Monday, November 27, 2023

Earnings calls, recall notices not "commercial advertising or promotion," but could be "of and concerning" largest market player

In re SoClean, Inc., Marketing, Sales Practices & Products Liab. Litig., 2023 WL 8006602, MDL No. 3021, No. 22-542 (W.D. Pa. Nov. 17, 2023)

Because this is MDL with lots of claims, the facts are a bit complicated. SoClean is a dominant player in the market for medical devices that sanitize continuous positive airway pressure machines (CPAPs), which treat sleep apnea and respiratory conditions. It alleged that the Philips defendants, who make such devices, engaged in false advertising about one of SoClean’s devices in order to deflect blame for the Philips devices’ design defects. SoClean and the FDA have been back and forth about what kind of medical device SoClean’s product is; as part of their interactions SoClean dropped “claims pertaining to the cleaning, sanitizing, or disinfection of CPAP machines” from its website. SoClean has submitted a de novo application for its latest product, which is under review.

In 2020, the FDA issued a safety communication about “potential risks associated with the use of ozone and ultraviolet (UV) light products for cleaning CPAP machines and accessories” focusing only on the issue of potential risk of ozone leakage, but SoClean alleged that its products don’t leak ozone at unsafe levels. (In its press release, the FDA referred to its own testing on “several of those illegally marketed products,” although SoClean alleged that it believed in good faith that it didn’t need preapproval.)

Meanwhile, Philips allegedly knew for years that the polyester-based polyurethane foam used to dampen sound in Philips’ ventilator, CPAP, and other respiratory care devices was susceptible to degradation and off-gassed potentially harmful volatile organic compounds (VOCs). Philips allegedly misled the FDA by telling it that foam degradation may be “exacerbated” by ozone cleaners, without any reliable testing or other valid scientific evidence to validate those statements. Philips repeated similar statements elsewhere. One Philips entity’s CEO said, on an earnings call, that ozone was a problem for foam, and that “[t]he FDA observed this and also put out a safety notice to say, don't use ozone for CPAP machines,” which allegedly misrepresented the reasoning for the safety notice. As in other instances, he used the opportunity to promote the next-generation Philips product, which had a more stable foam.

A number of Philips devices were recalled for foam degradation, giving two reasons to customers and users: foam off-gassing and foam degradation from use of “unapproved” ozone cleaning devices, which could “exacerbate[e]” the problem; anti-ozone cleaning claims were disseminated in various ways, including Philips’ website FAQ about the recall and another earnings call.

Philips also allegedly blamed SoClean at the largest 2021 home medical equipment trade show and conference in the United States, telling distributors and resellers during meetings that “SoClean was the problem.” Resellers and distributors allegedly cited these statements as the reason for not placing orders with SoClean, leading all but one of SoClean's top distributors and resellers to stop placing orders with SoClean.  Because the disparagement was successful, and actual and prospective customers and distributors believed that SoClean devices were the reason for the product recall, sales to distributors, resellers, and end-users allegedly plummeted.

The Philips defendants argued that there was no statutory Lanham Act standing because they weren’t even indirect competitors, but the court here found that Lexmark removed any requirement even of indirect competition (including by blessing lawsuits across the distribution chain, e.g. manufacturer v. dealer). All SoClean needed was to show that it suffered commercial injury proximately caused by defendants’ violations of the Lanham Act, which it plausibly alleged.

However, the Philips defendants argued that SoClean wasn’t within the zone of interests protected by the Lanham Act because the only commerce protected by the Lanham Act is lawful commerce. And, they continued, SoClean was illegally marketing its devices. This argument couldn’t be resolved at the present stage, when SoClean alleged that it marketed and sold its device “with the knowledge of the FDA,” including having an FDA inspection of its manufacturing facility without FDA raising concerns. However, other documents integral to the complaint indicated that the FDA thought there was a potential FDCA violation. So the court wanted to hear from FDA experts about whether the FDA’s knowledge that SoClean planned to continue marketing the challenged device for a limited period of time gave it a “legally protected interest” during the relevant timeframe.

Commercial advertising or promotion: A separate problem. Quarterly reports and earnings calls, “without allegations that defendants intended to influence the consumers and the communication was disseminated to the consumers,” aren’t commercial advertising or promotion for these purposes. (The court says they’re not “commercial speech,” but since that’s a First Amendment term, I’m using the more statutorily precise “commercial advertising or promotion.”) Here, the allegations were insufficient to show that the earnings calls and quarterly report were advertising or promotional; rather, they primarily served their typical function: to influence investors. Although the statements “may have had an incidental effect of promoting goods, i.e., to deflect blame for the recall and promote Philips’ goodwill so that the consumers would continue to purchase Philips’ devices,” that wasn’t sufficient: they weren’t primarily made to advertise or promote Philips’ products. Nor did SoClean plausibly allege sufficient dissemination of the earnings calls and quarterly report; there were no allegations that any consumers listened to the calls or read the report.

Recall notice: Eli Lilly & Co. v. Roussel Corp., 23 F. Supp. 2d 460 (D.N.J. 1998), found that a recall notice wasn’t commercial advertising or promotion because it wasn’t designed to influence customers to purchase defendant’s goods, but rather to inform consumers that the goods will no longer be available for sale. Did alleged blame-shifting in these recall notices change the analysis? No. “[A]ny effect of promoting defendants’ products (by deflecting blame to SoClean to promote the Philips defendants’ goodwill) was incidental to the primary purpose of the recall notice, which was to inform consumers about the recall.”

Recall FAQ on website: Same thing.

Update to physicians and health care providers: This one said that “[t]he foam degradation may be accelerated by environmental conditions of high temperatures and humidity. Unauthorized cleaning methods such as ozone cleaning may exacerbate potential degradation….” It ended: “Philips is recommending that customers and patients do not use ozone-related cleaning products.” Again, this wasn’t an ad but an informational document about the recall, and it didn’t promote Philips’ newer devices.

2022 press release: The stated purpose of the update was to “provide healthcare providers, patients, and other stakeholders with updated information on the testing results to date.” A press release can be an ad, but not this one. It didn’t promote any Philips product—the only one it mentioned was the recalled product which could not be sold—or explicitly propose a commercial transaction. The general economic motive of being a for-profit business was not enough. “This is not a case in which the press release compared two products, touted one product as superior to another, or promoted the defendant’s product.”

Statements to distributors: First, did Rule 9(b) apply? The court didn’t reach the issue, because even if it did, SoClean could satisfy the heightened pleading standard by pleading “information and belief” about what defendants said to third parties.

But were they commercial advertising or promotion, or nonactionable “oral statements disseminated to a small group of people.” While “purely private” communications cannot be “commercial advertising or promotion,” this “is a matter of degree based upon specific facts of a case, including facts about the pertinent industry.” Here, the allegations about the size and influence of the trade show, including that the parties’ largest distributors and resellers were there, sufficed to plead commercial advertising or promotion.

[Pause for harm causation questions: Was too much damage already done by then? The allegations about losing big distributors after that seem enough to defeat that argument.]

Falsity/misleadingness: The Philips defendants argued that the “gist” was true: according to the FDA itself, foam might degrade both on account of high heat humidity as well as ozone, and customers shouldn’t use ozone cleaners because they are unapproved, potentially harmful, and might harm their CPAP devices. The FDA, they argued, was investigating SoClean and issued its public Safety Communication warning against the use of ozone cleaners more than a year before the recall at issue in this case, which was more than a year before the Philips defendants could have allegedly influenced or misled the FDA.

The court reasoned that SoClean plausibly alleged that the recall had nothing to do with ozone cleaners or off-gassing during ozone cleaning, so the statement to resellers and distributors was at least misleading.

New Hampshire Consumer Protection Act: Same analysis. But must the conduct have occurred in New Hampshire to be actionable? The trade show wasn’t there. Still, since this was allegedly a nationwide campaign, that was enough to show plausibly that the offending conduct took place within the state.

Tortious interference claims also survived.

New Hampshire defamation: The Philips defendants argued that their allegedly defamatory statements concerned a class of products and how those products CPAP products, and, therefore, were not “of and concerning” SoClean. But it was plausible that the alleged statements to the resellers and distributors specifically referred to SoClean. As for the rest of the statements (which weren’t covered by the Lanham Act/state consumer protection law), SoClean plausibly pled that the recipients of those statements understood that defendants were referring to SoClean. But, defendants argued, SoClean was really alleging trade libel, not defamation, and trade libel isn’t recognized in New Hampshire. Still, if SoClean’s own reputation was injured, not just its product’s reputation, that could be the basis of a defamation claim.

