Friday, October 27, 2023

New comment on a paper about YouTube and music

 Here.

This useful article about the effects of music on YouTube on consumption of the same music elsewhere should be understood for what it is: An empirical investigation of YouTube’s effects. It allows no conclusions about “safe harbors” both because YouTube was not relying on the safe harbor regime either before or after the relevant policy change and because, as YouTube’s lack of reliance shows, the safe harbor regime primarily protects thousands of websites that don’t behave like YouTube. Under the European Union’s new Article 17, sites like YouTube are now required to negotiate with copyright owners to license works uploaded by users who do not own the copyright thereto. YouTube, however, was already doing this. The article [Wl√∂mert N, Papies D, Clement M, Spann M (2023) Frontiers: The interplay of user-generated content, content industry revenues, and platform regulation: Quasi-experimental evidence from YouTube. Marketing Sci., ePub ahead of print October 27, https://doi.org/10.1287/mksc.2022.0080] has implications for what music companies should ask for in these negotiations. However, it would be a mistake to generalize from YouTube to the Internet as a whole.

RT: This was kind of frustrating! The authors seem to think that, with a licensing/filtering requirement, there wouldn't be much music on a given site, whereas with a notice and takedown regime, there would be a lot. (You know, the way there is on Wikipedia and Ravelry and all those other DMCA-compliant sites.) So they insist that their evidence--which is about music consumption on other sites before and after YouTube cut a deal with GEMA--shows something about the effects of "safe harbors" generally. But since YouTube was not relying on safe harbors before the change--when it just blocked GEMA music in Germany--or after--when it licensed--their evidence cannot stand for the proposition they claim it stands for. If anything, it shows the opposite, that licensing leads to more reliable availability (and thus makes YouTube a better substitute for other sources of music). 

Thursday, October 26, 2023

CFPB hiring

 Of possible interest; excerpts:

The Consumer Financial Protection Bureau is recruiting attorneys and non-attorneys at all experience levels to join our Enforcement team.... We are offering opportunities in multiple enforcement positions in our Washington, D.C. headquarters and in our regional offices located in San Francisco, New York, Chicago, and Atlanta. We also have flexible telework polices in place, allowing employees to be either office or telework primary. Positions will include Enforcement Attorneys as well as several non-attorney positions include analysts, paralegals, e-litigation support specialists, economists, and more!

Tuesday, October 24, 2023

Old Bay or 420 Bud?

 This sticker doesn't seem particularly likely to confuse to me, and dilution is bunk:



TM co-owner can't challenge uses authorized by other co-owners (bonus Lexmark reasoning)

Reed v. Marshall, 2023 WL 6963661, No. H-21-3942 (S.D. Tex. Oct. 20, 2023)

In 1991, Reed and defendants Marshall and Harris formed the recording group Jade, and in 1992 they signed an exclusive recording agreement with a now-defunct label, Giant. The Giant agreement provided that the service mark “JADE” would be held exclusively by the Jade Group, that at no time would more than one member of the Jade Group appear on a non-Jade Group recording, and that no additional members would be added to the Jade Group without Giant’s consent. The three principals registered JADE for “entertainment services, namely live performances by a musical group,” identifying the owner as “JADE,” a California “partnership,” “composed of Joi Marshall, Deyelle Reed and Tonya Harris.” In 1995, Harris decided to stop performing with Jade, and the members pursued individual careers.

In 2013, Marshall and Harris posted a video to YouTube.com titled “Jade — Continuum,” which included vintage footage of Jade, including Reed, from the 1990s, and promotional material for a new recording featuring Holloway under the name “JADE.” Reed objected, claiming to own “equal ownership and rights” to the Jade name and also claiming violation of her right of publicity. In 2014, Marshall and Harris appeared together at the Judge Mablean Ephraim Foundation red carpet where they identified themselves as “Jade.”

In 2018, in anticipation of a reunion tour, the three filed an application to register the service mark “JADE” for “Entertainment services in the nature of live musical performances” and related services. Marshall and Harris later entered into an agreement with defendant Holloway, pursuant to which Holloway would “create/contribute to live performances and promotions ... as ‘work for hire.’” When Reed learned that Marshall and Harris had hired Holloway to sing in her place at a “90’s Kickback Concert” tour using the Jade mark, she objected again.

Defendants admitted that they performed as Jade at a “90’s Kickback Concert” held in three different locations in 2021; they did not account to Reed for any profits.

Reed alleged that Holloway was violating §32 of the Lanham Act. Marshall and Harris responded that they, as co-owners, consented to her use (while performing with them), and no agreement with Reed barred them from doing so. The court agreed with defendants. Although Reed was clearly within the statute’s zone of interests, there was no evidence that her injuries were proximately caused by a violation of the statute. There was no argument or authority that, by performing under the mark with Marshall and Harris, Holloway infringed Reed’s rights. This is why co-ownership is disfavored in trademark—but co-ownership is not prohibited. Courts have uniformly held that federal claims for infringement cannot be maintained against co-owners because “[c]o-owners of trademarks hold ‘equal and unfettered rights of use.’ ” As one court explained, “[b]ecause co-owners are naturally associated with the same source, … use by a co-owner cannot create confusion as to the source among consumers.” Although a co-owner might be entitled to an accounting, that was not a federal claim. It follows that “a valid licensee of one co-owner of a trademark cannot be liable to another co-owner for infringement.” This reasoning also disposed of contributory/vicarious infringement claims against Marshall and Harris.

§43(a) false designation of origin/false advertising: Lexmark applied to both, and Reed failed to present evidence that she suffered an injury to a commercial interest in sales or business reputation proximately caused by the defendants’ misrepresentations. There was no evidence that Reed marketed services under the mark such that its single source identifying value had been fractured or undermined. And there was no authority that Marshall and Harris needed her authorization to use the mark in commerce. Although joint ownership might potentially lead to confusion, there was still no commercial injury to Reed’s business reputation or sales. Reed didn’t identify evidence that defendants used Reed’s likeness or voice in advertising materials, or credited Holloway instead of Reed for her performances/recordings (also Dastar-barred, by the way; the court discusses a lot of pre-Dastar 9th Circuit precedent that can’t be valid any more).

Dilution also failed. “[F]ederal claims for dilution — like claims for infringement — cannot be maintained against co-owners.”

