Friday, September 22, 2023

Proximate cause defeats false advertising claims against standard setting body allegedly packed by competitors

Geomatrix, LLC v. NSF International, --- F.4th ----, 2023 WL 5925977, No. 22-1947 (6th Cir. Sept. 12, 2023)

Discussion of opinion below.

Geomatrix sells a septic system that substantially differs from those sold by its competitors. It asserts defendants, those competitors and NSF International (the primary standard-setting organization for the wastewater product industry), conspired to exclude its unique system from the marketplace.

The court of appeals affirmed the dismissal of the complaint—the antitrust claim on Noerr-Pennington grounds, which I will now ignore.

NSF certification is practically required for residential septic systems; at least 37 states have adopted its requirements into law. Although Geomatrix obtained a Standard 40 certification, NSF—allegedly packed by competitors using a different method—started to question whether Geomatrix’s method, which does not require aeration devices to treat wastewater before it leaches into the drain field, should be certified under that standard. This agitation for a new, separate standard allegedly disparaged and promoted unfounded concerns about Geomatrix’s system; one proposed different standard has been adopted in only one state, and another proposed standard for high-strength systems (used by, e.g., restaurants) that would exclude Geomatrix’s system. This allegedly harmed Geomatrix’s business.

Lanham Act and state unfair competition law: Although Geomatrix alleged disparagement, it failed to describe what “independent harm” occurred in the market or how defendants’ actions actually “influenc[ed] consumers’ purchasing decisions.” Although the complaint states that NSF published false statements to regulators and customers and then used the standard-setting process to limit competition, and that individual defendants made false statements about the reliability of T&D systems or adopted disparaging terms, there was no description of how consumers “with[held] trade from the plaintiff.”

Even if it had done so, Geomatrix didn’t plausibly allege that these statements caused the harm: Geomatrix could not market its products in certain states because state regulators did not approve their product, which was the actual cause of Geomatrix’s injuries. “While Geomatrix contends that its injuries resulted from the conspiracy by itself, the regulators’ decisions were still an intervening cause and the proximate one. Any deception on defendants’ part was not the cause of consumers’ decisions, for consumers were not the ones who decided to do anything.”

Unusually, but soundly, the court proceeded to analyze the Michigan common law unfair competition claim separately. Though courts usually group competitor claims together under state and federal law, the court pointed out that Lexmark is a rule of construction for the federal statute. “Michigan common law does not rely on the words of a statute, let alone a federal one.” The causes of action are similar for likely confusion/deception, but not for statutory standing.

Still, Geomatrix needed to plead proximate causation, because Michigan common law requires causation as an element of any tort action, and it didn’t.

A similar fate awaited other Michigan common-law business tort claims: business defamation/injurious falsehood, fraud/misrepresentation, and interference with prospective economic advantage. For defamation/injurious falsehood, the alleged statements weren’t “of and concerning” Geomatrix but about systems of the type Geomatrix made, which apparently isn’t limited to Geomatrix. Disparaging an industry or type of product isn’t defamation, and injurious falsehood requires pleading special damages, which wasn’t done.

Fraud/misrepresentation and interference with prospective economic advantage claims were also based on conduct immunized by Noerr-Pennington, which the court predicted Michigan would apply.

Michigan Consumer Protection Act: covers only “conduct of a business providing goods, property, or service primarily for personal, family, or household purposes.” Standard 40 certification is not a “consumer” good or service.

A concurrence would have resolved the fraud and tortious interference with prospective economic advantage claims on different grounds, declining to predict that Michigan would extend Noerr-Pennington to them. The argument is pretty interesting: the Michigan lower courts that have applied Noerr-Pennington to state law claims did so as a matter of First Amendment reasoning directly, rather than constitutional avoidance (the explicit ground on which Noerr-Pennington was decided). The concurrence would give no deference to their First Amendment analysis, and it would go far beyond NYT v. Sullivan in immunizing even knowingly false, fraudulent statements. But proximate cause/damages would still lead to the same result.

Marketplace appearance: false advertising cases are fun!

 Transcript here.

Thursday, September 21, 2023

claims against Starbucks fruit drinks without named fruit can continue

Kominis v. Starbucks Corp., 2023 WL 6066199, No. 22 Civ. 6673 (JPC) (S.D.N.Y. Sept. 18, 2023)

Plaintiffs alleged violations of New York and California law based on Starbucks’ allegedly misleading use of fruit words for drinks.  The court allowed some claims to proceed, dismissing only unjust enrichment (duplicative under NY law/not allowed with express warranty claims under California law) and fraud (failure to sufficiently plead scienter).

The “Mango Dragonfruit Lemonade Starbucks Refreshers” and the “Mango Dragonfruit Starbucks Refreshers” allegedly contain no mango; the “Strawberry Açaí Lemonade Starbucks Refreshers” and the “Strawberry Açaí Starbucks Refreshers” allegedly contain no açaí; and the “Pineapple Passionfruit Lemonade Starbucks Refreshers” and the “Pineapple Passionfruit Starbucks Refreshers” allegedly contain no passion fruit. But they are “part of [Starbucks’s] ‘Refresher’ line of beverages, marketed as fruit-based beverages.” The following marketing images allegedly show that “the presence of fruit in the Products is central to the Products’ identity.”

Starbucks menu board with names and prices
challenged products along with Pink Drink, Dragon Drink, Honey Citrus Mint Tea and others

challenged drinks with images of fruit floating in beverages

Instead of containing these fruits, “all of the Products are predominantly made with water, grape juice concentrate, and sugar.” By contrast, “Starbucks’ hot chocolate contains cocoa, its matcha lattes contain matcha, and its honey mint tea contains honey and mint.” Also, “the Products do in fact contain freeze-dried pieces of strawberries, pineapple, and dragon fruit.” Starbucks allegedly does not affirmatively indicate anywhere which ingredients are and are not in the Products. Plaintiffs alleged that the “missing fruit ingredients are important to consumers because they are premium ingredients, and consumers value them over the less nutritious and cheaper grape juice concentrate found in the Products” at least in part because of nutritional benefits from each of the respective fruits or their juices. Both states’ laws use the reasonable consumer standard. Indeed, the court noted, courts in the Second Circuit have freely relied on Ninth Circuit cases. Has it been tightened of late? The court considered two unpublished summary orders that it deemed to articulate a “more demanding” standard: Axon v. Florida’s Natural Growers, Inc., 813 F. App’x 701, 704 (2d Cir. 2020) (“To survive a motion to dismiss, plaintiffs must plausibly allege that a significant portion of the general consuming public or of targeted consumers, acting reasonably in the circumstances, could be misled by the relevant statements.” (internal quotation marks and brackets omitted) (quoting Jessani v. Monini N. Am., Inc., 744 F. App’x 18, 19 (2d Cir. 2018))); Jessani, 744 F. App’x at 19 (explaining that “plaintiffs must do more than plausibly allege that a ‘label might conceivably be misunderstood by some few consumers,’ ” but instead “must plausibly allege ‘that a significant portion of the general consuming public or of targeted consumers, acting reasonably in the circumstances, could be misled’ ” (quoting Ebner v. Fresh Inc., 838 F.3d 958, 965 (9th Cir. 2016))).

Does the addition of “significant portion of the general consuming public” change things? The court here doesn’t decide the issue because, even under that standard, the claims survived.

Starbucks argued that its names accurately described the flavors, not the ingredients. “[C]ontext is crucial” for a court’s determination of “whether a reasonable consumer would have been misled by a particular advertisement.” Here, the products were listed without any affirmative statement one way or another about ingredients/flavors; there was no ingredients list on the display. Parts of the names do refer to both a flavor and an ingredient, e.g. strawberry, dragonfruit, and pineapple. This context was mixed; a significant portion of reasonable consumers could be deceived.

This was unlike a product called “Açaí-Flavored Strawberry Starbucks Refresher” or the like. “Starbucks’s position necessarily would entail that two of the three parts of each name refer to actual ingredients (i.e., dragon fruit, strawberry, pineapple, and lemonade), yet that a reasonable consumer would somehow know the third term (i.e., mango, açaí, and passion fruit) does not. The images of several of the Products add to this information jumble, in that they depict the Products containing actual pieces of fruit, just not the fruit apparently desired by Plaintiffs.” Starbucks argued that a consumer would see the strawberry but not the açaí berry and thereby conclude that the beverage contains only real strawberry. “But it is equally if not more plausible that the image of real fruits would indicate to a consumer that the drink contains all, not only part, of the fruits mentioned in the Products’ name, especially given that fruit may be present in a drink in a non-visible form, such as a juice.” Likewise, a consumer seeing drinks named “Pink Drink” and “Dragon Drink” on the menu “may think that all of the names are similarly fanciful or that only the fanciful names without a fruit reference do not indicate the presence of actual fruit in the drink.” The other items that contain the ingredients, like “Ice Matcha Tea Latte” which contains matcha, “contribute to a reasonable conclusion that the names of the Products refer to their ingredients as well as their flavors.”

