Monday, July 24, 2023

Defendant's belief its ads were effective is evidence of injury

Sandoz Inc. v. Amgen Inc., 2023 WL 4681569, No. 2:22-cv-05326-RGK-MARx (C.D. Cal. Jun. 29, 2023)

Sandoz brought state and federal false advertising claims against Amgen for its advertising of Neulasta, a pegfilgrastim injection used to treat the immunity-reducing side effects of chemotherapy, in particular the risk of the life-threatening infection febrile neutropenia (FN), by stimulating the production of neutrophils, a type of white blood cell that helps the body fight infections.

Thanks to its patents, Amgen enjoyed a temporary exclusivity period for pegfilgrastim injections until 2015. In 2014, Amgen introduced Onpro, a new method for delivering Neulasta through an “on-body injector.” With Onpro, patients could receive timed pesfilgrastim injections the day after chemotherapy without returning to the healthcare facility. The first pegfilgrastim biosimilar hit the market in November 2018, and would ultimately be followed by five others, including Sandoz’s Ziextenzo in November 2019.

A few months after Ziextenzo launched, Amgen launched a multi-million-dollar ad campaign to promote Onpro. These ads claimed that “Pegfilgrastim PFS resulted in a significantly higher risk of FN vs. Onpro” and “[w]ith PFS, FN incidence increased by 31% vs Onpro.” These ads were based on an obseivational study Amgen conducted itself, in an effort to remain competitive with the emerging biosimilar market. But the FDA, independent reviews at scientific journals, and even some of Amgen’s own employees criticized the advertising claims as unsupported and misleading. A second Amgen study received similar criticism. But Amgen continues to run its ads, now with updated claims that Onpro lowered the incidence of FN by 36% as compared to pegfilgrastim PFS based on its new study. Amgen saw the ads as successful, believing that they increased sales and convinced customers not to switch to biosimilars.

Ziextenzo did not perform well at launch, but the true cause was disputed. Amgen argued that there was no impact because the ads didn’t refer to Sandoz or Ziextenzo, and Sandoz couldn’t identify a single patient, prescriber, or insurer that would have used Ziextenzo but chose Onpro because of the advertising claims. After all: (1) Ziextenzo was not the first biosimilar on the market; (2) Ziextenzo was not reimbursable by Medicare; (3) Ziextenzo was more expensive than both Onpro and its biosimilar competitors; and (4) the COVID-19 pandemic drove a higher demand for on-body injectors like Onpro because on-body injectors minimized patients’ need to travel to healthcare facilities. But Sandoz’s experts claimed over $32 million in lost net profits even after accounting for these.

Injury: Damages and disgorgement under the Lanham Act require injury (for false advertising, not trademark infringement, despite the same statutory language covering both; no, I am not going to stop pointing this out any time soon). Proving an injury through lost sales data can be challenging because lost sales are often “predicated on the independent decisions of third parties; i.e., customers.” Thus, “[a] plaintiff who can’t produce lost sales data may therefore establish an injury by creating a chain of inferences showing how defendant’s false advertising could harm plaintiff’s business.” Such an inference may be established through economic models using “actual market experience and probable market behavior.”

The evidence here, including direct competition between the parties, would allow a jury to reasonably infer injury:

Ziextenzo was among the handful of pegfilgrastim biosimilar PFS products on the market in late 2019. According to Defendant’s internal memoranda, the advertising campaign was designed to “optimally position Onpro in [the] face of biosimilar competition.” These ads ultimately succeeded, driving 89,000 additional units by Defendant’s own estimates. From these facts, a jury could reasonably infer that the entire pegfilgrastim biosimilar market lost sales as a direct result of Defendant’s advertising. And, because Ziextenzo was one of those biosimilars, a jury could further infer that Ziextenzo lost sales, thereby causing Plaintiff an injury.

Although some cases disparage defendants’ own expectations and beliefs about causation as evidence of injury (in false advertising cases; never in TM cases), I believe this is both the majority and the correct rule. The court found Amgen’s evidence corroborated by Sandoz’s experts, who opined that the entire biosimilar market suffered as a result of Defendant’s advertising. Courts routinely find expert testimony sufficient evidence of an injury to survive summary judgment. And economic analysis is a valid means of proving an injury caused by false advertising.

Because the advertisements are ongoing, there was also a genuine dispute of fact as to the likelihood of future injury.

California law requires an “economic injury”; there was also a material fact issue on that for the same reasons.

Friday, July 21, 2023

Former distributor's continuing use of "authorized distributor" leads to TM and false advertising claims

Axon Enterprise, Inc. v. Luxury Home Buyers, LLC, No. 2:20-cv-01344-JAD-VCF, |2023 WL 4636917 (D. Nev. Jul. 19, 2023)

In what seems likely a missed opportunity due to insufficient investment in the defense, the court grants summary judgment against an argument that “Taser” is generic (quick quiz before reading further: what is the generic name for a Taser device?) but also narrows the issues somewhat; the larger infringement, cybersquatting, and false advertising claims can’t be resolved on summary judgment. [Edit: Please note that the court later granted reconsideration on the infringement claims.]

Axon makes Taser “non-lethal weapons” (but that can’t be the generic name—anything that encompasses a Taser and a beanbag gun is clearly too broad). Defendant LHB is a former distributor now selling used Tasers that its owner refurbishes in his home workshop. Axon sued for infringement of the Taser word and design marks and for holding Taser-related domain names for ransom. Axon apparently characterizes its non-lethal electric weapons as “conducted energy weapons.”

When it was an authorized Axon distributor, LHB’s owner registered various domain names including and to help it market Tasers online. LHB currently owns 64 domain names containing references to Taser or Axon Taser models.And while neither party knows exactly when their distributor relationship ended, they agree that it ceased sometime around 2000.” Does that sound like the claims against the domain names might be lached?

On websites, emails, and mailers, LHB uses Axon’s Taser character, stylized word, and design marks, often in proximity to its own marks. On several of its websites, LHB also makes representations that it is an “Authorized TASER® Distributor” and that “TASER® is a Trademark of the Mister Stungun.”

Its marketing also focuses on the superiority of the Taser X26E CEW over other models—that is of course the refurbished model it sells, while Axon has moved on—stating that the X26E “wield[s] the highest degree of takedown power of total and absolutely unsurpassed effectiveness[;]” “offers the highest degree of takedown power ever available with the same level of safety[;]” “has the most powerful technology and stopping force[;] “lasts for over 20 years—and works every time[;]” and has “twice the power” of the X26P CEW. LHB also advertises that its products are “factory refurbished,” “professionally refurbished,” “thoroughly tested,” “refurbished to the highest standard,” “completely refurbished” to “work like new,” “even better than new,” and reprogrammed “with the latest software.”

Axon was entitled to summary judgment on genericity. LHB offered only two news articles and a Ninth Circuit opinion that use the word “Taser” without the trademark symbol:

The mere fact that two article authors and a Ninth Circuit panel utilized the mark without a corresponding trademark symbol does not show as a matter of law that the primary significance of “Taser” to consumers is as a type of good rather than a source identifier. And the context of each reference was to refer to an Axon product or to distinguish other products as alternatives to Axon’s weapons.