The court declined to exercise supplemental jurisdiction over the Texas dilution and ROP claims. (I would expect they’re preempted.)


Thursday, October 19, 2023

it is unfair to fail to disclose paid promotion/for influencers not to do due diligence on what they promote

In Re Ethereummax Investor Litig., No. CV 22-00163-MWF (SKx), 2023 WL 6787827 (C.D. Cal. Jun. 6, 2023)

EMAX is a cryptocurrency project centered around the EthereumMax, which can be traded, spent, or otherwise transacted between token holders. EMAX Tokens were sold on decentralized exchanges, which require users to pay potentially significant “gas fees” in order to process the transaction on the Ethereum blockchain. They were launched without a “whitepaper”—a roadmap for growth/success. Subsequently, however, EMAX did release a whitepaper in October 2021, which explained the business model for EMAX, and which plaintiffs alleged revealed that EMAX’s “entire business model relies on using constant marketing and promotional activities, often from ‘trusted’ celebrities, to dupe potential investors into trusting the financial opportunities available with EMAX Tokens.” This was, they alleged, a pump and dump scheme.

This is one of two opinions—the next revisiting this one, which dismisses some claims but allows others. I’ll focus, as usual, on the false advertising bits and ignore the securities law parts. Initially, the court denied the motion to dismiss consumer protection law claims simply because the complaint also alleged violation of state securities laws and consumer protection laws don’t cover securities. “Given the issue of whether the Tokens are a “security” is a genuinely unanswered legal question, it would be unfair (and contrary to Rule 8) to prohibit alternative pleading at this stage of the litigation.” Plus plaintiffs properly articulated a theory of harm, including a price premium theory. And plaintiffs’ claims involved affirmative misrepresentations, so influencers like Kim Kardashian didn’t need to have knowledge of the falsity. By contrast, statements of “belief” in future growth were classic puffery. And claims based on Floyd Mayweather’s failure to disclose he was paid to promote EMAX tokens were dismissed because plaintiffs failed to show he had a duty to disclose.

Previously, the court rejected RICO claims in part because the court read the first version of the complaint to claim that the price was the result of celebrity endorsements that increased the popularity of the Tokens. “That market participants were willing to (and that Plaintiffs in fact did) pay more because celebrities were connected to the Tokens did not appear to the Court to be a concrete loss sufficient to establish a RICO ‘injury.’” But the amended complaint added a lot more detail, making it plausible that the price was distorted or manipulated, not just a real result of celebrity glamor spillover.

For example, defendants allegedly promoted the ability to use EMAX Tokens for purchases in nightclubs like Club LIV and Story, and their price “dropped sharply on the news that EMAX Tokens would not be available for payment at Club LIV as promised.” “If Plaintiffs can prove that objectively reasonable people are willing to pay more for cryptocurrencies that can be used at venues in the real world than they are willing to pay for Tokens that cannot be so used, Plaintiffs may be able to prove that they paid more for EMAX Tokens than the fair market value.”

Although Kardashian primarily made these claims for use at nightclubs, “presumably” the corporate executive defendants could be jointly liable on a showing that this was done on their/the company’s behalf.

Another theory of harm came from allegations that the executive defendants and some of the promoter/influencer defendants were selling off their tokens as they promoted them, engaging in market manipulation. Difficulties quantifying the amount weren’t dispositive at this stage. They adequately alleged that the price rose when the tokens were promoted and then fell based on the undisclosed and allegedly unfair selling activities of the insider defendants who possessed massive amounts of free tokens. However, plaintiffs would ultimately bear the burden of showing that the alleged unfair conduct caused their losses, which would require them to isolate the price increases attributable to specific wrongdoing by specific defendants. Defendants noted that the price of the tokens was already increasing three days before one of Kardashian’s post, and went down right after both of her posts, which they argued meant there was no price premium. Although the court agreed that volatility and other factors could make proof difficult, it pointed out that this scenario was also consistent with a story that “the insiders were accumulating Tokens prior to the impending posts, causing the price to rise, and then selling off immediately after the posts, causing the price to plummet – leaving those who bought in reliance on the post with losses and providing the insiders, who sold off in tandem with the posts, a profit.”

Did plaintiffs plead that legal remedies were inadequate? It was quite possible that they’d lack an adequate legal remedy if CLRA claims are inapplicable to intangible goods and the tokens are also not securities; this was enough for unjust enrichment. “However, the Court emphasizes that legal remedies must actually be unavailable or inadequate for Plaintiffs to eventually recover on the equitable claims. Therefore, abandoning the securities claim simply because the equitable claims appear to be easier to obtain will not be a viable option.” Also, the plaintiffs didn’t even try to specify inadequacy as to unjust enrichment, so that claim was kicked out, but the court declined to dismiss UCL/FAL claims on this ground. Plaintiffs were plausibly eligible for restitution under the UCL/FAL. There was no privity requirement as long as the plaintiffs had an interest in the money and proof that the defendant “may” have acquired a benefit from an unfair practice.

Kardashian’s posts:

Liv and Story now exclusively accepting crypto (EthereumMax)
first post, touting usability at nightclubs

One post indicated that Club LIV and Story were “now accepting” EMAX Tokens “for all table reservations and bookings.” This statement was plausibly false when made. And knowledge of the falsity is not required for an affirmative misrepresentation. The FAL explicitly provides that plaintiffs can recover for advertisements that were “known, or which by the exercise of reasonable care should be known, to be untrue or misleading.” “With the ‘exercise of reasonable care,’ (i.e., simply confirming the truth of the statement with the people on behalf of whom she was promoting), Kardashian should have known that Club LIV lacked the immediate ability to accept the Tokens at the time of the May Post.”

More generally, the court reasoned: “As a paid spokesperson, a celebrity endorser stands in the shoes of the company she is promoting, and such an endorser should be expected to take at least some steps to confirm the truth of any statement she wishes to disseminate to the public.”