 Unlike in other cases, there was no explicit disclaimer, and there was no reason to think that “mango,” “passionfruit,” and “açaí” are terms that typically are understood to represent a flavor without also representing that ingredient—unlike in the vanilla cases. “There is no comparable term that appears to distinguish the flavors of mango, passion fruit, and açaí from the actual presence of those fruits, as vanilla bean may do for vanilla.” Moreover, “nothing before the Court indicates that the fruit flavoring in fruit drinks is frequently created by something other than a fruit ingredient.”

Starbucks also argued that any confusion experienced by a consumer could be dispelled by asking a Starbucks employee about the Products’ ingredients. “This argument fails for the simple reason that it assumes the truth of facts not asserted within the Amended Complaint, namely that Starbucks’s employees are aware of the full ingredient list of each of the Products.” But even if the argument were to be considered, it failed on the merits. A reasonable consumer is not expected to consult an ingredients panel to correct misleading information on the front of a box, much less a barista.

Monday, September 18, 2023

Promoting a product with images of a person who died using the company's products

 From my spouse: Renault's new Rafale is named for a Renault plane and promoted with images/the story of Hélène Boucher, who died flying it. False advertising? Any other concerns?

Thursday, September 14, 2023

New engagement ring opinion from Mass. appeals court

Read it here. Many years ago, I wrote a note about these disputes seeking return of engagement rings after a broken engagement, which is cited in the dissent--which also reads as an invitation to the Massachusetts Supreme Judicial Court to revisit its fault-based rule for when an engagement ring should go back to the (remorseful) giver.

Monday, September 11, 2023

5th Circuit holds that inquiries weigh less than lost sales but can still be evidence of actual confusion

Rex Real Estate I, L.P. v. Rex Real Estate Exchange, Incorporated, --- F.4th ----,  2023 WL 5735552, No. 22-50405 (5th Cir. Sept. 6, 2023)

Doctrinal evolution is so fascinating! Here, I think we might be starting to see what a post-Abitron, post-JDI world could look like: courts may begin to reestablish distinctions between registered trademarks and unregistered matter protected by unfair competition law, based this time on statutory interpretation rather than conceptual categories. Because the plaintiff doesn’t own the relevant registration, its §32 claims fail, but the court allows §43(a) claims to proceed, partially reversing the district court’s grant of summary judgment—but read on for more on what that might look like.

Plaintiff Rex Real Estate sued Rex Real Estate Exchange for trademark infringement.

Plaintiff is a real estate company founded by Rex and Sherese Glendenning that “specializes in the acquisition and sale of commercial, investment and development properties, both large and small, in the North Texas growth corridor.” Plaintiff only brokers real estate in the state of Texas, but it has clients throughout the United States and in other countries.

The Glendennings started in Texas real estate in 1987. Its marks: “REX,” “REX Real Estate,” and a logo showing a crown alongside the words “REX Real Estate.” In 2015, the crown mark was registered. Plaintiff mostly works with retail, office, industrial, and mixed-use properties; it’s brokered some single-family home sales, but almost all involving individuals related to it or its employees.

Meanwhile, Rex Exchange, founded in 2015, offers an online platform for homeowners and homebuyers to transact the sale of single-family homes. It first expanded into Austin in 2018. Rex Exchange purchased a “REX” trademark with a 2002 priority from a company called Azavea that had registered the mark for the following use: “computer software for use in search and displaying real estate information on a global computer network.”

At the close of plaintiff’s evidence at trial, the court granted a directed verdict.

Only an owner or a true assignee has statutory standing to bring a claim under §32. Section 43(a) reaches more broadly; the court here applies Lexmark to both false advertising and trademark claims.

Section 32 did not apply because Mr. Glendenning became the original owner of the marks when he first used them in commerce as a sole proprietor many years before the plaintiff Rex was formed. Although “an applicant seeking to register a trademark may benefit from its use by a related company,” “this does not displace the requirement that only the owner can seek registration.” Assignments of registered marks must be in writing. Assignments before registration need not be in writing, but the evidence must be clear.  “[R]equiring strong evidence to establish an assignment is appropriate both to prevent parties from using self-serving testimony to gain ownership of trademarks and to give parties incentives to identify expressly the ownership of the marks they employ.” There was no evidence at trial that there had been an assignment by Glendenning to plaintiff. Thus, the §32 claim failed as a matter of law.

However, §43(a)(1)(A) was available, and a reasonable jury could find that the marks were inherently distinctive, not merely personal names. The relevant evidence on plaintiff’s side, which the court thought went to public perception, was that Mrs. Glendenning testified that she “came up with the crown because Rex means king and that was that” and the mark is often accompanied by a crown, “reinforcing the translation of Rex as a king in Latin.” On the other side Mr. Glendenning testified that the name Rex has become synonymous with him as a person and founder of the company to consumers in the real estate industry, and plaintiff didn’t submit any evidence showing that the relevant consuming public associates the Rex marks with their purported Latin meaning. Still, the court of appeals found a fact issue because defendant

views its marks by their Latin translation. While Defendant is not necessarily a member of the “purchasing public,” the fact that some party outside of Plaintiff recognizes the Latin translation support its claims that the marks could be inherently distinctive. While there was strong evidence that the marks are perceived by the public as primarily a personal name, the record does not compel that conclusion.

This then meant that likely confusion was at issue. Although the mark was at most suggestive, and although many other entities in Texas have “Rex” names, and some of those businesses might be involved in real estate, there was not enough evidence of “Rex” in real estate. The jury saw evidence that only the parties appear in the first page of results in a Google search for “Rex Real Estate Texas.” Plaintiff also pointed to numerous calls it received from confused consumers as evidence that the callers assumed that it was the sole source of the advertising. “This is a plausible inference for a jury to make.”

Despite different fonts, colors, and design elements, a reasonable jury could find enough similarity to confuse.

Product/purchaser similarity: The court framed this as an issue of sponsorship, affiliation, or connection. “If consumers believe, even though falsely, that the natural tendency of producers of the type of goods marketed by the prior user is to expand into the market for the type of goods marketed by the subsequent user, confusion may be likely.” Although the parties operate in different corners of the real estate market and cater to different sets of prospective customers, plaintiff’s lack of actual intent to expand into the single-family sales market was not particularly probative of what a reasonable jury could find.

No reasonable jury could find the parties’ advertising to be similar: plaintiff’s was “high touch,” involving mainly a corporate suite at AT&T stadium and a dove hunt, and no digital marketing, whereas defendant was focused on digital marketing. Intent was neutral.

Plaintiff offered anecdotal instances of confusion. Addressing variation in the case law, the court found that the older precedent—which didn’t require any consumer purchases to have been swayed by confusion—had to control. (The other way to read those cases is that they (1) didn’t reach the issue or (2) were specific to bait-and-switch theories of initial interest confusion, in which the confusion is still a but-for cause of a sale.)

But the later cases weren’t irrelevant. Instead, the court reasoned, “very little proof is required when customer purchases were actually swayed. However, … more is required when the confusion did not or cannot sway purchases.” In particular:

isolated instances of confusion about the affiliation of two companies that do not result in redirected business are not enough to sustain a finding of actual confusion. Additionally, proof of actual confusion not involving swayed customer purchases should be weighed against the parties’ total volume of sales.

Also, courts should “look to the volume of each company’s advertising” and give actual confusion “more weight if it is a potential customer considering whether to transact business with one or the other.” Circuit “precedents give varying weight to evidence of actual confusion, depending on whether it is short-lived confusion by individuals casually acquainted with a business or lasting confusion by actual customers.”

With that background: Plaintiff identified two people who inadvertently contacted defendant while seeking plaintiff. Unlike initial interest confusion, “this confusion did not present the possibility of garnering the Defendant business before or after it was dissipated.” And there were three phone calls to plaintiff from people who’d seen or heard defendant’s ads, and one of defendant’s customers sent a letter to plaintiff complaining about defendant. “[P]roof that the plaintiff is receiving calls from people who are trying to do business with the other party can still be relevant even where there is no realistic possibility that business can be diverted.” Finally, there were two instances of third parties confusing the companies or their locations. “[T]hose anecdotes are relevant because proof of actual confusion is not limited to actual or potential customers.”

Although this wasn’t much, it was some relevant evidence of actual confusion, and a reasonable jury could weigh it in plaintiff’s favor. (How does this play into the statement above that isolated instances that don't result in sales "aren't enough"?) Question: what does a good instruction look like in light of this discussion? Another question: Given Lexmark, which does require a showing of likely harm for §43(a) cases, how should evidence of nonpurchaser confusion go to show likely harm?

Degree of care: No reasonable jury could weigh this in plaintiff’s favor.