Even if they were generic uses, two articles and one opinion weren’t sufficient to overcome the “strong presumption” of validity of a registered mark.

Likely confusion: Obviously, this is a nominative use. But is it a nominative fair use? Toyota Motor Sales v. Tabari asks whether “(1) the product was ‘readily identifiable’ without use of the mark; (2) defendant used more of the mark than necessary; or (3) defendant falsely suggested [it] was sponsored or endorsed by the trademark holder.”

The court rejected Axon’s argument that LHB could have identified its products by calling them CEWs; they were Taser brand products. However, it used more of the marks than reasonably necessary, favoring Axon (the court seems to be treating this as a balancing test, to be finalized in the third factor). The court applies the non-empirical but fairness-based line of 9th Circuit cases stating that using logos and not just names risks confusion. (When I see these claims I think about all the businesses using Facebook, Twitter, LinkedIn etc. logos on their materials to identify their social media accounts. Does anyone think that increases the likelihood of confusion over affiliation? Just as with first sale, there is an unambiguous truth—I have a legit product to sell, I have an account on this site—coupled with a less-significant possibility of confusion about whether there’s a greater relationship than that. I don’t think using the logo guarantees confusion, but the context of social media may be much more clarifying than the context of resales.)

Most importantly, there were genuine issues of fact about whether LHB suggested Axon’s sponsorship or endorsement. LHB argued that it avoided consumer confusion by fully disclosing that its products are refurbished and by maintaining the basic nature of the Taser through the refurbishment process. “Axon responds that the first-sale doctrine isn’t dispositive of this prong because affiliation confusion can still exist for disclosed refurbished products. 

As the Ninth Circuit held in Sebastian International v. Longs Drug Stores, first sale doctrine “is not rendered inapplicable merely because consumers erroneously believe the reseller is affiliated with or authorized by the producer.” The Sebastian court thus held that, “[w]hen a purchaser resells a trademarked article under the producer’s trademark, and nothing more, there is no actionable misrepresentation.”

Still, that’s limited to using the trademark on a resold article and its immediate packaging, but not using stylized marks and logos on advertising materials. Axon didn’t seek to enjoin the sales of refurbished Tasers.

Axon’s evidence of actual confusion was three emails from various police officers and personnel inquiring about any affiliation between Axon and LHB, as well as declarations from two officers that they were confused about an affiliation between the parties. LHB pointed out that it markets to thousands of police departments, and one declaration only states that he was under the belief that LHB “could be affiliated with Axon.” Still, that was enough to create a genuine issue of fact. [Note that the cases are just divided on this—inquiries and uncertainty often indicate that the inquirers correctly understood that they needed to know more before concluding that there was an affiliation. Compare this to the treatment of ambiguity in advertising law—outside of trademark, courts make consumers work much harder.]

The context of the use also mattered. Axon pointed to LHB’s phrases such as “100% certified to work like new,” false description of itself as “an [a]uthorized TASER® distributor” (this was, LHB argued, an oversight on some of its websites left over from when that was true), use of Axon’s stylized mark in the top left corner of every single page on, and incorporation of Axon’s globe/bolt logo into that same page. It argued that LHB’s disclaimers were ineffective at curing confusion because of their placement alone—they appear in small font at the bottom of LHB’s website and are thus “buried and easy to miss.” However, the disclaimers were not ineffective as a matter of law. Whether LHB suggested affiliation was an issue of fact.

False advertising: As noted above, LHB made superiority claims for the model it sold; claims that its products were “factory refurbished,” “professionally refurbished,” “thoroughly tested,” “refurbished to the highest standard,” “completely refurbished,” “work like new,” and reprogrammed “with the latest software”; and affiliation statements that it is an “[a]uthorized TASER® [d]istributor” and “TASER® is a [t]rademark of the Mister Stungun.”

The product superiority claims failed. Although these statements weren’t puffery, but specific and measurable, they weren’t shown to be false either. Although LHB admitted it never tested that model against others, it relied on “two media articles, his personal opinions, stories from his customers, and unspecified google searches.

But this wasn’t a “tests prove” case. [Did the statements inherently suggest the existence of scientific research backing them up? I might’ve gone the other way on this.] Thus, showing that reliable studies didn’t support the claims didn’t suffice to falsify them. Axon didn’t submit any evidence of falsity. The closest it got was an expert report stating that “Axon has established a 5-year useful life for its CEW products and strongly discourages ... use of CEWs beyond their 5-year useful life.”But a manufacturer’s strong recommendation of a product’s useful lifespan does not show that the device cannot last for more than 20 years.

Refurbishment quality: Axon argued that LHB’s Tasers cannot be “factory refurbished” because the process takes place only in its principal’s home or in the homes of his independent contractors; nor “professionally refurbished” because he has no degree or expertise in mechanical engineering; nor “thoroughly tested” because LHB does not run independent testing other than superficial inspection; nor “refurbished to the highest standard” because LHB identified no standards it was using; nor “completely refurbished” to “work like new” because Tasers are sonically welded together such that their internal components cannot be examined or replaced. And finally, while Axon agrees that LHB’s Tasers might be reprogrammed “with the latest software,” it argues that such a claim is misleading because the last X26E firmware update was in 2014 and LHB does not have access to the most recent updates for two of the other Taser models he sells.

LHB responded that each Taser “undergoes several aesthetic and functionality inspections” in which he “installs new batteries, new firmware, cleans any internal carbon build-up in the front cartridge, clears any error codes, and ensures each element of the [display] functions properly.” Its principal maintains a “designated space [that] LHB references as a ‘factory’ area to perform the refurbishment process.”

The court found that reasonable jurors could disagree about the “subjective” meanings of the claim. [Doesn’t that mean that evidence of consumer deception is required, in the absence of literal falsity?]

Affiliation statements: Everybody agrees that neither “[a]uthorized TASER® [d]istributor” nor “TASER® is a [t]rademark of the Mister Stungun” is true. But Axon still needs to show deception and materiality. Literal falsity leads to a presumption of materiality and deception, and “[n]othing in the record suggests that those presumptions should not apply here.” [This might be a good case for why there shouldn’t always be such a presumption, although I think it should still exist in many cases; neither “always” nor “never,” the more recent judicial trend, is ideal.]

But Axon wasn’t just seeking a permanent injunction; it sought compensatory damages, but pointed to no evidence of actual injury or damages from the false affiliation statements. It lost summary judgment on damages but won summary judgment as to injunctive relief.

Trial only on LHB’s refurbishing-quality statements.

Nevada deceptive trade practices: Similar results, but somewhat different remedies for the affiliation statements. LHB knew it was aware the distributor relationship was over well before Axon filed suit. Nevada’s law allows a court to require a liable party “to pay to the aggrieved party damages on all profits derived from the knowing and willful engagement in a deceptive trade practice and treble damages on all damages suffered by reason of” that practice. And its consumer-fraud statute requires a court to award a deceptive-trade-practices claimant “any damages that the claimant has sustained; any equitable relief that the court deems appropriate; and the claimant’s costs in the action and reasonable attorney’s fees.” Thus, Axon could recover damages and attorney’s fees but would have to prove the amount.