Kardashian’s second post:

Kim Kardashian post about her "friends" telling her that Ethereum Max was giving back to the community by burning 50% of the admin wallet
Ethereum Max "burned ... literally 50% of their admin wallet"

This was allegedly false/misleading because it wasn’t an organic sharing of what friends had told her, but paid promotion, and also because the content of the message created the false impression that the EMAX Tokens were scarce because it indicated that the founders had “burned” “50% of their Admin Wallet.” The first theory wasn’t convincing: “sharing what my friend just told me” would not, in this specific context, imply that she wasn’t being paid. The post included a “#AD” disclaimer “making it clear that Kardashian was being paid.” Although the hashtag was toward the bottom of the post, “given there is a banner in big and bold font stating ‘SWIPE UP’ placed below the string of hashtags, any reasonable consumer would inevitably see the hashtags before swiping up to purchase the Tokens.” Plus, “based on the Court’s common sense and experience, hashtags are a commonly used mechanism of communicating information on social media platforms and one would reasonably expect to see such an advertising disclaimer in the form of a hashtag below the substance of the post.” The explicit “not financial advice” statement also arguably made her spokesperson status clearer.

Also, it was Kim Kardashian:

Given Kardashian’s background and experiences, there is nothing to suggest that she was speaking on her own behalf, and she did not even imply that she was using or buying the Tokens herself. It is widely understood that Kardashian is paid for many of her social media posts, and therefore, it should not come as a surprise to any reasonable consumer that she was paid for the June Post given it included the “#AD” disclaimer.

But there was still potentially deceptive content: Even if 400 trillion tokens were in fact burned, plaintiffs sufficiently alleged misleadingness given that two quadrillion Tokens had been originally created:

The only possible reason that a business would pay someone to tell millions of followers that its product was rapidly being “burned” is to create an impression of scarcity, which as a matter of common sense economics, is intended to drive up demand and price. Advertising that conveys messages concerning limited supply or limited time offers are meant to create a sense of urgency and will inevitably be material to consumers who want the product or price offered. The scarcity statement in the June Post was clearly framed in a way to make the burning of 400 trillion Tokens appear to be a large number because it suggested that 50% of the entire universe of Tokens had been burned, and consumers reasonably would expect to be told if the percentage related to some metric other than the total universe of Tokens.

The court also gave weight to the allegation that at least one consumer survey found that 19% of respondents that saw the post invested in EMAX Tokens as a result.

Floyd Mayweather: The only misrepresentations/omissions directly attributable to him as potentially false advertising were statements at the “Bitcoin 2021” conference and the fact that he wore clothing with the EMAX label during widely publicized events without disclosing that he was being paid to do so. The statement “I believe there’s gonna be another cryptocurrency just as large as Bitcoin someday” made while wearing a t-shirt with “EthereumMax” emblazoned across the chest was clearly puffery.

Plaintiffs also alleged that, by wearing a shirt and boxing gear bearing the EMAX name and allowing EMAX to use his name and fame to promote EMAX in association with the Mayweather vs. Logan Paul fight, without disclosing that Mayweather was being paid to do so, Mayweather falsely led consumers to believe that he was organically interested in EMAX and that he was a key investor in the Token, as opposed to a paid celebrity endorser. This had some logic:

[C]onsumers may believe that a celebrity’s use or association with a product says something about the product if they tend to trust that celebrities’ judgment or believe the celebrity has valuable insight on a particular product’s features. That reliance alone would not give rise to a claim for false advertising. However, if the consumer is aware that the celebrity has used/worn a product, not because of its inherent benefits, but because he or she is being paid to do so, that could change the consumer’s perception of the product.

However, this was an omission theory of liability. Courts usually only find an omission fraudulent or deceptive: (1) when the defendant is in a fiduciary relationship with the plaintiff; (2) when the defendant had exclusive knowledge of material facts not known to the plaintiff; (3) when the defendant actively conceals a material fact from the plaintiff; and (4) when the defendant makes partial representations but also suppresses some material facts. But plaintiffs didn’t allege that any of these occurred.

Paul Pierce: He allegedly falsely represented that he made substantial money through EMAX investments (though much of his returns were attributable to selling the free EMAX Tokens he obtained as compensation for his promotions) and that he was committed to investing in EMAX as a long-term investment (despite the fact that he was simultaneously selling off large numbers of EMAX Tokens).

tweet from Paul Pierce claiming he made more money from Ethereum than from ESPN

post showing $2.5 million value of "investment"

tweet in which Paul Pierce says he's in for the long haul with rocket emoji

This was different from the allegations against Mayweather: “he explicitly represented that he was an actual investor in EMAX, making it even more important that he disclose his payments.” Not only that, but he also failed to disclose that his “investment” in EMAX was largely based on free Tokens given to him in exchange for his posts, rather than on his having actually paid money for them and having the tokens rise in price. This made it plausible that reasonable consumers would take away a false meaning. These were not forward-looking but claims that he had already “made more money” in “the past month” than he did in a year at ESPN, which was a specific, measurable statement of existing fact.

Pierce argued that reasonable consumers would have to know he was a paid promotor, but the court disagreed that it would be obvious to a reasonable consumer that Pierce had been paid to promote EMAX in the form of EMAX Tokens. “The difference is important because had Pierce actually invested large amounts of money in EMAX, his incentive would be aligned with other investors — namely, to ensure the price stayed high. But since he was given EMAX Tokens for free, he had much more incentive to sell the Tokens given any amount sold would produce a return.”

So too with the “long haul” statement.  “His statement was an affirmative representation of his personal investment position, which could be proven false if Plaintiffs can prove that reasonable consumers have a common understanding of what ‘long haul’ means in the relevant context.”  His trading activity lasted a total of 16 days, “and that fact alone could suggest falsity.” Three days after telling investors he was invested for the “long haul,” he sold 9.7 trillion EMAX Tokens. Materiality was a closer question, since Pierce isn’t a well-known financial advisor.

But consumers didn’t need to think of him as a sound financial advisor to rely on his statements, given his statements that he had a sizeable position worth over $2 million. It was plausible for consumers to believe that he had a large enough stake that his long-term retention would significantly impact the market price, and plaintiffs alleged that his trading activity did in fact affect the price drastically.

Other statements against the company/executives weren’t sufficiently pled as false advertising (see below for unfairness analysis). The court thought that certain things were vague puffery: the statement that “technological upgrades” were on the way for EMAX; that EMAX had secured a “landmark agreement” with the Mayweather team; that there wouldn’t be a “rug pull”; and that the founders were “looking to lock their wallets.”

UCL unfairness: California courts have different approaches to unfairness. Some require anticompetitive conduct, though that’s only mandatory for cases brought by competitors. Some balance the utility of the conduct against the alleged harm. And some apply the FTC Act standard. The court here applied the balancing test, informed by FTC test considerations.