Nonetheless, because a reasonable jury could conclude that some of these factors, including the important factor of actual confusion, weigh in plaintiff’s favor, a reasonable jury could also find a “probability of confusion.”

Are Burger King menu boards whoppers?

Coleman v. Burger King Corp., No. 22-cv-20925-ALTMAN (S.D. Fla. Aug. 25, 2023)

Plaintiffs alleged that Burger King, through its advertisements and in-store ordering boards, “materially overstates” the size of (and the amount of beef contained in) many of its burgers and sandwiches. Allegedly, “[a] side-by-side comparison of Burger King’s former Whopper advertisement to the current Whopper advertisement shows that the burger increased in size by approximately 35% and the amount of beef increased by more than 100%. Although the size of the Whopper and the beef patty increased materially in Burger King’s advertisements, the amount of beef or ingredients contained in the actual Whopper that customers receive did not increase.”

Burger King responded that it makes very clear how much beef the Whopper contains. Its website says: “Our Whopper Sandwich is a ¼ lb* of savory flame-grilled beef topped with juicy tomatoes, fresh lettuce, creamy mayonnaise, ketchup, crunchy pickles, and sliced white onions on a soft sesame seed bun,” with the asterisk after the burger’s weight referring to the “[w]eight based on a pre-cooked patty.”

The court first refused to consider the consumer protection laws of 50 different states without a named plaintiff from every state. Although the named plaintiffs had Article III standing to assert claims on behalf of absent class members from other states—they had alleged a redressable injury—they couldn’t assert claims under the laws of states that did not apply to them because they hadn’t made their purchases in those states. Plaintiffs were directed to file an amended complaint for only those states in which they’d purchased products. They could eventually seek certification to assert materially identical consumer-protection claims on behalf of class members from other states, and they could even list the states whose consumer-protection statutes (they believe) are similar enough to justify certification. They could also try a nationwide FDUTPA claim based on allegations that, from its headquarters in Florida, Burger King disseminated throughout the whole country its allegedly deceptive communications.

Side note: “in deciding whether a named plaintiff has standing to pursue the claims of out-of-state class members, some of our colleagues have tried to distinguish between state common-law and state statutory claims.” That doesn’t work because (1) many states have codified the traditional common-law claims, and it doesn’t make much sense to think of traditionally common-law claims as distinct from statutory law. And (2) regardless, the cause of action is still “a creature of state law,” not some 50-state blanket.  

Breach of contract: Burger King argued that its ads weren’t binding offers.  Generally, ads are merely “solicitations to bargain,” not offers, and so here with the TV and online ads. But in-store “menu ordering boards” were different. An ad can become an offer if a “reasonable person” would have thought that “the advertisement or solicitation was intended as an offer.” These in-store ordering boards—unlike BKC’s TV and online ads—list price information and provide item descriptions. “Their whole purpose is to present to the potential customer an offering of the available menu items (and their prices). They’re thus very different from the advertisements one might see on the Internet or on TV—which cannot constitute offers precisely because they cannot promise that the item will still be available when, at some future date and time, the customer finally elects to walk into the store.” Although it’s not reasonable to believe that an ad promised that inventory would always be available, the menu boards, “by definition, are only subject to acceptance by the handful (or so) of customers who are actually in the store looking to purchase a sandwich.”

Burger King argued that a sandwich’s appearance isn’t an essential term of a contract. But the court wouldn’t “lightly suppose that a proprietor can offer to sell you a certain amount of food at a specified price only to provide you with less food for the same price.” Although a 1% exaggeration wouldn’t be a problem, the court wouldn’t impose its own judgment about whether “a seemingly substantial difference between what was promised and what was sold was (or was not) enough to alter the purchasing preferences of reasonable American consumers.”

Negligent misrepresentation survived (for now) because Florida doesn’t require a special relationship; unjust enrichment survived as an alternative claim.

Thursday, September 07, 2023

claim that Adidas NHL jerseys are not "authentic" versions of on-ice jerseys can proceed

Smith v. Adidas America, Inc., 2023 WL 5672576, No. 6:22-cv-788 (BKS/ML) (N.D.N.Y. Sept. 1, 2023)

A non-food case litigated by Spencer Sheehan, just profiled in this New Yorker article. Smith brought claims under NY and other consumer protection laws as well as warranty and other common-law claims, based on Adidas’s marketing of its NHL jerseys as “authentic.”

screenshot from complaint

Adidas is the “official manufacturer of the jerseys worn on the ice by NHL players.” It identifies at least some of the NHL jerseys it manufactures and sells as “authentic” and allegedly sells them at a “premium” price. But they were allegedly not “the same as the one[s] ... players wear when the puck drops on the ice.” Specifically, Smith alleged, the quality of the “fight strap” of the “authentic” jerseys is inferior as compared to the fight strap of on-ice jerseys; the fabric of the “authentic” jerseys is half the thickness of the fabric of the on-ice jerseys; the stitching of the “authentic” jerseys is weaker and less durable than the stitching of the on-ice jerseys, the neck holes of the “authentic” jerseys are larger than the neck holes of the on-ice jerseys;the air-flow dimples of the “authentic” jerseys are smaller and less effective than the air-flow dimples of the on-ice jerseys; the logos, numbers, stripes, and names on the “authentic” jerseys are applied via heat pressing while those features of the on-ice jerseys are double-stitched; and the “authentic” jerseys are manufactured in Indonesia while the on-ice jerseys are manufactured in Canada.

The complaint cited online complaints about calling NHL jerseys “authentic” and said they should be called “replica” jerseys—which allegedly sell for less. Smith argued that these complaints gave Adidas knowledge of the problem, while Adidas argued that these complaints

Showed that “the physical differences [in jerseys] are ... widely known among hockey enthusiasts,” and that “a reasonable consumer would not view the retail ‘authentic’ jerseys as identical to the on-ice ‘pro stock’ jerseys, because it is widely known that the two have not been the same for at least 15 years.”

The court dismissed the MMWA claim for lack of subject matter jurisdiction, and the warranty claims for failure to provide pre-suit notice.

But the NY GBL claims survived. It was plausible that “authentic” was “likely to mislead a reasonable consumer acting reasonably under the circumstances.”

Adidas argued that Smith’s understanding of “authentic” was merely subjective, and that, because it’s the official manufacturer of NHL jerseys, any jersey it manufactures is, by definition, authentic. But a reasonable consumer would not necessarily believe that “authentic” is synonymous with “officially licensed.”

In addition, Smith provided relevant context to inform the reasonable consumer’s understanding: Adidas allegedly describes the jersey as “the same as the one[s] [NHL] players wear when the puck drops” and alleged myriad ways in which they materially differed from those worn by NHL players. There was no “alternative explanation” of “the same as the one[s] [NHL] players wear when the puck drops” that “render[s] [P]laintiff’s inferences unreasonable.”

screenshot with "this jersey is the same as the one Oilers players wear when the puck drops" highlighted

Adidas argued that the differences were easily discoverable, but so what? This wasn’t an omission claim, and Adidas isn’t allowed to make easily disprovable affirmative misrepresentations.

But claims based on the laws of other states were insufficiently specified, and there was no duty alleged as necessary for a negligent misrepresentation claim. Also, the where/when wasn’t pleaded with sufficient particularity for fraud, and unjust enrichment was dismissed for not really being separate.

Microsoft's PR agency got Gannett sued by sending it an ad for its Superbowl Ad Meter

Campbell v. Gannett Co., No. 4:21-00557-CV-RK (W.D. Mo. Aug. 15, 2023)

This is a copyright suit against Gannett for advertising-like use of a photo taken by Campbell of NFL coach Katie Sowers; the photo came from a screenshot of an ad run by Microsoft that played during the Super Bowl. The Microsoft ad was licensed by Campbell and showed the photo at about the 40-second mark. (Campbell’s lawyers are not serving her well by claiming that §106A applies to this photo, but that doesn’t turn out to matter here.)

For decades, Gannett has conducted an annual survey of Super Bowl commercials, called “Ad Meter,” through which anyone over 18 years old can register to rate commercials submitted to Ad Meter. A PR rep sent an email to Gannett stating, “I would like to submit Microsoft’s 2020 Super Bowl ad, ‘Be The One,’ featuring Katie Sowers to the USA Today Ad Meter.” The email included a YouTube link to the BTO ad and to high-resolution screenshots from the BTO ad, but the email did not include the Sowers photo (this description is a bit equivocal about whether the screenshots included the Sowers photo, but I’ll assume it didn’t). A second request followed, asking, “Can we please be included as part of the USA Today Ad Meter?”

A USA Today 2 producer downloaded the BTO ad from YouTube and then took a high-resolution screengrab from the commercial that comprised the Sowers photo. He uploaded the high-resolution screengrab of the Sowers photo and the downloaded video into Presto, Gannett’s content management system, and added tags including “USA TODAY” and “Ad Meter.”