Then, surprisingly reversing the result on the product superiority statements in the Lanham Act context, the court says that although there’s no evidence of falsity, “Nevada law imposes liability for disparaging claims based on true-but-misleading statements,” so that would have to go to trial. But the Lanham Act also imposes liability for true-but-misleading statements; it just requires evidence that consumers were misled to do so—here, about the nature and quality of LHB’s supporting evidence. Having a different result on the state law claim is conceptually weird but does highlight that traditional common-law claims are more likely to be decided on vibes, whereas Lanham Act false advertising has adopted a technocratic, probabilistic structure that often demands survey or other empirical evidence.

The court also denied summary judgment on the ACPA claim, even though one of LHB’s websites listed its various Taser-related domains with a headline banner labeled “Domain Names for Sale.” The court agreed that bad faith could arise after registration of a domain name. Still, there were genuine disputes over bad faith because the prior distributorship, and current sales of refurbished Tasers, weighed against things like LHB’s offer to sell the domain names to Axon. Even redirecting four of the contested domains to porn sites didn’t sufficiently show intent to tarnish the Taser mark for summary judgment purposes.

Laches (I wondered!): Although Axon had knowledge of some of the contested domains since at least 1999, LHB didn’t fully analyze the laches standard or offer evidence that it suffered prejudice from delay. Summary judgment for LHB on laches denied.

Thursday, July 20, 2023

over aggressive partial dissent, 11th Cir. allows some class claims against Ford "track ready" claims to proceed

Tershakovec v. Ford Motor Company, Inc., --- F.4th ----, 2023 WL 4377585, No. 22-10575 (11th Cir. Jul. 7, 2023)

Discussion of district court opinion. Ford advertised its Shelby GT350 Mustang as “track ready.” “But some Shelby models weren’t equipped for long track runs, and when the cars overheated, they would rapidly decelerate. A group of Shelby owners sued Ford on various state-law fraud theories and sought class certification, which the district court granted in substantial part.” Ford appealed and the court of appeals tinkered with the certification, over a dissent that thought that enforcing consumer protection laws in this case would violate the Constitution in multiple ways (edging close to the claim that the class action mechanism violates Article III).

The key question was predominance, which depended on whether the specific state laws at issue required proof of reliance, whether reliance could be presumed, and if so under what circumstances.

As for the facts:

The Shelby is an upgrade of the standard Mustang and, importantly here, was advertised as “an all-day track car that’s also street legal.” Track-capability refers to the vehicle’s capacity to perform at higher-than-normal speeds in a controlled environment—like, say, on a racetrack. Track-readiness was a central theme in Ford’s Shelby advertising.

Yet, of the five Shelby trims, the Base and Technology trims lacked “transmission and differential coolers,” a feature—originally included as standard on all Shelbys—that is designed to prevent engine overheating. Without them, the Shelbys compensate at high RPMs by reverting to “limp mode,” which reduces the vehicle’s power, speed, and performance to avoid engine damage—and is inconsistent with track-capability.

“On appeal, twelve separate claims remain, arising under the laws of seven states: California, Florida, Missouri, New York, Tennessee, Texas, and Washington.”

The parties focused on reliance, so the majority did as well, dismissing the dissent’s claim that reliance and causation are inherently intertwined as inconsistent with governing state law. See, e.g., Carriuolo v. Gen. Motors Co., 823 F.3d 977, 983, 986 (11th Cir. 2016) (Florida) (holding that plaintiffs “need not show actual reliance on the representation or omission at issue,” even when causation is an element). Thus the majority also declined to address the manifold constitutional claims made by the dissent.

The majority did, however, find that the district court erred by overgeneralizing the set of cases in which reliance can be presumed to those cases where a defendant’s representations to the entire class were uniform. But this can only be done if the underlying state law allows for it. “Affirmatively proving reliance is a very individualized inquiry, the kind that would predominate over other common questions in a class action. By contrast, where the presumption of reliance applies, it does so generally and can therefore be resolved on a class-wide basis.”

And then the majority does something very weird, albeit (it says) prompted by the parties’ concessions. It says that presuming reliance from materiality often is only appropriate where the cause of action is omission-based, relying on cases decided under the federal securities laws. I have no idea why those are relevant (and indeed the majority seems to understand that California, at least, does not take that position, agreeing with the district court that a uniform material misrepresentation can lead to a presumption of reliance).

From that, the court then rejected plaintiffs’ argument that this was an omissions case; at its core, this case was about misrepresentations, not omissions. And it rejected plaintiffs’ invocation of Klay v. Humana, 382 F.3d 1241 (11th Cir. 2004), abrogated in part on other grounds by Bridge v. Phoenix Bond & Indem. Co., 553 U.S. 639 (2008), for the proposition that common evidence about misrepresentations can be used to prove reliance on a class-wide basis, because there the misrepresentation that a HMO would pay for procedures was the central factor driving the transaction. “While one who provides services in exchange for a payment relies only on the payment guarantee, a purchaser of a car may choose to rely on any of a number of marketing and branding representations.” (I mean, so might the provider of medical procedures, especially in a world where they can sue the patient for any underpayment; this bright line does not seem consistent with many state law decisions I’ve seen and seems to underweight the idea of material misrepresentation in particular.)

With that out of the way, claims based on state laws that didn’t require reliance could proceed on a classwide basis, and claims based on state laws that didn’t presume reliance couldn’t. For claims based on state laws that sometimes presume reliance, the majority examined whether reliance could be presumed.

No reliance required: Florida Deceptive and Unfair Trade Practices Act; N.Y. Gen. Bus. Law § 349(a); Washington’s consumer-fraud statute; and the Missouri Merchandising Practices Act.

No presumption of reliance, therefore no certification: Texas Deceptive Trade Practices-Consumer Protect Act and common-law fraud claims under Washington, New York, and

Tennessee law.

Causes of action that require proof of reliance but allow it to be presumed in certain circumstances: The usual California claims, both statutory and common-law, fell in this category. On remand, the district court should consider whether “the defendant so pervasively disseminated material misrepresentations that all plaintiffs must have been exposed to them.” If so, certification would be appropriate.

But California and Texas classes for breach of implied warranty and violations of the federal Magnuson-Moss Warranty Act required further analysis. The district court first needed to decide “whether California and Texas law require pre-suit notice, an opportunity to cure, and manifestation of the defect.”

Superiority: “Ford fears that jurors will have to remember testimony from multiple witnesses, all while keeping track of the class members’ states, the applicable common-law rules and statutes, and burdens of proof.” The district court thought that “appropriate jury instructions” and “multiple verdict forms that tick through the [varying] elements of [the] certified state class[es]’ statutory and common law fraud claims” would suffice, but the majority was more worried. Given that some of the claims had been kicked out, on remand the court “should consider the manageability challenges anew on remand and should more clearly articulate a plan for addressing them to ensure that the difficulties of managing the class action do not impede the fair and efficient adjudication of the case.”

Senior Judge Tjoflat concurred as to the claims that were tossed out and dissented as to the claims kept alive, engaging in a wide-ranging rejection of state law precedents as unconstitutional or inapposite or just wrong or all of the above. I didn’t know that federal courts (other than the Supreme Court) were supposed to tell state courts they interpreted state legislation wrong, and I suspect that’s one reason the majority doesn’t engage with the dissent much. We’re obviously in a period of great constitutional doctrinal change, and so disregarding positions as “off the wall” is a risky game, but I will just sketch out what Judge Tjoflat says are the constitutional problems rather than recount all the arguments state by state.  