The unfairness UCL claim against the promoter/influencer defendants seemed to be based on celebrities’ promotions of worthless investments to their loyal followings without at least vetting the Tokens and/or disclosing that they received substantial compensation for their promotions. That against the company executives as well as Mayweather and Pierce focused on allegedly knowing orchestration of a “pump-and-dump” scheme. And perhaps the executives’ conduct was unfair because they knowingly solicited investor funds with no legitimate business plan for sustainable returns.

Promoter liability: Defendants argued that there was no substantial injury, and that plaintiffs could have avoided the injury by doing better research instead of making investments based on celebrity endorsement. Plaintiffs pointed to an FTC Report noting that cryptocurrency has become “an alarmingly common method for scammers to get peoples’ money” and that since the start of 2021, more than 46,000 people have reported losing over $1 billion in crypto scams,” which is more than any other payment method.

Under the balancing test, a practice is “unfair” if the conduct is “immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers” and the “utility” of the “defendant’s conduct [does not outweigh] the gravity of the harm to the alleged victim.” Plaintiffs adequately alleged uinfairness against the promoter defendants “based on the practice of touting an investment opportunity to their followers without vetting the opportunity or disclosing compensation for their endorsements.” This was at least “unscrupulous”; even as to Kardashian, it was still plausible “that the practice of touting a financial investment to her millions of loyal followers (and encouraging them to purchase), without any sound basis for believing it to be a worthwhile investment is an unscrupulous and thereby unfair practice.”

And the FTC report made it more plausible that plaintiffs acted reasonably: “it cannot be the case that the many thousands of people that have been defrauded by crypto scams are all unreasonable consumers.” It was also significant that the posts were specifically aimed at “already-dedicated followers,” who were by definition “predisposed to place significance on what the celebrities they follow are doing and saying” and “particularly vulnerable to the messages conveyed to them.” Plus, the relevant information—that the celebrities were promoting for pay instead of from an honest belief—was not disclosed anywhere by anyone, so more research wouldn’t have helped. Also, “Defendants do not offer a single countervailing benefit of allowing celebrities to endorse unvetted products without disclosing that they are being paid to do so.” The court also noted that its position was supported by the SEC’s position on the matter (the FTC thinks so too!).

The pump-and-dump scheme was also sufficiently alleged to be unfair (if not barred by securities laws). “[T]he fact that the securities laws prohibit such conduct demonstrates that the claim is tethered to legislative public policies and advances the spirit of such laws.”

The third theory—solicitation of investments promising substantial returns despite the lack of any legitimate business plan—also sufficed against the executive defendants. “The practice is certainly unscrupulous and unethical, and (as has been discussed) caused losses to at least certain consumers, leaving them with a ‘practically worthless digital asset.’” Investment promoters are in a position of trust and are expected to responsibly and in good-faith manage the funds they solicit.

Finally, injunctive relief requests were dismissed because future harm was not plausible.

 

In Re Ethereummax Investor Litig., No. CV 22-00163-MWF (SKx), 2023 WL 6787458 (C.D. Cal. Oct. 3, 2023)

After the previous decision, the plaintiffs amended the complaint one last time. I’ll only mention relevant consumer protection law changes.

The court previously granted leave to amend to articulate Mayweather’s duty to disclose the nature of his involvement to support Plaintiffs’ fraud-by-omission claims under California, Florida, New York, and New Jersey state consumer protection laws. A failure to disclose a fact can constitute actionable fraud or deceit “when the defendant has exclusive knowledge of material facts not known or reasonably accessible to the plaintiff.” And plaintiffs sufficiently alleged materiality. Mayweather didn’t identify any cases or otherwise demonstrate that the distinction between being just a paid promoter and an actual backer is categorically immaterial as a matter of law. It wasn’t just that he was a paid promoter—that was possible for consumers to know—but that he omitted the fact that he wasn’t an actual investor.

This time, the complaint sufficiently alleged that one executive, Perone, was personally involved in some of the wrongful conduct. It was not enough to allege that he controlled social media accounts by virtue of his role as CEO. But plaintiffs alleged more: that he created EMAX and the company, and was its sole director. “Based on these allegations, it is plausible that Perone actively and directly participated in the social media posts.”

Wednesday, October 11, 2023

Claims against "Southern Comfort" malt beverage not preempted

Del Rosario v. Sazerac Co., 2023 WL 6318083, No. 23-cv-1060 (AS) (S.D.N.Y. Sept. 28, 2023)

Sazerac sells a malt version of its famous Southern Comfort whiskey. Plaintiff alleged that Sazerac designed this malt version to look just like the original one, misleading consumers in violation of New York laws on deceptive practices and false advertising. Although the court dismissed her unjust enrichment claim as duplicative, the main claim survived Sazerac’s preemption argument.

Along with using the same name, colors, themes, fonts, symbols, and spacing as the whiskey, and including the word “Original” on its front label, the malt version’s “statement of composition” reads “Malt Beverage with Natural Whiskey Flavors, Caramel Color and Oak Extract.” “Natural Whiskey Flavor” allegedly misleads consumers into thinking that the beverage contains a non-negligible amount of whiskey, and “Oak Extract” allegedly “creates the false impression” that the beverage was “aged in barrels.”

Sazerac argued that federal regulation required these terms. But it’s possible to comply with both state and federal law, there’s no preemption by impossibility. The relevant federal regulation requires malt-beverage labels to include a statement of composition identifying added coloring materials, artificial sweeteners, and “flavoring material(s) used before, during, and after fermentation.” However, it wasn’t “evident from the face of the complaint” that “whiskey flavors” was even a flavoring material, and anyway the regulation offered obvious alternatives: flavoring materials can be “specifically identified (such as ‘Ale fermented with grapefruit juice’) or generally referenced (such as ‘Ale with natural flavor’).” Sazerac didn’t explain why it couldn’t use “Malt Beverage with Natural Flavors” (or some other general reference) instead. Sazerac didn’t argue that giving producers choices on generality was a significant objective of the regulation. So too with “Oak Extract.”

 

no injury to alcoholic kombucha producer from competitor's false no-alcohol/low-sugar label (cute dogs are also involved)

Tortilla Factory, LLC v. GT’s Living Foods, LLC, No. CV 17-7539 FMO (GJSx), 2023 WL 6296900 (C.D. Cal. Sept. 27, 2023)

Interesting bench trial result that finds no proximate causation of plaintiff’s injury from defendant’s false advertising. Despite finding the plaintiff’s expert’s testimony about sugar and alcohol levels in defendant’s kombucha “credible and compelling,” lack of harm doomed its case. (But that suggests that some AG might want to get involved, especially as to whether GT should be selling its products without the alcohol warning label.)