Other issues, like whether SoClean was a limited-purpose public figure, needed more information; “if SoClean’s devices were legally marketed and safe (as SoClean alleges) and the Philips defendants provided the FDA erroneous information about ozone’s role in the foam degradation, then the controversy would not be about the safety of SoClean’s ozone-generating devices.”

too much complaining about copying triggers Dastar/preemption for other claims

Design Gaps, Inc. v. Hall, 2023 WL 8103156, No. 3:23-cv-186-MOC (W.D.N.C. Nov. 21, 2023)

Design Gaps produces custom cabinetry for high-end homes; Hall is a former employee of Design Gaps who signed a nonsolicitation/noncompete clause but went to work for a design studio that was part of Design Gaps’ main competition, Peters. Peters allegedly subsequently constructed homes with interior designs “substantially similar” to building components depicted in Design Gaps’ technical drawings. Design Gaps had in the past conducted projects for Peters Custom Homes including the design and construction of residential cabinetry in homes referred to as “Quail Hollow North” and “Lake Wylie.” Defendants allegedly promoted the kitchen and other areas of the residences designed and constructed by Design Gaps as their own designs and trade dress.

Design Gaps brought trade secret, tortious interference, and state and federal false advertising/false designation of origin claims against defendants.

Defendants moved to dismiss the Lanham Act claims as preempted by copyright. (It’s preclusion, really, but the court says that preemption principles are implemented by Dastar.) And the complaint was full of references to Design Gaps’ copyrighted designs and defendants’ “copying.” Here there was no extra element rendering the claims qualitatively different from copyright claims. Instead, plaintiffs alleged that the alleged substantial similarity itself constituted a misrepresentation of origin. This was just Dastar: “Design Gaps does not allege that the kitchens and cabinets cited in the Amended Complaint were actually sold in commerce by anyone other than the Peters Defendants.” So too for the state law claims.

who has standing to challenge robot lawyers?

MillerKing, LLC v. DoNotPay, Inc., --- F.Supp.3d ----, No. 3:23-CV-863-NJR, 2023 WL 8108547 (S.D. Ill. Nov. 17, 2023)

“This case pits real lawyers against a robot lawyer.” Spoiler: the robot wins for lack of Article III standing.

DoNotPay is an online subscription service that touts its ability to allow consumers to “[f]ight corporations, beat bureaucracy and sue anyone at the press of a button” and bills itself as “The World’s First Robot Lawyer,” offering legal services “related to marriage annulment, speeding ticket appeals, canceling timeshares, breaking leases, breach of contract disputes, defamation demand letters, copyright protection, child support payments, restraining orders, revocable living trusts, and standardized legal documents.”  But DNP isn’t actually licensed to practice law. MillerKing, a small Chicago law firm that claims to be a direct competitor of DNP, sued DNP for false association and false advertising under the Lanham Act and Illinois state law. Along with state consumer protection claims, MK alleged that DNP was engaged in the unlawful practice of law under Illinois law. (The false association claim was based on the theory that consumers are misled to believe that DNP is affiliated with licensed attorneys and that State bar authorities approve of or sponsor DNP’s services.)

MK “advertises its services online and provides legal services across various practice areas including personal injury, wrongful death, family law, divorce law, child custody, criminal law, traffic law, estate planning, probate, workers’ compensation, business law, municipal law, and mediation.” It sought to represent a class of similar law firms.

DNP advertises that it uses artificial intelligence” rather than “human knowledge.” Users can generate personalized contracts, independent contractor agreements, non-disclosure agreements, bills of sale, prenuptial agreements, LLC operating agreements, promissory notes, and parenting plans. It also touts its ability to give advice on property tax appeal procedures, create customized property tax guides, provide advice on how to appeal traffic tickets in any city, provide services to initiate litigation and obtain a judgment, and guide users through the process of filing a court case. For a lawsuit over $500, DNP states that it “can generate demand letters, court filings and give you a script to read in court.” It claims to have taken on hundreds of thousands of parking ticket cases and overturned $4 million in parking ticket fines; initiated more than 1,000 small claims lawsuits against a single company in 42 states; and “processed over 2 million cases.” However, it backed off a claim that the “robot lawyer” would soon represent someone in a courtroom by whispering in the person’s ear exactly what to say because of “threats from State Bar prosecutors.” Some online reviews are poor, stating that DNP has failed to dispute parking tickets as requested, has created inadequate legal documents, or has included inaccurate information in its forms. DNP removed some products from its website, but it continued to advertise and promote legal products and services including defamation demand letters, divorce certificates, divorce settlement agreements, and numerous other categories of legal services.

MK argued that it, and the class, have been or are likely to be injured by the direct diversion of clients from themselves to DNP or by a lessening of the goodwill associated with MK and the class’s goods and services. That wasn’t enough. MK didn’t allege any lost revenue or added expenditures as a result of DNP’s conduct. Nor did it allege that any MK client or prospective client withheld business, considered withholding business, or even heard of DNP. For the hundreds of thousands of parking ticket cases that DNP claims to have taken on, for example, there was no allegation that those customers originally were clients of MK, had considered hiring MK, or would have sought the advice of any law firm in the first place if not for the representations made by DNP.

As to goodwill, although the complaint alleged that DNP provided some poor customer service, it didn’t allege that DNP’s failures were imputed to MK specifically or lawyers generally. What about Lexmark?

Unlike MK, Static Control not only alleged injury due to diversion of sales and reputational harm, but it also provided the facts necessary to make those allegations plausible. Static Control alleged Lexmark directly targeted its customers and falsely stated that doing business with Static Control was illegal. These facts are sufficient to state a concrete, particularized, and actual injury. MK’s general allegations that DNP has caused a diversion of clients and loss of goodwill, on the other hand, are not.

Even if the Court were to find that MK (a law firm) was a “direct competitor” of DNP (an AI-based legal subscription service), the court would not presume Article III standing from direct competition. “MK has conflated the injury requirement for a statutory cause of action under the Lanham Act claim with Article III’s injury-in-fact requirement.” Maybe presuming injury  works in other cases, but the products here were different enough that the court declined to do so. “[T]he Court will not infer that MK has suffered harm through lost clients just because DNP has gained them.”

Wednesday, November 15, 2023

I was on Hard Fork to talk copyright and AI

 Here's an RSS feed and a Spotify link.

Nominative fair use: when a logo is not too much

It may well be true that nominative fair use often entails just using a word, not a logo, but courts occasionally recognize that there are situations where the logo/trade dress is actually an important means of communicating and should still fall within nominative fair use. In the wild, that's usually logos of social media sites, which regularly communicate "this is how to find me" and not "I am endorsed by." Here's an example from a competitor that was surely well advised:

Bing Webmaster tools screenshot showing Google search logo on left with invitation to import settings from Google

Monday, November 13, 2023

when can pharma experts testify about compliance with the FDCA? (also some survey stuff)

ImprimisRX, LLC v. OSRX, Inc., 2023 WL 7390842, No. 21-cv-01305-BAS-DDL (S.D. Cal. Nov. 8, 2023)

Imprimis sued defendants, competitors in the compounding pharmacy industry, for false advertising, trademark and copyright infringement, and related claims. It alleged that defendants falsely advertised that they’re in compliance with Section 503A of the FDCA, governing compounding.

The court here admits the parties’ experts.

Imprimis’s trademark survey expert (for secondary meaning) didn’t use a control group, but that went to weight rather than admissibility in the absence of other serious problems. The survey targeted an appropriate population (ophthalmologists and optometrists as confirmed via a series of employment questions), used a standard question format, provided a “don’t know/have no opinion answer,” excluded respondents who answer questions too quickly, randomized the questions, and surveyed an appropriate population size. Nor did failure to address genericity render the survey inadmissible.

Another expert surveyed prescribers to opine on the extent to which a company’s advertising claim that it operates in full compliance with Section 503A is important to them. In the closed-response survey, the expert included a question asking whether it would be “important to [respondents] when selecting a compounding pharmacy” that the “Pharmacy is in compliance with local zoning requirements” as a control question: Respondents that selected this question were removed from her final estimates. Whether this control adequately accounted for noise went to weight rather than admissibility. Again, there weren’t other serious problems.