Gannett derives revenue from the Ad Meter Platform, which included its own advertisement and sponsorship revenue. Gannett did not use the screenshot of the Sowers photo on Ad Meter, but instead on webpages promoting Ad Meter. Each publisher defendant separately determined which content it accessed on Presto to use for its websites and in its publications; their webpages that included the screenshot of the Sowers photo would have displayed ads.

Campbell sued for copyright infringement, contributory/vicarious copyright infringement, and CMI removal.

Gannett doesn’t get summary judgment on having a license even though the contract with Microsoft granted it “an unlimited (including all lifts, edits and versions) non-exclusive, worldwide, all channels, irrevocable, license to use, market, promote, distribute, copy, reproduce, display, record, re-record, electronically publish, publicly display, transmit, broadcast, telecast, publicly perform, modify, alter, cache, synchronize with visual images, create derivative works of, and/or publish the whole or part of the [Sowers Photo], in any media whatsoever (whether now known or hereinafter developed).” But this was a license to Microsoft, and Campbell argued that Microsoft wasn’t allowed to reproduce, distribute, and publish the Sowers photo as part of others’ advertising model (including news reporting). Instead, Campbell argued that she intended to prohibit further sublicensing.

The court found that whether Gannett had an implied sublicense couldn’t be determined on summary judgment. When she became aware of the use, she promptly sent a C&D. (It feels like Microsoft and its PR agency caused this problem.)

The court also rejected summary judgment on a fair use defense. There were no changes in the content of the photo itself. “Even assuming the purpose of Defendants’ use was to make the BTO ad available for commentary and criticism, that purpose itself, in the context of this case, is commercial” (citing Warhol).  And this is really bad:

Both positive and negative commentary or criticism for the BTO ad would generate attention for Defendants’ webpages and the services and products advertised there. The ultimate goal of making the BTO ad available for commentary and criticism using the Sowers photo is for the Publication Defendants or Gannett to generate more revenue for the Ad Meter service and for any other of their services or products advertised on Defendants’ webpages on which the Sowers photo was placed. (emphasis added)

Remember, “Publication Defendants” are newspapers.  A reasonable jury could find that this factor weighed in Campbell’s favor.

Factor two: a reasonable jury could find the photo “mostly creative.” Given that Sowers made history “by being the first openly gay coach, the second full-time female coach in the National Football League, and, when the photo was taken, the first female to coach in the Superbowl,” a jury could find that Campbell’s artistic choices weren’t mainly functional or informational. Although I don’t think it matters, part one and part two of those claims are completely unrelated—in fact, part one appeals only to the importance of the subject matter and has nothing to do with Campbell’s artistic choices, which remain entirely undescribed in the opinion.

Amount: the whole photo. The fact that it was used to link to the whole ad didn’t matter.

Market effect: Gannett argued that (1) it was not a market substitute because in many cases it was altered to include a play button, (2) it generated no greater likelihood of non-compensated use by others than resulted from its use in the BTO ad itself, which was on television and YouTube without attribution or watermark, (3) it was transformational, and (4) using a screenshot from within the BTO ad video as the means to view the video promotes the sharing of art and science, and the image is already contained within the published video. While this all makes sense, and Campbell appealed basically to the idea that she must have lost out somehow, a reasonable factfinder could conclude that the other factors all favored her and thus reject the defense.

CMI removal: Goes better for Gannett. It was undisputed that the Sowers photo, within the BTO ad, didn’t include any CMI or restrictive language. Campbell shifted her theory to one that the CMI was false because it attributed the ad, and thus the screenshot from the ad, to Microsoft. But false CMI is a different claim, one she didn’t bring. There was no proof that any defendant removed her CMI or distributed the photo with knowledge of its removal.

Profit disgorgement: “In a claim for disgorgement, the copyright owner is first tasked with establishing a causal nexus between the infringement and the infringer’s gross revenues.” “After that nexus is established, ‘a rebuttable presumption that the defendant’s revenues are entirely attributable to the infringement arises, and the burden then shifts to the defendant to demonstrate what portion of the profits are not traceable to the infringement.’”

In a previous case, the Eighth Circuit upheld the jury’s conclusion that the plaintiff had established a nexus between the defendant’s infringing use of his copyrighted work and its profits from the sales of the car being advertised. There, (1) the infringement was the centerpiece of an ad that essentially showed nothing but the car, (2) the defendant enthusiastically presented the ad to its dealers as an important and integral part of its launch of the car into the U.S. market, (3) sales of the car during the period that the ad aired were above the defendant’s projections, (4) the ads received high ratings on surveys that rated consumer recall, and (5) the defendant paid its advertising firm a substantial bonus based on their success.

By contrast, a previous Ninth Circuit case cited with approval in the car case, the evidence of a nexus was too speculative.  “The infringing use of the plaintiff artist’s work was featured within a collage including other content that was pictured only on one page of a multipage brochure advertising a concert series, and the plaintiff’s claim for 1.5 percent of the defendant’s total revenues was based on the defendant’s goal of generating a response rate of 1.5 percent to its brochure as a whole.”

Plaintiff’s expert identified defendants’ revenue from ads on websites containing the photograph and subscriber revenue related to the Subscribe Now feature on their websites. The websites also displayed many other photographs, news articles, videos, screenshots from other Super Bowl commercials, and other content during the time they displayed the Sowers photo. There is no way to track revenue from a single item of content, but each site that displayed the Sowers photo displayed it along with ads that paid based on the number of impressions. Plaintiff’s expert limited calculation of ad revenue for whole newspaper websites to their time displaying the photo, but didn’t attempt any further attribution. Using numbers for the websites as a whole was too speculative to establish a nexus. No rebuttable presumption arose, and defendants got summary judgment.

In addition, Campbell was limited to one statutory damages award. Even though each of the newspaper defendants were independent legal entities that made their own decisions about what to put on their websites, it’s the number of works infringed that counts. Where there’s a prime tortfeasor that is jointly and severally liable with every other defendant, that means one award. Gannett and the other defendants had a substantial and continuing connection. The newspaper defendants each use and choose content from Gannett’s content management system, and they were all its subsidiaries.  

But! There was a triable issue on willfulness, even though the PR agency submitted the ad, and even though the Sowers photo had no separate attribution or other information and thus there was no reason to believe it had to be treated separately. Campbell argued that the USA Today producer violated Gannett’s own copyright policy by downloading the ad from YouTube and taking a high-res screengrab. I don’t see how this constituted reckless disregard or knowledge of Campbell’s rights, but the court thinks maybe: “It is undisputed that Defendants are affiliates in a large, sophisticated media conglomerate that has written policies regarding copyrights, copyright infringement, and avoiding such infringement.” Thus, there was a jury question on willfulness. This seems wrongheaded to me; now everyone will have to go through an extra step of confirming that they have the rights including the rights to every individual element of an ad.

SlimFast products aren't "clinically proven," even if the SlimFast plan is, allowing false advertising claim to survive

McCracken v. KSF Acquisition Corp., 2023 WL 5667869, No. 5:22-cv-01666-SB-SHK (C.D. Cal. Apr. 4, 2023)

McCracken alleged that SlimFast food products were falsely advertised as “CLINICALLY PROVEN [ – ] LOSE WEIGHT & KEEP IT OFF” on the front of their packaging. It was undisputed that none of the products she purchased has been clinically tested or proven to cause consumers to lose weight or maintain weight loss, though KSF pointed to additional disclaimers on the back clarifying that the statements referred to KSF’s low-calorie “SlimFast Plan” rather than to the products themselves. The products say on the back: “For over 40 years, millions of Americans have lost weight and kept it off using SlimFast Original Meal Shakes, as part of the clinically proven SlimFast Plan. Clinical studies prove the SlimFast Plan helps you effectively lose weight, and you can see results in just one week!”

example of front package with "Clinically Proven: Lose weight and keep it off" claim

example of back with "Clinically Proven to Lose Weight Fast" caption with reference to SlimFast plan
: For over 40 years, millions of Americans have lost weight and kept it off using SlimFast Original Meal Shakes, as part of the clinically proven SlimFast Plan. 50 Clinical studies prove the SlimFast Plan helps you effectively lose weight ..."

Although the court dismissed claims for equitable restitution and disgorgement because McCracken didn’t show that adequate legal remedies were unavailable, the remaining usual California statutory claims survived.  (The case was later dismissed after an individual settlement.)

McCracken incorporated NAD and NARB decisions into the complaint. In 2021, NAD found, among other things, that “a reasonable consumer could take away the message that [Defendant’s] clinically proven claim refers to any product upon which it appears” and that “ ‘Clinically Proven to Lose Weight & Keep It Off’ conveys a clinically proven weight-loss and maintenance message about each individual SlimFast product.” Since this claim hadn’t been substantiated for the food products, but still “expressly and by implication conveys the message that the current products themselves have been clinically proven to allow consumers to lose weight and keep it off,” NAD recommended changing the ad. KSF appealed, and NARB affirmed in relevant part.

