Gerber's Good Start troubles continue

Hasemann v. Gerber Prods. Co., 2024 WL 1282368, No. 15-CV-2995(EK)(JAM), 16-CV-1153(EK)(JAM), 17-CV-0093(EK)(JAM) (E.D.N.Y. Mar. 25, 2024)

Gerber Good Start Gentle formula isn’t like most other infant formulas, which are made with “intact” cow’s milk protein. GSG uses cow’s milk protein that has been partially broken down (“100% Whey-Protein Partially Hydrolyzed”). The FDA allowed GSG to make “certain specified, modest claims” related to atopic dermatitis, aka eczema, which is the most common allergic disease in infants.

But the FDA was very limited in what it allowed: It would not object if Gerber claimed that “little scientific evidence suggests” that feeding certain infants a “100% Whey Protein Partially Hydrolyzed infant formula” for the first four months of life “may reduce the risk of developing atopic dermatitis throughout the 1st year of life.” The FDA also agreed not to challenge the assertion that “very little scientific evidence suggests” that the benefits may persist “up to 3 years of age.”

Gerber then revised GSG’s packaging to say, among other things, that GSG was the first and “only” formula “to reduce” an infant’s “risk of developing allergies.”

Previously, NY and Florida classes were certified, and there are also individual claims under New York, Florida, North Carolina, and Wisconsin law.

Here, the court denied Gerber’s motion for near-complete summary judgment (except Wisconsin individual claims) and denied plaintiffs’ motion for partial summary judgment, and also cabined the scope of Gerber’s expert’s testimony.

Plaintiffs alleged two misrepresentations (1) GSG “reduces the risk of infants developing allergies.” (2) Implied FDA endorsement, which allegedly occurred when Gerber “deemphasized” the qualified health claim’s “underwhelming specifics” in its ads.

First, a safety-seal sticker on certain GSG canisters stated: “1st & ONLY Routine Formula // TO REDUCE RISK OF DEVELOPING ALLERGIES // See label inside.” That label, which could be peeled back before purchase (if you would actually do that in a store) stated, in part:

Good to know. Our Comfort Proteins® Advantage ... If you choose to introduce formula and have a family history of allergy, feeding a formula exclusively made with 100% whey partially hydrolyzed, like GOOD START Gentle formula, during the first four months of life may reduce the risk of atopic dermatitis* throughout the 1st year, compared to formulas made with intact cow’s milk protein. The scientific evidence for this is limited and not all babies will benefit.

The asterisk following “dermatitis” referred to this statement: “*the most common allergy in infancy. GOOD START Gentle formula should not be fed to infants who are allergic to milk or infants with existing milk allergy symptoms. Not for allergy treatment.”

Second, a full-page print magazine ad that featured an image of a baby’s face with the sentence: “The Gerber Generation says ‘I love Mommy’s eyes, not her allergies.’ ” Smaller text below this line, next to an image of a GSG canister, stated:

If you have allergies in your family, breastfeeding your baby can help reduce their risk. And, if you decide to introduce formula, research shows the formula you first provide your baby may make a difference. In the case of Gerber Good Start Gentle Formula, it’s the Comfort Proteins Advantage that is easy to digest and may also deliver protective benefits. That’s why Gerber Good Start Gentle Formula is nutrition inspired by breastmilk.

Third, there was a similar TV ad with “may also” language. (The FTC did not like these ads either.)

Plaintiffs alleged that these ads were false and misleading because there was no scientific evidence supporting the claim that GSG reduced the risk of developing certain allergies or atopic dermatitis.

As for the implied FDA endorsement: (1) A coupon affixed to certain GSG containers described it as “the first and only formula brand made from 100% whey protein partially hydrolyzed, and that meets the criteria for a FDA Qualified Health Claim for atopic dermatitis.” It also bore a gold roundel, featuring the phrase “1st AND ONLY” surrounded by the phrase “MEETS FDA QUALIFIED HEALTH CLAIM.” (2) A print magazine advertisement described GSG as the “1st Formula with FDA qualified health claim.” (3) Another print ad said GSG was “the first and only infant formula that meets the criteria for a FDA Qualified Health Claim.”

In fact, the FDA authorizes health claims only when there is “significant scientific agreement.” It allows qualified health claims when they are “supported by some scientific evidence” and accompanied by a disclaimer; the FDA doesn’t approve these claims, but instead exercises enforcement discretion not to go after them. Crucially, “[t]he qualified health claim about GSG that the FDA ultimately permitted is not the claim Gerber originally sought permission to make.” Although Gerber referred to the qualified health claim determination in its ads, it didn’t use any of the approved versions.

Gerber’s proposed expert witness, a pediatric gastroenterologist who worked at Gerber for nearly two decades, first as the Medical and Scientific Director, then as the Global Chief Medical Officer, would opine that “Gerber had, and has, a scientifically sound basis” to represent that “feeding [GSG] instead of intact cow milk protein formula (CMF) to infants with a family history of allergy in the first month of life can reduce the risk that said infants will develop allergies, particularly and specifically atopic dermatitis.” He would further opine that “there is a significant and substantial body of scientific evidence to support the representations in the Challenged Advertisements.” “These opinions are, of course, more forceful than the claims the FDA permitted Gerber to make on the same subject.”

Plaintiffs’ arguments about bias, lack of data, and prejudice/confusing the jury did not justify his exclusion, but did justify limiting his testimony. He could be impeached with his relationship with Gerber. As for inadequate data, his report was “at base a literature review” considering 20 peer-reviewed publications of infant trials; he identified four studies as high quality. Three of those reported that the subjects receiving GSG or its equivalent saw statistically significant reductions in atopic dermatitis or other allergic diseases for at least a short time. Other studies showed no reduction compared to ordinary cow’s milk formula, or at least no statistically significant reduction. A review of medical literature is generally reliable methodology.

However, it could not appropriately include “findings that had not been published before Gerber disseminated the challenged advertisements. … Here, the operative question is whether Gerber’s challenged ads were misleading when made, not whether they would be misleading if made today.” Thus, the expert would be limited, when opining on the science underlying claims in a given ad, “to the body of research that existed when that advertisement debuted.” But most of the “high quality” studies would qualify under that restriction. Plaintiffs disagreed that the studies were “high quality,” but that was an issue for the factfinder.

As to summary judgment: there was a genuine issue of material fact about whether reasonable consumers would perceive the ads to claim that GSG could reduce allergy risk. (Is that not obviously what the ads say, especially the sticker touting: “1st & ONLY Routine Formula // TO REDUCE RISK OF DEVELOPING ALLERGIES // See label inside.”?) “Even accepting, arguendo, that the more cabined language on the ‘label inside’ clarified that GSG does not reduce the risk of developing allergies, a jury could still find that a reasonable consumer would be left with that impression.” As to the other ads, the implication was obvious, and a jury could find it so. (I’m not clear how a reasonable jury could find otherwise.)

Further, internal communications showed that Gerber actively endeavored to make an allergy claim with these ads: Gerber asked its advertisers in a “communications brief” to “[c]reate a strong link between GSG ... [and] an allergy risk reduction benefit.” Gerber’s marketing team described “being challenged to find ways to push the envelope with bringing the allergy message forward.” Gerber told its ad firm that it “would now like to pursue” an ad “that actually uses the word ‘allergy’ in the headline (where previously we were not able to).”

There was also a genuine dispute of material fact as to whether the “first and only” group of challenged ads claimed FDA endorsement of GSG. “[A]dvertisements that reframe critiques of a product as praise can constitute false advertising.”

Gerber argued that none of the ads explicitly claimed to reduce allergies (uhhh… I do not think that word means what you think it means) or made FDA-endorsement claims, and there was no extrinsic evidence about what claims consumers would take away.

But “the requirement of extrinsic evidence to prove that implied assertions in ads are false is chiefly a requirement of Lanham Act false advertising claims — claims not present here.” (And by the way, it has no foundation in the Lanham Act, either. Courts just made it up as a case-management tool, while imposing a different rule in TM cases.) “GBL and FDUTPA claims challenging deceptive advertisements have no extrinsic evidence requirement. Those statutes ‘are not mere Lanham Act analogues.’”

“The plaintiffs need not adduce extrinsic evidence of consumer perception to create a jury question on the deceptiveness element.” (Side note: the individual plaintiffs’ own testimony should be “extrinsic evidence,” too.) (Extra side note: I know we’re all textualists now, but maybe this debate would be aided by talking about why requiring extrinsic evidence, or survey/consumer perception evidence testimony in particular, would be important.)