The basic allegations: defendant’s kombucha had much higher levels of sugar and alcohol than advertised, allowing defendant to sell it without an alcohol warning and to get consumers who didn’t want those levels of sugar and alcohol to choose it. Tortilla Factory’s Kombucha Dog has approximately 1.25% alcohol by volume and is sold as an alcoholic beverage, with a government-required warning label. It also uses pictures of rescue dogs on the label. And Tortilla Factory entered into an exclusive distribution deal that was a disaster—the distributor let lots of accounts die.

Meanwhile, GT is the leading kombucha seller in the market, with about 50% market share as of 2018, but there are about 300+ kombucha brands in the US, with California the most competitive state given lots of local brands.

Tortilla Factory simply couldn’t show the requisite harm. Although it argued that it expended significant amounts on corrective advertising about authentic kombucha and sugar, the court found that it was just typical advertising “undertaken by any small business entering a competitive market.”

And more generally, the misrepresentations about the amount of alcohol in, and lack of a government alcohol warning label on, certain of GT’s products would not have decreased Tortilla Factory’s sales. A customer who wanted a product that didn’t have enough alcohol to need a label would have instead purchased “one of dozens of available nonalcoholic kombucha drinks in the market.” Tortilla Factory’s own expert testified that the alcohol label was very important to consumers and was a drag on sales. And his survey was suspect because he showed consumers the front of a Kombucha Dog bottle with images of rescue dogs, but only the back and side of GT’s Classic bottle, and conceded that “the photo of a cute dog could inject bias into the result[.]”

Because the alcohol part was so important, the sugar misrepresentations became unimportant: again, a consumer who wanted lower sugar content would have chosen a different nonalcoholic kombucha beverage even if GT’s had been properly labeled, and there was no evidence about consumer reactions to sugar labels.  

Evidence about Tortilla Factory’s prior customers who eventually sold GT’s also didn’t show harm causation from falsity, as opposed to other factors like the disaster distributor or GT providing special flavors (also, GT sold kegs to some customers, and the evidence of falsity related to bottles, not kegs; I don’t know the science here so I don’t know if that would likely make a difference).

TM and takings claims against Puerto Rico fail: license plates/tags aren't use in commerce

Clemente Properties, Inc. v. Urrutia, No. 22-1373 (GMM), 2023 WL 6201397, -- F. Supp. 3d --- (D.P.R. Sept. 22, 2023)

Plaintiffs own Roberto Clemente’s IP rights and a registration for ROBERTO CLEMENTE for “figurines, statues and statuettes made of non-precious metal; beer cans made of non-precious metal sold empty.” (The district court doesn’t appear to care about what the registration is for; I had to look it up.) They sought at least $45 million from the government of Puerto Rico for issuing a commemorative license plate for the fiftieth anniversary of Roberto Clemente’s “Hit 3000,” at $21/plate. There was also a mandatory $5 charge for a commemorative vehicle certificate tag that was yellow, had the figure of Roberto Clemente with the name “Clemente,” the number “21,” the number “50,” and phrase “3000 hits.” The revenues were transferred to the Roberto Clemente Sports District Fund for the use of the Department of Sports and Recreation.

Plaintiffs brought trademark and related claims, including takings claims, all of which the court dismissed.

The First Circuit has repeatedly held that Puerto Rico is entitled to Eleventh Amendment sovereign immunity, which Congress has not successfully overridden with respect to Lanham Act claims. Nor had the Commonwealth waived its immunity. “While Plaintiffs seek prospective relief, they have provided the Court with no basis from which it can infer any possibility of an ongoing violation of federal law.” For trademark, any request was moot since the law requiring the sale of license plates and license labels expired by its own terms on December 31, 2022.

Anyway, there was no viable claim. (Sometimes less is more. It can’t have helped that plaintiffs claimed that the use infringed tarnished not only the RC trademark, but also the “trademarks, names and likeness of his sons as individual businessmen and representatives of the mark.”)

The court began with the proposition that Lanham Act claims require both “use in commerce” and “commercial use.” Even accepting the validity of the registration, plaintiffs failed to allege a use of the mark in commerce “in connection with” “goods or services.” Although they alleged that they were going to sponsor their own license plates, they didn’t actually allege that they had done so. The confusion inquiry is “not applied to assess confusion in the abstract; it is focused on the likelihood that commercially relevant persons or entities will be confused.”

License plates and vehicle certificate tags are issued by the Department of Transportation. They are “governmental property intended primarily to serve a governmental purpose, and inevitably they will be associated with the state that issues them.” Thus, “not only are these not the classes of products or services that trademark law protects, but issuing motor vehicle license plates and tags cannot be considered commercial use, as it is a clear government activity.”

Plus, the plates and tags depicted Clemente in the context of “an event of historical significance for both Puerto Rico and Major League Baseball.” The court doesn’t explain its reasoning but it seems to think this bolsters the conclusion that this was not a trademark use.

False advertising: No Lexmark standing for want of proximate cause. Plus, there was no commercial advertisement or promotion.  The plates and tags couldn’t be considered ads. Further, depicting Clemente in historical context was descriptive, not misleading. Although plaintiffs alleged that defendants implied, by using Clemente’s name, that funds raised would go to them, as owners of the mark, those were “conclusory statements of unspecified injury and of the type that was not intended to be protected by the Lanham Act.”

Takings: Even if trademarks are protected by the Takings Clause, sovereign immunity still applied. Also there was no expropriation of the trademark here.  There was no permanent physical invasion nor a complete deprivation of all economically beneficial use. “Plaintiffs remain free to use their trademarks as they wish.”

Claims against individual defendants failed for all those reasons, plus qualified immunity.

proximate causation isn't as easy when there's no disparagement

HomeLight, Inc. v. Shkipin, No. 22-cv-03119-PCP, 2023 WL 6284738, --- F.Supp.3d ---- (N.D. Cal. Sept. 27, 2023)

HomeLight runs an online platform that matches real estate agents with homebuyers and sellers and requires any agent who accepts a referral resulting in a sale to pay 25% of their commission to HomeLight. Shkipin operates an alternative agent-matching platform, HomeOpenly, that does not charge referral fees and instead obtains revenue from advertising and auxiliary services. HomeLight sued him for false advertising and trademark violations, and Shkipin counterclaimed under federal antitrust law, federal false advertising law, and California’s UCL. I will only discuss the (unsuccessful) advertising-related claims.