The FTCA declares unlawful “[u]nfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce.” That’s vague, but the FTC tells businesses they’re violating the Act before punishment (I … didn’t think that was the standard for avoiding unconstitutional vagueness). Importantly [for its constitutionality], the FTCA doesn’t allow for damages or a private right of action. (!!!! Judge Tjoflat mentions civil penalties, but doesn’t explain why in his view they are ok.)

Even when state laws explicitly refer to FTC standards, then, they have different constitutional constraints because they authorize private actions for backward-looking damages. But vagueness when barring misrepresentation is less troubling than vagueness when barring unfairness, including because misrepresentation comes with an inherent causal mechanism. Plus, prior decisions under the statute can limit vagueness:  

First, we can look to prior decisions under the statute. “Unfair business practice” might not in itself tell a cruise ship company that it cannot charge customers an additional fee, label it a “port charge,” then pocket some of that extra money as profit. But a previous case decided by a court under the consumer protection statute dealing with that situation would.

Or we can provide notice by using the common law definition of fraudulent misrepresentation, where the common law provides the notice. (Treating the common law as clear and natural and non-evolving is an important part of the conservative judicial project, but it’s used so incoherently that I’ve never been able to develop a full account.)

Either way, when there’s a misrepresentation, reliance is required (I believe option 1 required reliance because the baseline was requiring reliance so any previous case must have either imposed a reliance requirement or announced a change.) Harm only occurs if there’s reliance (Judge Tjoflat is no fan of price premium theories). Here, “[s]ome of the class members (1) may not have seen the advertisements at issue, (2) may not have wanted a track-ready car, or (3) wanted merely to collect the car without ever driving it around the track.” They couldn’t have relied on the alleged misrepresentation. [Especially for (3), that’s a bold factual claim.] No reliance means no causation, and none of the statutes at issue here explicitly disclaims reliance.

All those state court cases talking about contributing cause versus but-for cause, or presuming reliance from materiality, don’t count, because “by reading out a reliance element in all cases, a court usurps the legislature’s power and attempts to bind future courts in a way inconsistent with our conception of judicial power.” “Our” here is doing a lot of work, not just in an ideological way but also in terms of putting Article III constraints on state courts.

Certifying a class here therefore poses problems of free speech, due process, separation of powers, and standing. [Oh look, the Article III challenge to the class action mechanism I’ve been waiting for has arrived!]

Free speech: “While the First Amendment does not protect untruthful commercial speech, the judicial elimination of a causation element makes a speaker liable for speech with or without the speech actually harming anyone. This chills protected speech.” It would be fine under the First Amendment to enjoin deceptive commercial speakers or hold them liable for the actual damage they cause, but not to assess damages even for consumers who weren’t deceived. [And statutory damages? Punitives? Statutory penalties?] Even though a consumer protection law only prohibits deceptive commercial speech, without reliance, “any rational businessperson would stand so far away from the ill-defined line between outlawed advertising and permissible advertising—thus chilling protected speech—to avoid the potentially catastrophic consequences of damages to all.” [No citation to cases about chilling commercial speech, because the current doctrine is that commercial speech is hardy enough to resist chill.] Prophylactically prohibiting “potentially misleading—and therefore protected—speech” “goes well beyond that necessary to further a state’s interest in protecting consumers from misrepresentation.” [That doesn’t even follow! “Potentially misleading” is a new concept and not the same as “misleading”—or at least it is currently.]

Due process: bound up with the above, but worse with a class action. Where reliance ought to be an element of a claim, class actions violate due process because unnamed plaintiffs might get relief without having a meritorious individual claim. “Much as a court eliminating causation from the traditional elements of negligence would deprive a defendant of property without notice—thus denying the defendant due process—so would excusing the reliance (and therefore causation) element in these state consumer protection statutes.” It would be a judicial taking! [One thing that fascinates me is the on/off characterization of causation, reliance, damages, etc. If one thinks that presumptions and probabilities are appropriate subjects of legal rules, this imagined field of infinite liability becomes much more bounded.]

Anyway, without reliance and thus causation, there’s also an Article III standing problem. An objective test for a forward-looking injunction is fine, but not for damages. “[E]ven though ‘Congress [or a state legislature] may elevate harms that exist in the real world before [the legislature] recognized them to actionable legal status, it may not simply enact an injury into existence.’ ” TransUnion. Plus, the state shouldn’t be able to delegate enforcement power into private hands because they aren’t democratically accountable.

And finally, there’s a separation of powers problem because any state court that announces that a state statute doesn’t require showing reliance in a misrepresentation case has usurped the legislature’s power and rewritten the statute. This makes the free speech problem worse because state legislatures have the police power to protect citizens from injury, but courts don’t.

And now we get to presumptions: a rebuttable presumption of reliance can’t possibly apply to any of the claims in this case. Such presumptions are only allowed when the party with the burden of rebuttal has better access to the evidence, and consumers have better access than sellers to evidence about what motivated them. [This is probably untrue as a matter of consumer psychology and marketing knowledge, and it also doesn’t seem to me to describe the full range of rebuttable presumptions that exist, either. Does the TMA’s rebuttable presumption of irreparable harm to trademark owners put the burden on the party who has most access to the evidence? This seems like “common law as fixed, natural, and just as I think it should be” again.] Plus, allowing Ford to rebut the presumption would make a class action unmanageable.

So it would have to be a conclusive presumption, which has all the problems above: California courts shouldn’t have created it either for the statutes or for the common law (even if it were correct about the statutory standard “as a linguistic matter”). State courts holding otherwise aren’t entitled to full faith and credit because they don’t “wrestle” with the constitutional questions (and resolve them as Judge Tjoflat wants).

Likewise, though Florida’s FDUTPA explicitly requires courts to interpret the statute by giving “ ‘due consideration and great weight’ to Federal Trade Commission and federal court interpretations of section 5(a)(1) of the Federal Trade Commission Act,” it makes “no sense” to say, as Florida courts have, that because the FTC Act allows suits without proving reliance, so should the FDUTPA. “How the FTC Act treats reliance has nothing to say about the FDUTPA’s damages provision,” since the FTCA doesn’t allow private damages, only prospective relief or “civil damages.” The court here should also ignore the Michigan Supreme Court because it gave short shrift to due process concerns in interpreting its own law.

Judge Tjoflat has been on the bench for decades, but I do wonder whether he’d have written this opinion before a few years ago, given the swing-for-the-fences approach many judges in his circuit are now willing to take.

Covid-19 Act gives government more options in proceeding against supplement seller

U.S. v. Nepute, 2023 WL 4623089, No. 4:21-CV-437 RLW (E.D. Mo. Jul. 19, 2023)

The US sued Nepute (a chiropractor) and Quickwork (a company of which he is a member/co-manager). for deceptive advertising of dietary supplements in violation of the FTCA and the COVID-19 Consumer Protection Act. Here, the court excluded/limited Nepute’s proposed experts, denied partial summary judgment to Nepute, and granted partial summary judgment to the US on a few issues, including whether the challenged materials were ads.