However, the plaintiffs didn’t show as a matter of law that GSG couldn’t reduce allergy risk. Likewise, whether the FDA statements were false was a triable issue, though it was a close call: “Gerber has adduced little evidence to rebut the plain implications of its advertising, when compared to the qualified health claims that the FDA actually authorized. … Here, though there is no genuine dispute about whether the FDA ‘endorsed’ GSG, there is … a lingering dispute about whether Gerber implied such an endorsement.”

Nor was summary judgment appropriate for either side on a price premium theory. Plaintiffs’ experts, who used conjoint analysis and similar standard techniques, were not unquestioned. Under the relevant state laws, “damages need not be calculated by mathematical precision” but “may include estimates based on assumptions, so long as the assumptions rest on adequate data.” One of the experts calculated price premiums in ways that didn’t rely on conjoint analysis, but used internal Gerber metrics, including its own estimate of the price elasticity of demand, for the value Gerber would realize from promoting the qualified health claim, including its projection of 6-10% growth in the United States for the first six months after introduction of an “allergy claim” to the U.S. market;  Gerber sales forecasts that quantified various factors, including the “allergy claim,” as “impactors” on future sales; and the price increases for GSG that Gerber implemented from 2011 to 2014, spanning the period of these claims.

Gerber’s core argument was that GSG was priced equal to or below other formulas in the Gerber Good Start line during the class period, even though these other formulas undisputedly did not make the challenged claims. But there was also evidence that Gerber expected to be able to raise prices across “the entire Good Start portfolio” thanks to the challenged advertising. This was a jury question.

conjoint analysis has to isolate challenged representations

Moore v. GlaxoSmithKline Consumer Healthcare Holdings (US) LLC, --- F.Supp.3d ----, 2024 WL 348821, No: 4:20-cv-09077-JSW (N.D. Cal. Jan. 30, 2024)

The court grants partial class certification and allows/excludes some expert testimony in this case alleging that ChapStick products were misleadingly labeled “100% Natural,” “Natural,” “Naturally Sourced Ingredients,” and “100% Naturally Sourced Ingredients” when they actually contain non-natural, synthetic, artificial, and/or highly processed ingredients.

The court allowed the expert testimony of a survey researcher for a proposed consumer perception survey and proposed conjoint analysis. Objections to the proposed survey went to weight, rather than admissibility. Likewise, testimony from an economic consultant was admissible because it provided additional information about conjoint analysis, including how it would adequately account for supply-side factors from an economics standpoint.

However, testimony of chemists about their view of what constituted an “artificial” ingredient wasn’t relevant: “Here, the only relevant understanding of the Challenged Statements is that of the reasonable consumer.” Both parties’ chemists were excluded.

Skipping over a lot, could materiality be proved on a classwide basis? As previous cases indicate, “[m]ateriality can be shown by a third party’s, or defendant’s own, market research showing the importance of such representations to purchasers.” Defendants’ documents and testimony acknowledge that there is a “strong consumer desire for ‘natural’ products and ingredients” in the lip balm market generally. Internal marketing research concluded that the “100% Naturals” ChapStick products “[t]ap[ ] into consumer desire for [a] natural option,” finding “79% of lip balm users 18-34 [are] interested in [the] natural option.” The same percentage of consumers identified ingredients as an “important” product-attribute; 59% of consumers also identified how ingredients are sourced; and 57% identified that where ingredients are sourced is “important.” Defendants’ other surveys rendered similar results: one found “ ‘Natural’ is important in a product that promises more than color and another found 65% of consumers place “importance” on “[a]ll-natural ingredients.” This was enough to create common evidence of materiality to a reasonable consumer.

However, a proposed consumer perception survey didn’t separately establish common proof of materiality. It failed to sufficiently isolate the challenged statements, combining the “natural” terms with extraneous words such as “Lip Butter,” “Natural with Argan Oil,” “Natural Age Defying,” etc. But the proposed survey was not impermissibly leading merely because it asked “whether or not they understand the specified statements on the product packaging to be communicating certain meanings.”

Failure to isolate the challenged statements in the proposed conjoint survey also made it incapable of calculating a reliable price premium; the court suggested that it could grant damages class certification on a renewed motion if there were a method that isolated the challenged statements.

There was standing to seek injunctive relief because the plaintiff still desires to buy natural lip-care products and would like to buy them again, but doesn’t know whether they are, in fact, natural, and she does not have the expertise to discern from their ingredient disclosures whether the Challenged Statements are true.

disclaimers that require consumers to understand tech, history and law don't avoid lawsuit over "flushable"

Schotte v. Stop & Shop Supermarket Co., 2024 WL 1251284, No. 1:23-cv-10897-IT (D. Mass Mar. 22, 2024)

Stop & Shop allegedly deceptively advertised cleansing wipe products as “flushable” in violation of Mass. Gen. Laws ch. 93A; Schotte also brought warranty, unjust enrichment, and fraud claims. The court declined to dismiss the complaint.

The Stop & Shop Wipes, which vary in fragrance and style, are all marketed and sold with bold, prominent font labeling them as “flushable” on the front of the packaging. Following the word “flushable” on the front of all packaging is a “†”and the text “For flushing see [back or bottom] panel” in smaller print. The back or bottom panel sets forth the following statements in even smaller print:

Independent lab testing shows these wipes meet INDA Flushable Product Guidelines. Not all systems can accept flushable wipes. Ignoring Disposal Instructions may lead to clogs, property damage, or regulatory violations.

DISPOSAL INSTRUCTIONS

Do not flush if:

• Violates local rules.

• Using RV, marine, or aviation system.

• Using macerator toilet or household pump.

• Fat or grease are put in any drain or you are unsure of system capability

Flushing ok if:

• Permitted by local rules.

• One wipe per flush.

• No history of clogs or backups.

• Septic follows EPA schedule for alternative systems (annual inspection & pumping).

If a problem is noticed, dispose of in trash and stop flushing.

The remainder of the disclaimer is concealed by a tab; the concealed portion reads, in part, “not all systems can accept flushable wipes.”

Schotte alleged a “substantial price premium” of at least 25% more for the Wipes as compared to non-flushable wipes from the same brands. Schotte also alleged that the wipes are not in fact flushable because they do not “break apart or disperse in a reasonable period of time after flushing, resulting in clogs or other sewer damage.”

Stop & Shop argued that this couldn’t deceive a reasonable consumer, both because of the disclaimers and because flushable merely means “capable of being flushed down a toilet,” regardless of what happens later on. (That’s not my department!)

“[W]hether a term with multiple, contradictory definitions or interpretations has the capacity to mislead is best left to ‘six jurors, rather than three judges, [to] decide on a full record.’” To avoid a finding of plausible deceptiveness, disclaimers or qualifications must be “sufficiently prominent and unambiguous .... Anything less is only likely to cause confusion by creating contradictory double meanings.” Here, a factfinder

could reasonably find that the disclaimer on the back of the Wipes packaging is neither sufficiently prominent nor unambiguous and, instead, that the small-print lists would not be noticed. And a factfinder could also find that even if the lists were noticed, the disclaimers would require consumers to have in-depth knowledge of the sewer or septic system they are using, its plumbing history, as well as “local rules”—not just for a toilet in their residence or office but any toilet they may wish to dispose of the Wipes in. A reasonable jury could find the disclaimer so small and vague that it does not relieve Defendant of any potential liability for its deceptive acts.

In addition, Schotte alleged that he would be interested in purchasing the wipes again if Stop & Shop ensured they were actually flushable, so he sufficiently pled a likelihood of future injury to establish standing for injunctive and declaratory relief.

Side note: one court has held that “flushable” is not sufficiently factual/uncontroversial to allow legislatively required disclosures under Zauderer. I think that’s definitely wrong, but it’s consistent with a pattern where courts allow themselves—or juries they supervise—to find facts but don’t like legislatures doing so. Both courts and legislatures are governmental regulators, though.

adult venue's insurer did not successfully exclude ads from ad injury coverage

Princeton Excess & Surplus Lines Ins. Co. v. R.I. Cranston Entertainment Inc.; 2024 WL 1285631, C.A. No. 21-63-JJM-PAS (D.R.I. Mar. 26, 2024)

Defendant, d/b/a Wonderland, operated an adult entertainment club and was one of the many such sued by various models for using their images in advertising without their consent from 2015 to 2019. Princeton insured Wonderland from 2016-2018 (with a broad exclusion for defamation, invasion of privacy, and various forms of advertising injury in the second year called the Exhibitions and Related Marketing Exclusion), and agreed to defend the club but reserved the right to deny insurance coverage. After settlement negotiations (including Wonderland’s separate counsel), Wonderland agreed to a judgment for $1.895 million, with a covenant not to execute and an assignment of rights against Princeton to the models in lieu of payment. Princeton then sued Wonderland and the models, seeking a declaratory judgment that it has no obligations under the Consent Judgment. Defendants counterclaimed for payment and damages for breach of contract and bad faith.