First, this wasn’t an impermissible private claim merely alleging lack of substantiation. Instead, plaintiff plausibly pled that the “clinically tested” claim was an affirmative misrepresentation as to the food products. “[A] reasonable consumer viewing the front of Defendant’s SlimFast products might assume that the claim ‘CLINICALLY PROVEN [ – ] LOSE WEIGHT & KEEP IT OFF’ refers to the product on which the claim is made rather than to a weight loss plan that is not mentioned on the front of the packaging and that does not in any way depend on consumption of the product being sold.” Even knowing the SlimFast plan existed wouldn’t inherently preclude a belief that defendant actually tested its own products as part of the plant. NAD/NARB’s agreement on this bolstered its plausibility. Indeed, even the fine print didn’t “necessarily dispel the impression created by the front label that the product itself has been tested; consumers might assume that Defendant’s tests of the SlimFast Plan involved the products being sold (as they apparently did for earlier products).”

Finally, McCracken did have standing to seek injunctive relief because she was still interested in buying.

Wednesday, September 06, 2023

plaintiff has standing to seek injunctive relief against allegedly falsely advertised penile implant

Peña v. International Medical Devices, Inc., No. 2:22-cv-03391-SSS-PLAx, 2023 WL 5667568 (C.D. Cal. Apr. 17, 2023)

Plaintiff brought the usual California statutory claims against Penuma, a penile implant/procedure, for alleged misstatements about Penuma’s safety and efficacy. Here, we deal only with the claims for injunctive relief. The Ninth Circuit has held: “[i]n some cases, the threat of future harm may be the consumer’s plausible allegations that she will be unable to rely on the product’s advertising or labeling in the future, and so will not purchase the product although she would like to.” Also, in “other cases, the threat of future harm may be the consumer’s plausible allegations that she might purchase the product in the future, despite the fact it was once marred by false advertising or labeling, as she may reasonably, but incorrectly, assume the product was improved.”  

Peña argued that he has standing to pursue injunctive relief to prevent future harm because “Plaintiff continues to desire a safe, effective penile implant. If the Penuma device and procedure were redesigned to be safe and effective for cosmetic penile enlargement, FDA-cleared for this use, and truthfully marketed, Plaintiff would purchase a Penuma device and procedure in the future.” He also argued that he wouldn’t be able to rely on the ads in the future without injunctive relief. This was sufficient. (Humans really want to believe certain things; I guess I do think there are people who would try again.)

Were legal remedies inadequate? Peña and class members alleged they “suffered irreparable injury” from the alleged misrepresentations and “[t]heir bodily integrity has been violated, creating a substantial risk of permanent injury.”  Coupled with the allegations about the likelihood of future injury absent an injunction, that sufficiently pled an inadequate remedy at law.

gray marketer's counterclaims against Toyota survive, but it still must defend itself

One case, two opinions.

Toyota Motor Sales, U.S.A., Inc. v. Allen Interchange LLC, 2023 WL 5206884, No. 22-cv-1681 (KMM/JFD) (D. Minn. Aug. 14, 2023)

This opinion deals only with Allen’s counterclaims. Allen distributes Toyota replacement parts, manufactured by authorized suppliers around the world.  According to Allen, Toyota USA “sells Toyota Parts in the United States at prices substantially higher than those charged by Toyota in other places.” The Toyota parts sold by Allen Interchange and Toyota bear the same part number, and according to Allen Interchange, are identical in design, function, and quality. Toyota USA sued Allen for grey marketing in violation of the Lanham Act and related claims, asserting that material differences included the existence of a manufacturer-backed warranty, the shipping and packaging of the parts, and the appearance and condition of the parts.

Allen counterclaimed for antitrust and related unfair competition/tortious interference claims. The court declined to dismiss the counterclaims.

Lanham Act false advertising: Allen alleged that Toyota’s statements that “[t]he purchase ... of unauthorized, gray market parts within [Toyota USA’s] PMA [Primary Market Area], or anywhere, is ... a breach of your dealer agreement” constituted false advertising because the agreement in fact allows for purchases of Toyota parts from other sources, including for non-warranty repairs. The counterclaim also alleged false/misleading use of the term “Genuine Toyota Parts”; statements about safety of “gray market parts” even though they are made by Toyota entities; and misleading assertions about Allen Interchange’s products in flyers depicting a pallet with Toyota parts recognizable as an Allen Interchange shipment.

Toyota argued that its statements were literally true, but literally true claims can mislead—a classic question of fact. Plus, statements about commercial activities are actionable and Allen adequately alleged falsity. 

Toyota Motor Sales, U.S.A., Inc. v. Allen Interchange LLC, 2023 WL 5207389, No. 22-cv-1681 (KMM/JFD) (D. Minn. Aug. 14, 2023)

This is the trademark side of the case. The court denied Allen’s motion for joinder of Toyota Japan and allowed key claims to proceed.

This case is one of several that makes me think that a coherent version of trademark could emerge from cases like Abitron and Lexmark: registered trademarks get special treatment, even including (though I think it’s a bad idea) not having a harm requirement as an element of the cause of action, whereas unregistered/§43(a) claims need to show harm. This isn’t directly implicated by the case, but the reasons we might have different treatment are.

In particular, Toyota USA doesn’t own the Toyota marks; it is a licensee. This was a matter of statutory standing, not Article III standing.

First, the dilution claims require an “owner” of a famous mark to bring suit. Thus, they were dismissed. While some cases have allowed an exclusive licensee to do bring a dilution claim, Toyota USA didn’t plead that it was the exclusive licensee and acknowledged in its briefing that it wasn’t. Being an exclusive authorized importer and distributor was not enough, because an “exclusive licensee” is the sole entity with an interest in a trademark, while an “exclusive importer and distributor” could be one of multiple entities with such an interest.

Anyway, even if Toyota USA could be considered an exclusive licensee, the relevant cases covered only §43(a)(1)(A), not §43(c), which explicitly uses the term “owner” when identifying who may bring suit, whereas § 43(a) uses the broader language of “any person.” Minnesota’s trademark statute also said that “[t]he owner of a mark that is famous in this state may” seek an injunction in the event of trademark dilution. Likewise, “[o]nly the owner of the trademark has standing to seek relief for common law trademark infringement.”

Allen is definitely not out of the woods, because §43(a)(1)(A) is still available, but that should matter to the burden Toyota USA faces, including the Court’s language in Lexmark about proof of harm, which is not limited to false advertising.

"major flaw"/"tendency to shear" false advertising claims fail

Shepard & Assoc., Inc. v. Lokring Tech., LLC, 2023 WL 5229803, No. 1:20-cv-02488 (N.D. Ohio Aug. 15, 2023)

Lokring sells fittings for pipes and other transfer systems for fluids and gases, as well as tools used to install them. Its distributors have exclusive territories. Shepard was an exclusive distributor, but the relationship broke down. This opinion addresses third-party trade secret and unfair competition claims against Tube-Mac; I won’t cover the trade secret claim (which is what linked Tube-Mac to Shepard).

The emails at issue all had the same basic outlines: They said the sender previously worked for Shepard and touted Tube-Mac products. It also criticized Lokring products and toolings and stated that “The major flaw in the Lokring design is the thin cross section in the middle of the fitting where the two pipes meet…. Over time there is a tendency for the Lokring fittings to shear at that thin cross section as shown in the attached picture.”

The “major flaw” statement was false, Lokring argued, because the basis that the writer gave in deposition was merely testimony that there had been customer feedback that they didn’t like the thin cross section. Its head of product development testified that the thin cross section had, as designed, worked acceptably for over 25 years. But this testimony showed that the Lokring products did in fact have a thin cross section in some cases. Characterizing this as a “major flaw” was not actionable. Something can be designed, and still be flawed. “It is not inherently false to say that a thinner pipe connector may be more susceptible to corrosion or breakage than it otherwise would be if it were made thicker.” At least, this wasn’t literally false.

Tendency to shear: This was more susceptible to empirical testing and truth. Lokring argued that there was no data to support the claim, and that the fitting in the photo sheared because of installation error. But the burden was on Lokring to show falsity, and it didn’t submit expert or other technical evidence to show literal falsity. And its witness’s testimony was inconsistent about whether the picture showed shearing in a pipe that had been installed correctly. Thus, it didn’t show literal falsity. Lokring also didn’t submit evidence of how many consumers were deceived. It offered an email from Dow Chemical as evidence of confusion:

I am going to respectfully ask that you please stop contacting my peers in Deer Park I Houston Hub and misrepresenting the Pyplok fitting as a “LOKRING equivalent”. The Pyplok fitting has not been evaluated by our Dow piping discipline team and is not approved for use at Dow.