Since early 2020, Defendant Nepute and Quickwork have used several platforms, including social media, emails, and radio, to tout the purported benefits of Vitamin D and zinc and to promote Wellness Warrior supplements.” The government alleged that Nepute made false and misleading claims about the supplements, including that Wellness Warrior supplements containing Vitamin D and/or zinc are effective for the treatment, cure, prevention, or mitigation of coronavirus disease 2019 (“COVID-19”), and that they provide equal or better protection against COVID-19 than available vaccines. Given its powers under the COVID-19 Act, the government sought not just a permanent injunction, but damages, including recission/restitution/disgorgement, as well as civil penalties.

The court excluded the testimony of Dr. Parks, who had (as relevant) a Ph.D. in cellular and molecular biology in 1999 but hadn’t conducted academic or peer-reviewed research since 2000; none of this research related to zinc or any dietary supplement, or to covid.  Since 2004, she worked as a high school teacher at a homeschool co-op in Michigan. Her education and research were insufficient to qualify her to testify as to the clinical benefits of zinc and the prevention and treatment of COVID-19.

Defendant Nepute also couldn’t testify as an expert (as opposed to as a fact witness). He has a 2007 Doctor of Chiropractic degree and some post-doctorate training, including certification as a Doctor of Natural Medicine and as a Certified Nutrition Specialist. He conducted no studies or research, led/participated in no clinical trials, and published no academic papers in any peer-reviewed journal. The primary focus of his practice is the treatment of neuromusculoskeletal complaints and fatigue; he does not treat disease in his chiropractic practice, and there was no record of any experience treating infectious diseases or covid. He lacked the education, training, and experience to testify regarding the clinical benefits of Vitamin D and zinc to prevent or treat COVID-19.

As a fact witness, the government agreed that he could supply what he claims is “the scientific basis upon which he made the alleged misstatements” for the purpose of assessing whether he had sufficient substantiation for his claims.  But he couldn’t testify as an expert on whether such evidence was sufficient to satisfy the relevant scientific community that Vitamin D and zinc can treat and/or prevent COVID-19.

Were the publications at issue ads? “In general, advertisements provide consumers with information regarding products or services for sale in commerce. Under Section 12 of the FTC Act, an “advertisement” is a publication that has the “tendency or capability to induce the sale of [a] product.” Publications “designed to convey the point that consumption of a particular product [will convey a health benefit] are clearly likely to induce the purchase of that product.” It was undisputed that Nepute used several platforms to share the purported benefits of Vitamin D and zinc and his Wellness Warrior supplements, including Facebook videos, emails, and FM radio shows. Along with the claims, consumers were directed to websites where they could get a “free” bottle and buy additional bottles.

Nepute argued that these were just educational materials and argued that, “in many cases, listeners were directed to the Quickwork website[s] for the express purpose of providing further health information.” Because the websites do more than simply sell vitamins and supplements – they are “interconnected with the exposition of ideas about how to live a healthy life” – he argued that references to the websites in the publications didn’t make them ads, and that his content was “infused with political speech.” First, Nepute didn’t offer a First Amendment defense in the answer and couldn’t do so now. But even if he had, his speech was not entitled to First Amendment protection: The publications were commercial speech, and there were fact issues on falsity/misleadingness, for which he could be held liable.

The evidence didn’t support the claim that the websites were used as educational references. E.g.:

So here’s what I want you to do. Go to – that’s so that you can get the products that you need. I’m giving you a bottle of zinc for free, a bottle of D3 for free. I need you to buy that immune pack. You’d be silly not to get it. If you don’t want to, that’s fine. But I’m just telling you what you need to do. According to the research, it’s what you should be doing.

By the delivering the message about the benefits of Vitamin D and zinc in conjunction with providing the websites where viewers and readers could purchase Vitamin D and zinc, the videos and emails were clearly likely to induce the purchase of these products.

The radio shows were a closer call; they were two hours long and weren’t limited to Vitamin D and zinc, or even COVID-19, vaccines, or other available treatments. But the parts that the government was challenging were ads: “During the radio programs themselves – outside the scheduled commercial breaks – Defendant Nepute made statements that the consumption of Vitamin D and/or zinc will provide certain health benefits; he delivered his message in conjunction with providing websites where listeners could purchase Wellness Warrior Vitamin D and zinc supplements; and he instructed, either explicitly or by clear implication, that listeners should purchase vitamins and/or supplements.

The government can show either falsity/misleadingness or lack of substantiation to prevail. The government was entitled to summary judgment on the issue that there is no substantiation for representing that Vitamin D and/or zinc provide equal or better protection against COVID-19 than the vaccines, to the extent Nepute made such a claim in his advertisements. (He argued that he didn’t, and that he was just attacking the efficacy of the vaccines without making comparisons. Sure.) It also received summary judgment that there was no substantiation for a claim that zinc is effective for preventing and treating COVID-19.

Materiality: there was no dispute that the challenged claims were material. “This would be especially true during the COVID-19 pandemic.” Also summary judgment for the government.

However, there was a fact issue of whether all the ads at issue made those claims.  

The videos and radio shows appear to have been unscripted, impromptu performances, which at times were rambling and disorganized. Certainly, Defendant Nepute made assertions about Vitamin D, zinc, COVID-19, and the vaccines, among other things, in his advertisements, but he often jumped from topic to topic and did not make connections between his statements. Furthermore, some of the representations he made about Vitamin D and zinc were vague or ambiguous. Drawing inferences most favorable to Defendant Nepute, the Court finds the issue of whether representations made in each of the 64 advertisements created the net impression that either (1) Vitamin D and/or zinc provide equal or better protection against COVID-19, or (2) that zinc is effective for preventing and/or treating COVID-19, is a matter for the Government’s presentation of evidence at trial and determination by the jury.

Nepute’s individual liability: An individual is liable for a company’s violations of the FTC Act if he (1) “either participated directly in the deceptive acts or practices or had the authority to control them”; and (2) “either knew or should have known about the deceptive practices.” It was undisputed that he both controlled and participated in the practices and knew about the contents, so the government also got summary judgment here.  

Number of violations: The government calculated that the 16 Facebook videos, 33 emails, and 15 radio shows have been disseminated 10,175,234 times for purposes of the COVID-19 Act, apparently by adding the number of “views” for the videos on Facebook, the number of email addresses to which the email advertisements were sent, and the number of “views” the radio shows had after they were posted on Facebook and CloutHub. But there were factual disputes about how “views” are counted on Facebook, and the court signaled its discomfort with that kind of raw counting. Even if each unlawful letter in a mass mailing is a separate violation, “[p]osting videos and radio shows on social media is entirely different than calling consumers or sending letters, as the latter are targeted forms of communication where the number of intended recipients is readily calculable.” [That would seem to give a premium to using mass/social media to disseminate false ads, which seems like the opposite of the right incentive.] The court wanted more from the government when it asked the jury to find liability for a number of violations.