If policy terms are “ambiguous or capable of more than one reasonable meaning, the policy will be strictly construed in favor of the insured and against the insurer.”

Princeton argued that (1) no coverage was available for claims during the 2017 to 18 Policy Period; (2) Wonderland breached the insurance contract by agreeing to the Consent Judgment in violation of the cooperation and non-assignment clauses; and (3) the Consent Judgment was unreasonable, and thus unenforceable, as a matter of law.

The consent judgment was a lump sum and, Princeton argued, included uncovered claims; most of the images fell within the 2017-18 period. The policy excluded personal and advertising injury, including “publication, in any manner, of material that violates a person’s right of privacy,” disparagement, use of advertising ideas, and trade dress infringement, if such activities “arise out of or are part of ‘exhibitions and related marketing,’ ” which are broadly defined.

The underlying claim alleged false advertising and false association under the Lanham Act, misappropriation, violation of the Models’ common-law and statutory privacy rights, and defamation, “all of which fall squarely under Personal and Advertising Injury. So the burden falls to Princeton to show that its exclusion is valid.”

The problem was that the policy and the exclusion were “clearly worded, specific, and directly contradictory to each other. Under Rhode Island law, policy exclusions must be unambiguous, and ‘contract provisions subject to more than one interpretation are construed strictly against the insurer.’” Also, “Rhode Island courts will not uphold an exclusion that leads to unreasonable results, particularly if doing so will make another part of the coverage illusory.” The court found that definition of “Exhibitions and Related Marketing” was so broad as to “preclude coverage in almost any circumstance.” The Fifth Circuit recently found that, even if all “advertising injury” was excluded by this exact policy language, “personal and advertising injury” was an umbrella provision and not illusory because there was still personal injury coverage. Princeton Excess & Surplus Lines Ins. Co. v. A.H.D. Houston, Inc., 84 F.4th 274 (5th Cir. 2023); but see Princeton Express v. DM Ventures USA LLC, 209 F. Supp. 3d 1252, 1258 (S.D. Fla. 2016) (declining to uphold a “field of entertainment” exclusion on the grounds that it would exclude “anything listed in (d) through (g) listed under Personal and Advertising Injuries” and would thus make the Policies illusory as to advertising coverage).

The court here disagreed with the Fifth Circuit. By its plain language, “exhibitions” encompass almost all forms of production and advertising: “motion pictures, television programs, commercials, web or internet productions, theatrical shows, sporting events, music, promotional events, celebrity image or likeness, literary works and similar productions or work ....” including social media, as well as material produced “in any medium including videos, phonographic recordings, tapes, compact discs, DVDs, memory cards, electronic software or media, books, magazines, social media, webcasts and websites”— “a broad-ranging definition that contradicts Princeton’s purported coverage” for “advertising” (defined as “a notice that is broadcast or published to the general public ... about your goods, products or services”). And the exclusion also withdrew coverage for all related forms of marketing. Rhode Island doesn’t allow insurers to make whole sections of a policy illusory.

It also didn’t save Princeton that exceptions purportedly restored coverage for advertising related to Wonderland’s food and liquor services. Princeton argued that these exceptions preserve coverage for “use of another’s advertising idea or infringement of copyright, slogan, or trade dress in an advertisement for any aspect of Wonderland’s business other than exhibitions or marketing for exhibitions (such as its food or liquor service).” “But the Exhibitions and Related Marketing Exclusion precludes coverage for any commercial, web production, or promotional event, regardless of whether the advertisement relates to a show, a theatrical performance, or purchase of a hamburger. It would exclude the advertising examples that Princeton cites to make its case.”

Thus, Princeton owed Wonderland a duty to indemnify for advertising injury arising out of Exhibitions and Related Marketing under the 2017 to 18 Policy. Moreover, there was no evidence that the consent judgment purported to settle claims outside the policy period; it was based on Princeton’s denial of claims for that period, and its plain language suggested that it was limited to that period.

The policy didn’t apply to “[a]ny punitive damages, exemplary damages, or the multiplied portion of any award, because of any ‘bodily injury’, ‘property damage’ or ‘personal and advertising injury’.” But again, there was no evidence that the consent judgment included these.

Princeton argued that Wonderland breached the terms of the insurance contract by interfering with its right to defend and settling the case in violation of the cooperation and non-assignment clauses. But it was uncontested that Princeton knew about the Models’ offer and took no steps to preserve its rights over the course of many months, so it waived any objection to the terms of the settlement. Also, there was a cooperation clause requiring cooperation in investigation and settlement; this is a reciprocal obligation, and no reasonable jury could look at Princeton’s conduct and find that it used “reasonable diligence” to obtain Wonderland’s cooperation.

Finally, Princeton waived its right to object based on the non-assignment clause:

We think the insured should be allowed, as soon as the insurer denies coverage, to protect its interest by negotiating a settlement. The only valuable asset the insured may have is its cause of action against the insurer and the insured should be able to assign this right to the injured party to protect itself from further liability.

Also, “because an insured’s rights to proceeds vests at the time of loss ... restrictions on the insured’s right to assign its proceeds are generally rendered void.”

Was the consent judgment collusive and unreasonable and thus unenforceable? No, there was no evidence of misconduct. (Princeton was bound because the judgment fixed Wonderland’s liability, triggering the duty to indemnify, and Wonderland properly assigned its claims to the models.) Princeton pointed to statements made by Wonderland’s manager, who stated that the offer of $10,000 per model was “crazy” and was upset that Princeton “did not want to fight it.” It argued that this was incompatible with Wonderland’s decision to settle all claims for $1.895 million, and that the manager hadn’t read the consent judgment so Wonderland could not have truthfully stated that it was reasonable.

“That a party may have opposed a settlement does not render a settlement fraudulent or collusive. And a party’s failure to read a contract does not render it unenforceable. A party may rely on their attorney in drafting settlement documents, and the attorney can be presumed to speak for them regardless of whether they have read the documents.” Any concerns about collusion were “further assuaged by the fact that the judgment was negotiated under the supervision and guidance of a seasoned Magistrate Judge and that other courts have repeatedly found liability on similar facts.”

But the complaint included other policy exclusions that were not yet before the court (exclusions for knowing falsity and the like), so defendants only got partial summary judgment.  They were entitled to summary judgment on liability for breach of contract (the duty to indemnify), but not on damages.

5th Circuit allows image-based tobacco warnings in barest nod to consistency on compelled commercial speech

R J Reynolds Tobacco Co. v. Food & Drug Admin., 2024 WL 1208111, --- F.4th ----, No. 23-40076 (5^th Cir. Mar. 21, 2024)

The sudden shift in the political valence of the commercial speech doctrine strikes again! The Fifth Circuit upholds mandatory cigarette warnings as acceptable compelled commercial speech under Zauderer, reversing the district court’s 2022 decision. Let’s just say that, five years ago, this would have struck me as an unlikely result, and in 2020 the decision to file in Texas would have been much less complicated; even in 2022, I would have expected the district court to be upheld. (It returns to the district court for an APA challenge, about which I express no opinion.)

The Family Smoking Prevention and Tobacco Control Act requires cigarette packages to include “color graphics depicting the negative health consequences of smoking to accompany the [updated] label statements.” These warnings “shall comprise the top 50 percent of the front and rear panels of the package” of cigarettes and “at least 20 percent of the area of [any] advertisement ....” A facial challenge was rejected by the Sixth Circuit in 2012, but the DC Circuit struck down the FDA’s first attempt on an as-applied challenge. Now it’s the 5^th Circuit’s turn.

In enacting the TCA, Congress found that “efforts to restrict advertising and marketing of tobacco products,” including existing mandatory warnings, had “failed adequately to curb tobacco use by adolescents, [so] comprehensive restrictions on the sale, promotion, and distribution of such products [were] needed.” The TCA’s legislative findings included: (1) minors still often see and are exposed to tobacco product advertising; (2) the “overwhelming majority of Americans who use tobacco products begin using such products while they are minors and become addicted to the nicotine in those products before reaching the age of 18” and (3) “[r]educing the use of tobacco by minors by 50 percent would prevent well over 10,000,000 of today’s children from becoming regular, daily smokers, saving over 3,000,000 of them from premature death due to tobacco-induced disease[s]” and would “result in approximately $75,000,000,000 in savings attributable to reduced health care costs.”

Congress identified nine new warnings to rotate regularly, which must “comprise the top 50 percent of the front and rear panels of” each cigarette package and “at least 20 percent of the area of [any] advertisement ....” It further instructed the Secretary of Health and Human Services to “issue regulations that require color graphics depicting the negative health consequences of smoking to accompany the label statements.” And Congress gave the Secretary the authority to “adjust the type size, text and format of the label statements” for clarity, conspicuousness, and legibility.