As you can see, this email didn’t indicate any deception about quality/design flaws in Lokring products.

Tube-Mac thus prevailed on summary judgment.

Zillow's "agent" and "other" tabs were literally false where some agents ended up in "other" purgatory

REX – Real Estate Exchange, Inc. v. Zillow, Inc., 2023 WL 5334389, No. C21-0312 TSZ (W.D. Wash. Aug. 18, 2023)

Zillow aggregates listings of real properties that are for sale or for rent. Before January 2021, Zillow’s websites displayed on one page (or in one tab) all homes for sale in a certain region regardless of how they were listed, i.e., by a real estate agent, a real estate broker, a realtor, or an unrepresented owner. Then Zillow unveiled a two-tab design, which segregated content between tabs (or webpages) labeled as “Agent listings” and “Other listings.”

According to Zillow, the two-tab display resulted from Zillow’s efforts to comply with the National Association of Realtors model “no-commingling” (or segregation) rule, which had been adopted by roughly two-thirds of the multiple-listing services (MLSs) that had agreed to provide Zillow with data feeds. This rule requires segregating listings obtained through such data feeds from listings obtained from other sources.

REX’s listings come from licensed brokers and agents; they qualified as agent listings, as opposed to for-sale-by-owner (“FSBO”) or non-agent listings. Nevertheless, REX’s for-sale listings were relegated, along with FSBO and non-MLS listings, to the “Other listings” page because REX’s brokers and agents were not members of the MLSs from which Zillow was receiving data feeds.

Before Zillow launched the two-tab system, it evaluated the associated risks. A 2019 investigation of tabs labeled “Agent listings” and “Other listings” revealed “critical comprehension concerns warranting further iteration.” In November 2020, Zillow’s research indicated that eight of the twelve participants in a study (described as “buyers,” meaning individuals trying to purchase a home who had previously used one of Zillow’s platforms) “assumed” that “other” meant “non-agent” listings, while the other four buyers thought “other” meant non-Zillow-agent or agent “not approved by Zillow.”

Zillow’s FAQ said:

“Agent Listings” are properties listed by real estate agents in the MLS. “Agent Listings” do not include homes for sale by owner, non-MLS auctions or foreclosures. “Other Listings” are for sale by owner, non-MLS auctions, foreclosures and other properties. “Other Listings” do not include properties listed by agents in the MLS.

If an agent lists your home on the MLS (even through a limited-service brokerage), it will appear under “Agent Listings.” If you advertise your home on Zillow as for sale by owner, it will appear under “Other Listings.”

The FAQ did not indicate that the “Other listings” tab might include homes for sale by agents or brokers who were not MLS members. It also failed to define MLS or to clarify that some licensed real estate agents and brokers do not belong to an MLS.

Zillow recorded a 32% increase in complaints during the weeks after the transition. Comments included: “Why prop up agents when the whole point of your app is to circumvent the need for a high commission agent?” and the like. A user test comment: “Oh...oh no...I wouldn’t even think to click on a separate list. I just assumed all the homes would be in this list.” The Other tab was clicked during only 4–7% of sessions, and 80% of the FSBO page views were lost.

Meanwhile, Zillow perceived REX to be “an industry disruptor” that had not been well received by other agents and brokers because it did not share its listings with MLSs (in other words, it did not “syndicate”), and it did not “pay a buy side commission.” The National Association of Realtors requires that MLS participants, when listing homes for sale, make “blanket unilateral offers of compensation” to other MLS members serving as buyers’ agents. Zillow internally acknowledged that REX was “poised to be a casualty” of the change, and in fact it was.

Falsity/misleadingness: Misleadingness was a fact issue that couldn’t be resolved on summary judgment; Zillow’s own internal records might suffice as extrinsic evidence for that.

Literal falsity: The Third Circuit has held that, although a plaintiff has the burden to prove falsity, a court may find that “a completely unsubstantiated advertising claim by the defendant is per se false without additional evidence from the plaintiff to that effect.” And an assertion of fact may be literally false by necessary implication “when, considering the advertisement in its entirety, the audience would recognize the claim as readily as if it had been explicitly stated.” Under these standards, “Agent listings” and “Other listings,” considered together and in context, were literally false by necessary implication. “When the labels are viewed side-by-side, the unambiguous assertion is that one tab includes homes listed for sale by agents and the second tab contains all other listings, i.e., homes for sale by their owners or by non-agents.”

It was undisputed that REX was a broker and/or agent. Thus, “[b]y relegating REX’s listings to the ‘Other listings’ tab, Zillow falsely stated by necessary implication that REX was not (or did not employ) an agent.” Zillow’s own study showed that no participant construed the tab labels in the way that Zillow proposed to the court (i.e., agent listings and additional agent listings). (Unsurprisingly, because that’s a Borgean category: what could distinguish “agent listings” from “additional agent listings”?) The FAQ didn’t fix the deceptiveness because it didn’t define “MLS” or indicate that agents didn’t have to belong to an MLS.  Summary judgment on falsity to REX.

claims about legality of insurance service are falsifable

Route App, Inc. v. Heuberger, 2023 WL 5334192, No. 2:22-cv-00291-TS-JCB (D. Utah Aug. 18, 2023) (magistrate)

Route is a package tracking company that provides shipping insurance to e-commerce merchants. Heuberger was a Route customer who then launched a competitor, Navidium. Route sued for breach of contract, commercial disparagement and defamation per se, intentional tortious interference with contractual relations, false advertising, and contributory trademark infringement.

The breach of contract claim survived.

Commercial disparagement/trade libel/injurious falsehood/defamation per se: The challenged statements were opinion. Even potentially verifiable facts—such as whether claims are “more often than not denied,” whether Route requires a police report to be filed for a lost package, or whether Route commits a “serious breach of customer data”—“when read in the statement’s full context, would be understood as hyperbolic or figurative and clearly representing an opinion.”

Route also alleged that Heuberger tortiously interfered with valid contracts between Route and third-party merchant partners by: using confidential information to develop Navidium; engaging in commercial disparagement; making fraudulent misrepresentations about Route and Navidium; inducing Route’s merchant partners to use Navidium; and engaging in unlawful activity, including collecting a fee without proper insurance licenses or permits. Route alleged that Heuberger stated in online posts and messages that he “created Navidium to ‘screw with’ and ‘tak[e] down’ Route, because he ‘hate[s] Route.’ ” Route argued that Heuberger misled Route’s then-clients by portraying Navidium as a “technology that facilitates the lawful sale [of] shipping insurance” despite such services being “illegal.” The court wasn’t sure whether Route could show causation, though Route alleged that an increasing number of merchants who discontinue Route’s services appear to cite “the false statements made in Heuberger and Navidium’s solicitations.” Whether these acts were justified was fact-intensive and couldn’t yet be resolved.

False advertising:  The comments about Route were opinion and not actionable under the Lanham Act. But Route’s allegations that Navidium misrepresented or implied that merchants can lawfully offer shipping insurance or shipping protection without obtaining insurance licenses or permits and that Navidium is a shipping insurance company or technology “are straightforwardly factual assertions the veracity of which may be determined” by a review of the applicable law and an investigation of Heuberger’s marketing of Navidium. Other cases say that legality claims are usually opinion unless offered by someone with legal expertise, but the court doesn't discuss the issue.

Contributory trademark infringement: Defendants allegedly knowingly facilitated infringement of Route’s trademarks by installing versions of the Navidium widget under the names “Route Plus” and “Route Pro,” infringing its registered “Route” mark for shipping protection/e-commerce tracking. Defendants responded that Navidium is fully merchant-run after installation, and that Heuberger did not know and had no reason to know that merchants were replacing the Navidium name. Route counters that “[b]ecause Navidium has no product offerings that do not include expert installation, Heuberger or another Navidium representative modifies the Navidium widget code to include the name and/or text chosen by the merchant every time the white-labeled Navidium widget is installed.” This was sufficiently pled. Not clear to me: does anyone but the merchant internally see the widget? If not, what confusion could there be?


Tuesday, September 05, 2023

state consumer protection law gives competitor plaintiff more leeway than Lanham Act, court holds

SME Steel Contractors, Inc. v. Seismic Bracing Company, LLC, --- F.Supp.3d ----, 2023 WL 4463246, No. 2:17-cv-00702-RJS-DAO (D. Utah Jul. 11, 2023)

The parties compete in the design of buckling-restrained braces, which are structural devices that help buildings withstand seismic activity. One of the defendants (Hinchman) used to work for plaintiff SME. Although BRBs are increasingly being “used in new structural steel construction projects, the BRB industry is still developing and might be considered a ‘niche product’ even within the steel construction industry.” I’m going to ignore the patent claims.