Nepute argued that the government wasn’t entitled to civil penalties under the COVID-19 Act, because the evidence didn’t support a finding that he knowingly violated the Act. The relevant standard required a showing that Nepute acted “with actual knowledge or knowledge fairly implied on the basis of objective circumstances that such act is unfair or deceptive and is prohibited” by the COVID-19 Act. Knowledge can be “fairly implied” where “a reasonable and prudent man under the circumstances would have known of the existence” of a statute or regulation, and “that the action charged violated that provision.”

The COVID-19 Act was enacted on December 27, 2020. On March 30, 2021, the FTC sent a letter enclosing a copy of the COVID-19 Act to Nepute’s attorney, informing Nepute that the Act “provides that marketers who make deceptive claims about the treatment, cure, prevention, or mitigation of COVID-19 are subject to a civil penalty[.]” It filed suit on April 15, 2021. Nepute argued that he didn’t know about the COVID-19 Act before March 30, 2021, and he had no knowledge that he might be in violation of it prior to the filing of this lawsuit. But, in May 2020, the FTC sent a letter to him stating he was unlawfully advertising that supplements Vitamin C and D can treat or prevent COVID-19. It is undisputed that he was advised in this letter to review “all other claims for your products and services and immediately cease making claims that are not supported by competent and reliable scientific evidence.” Also there was evidence that Nepute had marketed vitamins and supplements for at least a decade, and that he kept abreast of the news and participated in legislative decision-making related to Vitamin D, zinc, and COVID-19. A jury could accept that “a reasonably prudent person, with over a decade of experience in vitamin and supplement marketing, and who advertises on behalf of a multimillion-dollar supplement enterprise, would have been aware of a major federal consumer protection statute implicating his business and marketing.


Wednesday, July 19, 2023

"24 Hour" cosmetics could be misleading as to sunscreen effect

Zimmerman v. L’Oréal USA, Inc., 2023 WL 4564552, No. 22-cv-07609-HSG (N.D. Cal. Jul. 17, 2023)

This is another lawsuit over “24 Hour” cosmetics, this time focusing on the fact that the sunscreen in the products needs to be reapplied every 2 hours, making it more a 2-hour beauty line. The foundation’s front label statements claim it provides “Up to 24HR Breathable Texture,” “Up to 24H Fresh Wear,” and “Sunscreen Broad Spectrum SPF 25,” but the drug facts panel, located underneath a peel-back sticker on the back label, directs users to “reapply at least every 2 hours” for sunscreen use.

Zimmerman didn’t have standing for two identified, unpurchased products—L’Oréal Pro-Glow Foundation and Lancôme Foundation—where the alleged misrepresentations were not substantially similar to L’Oréal Infallible Foundation, the product Zimmerman purchased. L’Oréal Pro-Glow Foundation advertises “Up to 24HR Foundation,” and Lancôme Foundation advertises “Up to 24H Color Wear & Comfort.” As for other products, the court couldn’t assess substantial similarity without images or detailed descriptions of the labels.

Zimmerman had standing to seek injunctive relief, because she might not be able to tell if the labels are accurate if L’Oréal changes the SPF protection duration; or, if L’Oréal alters the front label to state that the SPF only lasts two hours and lowers the price, she might be willing to pay. (I’m not sure the first is technically possible, but I also don’t think it’s unreasonable for consumers not to know that.)

There was no FDCA preemption.  

And it was plausible that a reasonable consumer could be deceived. L’Oréal argued that the 24-hour statements clearly referred only to cosmetic benefits, but the court disagreed; “a reasonable consumer could believe the statements also include SPF protection and would not see the reapplication instructions at the time of purchase because they are buried underneath a sticker.” Where “a front label is ambiguous, the ambiguity can be resolved by reference to the back label.” The front label statements were ambiguous; “24H Fresh Wear” and “24HR Breathable Texture” could be interpreted to include sunscreen protection. But it wasn’t clear that the ambiguity could be resolved by reading the back. “The Court cannot conclude as a matter of law that a reasonable consumer would peel back the label in the store, before purchasing the product, to find and read these instructions.”

False advertising and TM infringement receive very different damages treatment: case in point

CareDx, Inc. v. Natera, Inc., No. 19-662-CFC, 2023 WL 4561059 (D. Del. Jul. 17, 2023)

Another entry in the “courts treat Lanham Act false advertising very differently than Lanham Act trademark infringement, despite identical damages provisions” line. Natera made superiority claims for its Prospera. CareDx sued Natera for false advertising. In a trial held last year, the jury found that CareDx proved by a preponderance of the evidence at trial that: (a) nine of the ten alleged false advertisements were false; (b) Natera intentionally and willfully engaged in false advertising; (c) Natera was liable for false advertising under the Delaware Deceptive Trade Practices Act; (d) Natera was liable for unfair competition; and (e) Natera intentionally or recklessly engaged in unfair competition. It also found that CareDx was entitled to $21.2 million in actual damages “attributable to Natera’s false advertising and/or unfair competition,” and that CareDx was entitled to $23.7 million in punitive damages “for Natera’s unfair competition.” The court rejected the damages award.

Actual deception—reliance on the falsity—must be proven to establish damages for a Lanham Act violation, even if based on an unambiguous and literally false advertisement. (The missing step is treating state and federal claims the same here, which presumably everyone already agreed to.)

The jury was instructed that:

to recover damages under the Lanham Act, the plaintiff must prove by a preponderance of the evidence that, one, the defendant’s false advertising actually deceived a portion of the purchasing public in that customers relied on the false advertising in making a purchasing decision. There’s no presumption here for the damages question. The burden rests on the plaintiff to prove that by a preponderance of the evidence.

All right. And then the second thing that the plaintiff must prove by a preponderance of the evidence is that, as a result of the false advertising, the plaintiff sustained injury. If you find that CareDx proved these things, then you consider what amount of money to award to CareDx as damages.

But, the court concluded, there was no evidence at trial that any person was deceived by or relied on any of the nine advertisements found by the jury to be false. CareDx’s evidence “does not establish directly or even circumstantially that a person was in fact deceived by or relied on Natera’s advertisements.” Specifically, Natera internally characterized a PowerPoint slide that contained at least one of the false advertisements as “the money slide.” “But that testimony is not probative of actual customer behavior.”

Nor did significant sales growth linked to the marketing campaign at issue.  

Natera’s marketing plans and its training of marketing personnel were also insufficient. “Proof of what Natera intended to accomplish or thought it could achieve with its marketing plans and training efforts in no way establishes that those plans and efforts succeeded.”

Compare the treatment of intent/expectation on the trademark side: It is basically inconceivable that a court would reason this way in a trademark damages case, despite the same statutory language for both.

The court also found that the following testimony didn’t show reliance:

Counsel: And did this concern you, that they were marketing that their specificity was better in the Sigdel study than in the Bloom study?

Witness: You [counsel] kind of mentioned how many phone calls I got from the University of Pennsylvania, from Cleveland Clinic, from all around the country about their claiming superiority based on what, they have a better assay. So this caused a lot of confusion internally and externally with our customers.

Another witness:

Counsel: So does it matter whether the other party is claiming superiority or not?

A. Absolutely.

… You know, these two publications are ones that are not apples to apples, and they’re going around as if they are and confusing clinicians, confusing patients.