When the FDA made its first attempt, the DC Circuit held that the chosen graphics were not targeted at deception; nor were they providing “‘purely factual and uncontroversial’ information” because the images “could be misinterpreted by consumers” and “are primarily intended to evoke an emotional response, or, at most, shock the viewer into retaining the information in the text warning.” It therefore applied Central Hudson instead of Zauderer and struck down the initial rule. Under Central Hudson, the FDA lacked even “a shred of evidence ... showing that the graphic warnings will ‘directly advance’ [FDA’s] interest in reducing the number of Americans who smoke.”

The FDA reasoned that its new images promoted “the Government’s interest in promoting greater public understanding of the negative health consequences of cigarette smoking” and also “dissipat[es] the possibility of consumer confusion or deception,” thereby advancing the government’s interest in preventing “consumer misperceptions regarding the risks presented by cigarettes.”

Plaintiffs here alleged that each of the Warnings “misrepresent[s] or exaggerate[s] the potential effects of smoking” and that, “[c]ontrary to FDA’s characterization, the peer reviewers raised serious, substantive concerns about FDA’s studies” used to support the selected Warnings.

The district court reasoned that Zauderer did not apply because the imagery was fundamentally so “prone to ambiguous interpretation” that “it is unclear how a court would go about determining whether it[ ] ... is ‘accurate’ and ‘factual’ in nature”:

In other words, the court reasoned that no photorealistic image could ever be purely factual and uncontroversial because different viewers will ascribe to it different meanings. The inherent ambiguity in any graphic warning—e.g., that viewers may interpret the heart disease warning to suggest that open-heart surgery “is the most common treatment for heart disease” or the best—means that the Warnings cannot be “ ‘purely factual and uncontroversial’ and objectively accurate as required to allow relaxed Zauderer review.” Further, the court found that the graphic portions of the Warnings fell beyond Zauderer’s reach because they are inherently “provocative.”

And the warnings weren’t narrowly tailored under Central Hudson because the government hadn’t first tried increased funding for antismoking advertisements, increased government anti-smoking communications, or “test[ed] the efficacy of ‘smaller or differently placed warnings.’ ”

(Preclusion as to RJR’s challenge to the constitutionality of the TCA itself would have been appropriate, but that didn’t resolve the case (there were other plaintiffs), so the court proceeded to the merits.)

Key holding: “The Warnings are both factual and uncontroversial, despite the emotional impact the graphics may have.”

The court—weighing in on an issue that divided the DC Circuit—concluded that Zauderer is a “carve-out” from, not an application of, Central Hudson.

Moreover (and not unrelatedly), Zauderer applies to all compelled commercial speech, not just deception-preventing speech. The Fifth Circuit held in NetChoice that the state’s interest in “enabling users to make an informed choice regarding whether to use [social media] Platforms” was sufficient to survive review under Zauderer. Similarly, Chamber of Commerce of the USA v. SEC, 85 F.4th 760 (5th Cir. 2023), recently held that “the disclosure of a company’s rationale for a stock buyback was purely factual and uncontroversial commercial speech” (although it still struck down the SEC’s action because it was the SEC, I mean because of the APA).

First, the warnings were “purely factual.” What is factual? Well, it’s not an opinion. Moreover, the government may not demand a private party “undertake contextual analyses, weighing and balancing many factors ... that depend on community standards,” to determine the speech it must “parrot.” Book People, Inc. v. Wong, 91 F.4th 318, 340 (5th Cir. 2024). “Factual” needs to involve “information” that is “[c]oncerned with what is actually the case rather than interpretations of or reactions to it” and “actually occurring.” (Lots of dictionaries invoked here.) Thus, “factual” must mean “falsifiable material and inferences fairly drawn from it, rather than one’s non-falsifiable ‘interpretations[,] ... reactions,’ or opinions.”

Crucially, “factual” does not mean “true,” because that would make “purely factual information”—the language of Zauderer—surplusage. (This seems to ignore the idea that opinions aren’t statutes, but here we are.) Thus, the required warnings would be factual if they were comprised of “only (a) information supported by facts and (b) conclusions driven by those facts, and (2) not akin to unfalsifiable statements of opinion.”

Plaintiffs argued that the new warnings “misleadingly exaggerate smoking risks” and improperly “focus on conditions that less frequently arise from smoking,” even though the existing warnings were concededly purely factual. “Consequences supported by scientific findings, even if exaggerated or non-modal, are still, by definition, factual.” The factual content of the text was undisputed.

What about the images? Images can be factual. “The addition of images to the textual warnings makes no difference to the constitutional analysis of factuality.” In the FDA’s own words: “FDA used a certified medical illustrator to design images that depicted common visual presentations of the health conditions and/or showed disease states and symptoms as they are typically experienced, and that present the health conditions in a realistic and objective format devoid of non-essential elements.” Each of the images was “a straightforward, science-based, objectively truthful depiction of the accompanying text,” “no different from those a medical student might see in a textbook.”

Merely because the images might convey “an ideological or provocative message” does not make them nonfactual:

A fact does not become “value-laden” merely because the fact drives a reaction. But even if it did, ideological baggage has no relevance to the first Zauderer prong. Any number of factual messages are, of course, ideological. Similarly, emotional response to a statement is irrelevant to its truth. That someone may have to declare bankruptcy [in order to get debt relief] is likely to engender strong emotions. But the Court never even discussed that aspect of the mandatory disclosures [in its case upholding required disclosures about bankruptcy by certain debt relief providers].

[Footnote] … We offer the following example: “The Nazis committed genocide.” That is a factual statement. It is also a statement that denounces the Nazi’s actions and beliefs as morally repugnant. That is an ideological message. Though the government may not be able to compel Volkswagen to include that message in its advertising without justification, a court would likely still review any such attempt under Zauderer.

[Somebody is thinking about abortion disclosures.]

Plus, these images were “meant to be interpreted literally.” They weren’t “primarily intended to evoke an emotional response” but instead “to draw attention to the warning and depict a possible medical consequence of smoking. Thus, at most, the emotional response of viewers is incidental to their retention of information about the health risks.”

What about the argument that the images might be subject to several different interpretations, and the FDA didn’t test for consumer takeaway? “[W]hen each image is paired with a fact-based, textual warning, any reasonable viewer interprets the image in light of the words.” It was error to ignore the words.

Also, the government need not choose only the most common side-effect or consequence of the disease or injury discussed in a warning. “People may interpret ‘debt relief agency’ in many ways, but disclosing that a business is one is still purely factual.” Nor were cigarette companies required to make difficult contextual judgments weighing multiple factors to determine the warning, since the FDA did it for them.  

For similar reasons, the warnings were uncontroversial. NIFLA says that abortion is a controversial topic, making disclosures about abortion controversial; but NetChoice said that “disclosures of social media censorship decisions” were not controversial. Thus, a factual disclosure is “controversial” under Zauderer “where the truth of the statement is not settled or is overwhelmingly disproven or where the inherent nature of the subject raises a live, contentious political dispute.” Content moderation isn’t inherently contentious, even though it was connected to “a live, contentious, political issue.” [Wow, this might be even dumber than the statements in NetChoice itself. Because it is about content that some people want and some people don’t, content moderation policy is the definition of inherently contentious—as abortion is not, even if people living in Texas today think it must be. This is a fake argument; the real reason—inconsistent with NIFLA’s dicta, which should be ignored the way all abortion-related First Amendment pronouncements should be ignored—comes next.]

There’s no good-faith debate that the warnings aren’t truthful. Thus, they are uncontroversial.

Next, the warnings must be “reasonably related to the State’s interest” and not “unjustified or unduly burdensome.” “Zauderer does not require the state to assert an anti-deception interest.” No court of appeals majority has ever held otherwise, and the Fifth Circuit has previously referred to valid interests in “promoting the free flow of commercial information”; we ruled that was “more than enough to satisfy this prong of Zauderer” and “promoting the ethical integrity of the legal profession.” “Increasing public understanding of the risks of smoking, particularly given the ‘long history of deception concerning consumer health risks in the cigarette industry,’ is a legitimate state interest.” [Now do the long history of state and private discrimination against nonwhites.]

The warnings were not unjustified. Plaintiffs argued that the interest at issue was too amorphous and that the warnings hadn’t been shown to be effective.

The images served an informational interest. Zauderer itself explained that “[t]he use of illustrations or pictures in advertisements serves important communicative functions: it attracts the attention of the audience to the advertiser’s message, and it may also serve to impart information directly.” The FDA even tested their effectiveness in raising consumer awareness and then refined them based on those results.