Proximate cause: None of the challenged statements allegedly disparaged HomeOpenly, so Shkipin needed to allege how deceptive statements about HomeLight directed at shoppers on HomeLight’s own website “necessarily caused advertisers not to buy ads from HomeOpenly.” Even assuming a there is a direct relationship between the number of HomeOpenly visitors and its ability to sell ads, and that HomeLight’s deceptive statements resulted in some reduction in the number of shoppers visiting HomeOpenly’s website, this was “too attenuated to establish proximate cause.” This was especially true given the countercomplaint’s other plausible explanation for why online home shoppers might find HomeLight’s website but not HomeOpenly’s: HomeLight’s heavy spending on various forms of online and TV advertising that Shkipin characterized as “highly effective.”

Separately, he didn’t properly allege falsity/misleadingness. Challenged statement: “Our service is 100% free, with no catch. Agents don’t pay us to be listed, so you get the best match.” The countercomplaint alleged that the failure to mention that partner agents do pay referral fees is a “deceptive omission.” But this didn’t plausibly plead that the omission deceived a substantial segment of HomeLight’s audience, especially since the counterclaim included a HomeLight webpage specifying that “HomeLight receives a portion of the agent’s commission as a referral fee.”

Challenged statement: “HomeLight is operated in compliance with all state and federal housing laws.” Not actionable because it includes a legal conclusion rather than a statement of fact.

Challenged statement: “The agents we recommend on HomeLight typically can save you thousands on your home purchase.” Not a promise of specific results.

Challenged statements such as: “We’ve designed a solution that allows you to sort through over 2 million agents from all of the top real estate brokerages in order to find the perfect one for you.” No allegations of facts contradicting transaction/agent numbers and the rest was subjective non-actionable puffery.

Tuesday, October 10, 2023

EDNY judge doesn't have a beef with Wendy's and McDonald's ads

Chimienti v. Wendy’s Int’l, LLC, No. 22-CV-02880 (HG), 2023 WL 6385346 (E.D.N.Y. Sept. 30, 2023)

Plaintiff alleged New York statutory and common law claims based on allegations that Wendy’s and McDonald’s misleadingly advertised the quantity of food contained in various menu items sold at their restaurants by making the food look bigger in pictures with more toppings and thicker patties. The court dismissed the claims, mainly because the advertisements were not misleading as a matter of law.

Plaintiff alleged, for example, that in McDonald’s advertisements, “the beef patty extend[s] all the way to the edge of the bun,” but the patty “comes nowhere near the edge of the bun” when a hamburger is actually served. Defendants allegedly use uncooked, or partially seared, burger patties for their ads because “fully cooked burgers tend to shrink and look less appetizing.”

First, the plaintiff failed to allege the necessary injury because he didn’t allege that he saw the specific ads he identified as misleading. Even if he had seen them, they were mostly puffery:

Defendants’ act of advertising their products in a manner that makes them visually appealing … makes no objective claims about Defendants’ products. Defendants’ efforts to present appetizing images of their products are no different than other companies’ use of visually appealing images to foster positive associations with their products, which courts within the Second Circuit have held to be immaterial puffery as a matter of law.

Depiction of the size of products, however, relates to an objective fact and is therefore not puffery. Still, a reasonable customer would not have been misled, given that the allegation was that the ads used the identical amount of uncooked meat that a customer would receive cooked: “This concession that both the advertisements and the products served in stores contain the same amount of meat is fatal to Plaintiff’s claims.” (I’m not sure this makes sense. If I thought I was seeing the cooked version, then by hypothesis I expected even more meat, since the uncooked version would have been even bigger.) Also, “the entirety of the advertisement on each website page describes in objective terms how much total food customers would receive.” They had calorie information, and Wendy’s said theirs was made with a “quarter-pound*” of beef with the asterisk referring to “[a]pproximate weight before cooking.” Quoting “various social media personalities who complained about the size and quality of Defendants’ products” didn’t change this result. “[W]hile plaintiffs are not required to meet the heightened pleading requirements of Rule 9(b) for GBL claims, plaintiffs must do more than plausibly allege that a label might conceivably be misunderstood by some few consumers. Instead, [p]laintiffs must plausibly allege that a significant portion of the general consuming public or of targeted consumers, acting reasonably in the circumstances, could be misled.”

Plaintiff didn’t make any toppings-specific arguments, and anyway, the ads don’t specify the quantity of the toppings, “so their depiction of toppings does not become misleading simply because Defendants’ actual products may contain less than Plaintiff’s ‘personally preferred amount’ of toppings.”

Also, ads can't support a breach of contract claim.

YouTube videos aren't commercial advertising/promotion even if some commercial info is in channel bio

Wealthy, Inc. v. Cornelia, 2023 WL 6379449, No. 2:21-CV-1173 JCM (EJY) (D. Nev. Sept. 29, 2023)

“This action arises out of a series of interviews published on YouTube and conducted by Cornelia that plaintiffs perceive as defamatory.” Buczkowski is the owner and operator of Wealthy, allegedly a “leading entrepreneurship, finance, business, real-estate and self-improvement company.” Buczkowski has 23,700 subscribers on YouTube, and his videos have garnered over 1.2 million views.

Cornelia also has a YouTube channel with approximately 150,000 subscribers, publishing videos on investing, business, and fitness that have received over 13.8 million views. Cornelia published a series of videos entitled “Authentic or Charlatan” in which he claims to expose “fake gurus on social media.” Defendants produced multiple interviews with another internet personality, John Mulvehill, a dating and self-improvement coach who made most of the challenged statements: that Buczkowski (1) lied about his educational achievement; (2) laundered money; (3) manufactured and/or sold illegal drugs; (4) framed Mulvehill for his 2013 arrest in Las Vegas, leading to four felony and four misdemeanor charges; and (5) was involved in the death of a 28-year-old woman who was the alleged victim in the arrest of Mulvehill.

Buczkowski sued for (1) unfair competition and false advertising under the Lanham Act, (2) defamation, (3) intentional infliction of emotional distress, and (4) business disparagement.