Hinchman asked the University of Utah to evaluate and test five of [based on later discussion, SBC’s] BRBs. The University issued a report concluding two of the five BRBs did not satisfy American Institute of Steel Construction (AISC) 341-10 requirements. The report stated, “Further development is required for improving these two BRB types.”

Defendant SBC sent a ninety-page document titled “Design Manual” to at least six prospective clients, including the statement: “These patented methods have now been tested and qualified for use on projects in accordance with governing building codes (AISC 341).” It also made lots of claims about the experience of its “team,” including their participation in specific named projects. It claimed a “[p]roduce capacity of over 5000 BRBs per year.” The Design Manual also included several technical drawings of BRBs, which allegedly infringed plaintiff Core-Brace’s registered drawings.

Plaintiffs also publicized the resulting lawsuit among customers, which triggered counterclaims.

Core-Brace alleged both false advertising and false association from the statements in the design manual and related documents. The court found that Core-Brace lacked standing: “a plaintiff suing under § 1125(a) ordinarily must show economic or reputational injury flowing directly from the deception wrought by the defendant’s advertising; and that occurs when deception of consumers causes them to withhold trade from the plaintiff.”

Even if, as Core-Brace argued, “the recipients of Defendants’ materials were instrumental in the Defendants being awarded the projects to the detriment of Core-Brace,” that didn’t constitute evidence that the recipients considered or relied on the alleged misrepresentations. Core-Brace didn’t need to definitively exclude other reasons, but it needed to identify evidence “demonstrating a nexus between the alleged misrepresentations and its injury.” This was a failure of proximate cause.

The Tenth Circuit has held that courts may presume injury “once a plaintiff has proven that the defendant has falsely and materially inflated the value of its product (or deflated the value of the plaintiff’s product), and that the plaintiff and defendant are the only two significant participants in a market or submarket.” But Core-Brace failed to show literal falsity or provide extrinsic evidence of actual confusion.

The statement “[p]roduce capacity of over 5000 BRBs per year” was not literally false . Acause SBC could use third party manufacturers; “produce” was ambiguous, unlike “fabricate.” Also, even though SBC had produced less than 9 BRBs, it wasn’t literally false to say what it could produce.

What about “patented methods have now been tested and qualified for use on projects in accordance with governing building codes (AISC 341)”? Two didn’t, but SBC argued that it only offered BRBs that satisfied the testing requirements. This was ambiguous.

And “greatly overstat[ing]” defendants’ experience and qualifications wasn’t literally false.

Nor did Core-Brace provide consumer surveys indicating confusion or any examples of actual confusion, or evidence indicating why SBC was awarded specific projects over Core-Brace.

Core-Brace argued that deception could be presumed because of defendants’ bad intent.  But the only evidence was that Hinchman would have known what potential clients were looking for and that Core-Brace “was the only other major competitor in the marketplace.” Summary judgment for defendants.

Plaintiffs did better on aspects of their Utah Truth in Advertising Act (UTAA) claims that did not require showing likely confusion. (Is there a harm requirement? If there was no confusion, could there be harm?) Specifically:

Subsection (e) states that a deceptive trade practice occurs when a person “represents that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits, or qualities that they do not have or that a person has a sponsorship, approval, status, affiliation, or connection that the person does not have.”

Subsection (g) states that a deceptive trade practice occurs when a person “represents that goods or services are of a particular standard, quality, or grade, or that goods are of a particular style or model, if they are of another.”

No Utah cases explain the proof requirements, but the words “likelihood of confusion” aren’t in there. So it could go to trial. I don't know on what statements, since the court rejected the Lanham Act false advertising claims (and see just next for even more weirdness).

But UTAA claims for deceptive trade practices failed. Subsection (b) states that a deceptive trade practice occurs when a person “causes likelihood of confusion or of misunderstanding as to the source, sponsorship, approval, or certification of goods and services” And subsection (c) states a deceptive trade practice occurs when a person “causes likelihood of confusion or of misunderstanding as to affiliation, connection, association with, or certification by another.”

Using the trademark likely confusion factors, no reasonable jury could find likely confusion.

Since this wasn’t a trademark case, similarity was inapplicable/neutral. (Um.) Core-Brace analogized to a celebrity persona case, but the court didn’t think a corporation was the same, and anyway defendants weren’t using pictures of the plaintiff corporation. 

Core-Brace asks the court to compare its persona to the ninety-page Design Manual, with specific attention to the drawings, project list, logo, and statements regarding testing.220 Although the court can compare the drawings, logo, and project list, it is unclear how to compare statements about testing, particularly because the Design Manual includes SBC’s testing report from the University of Utah. It is also unclear how to weigh those aspects against the remainder of the Design Manual—including the fact that the Design Manual is repeatedly labeled as property of SBC and does not mention Core-Brace.

Thus, this factor wasn’t relevant. Still, trademark logic is so powerful that the court goes on! (Which may say something about the weaknesses of multifactor balancing tests in general.)

The intent analysis then suggests that a jury could infer bad intent because … Hinchman was a former employee familiar with Core-Brace and thus intended to benefit from Core-Brace’s goodwill, despite the lack of similarity in company names. This is bananapants, and the fact that the court rejects the claim on other grounds doesn’t make it less so.

There was no evidence of actual confusion; that defendants won bids that Core-Brace lost and may have intended to “capitalize” on Core-Brace’s reputation wasn’t a substitute.

Similarity of products/marketing favored Core-Brace, because the parties compete.

Degree of care: favored defendants. BRBs are expensive and sold through a bidding process.

Strength of mark: Although the court decided it couldn’t evaluate similarity and thus dropped it from the analysis, it could evaluate strength—which basically amounts to a bias against competing against big market players. A jury could conclude that Core-Brace had a strong reputation among BRB buyers, so this favored Core-Brace.

Intuitively, the court seems to understand that it’s not doing the right kind of analysis; although the factors weighed in Core-Brace’s favor counting-wise, the court still concludes that no reasonable jury could find confusion likely. The weights of product similarity/mark strength were outweighed by the expense of the goods/sophistication of the consumers. The lack of confusion evidence also mattered some. (Note that, in this analysis, Coke’s lawsuit against Pepsi, or against any new market entrant in the 12-ounce soda market, should proceed, since Coke wouldn’t be arguing that the name infringed—it would be arguing that the competition did, and soda is the opposite of BRBs in sophistication/expense. Coke can likely produce a survey, too.)

Intentional interference with economic relations: no summary judgment for defendants. Again, the court doesn’t seem to have any interest in the idea that the background principle is free competition. Interference is intentional even if a defendant does not act with a purpose of interfering, but knows “interference is substantially certain to occur as a result.” Defendants pointed out that plaintiffs were seeking a “de facto noncompete that is enforceable in perpetuity against any former employee,” whereas Hinchman signed a non-compete clause that expired six months after his resignation. This was just a “policy argument.”

What about the improper means element? Because summary judgment for defendants wasn’t complete, intentional interference with economic relations could also proceed. (Note that the patent claims and the copyright claims, which failed on the merits, couldn’t satisfy this element anyway because of preemption.)

Copyright: even if there was a genuine dispute of material fact on infringement, summary judgment to defendants because Core-Brace didn’t show damages. (The alleged infringement took place before the registration.) To recover indirect profits, a copyright owner must show a “causal link between the infringement and the indirect profits.” Once again, the fact that companies that received the design manual later bought BRBs from defendants didn’t show damage causation.

Plaintiffs’ defamation claims also proceeded, based on emails defendants sent to third parties discussing the present litigation. Defendants merely asserting the statements were hyperbole and not defamatory—without even identifying the statements—wasn’t enough. (I would have thought identifying the statements was plaintiffs’ burden, but perhaps that has been done elsewhere.)

For roughly similar reasons, the counterclaims for defamation, deceptive trade practices, and intentional interference with economic relations based on plaintiffs’ dissemination of lawsuit-related documents to potential customers also survived. At least sauce for the goose is sauce for the gander? Interestingly, the court says that one reason a jury could find the counterclaim statements factual (e.g., that defendants lacked relevant experience and could “endanger human lives”) was because they were in the “factual background” section of the documents.

AMG Capital didn't change monetary remedies for civil contempt

Federal Trade Commission v. National Urological Group, Inc., 2023 WL 5541756

No. 21-14161, --- F.4th ---- (11th Cir. Aug. 29, 2023)

Nearly 20 years ago, the FTC sued appellants, alleging they had misrepresented their weight-loss products to consumers. The district court granted injunctive relief and ordered them to pay $16 million in equitable monetary relief, which was then available. “Years later, the district court found that they had violated the injunction, held them in civil contempt, and ordered them to pay an additional $40 million in contempt sanctions.” Before that judgment was collected, AMG Capital limited the FTC’s authority to seek equitable monetary remedies directly in district court without first going through an ALJ. The court of appeals affirmed the district court’s holding that AMG had no bearing on a district court’s contempt powers.