“No rational juror could conclude from this vague, conclusory, and hearsay-riddled testimony that customers were deceived by or relied on false advertisements published by Natera.” In a trademark case, it’s much less likely that this would be considered hearsay, but instead reporting mental state.

Still, “in the Third Circuit, evidence of an intent to mislead does not warrant a presumption of actual deception.” Judgment as a matter of law on Lanham Act damages for Natera. Thus, CareDx also failed to establish the causation and injury required to sustain a damages award arising from its state law claims (and this also doomed the entire state unfair competition claim).

However, there was sufficient evidence of literal falsity. For example, the jury found literally false Natera’s claim that Prospera is “[m]ore sensitive and specific than current assessment tools across all types of rejection.” But Natera’s designated corporate representative admitted at trial that two studies showed that Prospera’s specificity was lower than AlloSure’s specificity and that AlloSure was a “current assessment tool[,]” as that phrase is used in the advertisement. Natera argued that the claim was ambiguous and thus not literally false because the phrase “sensitive and specific” “reasonably refers to ‘AUC’—a measure familiar to physicians that combines both sensitivity and specificity.” But ambiguity is a fact question for the jury.

The DTPA doesn’t require actual confusion, so there was still liability.

If the judgment was later vacated or reversed, a new trial would be required.

no duty to defend despite allegations of label copying; but insurers can't recoup defense costs already spent

Continental Casualty Company v. Winder Laboratories, LLC, --- F.4th ----, 2023 WL 4504183, No. 21-11758 (11th Cir. Jul. 13, 2023)

Winder, a generic pharma manufacturer, sought insurance coverage for a false advertising lawsuit. The court of appeals affirmed the finding that there was no coverage, but also that Winder didn’t have to pay the insurers back for the representation they offered during the coverage dispute.

As relevant “personal and advertising injury” was defined to include an injury “arising out of” either “[o]ral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services” or “[t]he use of another’s advertising idea in [the insureds’] ‘advertisement.’ ”1 The policies also had a “failure to conform” provision that excluded coverage for injuries “[a]rising out of the failure of goods, products or services to conform with any statement of quality or performance made in [the insureds’] ‘advertisement.’ ” Neither policy at issue included a reimbursement provision allowing the insurers to recoup defense costs.

The underlying lawsuit by Concordia asserted various claims under the Lanham Act and Georgia law, focusing on the allegation that Winder “falsely or misleadingly advertised their B-Donna product, and subsequently their Phenohytro product, as generic [equivalents] to [Concordia’s product] DONNATAL directly to the pharmaceutical industry, including to potential purchasers.”

The insurers agreed to defend, subject to a reservation of rights to disclaim coverage, but also included a “not-so-standard reimbursement provision”: “VFI specifically reserves its right to seek reimbursement of defense costs incurred on [the insureds’] behalf for all claims which are not potentially covered by the VFI Policy.” The insurers also sued for a declaratory judgment that they had no duty to defend or indemnify.  The district court held that Concordia’s allegations were “squarely” excluded by the “failure to conform” provision because the “operative complaint [was] based entirely upon allegations that [Winder] misrepresented the quality” of Winder’s products.

Winder argued that Concordia’s complaint alleged a “personal and advertising injury” because it included allegations that Winder copied Concordia’s DONNATAL label inserts. But did the false advertising claim hinge on the alleged label copying? If so, there would be coverage; if not, and the claim rested on allegations that Winder actively misrepresented its drugs, then the alleged injury arose from the “failure of goods ... to conform with any statement of quality or performance made in [the insureds’] ‘advertisement,’ ” and the insurers were protected by the “failure to conform” exclusion.

The court of appeals agreed with the latter approach. The copying allegations were clearly in service of the misrepresentation of equivalence claim—copying was merely one of the means by which the misrepresentation was allegedly carried out. This was not a “personal and advertising injury” stemming from “[t]he use of another’s advertising idea”—i.e., Concordia’s labels. The specific allegation that Winder made “false or misleading” representations and statements about its products by “marketing the products as ‘generics’ that are comparable to and/or substitutable for [Concordia’s] DONNATAL,” was a “textbook” of failure-to-conform.

Also, Winder argued that Concordia’s false advertising claim relied on statements made by non-party drug databases for which Winder wasn’t responsible; but Concordia clearly alleged that Winder’s initial alleged misrepresentations were the but for cause of its injuries. Winder further alleged that it only made true statements which couldn’t “fail ... to conform with any statement of quality or performance ....” However, the underlying complaint, which determined coverage, alleged misrepresentations.

At least Winder wasn’t required to reimburse the insurers. “[B]ecause insurers under Georgia law have a broad duty to defend when there is ‘even arguably’ a covered claim, the insurers had an active duty to defend up until the point when the district court ruled otherwise. Simply put, under the facts of this case, the insurers were under a duty to defend until the district court ruled that they were not.” No new contract was created by the insurers’ reservation of rights letter, and just asserting a right to reimbursement in a reservation of rights letter isn’t enough if the insurance contract did not contemplate a right to recoupment.

There was no consideration for the reimbursement provision. Importantly, “a promise to perform a preexisting contractual obligation does not constitute consideration for a new agreement.” The parties’ contracts already required a defense against certain third-party lawsuits, so the letters were no more than a promise to perform an existing obligation. Further, the underlying contract didn’t provide which party would select legal counsel, so offering Winder the option to choose counsel didn’t give up anything on the insurers’ side.

Nor was Winder unjustly enriched by retaining “the benefit of an expensive defense to which they knew they were not entitled.” Even assuming this argument didn’t immediately fail due to the existence of a written contract, there was nothing “unjust” about requiring the insurers to fulfill their contractual obligations. “[W]e cannot say that an insured is unjustly enriched when its insurer tenders a defense in order to protect its own interests, even if it is later determined that the insurer did not owe a defense.”

Georgia law wouldn’t require this, the court predicted. “The duty to defend is extremely broad under Georgia law.” There was no majority rule favoring recoupment nationwide; the current case law “appears to be more-or-less in equipoise with the recent trend favoring the ‘no recoupment’ rule.” More importantly, in Georgia, the broad duty to defend is “foundational.” But a rule allowing for broadscale reimbursement without any contractual provision securing that right would collapse the duty to defend into the duty to indemnify. “That is, if the duty to defend required insurers to mount a defense but the defense was widely reimbursable upon a court’s determination that no ongoing duty to defend exists, the duty to defend would simply become the duty to indemnify.” [This seems technically untrue—you could have a rule separating the duty to defend from the duty to indemnify as long as a court agreed that the allegations of the complaint created the duty to defend but an ultimate finding/narrowing of the case could avoid the duty to indemnify—but that kind of distinction does at least push against the breadth of the duty to defend.]

Friday, July 14, 2023

"stacked" car insurance is plausibly deceptive as useless for single vehicle

Peck v. Progressive Northern Ins. Co., 2023 WL 2712390, --- F.Supp.3d ----, No. 1:22-cv-00490-KWR-JFR (D.N.M. Mar. 30, 2023)

Peck bought stacked uninsured/underinsured motorist (“UM/UIM”) coverage on a single vehicle policy. Stacked UM/UIM coverage permits an insured to aggregate the UM/UIM coverages on all vehicles insured under a policy. But Peck alleged that stacked UM/UIM coverage on a policy insurance for a single vehicle is illusory because the insured receives no benefit for the additional premium.