Although the court didn’t apply Nevada’s anti-SLAPP protections because they failed to show by a preponderance of the evidence that the statements were made in good faith because their gist or sting was substantively true, defendants still prevailed.

There was evidence that Cornelia researched Mulvehill’s claims and sources, which was sufficient to show there was no actual malice on his part. For example, in his deposition, Cornelia testified that he received information from Mulvehill, including a video from a former employee of plaintiffs who corroborated claims about plaintiffs’ unethical business practices and their using young, unqualified people to write the instructional and promotional material for plaintiffs’ courses. Cornelia never had any information contradicting negative claims about plaintiffs when the videos were published. “Even if Cornelia were mistaken, his conduct is not remotely close to constituting reckless disregard.”

False advertising: This wasn’t commercial speech because the accused videos weren’t ads. Although plaintiffs argued that defendants promoted Cornelia’s “house hack expert book” and a “first 1,000 subscribers mentoring program,” those were present in Cornelia’s biographical YouTube information, not any of the videos themselves. “The subject of this action is the YouTube videos themselves, not the YouTube channel as a whole.” The closest they got was that, in the first video, Mulvehill said without prompting: “you do have some real estate stuff on the side.” Cornelia said “right” and didn’t elaborate.

 


literal falsity of claim that website doesn't allow checkout in under a minute supports preliminary injunction

Novation Solutions, Inc. (o/a DealMaker) v. Issuance Inc., 2023 WL 6373871, No. 2:23-cv-00696-WLH-KSx (C.D. Cal. Aug. 16, 2023)

DealMaker is a financial technology company that provides its users with the ability to raise capital by conducting investment offerings via its online platform. Issuance is a competitor: a financial technology company with a retail capital raising and investment processing platform. Defendant Marble is Issuance’s co-founder and chief executive officer.

DealMaker alleged that defendants stole its trade secrets and also alleged violation of state and federal false advertising law. Shortly after DealMaker first sued, Marble allegedly “embarked on a marketing campaign that included disparaging remarks about DealMaker” and its products, claiming falsely that:

These statements were allegedly made at an event in Miami whose recording was uploaded to YouTube, as well as in a slide deck that was uploaded to Deal Night’s website in accordance with Issuance’s marketing agreement with Deal Night. The slide deck had disclaimer language that the information on the slides was not complete, and that the slides contained forward-looking statements.


challenged representations in slide form

For purposes of a preliminary injunction motion, the court first considered literal falsity.

Challenged claim: DealMaker’s customers do not retain ownership over their own data.  DealMaker argued that the lack of any mention of the transfer of ownership of confidential data in its TOS indicates that clients own their own data, while defendants argued that the absence of any affirmative discussion was itself evidence of lack of client ownership, whereas Issuance’s own terms promised that the customer “owns and shall remain the sole owner” of its information. Defendants pointed to DealMaker’s TOS provision that it could “use” client’s data for DealMaker’s marketing purposes, and anecdotal evidence from a prior DealMaker customer indicating that DealMaker “exploited and misused the customer’s investor list for the purpose of contacting its investors to market other companies’ securities offerings listed through DealMaker. DealMaker noted that Issuance’s own terms include a provision that allows Issuance to license its data.

This wasn’t literal falsity, given the silence of the DealMaker TOS.

Challenged claim: DealMaker offers the same products and services as [Issuance] at higher prices (8-10% as compared to 4-5%) and DealMaker’s fees are charged as a percentage of capital raised. DealMaker argued that its offers weren’t the same as Issuance’s so one-to-one comparisons were false, and that its fees don’t depend on a percentage of capital raised. Defendants offered examples of contracts that, they argued, had a fee structure of 8-10%.  DealMaker said those were contracts with DealMaker Securities LLC, a registered broker dealer, which is a separate legal entity and not a party to this lawsuit, and that its fees may be higher because it offers additional services to its clients that Issuance does not. This was not enough for literal falsity, since the slides didn’t claim that the parties offered the same products. Also, a potentially reasonable reading of the statement was that in the aggregate, DealMaker’s fees equate to 8-10% of the capital it raises, rather than being explicitly a statement that its fees were based on a percentage of what was raised. Ultimately, DealMaker didn’t show that was false at this stage.

Challenged claim: DealMaker’s platform does not offer “checkout in under one minute” to its customers, while Issuance’s platform does: This was likely explicitly false. The slide clearly compared the parties’ platforms. DealMaker’s evidence showed that checkout on its platform in less than a minute was possible. This was a specific and measurable advertisement claim of product superiority based on product testing and not puffery.

Challenged claim: DealMaker’s publicly disclosed “street” valuation is $200 million.

Marble explained that he arrived at the $200 million valuation by multiplying DealMaker’s $20 million estimated revenue for 2022 by a multiplier of ten. DealMaker argued that as a private company, it does not have a public valuation and thus this number is fabricated and false. Defendants responded that the slide proposed a “street estimate,” which is an industry term for an unofficial estimate and not a “publicly disclosed valuation” as suggested by DealMaker.

“Street estimate” was sufficiently ambiguous that it was susceptible to defendants’ interpretation.

Deception would be presumed for literally false statements. Also, the statement was “published and promoted on an investor industry website, presented at a forum focused on connecting potential investors and company founders, and was directed at an audience of potential investors attending industry events where potential clients in this industry are the most susceptible to being deceived by the false statements.” This also took care of materiality.

Injury can be “generally presumed” when the parties “are direct competitors and defendant’s misrepresentations has a tendency to mislead consumers.” This presumption was not rebutted.

In addition, irreparable harm was presumed from likely success under the TMA. The other factors also favored a preliminary injunction for the “under a minute” statement.

 

Panels on Exploring the New Constitutional Limits on Trademark Law

FRIDAY, NOV 3 2023

8:45AM - 3:30PM More info

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ATTEND AT THE UNIVERSITY OF NEW HAMPSHIRE FRANKLIN PIERCE SCHOOL OF LAW OR BY ZOOM. Full program.

Monday, October 09, 2023

Amazon escapes liability for its Brand Registry advertising

Deetsch v. Lei, 2023 WL 6373073, No. 22-cv-1166-RSH-BLM (S.D. Cal. Jul. 21, 2023)

Deetsch alleged that he owned design patents for CPAP pillow products, which the Lei defendants infringed. They also allegedly used Deetch’s image in ads and on packaging, and allegedly falsely claimed on Amazon that their pillow products “were designed in the United States but are manufactured in China.”