Defendants argued that the expert didn’t evaluate the advertising at issue—the survey didn’t ask whether the “small-font claim” on defendants’ actual webpage would be important to prescribers in their purchasing decisions. Using hypotheticals rather than the exact statements at issue went only to weight; it was still relevant to materiality.

Defendants also argued that the survey’s results were logically contradictory and thus fundamentally flawed. Although 54.1% of survey respondents selected “Pharmacy operates in full compliance with Section 503A regarding compounded drugs” under the FDCA as an important factor in selecting a compounding pharmacy, in a separate question, 57.4% of survey respondents answered they were not aware of Section 503A prior to taking the survey. Again, this went to weight rather than admissibility unless “a survey’s results are so illogical as to cast doubt over its reliability, the inquiry can move from weight to admissibility,” which didn’t happen here.

The results were logically possible: “Prescribers can maintain a preference that compounding pharmacies follow all applicable rules and regulations without having an awareness of all the applicable rules and regulations.” Also, the control question attempted to isolate Section 503A’s importance relative to other, hypothetical regulations. Finally, “even if the response is irrational where a respondent believes Section 503A compliance was an important factor in selecting a compounding pharmacy but is unaware of Section 503A, the assumed percentage of irrational responses is not so significantly pervasive as to morph the issue from weight to admissibility.”

Plaintiffs also designated an expert on pharmacology and pharmacy operations to opine on what compound medications are, what the differences are between Section 503A and Section 503B facilities, what restrictions govern Section 503A pharmacies, whether defendants operate in compliance with Section 503A regulations, and why compliance with Section 503A regulations is important.

The proposed expert was qualified: he was clinical faculty at the University of California San Diego School of Pharmacy and Pharmaceutical Studies where he teaches classes in pharmacy law and ethics, among other things. Although he wasn’t a licensed attorney, “his practical and academic experience with compounding regulations qualifies him to offer his opinions about compliance with Section 503A regulations.” And his expertise would assist the jury: he was interpreting the evidence for whether defendants were filling bulk orders in contravention of Section 503A and evaluating their suggestions for order volume according to his familiarity with industry norms and practices.

But did he offer impermissible legal conclusions? “The Ninth Circuit has previously allowed expert testimony about compliance with industry standards and regulations, where that testimony does not reach the ultimate issue of law, even if that testimony was couched in legal terms.” This depends a lot on exactly what the expert says. Here, he wouldn’t be allowed to present statements such as “OSRX routinely violates the rules ... of 503A pharmacies,” but he could testify to his opinions on how to understand Sections 503A and 503B regulations and apply those industry norms, regulations, and practices to the facts at hand.

Defendants’ proposed expert on the same topic got in too. She didn’t need to be a statistician to testify that “OSRX routinely dispenses its compounded drugs pursuant to valid patient-specific prescriptions, as required under section 503A of the [FDCA].” She had “the requisite exposure and experience to select a simple subset of prescriptions to review and is qualified to opine on the subject matter as an expert witness under Rule 702.” But, like plaintiff’s expert, she would not be allowed to say “OSRX’s dispensing practices are compliant with 503A pharmacy requirements.” Instead, she could testify about her review of OSRX’s prescription data and whether defendants appear to prescribe products in bulk. Her review of the records would assist the jury in understanding whether a valid prescription was present for each allegedly bulk order/office stock, which a layperson would struggle to do.


alleged Haitian corruption doesn't make collection of "foreign taxes" misleading or material

Celestin v. Martelly, --- F.Supp.3d ----, 2023 WL 6385 (E.D.N.Y. 2023)

Plaintiffs alleged Martelly, the then-President-elect of Haiti, devised a “wide-ranging scheme” to impose fees and fix prices on money transfers, food remittances, and international calls made to and from Haiti. Martelly allegedly “promoted, marketed, advertised and sold” the Fees to the public as necessary “to finance free education for impoverished children,” knowing that wasn’t true: a program to fund free education in Haiti allegedly does not exist. While the Government of Haiti purports to receive at least an estimated $132 million per year from the Fees, there was allegedly no public accounting.

The Sherman Act claims failed because they were antitrust claims.

State law deceptive advertising claims were based on the following statements:

1. “$1.50 and $0.05 added to money transfer and telephone calls to Haiti are lawful taxes/fees imposed to raise revenue to fund free education.”

2. “Taxes imposed to finance free education.”

3. “For all transfers, Receivers may receive less due to foreign taxes.”

4. “Recipient may receive less due to fees charged by recipient’s bank and foreign taxes.”

First, the plaintiffs didn’t allege the corporate defendants (telecom/transfer companies) made any representations at all about the fees; “recipient may receive less due to foreign taxes” was a generic disclaimer that didn’t say anything about the lawfulness or validity of Haiti’s fees and was, indeed, true. Nor did the allegations show that corporate defendants knew of the education falsity. As for the rest, there was no allegation of reliance. “Moreover, it is unclear how the education plan could be material in Plaintiffs’ decision to send money or make phone calls to Haiti.” Indeed, the plaintiffs continued to send money and make phone calls to Haiti despite their knowledge that the funds are being misused.

FDUTPA specifically only applies to actions within Florida, which weren’t sufficiently alleged.



Thursday, November 09, 2023

(c) infringement and false advertising claims against addiction treatment competitor survive, in part

New Directions Program v. Sierra Health & Wellness Centers LLC, 2023 WL 7284797, No. 2:22-cv-01090-DAD-JDP (E.D. Cal. Nov. 1, 2023)

Plaintiff Gust is the “principal and owner” of plaintiff New Directions and “has been an expert in the field of treatment of addiction and intoxication for decades.” Gust allegedly “developed an outpatient treatment model based on the principle of addiction as a pathological relationship to intoxication rather than as a preference [for] a specific drug.”

One of Gust’s students was Daily, the founder of defendant RHCS (now owned by Sierra); when he passed away, his wife—also a defendant—took over. Plaintiffs allege that defendants falsely claimed credit for the “Gust method,” and infringed the copyright in Gust’s book Effective Outpatient Treatment for Adolescents by using copies with clients, copying two appendices for a recorded presentation, and copying the book in a brochure listing six stages of recovery that are identical to those described in the book.

The court first found that the Lanham Act claim was grounded in fraud and had to satisfy Rule 9(b).

Challenged statement: “Jon Daily’s legacy will continue as [Sierra Health and Wellness] will keep all of their intensive outpatient program with the name Recovery Happens and his model of care.” This was allegedly false because “Jon Daily had no model of care” and used the Gust model. (Those two statements are arguably in some tension.) The “when” was insufficiently alleged, so the court didn’t inquire further.

Challenged statement: “Sierra Health and Wellness and New Start Recovery Solutions are proud ... to offer the compassionate, insightful and whole person outpatient addiction treatment philosophy founded by Jon Daily.” The court found plaintiffs plausibly alleged that the addiction treatment philosophy at issue was not, in fact, founded by Daily, and that consumers would have no reason to doubt this claim. Materiality was also sufficiently pled; the court credited plaintiffs’ argument that being connected to “the legacy of an innovator in the field” makes it more likely that a product will be chosen by consumers and makes defendants seem “more substantial, credible and credentialed.” Plus, plaintiff Gust “practices in the same building as [the moving defendants],” so “even minor perceived differences between the two practices could plausibly influence consumers’ decisions.”

You may be wondering: what about Dastar and Sybersound’s extension of that reasoning, which is binding on this court? So is the court! It wasn’t going to evaluate the issue sua sponte, but it suggested that plaintiffs be prepared to address the Dastar issues if they amended the complaint. (Presumably it should feature in the answer as well.)

Challenged statement: in a section titled “the relevance of Jon Daily,” defendants’ websites state: “ ‘ADDICTION is a PATHOLOGICAL RELATIONSHIP to INTOXICATION.’ ” But Gust allegedly “developed the concept of ‘addiction to intoxication’ years before Jon Daily even entered the field.” Plaintiffs plausibly alleged misleadingness in giving Daily credit for that idea, and materiality for the reasons noted above.