The court thus declined to dismiss Peck’s claim under New Mexico’s Unfair Insurance Practice Act (“No person shall willfully collect any sum as premium or charge for insurance or other coverage, which insurance or coverage is not then provided or in due course to be provided (subject to acceptance of the risk by the insurer) by a policy issued by an insurer as authorized by the Insurance Code.”). Insurance companies “have a duty to disclose material facts about the policies they sell under the UIPA.”

Defendants argued that there was a tangible benefit because the coverage available automatically increases if the policyholder gets an additional vehicle, but there was an additional premium due if that happened and the policyholder had the burden of notifying Progressive. And insureds were entitled to stacking by default, unless there was a written rejection. So it was unclear if there was any benefit to stacking a single-vehicle policy. Plus, even if it wasn’t illusory, it could still be deceptive for failing to disclose that there was no benefit to stacking a single-vehicle policy.

There was no breach of contract claim, but possibly breach of the implied covenant of good faith and fair dealing claim, unjust enrichment, and a New Mexico Unfair Trade Practices Act claim for the same reasons.

Monday, July 10, 2023

Seen in my travels

 Good cafe name:

Cafe sign reading "The Breakfast Club"

A handbag that probably requires some explanation to today's students:

A handbag decorated with images of videotape cassettes bearing handwritten labels of well-known movies like Top Gun

Expert witnesses as Lanham Act defendants

Via an eagle-eyed correspondent: J&J’s bankrupt subsidiary LTL is suing the expert witnesses for the mesothelioma victims in the underlying tort litigation for injurious falsehood, fraud, and Lanham Act violations for disparaging J&J’s Baby Powder as causing mesothelioma. They allege that the experts' published articles were part of a commercial advertising scheme to get hired as expert witnesses, which is ... not super consistent with existing caselaw. Suing experts, a very normal thing to do. Too bad there’s no federal anti-SLAPP law.

Generic use in the wild

 Are they really super jeep tours?

Friday, July 07, 2023

Ambiguity could be deceptive where "buy 3, get two free" really meant "get 5 at a lower price per unit"

Sihler v. Fulfillment Lab, Inc, No. 20cv1528-LL-DDL, 2023 WL 4335735 (S.D. Cal. Jun. 23, 2023)

Common sense is a big part of advertising law, as implemented by the reasonable consumer. It can be hard to distinguish one case from another in its formal characteristics. Here, the view of a reasonable consumer is established by empirical evidence of deceptions and complaints, the court says—though is it really making a normative judgment?

Defendants allegedly use fake celebrity and magazine endorsements, as well as misrepresentations about price and limited availability, to induce consumers into buying “keto” weight-loss pills. As described:

Consumers click on ads that appear to be news articles with false celebrity endorsements of the Keto Products. This ad takes them to a landing page for the product with more misrepresentations. When they click on the purchase button, they are presented with several purchase offers including “Buy 3 Bottles, Get 2 Free.” Consumers are warned that supplies are limited or that the special offer will expire soon. These landing pages are allegedly inaccessible to anyone who does not view the advertisements or are deleted after a few weeks or months to avoid detection. After consumers complete their purchase, they are allegedly overcharged for the full price of all five bottles of product instead of the discounted “Buy 3 Bottles, Get 2 Free.” When consumers dispute the charge with their bank or credit card company, Defendants allegedly present investigators with a “false front” website for the Keto Products that includes the actual purchase prices of the different options, no false advertising, and an easy-to-find “terms and conditions” hyperlink. Defendants allegedly use the false front websites to deceive the bank and credit card companies into believing that consumers purchased Keto Products from those websites rather than the landing pages.

Plaintiffs brought both California statutory claims and RICO claims; the court certified a nationwide RICO class and a California subclass.

If you want a sense of how this is going to go, defendants contested numerosity because there was only shipping data, not data on how many different consumers bought and used products. With tens of thousands of shipments, and sales of about $93 million in two and a half years, the court found numerosity. (They also argued that there was no typicality because a named plaintiff described viewing a website promoting “Buy 3 bottles, Get 2 free” but the website examples submitted instead promote “Buy 3, Get 2 Free.” The court disagreed.)

Commonality of deception on a classwide basis:  Under California law, no individualized proof of deception, reliance, or injury is required if the conduct would deceive a reasonable, ordinary consumer in the target population. Defendants argued that there was no evidence of deception of reasonable consumers other than named plaintiffs’ own declarations, but the court disagreed:

Plaintiffs provided examples of webpages with the same allegedly false and misleading endorsements and pricing information similar to what they viewed and relied on. They also submitted instructions for Keto Products call center employees that describe three standard buying packages, which match the package options and unit prices on the webpages that Plaintiffs viewed and in the examples that they provided. The only other buying packages described in the instructions are for unadvertised special promotional packages. The call center instructions also describe typical calls, which include complaints of being overcharged in the same manner that Plaintiffs describe: that they believed they would be charged the listed price for two or three bottles and receive one or two bottles free, but were instead charged the listed price for all bottles received.

Along with a witness who testified to the lack of change in ads over time, plaintiffs showed that they and absent class members viewed the same or substantially similar endorsements and pricing information.

Would this be likely to mislead a reasonable consumer?

The three package options are advertised as follows: (1) text reads “Buy 3 Get 2 Free!” followed by “$39.74/bottle” with a depiction of a group of three bottles next to a group of two bottles with a plus sign between them; (2) text reads “Buy 2 Get 1 Free!” followed by “$49.97/bottle” with a depiction of a group of two bottles next to one bottle with a plus sign between them, and (3) text reads “Buy 1 Bottle” followed by “$69.99/bottle.”

Are those additional bottles "free"?

Defendant argued that a reasonable consumer would understand that they’d be charged $39.74 for each of 5 bottles if they bought five. It’s obvious to an ordinary English speaker that you wouldn’t offer that deal that way (you’d say “buy 5 at $39.74 each!” etc.) if you wanted it understood. The FTC’s guides on the use of “Free” would also count against this, if considered.

The court found the same declarations, webpage examples, and call center scripts to be sufficient evidence that a reasonable consumer is likely to be misled. (E.g., a standard script for "I was overcharged" that begins when a caller says words to the effect of "I thought it was $39.74 x 3 bottles which would be $119.22.") Here, the “ambiguity” in the pricing information supported misleadingness—compare the treatment of “ambiguity” in cases that reject consumer claims. Would this work if there were fine print disclosures “resolving” the ambiguity? My suspicion is that it wouldn’t—and shouldn’t—because a substantial number of reasonable consumers would have no reason to think that “free” was ambiguous. But how, otherwise, are we to tell what counts as “correctable ambiguous” and “misleadingly ambiguous”? As the court points out, “even a perfectly true statement couched in such a manner that it is likely to mislead or deceive the consumer, such as by failure to disclose other relevant information, is actionable under [the FAL].” I tend to think the “correctable ambiguity, thus plaintiffs lose” cases downplay misleadingness without a good theory.

And since misleadingness is an objective test, it’s capable of classwide resolution. The rest (including predominance) follows, including certification on the RICO claims of all things.