NIFLA says that a compelled disclosure is justified only if it will “remedy a harm that is ‘potentially real[,] not purely hypothetical,’ and ... ‘extend[s] no broader than reasonably necessary.’ ” Plaintiffs argued that current Surgeon General’s warnings are sufficient, but that ignored “significant evidence that consumers do not notice, much less internalize, the text-only warnings in the status quo. The updated warnings serve to remedy the harm that buyers might (1) not know about tobacco’s harms or (2) ignore the existing Surgeon General’s warnings.”

And here the Fifth Circuit engages in what is all too common in rejecting plaintiffs’ arguments: it makes up a contradiction that doesn’t exist. This isn’t to say the Fifth Circuit is wrong about the weighing here, but it’s a bad look to claim logical flaws that are themselves illogical: “Plaintiffs inconsistently claim that the disclosure requirements are overly emotional and ideological such that they become non-factual speech, while also asserting that FDA’s informational interest does not justify the Warnings because they will not be effective. In other words, plaintiffs suggest consumers will simultaneously notice and not notice the warnings.” But of course, consumers could both notice and not be informed or change their behavior because of the warnings. I notice a ton of stuff to which I am indifferent every day. The underlying question is whether the government ought to have to show some real likelihood of changed decisionmaking in order to justify mandatory disclosures, and I have to admit that I am leaning more towards “yes,” at least for a noticeable percentage of consumers. In the absence of any need for effectiveness, disclosure becomes a compromise where regulators/lawmakers tell themselves they’re protecting consumers while blaming the ones who continue to make “bad” decisions for the consequences of continued marketing.

Effectiveness: Plaintiffs argued that the FDA’s studies were flawed, but all that was required constitutionally was a reasonable relation to a legitimate state interest. “Whether FDA’s use of the studies survives APA review is a question we consider separately from our Zauderer review.” This move too sets up the ability to approve state mandates (not subject to the APA) like in NetChoice while still invalidating anything the Fifth Circuit doesn’t like as a policy matter.

The warnings were not unduly burdensome, despite their size and offputting content. Even if they wouldn’t survive Central Hudson review, that wasn’t enough to invalidate them. The Sixth Circuit already upheld the required size and the court here wasn’t going to revisit that. “Undue burden” means that “the regulation cannot impose a burden excessive or disproportionate to the benefits gained.” In NIFLA, the burden was undue because the disclosures were “wholly disconnected from California’s informational interest”; allowed for no consideration of “what the facilities say on site or in their advertisements”; and “cover[ed] a curiously narrow subset of speakers.” But in NetChoice, decision disclosure/appeal and biannual transparency disclosure couldn’t possibly burden protected speech, so that was ok, and the SEC’s buyback disclosures weren’t unduly burdensome because they “neither burden[ ] issuers’ protected speech nor drown[ ] out their message” given that they occurred only “within the narrow confines of SEC filings.” [Gotta admit, these don’t sound promising for disclosures that have to be a big part of every package.]

Here, the benefits were to alleviate “information asymmetry regarding the harms tobacco causes and consumers’ suboptimal awareness of and response to those harms,” and reducing those harms would be a significant benefit. [If it occurs.]

The claimed harms were to plaintiffs’ free speech rights and to their finances. But “plaintiffs can still speak on 80% of their advertisements, and they still control more than 50% of the total surface area of their cigarette packages.” That allowed “ample room for manufacturers to distinguish their products from other products” and not be “drown[ed] out” or deterred from advertising at all. And plaintiffs have at most a “minimal” interest in withholding useful and factual information; harm suffered from an infringement on that interest was limited. Thus, the burdens were not undue in comparison to the benefits.

Nominative fair use requires D to prevail on all 3 factors in 9th Circuit, district court concludes

Axon Enterprise, Inc. v. Luxury Home Buyers, LLC, --- F.Supp.3d ----, No.: 2:20-cv-01344-JAD-MDC (D. Nev. Jan. 16, 2024)

The court grants plaintiff's motion for reconsideration of parts of this case, discussed previously. Axon alleged that LHB infringed Axon’s “Taser” mark. The court previously denied summary judgment on nominative fair use, treating it as a balancing test: LHB needed to use “Taser” to refer to Axon’s product, but used too much (it was a former distributor), and there were genuine disputes of fact on whether it did anything else to suggest endorsement. The court granted reconsideration, now holding that all three prongs weren’t satisfied. Although what constitutes “too much” varies based on circumstance—an artist may need to use Barbie’s name and trade dress to make Barbie-themed art—the “no more than necessary” element needs to be satisfied to allow the defense to foreclose further consideration of confusion.

Thus, here, LHB used more of the Taser mark than necessary when it used its distinctive lettering and logo, and Axon was entitled to summary judgment in its favor on infringement. However, whether the permanent injunction already entered to “bar LHB’s use of Axon’s Stylized Taser Mark and Logos on all its websites and advertising” should be modified raised First Amendment considerations that required further briefing. (I take it this means that the logic of NFU means that remedies should allow proper NFU rather than flat bans.)

D's consumer survey defeats class action about relevance of geographic origin of water for brewing beer

Peacock v. Pabst Brewing Co., LLC, 2024 WL 1160687, No. 2:18-cv-00568 DJC CKD (E.D. Cal. Mar. 18, 2024)

Interesting defense-side use of surveys in this consumer protection case. Peacock alleged that Pabst violated consumer protection law by marketing “The Original Olympia Beer” as using naturally filtered, artisan water from Tumwater, Washington (a suburb of Olympia, Washington) “despite the product being brewed elsewhere in the country using lower quality water and brewing methods.” The court granted summary judgment for inability to prove deceptiveness.

Peacock identified, among other things, Pabst’s “It’s the Water” slogan and the depiction of the “unique waterfalls from the (now) closed brewery from the Olympia area” on the Olympia Beer packaging, on its website, and on social media.

On deceptiveness, Pabst argued that Peacock didn’t designate any expert witnesses or other evidence to show how consumers interpreted the label, while Pabst offered an expert opining on a consumer survey. Peacock responded that the evidence of deceptiveness included Pabst’s “own testimony about the point and method of showing the label to consumers in the store on shelves, the ‘historical’ references described by Defendant’s own witness, and the labelling and marketing of the beer itself.”

To prevail under California’s UCL, the plaintiff must produce evidence that shows “a likelihood of confounding an appreciable number of reasonably prudent purchasers exercising ordinary care.” This can be done with “surveys and expert testimony regarding consumer assumptions and expectations” but these are not always necessary as in some situations “anecdotal evidence may suffice[.]” But evidence of just “a few isolated examples of actual deception” is not sufficient. A plaintiff can’t win just by “describing his or her own personal, alleged misunderstanding or confusion.”

Pabst offered two surveys: one for prior Olympia Beer purchasers to determine their reasons for purchasing Olympia Beer, and another where respondents were shown one of two versions of an Olympia Beer can with one version being as it exists now and the “control” being a version without the “challenged elements” of the label.

Of the 185 respondents to the first survey, no respondent mentioned the water used to brew Olympia Beer as their reason for first purchasing Olympia Beer. Only 10 respondents (roughly 5% of total respondents) indicated the “geographic origin of the beer” as part of their reasoning for their first purchase. The results for subsequent purchasers were similar.

In the second survey, only 4, or approximately 2%, of the 202 respondents who were shown the actual Olympia Beer packaging mentioned “the source or origin of the water used to brew the beer as a message conveyed by the product’s label.” Two of the 196 respondents in the control group, who were shown the label without the challenged elements, also “mentioned the source or origin of the water[ ]” thus indicating that “there [was] no meaningful difference between the test and control condition ....” (Id.) Similarly, a roughly equal percentage of respondents from the two groups “mentioned that the Pacific Northwest, Washington, or Olympia/Olympia Falls was a message conveyed by the label[,]” and there was only a 3% difference between the control and test groups (62% for the test group and 59% for the control group) in respondents who thought “Olympia Beer was brewed with artesian water from Olympia, Washington.”

Given this evidence, Pabst met its initial burden of establishing the absence of any genuine issues of material fact, and Peacock’s evidence wasn’t enough. The evidence from Pabst’s witnesses about “historical” references indicated that the reasons for the slogan were historical, but they also testified that they didn’t believe that consumers considered the source of the water.

Likewise, the actual content of the label and marketing might be relevant background information “but it does not create a genuine dispute over whether those elements are likelihood of those elements to confound an appreciable number of prudent purchasers exercising ordinary care.” Peacock’s own testimony was relevant, but only anecdotal and, without anything else, insufficient.