 Challenged statement: Daily “believed that individuals become addicted to INTOXICATION as a way of dealing with life issues. If you remove the drug—the individual who is still addicted to intoxication will find another way to get high. For example, by using another substance or activity such as sex or gambling.”  Plaintiffs alleged that these “are all words that David Gust taught for many years” and that “[a]ttribution to Jon Daily is false and misleading ....” This wasn’t sufficiently alleged to constitute deceptive attribution to Daily as innovator.

Challenged material: a video in which Daily “uses the Gust phrase ‘Addiction to Intoxication’ ”; Gust’s book “can be seen on the video”; Daily “makes a statement that ... is clearly just [Chapter 1 from plaintiff Gust’s book, “How to Help Your Child Become Drug Free”], repurposed”; and Daily had “taken verbatim” plaintiff Gust’s “old series of projector slides” to use as his own PowerPoint slide headers without attribution. Again, plaintiffs didn’t sufficiently allege deception/that Daily claimed to have created the ideas.

Other statements dismissed as puffery: “ ‘Exceed the expectations of our clients’, ‘World Class’ and ‘Unlike any other in Northern California.’ ” as well as statements that defendants use “evidence based methods.”

Copyright: For the book, plaintiffs didn’t allege facts indicating that defendants engaged in direct copying or unlawful appropriation.  It was not enough to allege conclusorily that “defendants have copied portions of this Book and have used and published copies of portions of this book including copying and using treatment documents with clients ....”

DVD: The question was whether plaintiffs sufficiently alleged probative similarity between defendant’s DVD and two appendices to the book, “the core of the intervention phase of the Gust model.” Plaintiffs alleged that Gust’s book “describes the main topics explored in [the Gust] process as, ‘School, Family Relationship, Motivation, Legal Issues, Friendship and Social life, Employment, Finances, Physical health, self image/self respect/emotions, Additional examples’ ” And the DVD allegedly uses a slide that reads “ ‘self inventory: where to explore in the process’ ” and lists the following categories: “ ‘Family, Money, School, Sports, Legal Issue, Health, Mental Health, Friends, Self, Spirituality, Sexuality, Additional Examples.’ ” This allowed a reasonable inference that there wasn’t independent creation. “These similarities and unusual features are not de minimis and permit the court to draw the reasonable inference that the two lists are substantially similar under the extrinsic test. The court need not engage in the application of the intrinsic test in considering a motion to dismiss.”

A similar result on the brochure, where the overlap was in describing the six stages of recovery: Recognition, Admission, Petition, Acceptance, Volition, Conversion. I really can’t believe that should be sufficient, but I recognize that in the Ninth Circuit there is essentially no minimum boundary for actionable copying before, at least, summary judgment if a factfinder could actually see the similarity.


Wednesday, November 08, 2023

Artistic Expression or Crass Commercialism? Drawing the lines in Right of Publicity, Lanham Act, and Commercial Speech Cases

PLI Media Law conference

RT: There’s been a rapid and somewhat disorienting shift from a seemingly ever-growing First Amendment freedom of speech to a seeming indifference to speech and press based claims (as contrasted to religious freedom claims) in many categories, concentrated in the sudden conservative abandonment of the commercial speech doctrine. Historically, conservatives opposed the commercial speech doctrine, which held out the prospect of greater regulation of commercial speech than of noncommercial speech. However, as conservatives identified commercial speech, or even just corporate speech and practices, they’d like to regulate as being too woke, and in line with populist, anti-monopoly principles, a number of judges, including judges from varying political backgrounds, have signaled their lack of interest in free speech claims, whether made against copyright, trademark, false advertising, or right of publicity lawsuits. Although the Court long ago recognized that defamation claims need First Amendment safeguards because the state, through the judiciary, is making rules for speech, it is now unwilling to recognize the need for similar limits on other causes of action.

 I’m going to talk briefly about last term’s Jack Daniels case—a trademark infringement and dilution case—as well as Elster, argued last week, in which the Justices appeared inclined to reject a First Amendment challenge to the refusal to register the claimed mark “TRUMP TOO SMALL” for t-shirts. Then I’ll talk about the 9th Circuit case Enigma Software v. Malwarebytes, which allowed a false advertising claim to proceed based on one software provider’s use of the terms “malicious” and “threat” to describe its alleged competitor’s software, despite a dissent raising free speech arguments. I’ll conclude with some general remarks about commercial speech doctrine after 303 Creative and the pending NetChoice cases. 

Trademark: In Jack Daniel’s v. VIP Products, the Court held that it did not need to apply or even decide the validity of a speech-protective limit on trademark law designed to prevent trademark owners from shutting down expressive works that comment on trademarks, known as the Rogers test.  So long as the defendant was using a similar term as a trademark to brand its own goods (here, dog toys that parodied Jack Daniel’s well-known whisky bottle), trademark law’s test for consumer confusion was all that was required. The First Amendment offered no further protection for this speech, even though the Court did not categorize it as commercial speech, and it would not have qualified as commercial speech under ordinary standards.   The Court did not decide whether the First Amendment offered any protection against trademark infringement claims even for purely expressive noncommercial speech, as every circuit to have considered the issue had held.   But three Justices wrote separately to express their skepticism that even purely expressive noncommercial speech involving trademarks merited a speech-protective test, basing their argument on the fact that the statute did not specifically outline such a test.

 The Court’s conclusion that a defendant’s use as a trademark obviates the need for any further consideration of the First Amendment makes sense, if at all, only as a strong form of the rule that commercial speech receives significantly less protection that other forms of speech, combined with an incredibly expansive definition of commercial speech. In Jack Daniels, the Court claimed that the likely confusion test “does enough work to account for the interest in free expression” in the context of trademark uses.  This language, as others have noted, is very similar to its previous statement in Eldred that fair use and the idea/expression distinction internal to copyright law provide all the First Amendment protection necessary in the context of copyright infringement.   But in Eldred, the Court followed its statement by explaining that the Copyright Clause provided a robust foundation for federal copyright, and that the contemporaneous adoption of the Bill of Rights and the first federal copyright act showed their compatibility. In Jack Daniels, the Court said nothing further; its statement remained ipse dixit. Nor could the court have said more: There is no Trademark Clause and no Founding Era federal trademark law; indeed, the Court invalidated Congress’s first attempt, nearly a century later.  And what current courts call “likely confusion” would be unrecognizable to Founding-era courts—or post-Reconstruction courts—both of which protected trademark owners in far more limited circumstances: only in cases of “passing off,” where the defendant’s goods would substitute for purchases of the plaintiff’s goods. Current confusion doctrine is very different in many ways, two of the most important being, first, that there is no materiality requirement—consumers need not care at all about the thing they’re supposedly confused about, and that itself makes confusion easier to find because people aren’t careful about things they don’t care about. Second, modern confusion covers not just confusion over the source of goods or services but, in many cases, confusion over whether the plaintiff’s permission was required or whether there is some sort of undefined “affiliation” between the parties. The Court’s statement that the likely confusion test provides the only necessary protection for the First Amendment thus lacks either the explanatory apparatus it offered in Eldred or a basis in text, history, or structure.

 Where, then, is the sufficiency of likely confusion from? It has long been true that the First Amendment assigned no value to “false statements of fact,” justifying restrictions on deceptive commercial speech.  But, as I’ll discuss more in a moment, it is possible to turn almost any objection to speech into the claim that the speech is misleading. Jack Daniels suggests that speech might get no First Amendment protection against claims labeled “trademark” claims beyond whatever dubious safety a multifactor likelihood of confusion test may provide—something that generally requires expensive litigation to work out.  The Court also revived Jack Daniel’s dilution claim, which was not based on any falsity or risk of confusion but on the theory that being associated with dog poop would “tarnish” the consumer image of Jack Daniel’s even though consumers understood that there was no relation between the companies. 

 Last week’s oral argument in Elster highlighted both the Justices’ skepticism about free speech claims in the trademark realm and their lack of interest in the realities of litigation. The Court seems likely to uphold the prohibition on registering TRUMP TOO SMALL without Trump’s consent, even though the use isn’t confusing. This will be based on the assertion that Elster has the right to use TRUMP TOO SMALL on the front of t shirts even without a registration, and that he couldn’t be prohibited from doing so. But, if the Court also says there is a legitimate interest in prohibiting source-indicating uses of an unconsenting person’s name, then that will suggest a more formalist version of what counts as a trademark use. 