In December 2020, Deetsch notified Amazon of his patents through the Brand Registry portal and asked Amazon to remove the Lei defendants’ products. He sent two letters by mail in March 2022, but was told he needed to use the Brand Registry … which he had already done.

Amazon’s Brand Registry advertises “Automated Protections” that are “[p]owered by Amazon’s Machine Learning.” Amazon claims its service will “save valuable time,” allows users to report “patent[ ] and design right violations,” uses “advanced machine learning that prevents bad listings,” and can “[r]emove counterfeits instantly” “without the need to contact [Amazon].” Deetch signed up for and paid for a Brand Registry service subscription, and submitted multiple complaints through that system, allegedly to no avail.


Since the designs were not plainly dissimilar, infringement was plausible.

False advertising, Lei defendants: The complaint didn’t explain how “designed in the United States but … manufactured in China” was materially deceptive and thus didn’t meet FRCP 9(b) pleading standards. A “true statement that a product was designed in the United States” is not “a representation that the product does not infringe any third party’s intellectual property rights.” Motion to dismiss granted.

False advertising, Amazon defendants: The complaint didn’t explain how any of the statements about the Brand Registry were false or misleading. It wasn’t enough to suggest that “taking all of the statements together, a consumer would reasonably expect the Brand Registry service to work better or faster than it did for Plaintiff.” Even a reasonable consumer’s “disappointment that a service did not work as well or as quickly as hoped” doesn’t show false advertising. Also, plaintiff was a customer, not a competitor, and not within the relevant zone of interests. (State law claims would have been better.)

False association, Lei defendants: Although he alleged that they used his image, he didn’t allege that this would cause confusion, mistake, or deception as to his association with the Lei defendants’ products, nor any facts that would establish that his likeness is recognizable by would-be consumers. Again, right of publicity would’ve been better.

A copyright claim was dismissed because the plaintiff had yet to receive his registration; this couldn’t be corrected by amendment in order to implement the command of Fourth Estate; the dismissal was without prejudice to refiling a new action.

accusing someone of patent infringement can be actionable disparagement if you know the patent's invalid

Cap Export, LLC v. Zinus, Inc., 2023 WL 6381821, No. 2:21-cv-07148-JWH-MRWx (C.D. Cal. Sept. 28, 2023)

Cap Export alleged that Zinus fraudulently obtained a patent after Zinus used the public domain bed-in-a-box sets of a non-party as the basis for its patent application. Before it prevailed in the underlying patent litigation, Cap Export alleged that defendants disparaged Cap Export and its products as an infringer/infringing. Among other things, Defendants’ counsel sent a letter to Cap Export’s customer 4Moda Corp. and to Amazon. Amazon responded by shutting down 4Moda’s Amazon webpage, which allegedly caused Cap Export to lose sales of its bed-in-a-box products. The underlying patent litigation allegedly fraudulently induced Cap Export to enter into a $1.1 million consent judgment, which defendants touted in a press release and advertised on Zinus’s website even after the court vacated the stipulated judgment. Defendants allegedly distributed the false advertisement to Cap Export’s online sales partners—including Amazon, Walmart, and Wayfair—which caused a decrease in Cap Export’s product ranking and sales, through Google Ads, and through a press release published in July 2019 on the Business Insider website.

When the information about the prior art came in, the court granted summary judgment in favor of Cap Export in the patent case and invalidated the patent. There was a partly successful appeal to the Federal Circuit, after which Zinus gave Cap Export a covenant not to sue.

Courts have generally harmonized the Lanham Act with the Patent Act by requiring bad faith before claims about patent infringement can constitute false advertising. Although the Ninth Circuit has held that statements about copyright licensing status are not actionable under the Lanham Act, it has referred with approval to the bad faith standard for patent-related claims, and the court here noted that Lexmark, a Supreme Court case, concerned false advertising claims based on accusations of infringement and expressed no concerns about that.

Cap Export sufficiently pled disparagement in bad faith, knowing the patent was invalid.

The litigation/fair report privileges did not, at this stage, bar the related state law claims. The ads were not necessary for the litigation, and the fair report privilege didn’t apply because Cap Export pled that the statements didn’t match the court proceedings: Defendants claimed that Cap Export infringed multiple “patents” and falsely asserted that Cap Export “deliberate[ly] cop[ied] Zinus’ innovation, which could mislead those who depend on Zinus’ exceptional product quality.”

Tortious interference: “Defendants targeted Cap Export’s economic relationship with Amazon, Walmart, and Wayfair by sending communications to those companies concerning the allegedly bad faith underlying litigation, and Cap Export pleads that those communications damaged Cap Export’s sales.” Given the alleged bad faith, this sufficed.

knowingly false statement of regulatory compliance may be actionable

Dental Recycling North America, Inc. v. Stoma Ventures, LLC, 2023 WL 6389071, No. 4:23 CV 670 CDP (E.D. Mo. Oct. 2, 2023)

The parties compete in the market for amalgam capture devices, which remove fillings (or pieces thereof) from dental office wastewater. This is required by the EPA because fillings can contain toxic mercury. EPA regs say that dental offices may comply by using amalgam capture devices, “separators” and removal devices “other than separators.” Both options require at least 95% removal efficiency; the former must use ANSI testing, while the latter must use sampling averages. There’s no premarket approval.

Plaintiff alleged that Stoma falsely advertised that its Capt-all device, which fits onto the end of a high volume evacuator valve, is an amalgam separator and EPA compliant. However, it allegedly only treats amalgam process wastewater that passes through its device, rather than all potential sources of amalgam process wastewater in a dental office, which is insufficient.

Stoma argued that representations about legality/legal compliance were inactionable opinion. Prior cases have so found, unless there was a clear statement to the contrary from a relevant authority (including a very clear statute), or unless there was no good-faith belief in the statement about legality.

Here, the plaintiff alleged that Stoma made/caused others to make false statements that the Capt-all was tested and found to be an amalgam separator when it knew that Capt-all did not meet the regulatory definition of an amalgam separator. Stoma conceded that the Capt-all is not an amalgam separator; the knowing falsity exception could apply, even if statements about Capt-all being “compliant” with EPA regulations may not be actionable.