Another "buy" button lawsuit over digital licenses continues

In re Amazon Prime Video Litig., 2024 WL 1138906, No. 2:22-cv-00401-RSM (W.D. Wash. Mar. 15, 2024)

This putative class action alleged that Amazon overcharged and “[d]eceived consumers by misrepresenting that it was selling them Digital Content when, in fact, it was really only licensing it to them[.]” Plaintiffs brought claims under California, New York, and Washington consumer protection law, and common law claims for unjust enrichment.

Plaintiffs alleged that Amazon offers cheaper “rent” options for some of its content, but more expensive “buy” options as well. When consumers “buy” digital content, it’s stored in a folder called “Video Purchases & Rentals.”

But, in fact, Amazon does not cannot pass title of any of this content to consumers. “If the licensing agreement for any of the Digital Content is terminated, Amazon has to pull the Digital Content from not only its site but from all consumers’ purchased folders, ‘which it does without prior warning, and without providing any type of refund or remuneration to consumers.’”

Amazon argued that Article III standing was absent because plaintiffs haven’t lost access to their digital content, and that their claims of overpayment also rested on the mere threat of future unavailability. The court disagreed: there’s a plausible difference in value between owning outright versus purchasing a revocable license.

“Buy” was also plausibly deceptive. Amazon argued that “buy” didn’t mean perpetual ownership, and that it sufficiently disclosed the risk of losing access. Plaintiffs pointed out that Amazon also allows real, non-repossessable purchases with the “Buy” button for tangible goods.  Again, the court agreed with plaintiffs: it was plausible that “buy” could be materially misleading. The court hypothesized a consumer who paid nearly $40 for Barbie and Oppenheimer, but whose Barbenheimer (first judicial appearance?) weekend was ruined because Amazon suddenly lost one license. “Understandably, this consumer ‘might feel a little miffed [or go nuclear] if she were told that she received exactly what she paid for.’”

It was also plausible that the TOS didn’t sufficiently disclose the restrictions. Though the “buy” button manifests consent to a contract, “certain terms and policies could fail to meet statutory standards of clearness and effectiveness.”

Washington state unjust enrichment claims were dismissed, however, because that state only recognizes the tort where there’s no contract, and there was one here.

CFP: Trademark and Unfair Competition Scholarship Roundtable 2024

The Trademark and Unfair Competition Scholarship Roundtable co-hosted by Harvard, NYU, and the University of Pennsylvania will take place this year at Harvard. The Roundtable is designed to be a forum for the discussion of current trademark, false advertising, and right of publicity scholarship, covering a range of methodologies, topics, and perspectives. Five to six papers will be chosen for discussion over the course of the Roundtable, with each paper allocated an entire hour for discussion and assigned a commentator.   

The Roundtable will be held on Friday, October 18, 2024. If there is a critical mass of papers, we may also extend the Roundtable through Saturday morning, October 19. Participation at the Roundtable will be limited and invitation-only and we expect all participants to have read the papers in advance. The Roundtable will cover the travel and lodging expenses for invited authors. 

We invite submissions from academics working on any aspect of trademark, false advertising, marketing, right of publicity, or related areas of the law. Priority will be given to those who can attend the entire event and a dinner the night of Friday, October 18. Submissions must be of full drafts in Microsoft word format. The deadline for submission is May 15, 2024, and decisions on participation will be made shortly thereafter, ideally, by June 1st.   

To submit a draft paper, please fill out the form here (https://forms.gle/QAfdmH18KmgdZAxp7) and upload an anonymized version of your draft.  Please note that the maximum file size that may be uploaded is 10MB. Appendices or other supporting material can be uploaded separately; please do not submit a CV or cover letter. 

For further information about the Roundtable, please email either: Barton Beebe (NYU): barton.beebe@nyu.edu; Jennifer Rothman (Penn): rothmj@law.upenn.edu, or Rebecca Tushnet (Harvard): rtushnet@law.harvard.edu.

Earth, Wind & Infringement: TM owner succeeds against overclaiming "reunion" band

Earth, Wind & Fire IP, LLC v. Substantial Music Group LLC, --- F.Supp.3d ----, 2024 WL 1025265, No. 23-20884-CIV-MORENO (S.D. Fla. Mar. 1, 2024)

With the ordinary multifactor confusion test, courts position themselves as looking for empirics (even though the thrust of several of the factors is normative). But with nominative fair use, courts engage in more unfair competition/normative reasoning. When a court finds that a use went beyond identifying to suggesting a connection, it often doesn’t use any of the factors that empirically we might use to figure out if that was true. Instead, it generally determines that the defendants did “too much” based on its own sense of what’s accurate. Here, though, a bit of empirics creeps in.

The facts: Earth, Wind & Fire is owned by the sons of Maurice White, founder of the well-known musical group “Earth, Wind & Fire,” and owns trademark rights in the name.

“Defendants decided to form and promote a band, in which Richard Smith would be the guitarist that would perform the music of Earth Wind & Fire. It is undisputed that Smith played with the Earth, Wind & Fire for a few years, but the size of his role during those years is in dispute.” They called the new band, “Earth Wind & Fire Legacy Reunion” and “The Legacy Reunion of Earth, Wind & Fire.” They also used plaintiff’s word mark and its “Phoenix” logo mark. After plaintiffs objected, defendants changed their name to “Legacy Reunion of Earth Wind & Fire Alumni,” made logo and color changes, and ceased using the “Phoenix” logo.

The court granted summary judgment on liability to plaintiff.

Nominative fair use: Earth, Wind & Fire wasn’t readily identifiable without use of its name. What’s “reasonably necessary” to identify it can differ from case to case. Although the initial uses seemed clearly more than reasonably necessary, defendants stopped using Earth, Wind & Fire’s distinctive font, took out the distinctive “Phoenix” logo, switched the title of its musical shows from “Earth Wind & Fire Legacy Reunion” to “Legacy Reunion of Earth Wind & Fire Alumni,” and changed the color scheme. Thus, they satisfied the second element of NFU.

However, the court put the burden on defendants to show that they did “nothing that would, in conjunction with the mark, suggest sponsorship or endorsement by the trademark holder.” This was a closer call, but the court rejected the defense.

In the Princess Diana case, Cairns, the court “found persuasive that the advertisements for the Princess Diana related products did not claim that they were sponsored or endorsed by the trademark holder, where other of the defendant’s celebrity-related products do state that they are ‘authorized’ by a trademark holder.” By contrast, the silence here was not as meaningful because there weren’t other “authorized” products. And “Legacy Reunion of Earth Wind & Fire” lacked “a clear disclaimer or limiting language about who is performing.” Plus, defendants “combined the advertising with text that discusses the Earth Wind & Fire’s legacy”: their website said that the band “dominated the 70’s with their monster grooves and high energy, danceable hits, garnering 20 Grammy Award nominations and a Hall of Fame Induction along the way.” It further states that “[t]he style and sounds of the greatest hit recordings by Earth, Wind & Fire were built by founder Maurice White and the contributions of a stellar collective of some of the best musicians in the world throughout the decades.” These ads “draw a close, unmistakable association with Earth, Wind & Fire to a degree unwarranted by the historical record.” “Regardless of if Defendants’ musicians were technically sidemen or members, the advertisement and marketing were still deceptive and misleading as to whether the main (or most prominently known) members of the band would be performing. The use of the word ‘alumni’ is not enough to dispel the notion that Defendants’ band is not sponsored.” This was close, because “some original musicians and members … are performing, [but] the advertisements are overstating the originality of the group. Plaintiff shows this through multiple consumer online posts, commenting with frustration on their expectations based on advertisements verses what they received.” This isn’t evidence of association in general, like the survey in New Kids, but rather of a material quality gap—maybe that kind of evidence is especially relevant.

The court also rejected acquiescence, estoppel, and laches defenses.

A couple of points from the confusion analysis: Third-party use didn’t weaken the mark because each third-party use identified by defendants included “tribute” somewhere in the name and most of the websites made clear exactly who was performing. E.g., “The Ultimate Earth, Wind & Fire Tribute Band” website includes information of the performers, which explicitly states that the Saxophonist Curtis Johnson “[t]oured with the original EARTH, WIND & FIRE BAND.” The “Kalimba – Earth Wind & Fire tribute” site explicitly stated that the band seeks to “accurately reproduce the infectious grooves.” Defendants’ name, by contrast, was “Legacy Reunion of Earth Wind & Fire Alumni,” “which implies not that they are ‘covering’ or ‘reproducing’ the music but were the original performers.” Even “The Earth Wind, & Fire Experience featuring The Ray Howard Band” identified itself as an “experience” and a performance by an entirely different band.

Similarity of advertising media: The fact that the parties used separate websites and social media favored defendants, by showing a distinction between the groups. It just wasn’t enough.

Bad faith: Not shown, because just knowing of the prior mark isn’t enough without an intent to misappropriate.