Consider for example this argument by Gov’t: “As long as [Elster] can use the expression and as long as he can obtain the benefits of trademark registration by choosing a different source identifier to distinguish his goods from others, he has all he needs [for his free speech]”

 This concept of source identifiers is very important: it has to be somewhat normative if we are preserving his ability to use the expression. The limit case is when TM owners convince 15% or more of consumers that any reference to them at all requires permission—the Court seemed unwilling to deal with that scenario, which fits the facts of a number of the Rogers cases it distinguished in JDI where the court simply declared that song titles and movie titles weren’t being used as indicators of source.

 Everything here turns on what the Court understands source identification to mean; if any use that causes any confusion about anything is source-identifying, then the Court will be allowing huge amounts of speech suppression, but if it adheres to the idea that trademark, source-indicating use can be objectively identified and doesn’t exist merely because there’s some kind of confusion, that can point the way to a workable regime.

 My main worry is that the Justices have no interest in the fact that lower courts have routinely considered the existence of confusion about something, including about whether the TM owner gave permission for an accused use, as proof of trademark use.

 For example, Justice Jackson said: “trademark is not about expression. Trademark is not about the First Amendment and … people's ability to speak. Trademark is about source identifying and preventing consumer confusion.”

 That has to be a normative concept of source identification! And it’s incoherent without more (if things are confusing, it’s because they express a message about source or sponsorship; Justice Jackson has to mean that trademark infringement is not about protected expression—but that doesn’t really explain what trademark registration is about).

 The Court’s indifference to expressive elements of TMs also conflicts with the Court’s previous claims in Tam, and even Jack Daniel’s, that TMs themselves often have lots of non-source-indicating expressive meaning: Jack Daniels isn’t just a piece of information, it is a lifestyle and brand identity—but then shouldn’t people be able to criticize that identity if they aren’t making false claims?  Court can’t seem to figure out how to handle that duality between pure information and brand value.

 The Court’s First Amendment jurisprudence in IP may reflect its current preoccupation with legislative over judicial restrictions on speech.  The legal realists taught us that an injunction issued by a judge and enforced by the threat of prison is every bit as much state action as an ordinance passed by a city council. But the Court today seems much less concerned about courts actually ordering people not to speak. The Court’s willingness to see threats to speech in the government’s refusal to register trademarks but not in the government’s banning the sale of products bearing messages altogether suggests that the imperial judiciary is alive and well in the First Amendment arena.

 Turning to Enigma and false advertising: Commercial speech doctrine has generally treated false or misleading commercial speech as completely unprotected by the First Amendment (with some wiggle room for speech that might be correctable with further disclosures). The attack on commercial speech doctrine has historically focused on preventing government regulation of non-false advertising—speech that might encourage unwise consumption of alcohol or tobacco, for example. Thus, commercial speech doctrine got closer and closer to strict scrutiny if the government was regulating outside of the false advertising context, but remained relatively lax if the government was targeting deception.

 But this sharp cliff between types of regulation puts a premium on being able to distinguish false and misleading speech from speech that persuades people to do unwise things. This has always been a weak point: if you defer to the government on what is misleading, then the government can regulate a lot of commercial speech, even if most people are persuaded rather than misled. A few Terms back: NIFLA said that these rules didn’t apply to antiabortion counseling, even with evidence that clients were misled about what these antiabortion services did. And some people took that as a signal that mandatory disclosures generally were in trouble, though I was never particularly persuaded: my own view is that abortion rules are special and the Court ignores the ordinary First Amendment analysis in abortion cases.

 Enigma is a useful test case because it sounds like a standard false advertising case: the parties allegedly compete (though the defendant doesn’t agree that they do) and its software labeled the plaintiff’s software as a potential threat or potential malware. Although the Ninth Circuit majority acknowledged that there’s a lot of judgment involved in deciding what is malware, it rejected the defendant’s argument that threat or malware were nonactionable opinion, in the context of threat defense software. A dissent argued that this was classic opinion, given the ambiguities in the definition of malware, which can include stuff that’s just not helpful. And I tend to think that we should be willing to find falsifiability where the advertiser claims some kind of expertise in the field, even if we shouldn’t find ordinary users’ characterizations of something as malware to be potentially defamatory. But it’s also useful to note that Enigma applied the Lanham Act, which bars false or misleading commercial advertising generally, rather than legislatively or administratively identifying a more specific practice. Thus, case by case adjudication in court is required to find deception. By contrast, a district court in Colorado last week granted antiabortion activists the right to advertise “abortion reversal” despite an legislative finding that there is no such thing—because the drugs at issue could lawfully be administered for other conditions, the activists had free exercise rights to promote them for abortion reversal. Of course the situation isn’t exactly the same, but it’s indicative of where judicial deference is going—to people making religious claims and not to legislatures making findings of fact.

 Compare the question: can one lawfully advertise conversion therapy to change a young person’s sexual orientation? NJ case a few years back allowed false advertising claims against the advertiser to proceed. But: If the government can decide that the promise of conversion therapy is false, can a different government also decide that it is false and misleading to offer gender affirming care to trans youth? If you think that the problem is that this issue is too politicized to allow one side to be labeled false, consider how many other things have become politicized, and will be politicized if one party acts. One recent Major area of contestation has been: vegan meat and dairy substitutes. Meat-producing states have tried to declare that it’s inherently misleading to use terms like chik’n or sausage, or even oat milk. Courts so far have struck those down because in the courts’ own views the terms aren’t misleading—but there are surveys out there that say otherwise for a nontrivial number of consumers. In addition, the real problem with the vegan alternatives is that they often have a very different nutritional profile; there are tragic cases of children who have suffered diseases like kwashiorkor because their parents were feeding them only vegan alternatives. And the evidence is very clear that ordinary consumers do not understand the nutritional differences between almond milk and cow’s milk. Does that mean a ban on the term “almond milk” is justified?

 The usual response is to punt to disclosures: we’ll fix this problem by telling people the nutritional content is different! Information overload makes this less effective; the very power of the term “milk” as a cognitive shortcut tends to lead people to believe they don’t need to know any more, meaning that they ignore additional information. So in fact you may not be able to solve the problem with more disclosures. But they’re politically palatable in ways that bans usually aren’t, so disclosures are a popular solution.

 They can also be incredibly burdensome, often not because of the costs of publicizing the disclosure itself but because of the record keeping that needs to be done. For example, keeping records to ensure that all one’s contractors feed cows organic feed can be difficult, as can identifying the country of origin of each head of cattle if it’s cheapest to just commingle them in huge lots. And here we arrive at the latest wrinkle in Commercial speech doctrine generally:

 NetChoice: Texas and Florida, explicitly trying to punish companies perceived as being too liberal, enacted burdensome requirements on large social media companies. I’m not going to discuss the viewpoint neutrality mandate, but both states also ordered social media companies to provide detailed information to users about every moderation decision they made, with risks of substantial penalties for every error or failure to disclose enough information to satisfy the states’ AGs. The 11th Circuit struck this compelled speech down even using intermediate scrutiny, while the 5th Circuit held it was an unremarkable disclosure mandate regulating commercial speech. The key move made by the 5th Circuit was to treat all content policies as commercial speech, which also suggests that the Washington Post’s editorial policies are commercial speech. Of course, the point was to make it extremely expensive, burdensome and risky to moderate content, with the predictable result that companies would do a lot less moderation, so here we have disclosure that is defended as protecting consumers—so they’ll know what the actual terms of service are and how they’re enforced—but actually enacted to change the underlying content policies. Nor are liberals immune from this: Washington DC’s AG is seeking to get information about individual facebook accounts to make a claim about its actual policies on covid denial being other than they were supposedly advertised to be.

 I hesitate to make predictions here but I posit to you that a Court that no longer sees the point of protecting nonreligious speech, or no longer sees media entities as having their own speech interests distinct from those of their users, is going to be dangerous for media freedom far beyond intellectual property claims.

 Bennett Cooper (Bad Spaniels/VIP): Without a safe harbor, we have to fight hard on the confusion arguments on remand. We are confident in that, as well as a challenge to the viewpoint discriminatory nature of dilution by tarnishment. You have to sell the joke: if the courts don’t get it, you’re having a harder time: Kagan didn’t get the joke.

 Panel Leader: Jeremy Feigelson: Is the 1A in trouble when courts avoid doctrine and say “this is just a TM case”?

