If the relief is for only two years, then why does it matter if relief is pushed out to the future?)

Among other things, TINA’s objection argued that “clinically tested” in advertising implies that the product has been clinically “proven”; that the labeling restrictions are binding for only two years, while class members “would be permanently prohibited from suing.” An email from Rich Cleland of the FTC, made part of the record by TINA, pointed out that

A significant number of consumers would not see any difference between the statements “clinically or scientifically proven” and the statement “clinically or scientifically tested.” Both statements, one express and the other implied, convey that there is substantial scientific evidence supporting the underlying claim. With regards to the tested claim, whatever reason would there be for the advertiser to claim that a product has been “clinically or scientifically tested” if those tests did not support the underlying claim?”

Defendants argued that there is a significant distinction between proven and tested but also contends that both claims are true here. “Defendants explain that market research specifically directed at brain health supplements confirms the difference in interpretation and attached a supporting declaration from a Dartmouth professor,” and also relied on dictionary definitions.

As of October 14, 2021, the Settlement Administrator had received a total of 50,634 claims. Class members with proof of purchase may submit a claim for two purchased products for a maximum benefit of $65.00, while class members without proof of purchase may file a claim for up to four purchased products for a maximum benefit of $20.00 The requested claims total a bit over $935,000.

“The settlement here is a prime example of why class action settlements are highly favored in the law. Absent the settlement, the class action could have faced serious hurdles to recovery, and now the class is entitled to significant settlement benefits that may not have even been achieved at trial.”

The settlement, by the evidence, was negotiated at arm’s length and after significant investigation by plaintiffs’ counsel, including consultations with experts. Litigating these complicated claims “would have undoubtedly proven difficult and consumed significant time, money, and judicial resources.” Any victory would have taken years and was far from guaranteed. The settlement had monetary relief that was significant to the individual consumers who submitted claims—people without proof of purchase got 15 or 22% of their money back, depending on the product. And having a claims-made fund was acceptable even if plaintiff got to take the remaining money back. There was also injunctive relief requiring “significant label changes -- specifically removing the language at the heart of this case -- within six months after final approval (as opposed to years down the road).”

TINA objected that the temporary removal of “proven” and similar words was unhelpful to consumers given defendants’ ability to use “clinically tested.” But the magistrate found that the falsity theory was pretty risky—as private litigants, they couldn’t require defendants to substantiate their claims, and they might risk preemption if they tried. (The magistrate seems to be conflating the idea that private plaintiffs can’t require substantiation, which is correct, with the mistaken idea that they can’t win if they merely prove that “clinical studies don’t prove the product works.” The latter is classic falsity: by proving that the studies don’t prove the claim, the plaintiffs would have falsified the thing that defendants actually said, not put the burden on defendants to substantiate the thing they said. In fairness, there are other cases that don’t understand this distinction.) And there were other proof barriers to victory.

In my mind, the real objections are to the substance: is there really a difference between “clinically proven”/“shown” and “clinically tested” to ordinary consumers? And an injunction that lasts only two years is silly. “Plaintiffs concede that they would prefer longer than two years for the injunctive relief, but they explain that the only alternative is continued litigation, which can last for several years.” But why should we prefer these two years to future deception-free years, maybe far longer than two, which we should get if the products are in fact junk?

Defendants’ expert concluded that consistently using “Clinically Tested” will result in “consumers [who] are likely to correctly conclude that Neuriva’s ingredients have been tested, without necessarily drawing additional inferences about the level of proof or certainty those tests revealed.” This conclusion was based on her review of the record, the demographics of defendants’ customers, defendant RB’s own marketing research, and related academic research. In her view, the words used would combine with the age/income/education of the target consumer and the context of preventative health to establish that consumers would perceive a meaningful difference between a “clinically shown” versus a “clinically tested” claim. Unpersuasively, she analyzed the dictionary definitions, which have very little to do with the context of marketing a product—she would have been better off with Gricean implicature. But “tested” is, in dictionary terms, about the process, while “proof/prove” is about the outcome. [Is expert testimony about the dictionary really admissible? I guess it doesn’t matter here, but it sure seems to me that the court could just as easily read the dictionary as the expert.] 

[On review of the expert declaration, it seems like a lot of chaff, though I guess it worked! The strongest evidence--the only direct evidence--was a study of defendants' that found that 33% of respondents thought that "clinically proven" meant that the product was extremely likely to do what it said, while only 26% thought that "clinically tested" meant "extremely likely" to work. I will note that 26% is a pretty high deception percentage on its own, assuming the product is not extremely likely to work. The expert emphasized that this was less than the 28% average from all claims tested that resulted in "extremely likely" ratings. But this whole thing is extremely misleading if not outright false. To begin with, unless the expert was looking at something other than the cited report, the percentage of respondents who said "clinically tested" meant "extremely likely to work" was 28%, not 26%. The 26% number is for "clinically researched." The average "extremely likely" rating of claims tested was 24%; the research found that 28% was significantly higher than average and so was 26%. Separately, the "less than the 28% average" seems to be a made-up statistic--the expert seems to have taken the average of the claims that were significantly more convincing than average, so why the fact that "clinically tested" was  midrange in that subset matters is obscure to me. Also, as noted at the bottom of this post, the tested claims were mostly puffery/gobbledegook, and many had little to do with efficacy, driving down the overall "average" further. But the statistical tomfoolery seems to me less significant than the outright error.]