Actual confusion: emails said things like “I attended the [Earth, Wind & Fire] legacy reunion in Pensacola, Florida in hopes of seeing Philip Bailey, Verdine White and others from the original band. Their pictures are on the advertisement, posters, or whatever. The impression of Reunion would be original band members from various years. Why is it misleading? The pictures should be removed from advertisement. The details read friends and family or something like that.”

calling an accepted Rule 68 offer a judgment of infringement could be defamatory

Double Diamond Distribution Ltd. v. Crocs, Inc., 2024 WL 1051951No. 23-cv-01790-PAB-KAS (D. Colo. Mar. 11, 2024)

I have a long-running interest in Rule 68 offers of judgment, and this case involves an interaction with false advertising law! The parties compete in the shoe market.

In 2006, Crocs sued now-plaintiff Double Diamond and Dawgs, its affiliate. Trial was scheduled for 2022 (!), but then-defendants sent offers of judgment to Crocs. Double Diamond’s offer stated: “This offer is made for the purposes specified in Rule 68 and is not to be construed either as an admission that Double Diamond is liable in this action or that Crocs has suffered any damage.” Dawgs’ offer was similar (though it offered $6 million, where Double Diamond offered $55,000, and contemplated bankruptcy).  Crocs accepted.

Crocs then issued a press release, “Crocs secures long sought-after judgment of infringement against USA Dawgs and Double Diamond Distribution.” The press release announced

a judgment of infringement against USA Dawgs and Double Diamond Distribution as a result of both companies’ sales of imitation Crocs shoes. In conjunction therewith, Crocs also obtained $6 million and $55,000 in damages, respectively, against the companies.

This case is the culmination of years long battles between the parties after USA Dawgs and Double Diamond Distribution began selling shoes that infringed Crocs’ patents in 2006. Both USA Dawgs and Double Diamond Distribution have since conceded the validity of Crocs’ patent rights.

“We are fiercely protective of the Crocs brand and our iconic DNA. We have zero tolerance for infringement of our intellectual property rights or for anyone who tries to benefit off the investments that we have made in our brand,” said Daniel Hart, Executive Vice President and Chief Legal & Risk Officer at Crocs. “This judgment not only reinforces the validity of our patent rights, it also reinforces our unrelenting determination to take forceful steps to protect our brand equity.”

This judgment of infringement comes nearly one year to the day after Crocs filed lawsuits against 21 companies alleging infringement of its registered trademark rights in its clog designs. …

The court declined to dismiss Double Diamond’s resulting defamation claim. This was not a case where the “gist” was true on the facts alleged. A Rule 68 offer of judgment does not require an admission of liability, which may be disclaimed. If that happens, the court’s judgment does not constitute a finding of or an admission of liability against the defendant.

The statements that Crocs obtained “a judgment of infringement against USA Dawgs and Double Diamond Distribution as a result of both companies’ sales of imitation Crocs shoes” and “[t]his judgment...reinforces the validity of [Crocs’] patent rights” were plausibly false because the statements would have a “different effect on the mind of the reader” from that which the Rule 68 offer of judgment would have produced. And they were plausibly material because the statements would likely cause reasonable people to think “significantly less favorably” about Double Diamond than they would if they knew the truth. Unlike the difference between “stalking” and “harassment,” this was not “a minor, technical error in legal terminology.”

Trade libel claims survived for the same reason.

Lanham Act false advertising: Crocs argued that the press release was not “commercial advertising,” because (a) the press release was directed at investors, not the relevant purchasing public; and (b) Double Diamond never alleged that the press release promoted Crocs’ shoes to consumers. However, Crocs published the press release on its website and had the press release published to 440,000 websites, newsrooms, and direct feeds using PRNewswire. And it stated that Crocs “is a world leader in innovative casual footwear for women, men, and children, combining comfort and style with a value that consumers know and love.” This was enough to plausibly allege commercial advertising, along with the allegation that Crocs made the statement in order to obtain increased sales and brand differentiation; the press release repeatedly referred to Crocs’ brand and products and included the invitation “To learn more about our brands, please visit www.crocs.com or www.heydudeshoesusa.com or follow @Crocs or @heydudeshoes on Facebook, Instagram and Twitter.” Because the websites that posted the press release have a combined viewership of 6 billion people per month, the allegations were sufficient to show that the statements were “disseminated sufficiently to the relevant purchasing public.” This also allowed a claim under the Colorado Consumer Protection Act.

Intentional interference with contractual relations failed, however, because there was no identified specific relationship with a third party.

reasonable consumers aren't required to know collagen can't be vegan

Kandel v. Dr. Dennis Gross Skincare, LLC, 2024 WL 965621, No. 23-cv-01967 (ER) (S.D.N.Y. Mar. 5, 2024)

Similar California litigation at a later stage. Kandel alleged that Gross Skincare deceptively labeled and advertised its skincare products as containing collagen when, in fact, they do not.

“Collagen is a protein found exclusively in humans and animals that has been linked to youthful skin, hair, and nails. It is composed of thousands of amino acids intertwined in a specific, unique sequence. Without being sequenced this way, amino acids do not confer the same benefits as collagen.” The products at issue are uniformly branded with the phrase “C + Collagen.” The list of ingredients includes “Collagen Amino Acids”; some products also feature the term “collagen amino acids” in a separate section on the package titled “What It Is”/“What’s In It For You.”

one of the packages at issue: C + Collagen Deep Cream

One side of each package also contains a small symbol indicating that the product is vegan—making “collagen” content impossible. Gross Skincare allegedly knows that consumers will pay more for skincare products that contain collagen and intends for consumers to infer from the “Collagen” branding that the products do so.

blue lines/arrows added by court to highlight relevant terms

NY GBL claims were sufficiently alleged. Gross Skincare argued that the “C + Collagen” phrase didn’t imply that the products contain collagen, but instead that the Vitamin C in the products increases natural production of collagen in the user’s skin. It claimed that the rest of the package clarified that the products contain “collagen amino acids” and are vegan. Because of the label “vegan,” it argued, a reasonable consumer would understand that they do not contain collagen.

This interpretation of “C + Collagen” was “certainly less intuitive than Kandel’s.” Even considered as a whole, the complaint alleged misleadingness. The use of “collagen amino acids” “likely only reaffirms that collagen is an ingredient” and was itself arguably confusing; the label did nothing to explain it.

Even if one accepts Gross Skincare’s definition of “collagen amino acids” as “the building blocks of collagen,” the court did not assume that a reasonable consumer understands that collagen is a protein composed of amino acids. So too with “vegan.” Even if the consumer noticed this small symbol, they’d have to know that collagen comes exclusively from animals.  This certainly couldn’t be assumed on a motion to dismiss.

Breach of warranty and unjust enrichment claims under New York law, however, failed, as well as claims on behalf of a nationwide class.

Kandel did have standing as to four products she didn’t buy but that contained the same alleged misrepresentations.

small competitor lacks standing against big one's nondisparaging advertising

HomeLight, Inc. v. Shkipin, --- F.Supp.3d ----, 2024 WL 940089 (N.D. Cal. Mar. 5, 2024)

Sometimes, courts are very generous to competitors in presuming Lanham Act standing—as with the recent Meta ruling—and sometimes they aren’t. I have yet to detect a real pattern across facts/circuits, but suggestions welcome.

Previous ruling. Shkipin’s amended false advertising counterclaim fails again. Although Shkipin alleged commercial injuries—“network effects and ad revenues, and also … goodwill value associated with its 100% free services to real estate agents and consumers” but there wasn’t sufficiently direct causation. None of HomeLight’s statements allegedly disparaged or even referred to Shkipin’s business.

To establish that HomeLight proximately caused HomeOpenly to suffer a loss of sales, Mr. Shkipin would need to show how deceptive statements about HomeLight directed at shoppers on HomeLight’s own website necessarily caused advertisers not to buy ads from HomeOpenly. Even assuming that there is a direct relationship between the number of shoppers who use or visit HomeOpenly 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 connection is too attenuated to establish proximate cause. This is 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 Mr. Shkipin characterizes as “highly effective.”

These causation problems also defeated his state UCL claim. The allegedly unlawful/fraudulent conduct underlying the UCL claim—that HomeLight received illegal kickbacks in violation of RESPA—wasn’t sufficiently linked to the injuries Shkipin claimed.