 A: We’ll have to see. Speech as its own category/do other categories take free speech into account, for example if the multifactor test can offer true speakers offramps from the multilane highway of litigation, that can help.

 Bruce Johnson: Commercial speech doctrine is becoming more uncertain as a category. NetChoice cases are compelled editorial transparency; both 11th and 5th Circuit used commercial speech/Zauderer, which is the weakest test available. It only applies to ads! Why use this category to interpret compelled editorial transparency? Baffling! Unclear to what extent we’ll have commercial speech as a separate doctrine, as opposed to “Zauderer for speech we don’t like.” AG pressures: efforts to prohibit Yelp users from communicating about crisis pregnancy centers, using the Little FTC act in Texas. Washington/Value Village case: if we can squeeze this into commercial speech, we can regulate the hell out of it. Users were commenting about things protected by 1A until Ken Paxton decided that wasn’t ok. Making commercial speech law incoherent.

 Jennifer Rothman: Commercial speech doctrine has been eroded/diluted over decades. Part of a larger story of Court deferring to property rights over speech. After Jack Daniels we have questions and concerns both within TM and 1A. Rogers is important to a variety of creative industries that have relied on it for references to identities/marks. Court clearly signals that it doesn’t love Rogers, but they didn’t make a bright line about use as a mark. But that’s also true of Rogers itself, where Ginger Rogers’ name was incorporated into the movie title itself, which seems to function at least in part like a source identifier (contingent on identifying a particular creative work, which because of copyright law will be from a particular source for a while).

 Thinks the lower courts will still gravitate to Rogers in traditional expressive use cases, not product cases. But products can be expressive, some will say! Still, courts are going to draw lines. Not really a comment; using value of mark to make a joke, which is generally disfavored. We may see less destabilization b/c courts are still going to prefer/protect traditional expressive uses and not “commercial products.” But this also destabilizes defenses to ROP claims, in conjunction with Warhol, b/c some courts have also relied on Rogers in ROP cases. To the extent that Warhol calls transformativeness into question v. market harm, states like California that use transformativeness in 1A defenses to ROP will also see those destabilized. Finally, dilution: doesn’t think Court shares her (or RT’s) concerns—dicta suggests that Court will find dilution by tarnishment ok, even if it seems viewpoint-based.

Johnson: Bigelow v. VA was an abortion speech case; Court went out of its way to protect commercial speech where something was legal in one state and illegal in another; we’ll see more efforts pushed on whether and to what extent speech is purely commercial or whether there are expressive rights underneath it.

Feigelson: connection to 303 Creative?

A: decided on slender record; Court went out of its way to protect website developer from being compelled against her will to respond to a person who allegedly called her and wanted to have a gay wedding website; this doesn’t seem to be true but the Court still said she didn’t have to provide service. Court eliminated Colorado’s disclosure requirements too. Zauderer requires you to provide corrective speech where your affirmative commercial speech would otherwise be misleading; but the test is “purely factual/noncontroversial,” and that doesn’t seem to apply here.

Feigelson: Elster: is Court going out of its way to limit the First Amendment?

A: not really what the case is about—don’t overcommit to preliminary interpretations. But they were suggesting that the free speech interests weighed in the other direction: allowing one registration of Trump Too Small could prevent other criticism of Trump b/c Elster could block competitors. There are some arguments that the 1A weighs against registration here [though will the Court recognize that with other registrations?]. Other connections: 2(c) bar is about gov’t interest in protecting individual identity—“longstanding” protections for individual identities in TM law. This is an instance where you don’t have to show likely confusion about sponsorship/endorsement. That suggests again the Justices’ willingness to allow claims not rooted in showings of likely confusion—which would be helpful for dilution’s survival.

Cooper: These cases are on a spectrum: viewpoint discrimination v. neutrality; whether you’re talking about the right to have a good name v. effectiveness as a source identifier. Tam/Brunetti found viewpoint discrimination, whereas 2(c) is viewpoint-neutral [except in combination with 2(a) and 2(d)]. Tarnishment situation is more like Tam/Brunetti, because you’re talking about banning nonconfusing uses with a particular viewpoint. 2(c)’s consent requirement is more about source identification: worry about potential endorsement/connection. Blurring is about effectiveness of mark as wayfinder in marketplace; the Court might favor that b/c it’s closer to TM’s function. Tarnishment is a “happy talk” provision.

Turning to ROP:

Rothman: Writers’ strike is settled; actors continue—they seem close on residuals, pay structure, streaming. But still outstanding in external reporting is AI provisions. Concerned about studios/producers scanning actors and reusing them w/out control or payments.

Lots of legislation proposed furthering particular parties’ interests, including NO FAKES act—resurrecting James Dean—deceased performers could replace work for the living, and we don’t necessarily want to create more robust rights in the dead to allow that replacement to take place. SAG/draft legislation hasn’t addressed need for disclaimers/revealing to the public that the actual person had nothing to do with the work, which could be important far beyond creative industries.

Originally NO FAKES was fast-tracked, sponsored across party lines. But it turned out not everyone could agree on it.

Feigelson: should Enigma cause worries about product reviewers?

RT: depends on how integrated you are with your sponsors. If you are heavily integrated, then disclosure at a minimum is required. And if you’re making health claims then yes you should worry. But Wirecutter is unlikely to be treated as commercial speech—that’s a product review.

Johnson: “threat” and “malware” would be 1A protected opinion in most circumstances; the 9th Circuit found them suspicious b/c a competitor used those terms—an exception created when it’s not quite commercial speech (footnote says that it wasn’t clear this was commercial speech; that was for remand). Liability wouldn’t arise in a pure op-ed.




Monday, November 06, 2023

Timeshare developer wins disgorgement against timeshare exit marketers despite unclean hands

Bluegreen Vacations Unlimited, Inc. v. Timeshare Lawyers P.A., 2023 WL 7109914, No. 20-24681-Civ-Scola (S.D. Fla. Oct. 27, 2023)


In this trial, the Court has learned that tens of thousands of timeshare owners have been victimized twice: first by the timeshare industry, which used false and misleading tactics to induce the owners to purchase their timeshares —often financed with high-interest mortgages; and second by the timeshare exit industry, which charged the owners thousands of dollars and used false and misleading tactics to tortiously induce them to breach their contracts with the timeshare companies, thus exposing them to damaged credit.

Bluegreen sued a lot of entities, but only the marketing defendants remained in the case: their role was “to advertise timeshare exit services by promoting a legitimate process to exit timeshare contracts while protecting the customers’ credit.” Bluegreen sued them for Lanham Act false advertising, tortious interference, and violation of Florida’s Deceptive and Unfair Trade Practices Act. Previously, the court granted partial summary judgment in Bluegreen’s favor only for tortious interference as to 15 timeshare owners (except for damages) and its FDUTPA injunctive relief claim. Bluegreen elected to proceed only on its equitable claims, including requesting disgorgement, and sought a bench trial. After trial, the court found in Bluegreen’s favor and awarded $100,000 in disgorgement damages for the false advertising.

The court began by recounting timeshare owners’ testimony that Bluegreen lied to them and otherwise defrauded them, including by falsely promising that owners could rent out timeshares for extra money. “Bluegreen asked the Court to accept as credible the testimony of the timeshare owners relating to misrepresentations made to them by Pandora, but to reject the same owners’ testimony concerning misrepresentations made to them by Bluegreen. This is simply not plausible.”

Meanwhile, defendants claimed to only accept timeshare owners who were subjected to misrepresentations—but they also took the position that this happens to every timeshare owner. (They might be closer to right than wrong on this one, based on the cases.) When soliciting customers, defendants made false claims part of the script—e.g., “we’re going to protect your credit.” This was literally false and highly material to consumers; they couldn’t guarantee credit protection, and customers testified that they experienced negative credit effects after ceasing payment to Bluegreen. Indeed, the defendants failed to introduce any evidence that they protected or repaired even a single Bluegreen timeshare owner’s credit.