In the underlying litigation, the district court permanently enjoined the defendants from making unsubstantiated claims regarding their weight-loss products. After finding they’d violated the injunction, the court held them in contempt. The contempt sanctions were to be deposited with the court and used by the FTC to reimburse consumers. Through garnishment, the FTC has collected about $2.3 million so far.

Defendants argued that the FTC cannot seek equitable monetary remedies via contempt when it cannot do so directly under § 13(b). Not so. These sanctions were imposed for violating the injunction against prospective conduct, and the ability to impose such injunctions was untouched by AMG. “When a district court enters an injunction, whether under § 13(b) or any other authority, it generally retains inherent contempt powers to remedy violations of its own orders.”

court certifies "C+Collagen" class even if consumers don't know that all collagen is from animals

Gunaratna v. Dennis Gross Cosmetology LLC, No. CV 20-2311-MWF (GJSx), 2023 WL 5505052 (C.D. Cal. Apr. 4, 2023)

Previously, the court denied a motion to dismiss plaintiffs’ claim that “C + Collagen” was misleading because defendant’s product had no collagen. Now, a class is certified.

Defendant argued that individual issues predominated because the court would have to probe each person’s understanding of the phrase “C + Collagen.” The Ninth Circuit previously held that it is an error of law and “per se” abuse of discretion to deny class certification for claims under the CLRA and UCL (and implicitly the FAL), based on a lack of “evidence that consumers uniformly interpret the statement in a particular manner.” Instead, “CLRA and UCL claims are ideal for class certification because they will not require the court to investigate class members’ individual interaction with the product.”

Also, plaintiffs did have common proof: a consumer survey. Defendant argued that the results weren’t uniform, but “the ambiguity (if any) here can only be about what the ‘+’ in ‘C + Collagen’ conveys, because the meaning of ‘collagen’ itself is not up for debate. Unlike the word ‘natural,’ collagen does have a single, controlling definition.” There’s just one dictionary definition!

Plaintiffs’ survey showed that, of those participants that provided an opinion, 95.2% believed that the products contained collagen after viewing images of the them. Furthermore, 51.7% of participants indicated they would be at least somewhat less satisfied if they learned that the products contained amino acids as opposed to collagen. And 49.2% indicated they would be at least somewhat less likely to purchase them again after learning the truth.

Defendant noted that only about half the sample indicated that the presence of collagen was material. That half considered it material “does not suggest to the Court a lack of materiality”:

Though the case law does not establish any uniform percentage that allows a court to conclude that the evidence shows that deception and materiality are susceptible to common proof (or sufficient to create genuine issues of fact), it would seem to the Court, that any percentage that a qualified expert determines is statistically significant should be sufficient for both certification and summary judgment.

Other courts have allowed lower percentages to show common proof on a motion for class certification, “especially where there is no question that all potential class members were exposed to the message because it was on all relevant products sold to the class.” (Citing cases presuming materiality where 37.1%, 24%, and 25% gave answers indicating materiality.)

Defendant’s own survey also provided some evidence of materiality. The survey asked participants, previous purchasers of C + Collagen, to select the most important characteristic that made them buy the product the first time. Out of the 19 possible “product characteristics,” the characteristic selected by the largest proportion of respondents (46.7%) was “C + Collagen.”

Deception and materiality were thus susceptible to class-wide proof and plaintiffs didn’t need not show individual reliance because reliance is presumed upon a showing of class-wide exposure and materiality.

The class-wide damages model was also tied to their theory of liability. In calculating restitution damages under the California statutes, the law “requires only that some reasonable basis of computation of damages be used, and the damages may be computed even if the result reached is an approximation.” The proposed conjoint model could do that. The proposed survey would test the “collagen” claim as compared to the importance attached to labels describing the desired effects of collagen, such as “anti-wrinkle;” “Leaves skin plump with moisture;” “anti-aging;” and “You want: Supple skin, intense hydration.” This would directly test how consumers value the effects of collagen as compared to the collagen claim itself. And anyway defendant’s criticisms went to weight, not admissibility. The damages model didn’t need to isolate and test various possible interpretations of a challenged term; it could assume that the plaintiff’s theory of liability (falsity/misleadingness) was true at the class certification stage. Courts might reject a damages model when plaintiffs haven’t yet shown that the theory of liability was itself capable of class-wide proof, but that wasn’t the case here.

Defendant also made the argument I’ve seen emerging for a while: that, under TransUnion, Article III precluded a class action.  But “TransUnion does not require that Plaintiffs prove standing as to all members of the class in order to certify the class. Indeed, the Ninth Circuit recently rejected the argument that a class may not be certified if it ‘potentially includes more than a de minimis number of uninjured class members.’” Instead, district courts should consider if the class is defined in a manner that will lead to the predominance of individualized issues regarding standing in light of TransUnion.

But a purchaser class was  “defined in a way that ensures that all members will have suffered a concrete economic injury in the form of a price premium, if Plaintiffs succeed on the merits.” Defendant argued that the class would include consumers who didn’t rely on the claim, but they paid a price premium anyway (if plaintiffs show that), and reliance/causation is presumed where there’s class-wide exposure to a prominent message. (I think this is the right result, but it shows the, uh, underdetermined parts of TransUnion, also on display here: (when) can legislatures decide to presume reliance?)

It doesn’t matter that people willingly paid the price, even if they didn’t care about collagen:

If anticompetitive behavior distorted the market – all consumers overpaid. Defendant does not get to price discriminate between those who understood the label and those who did not. The market price is set by supply and demand, and it is always the case that there are likely consumers who would pay more than the fair market price, but that does not mean those consumers should have to pay supra-competitive prices. A price-fixing cartel cannot claim that their inflated prices are not illegal as to the consumers who are satisfied with the value of the overpriced products. It is the distortion of the fair market value that results in injury to all purchasers of the relevant products.

Although it was “possible (if not likely)” that the court would grant summary judgment to plaintiffs on literal falsity, it wasn’t ready to do so without further briefing:

Falsity in this action is not about what consumers believe “collagen” means because the only admissible scientific evidence establishes that there is only one scientifically-accepted definition of “collagen.” Where consumers believe “collagen” comes from is simply irrelevant. Consumers often do not know the sources from which the ingredients in their products are derived. And the Court is troubled, if not exasperated, by the fact that a prominent skincare company has repeatedly taken the position that if reasonable consumers believe, based on the labeling of the Products, that the Products contain a specific ingredient, the falsity of the labeling does not turn on whether the Products actually contain that ingredient, but on whether consumers understand where that ingredient comes from. That position is untenable.

Instead, falsity turned on how reasonable consumers would interpret the “+”: containing collagen, or supporting it with vitamin C? And plaintiffs’ survey “more than suffices” to create a fact issue. Further, there was currently no admissible evidence showing that a statistically significant portion of consumers interpret the plus sign to mean “boost,” given that the court excluded that part of defendant’s survey.

So why not grant summary judgment? Plaintiffs’ survey didn’t give participants the opportunity, either through a closed- or open-ended question, to answer that C + Collagen means that vitamin C boosts collagen. Plus, merits discovery hadn’t closed yet, and defendant could take another bite at a survey on the “boost” theory. “If, at the close of discovery, no such evidence is in the record, Plaintiffs are free to move for summary adjudication on the issue of falsity.”

The court also rejected defendant’s argument that plaintiffs had to show that consumers wanted “animal” collagen:

Since animals are the only source of collagen, anyone who desires “collagen” inevitably desires “animal” collagen. Gunaratna’s testimony that she does not want to place raw animal parts on her face, does not prove that she did not want collagen in her skin cream, any more than a deponent’s testimony that they do not want to consume fish bladder would prove a lack of desire for Guinness beer, as Plaintiffs cleverly analogize.

Defendant was free to attack the reasonableness of plaintiffs’ reliance on the “C + Collagen” Claim, given their stated goals and desires for better skin; given that they did not fully understand where collagen comes from; given the “collagen amino acids” qualifier in other parts of the product packing; and given the vegan symbol on the back of the outer packaging.

The court also pointed out that, as to materiality, “the internal emails and documents are replete with communications indicating that the ‘collagen’ label was highly important to consumers, and in turn to the retailers and Defendant. For example, when the company used other names, Sephora thought they weren’t “strong” or “hard-hitting” enough. Plus, “[r]epresentations about specific ingredients’ presence or absence in a product are almost self-evidently material in that an advertiser is intending to make a consequential effect on a consumer.”

Defendant also argued that there could be no proof of damages because it set the price of the products before choosing a name. But the majority of sales are through retailers, and it’s those prices that are the most probative on price. Anyway, were that true, there would have been a lot fewer sales, making the price premium measure inherently conservative. (Both parties agreed that the market was competitive.) “[T]he fact that a defendant did not adjust its price based on the misrepresentation does not disprove the existence of a price premium.”