Second Circuit affirms holding that asterisk/fine print sufficiently clarifies ambiguous claim

Montgomery v. Stanley Black & Decker, Inc., 2024 WL 939151, No. 23-735-cv (2d Cir. Mar. 5, 2024)

Plaintiffs sued defendant (Craftsman) for deceptive business practice claims under both the New York General Business Law (NYGBL), and the Virginia Consumer Protection Act (VCPA), as well as asserting warranty and common law claims. They alleged that the “Peak HP” labeling on the packaging of Craftsman vacuums is misleading because the vacuums are unable to achieve the advertised horsepower. The District Court dismissed the complaint because the dagger or asterisk symbol next to the “Peak HP” label directs the consumer to fine print explaining that “Peak HP” is the horsepower achieved in laboratory testing, not ordinary use. The court of appeals affirmed.

Based on the entire packaging, a reasonable consumer would not be misled because of the fine print explanation. Plaintiffs didn’t allege the “Peak HP” label was false, and though their interpretation was one reasonable one, the fine-print meaning was also reasonable, and the dagger/asterisk “would alert a reasonable consumer to the fact that certain caveats may apply to the ‘Peak HP’ designation.” Just because it was in fine print didn’t mean it couldn’t clarify an ambiguous label. There were no allegations that a consumer couldn’t see it or that its terms were confusing.

 

local ad company has Lanham Act standing against Meta for allegedly overstating ad reach

Metroplex Communic., Inc. v. Meta Platforms, Inc., 2024 WL 940127, No. 22-cv-1455-SMY (S.D. Ill. Mar. 5, 2024)

Metroplex, a local advertising company, brought a putative class action against Meta for unfair competition. Although Meta argued that Metroplex was an ad purchaser for two of its local media properties (a news site and an FM radio station), given that it has advertised on Facebook dozens of times in the last few years, Metroplex argued that it was a Meta competitor.

Metroplex alleged that sells and places digital and targeted advertisements on its local news website, its “Best of Edwardsville” website, radio advertisements for its FM and AM radio stations, and print advertisements that are placed in local newspapers and in the “Best of Edwardsville” magazine. Metroplex also allegedly develops tools and systems for managing and optimizing advertising campaigns for businesses.

Meta allegedly drew buyers away from its local news outlets by (1) using the word “people” in statements related to advertising on Meta and (2) overestimating the number of people on Meta’s apps and reachable by ad campaigns, and contends that Meta’s users were “not actually people,” because some accounts were false and some people have more than one account. It asserted claims under the Lanham Act and the Illinois Uniform Deceptive Trade Practices Act.

Metroplex satisfied Lexmark by alleging that the parties compete directly for the same customers and Meta’s false or misleading statements were material to advertisement buyers. Lost sales could be plausibly inferred by these allegations.

As for stating a claim, Meta noted that most of the challenged statements weren’t “advertising.” They were numerical estimates taken from Meta’s SEC filings or provided to individual advertisers for particular ad campaigns, and generic references to “people” on informational webpages. But the plaintiff did enough to satisfy Rules 8 and 9(b).

A reasonable consumer could be confused despite Meta’s alleged disclaimers or qualifying statements in SEC filings or in icons that led to popup windows, given the allegations of falsity, just as the back label of a product can’t correct false statements on the front. Given allegations that Meta allegedly inflates audience estimates and reach metrics and such audience size figures can be over 30% of the actual number, it would be plausible for consumers to be deceived.

The IUDTPA claim also survived because Metroplex, an Illinois company, alleges it was damaged as a competitor in the Edwardsville and greater Metro East region in Illinois.

The court also rejected Meta’s motion to compel arbitration; these claims, asserted in its capacity as Meta competitor, were outside the scope of the agreement Metroplex signed to run its Facebook pages.
 

Bank has Lanham Act standing to assert disparagement claim against former customer (itself a service provider)

SouthState Bank, N.A. v. Qoins Technologies, Inc., --- F.Supp.3d ----, 2024 WL 911075, No. 1:22-CV-5020-MHC (N.D. Ga. Mar. 1, 2024)

“Qoins is a financial technology company that collects funds from its customers and disburses payments to designated creditors in order to help its customers pay off their debts.” Customers inform Qoins of their outstanding debts that they wish to pay and transfer money to Qoins “on a regular basis to satisfy such debts over time.” In 2019, Qoins entered into a Master Disbursement Services Agreement with Atlantic Capital Bank to establish a banking relationship, which included creating bank accounts that contained customer funds. SouthState is ACB’s successor in interest. Under the agreement, Qoins was the bank’s customer (and Qoins customers weren’t). It set up custodial accounts for holding customer funds—not to be used for operations; an operating account; and a reserve account. Qoins customers would make deposits to custodial accounts; Qoins would make payments to creditors and then reconcile deposits and payments. Qoins agreed to ensure that custodial accounts had sufficient funds to carry out the payments and to cover any fees related to the transactions, and to keep records of its transactions and provide accurate information to the bank.

In June 2022, “SouthState documented the mutual agreement” reached by Qoins and SouthState that the banking relationship between them would terminate, effective July 20, 2022. SouthState was unable to complete the transition process to a new bank partner (Evolve) because “ACH requests to SouthState for Qoins’s Customers’ funds [ ] exceeded the amounts in Qoins’s accounts with SouthState.” Qoins initiated an ACH request in the amount of $150,000 from the Custodial Accounts to Evolve; however, because the Custodial Accounts were overdrawn, SouthState denied the request. SouthState allegedly eventually had to charge off the negative balances of Qoins’s accounts in an amount in excess of $33,000.”

SouthState alleged that the custodial accounts were improperly “used in multiple instances by Qoins to fund Qoins’s other accounts at SouthState”; custodial accounts were frequently funded by the operating account; Qoins’ earnings weren’t sufficient to maintain operating capital; and funds from the different accounts were commingled.

In early December 2022, Qoins published an announcement on its website informing customers that it “recently switched to a new bank partner” in order to “provide additional services,” but “[u]nfortunately, however, some of our customers have not been able to migrate their accounts due to ongoing issues with SouthState Bank.”

The announcement included a question, “Why can’t I access my money?” and provided the following answer:

If you never attempted to migrate, or if you received an error message during the migration process (including a message that says your account is “on hold”), your funds are still at SouthState Bank. SouthState Bank is unable to release your funds, so we have been unable to migrate your account or refund your money. We continue to work with SouthState Bank to resolve this matter expeditiously. While we have seen some customers reach out to SouthState Bank directly, customers have had no luck. Some customers have also reached out to our new bank partner, but they are not in a position to help.

Qoins’s announcement also provided a link to the FDIC’s Customer Assistance Form and informed any aggrieved customers that a Qoins representative would assist in helping the customer file a complaint against SouthState with the FDIC. Qoins also referred to SouthState in its responses to customer reviews, saying it was responsible for withholding funds. This was all allegedly false and misleading (given that Qoins customers were not SouthState customers, they weren’t FDIC insured). “Numerous” Qoins customers allegedly filed complaints against SouthState “with relevant federal agencies,” even though SouthState was not responsible to Qoins’s customers and SouthState did not possess any records of the customers’ interactions with Qoins.

The court mostly denied Qoins’ motion to dismiss the resulting claims, including breach of contract and libel.

False advertising/false association: SouthState lacked standing to bring a false association claim against Qoins because there were no allegations of passing off, and in fact Qoins allegedly identified SouthState as a banking partner. Thus, SouthState didn’t fall within the zone of interests for false association. [I think what the court meant was that Lexmark’s zone of interests/proximate cause test applies to §43(a)(1)(A) claims, as I think it would have to, but that the zone of interests/proximate cause analysis differs as between false association and false advertising.]

But SouthState did have standing for a false advertising claim. “Because SouthState is alleging reputational injuries, no direct competition is required and SouthState has pleaded with sufficiency that it has standing to sue because the alleged false representations about SouthState could impact its business reputation.”

Were the Qoins statements made in commercial advertising or promotion? Qoins argued that they were answers to customer questions and not intended to influence customers away from SouthState or targeted at SouthState customers. The Eleventh Circuit has adopted Gordon & Breach’s test (probably as modified by Lexmark).

Qoins’s argument that the statements were not made to the purchasing public is unavailing because SouthState has alleged that Qoins made the representations on its website and in response to customer reviews on online application stores. Importantly, these representations are alleged to be public-facing and widely accessible. “[W]hen statements are so broadly disseminated, they are much more likely to constitute commercial advertising.”

Drawing all inferences in SouthState’s favor, “Qoins’s statements were made to pacify customer concerns and to influence customers to start or continue their relationship with Qoins. A reasonable inference also can be made that Qoins’s statements were intended to influence customers to purchase its service, because such issues were not attributable to the new banking partner.” That sufficed.

Interestingly, the court also found that SouthState sufficiently alleged materiality in two independent ways: (1) allegedly false representations that SouthState continued to hold customers’ funds concerned “the essential characteristic of its business as a bank” and (2) because consumers allegedly filed complaints against SouthState based on Qoin’s representations, it was plausible that those representations affected consumer decisions about SouthState.