Likewise, the marketing defendants told potential customers during that an attorney that Bluegreen owners separately retain would provide them with an exit from their timeshare obligations. They touted attorney involvement as key to their services. It was literally false to tell potential customers that the attorneys would provide the exit, because the lawyers’ steps were insufficient to do so. All the lawyers would do was send a C&D and a demand letter; they wouldn’t litigate or arbitrate, and they couldn’t force Bluegreen to act. Any “exit” came from default. Likewise, it was false to claim that their process cancelled timeshare contracts “permanently and legally ....” when the defendants “virtually never” delivered an “exit” to a Bluegreen Owner except through default. In a particularly “yikes” bit, one marketing defendant

1990. In email correspondence with the Lawyer Defendants, a Marketing Defendant employee stated “[p]lease know that we do not want [the fact that the lawyers send only two letters] mentioned to clients. Whenever we ask the firm to contact a client, we are doing so in hopes that the firm reassures a client that they’re doing all that they can to help cancel, not that they aren’t doing anything else on the file besides sending out two letters…. less is more when it comes to clients ....” They kept doing it even when they knew Bluegreen had a policy of not responding to these letters.

Customers also testified that attorney representation was material to them, as were other false statements about defendants’ “perfect” success rate, e.g., “we are consumer advocates, we’ve never lost a single case, we have won [sometimes ‘resolved’] every case we’ve taken.” This was false because they’d had to refund timeshare owners for failure to achieve an exit, and there were other clients who still have active Bluegreen contracts. And there were false statements that, once the attorney contacts the developer, the owner is out or done with the timeshare, and can stop making payments. Numerous owners testified that they stopped paying Bluegreen based on these instructions, including statements that stopping payments would make the attorneys’ process “faster,” “quicker,” or “easier.” (Here’s one script: “I cannot tell you to stop making payment that would be unprofessional and unethical. However, we have found that we are able to get you out quicker if you do not make payments.”) This was false because the attorneys had nothing to do with it: the default was the only thing that mattered.

Lanham Act specific analysis: did the telephone sales presentations that were the “last stage” of the ad campaign, where the false statements occurred, constitute “commercial advertising or promotion”? Yes. The defendants use

a nationwide, multi-stage campaign involving various dissemination methods, including Pandora’s website, in-person presentations, and social media. The result of this comprehensive advertising is the scheduling of timeshare owners to speak with an analyst who delivers the sales presentation, an integral part of the multi-stage campaign. The sales presentations were thus “part of an organized campaign to penetrate the relevant market,” i.e., the market of timeshare owners seeking a release from their timeshare obligations.

And the falsities were part of the scripts and other training materials; audio recordings showed that they appeared “with regularity.”

Bluegreen was also injured, and it didn’t need to prove as much once it dropped its request for legal remedies. “The burden for demonstrating causation under the Lanham Act is lower for equitable relief and actual damages need not be proven.” Disgorgement of profits “is appropriate where: (1) the defendant’s conduct was willful and deliberate, (2) the defendant was unjustly enriched, or (3) it is necessary to deter future conduct.” But disgorgement “shall constitute compensation and not a penalty.”

Equity also requires that the Court consider a plaintiff’s unclean hands. This is relevant because the owners generally testified that Bluegreen lied to them first. “But for Bluegreen’s wrongful conduct, owners would not have sought out Pandora in an attempt to unburden themselves from a lifetime of limitless and ever-increasing maintenance fees and years of high-interest loan payments, totaling tens of thousands of dollars, in exchange for illusory timeshare accommodations.”  But the defendants learned the ropes in the timeshare industry, “then used their inside knowledge to victimize the owners a second time.”

There was evidence that Bluegreen owners paid over $1.5 million to the marketing defendants; defendants’ deductions were not reliable, so the court found disgorgement of $100,000 to be appropriate based on defendants’ and Bluegreen’s own conduct.

Tortious interference: that too.



Second Circuit finds false advertising claim against "reef safe" plausible

Richardson v. Edgewell Personal Care, LLC, 2023 WL 713094, No. 23-128 (2d Cir. Oct. 30, 2023)

Richardson brought NYGBL claims against Edgewell’s “Reef Friendly*” and “*No Oxybenzone or Octinoxate”/“*Hawaii Compliant: No Oxybenzone or Octinoxate” sunscreens, alleging that the products contain other reef-harming ingredients. The court of appeals reversed the district court’s dismissal of the complaint.

The “Reef Friendly*” front label “could plausibly mislead a reasonable consumer into thinking the products contain no reef-harming ingredients.” And the back-label disclaimer, “*No Oxybenzone or Octinoxate” or “*Hawaii Compliant: No Oxybenzone or Octinoxate,” was “incomplete because it makes no mention of the four other reef-harming ingredients found in the products.” Taken together, a reasonable consumer could be misled; the disclaimer wasn’t sufficiently clarifying. Richardson was not expected to “look beyond misleading representations” on the front label “to discover the truth from the ingredient list” that the product contains reef-harming ingredients. And even if she were, “a reasonable consumer cannot be expected to know the universe of chemicals harmful to coral reefs such that she could discern from an ingredient list describing the product’s contents in scientific terminology whether a product is in fact ‘Reef Friendly.’”

This reasoning also necessitated reversal on the express warranty claim.

Friday, November 03, 2023

What's next after Elster?

UNH symposium: Section Two Small

Panel III - What’s Next? Moderated by Peter Karol, UNH Franklin Pierce School of Law

RT: Organized my remarks in response to the oral arguments in Elster, hopefully not too repetitive. Strong job by gov’t lawyer, including responding to the questions that asked how © could be distinguished from TM; the government was attempting to resurrect the argument that TM registration is a gov’t benefit; that is, denying someone a government benefit for their speech is different from a ban on their speech and can be content based, even if it can’t be viewpoint based. Although Tam rejected that argument, some of the Court seemed to have buyer’s remorse in Brunetti, recognizing that almost all of TM law is content based; if we’re going to have a registration system at all, we need to make some content based distinctions.

Justices asked Multiple questions about copyright law: even experienced lawyers may conflate copyright and trademark. But I didn’t hear ignorance; I heard Justices seeking to write an opinion reversing the Federal Circuit limited to TM law and asking for guidance on how to do so.

So: if the gov’t can bar registration of a TM including a disparaging reference to a person without that person’s permission, can it also bar you from a © registration if your work disparages a living person? Although the government’s response was fine as far as it went—that © is a different regime with different traditions—it didn’t explain why copyright was different, presumably because that would have started to sound like an unconstitutional conditions analysis which the government didn’t want to risk. The fact of the matter is that copyright is interested in incentivizing creative expression, and whether that expression is about a living person without their permission is irrelevant to copyright’s purpose.

If you just simply say “there’s no tradition of doing this in copyright,” by contrast, you can’t explain why or when you might draw analogies or recognize limits.

Consider, for example, whether Congress could enact a law denying TM registration to entities in the business of producing pornography, or denying registration to marks that refer to pornography. Or abortion. Those are content/speaker based, but are they in any way related to the purposes of TM? To the contrary, they harm consumer protection and business development and have to be understood as punishing a business Congress disagrees with. That would seem to raise serious unconstitutional conditions questions. But the Government’s approach would make it unproblematic.

Unfortunately, the Court’s choose your own adventure approach to history was very much on display in some other exchanges.

For example Justice Gorsuch said: “there's a long historical tradition … of the living-person name, just as there is with geography and other things like that.”

And that’s just completely untethered to the actual history

--no substantive federal TM until the Lanham Act; first attempt struck down as unconstitutional—a tradition that is younger than my parents is not usually the kind of tradition the Court’s current majority pays attention to

--no tradition of requiring consent for registration or use of marks that demean rather than impersonate, whether at the state level or otherwise

--no tradition of treating the fame of a person as equivalent to the secondary meaning required to generate rights in a name alone; the common law would not have understood the idea that Trump could have blocking rights in fields he wasn’t exploiting, or rights against nonconfusing uses even in fields he was exploiting.

History seems to be wielded extremely selectively even in relatively unpoliticized cases, which is perhaps a cautionary note about using traditions generally.

Meanwhile, Elster was essentially arguing for a type of unconstitutional conditions analysis. The gov’t sought rational basis review, whereas Elster argued that the restriction had to be reasonable in light of the gov’t program: Which raises the question: is protecting a person’s dignity beyond potential confusion a reasonable basis? What else would be allowed by that (GIs, flags).

Strongest argument for Elster: protecting dignity against overt criticism is not reasonably related to the acceptable purposes of TM law, and enacts the same sort of viewpoint based tilt as in Tam where praise of groups was ok but criticism was not: if that’s viewpoint based this should be (of course Tam might have been wrongly decided).