Doing a bit better, the expert “explained that older consumers, such as those 55 years and older, are typically more familiar with pitches in health advertising,” and noted that more than half of Neuriva’s sales are from this group of consumers. So too with higher-income consumers, who can pay from $30 to $80 per package, who are typically “more educated and more health literate than lower income and less-educated consumers.”

[Implicit in this analysis is that it’s ok for consumers to be induced to bet on the chance that the product works. I think that’s a reasonable position to take, but I wish it would be more clearly articulated. Right now the reasoning is all implicit: Consumers will supposedly understand that the product ingredients have been tested, which they are supposed to infer increases the chance it will work (otherwise why would the advertiser say so? In the abstract, the fact that something has been tested says nothing about the prior probability that it works) but understand that it’s just a chance, and if they want to pay their money for a chance we should let them. Perhaps ironically, the message of “clinically tested” in the pro-settlement story is therefore not at all the dictionary meaning of “tested”—it is “there’s some chance this works, but it’s not proven.” So why are we looking at the dictionary again?]

So, the injunctive relief changing the label provided benefits to the settling class [for two years]. This required labeling “that does not suggest some definitive scientific outcome or consensus” [for two years]. And no case holds that “clinically proven” has the same meaning to consumers as “clinically tested.” Indeed, one NAD case suggests that those terms are ok. Living Essentials, Chaser, NAD Case No. 4365 (July 8, 2005) (accepting change from “clinically proven” claim to “clinically tested” and from ‘Chaser has been tested and proven effective ...’ to ‘Chaser has been tested and shown effective ....’”). Also, because other brain supplements use “shown,” the settlement will put the Neuriva products at a disadvantage with its competitors, showing that the settlement provided real value.

In sum, the monetary and injunctive relief together amounted to a fair and reasonable settlement.

The requested attorneys’ fees were also fine; the parties engaged in arms-length negotiation for defendants’ agreement not to oppose a fee request up to a certain amount (clear sailing) and for unclaimed amounts of the claims fund to go back to defendants (a kicker). The court found no need to use a lodestar/hours worked approach, but if it did do that, the fees requested would be a reasonable multiple (x2.5) of fees for the hours worked. “The $2.9 million sought by Class Counsel for fees and expenses constitutes 36% of the value of just the monetary relief made available to the Settlement Class, which is well within the range approved by the Eleventh Circuit,” even ignoring the value of the injunctive relief. [Though it is almost three times the amount that seems likely to be paid out, not 36%; given sophisticated parties’ ability to predict these things, did defendants ever expect to pay $8 million?] And there was no risk that fees would deplete the separate settlement fund.

The tested claims: "Clinically proven; Traditionally used; Powered by nature; Clinically Tested; Trusted by generations; Proven with published human clinical studies; Clinically Studied; Based on Ancient Wisdom; Works naturally with your body; Clinically researched; Formulated with science in mind; 100% natural ingredients; Clinically tested & proven; Clinically formulated; Pure ingredients; Scientifically proven; developed by nutritionists; All natural; Proven natural ingredients; Carefully formulated by scientists; Wholefood nutrition; Proven active ingredients; Recommended by doctors; Made with whole foods; Nature made it, science proved it; Recommended by pharmacists; Organic; Science based approach; Recommended by nutritionists; Non GMO; Backed by science; Trusted by health care professionals;  Made with naturally sourced ingredients; Rooted in science; Natural alternative; Nothing artificial; Has been trusted around the world for more than 100 years."

The top scoring claim (combining responses about efficacy and naturalness) was “Clinically tested & proven,” with runners-up "100% natural ingredients," "Clinically proven," "Scientifically proven," and "Recommended by doctors." Of some note: The claim allowed by the settlement, "clinically tested," had the same "extremely likely to work" perception percentage as "recommended by doctors," and the defendants' own research specifically noted that it, like "clinically proven," had "a higher score than AVERAGE GENERAL CLAIM RATING at the 90% confidence level." That does seem like something the expert should have discussed.

Food & Drug Law writing competition for students

FDLI is a nonprofit member organization that has been providing education, training, publications, and professional engagement opportunities since it was founded in 1949. Each year, our organization hosts the H. Thomas Austern Writing Competition for law students interested in areas of the law impacting FDA-regulated industries. The 2022 competition is now open. 

Overview and Eligibility Requirements:

Students currently enrolled in a JD program at any of the nation’s ABA-accredited law schools and 2021-2022 academic year graduates are eligible to participate.

Original scholarship, including papers written for classwork or to fulfill school requirements, may be submitted as long as the paper is not published or accepted for publication elsewhere.

All entries should be within the scope of FDA-regulated industries, such as food, drugs, medical devices, tobacco and nicotine products, cannabis, cosmetics, veterinary drugs and devices, etc.

·         Winners are awarded complimentary access to FDLI’s virtual academic programming. 

Top entries receive $750 for first place, $500 for second, and $250 for third.

Top papers will be considered for publication in the Food and Drug Law Journal.

·         Winners will be featured on FDLI’s website and in Update magazine. 

A committee comprised of FDLI members who are practicing attorneys and law professors will judge the papers.

More information, as well as a link for students to submit their papers, can be found on FDLI’s website. If you would pass this along to your students or other relevant department(s), it would be greatly appreciated. The Austern Competition is an excellent opportunity for food and drug law students all over the country.

FDLI is accepting submissions until Friday, June 10th. Students who would like their manuscripts entered for consideration should register and submit them through the portal before this deadline.