Although this case is about registration, it could very easily have implications for infringement. If the Court insists that Elster has the right to use TRUMP TOO SMALL on the front of t shirts even without a registration, and that he couldn’t be prohibited from doing so, even though there is a legitimate interest in prohibiting source-indicating uses of an unconsenting person’s name, then that will suggest a more formalist version of what counts as a trademark use.

Consider for example this argument by Gov’t: “As long as [Elster] can use the expression and as long as he can obtain the benefits of trademark registration by choosing a different source identifier to distinguish his goods from others, he has all he needs [for his free speech]”

This concept of source identifiers is very important: it has to be somewhat normative if we are preserving his ability to use the expression.

But, caveat, compare where the Court seems to think that TM has no normative components, it’s all empirical about what is functioning as a mark: the limit case is when TM owners convince 15% of consumers that any reference to them at all requires permission and so there’s at least a 43(a) violation in any unauthorized reference—the Court seemed unwilling to deal with that scenario, which fits the facts of a number of the Rogers cases it distinguished in JDI.

Everything here turns on what the Court understands “trademark” and source identification to mean; if any use that causes any confusion about anything is actionable, then the Court will be allowing huge amounts of speech suppression, but if it adheres to the idea that trademark, source-indicating use can be objectively identified and doesn’t exist merely because there’s some kind of confusion, that can point the way to a workable regime.

My main worry is that the Justices have no interest in the fact that lower courts have routinely considered the existence of confusion about something, including about whether the TM owner gave permission for an accused use, as proof of trademark use.

For example, Justice Jackson said: “trademark is not about expression. Trademark is not about the First Amendment and … people's ability to speak. Trademark is about source identifying and preventing consumer confusion.”

That has to be a normative concept of source identification! And it’s incoherent (if things are confusing, it’s because they send a message about source or sponsorship; she has to mean that trademark infringement is not about protected expression—but that doesn’t really explain what trademark registration is about.)

Justice Jackson’s indifference to expressive elements of TMs also conflicts with the Court’s previous claims in Tam, and even Jack Daniel’s, that TMs themselves often have lots of non-source-indicating expressive meaning. Court can’t seem to figure out how to handle that duality, which continues a tradition of courts pretending that TMs are pure information-sharing devices unless they are also badges of honor—related also to the rapid and stunning about face in the political valence of commercial speech doctrine, which has contributed to the Court’s hesitance to say anything about how to link TMs to commercial speech

Pending PSU case may give us some insight on how a court might think about these TM issues post-JDI and Abitron: use on the front of a T-shirt with distinct branding, does it matter that the front of the T-shirt shows public domain, historic images referring to PSU?

One final comment about Gov’t examples, offered as a reason that 2(c) covered ground that (a) and (d) don’t beyond just preventing critical uses:

“If the Los Angeles Lakers described their product as Jack Nicholson's favorite team or the Chicago Bulls describe their product as Barack Obama's favorite team or a restaurant in which a senator has had dinner, uses the slogan, Senator X Ate Here.

And none of those would really be excludable under 2(a) or 2(d) based on the false suggestion clause because they would imply a connection between the living individual and the product, but what it would be a connection that actually existed.”

First, that just seems false about how the PTO would treat such applications. Second: If the Court agreed that these statements were truthful and didn’t create a false connection that would be fantastic! Right now lower courts would readily find false endorsement because even if the statements are true, the people at issue didn’t agree to have the company promote those things.

Jasmine Abdel-Khalik, University of Missouri-Kansas City School of Law

TM gives a power to suppress speech of third parties; this matters.

Identity disparaging terms are not used in a vacuum; the intent of TM owner is that others will use the term to identify their product. And sometimes that will be to avoid association. But if you choose to wear a Burberry coat, you’ve made that choice. What about the rest of the audience that doesn’t want that affiliation? The only way to refer to that product is to use the TM, e.g. the former name of the Washington Commanders—you become a “captive speaker.” So registration is both giving rights to exclude others’ speech and force the audience to use the name to explain what they do or don’t want to engage with.

History of barring disparaging speech. [Equates defamatory and disparaging; I don’t think that’s accurate, among other things because of the difference between truth/falsifiable statements and nonfalsifiable statements.]

Merchandising cases: part of the problem is that our rules for merchandising are too expansive. Makes more sense for a preexisting business that then makes promotional items, as opposed to a business focused on merchandising messages like “Live, Laugh, Love.”

Alexandra Roberts, Northeastern University School of Law

Substantial overlaps in 2(a), (c), (d). Also note this is not the individual vetoing the use—the PTO says consent is needed.

ROP and dignity claims: is that really what TM is for? The Fed. Cir. Says the gov’t has no valid interest in restricting political speech. Elster: gov’t has no interest in facilitating unconstitutional application of state law. Are there any implications here for a federal right of publicity if the gov’t accepts the goal that is not preventing confusion or aiding the flow of commerce?

Michael Keyes, Dorsey & Whitney

Will Bad Spaniels’ new disclaimer get them out of the doghouse?  Replicated the Jerry Ford survey that found 29% net confusion over all questions (who makes or puts out, affiliation, permission); respondents had to acknowledge that they could read the hangtag. Showed the new hangtag that has the survey questions and proposed answers, with the answer to “why” being “because I’m smart.”

71/216 still said “Jack Daniels” in response to at least one question, 33%. Only 5 people entered “because I’m smart.”

About ½ of confused respondents from both surveys said JD in response to 2 or more questions (48/53%).

On just authorization/approval, on original study 23 out of 67 believed needed JD approval or authorization.

On followup, only 5 of 71 believed that JD’s approval or authorization was required.

But a big jump in those who thought there was a “business affiliation” between VIP and JD—went from 6% to 30%.

What happened? Consumers articulated there were visual similarities in the verbatims.

“Because it looks like a bottle of JD!” “Because they look alike”

Takeaways: disclaimer significantly decreased number that thought BS needed approval or authorization but also appears to have increased the number of consumers who nonetheless believed there was a connection b/t the two companies, netting the same.

Maybe this disclaimer is just too much? People seem to have looked at it to answer the questions differently.

Q: how do we know what people understand “authorization” to mean?

A: we don’t, but that’s the language of 43(a) [though presumably in 43(a) it has a meaning!]

Q: is the disclaimer just too long b/c people don’t read?

A: maybe, but the authorization answer change is interesting. Only 5 respondents read and followed the directive at the end.

Roberts: is the interpretation that the respondents read the hangtag and didn’t believe it? [or from an interpretation of “business affiliation” that includes “this is a reference to that”]

Is this really a point of sale disclaimer if people are buying online?

A: Agreed on point of sale. This survey format is not designed to plumb the depths of understanding of authorization or approval. This is only one variation between the two—test and control. Clearly there’s a difference in responses about authorization in the two surveys. We don’t ask what they think authorization means. That’s not why we do surveys.

Abdul-Khalik: these may be badly written questions, but we also accept that courts accept them all the time.

A: you can say they’re vague and ambiguous but they’re used all the time and you’re trying to replicate market conditions. Can’t tell you why there was a big shift between authorization and business affiliation. But in the “why” answers they said “because they look alike,” which is the insight we can glean into consumer state of mind. [Yeah, that’s I think the point: that they seem to think “business affiliation” and “look alike/reference” are the same thing—or at least you don’t know what “business affiliation” means to them, and it’s a lot more vague and meaningless than “authorization/permission” or “who puts this out?”.]

Linford: we tend not to control for education in these surveys, and that doesn’t get tested; we tend to have class biases and an objectively reasonable consumer standard would leave behind the relatively uneducated consumers. So surveys could be useful (if they were capturing the whole market—which they aren’t always, especially given that online respondents are likely to be more educated/wealthier).

A: agreed that this could matter.

Q: what about flags?

A: The rationale is very similar to 2(c): don’t want the gov’t involved in the indignities of commerce—even if the gov’t is the applicant! Courts also worry about handing gov’t agencies the power to suppress speech outside of a targeted anti-impersonation law; TM rights are too broad.

Q: dilution’s fate?

A: we hope so.

Roberts: yes, there was a lot of focus on confusion, but oral argument also featured bits of propertization: it’s my name so no one can use it without my permission. [That helps explain the bad statutory interpretation of JDI where they used the use as a mark constraint on one exception to interpret another exception that very explicitly does not have that constraint.]